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1040x 2010 Form

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1040x 2010 Form

1040x 2010 form Publication 926 - Main Content Table of Contents Do You Have a Household Employee? Can Your Employee Legally Work in the United States? Do You Need To Pay Employment Taxes?Social Security and Medicare Taxes Federal Unemployment (FUTA) Tax Do You Need To Withhold Federal Income Tax? What Do You Need To Know About the Earned Income Credit? How Do You Make Tax Payments? What Forms Must You File?Employee who leaves during the year. 1040x 2010 form Filing options when no return is required. 1040x 2010 form What Records Must You Keep? Can You Claim a Credit for Child and Dependent Care Expenses? How Can You Correct Schedule H?Adjust the overpayment. 1040x 2010 form Claim for refund process. 1040x 2010 form How To Get Tax HelpLow Income Taxpayer Clinics Do You Have a Household Employee? You have a household employee if you hired someone to do household work and that worker is your employee. 1040x 2010 form The worker is your employee if you can control not only what work is done, but how it is done. 1040x 2010 form If the worker is your employee, it does not matter whether the work is full time or part time or that you hired the worker through an agency or from a list provided by an agency or association. 1040x 2010 form It also does not matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job. 1040x 2010 form Example. 1040x 2010 form You pay Betty Shore to babysit your child and do light housework 4 days a week in your home. 1040x 2010 form Betty follows your specific instructions about household and child care duties. 1040x 2010 form You provide the household equipment and supplies that Betty needs to do her work. 1040x 2010 form Betty is your household employee. 1040x 2010 form Household work. 1040x 2010 form   Household work is work done in or around your home. 1040x 2010 form Some examples of workers who do household work are: Babysitters, Caretakers, House cleaning workers, Domestic workers, Drivers, Health aides, Housekeepers, Maids, Nannies, Private nurses, and Yard workers. 1040x 2010 form Workers who are not your employees. 1040x 2010 form   If only the worker can control how the work is done, the worker is not your employee but is self-employed. 1040x 2010 form A self-employed worker usually provides his or her own tools and offers services to the general public in an independent business. 1040x 2010 form   A worker who performs child care services for you in his or her home generally is not your employee. 1040x 2010 form   If an agency provides the worker and controls what work is done and how it is done, the worker is not your employee. 1040x 2010 form Example. 1040x 2010 form You made an agreement with John Peters to care for your lawn. 1040x 2010 form John runs a lawn care business and offers his services to the general public. 1040x 2010 form He provides his own tools and supplies, and he hires and pays any helpers he needs. 1040x 2010 form Neither John nor his helpers are your household employees. 1040x 2010 form More information. 1040x 2010 form   More information about who is an employee is in Publication 15-A, Employer's Supplemental Tax Guide. 1040x 2010 form Can Your Employee Legally Work in the United States? It is unlawful for you knowingly to hire or continue to employ an alien who cannot legally work in the United States. 1040x 2010 form When you hire a household employee to work for you on a regular basis, you and the employee must complete the U. 1040x 2010 form S. 1040x 2010 form Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. 1040x 2010 form No later than the first day of work, the employee must complete the employee section of the form by providing certain required information and attesting to his or her current work eligibility status in the United States. 1040x 2010 form You must complete the employer section by examining documents presented by the employee as evidence of his or her identity and employment eligibility. 1040x 2010 form Acceptable documents to establish identity and employment eligibility are listed on Form I-9. 1040x 2010 form You should keep the completed Form I-9 in your own records. 1040x 2010 form Do not submit it to the IRS, the USCIS, or any other government or other entity. 1040x 2010 form The form must be kept available for review upon notice by an authorized U. 1040x 2010 form S. 1040x 2010 form Government official. 1040x 2010 form Two copies of Form I-9 are contained in the Handbook for Employers (Form M-274) published by the USCIS. 1040x 2010 form Call the USCIS at 1-800-870-3676 to order the Handbook for Employers; or you may download the handbook at www. 1040x 2010 form uscis. 1040x 2010 form gov. 1040x 2010 form If you have questions about the employment eligibility verification process or other immigration-related employment matters, contact the USCIS Office of Business Liaison at 1-800-357-2099. 1040x 2010 form You also can visit the USCIS website at www. 1040x 2010 form uscis. 1040x 2010 form gov to get Form I-9. 1040x 2010 form For more information, see Employee's Social Security Number (SSN) in Publication 15 (Circular E), Employer's Tax Guide. 1040x 2010 form Do You Need To Pay Employment Taxes? If you have a household employee, you may need to withhold and pay social security and Medicare taxes, pay federal unemployment tax, or both. 1040x 2010 form To find out, read Table 1. 1040x 2010 form You do not need to withhold federal income tax from your household employee's wages. 1040x 2010 form But if your employee asks you to withhold it, you can. 1040x 2010 form See Do You Need To Withhold Federal Income Tax, later. 1040x 2010 form If you need to pay social security, Medicare, or federal unemployment tax or choose to withhold federal income tax, read Table 2 for an overview of what you may need to do. 1040x 2010 form If you do not need to pay social security, Medicare, or federal unemployment tax and do not choose to withhold federal income tax, read State employment taxes, next. 1040x 2010 form The rest of this publication does not apply to you. 1040x 2010 form State employment taxes. 1040x 2010 form   You should contact your state unemployment tax agency to find out whether you need to pay state unemployment tax for your household employee. 1040x 2010 form For a list of state unemployment tax agencies, visit the U. 1040x 2010 form S. 1040x 2010 form Department of Labor's website at www. 1040x 2010 form workforcesecurity. 1040x 2010 form doleta. 1040x 2010 form gov/unemploy/agencies. 1040x 2010 form asp. 1040x 2010 form You should also determine if you need to pay or collect other state employment taxes or carry workers' compensation insurance. 1040x 2010 form    Table 1. 1040x 2010 form Do You Need To Pay Employment Taxes? IF you . 1040x 2010 form . 1040x 2010 form . 1040x 2010 form THEN you need to . 1040x 2010 form . 1040x 2010 form . 1040x 2010 form A– Pay cash wages of $1,900 or more in 2014 to any one household employee. 1040x 2010 form Withhold and pay social security and Medicare taxes. 1040x 2010 form The taxes are 15. 1040x 2010 form 3%1 of cash wages. 1040x 2010 form Your employee's share is 7. 1040x 2010 form 65%1. 1040x 2010 form   (You can choose to pay it yourself and not withhold it. 1040x 2010 form ) Your share is 7. 1040x 2010 form 65%. 1040x 2010 form   Do not count wages you pay to— Your spouse, Your child under the age of 21, Your parent (see Wages not counted, later, for an exception), or Any employee under the age of 18 at any time in 2014 (see Wages not counted, later, for an exception). 1040x 2010 form B– Pay total cash wages of $1,000 or more in any calendar quarter of 2013 or 2014 to household employees. 1040x 2010 form Pay federal unemployment tax. 1040x 2010 form The tax is 6% of cash wages. 1040x 2010 form Wages over $7,000 a year per employee are not taxed. 1040x 2010 form You also may owe state unemployment tax. 1040x 2010 form   Do not count wages you pay to— Your spouse, Your child under the age of 21, or Your parent. 1040x 2010 form 1In addition to withholding Medicare tax at 1. 1040x 2010 form 45%, you must withhold a 0. 1040x 2010 form 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. 1040x 2010 form You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. 1040x 2010 form Additional Medicare Tax is only imposed on the employee. 1040x 2010 form There is no employer share of Additional Medicare Tax. 1040x 2010 form All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. 1040x 2010 form Note. 1040x 2010 form If neither A nor B above applies, you do not need to pay any federal employment taxes. 1040x 2010 form But you may still need to pay state employment taxes. 1040x 2010 form Table 2. 1040x 2010 form Household Employer's Checklist You may need to do the following things when you have a household employee. 1040x 2010 form   When you hire a household employee: □ Find out if the person can legally work in the United States. 1040x 2010 form  □ Find out if you need to pay state taxes. 1040x 2010 form When you pay your household employee: □ Withhold social security and Medicare taxes. 1040x 2010 form  □ Withhold federal income tax. 1040x 2010 form  □ Decide how you will make tax payments. 1040x 2010 form  □ Keep records. 1040x 2010 form By February 2, 2015: □ Get an employer identification number (EIN). 1040x 2010 form  □ Give your employee Copies B, C, and 2 of Form W-2, Wage and Tax Statement. 1040x 2010 form By March 2, 2015 (March 31, 2015, if you file Form W-2 electronically): □ Send Copy A of Form W-2 to the Social Security Administration (SSA). 1040x 2010 form By April 15, 2015: □ File Schedule H (Form 1040), Household Employment Taxes, with your 2014 federal income tax return (Form 1040, 1040NR, 1040-SS, or Form 1041). 1040x 2010 form  If you do not have to file a return, file Schedule H by itself. 1040x 2010 form Social Security and Medicare Taxes The social security tax pays for old-age, survivors, and disability benefits for workers and their families. 1040x 2010 form The Medicare tax pays for hospital insurance. 1040x 2010 form Both you and your household employee may owe social security and Medicare taxes. 1040x 2010 form Your share is 7. 1040x 2010 form 65% (6. 1040x 2010 form 2% for social security tax and 1. 1040x 2010 form 45% for Medicare tax) of the employee's social security and Medicare wages. 1040x 2010 form Your employee's share is also 7. 1040x 2010 form 65% (6. 1040x 2010 form 2% for social security tax and 1. 1040x 2010 form 45% for Medicare tax). 1040x 2010 form In addition to withholding Medicare tax at 1. 1040x 2010 form 45%, you must withhold a 0. 1040x 2010 form 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. 1040x 2010 form You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. 1040x 2010 form Additional Medicare Tax is only imposed on the employee. 1040x 2010 form There is no employer share of Additional Medicare Tax. 1040x 2010 form All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. 1040x 2010 form For more information on Additional Medicare Tax, visit IRS. 1040x 2010 form gov and enter “Additional Medicare Tax” in the search box. 1040x 2010 form Generally, you can use Table 3 to figure the amount of social security and Medicare taxes to withhold from each wage payment. 1040x 2010 form You are responsible for payment of your employee's share of the taxes as well as your own. 1040x 2010 form You can either withhold your employee's share from the employee's wages or pay it from your own funds. 1040x 2010 form If you decide to pay the employee's share from your own funds, see Not withholding the employee's share, later. 1040x 2010 form Pay the taxes as discussed under How Do You Make Tax Payments, later. 1040x 2010 form Also, see What Forms Must You File, later. 1040x 2010 form Social security and Medicare wages. 1040x 2010 form   You figure social security and Medicare taxes on the social security and Medicare wages you pay your employee. 1040x 2010 form   If you pay your household employee cash wages of $1,900 or more in 2014, all cash wages you pay to that employee in 2014 (regardless of when the wages were earned) up to $117,000 are social security wages and all cash wages are Medicare wages. 1040x 2010 form However, any noncash wages you pay do not count as social security and Medicare wages. 1040x 2010 form   If you pay the employee less than $1,900 in cash wages in 2014, none of the wages you pay the employee are social security or Medicare wages and neither you nor your employee will owe social security or Medicare tax on those wages. 1040x 2010 form Cash wages. 1040x 2010 form   Cash wages include wages you pay by check, money order, etc. 1040x 2010 form Cash wages do not include the value of food, lodging, clothing, and other noncash items you give your household employee. 1040x 2010 form However, cash you give your employee in place of these items is included in cash wages. 1040x 2010 form State disability payments treated as wages. 1040x 2010 form   Certain state disability plan payments that your household employee may receive are treated as social security and Medicare wages. 1040x 2010 form For more information about these payments, see the Instructions for Schedule H (Form 1040) and the notice issued by the state. 1040x 2010 form Wages not counted. 1040x 2010 form   Do not count wages you pay to any of the following individuals as social security or Medicare wages, even if these wages are $1,900 or more during the year. 1040x 2010 form Your spouse. 1040x 2010 form Your child who is under the age of 21. 1040x 2010 form Your parent. 1040x 2010 form Exception: Count these wages if both the following conditions apply. 1040x 2010 form Your parent cares for your child who is either of the following. 1040x 2010 form Under the age of 18, or Has a physical or mental condition that requires the personal care of an adult for at least 4 continuous weeks in the calendar quarter services were performed. 1040x 2010 form Your marital status is one of the following. 1040x 2010 form You are divorced and have not remarried, You are a widow or widower, or You are living with a spouse whose physical or mental condition prevents him or her from caring for your child for at least 4 continuous weeks in the calendar quarter services were performed. 1040x 2010 form An employee who is under the age of 18 at any time during the year. 1040x 2010 form Exception: Count these wages if providing household services is the employee's principal occupation. 1040x 2010 form If the employee is a student, providing household services is not considered to be his or her principal occupation. 1040x 2010 form Also, if your employee's cash wages reach $117,000 (maximum wages subject to social security tax) in 2014, do not count any wages you pay that employee during the rest of the year as social security wages to figure social security tax. 1040x 2010 form Continue to count the employee's cash wages as Medicare wages to figure Medicare tax. 1040x 2010 form If you provide your employee transit passes to commute to your home, do not count the value of the transit passes (up to $130 per month for 2014) as wages. 1040x 2010 form A transit pass includes any pass, token, fare card, voucher, or similar item entitling a person to ride on mass transit, such as a bus or train. 1040x 2010 form If you provide your employee parking at or near your home or at or near a location from which your employee commutes to your home, do not count the value of parking (up to $250 per month for 2014) as wages. 1040x 2010 form If you reimburse your employee for transit passes or parking, you may be able to exclude the reimbursement amounts. 1040x 2010 form See Publication 15-B, Employer's Tax Guide to Fringe Benefits, for special requirements for this exclusion. 1040x 2010 form Withholding the employee's share. 1040x 2010 form   You should withhold the employee's share of social security and Medicare taxes if you expect to pay your household employee cash wages of $1,900 or more in 2014. 1040x 2010 form However, if you prefer to pay the employee's share yourself, see Not withholding the employee's share, later. 1040x 2010 form   You can withhold the employee's share of the taxes even if you are not sure your employee's cash wages will be $1,900 or more in 2014. 1040x 2010 form If you withhold the taxes but then actually pay the employee less than $1,900 in cash wages for the year, you should repay the employee. 1040x 2010 form   Withhold 7. 1040x 2010 form 65% (6. 1040x 2010 form 2% for social security tax and 1. 1040x 2010 form 45% for Medicare tax) from each payment of social security and Medicare wages. 1040x 2010 form Generally, you can use Table 3 to figure the proper amount to withhold. 