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10 40 easy Publication 517 - Main Content Table of Contents Social Security CoverageCoverage of Members of the Clergy Coverage of Religious Workers (Church Employees) U. 10 40 easy S. 10 40 easy Citizens and Resident and Nonresident Aliens Ministerial ServicesMinisters Members of Religious Orders Christian Science Practitioners and Readers Exemption From Self-Employment (SE) TaxMembers of the Clergy Members of Recognized Religious Sects Self-Employment Tax: Figuring Net EarningsRegular Method Nonfarm Optional Method Income Tax: Income and ExpensesIncome Items Expense Items Income Tax Withholding and Estimated Tax Filing Your Return Retirement Savings ArrangementsDeducting contributions to tax-sheltered annuity plans. 10 40 easy Full-time student. 10 40 easy Adjusted gross income. 10 40 easy More information. 10 40 easy Earned Income Credit Comprehensive ExampleForm W-2 From Church Form W-2 From College Schedule C-EZ (Form 1040) Form 2106-EZ Schedule A (Form 1040) Schedule SE (Form 1040) Form 1040 Attachment 1 Attachment 2 How To Get Tax HelpLow Income Taxpayer Clinics Social Security Coverage This section gives information about which system (SECA or FICA) is used to collect social security and Medicare taxes from members of the clergy (ministers, members of a religious order, and Christian Science practitioners and readers) and religious workers (church employees). 10 40 easy Coverage of Members of the Clergy The services you perform in the exercise of your ministry, of the duties required by your religious order, or of your profession as a Christian Science practitioner or reader are covered by social security and Medicare under SECA. 10 40 easy Your earnings for these ministerial services (defined later) are subject to self-employment (SE) tax unless one of the following applies. 10 40 easy You are a member of a religious order who has taken a vow of poverty. 10 40 easy You ask the Internal Revenue Service (IRS) for an exemption from SE tax for your services and the IRS approves your request. 10 40 easy See Exemption From Self-Employment (SE) Tax , later. 10 40 easy You are subject only to the social security laws of a foreign country under the provisions of a social security agreement between the United States and that country. 10 40 easy For more information, see Bilateral Social Security (Totalization) Agreements in Publication 54. 10 40 easy Your earnings that are not from ministerial services may be subject to social security tax under FICA or SECA according to the rules that apply to taxpayers in general. 10 40 easy See Ministerial Services , later. 10 40 easy Ministers If you are a minister of a church, your earnings for the services you perform in your capacity as a minister are subject to SE tax, even if you perform these services as an employee of that church. 10 40 easy However, you can request that the IRS grant you an exemption, as discussed under Exemption From Self-Employment (SE) Tax , later. 10 40 easy For the specific services covered, see Ministerial Services , later. 10 40 easy Ministers defined. 10 40 easy   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. 10 40 easy Ministers have the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the prescribed tenets and practices of that church or denomination. 10 40 easy   If a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister to be treated as a minister for social security purposes. 10 40 easy Employment status for other tax purposes. 10 40 easy   Even though all of your income from performing ministerial services is subject to self-employment tax for social security tax purposes, you may be an employee for income tax or retirement plan purposes in performing those same services. 10 40 easy For income tax or retirement plan purposes, your income earned as an employee will be considered wages. 10 40 easy Common-law employee. 10 40 easy   Under common-law rules, you are considered either an employee or a self-employed person. 10 40 easy Generally, you are an employee if you perform services for someone who has the legal right to control both what you do and how you do it, even if you have considerable discretion and freedom of action. 10 40 easy For more information about the common-law rules, see Publication 15-A, Employer's Supplemental Tax Guide. 10 40 easy   If a congregation employs you and pays you a salary, you are generally a common-law employee and income from the exercise of your ministry is wages for income tax purposes. 10 40 easy However, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services, are not wages; such amounts are self-employment income for both income tax purposes and social security tax purposes. 10 40 easy Example. 10 40 easy A church hires and pays you a salary to perform ministerial services subject to its control. 10 40 easy Under the common-law rules, you are an employee of the church while performing those services. 10 40 easy Form SS-8. 10 40 easy   If you are not certain whether you are an employee or a self-employed person, you can get a determination from the IRS by filing Form SS-8. 10 40 easy Members of Religious Orders If you are a member of a religious order who has not taken a vow of poverty, your earnings for ministerial services you perform as a member of the order are subject to SE tax. 10 40 easy See Ministerial Services , later. 10 40 easy However, you can request that the IRS grant you an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. 10 40 easy Vow of poverty. 10 40 easy   If you are a member of a religious order and have taken a vow of poverty, you are already exempt from paying SE tax on your earnings for ministerial services you perform as an agent of your church or its agencies. 10 40 easy You do not need to request a separate exemption. 10 40 easy For income tax purposes, the earnings are tax free to you. 10 40 easy Your earnings are considered the income of the religious order. 10 40 easy Services covered under FICA at the election of the order. 10 40 easy   However, even if you have taken a vow of poverty, the services you perform for your church or its agencies may be covered under social security. 10 40 easy Your services are covered if your order, or an autonomous subdivision of the order, elects social security coverage for its current and future vow-of-poverty members. 10 40 easy   The order or subdivision elects coverage by filing Form SS-16. 10 40 easy The election may cover certain vow-of-poverty members for a retroactive period of up to 20 calendar quarters before the quarter in which it files the certificate. 10 40 easy If the election is made, the order or subdivision pays both the employer's and employee's share of the tax. 10 40 easy You do not pay any of the FICA tax. 10 40 easy Services performed outside the order. 10 40 easy   Even if you are a member of a religious order who has taken a vow of poverty and the order requires you to turn over amounts you earn, your earnings are subject to federal income tax and either SE tax or FICA tax (including estimated tax payments and/or withholding) if you: Are self-employed or an employee of an organization outside your religious community, and Perform work not required by, or done on behalf of, the order. 10 40 easy   In these cases, your income from self-employment or as an employee of that outside organization is taxable to you directly. 10 40 easy You may, however, be able to take a charitable deduction for the amount you turn over to the order. 10 40 easy See Publication 526, Charitable Contributions. 10 40 easy Rulings. 10 40 easy   Organizations and individuals may request rulings from the IRS on whether they are religious orders, or members of a religious order, respectively, for FICA tax, SE tax, and federal income tax withholding purposes. 10 40 easy To request a ruling, follow the procedures in Revenue Procedure 2014-1, 2014-1 I. 10 40 easy R. 10 40 easy B. 10 40 easy 1, available at www. 10 40 easy irs. 10 40 easy gov/irb/2014-1_IRB/ar05. 10 40 easy html. 10 40 easy Christian Science Practitioners and Readers Generally, your earnings from services you perform in your profession as a Christian Science practitioner or reader are subject to SE tax. 10 40 easy However, you can request an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. 10 40 easy Practitioners. 10 40 easy   Christian Science practitioners are members in good standing of the Mother Church, The First Church of Christ, Scientist, in Boston, Massachusetts, who practice healing according to the teachings of Christian Science. 10 40 easy State law specifically exempts Christian Science practitioners from licensing requirements. 10 40 easy   Some Christian Science practitioners also are Christian Science teachers or lecturers. 10 40 easy Income from teaching or lecturing is considered the same as income from their work as practitioners. 10 40 easy Readers. 10 40 easy   For tax purposes, Christian Science readers are considered the same as ordained, commissioned, or licensed ministers. 10 40 easy Coverage of Religious Workers (Church Employees) If you are a religious worker (a church employee) and are not in one of the classes already discussed, your wages are generally subject to social security and Medicare tax under FICA, not SECA. 10 40 easy Some exceptions are discussed next. 10 40 easy Election by Church To Exclude Its Employees From FICA Coverage Churches and qualified church-controlled organizations (church organizations) that are opposed for religious reasons to the payment of social security and Medicare taxes can elect to exclude their employees from FICA coverage. 10 40 easy If your employer makes this election, it does not pay the employer's portion of the FICA taxes or withhold from your pay your portion of the FICA taxes. 10 40 easy Instead, your wages are subject to SECA and you must pay SE tax on your wages if they exceed $108. 10 40 easy 28 during the tax year. 10 40 easy However, you can request an exemption from SE tax if you are a member of a recognized religious sect, as discussed below. 10 40 easy Churches and church organizations make this election by filing two copies of Form 8274. 10 40 easy For more information about making this election, see Form 8274. 10 40 easy Election by Certain Church Employees Who Are Opposed to Social Security and Medicare You may be able to choose to be exempt from social security and Medicare taxes, including the SE tax, if you are a member of a recognized religious sect or division and work for a church (or church-controlled nonprofit division) that does not pay the employer's part of the social security tax on wages. 10 40 easy This exemption does not apply to your service, if any, as a minister of a church or as a member of a religious order. 10 40 easy Make this choice by filing Form 4029. 10 40 easy See Requesting Exemption—Form 4029 , later, under Members of Recognized Religious Sects. 10 40 easy U. 10 40 easy S. 10 40 easy Citizens and Resident and Nonresident Aliens To be covered under the SE tax provisions (SECA), individuals generally must be citizens or resident aliens of the United States. 10 40 easy Nonresident aliens are not covered under SECA unless a social security agreement in effect between the United States and the foreign country determines that you are covered under the U. 10 40 easy S. 10 40 easy social security system. 10 40 easy To determine your alien status, see Publication 519, U. 10 40 easy S. 10 40 easy Tax Guide for Aliens. 10 40 easy Residents of Puerto Rico, the U. 10 40 easy S. 10 40 easy Virgin Islands, Guam, the CNMI, and American Samoa. 10 40 easy   If you are a resident of one of these U. 10 40 easy S. 10 40 easy possessions but not a U. 10 40 easy S. 10 40 easy citizen, for SE tax purposes you are treated the same as a citizen or resident alien of the United States. 10 40 easy For information on figuring the tax, see Self-Employment Tax: Figuring Net Earnings , later. 10 40 easy Ministerial Services Ministerial services, in general, are the services you perform in the exercise of your ministry, in the exercise of your duties as required by your religious order, or in the exercise of your profession as a Christian Science practitioner or reader. 10 40 easy Income you receive for performing ministerial services is subject to SE tax unless you have an exemption as explained later. 10 40 easy Even if you have an exemption, only the income you receive for performing ministerial services is exempt. 10 40 easy The exemption does not apply to any other income. 10 40 easy The following discussions provide more detailed information on ministerial services of ministers, members of a religious order, and Christian Science practitioners and readers. 10 40 easy Ministers Most services you perform as a minister, priest, rabbi, etc. 10 40 easy , are ministerial services. 10 40 easy These services include: Performing sacerdotal functions, Conducting religious worship, and Controlling, conducting, and maintaining religious organizations (including the religious boards, societies, and other integral agencies of such organizations) that are under the authority of a religious body that is a church or denomination. 10 40 easy You are considered to control, conduct, and maintain a religious organization if you direct, manage, or promote the organization's activities. 10 40 easy A religious organization is under the authority of a religious body that is a church or denomination if it is organized for and dedicated to carrying out the principles of a faith according to the requirements governing the creation of institutions of the faith. 10 40 easy Services for nonreligious organizations. 10 40 easy   Your services for a nonreligious organization are ministerial services if the services are assigned or designated by your church. 10 40 easy Assigned or designated services qualify even if they do not involve performing sacerdotal functions or conducting religious worship. 10 40 easy   If your services are not assigned or designated by your church, they are ministerial services only if they involve performing sacerdotal functions or conducting religious worship. 10 40 easy Services that are not part of your ministry. 10 40 easy   Income from services you perform as an employee that are not ministerial services is subject to social security and Medicare tax withholding under FICA (not SECA) under the rules that apply to employees in general. 10 40 easy The following are not ministerial services. 10 40 easy Services you perform for nonreligious organizations other than the services stated above. 10 40 easy Services you perform as a duly ordained, commissioned, or licensed minister of a church as an employee of the United States, the District of Columbia, a foreign government, or any of their political subdivisions. 10 40 easy These services are not ministerial services even if you are performing sacerdotal functions or conducting religious worship. 10 40 easy (For example, if you perform services as a chaplain in the Armed Forces of the United States, those services are not ministerial services. 10 40 easy ) Services you perform in a government-owned and operated hospital. 10 40 easy (These services are considered performed by a government employee, not by a minister as part of the ministry. 10 40 easy ) However, services that you perform at a church-related hospital or health and welfare institution, or a private nonprofit hospital, are considered to be part of the ministry and are considered ministerial services. 10 40 easy Books or articles. 10 40 easy   Writing religious books or articles is considered to be in the exercise of your ministry and is considered a ministerial service. 10 40 easy   This rule also applies to members of religious orders and to Christian Science practitioners and readers. 10 40 easy Members of Religious Orders Services you perform as a member of a religious order in the exercise of duties required by the order are ministerial services. 10 40 easy The services are considered ministerial because you perform them as an agent of the order. 10 40 easy For example, if the order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to perform the services as an agent of the order. 10 40 easy However, if the order directs you to work outside the order, this employment will not be considered a duty required by the order unless: Your services are the kind that are ordinarily performed by members of the order, and Your services are part of the duties that must be exercised for, or on behalf of, the religious order as its agent. 10 40 easy Effect of employee status. 10 40 easy   Ordinarily, if your services are not considered directed or required of you by the order, you and the outside party for whom you work are considered employee and employer. 10 40 easy In this case, your earnings from the services are taxed under the rules that apply to employees in general, not under the rules for services provided as agent for the order. 10 40 easy This result is true even if you have taken a vow of poverty. 10 40 easy Example. 10 40 easy Pat Brown and Chris Green are members of a religious order and have taken vows of poverty. 10 40 easy They renounce all claims to their earnings. 10 40 easy The earnings belong to the order. 10 40 easy Pat is a licensed attorney. 10 40 easy The superiors of the order instructed her to get a job with a law firm. 10 40 easy Pat joined a law firm as an employee and, as she requested, the firm made the salary payments directly to the order. 10 40 easy Chris is a secretary. 10 40 easy The superiors of the order instructed him to accept a job with the business office of the church that supervises the order. 10 40 easy Chris took the job and gave all his earnings to the order. 10 40 easy Pat's services are not duties required by the order. 10 40 easy Her earnings are subject to social security and Medicare tax under FICA and to federal income tax. 10 40 easy Chris' services are duties required by the order. 10 40 easy He is acting as an agent of the order and not as an employee of a third party. 10 40 easy He does not include the earnings in gross income, and they are not subject to income tax withholding or to social security and Medicare tax under FICA or SECA. 10 40 easy Christian Science Practitioners and Readers Services you perform as a Christian Science practitioner or reader in the exercise of your profession are ministerial services. 10 40 easy Amounts you receive for performing these services are generally subject to SE tax. 10 40 easy You may request an exemption from SE tax, discussed next, which applies only to those services. 10 40 easy Exemption From Self-Employment (SE) Tax You can request an exemption from SE tax if you are a member of the clergy (minister, member of a religious order, or Christian Science practitioner or reader) or a member of a recognized religious sect. 10 40 easy Generally, members of religious orders who have taken a vow of poverty are already exempt from paying SE tax, as discussed earlier under Members of Religious Orders under Social Security Coverage. 10 40 easy They do not have to request the exemption. 10 40 easy Who cannot be exempt. 10 40 easy   You cannot be exempt from SE tax if you made one of the following elections to be covered under social security. 10 40 easy These elections are irrevocable. 10 40 easy You elected to be covered under social security by filing Form 2031, Revocation of Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners, for your 1986, 1987, 2000, or 2001 tax year. 10 40 easy You elected before 1968 to be covered under social security for your ministerial services. 10 40 easy Requesting exemption. 10 40 easy    Table 2, earlier, briefly summarizes the procedure for requesting exemption from the SE tax. 10 40 easy More detailed explanations follow. 10 40 easy If you are a minister, member of a religious order, or Christian Science practitioner, an approved exemption only applies to earnings you receive for ministerial services, discussed earlier. 10 40 easy It does not apply to any other self-employment income. 10 40 easy Table 2. 10 40 easy The Self-Employment Tax Exemption Application and Approval Process   Who Can Apply Members of the Clergy Members of Recognized  Religious Sects How File Form 4361 File Form 4029 When File by the due date (including extensions) of your income tax return for the second tax year in which you had at least $400 of net earnings from self-employment (at least part from ministerial services) File anytime Approval If approved, you will receive an approved copy of Form 4361 If approved, you will receive an approved copy of Form 4029 Effective Date For all tax years after 1967 in which you have at least $400 of net earnings from self-employment For all tax years beginning with the first year you meet the eligibility requirements discussed later Members of the Clergy To claim the exemption from SE tax, you must meet all of the following conditions. 10 40 easy You file Form 4361, described below under Requesting Exemption—Form 4361 . 10 40 easy You are conscientiously opposed to public insurance because of your individual religious considerations (not because of your general conscience), or you are opposed because of the principles of your religious denomination. 10 40 easy You file for other than economic reasons. 10 40 easy You inform the ordaining, commissioning, or licensing body of your church or order that you are opposed to public insurance if you are a minister or a member of a religious order (other than a vow-of-poverty member). 10 40 easy This requirement does not apply to Christian Science practitioners or readers. 10 40 easy You establish that the organization that ordained, commissioned, or licensed you, or your religious order, is a tax-exempt religious organization. 10 40 easy You establish that the organization is a church or a convention or association of churches. 10 40 easy You did not make an election discussed earlier under Who cannot be exempt . 10 40 easy You sign and return the statement the IRS mails to you to certify that you are requesting an exemption based on the grounds listed on the statement. 10 40 easy Requesting Exemption—Form 4361 To request exemption from SE tax, file Form 4361 in triplicate (original and two copies) with the IRS. 10 40 easy The IRS will return to you a copy of the Form 4361 that you filed indicating whether it has approved your exemption. 10 40 easy If it is approved, keep the approved copy of Form 4361 in your permanent records. 10 40 easy When to file. 10 40 easy   File Form 4361 by the date your income tax return is due, including extensions, for the second tax year in which both of the following are true. 10 40 easy You have net earnings from self-employment of at least $400. 10 40 easy Any part of those net earnings was from ministerial services you performed as a: Minister, Member of a religious order, or Christian Science practitioner or reader. 10 40 easy The 2 years do not have to be consecutive tax years. 10 40 easy    The approval process can take some time, so you should file Form 4361 as soon as possible. 10 40 easy Example 1. 10 40 easy Rev. 10 40 easy Lawrence Jaeger, a clergyman ordained in 2013, has net self-employment earnings as a minister of $450 in 2013 and $500 in 2014. 10 40 easy He must file his application for exemption by the due date, including extensions, for his 2014 income tax return. 10 40 easy However, if Rev. 10 40 easy Jaeger does not receive IRS approval for an exemption by April 15, 2015, his SE tax for 2014 is due by that date. 10 40 easy Example 2. 10 40 easy Rev. 10 40 easy Louise Wolfe has only $300 in net self-employment earnings as a minister in 2013, but earned more than $400 in 2012 and expects to earn more than $400 in 2014. 10 40 easy She must file her application for exemption by the due date, including extensions, for her 2014 income tax return. 10 40 easy However, if she does not receive IRS approval for an exemption by April 15, 2015, her SE tax for 2014 is due by that date. 10 40 easy Example 3. 10 40 easy In 2011, Rev. 10 40 easy David Moss was ordained a minister and had $700 in net self-employment earnings as a minister. 10 40 easy In 2012, he received $1,000 as a minister, but his related expenses were over $1,000. 10 40 easy Therefore, he had no net self-employment earnings as a minister in 2012. 10 40 easy Also in 2012, he opened a book store and had $8,000 in net self-employment earnings from the store. 10 40 easy In 2013, he had net self-employment earnings of $1,500 as a minister and $10,000 net self-employment earnings from the store. 10 40 easy Rev. 10 40 easy Moss had net earnings from self-employment in 2011 and 2013 that were $400 or more each year, and part of the self-employment earnings in each of those years was for his services as a minister. 10 40 easy Thus, he must file his application for exemption by the due date, including extensions, for his 2013 income tax return. 10 40 easy Death of individual. 10 40 easy   The right to file an application for exemption ends with an individual's death. 10 40 easy A surviving spouse, executor, or administrator cannot file an exemption application for a deceased clergy member. 10 40 easy Effective date of exemption. 10 40 easy   An approved exemption is effective for all tax years after 1967 in which you have $400 or more of net earnings from self-employment and any part of those earnings is for services as a member of the clergy. 10 40 easy Once the exemption is approved, it is irrevocable. 10 40 easy Example. 10 40 easy Rev. 10 40 easy Trudy Austin, ordained in 2010, had $400 or more in net self-employment earnings as a minister in both 2010 and 2013. 10 40 easy She files an application for exemption on February 20, 2014. 10 40 easy If an exemption is granted, it is effective for 2010 and the following years. 10 40 easy Refunds of SE tax. 10 40 easy   If, after receiving an approved Form 4361, you find that you overpaid SE tax, you can file a claim for refund on Form 1040X. 10 40 easy Generally, for a refund, you must file Form 1040X within 3 years from the date you filed the return or within 2 years from the date you paid the tax, whichever is later. 10 40 easy A return you filed, or tax you paid, before the due date is considered to have been filed or paid on the due date. 10 40 easy   If you file a claim after the 3-year period but within 2 years from the time you paid the tax, the credit or refund will not be more than the tax you paid within the 2 years immediately before you file the claim. 10 40 easy Members of Recognized Religious Sects If you are a member of a recognized religious sect, or a division of a recognized religious sect, you can apply for an exemption from payment of social security and Medicare taxes on both your self-employment income and the wages you earn from an employer who also has an exemption. 10 40 easy Exception. 10 40 easy   If you received social security benefits or payments, or anyone else received these benefits or payments based on your wages or self-employment income, you cannot apply. 10 40 easy However, if you pay your benefits back, you may be considered for exemption. 10 40 easy Contact your local Social Security Administration office to find out the amount you must pay back. 10 40 easy Eligibility requirements. 10 40 easy   To claim this exemption from SE tax, all the following requirements must be met. 10 40 easy You must file Form 4029, discussed later under Requesting Exemption—Form 4029 . 10 40 easy As a follower of the established teachings of the sect or division, you must be conscientiously opposed to accepting benefits of any private or public insurance that makes payments for death, disability, old age, retirement, or medical care, or provides services for medical care. 10 40 easy You must waive all rights to receive any social security payment or benefit and agree that no benefits or payments will be made to anyone else based on your wages and self-employment income. 10 40 easy The Commissioner of Social Security must determine that: Your sect or division has the established teachings as described in (2) above, It is the practice, and has been for a substantial period of time, for members of the sect or division to provide for their dependent members in a manner that is reasonable in view of the members' general level of living, and The sect or division has existed at all times since December 31, 1950. 10 40 easy Requesting Exemption—Form 4029 To request the exemption, file Form 4029 in triplicate (original and two copies) with the Social Security Administration at the address shown on the form. 10 40 easy The sect or division must complete part of the form. 10 40 easy The IRS will return to you a copy of the Form 4029 that you filed indicating whether it has approved your exemption. 10 40 easy If it is approved, keep the approved copy of Form 4029 in your permanent records. 10 40 easy When to file. 10 40 easy   You can file Form 4029 at any time. 10 40 easy   If you have an approved exemption from SE tax and for some reason that approved exemption ended, you must file a new Form 4029 if you subsequently meet the eligibility requirements, discussed earlier. 10 40 easy See Effective date of exemption next for information on when the newly approved exemption would become effective. 10 40 easy    If you have a previously approved exemption from SE tax and you change membership to another recognized religious sect, without any change to your eligibility requirements, then you do not need to file a new Form 4029. 10 40 easy Effective date of exemption. 10 40 easy   An approved exemption from SE tax generally is effective for all tax years beginning with the first year you meet the eligibility requirements discussed earlier. 10 40 easy (For example, if you meet the eligibility requirements in 2011, you file Form 4029 in 2012, and the IRS approves your exemption in 2013, your exemption is effective for tax year 2011 and all later years. 10 40 easy )   The exemption will end if you fail to meet the eligibility requirements or if the Commissioner of Social Security determines that the sect or division fails to meet them. 10 40 easy You must notify the IRS within 60 days if you are no longer a member of the religious group, or if you no longer follow the established teachings of this group. 10 40 easy The exemption will end for the tax year where you or your sect/division first fails to meet the eligibility requirements. 10 40 easy Refunds of SE tax paid. 10 40 easy    To get a refund of any SE tax you paid while the exemption was in effect, file Form 1040X. 10 40 easy For information on filing this form, see Refunds of SE tax under Requesting Exemption—Form 4361, earlier. 10 40 easy Exemption From FICA Taxes Generally, under FICA, the employer and the employee each pay half of the social security and Medicare tax. 10 40 easy Both the employee and the employer, if they meet the eligibility requirements discussed earlier, can apply to be exempt from their share of FICA taxes on wages paid by the employer to the employee. 10 40 easy A partnership in which each partner holds a religious exemption from social security and Medicare is an employer for this purpose. 10 40 easy If the employer's application is approved, the exemption will apply only to FICA taxes on wages paid to employees who also received an approval of identical applications. 10 40 easy Information for employers. 10 40 easy   If you have an approved Form 4029 and you have an employee who has an approved Form 4029, do not report wages you paid to the employee as social security and Medicare wages. 10 40 easy   If you have an employee who does not have an approved Form 4029, you must withhold the employee's share of social security and Medicare taxes and pay the employer's share. 10 40 easy Form W-2. 10 40 easy   When preparing a Form W-2 for an employee with an approved Form 4029, enter “Form 4029” in box 14, “Other. 10 40 easy ” Do not make any entries in boxes 3, 4, 5, or 6. 10 40 easy Forms 941, 943, and 944. 10 40 easy   If both you and your employee have received approved Forms 4029, do not include these exempt wages on the following forms. 10 40 easy Instead, follow the instructions given below. 10 40 easy Form 941, Employer's QUARTERLY Federal Tax Return: check the box on line 4 and enter “Form 4029” in the empty space below the check box. 10 40 easy Form 943, Employer's Annual Federal Tax Return for Agricultural Employees: enter “Form 4029” on the dotted line next to the lines 2 and 4 entry spaces. 10 40 easy Form 944, Employer's ANNUAL Federal Tax Return: check the box on line 3 and enter “Form 4029” in the empty space below the check box. 10 40 easy Effective date. 10 40 easy   An approved exemption from FICA becomes effective on the first day of the first calendar quarter after the quarter in which you file Form 4029. 10 40 easy The exemption will end on the last day of the calendar quarter before the quarter in which the employer, employee, sect, or division fails to meet the requirements. 10 40 easy Self-Employment Tax: Figuring Net Earnings There are two methods for figuring your net earnings from self-employment as a member of the clergy or a religious worker. 10 40 easy Regular method. 10 40 easy Nonfarm optional method. 10 40 easy You may find Worksheets 1 through 4 helpful in figuring your net earnings from self-employment. 10 40 easy Blank worksheets are in the back of this publication, after the Comprehensive Example. 10 40 easy Regular Method Most people use the regular method. 10 40 easy Under this method, figure your net earnings from self-employment by totaling your gross income for services you performed as a minister, a member of a religious order who has not taken a vow of poverty, or a Christian Science practitioner or reader. 10 40 easy Then, subtract your allowable business deductions and multiply the difference by 92. 10 40 easy 35% (. 10 40 easy 9235). 10 40 easy Use Schedule SE (Form 1040) to figure your net earnings and SE tax. 10 40 easy If you are an employee of a church that elected to exclude you from FICA coverage, figure net earnings by multiplying your church wages shown on Form W-2 by 92. 10 40 easy 35% (. 10 40 easy 9235). 10 40 easy Do not reduce your wages by any business deductions when making this computation. 10 40 easy Use Schedule SE (Form 1040), Section B, to figure your net earnings and SE tax. 10 40 easy If you have an approved exemption, or you are automatically exempt, do not include the income or deductions from ministerial services in figuring your net earnings from self-employment. 10 40 easy Amounts included in gross income. 10 40 easy   To figure your net earnings from self-employment (on Schedule SE (Form 1040)), include in gross income: Salaries and fees for your ministerial services (discussed earlier), Offerings you receive for marriages, baptisms, funerals, masses, etc. 10 40 easy , The value of meals and lodging provided to you, your spouse, and your dependents for your employer's convenience, The fair rental value of a parsonage provided to you (including the cost of utilities that are furnished) and the rental allowance (including an amount for payment of utilities) paid to you, and Any amount a church pays toward your income tax or SE tax, other than withholding the amount from your salary. 