1040x 2010 form You will pay the amount withheld to the IRS with your share of the taxes. 1040x 2010 form Do not withhold any social security tax after your employee's social security wages for the year reach $117,000. 1040x 2010 form Table 3. 1040x 2010 form Employee Social Security (6. 1040x 2010 form 2%) and Medicare (1. 1040x 2010 form 45%1) Tax Withholding Table (See Publication 15 (Circular E) for income tax withholding tables. 1040x 2010 form ) Use this table to figure the amount of social security and Medicare taxes to withhold from each wage payment. 1040x 2010 form For example, on a wage payment of $180, the employee social security tax is $11. 1040x 2010 form 16 ($6. 1040x 2010 form 20 tax on $100 plus $4. 1040x 2010 form 96 on $80 wages). 1040x 2010 form The employee Medicare tax is $2. 1040x 2010 form 61 ($1. 1040x 2010 form 45 tax on $100 plus $1. 1040x 2010 form 16 on $80 wages). 1040x 2010 form If wage payment is: The social security tax to be withheld is: The Medicare tax to be withheld is: If wage payment is: The social security tax to be withheld is: The Medicare tax to be withheld is: $ 1. 1040x 2010 form 00 . 1040x 2010 form $ . 1040x 2010 form 06 $ . 1040x 2010 form 01 $ 51. 1040x 2010 form 00 . 1040x 2010 form $ 3. 1040x 2010 form 16 $ . 1040x 2010 form 74 2. 1040x 2010 form 00 . 1040x 2010 form . 1040x 2010 form 12 . 1040x 2010 form 03 52. 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form 2. 1040x 2010 form 36 . 1040x 2010 form 55 88. 1040x 2010 form 00 . 1040x 2010 form 5. 1040x 2010 form 46 1. 1040x 2010 form 28 39. 1040x 2010 form 00 . 1040x 2010 form 2. 1040x 2010 form 42 . 1040x 2010 form 57 89. 1040x 2010 form 00 . 1040x 2010 form 5. 1040x 2010 form 52 1. 1040x 2010 form 29 40. 1040x 2010 form 00 . 1040x 2010 form 2. 1040x 2010 form 48 . 1040x 2010 form 58 90. 1040x 2010 form 00 . 1040x 2010 form 5. 1040x 2010 form 58 1. 1040x 2010 form 31 41. 1040x 2010 form 00 . 1040x 2010 form 2. 1040x 2010 form 54 . 1040x 2010 form 59 91. 1040x 2010 form 00 . 1040x 2010 form 5. 1040x 2010 form 64 1. 1040x 2010 form 32 42. 1040x 2010 form 00 . 1040x 2010 form 2. 1040x 2010 form 60 . 1040x 2010 form 61 92. 1040x 2010 form 00 . 1040x 2010 form 5. 1040x 2010 form 70 1. 1040x 2010 form 33 43. 1040x 2010 form 00 . 1040x 2010 form 2. 1040x 2010 form 67 . 1040x 2010 form 62 93. 1040x 2010 form 00 . 1040x 2010 form 5. 1040x 2010 form 77 1. 1040x 2010 form 35 44. 1040x 2010 form 00 . 1040x 2010 form 2. 1040x 2010 form 73 . 1040x 2010 form 64 94. 1040x 2010 form 00 . 1040x 2010 form 5. 1040x 2010 form 83 1. 1040x 2010 form 36 45. 1040x 2010 form 00 . 1040x 2010 form 2. 1040x 2010 form 79 . 1040x 2010 form 65 95. 1040x 2010 form 00 . 1040x 2010 form 5. 1040x 2010 form 89 1. 1040x 2010 form 38 46. 1040x 2010 form 00 . 1040x 2010 form 2. 1040x 2010 form 85 . 1040x 2010 form 67 96. 1040x 2010 form 00 . 1040x 2010 form 5. 1040x 2010 form 95 1. 1040x 2010 form 39 47. 1040x 2010 form 00 . 1040x 2010 form 2. 1040x 2010 form 91 . 1040x 2010 form 68 97. 1040x 2010 form 00 . 1040x 2010 form 6. 1040x 2010 form 01 1. 1040x 2010 form 41 48. 1040x 2010 form 00 . 1040x 2010 form 2. 1040x 2010 form 98 . 1040x 2010 form 70 98. 1040x 2010 form 00 . 1040x 2010 form 6. 1040x 2010 form 08 1. 1040x 2010 form 42 49. 1040x 2010 form 00 . 1040x 2010 form 3. 1040x 2010 form 04 . 1040x 2010 form 71 99. 1040x 2010 form 00 . 1040x 2010 form 6. 1040x 2010 form 14 1. 1040x 2010 form 44 50. 1040x 2010 form 00 . 1040x 2010 form 3. 1040x 2010 form 10 . 1040x 2010 form 73 100. 1040x 2010 form 00 . 1040x 2010 form 6. 1040x 2010 form 20 1. 1040x 2010 form 45 1In addition to withholding Medicare tax at 1. 1040x 2010 form 45%, you must withhold a 0. 1040x 2010 form 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. 1040x 2010 form You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. 1040x 2010 form Additional Medicare Tax is only imposed on the employee. 1040x 2010 form There is no employer share of Additional Medicare Tax. 1040x 2010 form All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. 1040x 2010 form   If you make an error by withholding too little, you should withhold additional taxes from a later payment. 1040x 2010 form If you withhold too much, you should repay the employee. 1040x 2010 form    In addition to withholding Medicare tax at 1. 1040x 2010 form 45%, you must withhold a 0. 1040x 2010 form 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. 1040x 2010 form You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. 1040x 2010 form Additional Medicare Tax is only imposed on the employee. 1040x 2010 form There is no employer share of Additional Medicare Tax. 1040x 2010 form All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. 1040x 2010 form For more information on Additional Medicare Tax, visit IRS. 1040x 2010 form gov and enter “Additional Medicare Tax” in the search box. 1040x 2010 form Example. 1040x 2010 form On February 13, 2014, Mary Brown hired Jane R. 1040x 2010 form Oak (who is an unrelated individual over age 18) to care for her child and agreed to pay cash wages of $50 every Friday. 1040x 2010 form Jane worked for the remainder of the year (a total of 46 weeks). 1040x 2010 form Mary did not give Jane a Form W-4 to request federal or state tax withholding. 1040x 2010 form The following is the information Mary will need to complete Schedule H, Form W-2, and Form W-3. 1040x 2010 form See the completed examples of Form W-2 and Form W-3 for 2014 at the end of this publication. 1040x 2010 form Total cash wages paid to Jane $2,300. 1040x 2010 form 00 ($50 x 46 weeks)       Jane's share of:     Social security tax $142. 1040x 2010 form 60 ($2,300 x 6. 1040x 2010 form 2% (. 1040x 2010 form 062))         Medicare tax $33. 1040x 2010 form 35       ($2,300 x 1. 1040x 2010 form 45% (. 1040x 2010 form 0145)) Mary's share of:     Social security tax $142. 1040x 2010 form 60  ($2,300 x 6. 1040x 2010 form 2% (. 1040x 2010 form 062))           Medicare tax $33. 1040x 2010 form 35  ($2,300 x 1. 1040x 2010 form 45% (. 1040x 2010 form 0145)) Amount reported on Form W-2 and Form W-3:   Box 1:Wages, tips $2,300. 1040x 2010 form 00   Box 4: Social security tax withheld 142. 1040x 2010 form 60   Box 6: Medicare tax withheld 33. 1040x 2010 form 35 For information on withholding and reporting federal income taxes, see Publication 15 (Circular E). 1040x 2010 form Not withholding the employee's share. 1040x 2010 form   If you prefer to pay your employee's social security and Medicare taxes from your own funds, do not withhold them from your employee's wages. 1040x 2010 form The social security and Medicare taxes you pay to cover your employee's share must be included in the employee's wages for income tax purposes. 1040x 2010 form However, they are not counted as social security and Medicare wages or as federal unemployment (FUTA) wages. 1040x 2010 form Example. 1040x 2010 form In 2014 you hire a household employee (who is an unrelated individual over age 18) to care for your child and agree to pay cash wages of $100 every Friday. 1040x 2010 form You expect to pay your employee $1,900 or more for the year. 1040x 2010 form You decide to pay your employee's share of social security and Medicare taxes from your own funds. 1040x 2010 form You pay your employee $100 every Friday without withholding any social security or Medicare taxes. 1040x 2010 form For social security and Medicare tax purposes, your employee's wages each payday are $100. 1040x 2010 form For each wage payment, you will pay $15. 1040x 2010 form 30 when you pay the taxes. 1040x 2010 form This is $7. 1040x 2010 form 65 ($6. 1040x 2010 form 20 for social security tax + $1. 1040x 2010 form 45 for Medicare tax) to cover your employee's share plus $7. 1040x 2010 form 65 ($6. 1040x 2010 form 20 for social security tax + $1. 1040x 2010 form 45 for Medicare tax) for your share. 1040x 2010 form For income tax purposes, your employee's wages each payday are $107. 1040x 2010 form 65 ($100 + the $7. 1040x 2010 form 65 you will pay to cover your employee's share of social security and Medicare taxes). 1040x 2010 form Federal Unemployment (FUTA) Tax The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. 1040x 2010 form Like most employers, you may owe both the federal unemployment tax (the FUTA tax) and a state unemployment tax. 1040x 2010 form Or, you may owe only the FUTA tax or only the state unemployment tax. 1040x 2010 form To find out whether you will owe state unemployment tax, contact your state's unemployment tax agency. 1040x 2010 form For a list of state unemployment tax agencies, visit the U. 1040x 2010 form S. 1040x 2010 form Department of Labor's website at www. 1040x 2010 form workforcesecurity. 1040x 2010 form doleta. 1040x 2010 form gov/unemploy/agencies. 1040x 2010 form asp. 1040x 2010 form You should also find out if you need to pay or collect other state employment taxes or carry workers' compensation insurance. 1040x 2010 form The FUTA tax is 6. 1040x 2010 form 0% of your employee's FUTA wages. 1040x 2010 form However, you may be able to take a credit of up to 5. 1040x 2010 form 4% against the FUTA tax, resulting in a net tax rate of 0. 1040x 2010 form 6%. 1040x 2010 form Your credit for 2014 is limited unless you pay all the required contributions for 2014 to your state unemployment fund by April 15, 2015. 1040x 2010 form The credit you can take for any contributions for 2014 that you pay after April 15, 2015, is limited to 90% of the credit that would have been allowable if the contributions were paid by April 15, 2015. 1040x 2010 form (If you did not pay all the required contributions for 2013 by April 15, 2014, see Credit for 2013, later. 1040x 2010 form ) Note. 1040x 2010 form   If a due date falls on a Saturday, Sunday, or legal holiday, payments are considered timely if made by the next business day. 1040x 2010 form The term “legal holiday” means any legal holiday in the District of Columbia. 1040x 2010 form Pay the tax as discussed under How Do You Make Tax Payments, later. 1040x 2010 form Also, see What Forms Must You File, later. 1040x 2010 form Note. 1040x 2010 form   The 5. 1040x 2010 form 4% credit is reduced for wages paid in a credit reduction state. 1040x 2010 form See the Instructions for Schedule H (Form 1040). 1040x 2010 form Do not withhold the FUTA tax from your employee's wages. 1040x 2010 form You must pay it from your own funds. 1040x 2010 form FUTA wages. 1040x 2010 form   Figure the FUTA tax on the FUTA wages you pay. 1040x 2010 form If you pay cash wages to all of your household employees totaling $1,000 or more in any calendar quarter of 2013 or 2014, the first $7,000 of cash wages you pay to each household employee in 2014 is FUTA wages. 1040x 2010 form (A calendar quarter is January through March, April through June, July through September, or October through December. 1040x 2010 form ) If your employee's cash wages reach $7,000 during the year, do not figure the FUTA tax on any wages you pay that employee during the rest of the year. 1040x 2010 form For an explanation of cash wages, see the discussion on Social security and Medicare wages under Social Security and Medicare Taxes, earlier. 1040x 2010 form Wages not counted. 1040x 2010 form   Do not count wages you pay to any of the following individuals as FUTA wages. 1040x 2010 form Your spouse. 1040x 2010 form Your child who is under the age of 21. 1040x 2010 form Your parent. 1040x 2010 form Credit for 2013. 1040x 2010 form   The credit you can take for any state unemployment fund contributions for 2013 that you pay after April 15, 2014, is limited to 90% of the credit that would have been allowable if the contributions were paid on or before April 15, 2014. 1040x 2010 form Use Worksheet A to figure the credit for late contributions if you paid any state contributions after the due date for filing  Form 1040. 1040x 2010 form Worksheet A. 1040x 2010 form Worksheet for Credit for Late Contributions 1. 1040x 2010 form Enter the amount from Schedule H, line 22   2. 1040x 2010 form Enter the amount from Schedule H, line 19   3. 1040x 2010 form Subtract line 2 from line 1. 1040x 2010 form If zero or less, enter -0-   4. 1040x 2010 form Enter total contributions paid to the state(s) after the Form 1040 due date   5. 1040x 2010 form Enter the smaller of line 3 or line 4   6. 1040x 2010 form Multiply line 5 by . 1040x 2010 form 90 (90%)   7. 1040x 2010 form Add lines 2 and 6   8. 1040x 2010 form Enter the smaller of the amount on line 1 or line 7 here and on Schedule H, line 23   Do You Need To Withhold Federal Income Tax? You are not required to withhold federal income tax from wages you pay a household employee. 1040x 2010 form You should withhold federal income tax only if your household employee asks you to withhold it and you agree. 1040x 2010 form The employee must give you a completed Form W-4, Employee's Withholding Allowance Certificate. 1040x 2010 form If you and your employee have agreed to withholding, either of you may end the agreement by letting the other know in writing. 1040x 2010 form If you agree to withhold federal income tax, you are responsible for paying it to the IRS. 1040x 2010 form Pay the tax as discussed under How Do You Make Tax Payments, later. 1040x 2010 form Also, see What Forms Must You File, later. 1040x 2010 form Use the income tax withholding tables in Publication 15 (Circular E) to find out how much to withhold. 1040x 2010 form Figure federal income tax withholding on wages before you deduct any amounts for other withheld taxes. 1040x 2010 form Withhold federal income tax from each payment of wages based on the filing status and exemptions shown on your employee's Form W-4. 1040x 2010 form Publication 15 (Circular E) contains detailed instructions. 1040x 2010 form Wages. 1040x 2010 form   Figure federal income tax withholding on both cash and noncash wages you pay. 1040x 2010 form Measure wages you pay in any form other than cash by the fair market value of the noncash item. 1040x 2010 form   Do not count as wages any of the following items. 1040x 2010 form Meals provided to your employee at your home for your convenience. 1040x 2010 form Lodging provided to your employee at your home for your convenience and as a condition of employment. 1040x 2010 form Up to $130 per month for 2014 for transit passes you give your employee (or for any cash reimbursement you make for the amount your employee pays for transit passes used to commute to your home if you qualify for this exclusion). 1040x 2010 form A transit pass includes any pass, token, fare card, voucher, or similar item entitling a person to ride on mass transit, such as a bus or train. 1040x 2010 form See Publication 15-B for special requirements for this exclusion. 1040x 2010 form Up to $250 per month for 2014 for the value of parking you provide your employee or for any cash reimbursement you make for the amount your employee pays and substantiates for parking at or near your home or at or near a location from which your employee commutes to your home. 1040x 2010 form   See Publication 15 (Circular E) for more information on cash and noncash wages. 1040x 2010 form Paying tax without withholding. 1040x 2010 form   Any income tax you pay for your employee without withholding it from the employee's wages must be included in the employee's wages for federal income tax purposes. 1040x 2010 form It also must be included in social security and Medicare wages and in federal unemployment (FUTA) wages. 1040x 2010 form What Do You Need To Know About the Earned Income Credit? Certain workers can take the earned income credit (EIC) on their federal income tax return. 1040x 2010 form This credit reduces their tax or allows them to receive a payment from the IRS. 1040x 2010 form You also may have to give your employee a notice about the EIC. 1040x 2010 form Notice about the EIC. 1040x 2010 form   Copy B of the 2014 Form W-2 has a statement about the EIC on the back. 1040x 2010 form If you give your employee that copy by February 2, 2015 (as discussed under Form W-2 under What Forms Must You File, later), you do not have to give the employee any other notice about the EIC. 1040x 2010 form   If you do not give your employee Copy B of the Form W-2, your notice about the EIC can be any of the following items. 1040x 2010 form A substitute Form W-2 with the same EIC information on the back of the employee's copy that is on Copy B of the Form W-2. 1040x 2010 form Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC). 1040x 2010 form Your own written statement with the same wording as in Notice 797. 1040x 2010 form If a substitute Form W-2 is given on time but does not have the required EIC information, you must notify the employee within one week of the date the substitute Form W-2 is given. 1040x 2010 form If Form W-2 is required but is not given on time, you must give the employee Notice 797 or your written statement about the 2014 EIC by February 2, 2015. 1040x 2010 form If Form W-2 is not required, you must notify the employee by February 7, 2015. 1040x 2010 form   You must give your household employee a notice about the EIC if you agree to withhold federal income tax from the employee's wages (as discussed earlier under Do You Need To Withhold Federal Income Tax?) and the income tax withholding tables show that no tax should be withheld. 1040x 2010 form Even if not required, you are encouraged to give the employee a notice about the EIC if his or her 2014 wages are less than $46,997 ($52,427 if married filing jointly). 1040x 2010 form How Do You Make Tax Payments? When you file your 2014 federal income tax return in 2015, attach Schedule H (Form 1040) to your Form 1040, 1040NR, 1040-SS, or 1041. 1040x 2010 form Use Schedule H to figure your total household employment taxes (social security, Medicare, FUTA, and withheld federal income taxes). 1040x 2010 form Add these household employment taxes to your income tax. 1040x 2010 form Pay the amount due by April 15, 2015. 1040x 2010 form For more information about using Schedule H, see Schedule H under What Forms Must You File, later. 1040x 2010 form You can avoid owing tax with your return if you pay enough tax during the year to cover your household employment taxes, as well as your income tax. 1040x 2010 form You can pay the additional tax in any of the following ways. 1040x 2010 form Ask your employer to withhold more federal income tax from your wages in 2014. 1040x 2010 form Ask the payer of your pension or annuity to withhold more federal income tax from your benefits. 1040x 2010 form Make estimated tax payments for 2014 to the IRS. 1040x 2010 form Increase your payments if you already make estimated tax payments. 1040x 2010 form You may be subject to the estimated tax underpayment penalty if you did not pay enough income and household employment taxes during the year. 1040x 2010 form (See Publication 505, Tax Withholding and Estimated Tax, for information about the underpayment penalty. 1040x 2010 form ) However, you will not be subject to the penalty if both of the following situations apply to you. 1040x 2010 form You will not have federal income tax withheld from wages, pensions, or any other payments you receive. 1040x 2010 form Your income taxes, excluding your household employment taxes, would not be enough to require payment of estimated taxes. 1040x 2010 form Asking for more federal income tax withholding. 1040x 2010 form   If you are employed and want more federal income tax withheld from your wages to cover your household employment taxes, give your employer a new Form W-4. 1040x 2010 form Complete it as before, but show the additional amount you want withheld from each paycheck on line 6. 1040x 2010 form   If you receive a pension or annuity and want more federal income tax withheld to cover household employment taxes, give the payer a new Form W-4P, Withholding Certificate for Pension or Annuity Payments (or a similar form provided by the payer). 1040x 2010 form Complete it as before, but show the additional amount you want withheld from each benefit payment on line 3. 1040x 2010 form   See Publication 505 to make sure you will have the right amount withheld. 1040x 2010 form It will help you compare your total expected withholding for 2014 with the combined income tax and employment taxes that you can expect to figure on your 2014 tax return. 1040x 2010 form Paying estimated tax. 1040x 2010 form   If you want to make estimated tax payments to cover household employment taxes, get Form 1040-ES, Estimated Tax for Individuals. 1040x 2010 form You can use its payment vouchers to make your payments by check or money order. 1040x 2010 form You may be able to pay by Electronic Funds Withdrawal (EFW) or credit card. 1040x 2010 form For details, see the form instructions and visit IRS. 1040x 2010 form gov. 1040x 2010 form    You can pay all the employment taxes at once or you can pay them in installments. 1040x 2010 form If you have already made estimated tax payments for 2014, you can increase your remaining payments to cover the employment taxes. 1040x 2010 form Estimated tax payments for 2014 are due April 15, June 16, and September 15, 2014, and January 15, 2015. 1040x 2010 form Payment option for business employers. 1040x 2010 form   If you own a business as a sole proprietor or your home is on a farm operated for profit, you can choose either of two ways to pay your 2014 household employment taxes. 1040x 2010 form You can pay them with your federal income tax as previously described, or you can include them with your federal employment tax deposits or other payments for your business or farm employees. 1040x 2010 form For information on depositing employment taxes, see Publication 15 (Circular E). 1040x 2010 form   If you pay your household employment taxes with your business or farm employment taxes, you must report your household employment taxes with those other employment taxes on Form 941, Employer's QUARTERLY Federal Tax Return, Form 944, Employer's ANNUAL Federal Tax Return, or Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, and on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. 1040x 2010 form See Business employment tax returns, later. 1040x 2010 form    The deduction that can be taken on Schedules C and F (Form 1040) for wages and employment taxes applies only to wages and taxes paid for business and farm employees. 1040x 2010 form You cannot deduct the wages and employment taxes paid for your household employees on your Schedule C or F. 1040x 2010 form More information. 1040x 2010 form   For more information about paying taxes through federal income tax withholding and estimated tax payments, and figuring the estimated tax penalty, see Publication 505. 1040x 2010 form What Forms Must You File? You must file certain forms to report your household employee's wages and the federal employment taxes for the employee if you pay any of the following wages to the employee. 1040x 2010 form Social security and Medicare wages. 1040x 2010 form FUTA wages. 1040x 2010 form Wages from which you withhold federal income tax. 1040x 2010 form For information on ordering employment tax forms, see How To Get Tax Help, later. 1040x 2010 form Employer identification number (EIN). 1040x 2010 form   You must include your employer identification number (EIN) on the forms you file for your household employee. 1040x 2010 form An EIN is a nine-digit number issued by the IRS. 1040x 2010 form It is not the same as a social security number. 1040x 2010 form    You ordinarily will have an EIN if you previously paid taxes for employees, either as a household employer or as a sole proprietor of a business you own. 1040x 2010 form If you already have an EIN, use that number. 1040x 2010 form   If you do not have an EIN, you may apply for one online. 1040x 2010 form Go to IRS. 1040x 2010 form gov and click on the Apply for an EIN Online link under Tools. 1040x 2010 form You may also apply for an EIN by calling 1-800-829-4933, or you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. 1040x 2010 form Form W-2. 1040x 2010 form   File a separate 2014 Form W-2, for each household employee to whom you pay either of the following wages during the year. 1040x 2010 form Social security and Medicare wages of $1,900 or more. 1040x 2010 form Wages from which you withhold federal income tax. 1040x 2010 form You must complete Form W-2 and give Copies B, C, and 2 to your employee by February 2, 2015. 1040x 2010 form You must send Copy A of Form W-2 with Form W-3, Transmittal of Wage and Tax Statements, to the SSA by March 2, 2015 (March 31, 2015, if you file your Form W-2 electronically). 1040x 2010 form Electronic filing is available to all employers and is free, fast, secure, and offers a later filing deadline. 1040x 2010 form Visit the SSA's Employer W-2 Filing Instructions & Information website at www. 1040x 2010 form socialsecurity. 1040x 2010 form gov/employer for guidelines on filing electronically. 1040x 2010 form Employee who leaves during the year. 1040x 2010 form   If an employee stops working for you before the end of 2014, you can file Form W-2 and provide copies to your employee immediately after you make your final payment of wages. 1040x 2010 form You do not need to wait until 2015. 1040x 2010 form If the employee asks you for Form W-2, give it to him or her within 30 days after the request or the last wage payment, whichever is later. 1040x 2010 form Schedule H. 1040x 2010 form   Use Schedule H to report household employment taxes if you pay any of the following wages to the employee. 1040x 2010 form Social security and Medicare wages of $1,900 or more. 1040x 2010 form FUTA wages. 1040x 2010 form Wages from which you withhold federal income tax. 1040x 2010 form File Schedule H with your 2014 federal income tax return by April 15, 2015. 1040x 2010 form If you get an extension to file your return, the extension also will apply to your Schedule H. 1040x 2010 form Filing options when no return is required. 1040x 2010 form   If you are not required to file a 2014 tax return, you have the following two options. 1040x 2010 form You can file Schedule H by itself. 1040x 2010 form See the Schedule H instructions for details. 1040x 2010 form If, besides your household employee, you have other employees for whom you report employment taxes on Form 941, Form 944, or Form 943 and on Form 940, you can include your taxes for your household employee on those forms. 1040x 2010 form See Business employment tax returns, next. 1040x 2010 form   Employers having the options listed above include certain tax-exempt organizations that do not have to file a tax return, such as churches that pay a household worker to take care of a minister's home. 1040x 2010 form Business employment tax returns. 1040x 2010 form   Do not use Schedule H if you choose to pay the employment taxes for your household employee with business or farm employment taxes. 1040x 2010 form (See Payment option for business employers, earlier. 1040x 2010 form ) Instead, include the social security, Medicare, and withheld federal income taxes for the employee on the Form 941 or Form 944 you file for your business or on the Form 943 you file for your farm. 1040x 2010 form Include the FUTA tax for the employee on your Form 940. 1040x 2010 form   If you report the employment taxes for your household employee on Form 941, Form 944, or Form 943, file Form W-2 for that employee with the Forms W-2 and Form W-3 for your business or farm employees. 1040x 2010 form   For information on filing Form 941 or Form 944, see Publication 15 (Circular E). 1040x 2010 form For information on filing Form 943, see Publication 51 (Circular A), Agricultural Employer's Tax Guide. 1040x 2010 form Both of these publications also provide information about filing Form 940. 1040x 2010 form What Records Must You Keep? Keep your copies of Schedule H or other employment tax forms you file and related Forms W-2, W-3, and W-4. 1040x 2010 form You must also keep records to support the information you enter on the forms you file. 1040x 2010 form If you must file Form W-2, you will need to keep a record of your employee's name, address, and social security number. 1040x 2010 form Wage and tax records. 1040x 2010 form   On each payday, you should record the date and amounts of all the following items. 1040x 2010 form Your employee's cash and noncash wages. 1040x 2010 form Any employee social security tax you withhold or agree to pay for your employee. 1040x 2010 form Any employee Medicare tax you withhold or agree to pay for your employee. 1040x 2010 form Any federal income tax you withhold. 1040x 2010 form Any state employment taxes you withhold. 1040x 2010 form Employee's social security number. 1040x 2010 form   You must keep a record of your employee's name and social security number exactly as they appear on his or her social security card if you pay the employee either of the following. 1040x 2010 form Social security and Medicare wages of $1,900 or more. 1040x 2010 form Wages from which you withhold federal income tax. 1040x 2010 form You must ask for your employee's social security number no later than the first day on which you pay the wages. 1040x 2010 form You may wish to ask for it when you hire your employee. 1040x 2010 form You should ask your employee to show you his or her social security card. 1040x 2010 form The employee may show the card if it is available. 1040x 2010 form You may, but are not required to, photocopy the card if the employee provides it. 1040x 2010 form   An employee who does not have a social security number must apply for one on Form SS-5, Application for a Social Security Card. 1040x 2010 form An employee who has lost his or her social security card or whose name is not correctly shown on the card may apply for a replacement card. 1040x 2010 form    Employees can get Form SS-5 from any Social Security Administration office or by calling 1-800-772-1213. 1040x 2010 form    You also can download Form SS-5 from the Social Security Administration website at  www. 1040x 2010 form socialsecurity. 1040x 2010 form gov/online/ss-5. 1040x 2010 form pdf. 1040x 2010 form How long to keep records. 1040x 2010 form   Keep your employment tax records for at least 4 years after the due date of the return on which you report the taxes or the date the taxes were paid, whichever is later. 1040x 2010 form Can You Claim a Credit for Child and Dependent Care Expenses? If your household employee cares for your dependent who is under age 13 or for your spouse or dependent who is not capable of self-care, you may be able to take an income tax credit against some of your expenses. 1040x 2010 form To qualify, you must pay these expenses so you can work or look for work. 1040x 2010 form If you can take the credit, you can include in your qualifying expenses your share of the federal and state employment taxes you pay, as well as the employee's wages. 1040x 2010 form For information about the credit, see Publication 503, Child and Dependent Care Expenses. 1040x 2010 form How Can You Correct Schedule H? If you discover that you made an error on a Schedule H (or Anexo H-PR), the forms used to correct the error depend on whether the Schedule H was attached to another form or whether it was filed by itself. 1040x 2010 form Schedule H attached to another form. 1040x 2010 form    If you discover an error on a Schedule H that you previously filed with Form 1040, Form 1040NR, or Form 1040-SS, file Form 1040X, Amended U. 1040x 2010 form S. 1040x 2010 form Individual Income Tax Return, and attach a corrected Schedule H. 1040x 2010 form If you filed Formulario 1040-PR, file a Form 1040X and attach a corrected Anexo H-PR. 1040x 2010 form If you discover an error on a Schedule H that you previously filed with Form 1041, U. 1040x 2010 form S. 1040x 2010 form Income Tax Return for Estates and Trusts, file an “amended” Form 1041 and attach a corrected Schedule H. 1040x 2010 form You discovered (that is, ascertained) the error when you had enough information to be able to correct the error. 1040x 2010 form Write “CORRECTED” (or “CORREGIDO”) and the date you discovered the error in the top margin of your corrected Schedule H (or Anexo H-PR), in dark, bold letters. 1040x 2010 form In addition, explain the reason for your correction and the date the error was discovered in Part III of Form 1040X or in a statement attached to the amended Form 1041. 1040x 2010 form Schedule H filed by itself. 1040x 2010 form   If you discover an error on a Schedule H (or Anexo H-PR) that you filed as a stand-alone return, file another stand-alone Schedule H with the corrected information. 1040x 2010 form You discovered (that is, ascertained) the error when you had enough information to be able to correct the error. 1040x 2010 form Write “CORRECTED” (or “CORREGIDO”) and the date you discovered the error in the top margin of your corrected Schedule H (or Anexo H-PR), in dark, bold letters. 1040x 2010 form In addition, explain the reason for your correction and the date the error was discovered in a statement attached to the corrected Schedule H. 1040x 2010 form If you have an overpayment, also write “ADJUSTED” (or “CORREGIDO”) or “REFUND” (or “REEMBOLSO”) in the top margin, depending on whether you want to adjust your overpayment or claim a refund. 1040x 2010 form (See Overpayment of tax, later. 