10 40 easy This amount is also subject to income tax. 10 40 easy   For the income tax treatment of items (2) and (4), see Income Tax: Income and Expenses , later. 10 40 easy Example. 10 40 easy Pastor Roger Adams receives an annual salary of $39,000 as a full-time minister. 10 40 easy The $39,000 includes $5,000 that is designated as a rental allowance to pay utilities. 10 40 easy His church owns a parsonage that has a fair rental value of $12,000 per year. 10 40 easy The church gives Pastor Adams the use of the parsonage. 10 40 easy He is not exempt from SE tax. 10 40 easy He must include $51,000 ($39,000 plus $12,000) when figuring his net earnings for SE tax purposes. 10 40 easy The results would be the same if, instead of the use of the parsonage and receipt of the rental allowance for utilities, Pastor Adams had received an annual salary of $51,000 of which $17,000 ($5,000 plus $12,000) per year was designated as a rental allowance. 10 40 easy Overseas duty. 10 40 easy   Your net earnings from self-employment are determined without any foreign earned income exclusion or the foreign housing exclusion or deduction if you are a U. 10 40 easy S. 10 40 easy citizen or resident alien serving abroad and living in a foreign country. 10 40 easy   For information on excluding foreign earned income or the foreign housing amount, see Publication 54. 10 40 easy Example. 10 40 easy Diane Jones was the minister of a U. 10 40 easy S. 10 40 easy church in Mexico. 10 40 easy She earned $35,000 in that position and was able to exclude it all for income tax purposes under the foreign earned income exclusion. 10 40 easy The United States does not have a social security agreement with Mexico, so Mrs. 10 40 easy Jones is subject to U. 10 40 easy S. 10 40 easy SE tax and must include $35,000 when figuring net earnings from self-employment. 10 40 easy Specified U. 10 40 easy S. 10 40 easy possessions. 10 40 easy    The exclusion from gross income for amounts derived from American Samoa or Puerto Rico does not apply in computing net earnings from self-employment. 10 40 easy Also see Residents of Puerto Rico, the U. 10 40 easy S. 10 40 easy Virgin Islands, Guam, the CNMI, and American Samoa , earlier, under U. 10 40 easy S. 10 40 easy Citizens and Resident and Nonresident Aliens. 10 40 easy Amounts not included in gross income. 10 40 easy   Do not include the following amounts in gross income when figuring your net earnings from self-employment. 10 40 easy Offerings that others made to the church. 10 40 easy Contributions by your church to a tax-sheltered annuity plan set up for you, including any salary reduction contributions (elective deferrals) that are not included in your gross income. 10 40 easy Pension payments or retirement allowances you receive for your past ministerial services. 10 40 easy The rental value of a parsonage or a parsonage allowance provided to you after you retire. 10 40 easy Allowable deductions. 10 40 easy   When figuring your net earnings from self-employment, deduct all your expenses related to your ministerial services performed as a self-employed person. 10 40 easy These are ministerial expenses you incurred while working other than as a common-law employee of the church. 10 40 easy They include expenses incurred in performing marriages and baptisms, and in delivering speeches. 10 40 easy Deduct these expenses on Schedule C or C-EZ (Form 1040), and carry the net amount to line 2 of Schedule SE (Form 1040), Section A or B. 10 40 easy   Wages earned as a common-law employee (explained earlier) of a church are generally subject to self-employment tax unless an exemption is requested, as discussed earlier under Exemption From Self-Employment (SE) Tax . 10 40 easy Subtract any allowable expenses (including unreimbursed employee business expenses) from those wages, include the net amount on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. 10 40 easy Do not complete Schedule C or C-EZ (Form 1040). 10 40 easy However, for income tax purposes, the expenses are allowed only as an itemized deduction on Schedule A (Form 1040) to the extent they exceed 2% of adjusted gross income. 10 40 easy Employee reimbursement arrangements. 10 40 easy   If you received an advance, allowance, or reimbursement for your employee expenses, how you report this amount and your employee expenses depends on whether your employer reimbursed you under an accountable plan or a nonaccountable plan. 10 40 easy Ask your employer if you are not sure if it reimburses you using an accountable or a nonaccountable plan. 10 40 easy Accountable plans. 10 40 easy   To be an accountable plan, your employer's reimbursement arrangement must include all three of the following rules. 10 40 easy Your expenses must have a business connection—that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. 10 40 easy You must adequately account to your employer for these expenses within a reasonable period of time. 10 40 easy You must return any excess reimbursement or allowance within a reasonable period of time. 10 40 easy   The reimbursement is not reported on your Form W-2. 10 40 easy Generally, if your expenses equal your reimbursement, you have no deduction. 10 40 easy If your expenses are more than your reimbursement, you can deduct your excess expenses for SE tax and income tax purposes. 10 40 easy Nonaccountable plan. 10 40 easy   A nonaccountable plan is a reimbursement arrangement that does not meet all three of the rules listed under Accountable plans above. 10 40 easy In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan. 10 40 easy Excess reimbursements you fail to return to your employer. 10 40 easy Reimbursement of nondeductible expenses related to your employer's business. 10 40 easy   Your employer will combine any reimbursement paid to you under a nonaccountable plan with your wages, salary, or other compensation and report the combined total in box 1 of your Form W-2. 10 40 easy Since reimbursements under a nonaccountable plan are included in your gross income, you can deduct your related expenses (for SE tax and income tax purposes) regardless of whether they are more than, less than, or equal to your reimbursement. 10 40 easy   For more information on accountable and nonaccountable plans, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. 10 40 easy Married Couple Missionary Team If both spouses are duly ordained, commissioned, or licensed ministers of a church and have an agreement that each will perform specific services for which they are paid jointly or separately, they must divide the self-employment income according to the agreement. 10 40 easy If the agreement is with one spouse only and the other spouse is not paid for any specific duties, amounts received for their services are included only in the self-employment income of the spouse having the agreement. 10 40 easy Earnings Subject to SE Tax For 2013, the maximum net earnings from self-employment subject to social security (old age, survivors, and disability insurance) tax is $113,700 minus any wages and tips you earned that were subject to social security tax. 10 40 easy The tax rate for the social security part is 12. 10 40 easy 4%. 10 40 easy In addition, all of your net earnings are subject to the Medicare (hospital insurance) part of the SE tax. 10 40 easy This tax rate is 2. 10 40 easy 9%. 10 40 easy The combined self-employment tax rate is 15. 10 40 easy 3%. 10 40 easy Additional Medicare Tax. 10 40 easy   Beginning in 2013, a 0. 10 40 easy 9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 for any other filing status. 10 40 easy Medicare wages and self-employment income are combined to determine if income exceeds the threshold. 10 40 easy A self-employment loss is not considered for purposes of this tax. 10 40 easy RRTA compensation is separately compared to the threshold. 10 40 easy For more information, see Form 8959, Additional Medicare Tax, and its separate instructions. 10 40 easy Nonfarm Optional Method You may be able to use the nonfarm optional method for figuring your net earnings from self-employment. 10 40 easy In general, the nonfarm optional method is intended to permit continued coverage for social security and Medicare purposes when your income for the tax year is low. 10 40 easy You may use the nonfarm optional method if you meet all the following tests. 10 40 easy You are self-employed on a regular basis. 10 40 easy You meet this test if your actual net earnings from self-employment were $400 or more in at least 2 of the 3 tax years before the one for which you use this method. 10 40 easy The net earnings can be from either farm or nonfarm earnings or both. 10 40 easy You have used this method less than 5 prior years. 10 40 easy (There is a 5-year lifetime limit. 10 40 easy ) The years do not have to be consecutive. 10 40 easy Your net nonfarm profits were: Less than $5,024, and Less than 72. 10 40 easy 189% of your gross nonfarm income. 10 40 easy If you meet all three tests, use Table 3 to figure your net earnings from self-employment under the nonfarm optional method. 10 40 easy Table 3. 10 40 easy Figuring Nonfarm Net Earnings IF your gross nonfarm income is . 10 40 easy . 10 40 easy . 10 40 easy THEN your net earnings are equal to . 10 40 easy . 10 40 easy . 10 40 easy $6,960 or less Two-thirds of your gross nonfarm income. 10 40 easy More than $6,960 $4,640. 10 40 easy Actual net earnings. 10 40 easy   Multiply your total earnings subject to SE tax by 92. 10 40 easy 35% (. 10 40 easy 9235) to get actual net earnings. 10 40 easy Actual net earnings are equivalent to net earnings under the “Regular Method. 10 40 easy ” More information. 10 40 easy   For more information on the nonfarm optional method, see Publication 334, Tax Guide for Small Business, and the Schedule SE (Form 1040) instructions. 10 40 easy Income Tax: Income and Expenses Some income and expense items are treated the same for both income tax and SE tax purposes and some are treated differently. 10 40 easy Note. 10 40 easy For purposes of this section, references to members of the clergy are only to ministers or members of a religious order. 10 40 easy Income Items The tax treatment of offerings and fees, outside earnings, rental allowances, rental value of a parsonage, earnings of members of religious orders, and foreign earned income is discussed here. 10 40 easy Offerings and Fees If you are a member of the clergy, you must include in your income offerings and fees you receive for marriages, baptisms, funerals, masses, etc. 10 40 easy , in addition to your salary. 10 40 easy If the offering is made to the religious institution, it is not taxable to you. 10 40 easy Outside Earnings If you are a member of a religious organization and you give your outside earnings to the organization, you still must include the earnings in your income. 10 40 easy However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. 10 40 easy For more information, see Publication 526. 10 40 easy Exclusion of Rental Allowance and Fair Rental Value of a Parsonage Ordained, commissioned, or licensed ministers of the gospel may be able to exclude from income tax the rental allowance or fair rental value of a parsonage that is provided to them as pay for their services. 10 40 easy Services include: Ministerial services, discussed earlier, Administrative duties and teaching at theological seminaries, and The ordinary duties of a minister performed as an employee of the United States (other than as a chaplain in the Armed Forces), a state, possession, political subdivision, or the District of Columbia. 10 40 easy This exclusion applies only for income tax purposes. 10 40 easy It does not apply for SE tax purposes, as discussed earlier under Amounts included in gross income under Self-Employment Tax: Figuring Net Earnings. 10 40 easy Designation requirement. 10 40 easy   The church or organization that employs you must officially designate the payment as a housing allowance before it makes the payment. 10 40 easy It must designate a definite amount. 10 40 easy It cannot determine the amount of the housing allowance at a later date. 10 40 easy If the church or organization does not officially designate a definite amount as a housing allowance, you must include your total salary in your income. 10 40 easy   If you are employed and paid by a local congregation, a resolution by a national church agency of your denomination does not effectively designate a housing allowance for you. 10 40 easy The local congregation must officially designate the part of your salary that is a housing allowance. 10 40 easy However, a resolution of a national church agency can designate your housing allowance if you are directly employed by the national agency. 10 40 easy Rental allowances. 10 40 easy   If you receive in your salary an amount officially designated as a rental allowance (including an amount to pay utility costs), you can exclude the allowance from your gross income if: You use the amount to provide or rent a home, and The amount is not more than reasonable pay for your services. 10 40 easy   The amount you exclude cannot be more than the fair rental value of the home, including furnishings, plus the cost of utilities. 10 40 easy Fair rental value of parsonage. 10 40 easy   You can exclude from gross income the fair rental value of a house or parsonage, including utilities, furnished to you as part of your earnings. 10 40 easy However, the exclusion cannot be more than the reasonable pay for your services. 10 40 easy If you pay for the utilities, you can exclude any allowance designated for utility costs, up to your actual cost. 10 40 easy Example. 10 40 easy Rev. 10 40 easy Joanna Baker is a full-time minister. 10 40 easy The church allows her to use a parsonage that has an annual fair rental value of $24,000. 10 40 easy The church pays her an annual salary of $67,000, of which $7,500 is designated for utility costs. 10 40 easy Her actual utility costs during the year were $7,000. 10 40 easy For income tax purposes, Rev. 10 40 easy Baker excludes $31,000 from gross income ($24,000 fair rental value of the parsonage plus $7,000 from the allowance for utility costs). 10 40 easy She will report $60,000 ($59,500 salary plus $500 of unused utility allowance). 10 40 easy Her income for SE tax purposes, however, is $91,000 ($67,000 salary + $24,000 fair rental value of the parsonage). 10 40 easy Home ownership. 10 40 easy   If you own your home and you receive as part of your salary a housing or rental allowance, you may exclude from gross income the smallest of: The amount actually used to provide a home, The amount officially designated as a rental allowance, or The fair rental value of the home, including furnishings, utilities, garage, etc. 10 40 easy Excess rental allowance. 10 40 easy   You must include in gross income the amount of any rental allowance that is more than the smallest of: Your reasonable salary, The fair rental value of the home plus utilities, or The amount actually used to provide a home. 10 40 easy   Include in the total on Form 1040, line 7. 10 40 easy On the dotted line next to line 7, enter “Excess allowance” and the amount. 10 40 easy You may deduct the home mortgage interest and real estate taxes paid on your home even though you pay all or part of those expenses with funds you get through a tax-free rental or parsonage allowance. 10 40 easy However, you can only deduct these expenses as itemized deductions on Schedule A (Form 1040). 10 40 easy Retired ministers. 10 40 easy   If you are a retired minister, you can exclude from your gross income the rental value of a home (plus utilities) furnished to you by your church as a part of your pay for past services, or the part of your pension that was designated as a rental allowance. 10 40 easy However, a minister's surviving spouse cannot exclude the rental value unless the rental value is for ministerial services he or she performs or performed. 10 40 easy Teachers or administrators. 10 40 easy   If you are a minister employed as a teacher or administrator by a church school, college, or university, you are performing ministerial services for purposes of the housing exclusion. 10 40 easy However, if you perform services as a teacher or administrator on the faculty of a nonchurch college, you cannot exclude from your income a housing allowance or the value of a home that the college provides to you. 10 40 easy    If you live in faculty lodging as an employee of an educational institution or academic health center, all or part of the value of that lodging may be nontaxable under a different rule. 10 40 easy In Publication 525, see Faculty lodging in the discussion on meals and lodging under Fringe Benefits. 10 40 easy   If you serve as a minister of music or minister of education, or serve in an administrative or other function of your religious organization, but are not authorized to perform substantially all of the religious duties of an ordained minister in your church (even if you are commissioned as a minister of the gospel), the housing exclusion does not apply to you. 10 40 easy Theological students. 10 40 easy   If you are a theological student serving a required internship as a part-time or assistant pastor, you cannot exclude a parsonage or rental allowance from your income unless you are ordained, commissioned, or licensed as a minister. 10 40 easy Traveling evangelists. 