1040x 2010 form ) When to file. 1040x 2010 form   File a corrected Schedule H when you discover an error on a previously filed Schedule H. 1040x 2010 form If you are correcting an underpayment, file a corrected Schedule H no later than the due date of your next tax return (generally, April 15 of the following calendar year) after you discover the error. 1040x 2010 form If you are correcting an overpayment, file a corrected Schedule H within the refund period of limitations (generally 3 years from the date your original form was filed or within 2 years from the date you paid the tax, whichever is later). 1040x 2010 form Underpayment of tax. 1040x 2010 form   You must pay any underpayment of social security and Medicare taxes by the time you file the corrected Schedule H. 1040x 2010 form Generally, by filing on time and paying by the time you file the return, you will not be charged interest (and will not be subject to failure-to-pay or estimated tax penalties) on the balance due. 1040x 2010 form However, underreported FUTA taxes will be subject to interest. 1040x 2010 form Overpayment of tax. 1040x 2010 form    You may either adjust or claim a refund of an overpayment of social security and Medicare taxes on a previously filed Schedule H. 1040x 2010 form However, if you are correcting an overpayment and are filing the corrected Schedule H within 90 days of the expiration of the period of limitations, you can only claim a refund of the overpayment. 1040x 2010 form Adjust the overpayment. 1040x 2010 form   If the corrected Schedule H is filed with a Form 1040X or an amended Form 1041, adjust your return by indicating on line 22 of the Form 1040X or on line 29a of the Form 1041 that you would like the overpayment applied to your estimated taxes on Form 1040, Form 1040NR, Form 1040-PR, Form 1040-SS, or Form 1041 for the year in which you are filing the corrected Schedule H. 1040x 2010 form If the corrected Schedule H is filed as a stand-alone return, adjust your return by writing “ADJUSTED” (or “CORREGIDO”) in the top margin (in dark, bold letters). 1040x 2010 form If you adjust your return, you will not receive interest on your overpayment. 1040x 2010 form If the corrected Schedule H will be filed within 90 days of the expiration of the refund period of limitations, you may not adjust the return and must claim a refund for the overpayment. 1040x 2010 form You may not adjust your return to correct overpayments of FUTA tax. 1040x 2010 form Claim for refund process. 1040x 2010 form   If the corrected Schedule H is filed with a Form 1040X or an amended Form 1041, claim a refund by indicating that you would like the overpayment refunded to you on line 21 of the Form 1040X or line 29b of the Form 1041. 1040x 2010 form If the corrected Schedule H is filed as a stand-alone return, claim a refund by writing “REFUND” (or “REEMBOLSO”) in the top margin (in dark, bold letters). 1040x 2010 form You will receive interest on any overpayment refunded, unless the overpayment is for FUTA tax because you were entitled to increased credits for state contributions. 1040x 2010 form Required repayment or consent. 1040x 2010 form   If you previously overreported social security and Medicare taxes, you may adjust your overpayment only after you have repaid or reimbursed your employees in the amount of the overcollection of employee tax. 1040x 2010 form You reimburse your employees by applying the overwithheld amount against taxes to be withheld on future wages. 1040x 2010 form You may claim a refund for the overpayment only after you have repaid or reimbursed your employees in the amount of the overcollection or you have obtained consents from your employees to file the claim for refund for the employee tax. 1040x 2010 form Include a statement that you repaid or reimbursed your employees, or obtained their written consents in the case of a claim for refund, in Part III of Form 1040X or in a statement attached to the amended Form 1041 or the stand-alone corrected Schedule H. 1040x 2010 form Filing required Forms W-2 or Forms W-2c. 1040x 2010 form   Whether you previously underreported tax or overreported tax, you will generally be required to file Form W-2, or their territorial equivalents (if none was previously filed), or Form W-2c, Corrected Wage and Tax Statement, to reflect the changes reported on your corrected Schedule H. 1040x 2010 form Additional Medicare Tax. 1040x 2010 form   Generally, you may not correct an error in Additional Medicare Tax withholding for wages paid to employees in a prior year unless it is an administrative error. 1040x 2010 form An administrative error occurs if the amount you entered on Schedule H is not the amount you actually withheld. 1040x 2010 form For example, if the Additional Medicare Tax actually withheld was incorrectly reported on Schedule H due to a mathematical or transposition error, this would be an administrative error. 1040x 2010 form   Any underwithheld Additional Medicare Tax must be recovered from employees on or before the last day of the calendar year in which the underwithholding occurred. 1040x 2010 form Any excess Additional Medicare Tax withholding must be repaid or reimbursed to employees before the end of the calendar year in which it was withheld. 1040x 2010 form Additional information. 1040x 2010 form   For more information about correcting errors on a previously filed Schedule H, see page 4 of Form 944-X, Form 944-X: Which process should you use? (substitute “Schedule H” for “Form 944-X”) and the Instructions for Form 944-X (or Formulario 944-X (PR)). 1040x 2010 form Also, visit IRS. 1040x 2010 form gov. 1040x 2010 form How To Get Tax Help Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. 1040x 2010 form Free help with your tax return. 1040x 2010 form   You can get free help preparing your return nationwide from IRS-certified volunteers. 1040x 2010 form The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. 1040x 2010 form The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. 1040x 2010 form Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. 1040x 2010 form In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. 1040x 2010 form To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. 1040x 2010 form gov, download the IRS2Go app, or call 1-800-906-9887. 1040x 2010 form   As part of the TCE program, AARP offers the Tax-Aide counseling program. 1040x 2010 form To find the nearest AARP Tax-Aide site, visit AARP's website at www. 1040x 2010 form aarp. 1040x 2010 form org/money/taxaide or call 1-888-227-7669. 1040x 2010 form For more information on these programs, go to IRS. 1040x 2010 form gov and enter “VITA” in the search box. 1040x 2010 form Internet. 1040x 2010 form    IRS. 1040x 2010 form gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. 1040x 2010 form Download the free IRS2Go app from the iTunes app store or from Google Play. 1040x 2010 form Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. 1040x 2010 form Check the status of your 2013 refund with the Where's My Refund? application on IRS. 1040x 2010 form gov or download the IRS2Go app and select the Refund Status option. 1040x 2010 form The IRS issues more than 9 out of 10 refunds in less than 21 days. 1040x 2010 form Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. 1040x 2010 form You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. 1040x 2010 form The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. 1040x 2010 form Use the Interactive Tax Assistant (ITA) to research your tax questions. 1040x 2010 form No need to wait on the phone or stand in line. 1040x 2010 form The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. 1040x 2010 form When you reach the response screen, you can print the entire interview and the final response for your records. 1040x 2010 form New subject areas are added on a regular basis. 1040x 2010 form  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. 1040x 2010 form gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. 1040x 2010 form You can use the IRS Tax Map, to search publications and instructions by topic or keyword. 1040x 2010 form The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. 1040x 2010 form When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. 1040x 2010 form Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. 1040x 2010 form You can also ask the IRS to mail a return or an account transcript to you. 1040x 2010 form Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. 1040x 2010 form gov or by calling 1-800-908-9946. 1040x 2010 form Tax return and tax account transcripts are generally available for the current year and the past three years. 1040x 2010 form Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. 1040x 2010 form Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. 1040x 2010 form If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. 1040x 2010 form Check the status of your amended return using Where's My Amended Return? Go to IRS. 1040x 2010 form gov and enter Where's My Amended Return? in the search box. 1040x 2010 form You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. 1040x 2010 form It can take up to 3 weeks from the date you mailed it to show up in our system. 1040x 2010 form Make a payment using one of several safe and convenient electronic payment options available on IRS. 1040x 2010 form gov. 1040x 2010 form Select the Payment tab on the front page of IRS. 1040x 2010 form gov for more information. 1040x 2010 form Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. 1040x 2010 form Figure your income tax withholding with the IRS Withholding Calculator on IRS. 1040x 2010 form gov. 1040x 2010 form Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. 1040x 2010 form Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. 1040x 2010 form gov. 1040x 2010 form Request an Electronic Filing PIN by going to IRS. 1040x 2010 form gov and entering Electronic Filing PIN in the search box. 1040x 2010 form Download forms, instructions and publications, including accessible versions for people with disabilities. 1040x 2010 form Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. 1040x 2010 form gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. 1040x 2010 form An employee can answer questions about your tax account or help you set up a payment plan. 1040x 2010 form Before you visit, check the Office Locator on IRS. 1040x 2010 form gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. 1040x 2010 form If you have a special need, such as a disability, you can request an appointment. 1040x 2010 form Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. 1040x 2010 form Apply for an Employer Identification Number (EIN). 1040x 2010 form Go to IRS. 1040x 2010 form gov and enter Apply for an EIN in the search box. 1040x 2010 form Read the Internal Revenue Code, regulations, or other official guidance. 1040x 2010 form Read Internal Revenue Bulletins. 1040x 2010 form Sign up to receive local and national tax news and more by email. 1040x 2010 form Just click on “subscriptions” above the search box on IRS. 1040x 2010 form gov and choose from a variety of options. 1040x 2010 form Phone. 1040x 2010 form    You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. 1040x 2010 form Download the free IRS2Go app from the iTunes app store or from Google Play. 1040x 2010 form Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. 1040x 2010 form gov, or download the IRS2Go app. 1040x 2010 form Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. 1040x 2010 form The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. 1040x 2010 form Most VITA and TCE sites offer free electronic filing. 1040x 2010 form Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. 1040x 2010 form Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. 1040x 2010 form Call the automated Where's My Refund? information hotline to check the status of your 2013 refund 24 hours a day, 7 days a week at 1-800-829-1954. 1040x 2010 form If you e-file, you can start checking on the status of your return within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. 1040x 2010 form The IRS issues more than 9 out of 10 refunds in less than 21 days. 1040x 2010 form Where's My Refund? will give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. 1040x 2010 form Before you call this automated hotline, have your 2013 tax return handy so you can enter your social security number, your filing status, and the exact whole dollar amount of your refund. 1040x 2010 form The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. 1040x 2010 form Note, the above information is for our automated hotline. 1040x 2010 form Our live phone and walk-in assistors can research the status of your refund only if it's been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return. 1040x 2010 form Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. 1040x 2010 form You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. 1040x 2010 form It can take up to 3 weeks from the date you mailed it to show up in our system. 1040x 2010 form Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years). 1040x 2010 form You should receive your order within 10 business days. 1040x 2010 form Call TeleTax, 1-800-829-4477, to listen to pre-recorded messages covering general and business tax information. 1040x 2010 form If, between January and April 15, you still have questions about the Form 1040, 1040A, or 1040EZ (like filing requirements, dependents, credits, Schedule D, pensions and IRAs or self-employment taxes), call 1-800-829-1040. 1040x 2010 form Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. 1040x 2010 form The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. 1040x 2010 form These individuals can also contact the IRS through relay services such as the Federal Relay Service. 1040x 2010 form Walk-in. 1040x 2010 form   You can find a selection of forms, publications and services — in-person. 1040x 2010 form Products. 1040x 2010 form You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. 1040x 2010 form Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. 1040x 2010 form Services. 1040x 2010 form You can walk in to your local TAC for face-to-face tax help. 1040x 2010 form An employee can answer questions about your tax account or help you set up a payment plan. 1040x 2010 form Before visiting, use the Office Locator tool on IRS. 1040x 2010 form gov, or choose the Contact Us option on the IRS2Go app and search Local Offices for days and hours of operation, and services provided. 1040x 2010 form Mail. 1040x 2010 form   You can send your order for forms, instructions, and publications to the address below. 1040x 2010 form You should receive a response within 10 business days after your request is received. 1040x 2010 form Internal Revenue Service 1201 N. 1040x 2010 form Mitsubishi Motorway Bloomington, IL 61705-6613    The Taxpayer Advocate Service Is Here to Help You. 1040x 2010 form The Taxpayer Advocate Service (TAS) is your voice at the IRS. 1040x 2010 form Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. 1040x 2010 form   What can TAS do for you? We can offer you free help with IRS problems that you can't resolve on your own. 1040x 2010 form We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. 1040x 2010 form You face (or your business is facing) an immediate threat of adverse action. 1040x 2010 form You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. 1040x 2010 form   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. 1040x 2010 form Here's why we can help: TAS is an independent organization within the IRS. 1040x 2010 form Our advocates know how to work with the IRS. 1040x 2010 form Our services are free and tailored to meet your needs. 1040x 2010 form We have offices in every state, the District of Columbia, and Puerto Rico. 1040x 2010 form   How can you reach us? If you think TAS can help you, call your local advocate, whose number is in your local directory and at Taxpayer Advocate, or call us toll-free at 1-877-777-4778. 1040x 2010 form   How else does TAS help taxpayers?  TAS also works to resolve large-scale, systemic problems that affect many taxpayers. 1040x 2010 form If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System. 1040x 2010 form Low Income Taxpayer Clinics Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals and tax collection disputes. 1040x 2010 form Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. 1040x 2010 form Visit Taxpayer Advocate or see IRS Publication 4134, Low Income Taxpayer Clinic List. 1040x 2010 form Sample W-2 Form This image is too large to be displayed in the current screen. 1040x 2010 form Please click the link to view the image. 1040x 2010 form Webtitle: Form W-2 Wage and Tax Statement and Form W-3 Transmitttal of Wage and Tax Statemtents Prev  Up  Next   Home   More Online Publications
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Understanding your CP178 Notice

Your tax return filing requirements may have changed: You may no longer owe excise tax.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

If you no longer owe excise tax, file a final Quarterly Excise Tax Return (Form 720) by:

  • Writing "Not liable" at the top of next quarter’s Form 720, and
  • Checking the box that says, "Final return," located on Page 1 of the form in the upper left corner.
  • If you owe excise tax in the future, we’ll automatically send you Form 720 after we receive a return from you reporting tax.

You may want to...


Answers to Common Questions

How do I know if my business remains liable for excise taxes?
Your business is liable for excise tax if it involves goods, services, or activities identified on Form 720.

If I no longer owe excise taxes where to I mail my final Form 720?
File a final Form 720 if you no longer owe excise taxes because you’re either going out of business or you will not owe excise taxes in future quarters. Check the final return box above Part I of Form 720 and mail to IRS, Cincinnati, OH 45999-0009.

I don’t handle excise taxes for my corporation. How can I request that the IRS send all future notices directly to our accountant?
Complete a Form 8822, Change of Address, and send it to the address shown on the form.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.


Understanding your notice

Reading your notice
Your notice may look different from the sample because the information contained in your notice is tailored to your situation.

Notice CP178, Page 1

Page Last Reviewed or Updated: 28-Mar-2014

The 1040x 2010 Form

1040x 2010 form Publication 1212 - Main Content Table of Contents Definitions Debt Instruments on the OID List Debt Instruments Not on the OID List Information for Brokers and Other MiddlemenShort-Term Obligations Redeemed at Maturity Long-Term Debt Instruments Certificates of Deposit Bearer Bonds and Coupons Backup Withholding Information for Owners of OID Debt InstrumentsExceptions. 1040x 2010 form Adjustment for premium. 1040x 2010 form Adjustment for acquisition premium. 1040x 2010 form Adjustment for market discount. 1040x 2010 form Form 1099-OID How To Report OID Figuring OID on Long-Term Debt Instruments Figuring OID on Stripped Bonds and Coupons How To Get Tax HelpLow Income Taxpayer Clinics Definitions The following terms are used throughout this publication. 1040x 2010 form “Original issue discount” is defined first. 1040x 2010 form The other terms are listed alphabetically. 1040x 2010 form Original issue discount (OID). 1040x 2010 form   OID is a form of interest. 1040x 2010 form It is the excess of a debt instrument's stated redemption price at maturity over its issue price (acquisition price for a stripped bond or coupon). 1040x 2010 form Zero coupon bonds and debt instruments that pay no stated interest until maturity are examples of debt instruments that have OID. 1040x 2010 form Accrual period. 1040x 2010 form   An accrual period is an interval of time used to measure OID. 1040x 2010 form The length of an accrual period can be 6 months, a year, or some other period, depending on when the debt instrument was issued. 1040x 2010 form Acquisition premium. 1040x 2010 form   Acquisition premium is the excess of a debt instrument's adjusted basis immediately after purchase, including purchase at original issue, over the debt instrument's adjusted issue price at that time. 1040x 2010 form A debt instrument does not have acquisition premium, however, if the debt instrument was purchased at a premium. 1040x 2010 form See Premium, later. 1040x 2010 form Adjusted issue price. 1040x 2010 form   The adjusted issue price of a debt instrument at the beginning of an accrual period is used to figure the OID allocable to that period. 1040x 2010 form In general, the adjusted issue price at the beginning of the debt instrument's first accrual period is its issue price. 1040x 2010 form The adjusted issue price at the beginning of any subsequent accrual period is the sum of the issue price and all the OID includible in income before that accrual period minus any payment previously made on the debt instrument, other than a payment of qualified stated interest. 1040x 2010 form Debt instrument. 1040x 2010 form   The term “debt instrument” means any instrument or contractual arrangement that constitutes indebtedness under general principles of federal income tax law (including, for example, a bond, debenture, note, certificate, or other evidence of indebtedness). 1040x 2010 form It generally does not include an annuity contract. 1040x 2010 form Issue price. 1040x 2010 form   For debt instruments listed in Section I-A and Section I-B, the issue price generally is the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of these instruments was sold. 1040x 2010 form Market discount. 1040x 2010 form   Market discount arises when a debt instrument purchased in the secondary market has decreased in value since its issue date, generally because of an increase in interest rates. 1040x 2010 form An OID debt instrument has market discount if your adjusted basis in the debt instrument immediately after you acquired it (usually its purchase price) was less than the debt instrument's issue price plus the total OID that accrued before you acquired it. 1040x 2010 form The market discount is the difference between the issue price plus accrued OID and your adjusted basis. 1040x 2010 form Premium. 1040x 2010 form   A debt instrument is purchased at a premium if its adjusted basis immediately after purchase is greater than the total of all amounts payable on the debt instrument after the purchase date, other than qualified stated interest. 1040x 2010 form The premium is the excess of the adjusted basis over the payable amounts. 1040x 2010 form See Publication 550 for information on the tax treatment of bond premium. 1040x 2010 form Qualified stated interest. 1040x 2010 form   In general, qualified stated interest is stated interest that is unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually over the term of the debt instrument at a single fixed rate. 1040x 2010 form Stated redemption price at maturity. 1040x 2010 form   A debt instrument's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on the debt instrument other than qualified stated interest. 1040x 2010 form Yield to maturity (YTM). 1040x 2010 form   In general, the YTM is the discount rate that, when used in figuring the present value of all principal and interest payments, produces an amount equal to the issue price of the debt instrument. 1040x 2010 form The YTM is generally shown on the face of the debt instrument or in the literature you receive from your broker. 1040x 2010 form If you do not have this information, consult your broker, tax advisor, or the issuer. 1040x 2010 form Debt Instruments on the OID List The OID list on the IRS website can be used by brokers and other middlemen to prepare information returns. 1040x 2010 form If you own a listed debt instrument, you generally should not rely on the information in the OID list to determine (or compare) the OID to be reported on your tax return. 1040x 2010 form The OID amounts listed are figured without reference to the price or date at which you acquired the debt instrument. 1040x 2010 form For information about determining the OID to be reported on your tax return, see the instructions for figuring OID under Information for Owners of OID Debt Instruments, later. 1040x 2010 form The following discussions explain what information is contained in each section of the list. 1040x 2010 form Section I. 1040x 2010 form   This section contains publicly offered, long-term debt instruments. 1040x 2010 form Section I-A: Corporate Debt Instruments Issued Before 1985. 1040x 2010 form Section I-B: Corporate Debt Instruments Issued After 1984. 1040x 2010 form Section I-C: Inflation-Indexed Debt Instruments. 1040x 2010 form For each publicly offered debt instrument in Section I, the list contains the following information. 1040x 2010 form The name of the issuer. 1040x 2010 form The Committee on Uniform Security Identification Procedures (CUSIP) number. 1040x 2010 form The issue date. 1040x 2010 form The maturity date. 1040x 2010 form The issue price expressed as a percent of principal or of stated redemption price at maturity. 1040x 2010 form The annual stated or coupon interest rate. 1040x 2010 form (This rate is shown as 0. 1040x 2010 form 00 if no annual interest payments are provided. 1040x 2010 form ) The yield to maturity will be added to Section I-B for bonds issued after December 31, 2006. 1040x 2010 form The total OID accrued up to January 1 of a calendar year. 1040x 2010 form (This information is not available for every instrument. 1040x 2010 form ) For long-term debt instruments issued after July 1, 1982, the daily OID for the accrual periods falling in a calendar year and a subsequent year. 1040x 2010 form The total OID per $1,000 of principal or maturity value for a calendar year and a subsequent year. 1040x 2010 form Section II. 1040x 2010 form   This section contains stripped coupons and principal components of U. 1040x 2010 form S. 1040x 2010 form Treasury and Government-Sponsored Enterprise debt instruments. 1040x 2010 form These stripped components are available through the Department of the Treasury's Separate Trading of Registered Interest and Principal of Securities (STRIPS) program and government-sponsored enterprises such as the Resolution Funding Corporation. 1040x 2010 form This section also includes debt instruments backed by U. 1040x 2010 form S. 1040x 2010 form Treasury securities that represent ownership interests in those securities. 1040x 2010 form   The obligations listed in Section II are arranged by maturity date. 1040x 2010 form The amounts listed are the total OID for a calendar year per $1,000 of redemption price. 1040x 2010 form Section III. 1040x 2010 form   This section contains short-term discount obligations. 1040x 2010 form Section III-A: Short-Term U. 1040x 2010 form S. 1040x 2010 form Treasury Bills. 1040x 2010 form Section III-B: Federal Home Loan Banks. 1040x 2010 form Section III-C: Federal National Mortgage Association. 1040x 2010 form Section III-D: Federal Farm Credit Banks. 1040x 2010 form Section III-E: Federal Home Loan Mortgage Corporation. 1040x 2010 form Section III-F: Federal Agricultural Mortgage Corporation. 1040x 2010 form    Information that supplements Section III-A is available on the Internet at http://www. 1040x 2010 form treasurydirect. 1040x 2010 form gov/tdhome. 1040x 2010 form htm. 1040x 2010 form   The short-term obligations listed in this section are arranged by maturity date. 1040x 2010 form For each obligation, the list contains the CUSIP number, maturity date, issue date, issue price (expressed as a percent of principal), and discount to be reported as interest for a calendar year per $1,000 of redemption price. 1040x 2010 form Brokers and other middlemen should rely on the issue price information in Section III only if they are unable to determine the price actually paid by the owner. 1040x 2010 form Debt Instruments Not on the OID List The list of debt instruments discussed earlier does not contain the following items. 1040x 2010 form U. 1040x 2010 form S. 1040x 2010 form savings bonds. 1040x 2010 form Certificates of deposit and other face-amount certificates issued at a discount, including syndicated certificates of deposit. 1040x 2010 form Obligations issued by tax-exempt organizations. 1040x 2010 form OID debt instruments that matured or were entirely called by the issuer before the tables were posted on the IRS website. 1040x 2010 form Mortgage-backed securities and mortgage participation certificates. 1040x 2010 form Long-term OID debt instruments issued before May 28, 1969. 1040x 2010 form Short-term obligations, other than the obligations listed in Section III. 1040x 2010 form Debt instruments issued at a discount by states or their political subdivisions. 1040x 2010 form REMIC regular interests and CDOs. 1040x 2010 form Commercial paper and banker's acceptances issued at a discount. 1040x 2010 form Obligations issued at a discount by individuals. 1040x 2010 form Foreign obligations not traded in the United States and obligations not issued in the United States. 1040x 2010 form Information for Brokers and Other Middlemen The following discussions contain specific instructions for brokers and middlemen who hold or redeem a debt instrument for the owner. 1040x 2010 form In general, you must file a Form 1099 for the debt instrument if the interest or OID to be included in the owner's income for a calendar year totals $10 or more. 1040x 2010 form You also must file a Form 1099 if you were required to deduct and withhold tax, even if the interest or OID is less than $10. 1040x 2010 form See Backup Withholding, later. 1040x 2010 form If you must file a Form 1099, furnish a copy to the owner of the debt instrument by January 31 in the year it is due. 1040x 2010 form File all your Forms 1099 with the IRS, accompanied by Form 1096, by February 28 in the year it is due (March 31 if you file electronically). 1040x 2010 form Electronic payee statements. 1040x 2010 form   You can issue Form 1099-OID electronically with the consent of the recipient. 1040x 2010 form More information. 1040x 2010 form   For more information, including penalties for failure to file (or furnish) required information returns or statements, see the General Instructions for Certain Information Returns (Forms 1098, 1099, 3921, 3922, 5498, and W-2G) for the appropriate calendar year. 1040x 2010 form Short-Term Obligations Redeemed at Maturity If you redeem a short-term discount obligation for the owner at maturity, you must report the discount as interest on Form 1099-INT. 1040x 2010 form To figure the discount, use the purchase price shown on the owner's copy of the purchase confirmation receipt or similar record, or the price shown in your transaction records. 1040x 2010 form If you sell the obligation for the owner before maturity, you must file Form 1099-B to reflect the gross proceeds to the seller. 1040x 2010 form Do not report the accrued discount to the date of sale on either Form 1099-INT or Form 1099-OID. 1040x 2010 form If the owner's purchase price cannot be determined, figure the discount as if the owner had purchased the obligation at its original issue price. 1040x 2010 form A special rule is used to determine the original issue price for information reporting on U. 1040x 2010 form S. 1040x 2010 form Treasury bills (T-bills) listed in Section III-A. 1040x 2010 form Under this rule, you treat as the original issue price of the T-bill the noncompetitive (weighted average of accepted auction bids) discount price for the longest-maturity T-bill maturing on the same date as the T-bill being redeemed. 1040x 2010 form This noncompetitive discount price is the issue price (expressed as a percent of principal) shown in Section III-A. 1040x 2010 form A similar rule is used to figure the discount on short-term discount obligations issued by the organizations listed in Section III-B through Section III-F. 1040x 2010 form Example 1. 1040x 2010 form There are 13-week and 26-week T-bills maturing on the same date as the T-bill being redeemed. 1040x 2010 form The price actually paid by the owner cannot be established by owner or middleman records. 1040x 2010 form You treat as the issue price of the T-bill the noncompetitive discount price (expressed as a percent of principal) shown in Section III-A for a 26-week bill maturing on the same date as the T-bill redeemed. 1040x 2010 form The interest you report on Form 1099-INT is the OID (per $1,000 of principal) shown in Section III-A for that obligation. 1040x 2010 form Long-Term Debt Instruments If you hold a long-term OID debt instrument as a nominee for the true owner, you generally must file Form 1099-OID. 1040x 2010 form For this purpose, you can rely on Section I of the OID list to determine the following information. 1040x 2010 form Whether a debt instrument has OID. 1040x 2010 form The OID to be reported on the Form 1099-OID. 1040x 2010 form In general, you must report OID on publicly offered, long-term debt instruments listed in Section I. 1040x 2010 form You also can report OID on other long-term debt instruments. 1040x 2010 form Form 1099-OID. 1040x 2010 form   On Form 1099-OID for a calendar year show the following information. 1040x 2010 form Box 1. 1040x 2010 form The OID for the actual dates the owner held the debt instruments during a calendar year. 1040x 2010 form To determine this amount, see Figuring OID, next. 1040x 2010 form Box 2. 1040x 2010 form The qualified stated interest paid or credited during the calendar year. 1040x 2010 form Interest reported here is not reported on Form 1099-INT. 1040x 2010 form The qualified stated interest on Treasury inflation-protected securities may be reported on Form 1099-INT in box 3 instead. 1040x 2010 form Box 3. 1040x 2010 form Any interest or principal forfeited because of an early withdrawal that the owner can deduct from gross income. 1040x 2010 form Do not reduce the amounts in boxes 1 and 2 by the forfeiture. 1040x 2010 form Box 4. 1040x 2010 form Any backup withholding for this debt instrument. 1040x 2010 form Box 7. 1040x 2010 form The CUSIP number, if any. 1040x 2010 form If there is no CUSIP number, give a description of the debt instrument, including the abbreviation for the stock exchange, the abbreviation used by the stock exchange for the issuer, the coupon rate, and the year of maturity (for example, NYSE XYZ 12. 1040x 2010 form 50 2006). 1040x 2010 form If the issuer of the debt instrument is other than the payer, show the name of the issuer in this box. 1040x 2010 form Box 8. 1040x 2010 form The OID on a U. 1040x 2010 form S. 1040x 2010 form Treasury obligation for the part of the year the owner held the debt instrument. 1040x 2010 form Box 9. 1040x 2010 form Investment expenses passed on to holders of a single-class REMIC. 1040x 2010 form Boxes 10-12. 1040x 2010 form Use to report any state income tax withheld for this debt instrument. 1040x 2010 form Figuring OID. 1040x 2010 form   You can determine the OID on a long-term debt instrument by using either of the following. 1040x 2010 form Section I of the OID list. 1040x 2010 form The income tax regulations. 1040x 2010 form Using Section I. 1040x 2010 form   If the owner held the debt instrument for the entire calendar year, report the OID shown in Section I for the calendar year. 1040x 2010 form Because OID is listed for each $1,000 of stated redemption price at maturity, you must adjust the listed amount to reflect the debt instrument's actual stated redemption price at maturity. 