10 40 easy   You can exclude a designated rental allowance from out-of-town churches if you meet all of the following requirements. 10 40 easy You are an ordained minister. 10 40 easy You perform ministerial services at churches located away from your community. 10 40 easy You actually use the rental allowance to maintain your permanent home. 10 40 easy Cantors. 10 40 easy   If you have a bona fide commission and your congregation employs you on a full-time basis to perform substantially all the religious functions of the Jewish faith, you can exclude a rental allowance from your gross income. 10 40 easy Earnings—Members of Religious Orders Your earnings may be exempt from both income tax and SE tax if you are a member of a religious order who: Has taken a vow of poverty, Receives earnings for services performed as an agent of the order and in the exercise of duties required by the order, and Renounces the earnings and gives them to the order. 10 40 easy See Members of Religious Orders , earlier, under Social Security Coverage. 10 40 easy Foreign Earned Income Certain income may be exempt from income tax if you work in a foreign country or in a specified U. 10 40 easy S. 10 40 easy possession. 10 40 easy Publication 54 discusses the foreign earned income exclusion. 10 40 easy Publication 570, Tax Guide for Individuals With Income From U. 10 40 easy S. 10 40 easy Possessions, covers the rules for taxpayers with income from U. 10 40 easy S. 10 40 easy possessions. 10 40 easy You can get these free publications from the Internal Revenue Service at IRS. 10 40 easy gov or from most U. 10 40 easy S. 10 40 easy Embassies or consulates. 10 40 easy Expense Items The tax treatment of ministerial trade or business expenses, expenses allocable to tax-free income, and health insurance costs is discussed here. 10 40 easy Ministerial Trade or Business Expenses as an Employee When you figure your income tax, you must itemize your deductions on Schedule A (Form 1040) to claim allowable deductions for ministerial trade or business expenses incurred while working as an employee. 10 40 easy You also may have to file Form 2106, Employee Business Expenses (or Form 2106-EZ, Unreimbursed Employee Business Expenses). 10 40 easy You claim these expenses as miscellaneous itemized deductions that are subject to the 2%-of-adjusted-gross-income (AGI) limit. 10 40 easy See Publication 529 for more information on this limit. 10 40 easy However, you cannot deduct any of your employee business expenses that are allocable to tax-free income (discussed next). 10 40 easy Expenses Allocable to Tax-Free Income If you receive a rental or parsonage allowance that is exempt from income tax (tax free), you must allocate a portion of the expenses of operating your ministry to that tax-free income. 10 40 easy You cannot deduct the portion of your expenses that you allocate to your tax-free rental or parsonage allowance. 10 40 easy Exception. 10 40 easy   This rule does not apply to your deductions for home mortgage interest or real estate taxes on your home. 10 40 easy Figuring the allocation. 10 40 easy   Figure the portion of your otherwise deductible expenses that you cannot deduct (because you must allocate that portion to tax-free income) by multiplying the expenses by the following fraction:      Tax-free rental or parsonage allowance     All income (taxable and tax free) earned from your ministry           When figuring the allocation, include the income and expenses related to the ministerial duties you perform both as an employee and as a self-employed person. 10 40 easy    Reduce your otherwise deductible expenses only in figuring your income tax, not your SE tax. 10 40 easy Example. 10 40 easy Rev. 10 40 easy Charles Ashford received $40,000 in earnings for ministerial services consisting of a $28,000 salary for ministerial services performed as an employee, $2,000 for weddings and baptisms performed as a self-employed person, and a $10,000 tax-free parsonage allowance. 10 40 easy He incurred $4,000 of unreimbursed expenses connected with his earnings for ministerial services. 10 40 easy $3,500 of the $4,000 is for employee expenses related to his ministerial salary, and $500 is related to the weddings and baptisms he performed as a self-employed person. 10 40 easy Rev. 10 40 easy Ashford figures the nondeductible (tax-free) portion of expenses related to his ministerial salary as follows: ($10,000 ÷ $40,000) x $3,500 = $875   Rev. 10 40 easy Ashford figures the nondeductible (tax-free) portion of expenses related to his wedding and baptism income as follows: ($10,000 ÷ $40,000) x $500 = $125 Required statement. 10 40 easy   If you receive a tax-free rental or parsonage allowance and have ministerial expenses, attach a statement to your tax return. 10 40 easy The statement must contain all of the following information. 10 40 easy A list of each item of taxable ministerial income by source (such as wages, salary, weddings, baptisms, etc. 10 40 easy ) plus the amount. 10 40 easy A list of each item of tax-free ministerial income by source (parsonage allowance) plus the amount. 10 40 easy A list of each item of otherwise deductible ministerial expenses plus the amount. 10 40 easy How you figured the nondeductible part of your otherwise deductible expenses. 10 40 easy A statement that the other deductions claimed on your tax return are not allocable to your tax-free income. 10 40 easy   See the attachments prepared for the Comprehensive Example , later. 10 40 easy Following the example, you will find blank worksheets for your own use. 10 40 easy Health Insurance Costs of Self-Employed Ministers If you are self-employed, you may be able to deduct the amount you paid in 2013 for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents. 10 40 easy If you qualify, you can take this deduction as an adjustment to income on Form 1040, line 29. 10 40 easy See the Instructions for Form 1040 to figure your deduction. 10 40 easy The following special rules apply to the self-employed health insurance deduction. 10 40 easy You cannot take a medical expense deduction on Schedule A (Form 1040) for any expenses you claim for purposes of the self-employed health insurance deduction. 10 40 easy You cannot take the deduction for any month you are eligible to participate in a subsidized plan of your (or your spouse's) employer. 10 40 easy The deduction cannot exceed your net earnings from the business under which the insurance plan is established. 10 40 easy Your net earnings under this rule do not include the income you earned as a common-law employee (discussed earlier) of a church. 10 40 easy More information. 10 40 easy   For more information about the self-employed health insurance deduction, see chapter 6 in Publication 535. 10 40 easy Deduction for SE Tax You can deduct one-half of your SE tax in figuring adjusted gross income. 10 40 easy This is an income tax deduction only, on Form 1040, line 27. 10 40 easy Do not claim this deduction in figuring net earnings from self-employment subject to SE tax. 10 40 easy Income Tax Withholding and Estimated Tax The federal income tax is a pay-as-you-go tax. 10 40 easy You must pay the tax as you earn or receive income during the year. 10 40 easy An employee usually has income tax withheld from his or her wages or salary. 10 40 easy However, your salary is not subject to federal income tax withholding if both of the following conditions apply. 10 40 easy You are a duly ordained, commissioned, or licensed minister, a member of a religious order (who has not taken a vow of poverty), or a Christian Science practitioner or reader. 10 40 easy Your salary is for ministerial services (see Ministerial Services , earlier). 10 40 easy If your salary is not subject to withholding, or if you do not pay enough tax through withholding, you may need to make estimated tax payments to avoid penalties for not paying enough tax as you earn your income. 10 40 easy You generally must make estimated tax payments if you expect to owe taxes, including SE tax, of $1,000 or more, when you file your return. 10 40 easy Determine your estimated tax by using the worksheets in Publication 505, Tax Withholding and Estimated Tax. 10 40 easy Pay the entire estimated tax for 2014 or the first installment by April 15, 2014. 10 40 easy See Form 1040-ES for the different payment methods. 10 40 easy The April 15 date applies whether or not your tax home and your abode are outside the United States and Puerto Rico. 10 40 easy For more information, see chapter 2 of Publication 505. 10 40 easy If you perform your services as a common-law employee of the church and your salary is not subject to income tax withholding, you can enter into a voluntary withholding agreement with the church to cover any income and SE tax that may be due. 10 40 easy Filing Your Return You must file an income tax return for 2013 if your gross income was at least the amount shown in the third column of Table 4 above. 10 40 easy Table 4. 10 40 easy 2013 Filing Requirements for Most Taxpayers IF your filing status is . 10 40 easy . 10 40 easy . 10 40 easy AND at the end of 2013 you were* . 10 40 easy . 10 40 easy . 10 40 easy THEN file a return if your gross income** was at least . 10 40 easy . 10 40 easy . 10 40 easy single under age 65 65 or older   $10,000 $11,500   married filing jointly*** under 65 (both spouses) 65 or older (one spouse) 65 or older (both spouses)   $20,000  $21,200  $22,400   married filing separately any age   $3,900   head of household under 65 65 or older   $12,850 $14,350   qualifying widow(er) with dependent child under 65 65 or older   $16,100  $17,300   * If you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. 10 40 easy ** Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). 10 40 easy Do not include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time in 2013, or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). 10 40 easy If (a) or (b) applies, see the instructions for Form 1040, lines 20a and 20b, to figure the taxable part of social security benefits you must include in gross income. 10 40 easy Gross income includes gains, but not losses, reported on Form 8949 or Schedule D (Form 1040). 10 40 easy Gross income from a business means, for example, the amount on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. 10 40 easy But, in figuring gross income, do not reduce your income by any losses, including any loss on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. 10 40 easy *** If you did not live with your spouse at the end of 2013 (or on the date your spouse died) and your gross income was at least $3,900, you must file a return regardless of your age. 10 40 easy Additional requirements. 10 40 easy   Even if your income was less than the amount shown in Table 4, you must file an income tax return on Form 1040, and attach a completed Schedule SE (Form 1040), if:    You are not exempt from SE tax, and you have net earnings from self-employment (discussed earlier under Self-Employment Tax: Figuring Net Earnings ) of $400 or more in the tax year, You are exempt from SE tax on earnings from ministerial services and you have $400 or more of other net earnings subject to SE tax, or You had wages of $108. 10 40 easy 28 or more from an electing church or church-controlled organization (see Coverage of Religious Workers (Church Employees) , earlier, under Social Security Coverage). 10 40 easy Self-employment tax. 10 40 easy   If you are liable for SE tax, you must file Schedule SE (Form 1040) with your return. 10 40 easy   If you filed Form 4361 and did not receive approval from the IRS, you must pay SE tax on your ministerial earnings, as explained earlier. 10 40 easy You should report ministerial earnings and expenses from nonemployee ministerial services on Schedule C or C-EZ (Form 1040). 10 40 easy You should then carry the net amount over to line 2 of Schedule SE (Form 1040), Section A or B. 10 40 easy However, if you were a duly ordained minister who was an employee of a church and you must pay SE tax on the wages you earned for those services, do not report those wages on Schedule C or C-EZ (Form 1040). 10 40 easy Instead, report those wages less any allowable expenses (including any unreimbursed employee business expenses), on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. 10 40 easy Note. 10 40 easy For income tax purposes, the unreimbursed employee business expenses that you incurred as an employee of the church and subtracted from your wages on line 2 of Schedule SE (Form 1040) are allowed only as an itemized deduction on Schedule A (Form 1040) if they exceed 2% of your adjusted gross income. 10 40 easy You cannot deduct these expenses on Schedule C or C-EZ (Form 1040) as a trade or business expense. 10 40 easy Exemption from SE tax. 10 40 easy   If you filed Form 4361 and received IRS approval not to be taxed on your ministerial earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). 10 40 easy Instead, enter “Exempt—Form 4361” on the dotted line next to Form 1040, line 56. 10 40 easy However, if you had net earnings from another trade or business of $400 or more subject to SE tax, see line A at the top of Schedule SE (Form 1040), Section B. 10 40 easy    If you filed Form 4029 and received IRS approval not to be taxed on those earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). 10 40 easy Instead, enter “Exempt—Form 4029” on the dotted line next to Form 1040, line 56. 10 40 easy More information. 10 40 easy   For more information on filing your return, including when and where to file it, see the Instructions for Form 1040. 10 40 easy Retirement Savings Arrangements Retirement savings arrangements are plans that offer you a tax-favored way to save for your retirement. 10 40 easy You generally can deduct your contributions to the plan. 10 40 easy Your contributions and the earnings on them are not taxed until they are distributed. 10 40 easy Retirement plans for the self-employed. 10 40 easy   To set up one of the following plans you must be self-employed. 10 40 easy SEP (simplified employee pension) plan. 10 40 easy SIMPLE (savings incentive match plan for employees) plan. 10 40 easy Qualified retirement plan (also called a Keogh or H. 10 40 easy R. 10 40 easy 10 plan). 10 40 easy   The common-law rules determine whether you are an employee or a self-employed person for purposes of setting up a retirement plan. 10 40 easy See Employment status for other tax purposes under Coverage of Members of the Clergy, earlier. 10 40 easy This result is true even if your compensation for ministerial services (defined earlier) is subject to SE tax. 10 40 easy   For example, if a congregation pays you a salary for performing ministerial services and you are subject to the congregation's control, you generally are a common-law employee. 10 40 easy You are not a self-employed person for purposes of setting up a retirement plan. 10 40 easy This result is true even if your salary is subject to SE tax. 10 40 easy   On the other hand, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services that you report on Schedule C or C-EZ (Form 1040), are earnings from self-employment for all tax purposes. 10 40 easy   For more information on establishing a SEP, SIMPLE, or qualified retirement plan, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). 10 40 easy Individual retirement arrangements (IRAs). 10 40 easy   The traditional IRA and the Roth IRA are two individual retirement arrangements you can use to save money for your retirement. 10 40 easy Generally, your maximum contribution for 2013 to either of these plans (or to a combination of the two) is the smaller of your taxable compensation or $5,500 ($6,500 if you are age 50 or older). 10 40 easy   However, your maximum contribution to a Roth IRA will be further reduced or eliminated if your adjusted gross income is above a certain amount. 10 40 easy You cannot deduct Roth IRA contributions, but if you satisfy certain requirements, all earnings in the Roth IRA are tax free and neither your nondeductible contributions nor any earnings on them are taxable when distributed. 10 40 easy   If you contribute to a traditional IRA, your contribution may be deductible. 10 40 easy However, your deduction may be reduced or eliminated if you or your spouse is covered by an employer retirement plan (including, but not limited to, a SEP, SIMPLE, or qualified retirement plan). 10 40 easy   For more information on IRAs, see Publication 590. 10 40 easy Tax-sheltered annuity plans. 10 40 easy   Church employees, members of religious orders, and duly ordained, commissioned, or licensed ministers working as ministers or chaplains can participate in tax-sheltered annuity (403(b)) plans. 10 40 easy For more
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Use This Checklist to Plan Your Purchase:

  • Decide in advance exactly what you want and what you can afford.
  • Do your research. Ask family, friends and others you trust for advice based on their experience. Gather information about the seller and the item or service you are purchasing.
  • Review product test results and other information from consumer experts.
  • Get advice and price quotes from several sellers.
  • Make sure that the seller has all appropriate licenses. Doctors, lawyers, contractors and other service providers must register with a state or local licensing agency.
  • Check out a company's complaint record with your local consumer affairs office and Better Business Bureau.
  • Get a written copy of guarantees and warranties. Compare their features.