1040x 2010 form For example, if the debt instrument's stated redemption price at maturity is $500, report one-half the listed OID. 1040x 2010 form   If the owner held the debt instrument for less than the entire calendar year, figure the OID to report as follows. 1040x 2010 form Look up the daily OID for the first accrual period in the calendar year during which the owner held the debt instrument. 1040x 2010 form Multiply the daily OID by the number of days the owner held the debt instrument during that accrual period. 1040x 2010 form Repeat steps (1) and (2) for any remaining accrual periods for the year during which the owner held the debt instrument. 1040x 2010 form Add the results in steps (2) and (3) to determine the owner's OID per $1,000 of stated redemption price at maturity. 1040x 2010 form If necessary, adjust the OID in (4) to reflect the debt instrument's stated redemption price at maturity. 1040x 2010 form Report the result on Form 1099-OID in box 1. 1040x 2010 form Using the income tax regulations. 1040x 2010 form   Instead of using Section I to figure OID, you can use the regulations under sections 1272 through 1275 of the Internal Revenue Code. 1040x 2010 form For example, under the regulations, you can use monthly accrual periods in figuring OID for a debt instrument issued after April 3, 1994, that provides for monthly payments. 1040x 2010 form (If you use Section I-B, the OID is figured using 6-month accrual periods. 1040x 2010 form )   For a general explanation of the rules for figuring OID under the regulations, see Figuring OID on Long-Term Debt Instruments under Information for Owners of OID Debt Instruments, later. 1040x 2010 form Certificates of Deposit If you hold a bank certificate of deposit (CD) as a nominee, you must determine whether the CD has OID and any OID includible in the income of the owner. 1040x 2010 form You must file an information return showing the reportable interest and OID, if any, on the CD. 1040x 2010 form These rules apply whether or not you sold the CD to the owner. 1040x 2010 form Report OID on a CD in the same way as OID on other debt instruments. 1040x 2010 form See Short-Term Obligations Redeemed at Maturity and Long-Term Debt Instruments, earlier. 1040x 2010 form Bearer Bonds and Coupons If a coupon from a bearer bond is presented to you for collection before the bond matures, you generally must report the interest on Form 1099-INT. 1040x 2010 form However, do not report the interest if either of the following apply. 1040x 2010 form You hold the bond as a nominee for the true owner. 1040x 2010 form The payee is a foreign person. 1040x 2010 form See Payments to foreign person under Backup Withholding, later. 1040x 2010 form Because you cannot assume the presenter of the coupon also owns the bond, you should not report OID on the bond on Form 1099-OID. 1040x 2010 form The coupon may have been “stripped” (separated) from the bond and separately purchased. 1040x 2010 form However, if a long-term bearer bond on the OID list is presented to you for redemption upon call or maturity, you should prepare a Form 1099-OID showing the OID for that calendar year, as well as any coupon interest payments collected at the time of redemption. 1040x 2010 form Backup Withholding If you report OID on Form 1099-OID or interest on Form 1099-INT for a calendar year, you may be required to apply backup withholding to the reportable payment at a rate of 28%. 1040x 2010 form The backup withholding is deducted at the time a cash payment is made. 1040x 2010 form See Pub. 1040x 2010 form 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), for more information. 1040x 2010 form Backup withholding generally applies in the following situations. 1040x 2010 form The payee does not give you a taxpayer identification number (TIN). 1040x 2010 form The IRS notifies you that the payee gave an incorrect TIN. 1040x 2010 form The IRS notifies you that the payee is subject to backup withholding due to payee underreporting. 1040x 2010 form For debt instruments acquired after 1983: The payee does not certify, under penalties of perjury, that he or she is not subject to backup withholding under (3), or The payee does not certify, under penalties of perjury, that the TIN given is correct. 1040x 2010 form However, for short-term discount obligations (other than government obligations), bearer bonds and coupons, and U. 1040x 2010 form S. 1040x 2010 form savings bonds, backup withholding applies only if the payee does not give you a TIN or gives you an obviously incorrect number for a TIN. 1040x 2010 form Short-term obligations. 1040x 2010 form   Backup withholding applies to OID on a short-term obligation only when the OID is paid at maturity. 1040x 2010 form However, backup withholding applies to any interest payable before maturity when the interest is paid or credited. 1040x 2010 form   If the owner of a short-term obligation at maturity is not the original owner and can establish the purchase price of the obligation, the amount subject to backup withholding must be determined by treating the purchase price as the issue price. 1040x 2010 form However, you can choose to disregard that price if it would require significant manual intervention in the computer or recordkeeping system used for the obligation. 1040x 2010 form If the purchase price of a listed obligation is not established or is disregarded, you must use the issue price shown in Section III. 1040x 2010 form Long-term obligations. 1040x 2010 form   If no cash payments are made on a long-term obligation before maturity, backup withholding applies only at maturity. 1040x 2010 form The amount subject to backup withholding is the OID includible in the owner's gross income for the calendar year when the obligation matures. 1040x 2010 form The amount to be withheld is limited to the cash paid. 1040x 2010 form Registered long-term obligations with cash payments. 1040x 2010 form   If a registered long-term obligation has cash payments before maturity, backup withholding applies when a cash payment is made. 1040x 2010 form The amount subject to backup withholding is the total of the qualified stated interest (defined earlier under Definitions) and OID includible in the owner's gross income for the calendar year when the payment is made. 1040x 2010 form If more than one cash payment is made during the year, the OID subject to withholding for the year must be allocated among the expected cash payments in the ratio that each bears to the total of the expected cash payments. 1040x 2010 form For any payment, the required withholding is limited to the cash paid. 1040x 2010 form Payee not the original owner. 1040x 2010 form   If the payee is not the original owner of the obligation, the OID subject to backup withholding is the OID includible in the gross income of all owners during the calendar year (without regard to any amount paid by the new owner at the time of transfer). 1040x 2010 form The amount subject to backup withholding at maturity of a listed obligation must be determined using the issue price shown in Section I. 1040x 2010 form Bearer long-term obligations with cash payments. 1040x 2010 form   If a bearer long-term obligation has cash payments before maturity, backup withholding applies when the cash payments are made. 1040x 2010 form For payments before maturity, the amount subject to withholding is the qualified stated interest (defined earlier under Definitions) includible in the owner's gross income for the calendar year. 1040x 2010 form For a payment at maturity, the amount subject to withholding is only the total of any qualified stated interest paid at maturity and the OID includible in the owner's gross income for the calendar year when the obligation matures. 1040x 2010 form The required withholding at maturity is limited to the cash paid. 1040x 2010 form Sales and redemptions. 1040x 2010 form   If you report the gross proceeds from a sale, exchange, or redemption of a debt instrument on Form 1099-B for a calendar year, you may be required to withhold 28% of the amount reported. 1040x 2010 form Backup withholding applies in the following situations. 1040x 2010 form The payee does not give you a TIN. 1040x 2010 form The IRS notifies you that the payee gave an incorrect TIN. 1040x 2010 form For debt instruments held in an account opened after 1983, the payee does not certify, under penalties of perjury, that the TIN given is correct. 1040x 2010 form Payments outside the United States to U. 1040x 2010 form S. 1040x 2010 form person. 1040x 2010 form   The requirements for backup withholding and information reporting apply to payments of OID and interest made outside the United States to a U. 1040x 2010 form S. 1040x 2010 form person, a controlled foreign corporation, or a foreign person at least 50% of whose income for the preceding 3-year period is effectively connected with the conduct of a U. 1040x 2010 form S. 1040x 2010 form trade or business. 1040x 2010 form Payments to foreign person. 1040x 2010 form   The following discussions explain the rules for backup withholding and information reporting on payments to foreign persons. 1040x 2010 form U. 1040x 2010 form S. 1040x 2010 form -source amount. 1040x 2010 form   Backup withholding and information reporting are not required for payments of U. 1040x 2010 form S. 1040x 2010 form -source OID, interest, or proceeds from a sale or redemption of an OID instrument if the payee has given you proof (generally the appropriate Form W-8 or an acceptable substitute) that the payee is a foreign person. 1040x 2010 form A U. 1040x 2010 form S. 1040x 2010 form resident is not a foreign person. 1040x 2010 form For proof of the payee's foreign status, you can rely on the appropriate Form W-8 or on documentary evidence for payments made outside the United States to an offshore account or, in case of broker proceeds, a sale effected outside the United States. 1040x 2010 form Receipt of the appropriate Form W-8 does not relieve you from information reporting and backup withholding if you actually know the payee is a U. 1040x 2010 form S. 1040x 2010 form person. 1040x 2010 form   For information about the 28% withholding tax that may apply to payments of U. 1040x 2010 form S. 1040x 2010 form -source OID or interest to foreign persons, see Publication 515. 1040x 2010 form Foreign-source amount. 1040x 2010 form   Backup withholding and information reporting are not required for payments of foreign-source OID and interest made outside the United States. 1040x 2010 form However, if the payments are made inside the United States, the requirements for backup withholding and information reporting will apply unless the payee has given you the appropriate Form W-8 or acceptable substitute as proof that the payee is a foreign person. 1040x 2010 form More information. 1040x 2010 form   For more information about backup withholding and information reporting on foreign-source amounts or payments to foreign persons, see Regulations section 1. 1040x 2010 form 6049-5. 1040x 2010 form Information for Owners of OID Debt Instruments This section is for persons who prepare their own tax returns. 1040x 2010 form It discusses the income tax rules for figuring and reporting OID on long-term debt instruments. 1040x 2010 form It also includes a similar discussion for stripped bonds and coupons, such as zero coupon bonds available through the Department of the Treasury's STRIPS program and government-sponsored enterprises such as the Resolution Funding Corporation. 1040x 2010 form However, the information provided does not cover every situation. 1040x 2010 form More information can be found in the regulations under sections 1271 through 1275 of the Internal Revenue Code. 1040x 2010 form Including OID in income. 1040x 2010 form   Generally, you include OID in income as it accrues each year, whether or not you receive any payments from the debt instrument issuer. 1040x 2010 form Exceptions. 1040x 2010 form   The rules for including OID in income as it accrues generally do not apply to the following debt instruments. 1040x 2010 form U. 1040x 2010 form S. 1040x 2010 form savings bonds. 1040x 2010 form Tax-exempt obligations. 1040x 2010 form (However, see Tax-Exempt Bonds and Coupons, later. 1040x 2010 form ) Obligations issued by individuals before March 2, 1984. 1040x 2010 form Loans of $10,000 or less between individuals who are not in the business of lending money. 1040x 2010 form (The dollar limit includes outstanding prior loans by the lender to the borrower. 1040x 2010 form ) This exception does not apply if a principal purpose of the loan is to avoid any federal tax. 1040x 2010 form   See chapter 1 of Publication 550 for information about the rules for these and other types of discounted debt instruments, such as short-term and market discount obligations. 1040x 2010 form Publication 550 also discusses rules for holders of REMIC interests and CDOs. 1040x 2010 form De minimis rule. 1040x 2010 form   You can treat OID as zero if the total OID on a debt instrument is less than one-fourth of 1% (. 1040x 2010 form 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. 1040x 2010 form Debt instruments with de minimis OID are not listed in this publication. 1040x 2010 form There are special rules to determine the de minimis amount in the case of debt instruments that provide for more than one payment of principal. 1040x 2010 form Also, the de minimis rules generally do not apply to tax-exempt obligations. 1040x 2010 form Example 2. 1040x 2010 form You bought at issuance a 10-year debt instrument with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. 1040x 2010 form One-fourth of 1% of $1,000 (the stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. 1040x 2010 form Under the de minimis rule, you can treat the OID as zero because the $20 discount is less than $25. 1040x 2010 form Example 3. 1040x 2010 form Assume the same facts as Example 2, except the debt instrument was issued at $950. 1040x 2010 form You must report part of the $50 OID each year because it is more than $25. 1040x 2010 form Choice to report all interest as OID. 1040x 2010 form   Generally, you can choose to treat all interest on a debt instrument acquired after April 3, 1994, as OID and include it in gross income by using the constant yield method. 1040x 2010 form See Constant yield method under Debt Instruments Issued After 1984, later, for more information. 1040x 2010 form   For this choice, interest includes stated interest, acquisition discount, OID, de minimis OID, market discount, de minimis market discount, and unstated interest, as adjusted by any amortizable bond premium or acquisition premium. 1040x 2010 form For more information, see Regulations section 1. 1040x 2010 form 1272-3. 1040x 2010 form Purchase after date of original issue. 1040x 2010 form   A debt instrument you purchased after the date of original issue may have premium, acquisition premium, or market discount. 1040x 2010 form If so, the OID reported to you on Form 1099-OID may have to be adjusted. 1040x 2010 form For more information, see Showing an OID adjustment under How To Report OID, later. 1040x 2010 form The following rules generally do not apply to contingent payment debt instruments. 1040x 2010 form Adjustment for premium. 1040x 2010 form   If your debt instrument (other than an inflation-indexed debt instrument) has premium, do not report any OID as ordinary income. 1040x 2010 form Your adjustment is the total OID shown on your Form 1099-OID. 1040x 2010 form Adjustment for acquisition premium. 1040x 2010 form   If your debt instrument has acquisition premium, reduce the OID you report. 1040x 2010 form Your adjustment is the difference between the OID shown on your Form 1099-OID and the reduced OID amount figured using the rules explained later under Figuring OID on Long-Term Debt Instruments. 1040x 2010 form Adjustment for market discount. 1040x 2010 form   If your debt instrument has market discount that you choose to include in income currently, increase the OID you report. 1040x 2010 form Your adjustment is the accrued market discount for the year. 1040x 2010 form See Market Discount Bonds in chapter 1 of Publication 550 for information on how to figure accrued market discount and include it in your income currently and for other information about market discount bonds. 1040x 2010 form If you choose to use the constant yield method to figure accrued market discount, also see Figuring OID on Long-Term Debt Instruments, later. 1040x 2010 form The constant yield method of figuring accrued OID, explained in those discussions under Constant yield method, is also used to figure accrued market discount. 1040x 2010 form For more information concerning premium or market discount on an inflation-indexed debt instrument, see Regulations section 1. 1040x 2010 form 1275-7. 1040x 2010 form Sale, exchange, or redemption. 1040x 2010 form   Generally, you treat your gain or loss from the sale, exchange, or redemption of a discounted debt instrument as a capital gain or loss if you held the debt instrument as a capital asset. 1040x 2010 form If you sold the debt instrument through a broker, you should receive Form 1099-B or an equivalent statement from the broker. 1040x 2010 form Use the Form 1099-B or other statement and your brokerage statements to complete Form 8949, and Schedule D (Form 1040). 1040x 2010 form   Your gain or loss is the difference between the amount you realized on the sale, exchange, or redemption and your basis in the debt instrument. 1040x 2010 form Your basis, generally, is your cost increased by the OID you have included in income each year you held it. 1040x 2010 form In general, to determine your gain or loss on a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. 1040x 2010 form   See chapter 4 of Publication 550 for more information about the tax treatment of the sale or redemption of discounted debt instruments. 1040x 2010 form Example 4. 1040x 2010 form Larry, a calendar year taxpayer, bought a corporate debt instrument at original issue for $86,235. 1040x 2010 form 00 on November 1 of Year 1. 1040x 2010 form The 15-year debt instrument matures on October 31 of Year 16 at a stated redemption price of $100,000. 1040x 2010 form The debt instrument provides for semiannual payments of interest at 10%. 1040x 2010 form Assume the debt instrument is a capital asset in Larry's hands. 1040x 2010 form The debt instrument has $13,765. 1040x 2010 form 00 of OID ($100,000 stated redemption price at maturity minus $86,235. 1040x 2010 form 00 issue price). 1040x 2010 form Larry sold the debt instrument for $90,000 on November 1 of Year 4. 1040x 2010 form Including the OID he will report for the period he held the debt instrument in Year 4, Larry has included $4,556. 1040x 2010 form 00 of OID in income and has increased his basis by that amount to $90,791. 1040x 2010 form 00. 1040x 2010 form Larry has realized a loss of $791. 1040x 2010 form 00. 1040x 2010 form All of Larry's loss is capital loss. 1040x 2010 form Form 1099-OID The issuer of the debt instrument (or your broker, if you purchased or held the debt instrument through a broker) should give you a copy of Form 1099-OID or a similar statement if the accrued OID for the calendar year is $10 or more and the term of the debt instrument is more than 1 year. 1040x 2010 form Form 1099-OID shows all OID income in box 1 except OID on a U. 1040x 2010 form S. 1040x 2010 form Treasury obligation, which is shown in box 8. 1040x 2010 form It also shows, in box 2, any qualified stated interest you must include in income. 1040x 2010 form (However, any qualified stated interest on Treasury inflation-protected securities can be reported on Form 1099-INT in box 3. 1040x 2010 form ) A copy of Form 1099-OID will be sent to the IRS. 1040x 2010 form Do not attach your copy to your tax return. 1040x 2010 form Keep it for your records. 1040x 2010 form If you are required to file a tax return and you receive Form 1099-OID showing taxable amounts, you must report these amounts on your return. 1040x 2010 form A 20% accuracy-related penalty may be charged for underpayment of tax due to either negligence or disregard of rules and regulations or substantial understatement of tax. 1040x 2010 form Form 1099-OID not received. 1040x 2010 form   If you held an OID debt instrument for a calendar year but did not receive a Form 1099-OID, refer to the discussions under Figuring OID on Long-Term Debt Instruments, later, for information on the OID you must report. 1040x 2010 form Refiguring OID. 1040x 2010 form   You must refigure the OID shown on Form 1099-OID, in box 1 or box 8, to determine the proper amount to include in income if one of the following applies. 1040x 2010 form You bought the debt instrument at a premium or at an acquisition premium. 1040x 2010 form The debt instrument is a stripped bond or coupon (including zero coupon bonds backed by U. 1040x 2010 form S. 1040x 2010 form Treasury securities). 1040x 2010 form The debt instrument is a contingent payment or inflation-indexed debt instrument. 1040x 2010 form See the discussions under Figuring OID on Long-Term Debt Instruments or Figuring OID on Stripped Bonds and Coupons, later, for the specific computations. 1040x 2010 form Refiguring interest. 1040x 2010 form   If you disposed of a debt instrument or acquired it from another holder between interest dates, see the discussion under Bonds Sold Between Interest Dates in chapter 1 of Publication 550 for information about refiguring the interest shown on Form 1099-OID in box 2. 1040x 2010 form Nominee. 1040x 2010 form   If you are the holder of an OID debt instrument and you receive a Form 1099-OID that shows your taxpayer identification number and includes amounts belonging to another person, you are considered a “nominee. 1040x 2010 form ” You must file another Form 1099-OID for each actual owner, showing the OID for the owner. 1040x 2010 form Show the owner of the debt instrument as the “recipient” and you as the “payer. 1040x 2010 form ”   Complete Form 1099-OID and Form 1096 and file the forms with the Internal Revenue Service Center for your area. 1040x 2010 form You must also give a copy of the Form 1099-OID to the actual owner. 1040x 2010 form However, you are not required to file a nominee return to show amounts belonging to your spouse. 1040x 2010 form See the Form 1099 instructions for more information. 1040x 2010 form   When preparing your tax return, follow the instructions under Showing an OID adjustment in the next discussion. 1040x 2010 form How To Report OID Generally, you report your taxable interest and OID income on the interest line of Form 1040EZ, Form 1040A, or Form 1040. 1040x 2010 form Form 1040 or Form 1040A required. 1040x 2010 form   You must use Form 1040 or Form 1040A (you cannot use Form 1040EZ) under either of the following conditions. 1040x 2010 form You received a Form 1099-OID as a nominee for the actual owner. 1040x 2010 form Your total interest and OID income for the year was more than $1,500. 1040x 2010 form Form 1040 required. 1040x 2010 form   You must use Form 1040 (you cannot use Form 1040A or Form 1040EZ) if you are reporting more or less OID than the amount shown on Form 1099-OID, other than because you are a nominee. 1040x 2010 form For example, if you paid a premium or an acquisition premium when you purchased the debt instrument, you must use Form 1040 because you will report less OID than shown on Form 1099-OID. 1040x 2010 form Also, you must use Form 1040 if you were charged an early withdrawal penalty. 1040x 2010 form Where to report. 1040x 2010 form   List each payer's name (if a brokerage firm gave you a Form 1099, list the brokerage firm as the payer) and the amount received from each payer on Form 1040A, Schedule B, Part I, line 1, or Form 1040, Schedule B, line 1. 1040x 2010 form Include all OID and periodic interest shown on any Form 1099-OID, boxes 1, 2, and 8, you received for the tax year. 1040x 2010 form Also include any other OID and interest income for which you did not receive a Form 1099. 1040x 2010 form Showing an OID adjustment. 1040x 2010 form   If you use Form 1040 to report more or less OID than shown on Form 1099-OID, list the full OID on Schedule B, Part I, line 1, and follow the instructions under 1 or 2, next. 1040x 2010 form   If you use Form 1040A to report the OID shown on a Form 1099-OID you received as a nominee for the actual owner, list the full OID on Schedule B, Part I, line 1 and follow the instructions under 1. 1040x 2010 form If the OID, as adjusted, is less than the amount shown on Form 1099-OID, show the adjustment as follows. 1040x 2010 form Under your last entry on line 1, subtotal all interest and OID income listed on line 1. 1040x 2010 form Below the subtotal, write “Nominee Distribution” or “OID Adjustment” and show the OID you are not required to report. 1040x 2010 form Subtract that OID from the subtotal and enter the result on line 2. 1040x 2010 form If the OID, as adjusted, is more than the amount shown on Form 1099-OID, show the adjustment as follows. 1040x 2010 form Under your last entry on line 1, subtotal all interest and OID income listed on line 1. 1040x 2010 form Below the subtotal, write “OID Adjustment” and show the additional OID. 1040x 2010 form Add that OID to the subtotal and enter the result on line 2. 1040x 2010 form Figuring OID on Long-Term Debt Instruments How you figure the OID on a long-term debt instrument depends on the date it was issued. 1040x 2010 form It also may depend on the type of the debt instrument. 1040x 2010 form There are different rules for each of the following debt instruments. 1040x 2010 form Corporate debt instruments issued after 1954 and before May 28, 1969, and government debt instruments issued after 1954 and before July 2, 1982. 1040x 2010 form Corporate debt instruments issued after May 27, 1969, and before July 2, 1982. 1040x 2010 form Debt instruments issued after July 1, 1982, and before 1985. 1040x 2010 form Debt instruments issued after 1984 (other than debt instruments described in (5) and (6)). 1040x 2010 form Contingent payment debt instruments issued after August 12, 1996. 1040x 2010 form Inflation-indexed debt instruments (including Treasury inflation-protected securities) issued after January 5, 1997. 1040x 2010 form Zero coupon bonds. 1040x 2010 form   The rules for figuring OID on zero coupon bonds backed by U. 1040x 2010 form S. 1040x 2010 form Treasury securities are discussed under Figuring OID on Stripped Bonds and Coupons, later. 1040x 2010 form Corporate Debt Instruments Issued After 1954 and Before May 28, 1969, and Government Debt Instruments Issued After 1954 and Before July 2, 1982 If you hold these debt instruments as capital assets, you include OID in income only in the year the debt instrument is sold, exchanged, or redeemed, and only if you have a gain. 1040x 2010 form The OID, which is taxed as ordinary income, generally equals the following amount. 1040x 2010 form   number of full months you held the debt instrument  number of full months from date of original issue to date of maturity X original issue discount The balance of the gain is capital gain. 1040x 2010 form If there is a loss on the sale of the debt instrument, the entire loss is a capital loss and no OID is reported. 1040x 2010 form Corporate Debt Instruments Issued After May 27, 1969, and Before July 2, 1982 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments. 1040x 2010 form For information about showing the correct OID on your tax return, see the discussion under How To Report OID, earlier. 1040x 2010 form Your basis in the debt instrument is increased by the OID you include in income. 1040x 2010 form Form 1099-OID. 1040x 2010 form   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. 1040x 2010 form However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. 1040x 2010 form See Reduction for acquisition premium, later. 1040x 2010 form If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. 1040x 2010 form irs. 1040x 2010 form gov/pub1212 by clicking the link under Recent Developments. 1040x 2010 form Form 1099-OID not received. 1040x 2010 form    The OID listed is for each $1,000 of redemption price. 1040x 2010 form You must adjust the listed amount if your debt instrument has a different principal amount. 1040x 2010 form For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. 1040x 2010 form   If you held the debt instrument the entire year, use the OID shown in Section I-A for a calendar year. 1040x 2010 form (If your debt instrument is not listed in Section I-A, consult the issuer for information about the issue price and the OID that accrued for that year. 1040x 2010 form ) If you did not hold the debt instrument the entire year, figure your OID using the following method. 1040x 2010 form Divide the OID shown by 12. 1040x 2010 form Multiply the result in (1) by the number of complete and partial months (for example, 6½ months) you held the debt instrument during a calendar year. 1040x 2010 form This is the OID to include in income unless you paid an acquisition premium. 1040x 2010 form The reduction for acquisition premium is discussed next. 1040x 2010 form Reduction for acquisition premium. 1040x 2010 form   If you bought the debt instrument at an acquisition premium, figure the OID to include in income as follows. 1040x 2010 form Divide the total OID on the debt instrument by the number of complete months, and any part of a month, from the date of original issue to the maturity date. 1040x 2010 form This is the monthly OID. 1040x 2010 form Subtract from your cost the issue price and the accumulated OID from the date of issue to the date of purchase. 1040x 2010 form (If the result is zero or less, stop here. 1040x 2010 form You did not pay an acquisition premium. 1040x 2010 form ) Divide the amount figured in (2) by the number of complete months, and any part of a month, from the date of your purchase to the maturity date. 1040x 2010 form Subtract the amount figured in (3) from the amount figured in (1). 1040x 2010 form This is the OID to include in income for each month you hold the debt instrument during the year. 1040x 2010 form Transfers during the month. 1040x 2010 form   If you buy or sell a debt instrument on any day other than the same day of the month as the date of original issue, the ratable monthly portion of OID for the month of sale is divided between the seller and the buyer according to the number of days each held the debt instrument. 1040x 2010 form Your holding period for this purpose begins the day you acquire the debt instrument and ends the day before you dispose of it. 1040x 2010 form Debt Instruments Issued After July 1, 1982, and Before 1985 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments and increase your basis by the amount included. 1040x 2010 form For information about showing the correct OID on your tax return, see How To Report OID, earlier. 1040x 2010 form Form 1099-OID. 1040x 2010 form   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. 1040x 2010 form However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. 1040x 2010 form See Constant yield method and the discussions on acquisition premium that follow, later. 1040x 2010 form If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. 1040x 2010 form irs. 1040x 2010 form gov/pub1212 by clicking the link under Recent Developments. 1040x 2010 form Form 1099-OID not received. 1040x 2010 form    The OID listed is for each $1,000 of redemption price. 1040x 2010 form You must adjust the listed amount if your debt instrument has a different principal amount. 1040x 2010 form For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. 1040x 2010 form   If you held the debt instrument the entire year, use the OID shown in Section I-A. 1040x 2010 form (If your instrument is not listed in Section I-A, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. 1040x 2010 form ) If you did not hold the debt instrument the entire year, figure your OID using either of the following methods. 1040x 2010 form Method 1. 1040x 2010 form    Divide the total OID for a calendar year by 365 (366 for leap years). 1040x 2010 form Multiply the result in (1) by the number of days you held the debt instrument during that particular year. 1040x 2010 form  This computation is an approximation and may result in a slightly higher OID than Method 2. 1040x 2010 form Method 2. 1040x 2010 form    Look up the daily OID for the first accrual period you held the debt instrument during a calendar year. 1040x 2010 form (See Accrual period under Constant yield method, next. 1040x 2010 form ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. 1040x 2010 form If you held the debt instrument for part of both accrual periods, repeat (1) and (2) for the second accrual period. 1040x 2010 form Add the results of (2) and (3). 1040x 2010 form This is the OID to include in income, unless you paid an acquisition premium. 1040x 2010 form (The reduction for acquisition premium is discussed later. 1040x 2010 form ) Constant yield method. 1040x 2010 form   This discussion shows how to figure OID on debt instruments issued after July 1, 1982, and before 1985, using a constant yield method. 1040x 2010 form OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. 1040x 2010 form   Figure the OID allocable to any accrual period as follows. 1040x 2010 form Multiply the adjusted issue price at the beginning of the accrual period by the debt instrument's yield to maturity. 1040x 2010 form Subtract from the result in (1) any qualified stated interest allocable to the accrual period. 1040x 2010 form Accrual period. 1040x 2010 form   An accrual period for any OID debt instrument issued after July 1, 1982, and before 1985 is each 1-year period beginning on the date of the issue of the obligation and each anniversary thereafter, or the shorter period to maturity for the last accrual period. 1040x 2010 form Your tax year will usually include parts of two accrual periods. 1040x 2010 form Daily OID. 1040x 2010 form   The OID for any accrual period is allocated equally to each day in the accrual period. 1040x 2010 form You must include in income the sum of the OID amounts for each day you hold the debt instrument during the year. 1040x 2010 form If your tax year includes parts of two or more accrual periods, you must include the proper daily OID amounts for each accrual period. 1040x 2010 form Figuring daily OID. 1040x 2010 form   The daily OID for the initial accrual period is figured using the following formula. 1040x 2010 form   (ip × ytm) − qsi     p   ip = issue price ytm = yield to maturity qsi = qualified stated interest p = number of days in accrual period         The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. 1040x 2010 form Reduction for acquisition premium on debt instruments purchased before July 19, 1984. 1040x 2010 form   If you bought the debt instrument at an acquisition premium before July 19, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. 1040x 2010 form Figure the daily acquisition premium by dividing the total acquisition premium by the number of days in the period beginning on your purchase date and ending on the day before the date of maturity. 1040x 2010 form Reduction for acquisition premium on debt instruments purchased after July 18, 1984. 1040x 2010 form   If you bought the debt instrument at an acquisition premium after July 18, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. 1040x 2010 form However, the method of figuring the daily acquisition premium is different from the method described in the preceding discussion. 1040x 2010 form To figure the daily acquisition premium under this method, multiply the daily OID by the following fraction. 1040x 2010 form The numerator is the acquisition premium. 1040x 2010 form The denominator is the total OID remaining for the debt instrument after your purchase date. 1040x 2010 form Section I-A is available at www. 1040x 2010 form irs. 1040x 2010 form gov/pub1212 and clicking the link under Recent Developments. 1040x 2010 form Using Section I-A to figure accumulated OID. 1040x 2010 form   If you bought your corporate debt instrument in a calendar year or the subsequent year, you can figure the accumulated OID to the date of purchase by adding the following amounts. 1040x 2010 form The amount from the “Total OID to January 1, YYYY” column for your debt instrument. 1040x 2010 form The OID from January 1 of a calendar year to the date of purchase, figured as follows. 1040x 2010 form Multiply the daily OID for the first accrual period in the calendar year by the number of days from January 1 to the date of purchase, or the end of the accrual period if the debt instrument was purchased in the second or third accrual period. 1040x 2010 form Multiply the daily OID for each subsequent accrual period by the number of days in the period to the date of purchase or the end of the accrual period, whichever applies. 1040x 2010 form Add the amounts figured in (2a) and (2b). 1040x 2010 form Debt Instruments Issued After 1984 If you hold debt instruments issued after 1984, you must report part of the OID in gross income each year that you own the debt instruments. 1040x 2010 form You must include the OID in gross income whether or not you hold the debt instrument as a capital asset. 1040x 2010 form Your basis in the debt instrument is increased by the OID you include in income. 1040x 2010 form For information about showing the correct OID on your tax return, see How To Report OID, earlier. 1040x 2010 form Form 1099-OID. 1040x 2010 form   You should receive a Form 1099-OID showing OID for the part of a calendar year you held the debt instrument. 1040x 2010 form However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. 