  • Get the seller's refund, return and cancellation policies.
  • Sometimes retailers do not update cash register scanners with updated prices. If you think the price displayed isn't right, speak up.
  • Ask whom to contact if you have a question or problem.
  • Read and understand any contract or legal document you are asked to sign. Make sure there are no blank spaces. Insist that any extras you are promised be put in writing.
  • Consider paying by credit card. If you have a problem, you can dispute a charge made on your credit card.
  • Don't buy on impulse or under pressure. This includes donating to charity.

The 10 40 Easy

10 40 easy 8. 10 40 easy   Paying Tax Through Withholding or Estimated Tax Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Notification of Alien Status Withholding From CompensationWithholding on Wages Withholding on Pensions Withholding on Tip Income Independent Contractors Withholding From Other IncomeTax Withheld on Partnership Income Withholding on Scholarships and Fellowship Grants Income Entitled to Tax Treaty BenefitsStudents, teachers, and researchers. 10 40 easy Tax Withheld on Real Property Sales Social Security and Medicare TaxesStudents and Exchange Visitors Agricultural Workers Self-Employment Tax International Social Security Agreements Estimated Tax Form 1040-ES (NR)Fiscal year. 10 40 easy Introduction This chapter discusses how to pay your U. 10 40 easy S. 10 40 easy income tax as you earn or receive income during the year. 10 40 easy In general, the federal income tax is a pay as you go tax. 10 40 easy There are two ways to pay as you go. 10 40 easy Withholding. 10 40 easy If you are an employee, your employer probably withholds income tax from your pay. 10 40 easy Tax may also be withheld from certain other income—including pensions, bonuses, commissions, and gambling winnings. 10 40 easy In each case, the amount withheld is paid to the U. 10 40 easy S. 10 40 easy Treasury in your name. 10 40 easy Estimated tax. 10 40 easy If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. 10 40 easy People who are in business for themselves generally will have to pay their tax this way. 10 40 easy You may have to pay estimated tax if you receive income such as dividends, interest, rent, and royalties. 10 40 easy Estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well. 10 40 easy Topics - This chapter discusses: How to notify your employer of your alien status, Income subject to withholding of income tax, Exemptions from withholding, Social security and Medicare taxes, and Estimated tax rules. 10 40 easy Useful Items - You may want to see: Publication 515 Withholding of Tax on Nonresident Aliens and Foreign Entities 901 U. 10 40 easy S. 10 40 easy Tax Treaties Form (and Instructions) W-4 Employee's Withholding Allowance Certificate W-8BEN Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals) W-8ECI Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States W-9 Request for Taxpayer Identification Number and Certification 1040-ES (NR) U. 10 40 easy S. 10 40 easy Estimated Tax for Nonresident Alien Individuals 8233 Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual 8288-B Application for Withholding Certificate for Dispositions by Foreign Persons of U. 10 40 easy S. 10 40 easy Real Property Interests 13930 Application for Central Withholding Agreement See chapter 12 for information about getting these publications and forms. 10 40 easy Notification of Alien Status You must let your employer know whether you are a resident or a nonresident alien so your employer can withhold the correct amount of tax from your wages. 10 40 easy If you are a resident alien under the rules discussed in chapter 1, you must file Form W-9 or a similar statement with your employer. 10 40 easy If you are a nonresident alien under those rules, you must furnish to your employer Form 8233 or Form W-8BEN, establishing that you are a foreign person, or Form W-4, establishing that your compensation is subject to graduated withholding at the same rates as resident aliens or U. 10 40 easy S. 10 40 easy citizens. 10 40 easy If you are a resident alien and you receive income other than wages (such as dividends and royalties) from sources within the United States, file Form W-9 or similar statement with the withholding agent (generally, the payer of the income) so the agent will not withhold tax on the income at the 30% (or lower treaty) rate. 10 40 easy If you receive this type of income as a nonresident alien, file Form W-8BEN with the withholding agent so that the agent will withhold tax at the 30% (or lower treaty) rate. 10 40 easy However, if the income is effectively connected with a U. 10 40 easy S. 10 40 easy trade or business, file Form W-8ECI instead. 10 40 easy Withholding From Compensation The following discussion generally applies only to nonresident aliens. 10 40 easy Tax is withheld from resident aliens in the same manner as U. 10 40 easy S. 10 40 easy citizens. 10 40 easy Wages and other compensation paid to a nonresident alien for services performed as an employee are usually subject to graduated withholding at the same rates as resident aliens and U. 10 40 easy S. 10 40 easy citizens. 10 40 easy Therefore, your compensation, unless it is specifically excluded from the term “wages” by law, or is exempt from tax by treaty, is subject to graduated withholding. 10 40 easy Withholding on Wages If you are an employee and you receive wages subject to graduated withholding, you will be required to fill out a Form W-4. 10 40 easy Also fill out Form W-4 for a scholarship or fellowship grant to the extent it represents payment for past, present, or future services and for which you are not claiming a tax treaty withholding exemption on Form 8233 (discussed later under Income Entitled to Tax Treaty Benefits). 10 40 easy These are services you are required to perform as an employee and as a condition of receiving the scholarship or fellowship (or tuition reduction). 10 40 easy Nonresident aliens should fill out Form W-4 using the following instructions instead of the instructions on the Form W-4. 10 40 easy This is because of the restrictions on a nonresident alien's filing status, the limited number of personal exemptions a nonresident alien is allowed, and because a nonresident alien cannot claim the standard deduction. 10 40 easy Enter your social security number (SSN) on line 2. 10 40 easy Do not enter an individual taxpayer identification number (ITIN). 10 40 easy Check only “Single” marital status on line 3 (regardless of your actual marital status). 10 40 easy Claim only one allowance on line 5, unless you are a resident of Canada, Mexico, or South Korea, or a U. 10 40 easy S. 10 40 easy national. 10 40 easy Write “Nonresident Alien” or “NRA” on the dotted line on line 6. 10 40 easy You can request additional withholding on line 6 at your option. 10 40 easy Do not claim “Exempt” withholding status on line 7. 10 40 easy A U. 10 40 easy S. 10 40 easy national is an individual who, although not a U. 10 40 easy S. 10 40 easy citizen, owes his or her allegiance to the United States. 10 40 easy U. 10 40 easy S. 10 40 easy nationals include American Samoans, and Northern Mariana Islanders who chose to become U. 10 40 easy S. 10 40 easy nationals instead of U. 10 40 easy S. 10 40 easy citizens. 10 40 easy See Withholding on Scholarships and Fellowship Grants later, for how to fill out Form W-4 if you receive a U. 10 40 easy S. 10 40 easy source scholarship or fellowship grant that is not a payment for services. 10 40 easy Students and business apprentices from India. 10 40 easy   If you are eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty, you may claim an additional withholding allowance for the standard deduction. 10 40 easy You can claim an additional withholding allowance for your spouse only if your spouse will have no gross income for 2013 and cannot be claimed as a dependent on another U. 10 40 easy S. 10 40 easy taxpayer's 2013 return. 10 40 easy You may also claim an additional withholding allowance for each of your dependents not admitted to the United States on “F-2,” “J-2,” or “M-2” visas if they meet the same rules that apply to U. 10 40 easy S. 10 40 easy citizens. 10 40 easy Household employees. 10 40 easy   If you work as a household employee, your employer does not have to withhold income tax. 10 40 easy However, you may agree to voluntary income tax withholding by filing a Form W-4 with your employer. 10 40 easy The agreement goes into effect when your employer accepts the agreement by beginning the withholding. 10 40 easy You or your employer may end the agreement by letting the other know in writing. 10 40 easy Agricultural workers. 10 40 easy   If you are an agricultural worker on an H-2A visa, your employer does not have to withhold income tax. 10 40 easy However, your employer will withhold income tax only if you and your employer agree to withhold. 10 40 easy In that case, you must provide your employer with a properly completed Form W-4. 10 40 easy You can find more information about not having tax withheld at www. 10 40 easy irs. 10 40 easy gov/Individuals/International-Taxpayers/Foreign-Agricultural-Workers. 10 40 easy Wages Exempt From Withholding Wages that are exempt from U. 10 40 easy S. 10 40 easy income tax under an income tax treaty are generally exempt from withholding. 10 40 easy For information on how to claim this exemption from withholding, see Income Entitled to Tax Treaty Benefits , later. 10 40 easy Wages paid to aliens who are residents of American Samoa, Canada, Mexico, Puerto Rico, or the U. 10 40 easy S. 10 40 easy Virgin Islands may be exempt from withholding. 10 40 easy The following paragraphs explain these exemptions. 10 40 easy Residents of Canada or Mexico engaged in transportation-related employment. 10 40 easy   Certain residents of Canada or Mexico who enter or leave the United States at frequent intervals are not subject to withholding on their wages. 10 40 easy These persons either: Perform duties in transportation service between the United States and Canada or Mexico, or Perform duties connected to the construction, maintenance, or operation of a waterway, viaduct, dam, or bridge crossed by, or crossing, the boundary between the United States and Canada or the boundary between the United States and Mexico. 10 40 easy    This employment is subject to withholding of social security and Medicare taxes unless the services are performed for a railroad. 10 40 easy   To qualify for the exemption from withholding during a tax year, a Canadian or Mexican resident must give the employer a statement in duplicate with name, address, and identification number, certifying that the resident: Is not a U. 10 40 easy S. 10 40 easy citizen or resident, Is a resident of Canada or Mexico, whichever applies, and Expects to perform duties previously described during the tax year in question. 10 40 easy   The statement can be in any form, but it must be dated and signed by the employee and must include a written declaration that it is made under the penalties of perjury. 10 40 easy Residents of American Samoa and Puerto Rico. 10 40 easy   If you are a nonresident alien employee who is a resident of American Samoa or Puerto Rico, wages for services performed in American Samoa or Puerto Rico are generally not subject to withholding unless you are an employee of the United States or any of its agencies in American Samoa or Puerto Rico. 10 40 easy Residents of the U. 10 40 easy S. 10 40 easy Virgin Islands. 10 40 easy   Nonresident aliens who are bona fide residents of the U. 10 40 easy S Virgin Islands are not subject to withholding of U. 10 40 easy S. 10 40 easy tax on income earned while temporarily employed in the United States. 10 40 easy This is because those persons pay their income tax to the U. 10 40 easy S. 10 40 easy Virgin Islands. 10 40 easy To avoid having tax withheld on income earned in the United States, bona fide residents of the U. 10 40 easy S. 10 40 easy Virgin Islands should write a letter, in duplicate, to their employers, stating that they are bona fide residents of the U. 10 40 easy S. 10 40 easy Virgin Islands and expect to pay tax on all income to the U. 10 40 easy S. 10 40 easy Virgin Islands. 10 40 easy Withholding on Pensions If you receive a pension as a result of personal services performed in the United States, the pension income is subject to the 30% (or lower treaty) rate of withholding. 10 40 easy You may, however, have tax withheld at graduated rates on the portion of the pension that arises from the performance of services in the United States after December 31, 1986. 10 40 easy You must fill out Form W-8BEN and give it to the withholding agent or payer before the income is paid or credited to you. 10 40 easy Withholding on Tip Income Tips you receive during the year for services performed in the United States are subject to U. 10 40 easy S. 10 40 easy income tax. 10 40 easy Include them in taxable income. 10 40 easy In addition, tips received while working for one employer, amounting to $20 or more in a month, are subject to graduated withholding. 10 40 easy Independent Contractors If there is no employee-employer relationship between you and the person for whom you perform services, your compensation is subject to the 30% (or lower treaty) rate of withholding. 10 40 easy However, if you are engaged in a trade or business in the United States during the tax year, your compensation for personal services as an independent contractor (independent personal services) may be entirely or partly exempt from withholding if you reach an agreement with the Internal Revenue Service on the amount of withholding required. 10 40 easy An agreement that you reach with the IRS regarding withholding from your compensation for independent personal services is effective for payments covered by the agreement after it is agreed to by all parties. 10 40 easy You must agree to timely file an income tax return for the current tax year. 10 40 easy Central withholding agreements. 10 40 easy   If you are a nonresident alien entertainer or athlete performing or participating in athletic events in the United States, you may be able to enter into a withholding agreement with the IRS for reduced withholding provided certain requirements are met. 10 40 easy Under no circumstances will such a withholding agreement reduce taxes withheld to less than the anticipated amount of income tax liability. 10 40 easy   File Form 13930 and the required attachments with the IRS to request a central withholding agreement. 10 40 easy Either you or your authorized representative can file the form. 10 40 easy It should be sent to the IRS at least 45 days before the tour begins or the event occurs. 10 40 easy Exceptions will be considered on a case by case basis. 10 40 easy   For more information on the CWA program, go to www. 10 40 easy irs. 10 40 easy gov/Individuals/International-Taxpayers/Central-Withholding-Agreements. 10 40 easy Final payment exemption. 10 40 easy   Your final payment of compensation during the tax year for independent personal services may be entirely or partly exempt from withholding. 10 40 easy This exemption is available only once during your tax year and applies to a maximum of $5,000 of compensation. 10 40 easy To obtain this exemption, you or your agent must give the following statements and information to the Commissioner or his delegate. 10 40 easy A statement by each withholding agent from whom you have received gross income effectively connected with a trade or business in the United States during the tax year, showing the amount of income paid and the tax withheld. 10 40 easy Each statement must be signed by the withholding agent and verified by a declaration that it is made under penalties of perjury. 10 40 easy A statement by the withholding agent from whom you expect to receive the final payment of compensation, showing the amount of the payment and the amount of tax that would be withheld if a final payment exemption were not granted. 10 40 easy This statement must also be signed by the withholding agent and verified by a declaration that it is made under penalties of perjury. 10 40 easy A statement by you that you do not intend to receive any other income effectively connected with a trade or business in the United States during the current tax year. 10 40 easy The amount of tax that has been withheld or paid under any other provision of the Internal Revenue Code or regulations for any income effectively connected with your trade or business in the United States during the current tax year. 10 40 easy The amount of your outstanding tax liabilities, if any, including interest and penalties, from the current tax year or prior tax periods. 10 40 easy Any provision of an income tax treaty under which a partial or complete exemption from withholding may be claimed, the country of your residence, and a statement of sufficient facts to justify an exemption under the treaty. 10 40 easy A statement signed by you, and verified by a declaration that it is made under penalties of perjury, that all the information given is true and that to your knowledge no relevant information has been omitted. 