1040x 2010 form See Constant yield method and Reduction for acquisition premium, later. 1040x 2010 form   You may also need to refigure the OID for a contingent payment or inflation-indexed debt instrument on which the amount reported on Form 1099-OID is inaccurate. 1040x 2010 form See Contingent Payment Debt Instruments or Inflation-Indexed Debt Instruments, later. 1040x 2010 form If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-B available at www. 1040x 2010 form irs. 1040x 2010 form gov/pub1212 by clicking the link under Recent Developments. 1040x 2010 form Form 1099-OID not received. 1040x 2010 form   The OID listed is for each $1,000 of redemption price. 1040x 2010 form You must adjust the listed amount if your debt instrument has a different principal amount. 1040x 2010 form For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. 1040x 2010 form   Use the OID shown in Section I-B for a calendar year if you held the debt instrument the entire year. 1040x 2010 form (If your debt instrument is not listed in Section I-B, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. 1040x 2010 form ) If you did not hold the debt instrument the entire year, figure your OID as follows. 1040x 2010 form Look up the daily OID for the first accrual period in which you held the debt instrument during a calendar year. 1040x 2010 form (See Accrual period under Constant yield method, later. 1040x 2010 form ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. 1040x 2010 form Repeat (1) and (2) for any remaining accrual periods in which you held the debt instrument. 1040x 2010 form Add the results of (2) and (3). 1040x 2010 form This is the OID to include in income for that year, unless you paid an acquisition premium. 1040x 2010 form (The reduction for acquisition premium is discussed later. 1040x 2010 form ) Tax-exempt bond. 1040x 2010 form   If you own a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. 1040x 2010 form You need to make this adjustment to determine if you have a gain or loss on a later disposition of the bond. 1040x 2010 form In general, use the rules that follow to determine your OID. 1040x 2010 form Constant yield method. 1040x 2010 form   This discussion shows how to figure OID on debt instruments issued after 1984 using a constant yield method. 1040x 2010 form (The special rules that apply to contingent payment debt instruments and inflation-indexed debt instruments are explained later. 1040x 2010 form ) OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. 1040x 2010 form   Figure the OID allocable to any accrual period as follows. 1040x 2010 form Multiply the adjusted issue price at the beginning of the accrual period by a fraction. 1040x 2010 form The numerator of the fraction is the debt instrument's yield to maturity and the denominator is the number of accrual periods per year. 1040x 2010 form The yield must be stated appropriately taking into account the length of the particular accrual period. 1040x 2010 form Subtract from the result in (1) any qualified stated interest allocable to the accrual period. 1040x 2010 form Accrual period. 1040x 2010 form   For debt instruments issued after 1984 and before April 4, 1994, an accrual period is each 6-month period that ends on the day that corresponds to the stated maturity date of the debt instrument or the date 6 months before that date. 1040x 2010 form For example, a debt instrument maturing on March 31 has accrual periods that end on September 30 and March 31 of each calendar year. 1040x 2010 form Any short period is included as the first accrual period. 1040x 2010 form   For debt instruments issued after April 3, 1994, accrual periods may be of any length and may vary in length over the term of the debt instrument, as long as each accrual period is no longer than 1 year and all payments are made on the first or last day of an accrual period. 1040x 2010 form However, the OID listed for these debt instruments in Section I-B has been figured using 6-month accrual periods. 1040x 2010 form Daily OID. 1040x 2010 form   The OID for any accrual period is allocated equally to each day in the accrual period. 1040x 2010 form Figure the amount to include in income by adding the OID for each day you hold the debt instrument during the year. 1040x 2010 form Since your tax year will usually include parts of two or more accrual periods, you must include the proper daily OID for each accrual period. 1040x 2010 form If your debt instrument has 6-month accrual periods, your tax year will usually include one full 6-month accrual period and parts of two other 6-month periods. 1040x 2010 form Figuring daily OID. 1040x 2010 form   The daily OID for the initial accrual period is figured using the following formula. 1040x 2010 form   (ip × ytm/n) − qsi     p   ip = issue price ytm = yield to maturity n = number of accrual periods in 1 year qsi = qualified stated interest p = number of days in accrual period       The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. 1040x 2010 form Example 5. 1040x 2010 form On January 1 of Year 1, you bought a 15-year, 10% debt instrument of A Corporation at original issue for $86,235. 1040x 2010 form 17. 1040x 2010 form According to the prospectus, the debt instrument matures on December 31 of Year 15 at a stated redemption price of $100,000. 1040x 2010 form The yield to maturity is 12%, compounded semiannually. 1040x 2010 form The debt instrument provides for qualified stated interest payments of $5,000 on June 30 and December 31 of each calendar year. 1040x 2010 form The accrual periods are the 6-month periods ending on each of these dates. 1040x 2010 form The number of days for the first accrual period (January 1 through June 30) is 181 days (182 for leap years). 1040x 2010 form The daily OID for the first accrual period is figured as follows. 1040x 2010 form   ($86,235. 1040x 2010 form 17 x . 1040x 2010 form 12/2) – $5,000     181 days     = $174. 1040x 2010 form 11020 = $. 1040x 2010 form 96193   181           The adjusted issue price at the beginning of the second accrual period is the issue price plus the OID previously includible in income ($86,235. 1040x 2010 form 17 + $174. 1040x 2010 form 11), or $86,409. 1040x 2010 form 28. 1040x 2010 form The number of days for the second accrual period (July 1 through December 31) is 184 days. 1040x 2010 form The daily OID for the second accrual period is figured as follows. 1040x 2010 form   ($86,409. 1040x 2010 form 28 x . 1040x 2010 form 12/2) – $5,000     184 days     = $184. 1040x 2010 form 55681 = $1. 1040x 2010 form 00303   184 Since the first and second accrual periods coincide exactly with your tax year, you include in income for Year 1 the OID allocable to the first two accrual periods, $174. 1040x 2010 form 11 ($. 1040x 2010 form 95665 × 182 days) plus $184. 1040x 2010 form 56 ($1. 1040x 2010 form 00303 × 184 days), or $358. 1040x 2010 form 67. 1040x 2010 form Add the OID to the $10,000 interest you report on your income tax return for Year 1. 1040x 2010 form Example 6. 1040x 2010 form Assume the same facts as in Example 5, except that you bought the debt instrument at original issue on May 1 of Year 1, with a maturity date of April 30, Year 16. 1040x 2010 form Also, the interest payment dates are October 31 and April 30 of each calendar year. 1040x 2010 form The accrual periods are the 6-month periods ending on each of these dates. 1040x 2010 form The number of days for the first accrual period (May 1 through October 31) is 184 days. 1040x 2010 form The daily OID for the first accrual period is figured as follows. 1040x 2010 form   ($86,235. 1040x 2010 form 17 x . 1040x 2010 form 12/2) – $5,000     184 days     = $174. 1040x 2010 form 11020 = $. 1040x 2010 form 94625   184           The number of days for the second accrual period (November 1 through April 30) is 181 days (182 for leap years). 1040x 2010 form The daily OID for the second accrual period is figured as follows. 1040x 2010 form   ($86,409. 1040x 2010 form 28 x . 1040x 2010 form 12/2) – $5,000     181 days     = $184. 1040x 2010 form 55681 = $1. 1040x 2010 form 01965   181 If you hold the debt instrument through the end of Year 1, you must include $236. 1040x 2010 form 31 of OID in income. 1040x 2010 form This is $174. 1040x 2010 form 11 ($. 1040x 2010 form 94625 × 184 days) for the period May 1 through October 31 plus $62. 1040x 2010 form 20 ($1. 1040x 2010 form 01965 × 61 days) for the period November 1 through December 31. 1040x 2010 form The OID is added to the $5,000 interest income paid on October 31 of Year 1. 1040x 2010 form Your basis in the debt instrument is increased by the OID you include in income. 1040x 2010 form On January 1 of Year 2, your basis in the A Corporation debt instrument is $86,471. 1040x 2010 form 48 ($86,235. 1040x 2010 form 17 + $236. 1040x 2010 form 31). 1040x 2010 form Short first accrual period. 1040x 2010 form   You may have to make adjustments if a debt instrument has a short first accrual period. 1040x 2010 form For example, a debt instrument with 6-month accrual periods that is issued on February 15 and matures on October 31 has a short first accrual period that ends April 30. 1040x 2010 form (The remaining accrual periods begin on May 1 and November 1. 1040x 2010 form ) For this short period, figure the daily OID as described earlier, but adjust the yield for the length of the short accrual period. 1040x 2010 form You may use any reasonable compounding method in determining OID for a short period. 1040x 2010 form Examples of reasonable compounding methods include continuous compounding and monthly compounding (that is, simple interest within a month). 1040x 2010 form Consult your tax advisor for more information about making this computation. 1040x 2010 form   The OID for the final accrual period is the difference between the amount payable at maturity (other than a payment of qualified stated interest) and the adjusted issue price at the beginning of the final accrual period. 1040x 2010 form Reduction for acquisition premium. 1040x 2010 form   If you bought the debt instrument at an acquisition premium, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. 1040x 2010 form To figure the daily acquisition premium, multiply the daily OID by the following fraction. 1040x 2010 form The numerator is the acquisition premium. 1040x 2010 form The denominator is the total OID remaining for the debt instrument after your purchase date. 1040x 2010 form Example 7. 1040x 2010 form Assume the same facts as in Example 6, except that you bought the debt instrument on November 1 of Year 1 for $87,000, after its original issue on May 1 of Year 1. 1040x 2010 form The adjusted issue price on November 1 of Year 1 is $86,409. 1040x 2010 form 28 ($86,235. 1040x 2010 form 17 + $174. 1040x 2010 form 11). 1040x 2010 form In this case, you paid an acquisition premium of $590. 1040x 2010 form 72 ($87,000 − $86,409. 1040x 2010 form 28). 1040x 2010 form The daily OID for the accrual period November 1 through April 30, reduced for the acquisition premium, is figured as follows. 1040x 2010 form 1) Daily OID on date of purchase (2nd accrual period) $1. 1040x 2010 form 01965*  2)  Acquisition premium $590. 1040x 2010 form 72    3)  Total OID remaining after purchase date ($13,764. 1040x 2010 form 83 − $174. 1040x 2010 form 11) 13,590. 1040x 2010 form 72   4) Line 2 ÷ line 3 . 1040x 2010 form 04346  5)  Line 1 × line 4 . 1040x 2010 form 04432  6)  Daily OID reduced for the acquisition premium. 1040x 2010 form Line 1 − line 5 $0. 1040x 2010 form 97533  * As shown in Example 6. 1040x 2010 form The total OID to include in income for Year 1 is $59. 1040x 2010 form 50 ($. 1040x 2010 form 97533 × 61 days). 1040x 2010 form Contingent Payment Debt Instruments This discussion shows how to figure OID on a contingent payment debt instrument issued after August 12, 1996, that was issued for cash or publicly traded property. 1040x 2010 form In general, a contingent payment debt instrument provides for one or more payments that are contingent as to timing or amount. 1040x 2010 form If you hold a contingent payment bond, you must report OID as it accrues each year. 1040x 2010 form Because the actual payments on a contingent payment debt instrument cannot be known in advance, issuers and holders cannot use the constant yield method (discussed earlier under Debt Instruments Issued After 1984) without making certain assumptions about the payments on the debt instrument. 1040x 2010 form To figure OID accruals on contingent payment debt instruments, holders and issuers must use the noncontingent bond method. 1040x 2010 form Noncontingent bond method. 1040x 2010 form    Under this method, the issuer must compute a comparable yield for the debt instrument and, based on this yield, construct a projected payment schedule for the instrument, which includes a projected fixed amount for each contingent payment. 1040x 2010 form In general, holders and issuers accrue OID on this projected payment schedule using the constant yield method that applies to fixed payment debt instruments. 1040x 2010 form When a contingent payment differs from the projected fixed amount, the holders and issuers make adjustments to their OID accruals. 1040x 2010 form If the actual contingent payment is larger than expected, both the issuer and the holder increase their OID accruals. 1040x 2010 form If the actual contingent payment is smaller than expected, holders and issuers generally decrease their OID accruals. 1040x 2010 form Form 1099-OID. 1040x 2010 form   The amount shown on Form 1099-OID in box 1 you receive for a contingent payment debt instrument may not be the correct amount to include in income. 1040x 2010 form For example, the amount may not be correct if the contingent payment was different from the projected amount. 1040x 2010 form If the amount in box 1 is not correct, you must figure the OID to report on your return under the following rules. 1040x 2010 form For information on showing an OID adjustment on your tax return, see How To Report OID, earlier. 1040x 2010 form Figuring OID. 1040x 2010 form   To figure OID on a contingent payment debt instrument, you need to know the “comparable yield” and “projected payment schedule” of the debt instrument. 1040x 2010 form The issuer must make these available to you. 1040x 2010 form Comparable yield. 1040x 2010 form   The comparable yield generally is the yield at which the issuer would issue a fixed rate debt instrument with terms and conditions similar to those of the contingent payment debt instrument. 1040x 2010 form The comparable yield is determined as of the debt instrument's issue date. 1040x 2010 form Projected payment schedule. 1040x 2010 form   The projected payment schedule for a contingent payment debt instrument includes all fixed payments due under the instrument and a projected fixed amount for each contingent payment. 1040x 2010 form The projected payment schedule is created by the issuer as of the debt instrument's issue date. 1040x 2010 form It is used to determine the issuer's and holder's interest accruals and adjustments. 1040x 2010 form Steps for figuring OID. 1040x 2010 form   Figure the OID on a contingent payment debt instrument in two steps. 1040x 2010 form Figure the OID using the constant yield method (discussed earlier under Debt Instruments Issued After 1984 ) that applies to fixed payment debt instruments. 1040x 2010 form Use the comparable yield as the yield to maturity. 1040x 2010 form In general, use the projected payment schedule to determine the instrument's adjusted issue price at the beginning of each accrual period (other than the initial period). 1040x 2010 form Do not treat any amount payable as qualified stated interest. 1040x 2010 form Adjust the OID in (1) to account for actual contingent payments. 1040x 2010 form If the contingent payment is greater than the projected fixed amount, you have a positive adjustment. 1040x 2010 form If the contingent payment is less than the projected fixed amount, you have a negative adjustment. 1040x 2010 form Net positive adjustment. 1040x 2010 form   A net positive adjustment exists for a tax year when the total of any positive adjustments described in (2) above for the tax year is more than the total of any negative adjustments for the tax year. 1040x 2010 form Treat a net positive adjustment as additional OID for the tax year. 1040x 2010 form Net negative adjustment. 1040x 2010 form   A net negative adjustment exists for a tax year when the total of any negative adjustments described in (2) above for the tax year is more than the total of any positive adjustments for the tax year. 1040x 2010 form Use a net negative adjustment to offset OID on the debt instrument for the tax year. 1040x 2010 form If the net negative adjustment is more than the OID on the debt instrument for the tax year, you can claim the difference as an ordinary loss. 1040x 2010 form However, the amount you can claim as an ordinary loss is limited to the OID on the debt instrument you included in income in prior tax years. 1040x 2010 form You must carry forward any net negative adjustment that is more than the total OID for the tax year and prior tax years and treat it as a negative adjustment in the next tax year. 1040x 2010 form Basis adjustments. 1040x 2010 form   In general, increase your basis in a contingent payment debt instrument by the OID included in income. 1040x 2010 form Your basis, however, is not affected by any negative or positive adjustments. 1040x 2010 form Decrease your basis by any noncontingent payment received and the projected contingent payment scheduled to be received. 1040x 2010 form Treatment of gain or loss on sale or exchange. 1040x 2010 form   If you sell a contingent payment debt instrument at a gain, your gain is ordinary income (interest income), even if you hold the debt instrument as a capital asset. 1040x 2010 form If you sell a contingent payment debt instrument at a loss, your loss is an ordinary loss to the extent of your prior OID accruals on the debt instrument. 1040x 2010 form If the debt instrument is a capital asset, treat any loss that is more than your prior OID accruals as a capital loss. 1040x 2010 form See Regulations section 1. 1040x 2010 form 1275-4 for exceptions to these rules. 1040x 2010 form Premium, acquisition premium, and market discount. 1040x 2010 form   The rules for accruing premium, acquisition premium, and market discount do not apply to a contingent payment debt instrument. 1040x 2010 form See Regulations section 1. 1040x 2010 form 1275-4 to determine how to account for these items. 1040x 2010 form Inflation-Indexed Debt Instruments This discussion shows how you figure OID on certain inflation-indexed debt instruments issued after January 5, 1997. 1040x 2010 form An inflation-indexed debt instrument is generally a debt instrument on which the payments are adjusted for inflation and d