10 40 easy   If satisfied with the information, the IRS will determine the amount of your tentative income tax for the tax year on gross income effectively connected with your trade or business in the United States. 10 40 easy Ordinary and necessary business expenses can be taken into account if proven to the satisfaction of the Commissioner or his delegate. 10 40 easy   The Commissioner or his delegate will send you a letter, directed to the withholding agent, showing the amount of the final payment of compensation that is exempt from withholding and the amount that can be paid to you because of the exemption. 10 40 easy You must give two copies of the letter to the withholding agent and must also attach a copy of the letter to your income tax return for the tax year for which the exemption is effective. 10 40 easy Allowance for Personal Exemption Withholding on payments for independent personal services is generally based on the amount of your compensation payment minus the value of one exemption ($3,950 for 2014). 10 40 easy To determine the income for independent personal services performed in the United States to which the 30% (or lower treaty) rate will apply, you are allowed one personal exemption if you are not a U. 10 40 easy S. 10 40 easy national and are not a resident of Canada, Mexico, or South Korea. 10 40 easy For purposes of 30% withholding, the exemption is prorated at $10. 10 40 easy 82 a day in 2014 for the period that labor or personal services are performed in the United States. 10 40 easy To claim an exemption from withholding on the personal exemption amount, fill out the applicable parts of Form 8233 and give it to the withholding agent. 10 40 easy Example. 10 40 easy Eric Johannsen, who is a resident of Country X worked under a contract with a U. 10 40 easy S. 10 40 easy firm (not as an employee) in the United States for 100 days during 2014 before returning to his country. 10 40 easy He earned $6,000 for the services performed (not considered wages) in the United States. 10 40 easy Eric is married and has three dependent children. 10 40 easy His wife is not employed and has no income subject to U. 10 40 easy S. 10 40 easy tax. 10 40 easy The amount of the personal exemption to be allowed against the income for his personal services performed within the United States in 2014 is $1,082 (100 days × $10. 10 40 easy 82), and withholding at 30% is applied against the balance. 10 40 easy Thus, $1,475. 10 40 easy 40 in tax is withheld from Eric's earnings (30% of $4,918 ($6,000 − $1,082). 10 40 easy U. 10 40 easy S. 10 40 easy nationals or residents of Canada, Mexico, or South Korea. 10 40 easy   If you are a nonresident alien who is a resident of Canada, Mexico, or South Korea, or who is a national of the United States, you are subject to the same 30% withholding on your compensation for independent personal services performed in the United States. 10 40 easy However, if you are a U. 10 40 easy S. 10 40 easy national or a resident of Canada or Mexico, you are allowed the same personal exemptions as U. 10 40 easy S. 10 40 easy citizens. 10 40 easy For the 30% (or lower treaty) rate withholding, you can take $10. 10 40 easy 82 per day for each allowable exemption in 2014. 10 40 easy If you are a resident of South Korea, you are allowed personal exemptions for yourself and for your spouse and children who live with you in the United States at any time during the tax year. 10 40 easy However, the additional exemptions for your spouse and children must be further prorated as explained in chapter 5 under Exemptions . 10 40 easy Students and business apprentices from India. 10 40 easy   If you are eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty, you are allowed an exemption for your spouse only if your spouse will have no gross income for 2014 and cannot be claimed as a dependent on another U. 10 40 easy S. 10 40 easy taxpayer's 2014 return. 10 40 easy You are also allowed an exemption for each dependent not admitted to the United States on “F-2,” “J-2,” or “M-2” visas if they meet the same rules that apply to U. 10 40 easy S. 10 40 easy citizens. 10 40 easy For the 30% (or lower treaty rate) withholding on compensation for independent personal services performed in the United States, you are allowed $10. 10 40 easy 82 per day for each allowable exemption in 2014. 10 40 easy Refund of Taxes Withheld in Error Multi-level marketing. 10 40 easy   If you are a distributor for a multi-level marketing company who had taxes withheld in error, file a U. 10 40 easy S. 10 40 easy income tax return (Form 1040NR, Form 1040NR-EZ, or Form 1120-F) or, if a tax return has already been filed, a claim for refund (Form 1040X or amended Form 1120-F) to recover the amount withheld in error. 10 40 easy You must also attach to the U. 10 40 easy S. 10 40 easy income tax return or claim for refund supporting information that includes, but is not limited to, the following items. 10 40 easy A copy of your Form W-2, Form 1042-S, or Form 1099 to prove the amount of taxes withheld. 10 40 easy A statement explaining why income reported on your Form W-2, Form 1042-S, or Form 1099 is not subject to U. 10 40 easy S. 10 40 easy taxation. 10 40 easy A statement listing all the dates you entered and left the United States during the taxable year. 10 40 easy If the compensation is multi-year compensation, the statement must list all the dates you entered and left the United States during each of the taxable years to which the compensation is attributable. 10 40 easy A copy of any documents or records that show the number of days you actually were present in the United States during the years listed. 10 40 easy A statement providing: (a) the number of days (or unit of time less than a day, if appropriate) that personal services were performed in the United States in connection with recruiting, training, and supporting your lower-tier distributors; and (b) the total number of days (or unit of time less than a day, if appropriate) that personal services were performed globally in connection with recruiting, training, and supporting your lower-tier distributors. 10 40 easy Any further relevant document or record supporting your claim that the taxes were withheld in error. 10 40 easy Withholding From Other Income Other income subject to 30% withholding generally includes fixed or determinable income such as interest (other than portfolio interest), dividends, pensions and annuities, and gains from certain sales and exchanges, discussed in chapter 4. 10 40 easy It also includes 85% of social security benefits paid to nonresident aliens. 10 40 easy Refund of taxes withheld in error on social security benefits paid to resident aliens. 10 40 easy   Social security benefits paid to a lawful permanent resident (green card holder) are not subject to 30% withholding. 10 40 easy For U. 10 40 easy S. 10 40 easy income tax purposes, green card holders continue to be resident aliens until their lawful permanent resident status under immigration laws is either taken away or is administratively or judicially determined to have been abandoned. 10 40 easy See Green Card Test in chapter 1. 10 40 easy If you are a green card holder and tax was withheld in error on your social security benefits because you have a foreign address, the withholding tax is refundable by the Social Security Administration (SSA) or the IRS. 10 40 easy SSA will refund taxes erroneously withheld if the refund can be processed during the same calendar year in which the tax was withheld. 10 40 easy If SSA cannot refund the taxes withheld, you must file a Form 1040 or 1040A with the Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301 to determine if you are entitled to a refund. 10 40 easy You must also attach the following to your Form 1040 or 1040A. 10 40 easy A copy of Form SSA-1042S, Social Security Benefit Statement. 10 40 easy A copy of the “green card. 10 40 easy ” A signed declaration that includes the following statements: The SSA should not have withheld income tax from my social security benefits because I am a U. 10 40 easy S. 10 40 easy lawful permanent resident and my green card has been neither revoked nor administratively or judicially determined to have been abandoned. 10 40 easy I am filing a U. 10 40 easy S. 10 40 easy income tax return for the tax year as a resident alien reporting all of my worldwide income. 10 40 easy I have not claimed benefits for the tax year under an income tax treaty as the resident of a country other than the United States. 10 40 easy Other income not subject to withholding of 30% (or lower treaty) rate. 10 40 easy   The following income is not subject to withholding at the 30% (or lower treaty) rate if you file Form W-8ECI with the payer of the income. 10 40 easy Income (other than compensation) that is effectively connected with your U. 10 40 easy S. 10 40 easy trade or business. 10 40 easy Income from real property that you choose to treat as effectively connected with a U. 10 40 easy S. 10 40 easy trade or business. 10 40 easy See Income From Real Property in chapter 4 for details about this choice. 10 40 easy   Special rules for withholding on partnership income, scholarships, and fellowships are explained next. 10 40 easy Tax Withheld on Partnership Income If you are a foreign partner in a U. 10 40 easy S. 10 40 easy or foreign partnership, the partnership will withhold tax on your share of effectively connected taxable income (ECTI) from the partnership. 10 40 easy You may be able to reduce your ECTI subject to withholding by certain partner-level deductions. 10 40 easy Generally, you must use Form 8804-C for this purpose. 10 40 easy See the Instructions for Form 8804-C for more information. 10 40 easy The withholding rate on your share of effectively connected income is generally the highest rate of tax specified under section 1 of the Code (39. 10 40 easy 6% for 2014). 10 40 easy However, the partnership may withhold at the highest rate that applies to a particular type of income allocable to you if you gave the partnership the appropriate documentation. 10 40 easy Long-term capital gain is an example of a particular type of income to which the highest tax rate applies. 10 40 easy Claim the tax withheld as a credit on your 2014 Form 1040NR. 10 40 easy The partnership will give you a statement on Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, showing the tax withheld. 10 40 easy A partnership that is publicly traded will withhold tax on your actual distributions of effectively connected income. 10 40 easy In this case the partnership will give you a statement on Form 1042-S, Foreign Person's U. 10 40 easy S. 10 40 easy Source Income Subject to Withholding. 10 40 easy Withholding on Scholarships and Fellowship Grants There is no withholding on a qualified scholarship received by a candidate for a degree. 10 40 easy See chapter 3. 10 40 easy If you are a nonresident alien student or grantee with an “F,” “J,” “M,” or “Q” visa and you receive a U. 10 40 easy S. 10 40 easy source grant or scholarship that is not fully exempt, the withholding agent (usually the payer of the scholarship) withholds tax at 14% (or lower treaty rate) of the taxable part of the grant or scholarship that is not a payment for services. 10 40 easy However, if you are not a candidate for a degree and the grant does not meet certain requirements, tax will be withheld at the 30% (or lower treaty) rate. 10 40 easy Any part of a scholarship or fellowship grant that is a payment for services is subject to graduated withholding as discussed earlier under Withholding on Wages. 10 40 easy Alternate Withholding Procedure Your withholding agent may choose to use an alternate procedure by asking you to fill out Form W-4 and the Personal Allowances Worksheet (attached to Form W-4). 10 40 easy Use the following instructions instead of the Form W-4 instructions to complete the worksheet. 10 40 easy Line A. 10 40 easy   Enter the total of the following amounts on line A. 10 40 easy Personal exemption. 10 40 easy   Include the prorated part of your allowable personal exemption. 10 40 easy Figure the amount by multiplying the number of days you expect to be in the United States in 2014 by the daily exemption amount ($10. 10 40 easy 82). 10 40 easy Expenses. 10 40 easy   Include expenses that will be deductible on your return. 10 40 easy These include away-from-home expenses (meals, lodging, and transportation), certain state and local income taxes, charitable contributions, and casualty losses, discussed earlier under Itemized Deductions in chapter 5. 10 40 easy They also include business expenses, moving expenses, and the IRA deduction discussed under Deductions in chapter 5. 10 40 easy Nontaxable grant or scholarship. 10 40 easy   Include the part of your grant or scholarship that is not taxable under U. 10 40 easy S. 10 40 easy law or under a tax treaty. 10 40 easy Line B. 10 40 easy   Enter -0- unless the following paragraph applies to you. 10 40 easy   If you are a student who qualifies under Article 21(2) of the United States-India Income Tax Treaty, and you are not claiming deductions for away-from-home expenses or other itemized deductions (discussed earlier), enter the standard deduction on line B. 10 40 easy The standard deduction amount for 2013 is $6,100. 10 40 easy Lines C and D. 10 40 easy   Enter -0- on both lines unless the following paragraphs apply to you. 10 40 easy   If you are a resident of Canada, Mexico, South Korea, or a U. 10 40 easy S. 10 40 easy national, an additional daily exemption amount may be allowed for your spouse and each of your dependents. 10 40 easy   If you are a resident of India who is eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty, you can claim an additional daily exemption amount for your spouse only if your spouse will have no gross income for 2014 and cannot be claimed as a dependent on another U. 10 40 easy S. 10 40 easy taxpayer's 2014 return. 10 40 easy You can also claim an additional amount for each of your dependents not admitted to the United States on “F-2,” “J-2,” or “M-2” visas if they meet the same rules that apply to U. 10 40 easy S. 10 40 easy citizens. 10 40 easy   Enter any additional amount for your spouse on line C. 10 40 easy Enter any additional amount for your dependents on line D. 10 40 easy Lines E, F, and G. 10 40 easy   No entries should be made on lines E, F, and G. 10 40 easy Line H. 10 40 easy   Add the amounts on lines A through D and enter the total on line H. 10 40 easy Form W-4. 10 40 easy   Complete lines 1 through 4 of Form W-4. 10 40 easy Sign and date the form and give it with the Personal Allowances Worksheet to your withholding agent. 10 40 easy   If you file a Form W-4 to reduce or eliminate the withholding on your scholarship or grant, you must file an annual U. 10 40 easy S. 10 40 easy income tax return to be allowed the exemptions and deductions you claimed on that form. 10 40 easy If you are in the United States during more than one tax year, you must attach a statement to your yearly Form W-4 indicating that you have filed a U. 10 40 easy S. 10 40 easy income tax return for the previous year. 10 40 easy If you have not been in the United States long enough to be required to file a return, you must attach a statement to your Form W-4 saying you will file a U. 10 40 easy S. 10 40 easy income tax return when required. 10 40 easy After the withholding agent has accepted your Form W-4, tax will be withheld on your scholarship or grant at the graduated rates that apply to wages. 10 40 easy The gross amount of the income is reduced by the amount on line H of the worksheet and the withholding tax is figured on the remainder. 10 40 easy You will receive a Form 1042-S from the withholding agent (usually the payer of your grant) showing the gross amount of your taxable scholarship or fellowship grant less the withholding allowance amount, the tax rate, and the amount of tax withheld. 10 40 easy Use this form to prepare your annual U. 10 40 easy S. 10 40 easy income tax return. 10 40 easy Income Entitled to Tax Treaty Benefits If a tax treaty between the United States and your country provides an exemption from, or a reduced rate of, tax for certain items of income, you should notify the payor of the income (the withholding agent) of your foreign status to claim a tax treaty withholding exemption. 10 40 easy Generally, you do this by filing either Form W-8BEN or Form 8233 with the withholding agent. 10 40 easy File Form W-8BEN for income that is not personal services income. 10 40 easy File Form 8233 for personal services income as discussed next. 10 40 easy Employees and independent contractors. 10 40 easy   If you perform personal services as an employee or as an independent contractor and you can claim an exemption from withholding on that personal service income because of a tax treaty, give Form 8233 to each withholding agent from whom amounts will be received. 10 40 easy   Even if you submit Form 8233, the withholding agent may have to withhold tax from your income. 10 40 easy This is because the factors on which the treaty exemption is based may not be determinable until after the close of the tax year. 10 40 easy In this case, you must file Form 1040NR (or Form 1040NR-EZ if you qualify) to recover any overwithheld tax and to provide the IRS with proof that you are entitled to the treaty exemption. 10 40 easy Students, teachers, and researchers. 10 40 easy   Students, teachers, and researchers must attach the appropriate statement shown in Appendix A (for students) or Appendix B (for teachers and researchers) at the end of this publication to the Form 8233 and give it to the withholding agent. 10 40 easy For treaties not listed in the appendices, attach a statement in a format similar to those for other treaties. 10 40 easy   If you received a scholarship or fellowship and personal services income from the same withholding agent, use Form 8233 to claim an exemption from withholding based on a tax treaty for both types of income. 10 40 easy Special events and promotions. 10 40 easy   Withholding at the full 30% rate is required for payments made to a nonresident alien or foreign corporation for gate receipts (or television or other receipts) from rock music festivals, boxing promotions, and other entertainment or sporting events, unless the withholding agent has been specifically advised otherwise by letter from the IRS. 10 40 easy Form 13930 is used to request a reduction in withholding. 10 40 easy Withholding may be required even if the income may be exempt from taxation by provisions of a tax treaty. 10 40 easy One reason for this is that the partial or complete exemption is usually based on factors that cannot be determined until after the close of the tax year. 10 40 easy You will be required to pay U. 10 40 easy S. 10 40 easy tax, at the time of your departure from the United States, on any income for which you incorrectly claimed a treaty exemption. 10 40 easy For more details on treaty provisions that apply to compensation, see Publication 901. 10 40 easy Tax Withheld on Real Property Sales If you are a nonresident alien and you dispose of a U. 10 40 easy S. 10 40 easy real property interest, the transferee (buyer) of the property generally must withhold a tax equal to 10% of the amount realized on the disposition. 10 40 easy A distribution by a qualified investment entity to a nonresident alien shareholder that is treated as gain from the sale or exchange of a U. 10 40 easy S. 10 40 easy real property interest by the shareholder is subject to withholding at 35%. 10 40 easy Withholding is also required on certain distributions and other transactions by domestic or foreign corporations, partnerships, trusts, and estates. 10 40 easy These rules are covered in Publication 515. 10 40 easy For information on the tax treatment of dispositions of U. 10 40 easy S. 10 40 easy real property interests, see Real Property Gain or Loss in chapter 4. 10 40 easy If you are a partner in a domestic partnership, and the partnership disposes of a U. 10 40 easy S. 10 40 easy real property interest at a gain, the partnership will withhold tax on the amount of gain allocable to its foreign partners. 10 40 easy Your share of the income and tax withheld will be reported to you on Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, or Form 1042-S, Foreign Person's U. 10 40 easy S. 10 40 easy Source Income Subject to Withholding (in the case of a publicly traded partnership). 10 40 easy Withholding is not required in the following situations. 10 40 easy The property is acquired by the buyer for use as a residence and the amount realized (sales price) is not more than $300,000. 10 40 easy The property disposed of is an interest in a domestic corporation if any class of stock of the corporation is regularly traded on an established securities market. 10 40 easy However, this exception does not apply to certain dispositions of substantial amounts of non-publicly traded interests in publicly traded corporations. 10 40 easy The property disposed of is an interest in a U. 10 40 easy S. 10 40 easy corporation that is not regularly traded on an established market and you (the seller) give the buyer a copy of a statement issued by the corporation certifying that the interest is not a U. 10 40 easy S. 10 40 easy real property interest. 10 40 easy You (the seller) give the buyer a certification stating, under penalties of perjury, that you are not a foreign person, and containing your name, U. 10 40 easy S. 10 40 easy taxpayer identification number, and home address. 10 40 easy You can give the certification to a qualified substitute. 10 40 easy The qualified substitute gives the buyer a statement, under penalties of perjury, that the certification is in the possession of the qualified substitute. 10 40 easy For this purpose, a qualified substitute is (a) the person (including any attorney or title company) responsible for closing the transaction, other than your agent, and (b) the buyer's agent. 10 40 easy The buyer receives a withholding certificate from the Internal Revenue Service. 10 40 easy You give the buyer written notice that you are not required to recognize any gain or loss on the transfer because of a nonrecognition provision in the Internal Revenue Code or a provision in a U. 10 40 easy S. 10 40 easy tax treaty. 10 40 easy The buyer must file a copy of the notice with the Ogden Service Center, P. 10 40 easy O. 10 40 easy Box 409101, Ogden, UT 84409. 10 40 easy You must verify the notice as true and sign it under penalties of perjury. 10 40 easy The notice must contain the following information. 10 40 easy A statement that the notice is a notice of nonrecognition under regulation section 1. 10 40 easy 1445-2(d)(2). 10 40 easy Your name, taxpayer identification number, and home address. 10 40 easy A statement that you are not required to recognize any gain or loss on the transfer. 10 40 easy A brief description of the transfer. 10 40 easy A brief summary of the law and facts supporting your claim that recognition of gain or loss is not required. 10 40 easy You may not give the buyer a written notice for any of the following transfers: the sale of your main home on which you exclude gain, a like-kind exchange that does not qualify for nonrecognition treatment in its entirety, or a deferred like-kind exchange that has not been completed at the time the buyer must file Form 8288. 10 40 easy Instead, a withholding certificate (described next) must be obtained. 10 40 easy The amount you realize on the transfer of a U. 10 40 easy S. 10 40 easy real property interest is zero. 10 40 easy The property is acquired by the United States, a U. 10 40 easy S. 10 40 easy state or possession, a political subdivision, or the District of Columbia. 10 40 easy The distribution is from a domestically controlled qualified investment entity (QIE) and is treated as a distribution of a U. 10 40 easy S. 10 40 easy real property interest only because an interest in the entity was disposed of in an applicable wash sale transaction. 10 40 easy For the definition of a QIE, see Qualified investment entities under Real Property Gain or Loss, earlier. 10 40 easy See Wash sale under Real Property Gain or Loss in chapter 4. 10 40 easy The certifications in (3) and (4) must be disregarded by the buyer if the buyer or qualified substitute has actual knowledge, or receives notice from a seller's or buyer's agent (or substitute), that they are false. 10 40 easy This also applies to the qualified substitute's statement under (4). 10 40 easy Withholding certificates. 10 40 easy   The tax required to be withheld on a disposition can be reduced or eliminated under a withholding certificate issued by the IRS. 10 40 easy Either you or the buyer can request a withholding certificate. 10 40 easy   A withholding certificate can be issued due to any of the following. 10 40 easy The IRS determines that reduced withholding is appropriate because either: The amount required to be withheld would be more than your maximum tax liability, or Withholding of the reduced amount would not jeopardize collection of the tax. 10 40 easy All of your realized gain is exempt from U. 10 40 easy S. 10 40 easy tax. 10 40 easy You or the buyer enters into an agreement for the payment of tax providing security for the tax liability. 10 40 easy   Get Publication 515 and Form 8288-B for information on procedures to request a withholding certificate. 10 40 easy Credit for tax withheld. 10 40 easy   The buyer must report and pay over the withheld tax within 20 days after the transfer using Form 8288, U. 10 40 easy S. 10 40 easy Withholding Tax Return for Dispositions by Foreign Persons of U. 10 40 easy S. 10 40 easy Real Property Interests. 10 40 easy This form is filed with the IRS with copies A and B of Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. 10 40 easy S. 10 40 easy Real Property Interests. 10 40 easy Copy B of this statement will be stamped received by the IRS and returned to you (the seller) if the statement is complete and includes your taxpayer identification number (TIN). 10 40 easy You must file Copy B with your tax return to take credit for the tax withheld. 10 40 easy   A stamped copy of Form 8288-A will not be provided to you if your TIN is not included on that form. 10 40 easy The IRS will send you a letter requesting the TIN and providing instructions for how to get a TIN. 10 40 easy When you provide the IRS with a TIN, the IRS will provide you with a stamped Copy B of Form 8288-A. 10 40 easy Social Security and Medicare Taxes If you work as an employee in the United States, you must pay social security and Medicare taxes in most cases. 10 40 easy Your payments of these taxes contribute to your coverage under the U. 10 40 easy S. 10 40 easy social security system. 10 40 easy Social security coverage provides retirement benefits, survivors and disability benefits, and medical insurance (Medicare) benefits to individuals who meet certain eligibility requirements. 10 40 easy In most cases, the first $113,700 of taxable wages received in 2013 for services performed in the United States is subject to social security tax. 10 40 easy All taxable wages are subject to Medicare tax. 10 40 easy Your employer deducts these taxes from each wage payment. 10 40 easy Your employer must deduct these taxes even if you do not expect to qualify for social security or Medicare benefits. 10 40 easy You can claim a credit for excess social security tax on your income tax return if you have more than one employer and the amount deducted from your combined wages for 2013 is more than $7,049. 10 40 easy 40. 10 40 easy Use the appropriate worksheet in chapter 3 of Publication 505, Tax Withholding and Estimated Tax, to figure your credit. 10 40 easy If any one employer deducted more than $7,049. 10 40 easy 40, you cannot claim a credit for that amount. 10 40 easy Ask your employer to refund the excess. 10 40 easy If your employer does not refund the excess, you can file a claim for refund using Form 843. 10 40 easy In general, U. 10 40 easy S. 10 40 easy social security and Medicare taxes apply to payments of wages for services performed as an employee in the United States, regardless of the citizenship or residence of either the employee or the employer. 10 40 easy In limited situations, these taxes apply to wages for services performed outside the United States. 10 40 easy Your employer should be able to tell you if social security and Medicare taxes apply to your wages. 10 40 easy You cannot make voluntary payments if no taxes are due. 10 40 easy Additional Medicare Tax. 10 40 easy   Beginning in 2013, in addition to the Medicare tax, a 0. 10 40 easy 9% Additional Medicare Tax applies to Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income that are more than: $250,000 if married filing jointly, $125,000 if married filing separately, or $200,000 for any other filing status. 10 40 easy   There are no special rules for nonresident aliens for purposes of Additional Medicare Tax. 10 40 easy Wages, RRTA compensation, and self-employment income that are subject to Medicare tax will also be subject to Additional Medicare Tax if in excess of the applicable threshold. 10 40 easy   Your employer is responsible for withholding the 0. 10 40 easy 9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays to you in excess of $200,000 in the calendar year. 10 40 easy If you intend to file a joint return and you anticipate that you and your spouse's individual wages are not going to be more than $200,000 but your combined wages and self-employment income are going to be more than $250,000, you may want to request additional withholding on Form W-4 and/or make estimated tax payments. 10 40 easy   If you file Form 1040NR, you must pay Additional Medicare Tax if the total of your wages and your self-employment income was more than $125,000 if married (Box 3, 4, or 5 on page 1 of Form 1040NR), or $200,000 if single or qualifying widow(er) (Box 1, 2, or 6 on page 1 of Form 1040NR). 10 40 easy    See Form 8959, Additional Medicare Tax, and the Instructions for Form 8959 to determine whether you are required to pay Additional Medicare Tax. 10 40 easy For more information on Additional Medicare Tax, go to IRS. 10 40 easy gov and enter “Additional Medicare Tax” in the search box. 10 40 easy   Self-employed individuals may also be required to pay Additional Medicare Tax. 10 40 easy See Self-Employment Tax , later. 10 40 easy Students and Exchange Visitors Generally, services performed by you as a nonresident alien temporarily in the United States as a nonimmigrant under subparagraph (F), (J), (M), or (Q) of section 101(a)(15) of the Immigration and Nationality Act are not covered under the social security program if the services are performed to carry out the purpose for which you were admitted to the United States. 10 40 easy This means that there will be no withholding of social security or Medicare taxes from the pay you receive for these services. 10 40 easy These types of services are very limited, and generally include only on-campus work, practical training, and economic hardship employment. 10 40 easy Social security and Medicare taxes will be withheld from your pay for these services if you are considered a resident alien as discussed in chapter 1, even though your nonimmigrant classification (“F,” “J,” “M,” or “Q”) remains the same. 10 40 easy Services performed by a spouse or minor child of nonimmigrant aliens with the classification of “F-2,” “J-2,” “M-2,” and “Q-3” are covered under social security. 10 40 easy Nonresident Alien Students If you are a nonresident alien temporarily admitted to the United States as a student, you generally are not permitted to work for a wage or salary or to engage in business while you are in the United States. 10 40 easy In some cases, a student admitted to the United States in “F-1,” “M-1,” or “J-1” status is granted permission to work. 10 40 easy Social security and Medicare taxes are not withheld from pay for the work unless the student is considered a resident alien. 10 40 easy Any student who is enrolled and regularly attending classes at a school may be exempt from social security and Medicare taxes on pay for services performed for that school. 10 40 easy The U. 10 40 easy S. 10 40 easy Citizenship and Immigration Services (USCIS) permits on-campus work for students in “F-1” status if it does not displace a U. 10 40 easy S. 10 40 easy resident. 10 40 easy On-campus work means work performed on the school's premises. 10 40 easy On-campus work includes work performed at an off-campus location that is educationally affiliated with the school. 10 40 easy On-campus work under the terms of a scholarship, fellowship, or assistantship is considered part of the academic program of a student taking a full course of study and is permitted by the USCIS. 10 40 easy Social security and Medicare taxes are not withheld from pay for this work unless the student is considered a resident alien. 10 40 easy If services performed by a nonresident alien student are not considered as performed to carry out the purpose for which the student was admitted to the United States, social security and Medicare taxes will be withheld from pay for the services unless the pay is exempt under the Internal Revenue Code. 10 40 easy Exchange Visitors Exchange visitors are temporarily admitted to the United States under section 101(a)(15)(J) of the Immigration and Nationality Act. 10 40 easy Social security and Medicare taxes are not withheld on pay for services of an exchange visitor who has been given permission to work and who possesses or obtains a letter of authorization from the sponsor unless the exchange visitor is considered a resident alien. 10 40 easy If services performed by an exchange visitor are not considered as performed to carry out the purpose for which the visitor was admitted to the United States, social security and Medicare taxes are withheld from pay for the services unless the pay is exempt under the Internal Revenue Code. 10 40 easy Nonresident aliens temporarily admitted to the United States as participants in international cultural exchange programs under section 101(a)(15)(Q) of the Immigration and Nationality Act may be exempt from social security and Medicare taxes. 10 40 easy The employer must be the petitioner through whom the alien obtained the “Q” visa. 10 40 easy Social security and Medicare taxes are not withheld from pay for this work unless the alien is considered a resident alien. 10 40 easy Refund of Taxes Withheld in Error If social security or Medicare taxes were withheld in error from pay that is not subject to these taxes, contact the employer who withheld the taxes for a refund. 10 40 easy If you are unable to get a full refund of the amount from your employer, file a claim for refund with the Internal Revenue Service on Form 843, Claim for Refund and Request for Abatement. 10 40 easy Attach the following items to Form 843. 10 40 easy A copy of your Form W-2 to prove the amount of social security and Medicare taxes withheld. 10 40 easy A copy of your visa. 10 40 easy Form I-94 (or other documentation showing your dates of arrival or departure). 10 40 easy If you have an F-1 visa, documentation showing permission to work in the U. 10 40 easy S. 10 40 easy If you have a J-1 visa, documentation showing permission to work in the U. 10 40 easy S. 10 40 easy If you are engaged in optional practical training or employment due to severe economic necessity, documentation showing permission to work in the U. 10 40 easy S. 10 40 easy A statement from your employer indicating the amount of the reimbursement your employer provided and the amount of the credit or refund your employer claimed or you authorized your employer to claim. 10 40 easy If you cannot obtain this statement from your employer, you must provide this information on your own statement and explain why you are not attaching a statement from your employer or on Form 8316 claiming your employer will not issue the refund. 10 40 easy If you were exempt from social security and Medicare tax for only part of the year, pay statements showing the tax paid during the period you were exempt. 10 40 easy File Form 843 (with attachments) with the Department of the Treasury, Internal Revenue Service Center, Ogden, UT 84201-0038. 10 40 easy Do not use Form 843 to request a refund of Additional Medicare Tax. 10 40 easy If Additional Medicare Tax was withheld from your pay in error, you can claim a credit for any withheld Additional Medicare Tax against the total tax liability shown on your tax return by filing Form 8959 with Form 1040 or 1040NR. 10 40 easy If Additional Medicare Tax was withheld in error in a prior year for which you already filed Form 1040 or 1040NR, you must file Form 1040X, Amended U. 10 40 easy S. 10 40 easy Individual Income Tax Return, for the prior year in which the wages or compensation were originally received to recover the Additional Medicare Tax withheld in error. 10 40 easy See the Instructions for Form 1040X. 10 40 easy Agricultural Workers Agricultural workers temporarily admitted into the United States on H-2A visas are exempt from social security and Medicare taxes on compensation paid to them for services performed in connection with the H-2A visa. 10 40 easy You can find more information about not having tax withheld at www. 10 40 easy irs. 10 40 easy gov/Individuals/International-Taxpayers/Foreign-Agricultural-Workers. 10 40 easy Self-Employment Tax Self-employment tax is the social security and Medicare taxes for individuals who are self-employed. 10 40 easy Nonresident aliens are not subject to self-employment tax unless an international social security agreement in effect determines that they are covered under the U. 10 40 easy S. 10 40 easy social security system. 10 40 easy Residents of the U. 10 40 easy S. 10 40 easy Virgin Islands, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa are considered U. 10 40 easy S. 10 40 easy residents for this purpose and are subject to the self-employment tax. 10 40 easy Resident aliens must pay self-employment tax under the same rules that apply to U. 10 40 easy S. 10 40 easy citizens. 10 40 easy However, a resident alien employed by an international organization, a foreign government, or a wholly-owned instrumentality of a foreign government is not subject to the self-employment tax on income earned in the United States. 10 40 easy Self-employment income you receive while you are a resident alien is subject to self-employment tax even if it was paid for services you performed as a nonresident alien. 10 40 easy Example. 10 40 easy Bill Jones is an author engaged in the business of writing books. 10 40 easy Bill had several books published in a foreign country while he was a citizen and resident of that country. 10 40 easy During 2013, Bill entered the United States as a resident alien. 10 40 easy After becoming a U. 10 40 easy S. 10 40 easy resident, he continued to receive royalties from his foreign publisher. 10 40 easy Bill reports his income and expenses on the cash basis (he reports income on his tax return when received and deducts expenses when paid). 10 40 easy Bill's 2013 self-employment income includes the royalties received after he became a U. 10 40 easy S. 10 40 easy resident even though the books were published while he was a nonresident alien. 10 40 easy This royalty income is subject to self-employment tax. 10 40 easy Reporting self-employment tax. 10 40 easy   Use Schedule SE (Form 1040) to report and figure your self-employment tax. 10 40 easy Then enter the tax on Form 1040, line 56, or Form 1040NR, line 54. 10 40 easy Attach Schedule SE to Form 1040 or Form 1040NR. 10 40 easy Additional Medicare Tax. 10 40 easy   Self-employed individuals must pay a 0. 10 40 easy 9% Additional Medicare Tax on self-employment income that exceeds one of the following threshold amounts (based on your filing status): Married filing jointly — $250,000; Married filing separately — $125,000; Single, Head of household, or Qualifying widow(er) — $200,000. 10 40 easy   If you have both wages and self-employment income, the threshold amount for applying the Additional Medicare Tax on the self-employment income is reduced (but not below zero) by the amount of wages subject to Additional Medicare Tax. 10 40 easy A self-employment loss should not be considered for purposes of this tax   If you file Form 1040NR, you must pay Additional Medicare Tax if the total of your wages and your self-employment income was more than $125,000 if married (Box 3, 4, or 5 on page 1 of Form 1040NR), or $200,000 if single or qualifying widow(er) (Box 1, 2, or 6 on page 1 of Form 1040NR). 10 40 easy   See Form 8959, Additional Medicare Tax, and the Instructions for Form 8959 to determine whether you are required to pay Additional Medicare Tax. 10 40 easy For more information on Additional Medicare Tax, go to IRS. 10 40 easy gov and enter “Additional Medicare Tax” in the search box. 10 40 easy Deduction for employer-equivalent portion of self-employment tax. 10 40 easy   If you must pay self-employment tax, you can deduct a portion of the self-employment tax paid in figuring your adjusted gross income. 10 40 easy This deduction is figured on Schedule SE (Form 1040). 10 40 easy Note. 10 40 easy No portion of the Additional Medicare Tax is deductible for self-employment tax. 10 40 easy More information. 10 40 easy   Get Publication 334, Tax Guide for Small Business, for more information about self-employment tax. 10 40 easy International Social Security Agreements The United States has entered into social security agreements with foreign countries to coordinate social security coverage and taxation of workers employed for part or all of their working careers in one of the countries. 10 40 easy These agreements are commonly referred to as totalization agreements. 10 40 easy Under these agreements, dual coverage and dual contributions (taxes) for the same work are eliminated. 10 40 easy The agreements generally make sure that social security taxes (including self-employment tax) are paid only to one country. 10 40 easy Agreements are in effect with the following countries. 10 40 easy Australia. 10 40 easy Austria. 10 40 easy Belgium. 10 40 easy Canada. 10 40 easy Chile. 10 40 easy Czech Republic. 10 40 easy Denmark. 10 40 easy Finland. 10 40 easy France. 10 40 easy Germany. 10 40 easy Greece. 10 40 easy Ireland. 10 40 easy Italy. 10 40 easy Japan. 10 40 easy Korea, South. 10 40 easy Luxembourg. 10 40 easy The Netherlands. 10 40 easy Norway. 10 40 easy Poland. 10 40 easy Portugal. 10 40 easy Spain. 10 40 easy Sweden. 10 40 easy Switzerland. 10 40 easy The United Kingdom. 10 40 easy Agreements with other countries are expected to enter into force in the future. 10 40 easy Employees. 10 40 easy   Generally, under these agreements, you are subject to social security taxes only in the country where you are working. 10 40 easy However, if you are temporarily sent to work for the same employer in the United States and your pay would normally be subject to social security taxes in both countries, most agreements provide that you remain covered only by the social security system of the country from which you were sent. 10 40 easy You can get more information on any agreement by contacting the U. 10 40 easy S. 10 40 easy Social Security Administration at the address given later. 10 40 easy If you have access to the Internet, you can get more information at www. 10 40 easy socialsecurity. 10 40 easy gov/international. 10 40 easy   To establish that your pay is subject only to foreign social security taxes and is exempt from U. 10 40 easy S. 10 40 easy social security taxes (including the Medicare tax) under an agreement, you or your employer should request a certificate of coverage from the appropriate agency of the foreign country. 10 40 easy This will usually be the same agency to which you or your employer pays your foreign social security taxes. 10 40 easy The foreign agency will be able to tell you what information is needed for them to issue the certificate. 10 40 easy Your employer should keep a copy of the certificate because it may be needed to show why you are exempt from U. 10 40 easy S. 10 40 easy social security taxes. 10 40 easy Only wages paid on or after the effective date of the agreement can be exempt from U. 10 40 easy S. 10 40 easy social security taxes. 10 40 easy    Some of the countries with which the United States has agreements will not issue certificates of coverage. 10 40 easy In this case, either you or your employer should request a statement that your wages are not covered by the U. 10 40 easy S. 10 40 easy social security system. 10 40 easy Request the statement from the following address. 10 40 easy U. 10 40 easy S. 10 40 easy Social Security Administration Office of International Programs P. 10 40 easy O. 10 40 easy Box 17741 Baltimore, MD 21235-7741 Self-employed individuals. 10 40 easy   Under most agreements, self-employed individuals are covered by the social security system of the country where they reside. 10 40 easy However, under some agreements, you may be exempt from U. 10 40 easy S. 10 40 easy self-employment tax if you temporarily transfer your business activity to or from the United States. 10 40 easy   If you believe that your self-employment income is subject only to U. 10 40 easy S. 10 40 easy self-employment tax and is exempt from foreign social security taxes, request a certificate of coverage from the U. 10 40 easy S. 10 40 easy Social Security Administration at the address given earlier. 10 40 easy This certificate will establish your exemption from foreign social security taxes. 10 40 easy   To establish that your self-employment income is subject only to foreign social security taxes and is exempt from U. 10 40 easy S. 10 40 easy self-employment tax, request a certificate of coverage from the appropriate agency of the foreign country. 10 40 easy If the foreign country will not issue the certificate, you should request a statement that your income is not covered by the U. 10 40 easy S. 10 40 easy social security system. 10 40 easy Request it from the U. 10 40 easy S. 10 40 easy Social Security Administration at the address given earlier. 10 40 easy Attach a photocopy of either statement to Form 1040 each year you are exempt. 10 40 easy Also print “Exempt, see attached statement” on the line for self-employment tax. 10 40 easy Estimated Tax Form 1040-ES (NR) You may have income from which no U. 10 40 easy S. 10 40 easy income tax is withheld. 10 40 easy Or the amount of tax withheld may be less than the income tax you estimate you will owe at the end of the year. 10 40 easy If so, you may have to pay estimated tax. 10 40 easy Generally, you must make estimated tax payments for 2014 if you expect to owe at least $1,000 in tax and you expect your withholding and certain refundable credits to be less than the smaller of: 90% of the tax to be shown on your 2014 income tax return, or 100% of the tax shown on your 2013 income tax return (if your 2013 return covered all 12 months of the year). 10 40 easy If your adjusted gross income for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing separately), substitute 110% for 100% in (2) above if you are not a farmer or fisherman. 10 40 easy Item (2) does not apply if you did not file a 2013 return. 10 40 easy A nonresident alien should use Form 1040-ES (NR) to figure and pay estimated tax. 10 40 easy If you pay by check, make it payable to the "United States Treasury. 10 40 easy " How to estimate your tax for 2014. 10 40 easy   If you filed a 2013 return on Form 1040NR or Form 1040NR-EZ and expect your income, number of exemptions, and total deductions for 2014 to be nearly the same, you should use your 2013 return as a guide to complete the Estimated Tax Worksheet in the Form 1040-ES (NR) instructions. 10 40 easy If you did not file a return for 2013, or if your income, exemptions, deductions, or credits will be different for 2014, you must estimate these amounts. 10 40 easy Figure your estimated tax liability using the Tax Rate Schedule in the 2014 Form 1040-ES (NR) instructions for your filing status. 10 40 easy Note. 10 40 easy If you expect to be a resident of Puerto Rico during the entire year, use Form 1040-ES or Formulario 1040-ES (PR). 10 40 easy When to pay estimated tax. 10 40 easy   Make your first estimated tax payment by the due date for filing the previous year's Form 1040NR or Form 1040NR-EZ. 10 40 easy If you have wages subject to the same withholding rules that apply to U. 10 40 easy S. 10 40 easy citizens, you must file Form 1040NR or Form 1040NR-EZ and make your first estimated tax payment by April 15, 2014. 10 40 easy If you do not have wages subject to withholding, file your income tax return and make your first estimated tax payment by June 16, 2014. 10 40 easy   If your first estimated tax payment is due April 15, 2014, you can pay your estimated tax in full at that time or in four equal installments by the dates shown next. 10 40 easy 1st installment April 15, 2014 2nd installment June 16, 2014 3rd installment Sept. 10 40 easy 15, 2014 4th installment Jan. 10 40 easy 15, 2015 If your first payment is not due until June 16, 2014, you can pay your estimated tax in full at that time or: ½ of your estimated tax by June 16, 2014, 1/4 of the tax by September 15, 2014, and 1/4 by January 15, 2015. 10 40 easy    You do not have to make the payment due January 15, 2015, if you file your 2014 Form 1040NR or 1040NR-EZ by February 2, 2015, and pay the entire balance due with your return. 10 40 easy Fiscal year. 10 40 easy   If your return is not on a calendar year basis, your due dates are the 15th day of the 4th, 6th, and 9th months of your fiscal year, and the 1st month of the following fiscal year. 10 40 easy If any date falls on a Saturday, Sunday, or legal holiday, use the next day that is not a Saturday, Sunday, or legal holiday. 10 40 easy Changes in income, deductions, or exemptions. 10 40 easy   Even if you are not required to make an estimated tax payment in April or June, your circumstances may change so that you will have to make estimated tax payments later. 10 40 easy This can happen if you receive additional income or if any of your deductions are reduced or eliminated. 10 40 easy If so, see the instructions for Form 1040-ES (NR) and Publication 505 for information on figuring your estimated tax. 10 40 easy Amended estimated tax. 10 40 easy   If, after you have made estimated tax payments, you find your estimated tax is substantially increased or decreased because of a change in your income or exemptions, you should adjust your remaining estimated tax payments. 10 40 easy To do this, see the instructions for Form 1040-ES (NR) and Publication 505. 10 40 easy Penalty for failure to pay estimated income tax. 10 40 easy   You will be subject to a penalty for underpayment of installments of estimated tax except in certain situations. 10 40 easy These situations are explained on Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts. 10 40 easy Prev  Up  Next   Home 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