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Federal Tax Extension

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Federal Tax Extension

Federal tax extension 8. Federal tax extension   Foreign Insurance Taxes Table of Contents Premium. Federal tax extension Tax is imposed on insurance policies issued by foreign insurers. Federal tax extension Any person who makes, signs, issues, or sells any of the documents and instruments subject to the tax, or for whose use or benefit they are made, signed, issued, or sold, is liable for the tax. Federal tax extension The following tax rates apply to each dollar (or fraction thereof) of the premium paid. Federal tax extension Casualty insurance and indemnity, fidelity, and surety bonds: 4 cents. Federal tax extension For example, on a premium payment of $10. Federal tax extension 10, the tax is 44 cents. Federal tax extension Life, sickness, and accident insurance, and annuity contracts: 1 cent. Federal tax extension For example, on a premium payment of $10. Federal tax extension 10, the tax is 11 cents. Federal tax extension Reinsurance policies covering any of the taxable contracts described in items (1) and (2): 1 cent. Federal tax extension However, the tax does not apply to casualty insurance premiums paid to foreign insurers for coverage of export goods in transit to foreign destinations. Federal tax extension Premium. Federal tax extension   Premium means the agreed price or consideration for assuming and carrying the risk or obligation. Federal tax extension It includes any additional charge or assessment payable under the contract, whether in one sum or installments. Federal tax extension If premiums are refunded, claim the tax paid on those premiums as an overpayment against tax due on other premiums paid or file a claim for refund. Federal tax extension When liability attaches. Federal tax extension   The liability for this tax attaches when the premium payment is transferred to the foreign insurer or reinsurer (including transfers to any bank, trust fund, or similar recipient designated by the foreign insurer or reinsurer) or to any nonresident agent, solicitor, or broker. Federal tax extension A person can pay the tax before the liability attaches if the person keeps records consistent with that practice. Federal tax extension Who must file. Federal tax extension   The person who pays the premium to the foreign insurer (or to any nonresident person such as a foreign broker) must pay the tax and file the return. Federal tax extension Otherwise, any person who issued or sold the policy, or who is insured under the policy, is required to pay the tax and file the return. Federal tax extension    The person liable for this tax must keep accurate records that identify each policy or instrument subject to tax. Federal tax extension These records must clearly establish the type of policy or instrument, the gross premium paid, the identity of the insured and insurer, and the total premium charged. Federal tax extension If the premium is to be paid in installments, the records must also establish the amount and anniversary date of each installment. Federal tax extension   The records must be kept at the place of business or other convenient location for at least 3 years after the later of the date any part of the tax became due, or the date any part of the tax was paid. Federal tax extension During this period, the records must be readily accessible to the IRS. Federal tax extension   The person having control or possession of a policy or instrument subject to this tax must keep the policy for at least 3 years after the date any part of the tax on it was paid. Federal tax extension For information on reinsurance premiums paid from one foreign insurer to another foreign insurer, see Rev. Federal tax extension Rul. Federal tax extension 2008-15. Federal tax extension You can find Rev. Federal tax extension Rul. Federal tax extension 2008-15 on page 633 of I. Federal tax extension R. Federal tax extension B. Federal tax extension 2008-12 at www. Federal tax extension irs. Federal tax extension gov/pub/irs-irbs/irb08-12. Federal tax extension pdf. Federal tax extension Treaty-based positions under IRC 6114. Federal tax extension   You may have to file an annual report disclosing the amount of premiums exempt from United States excise tax as a result of the application of a treaty with the United States that overrides (or otherwise modifies) any provision of the Internal Revenue Code. Federal tax extension   Attach any disclosure statement to the first quarter Form 720. Federal tax extension You may be able to use Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), as a disclosure statement. Federal tax extension See the Instructions for Form 720 for information on how and where to file. Federal tax extension   See Revenue Procedure 92-14 in Cumulative Bulletin 1992-1 for procedures you can use to claim a refund of this tax under certain U. Federal tax extension S. Federal tax extension treaties. Federal tax extension Prev  Up  Next   Home   More Online Publications
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Phishing Scams

“Phishing” is the use of fraudulent e-mail designed to steal identities as well as vital personal information such as credit card numbers, bank account PINs, and passwords. Phishing e-mails often ask you to verify this type of information.

Scammers also go “SMishing,” or phishing using text messages, by asking you to verify or confirm sensitive information. Legitimate companies never ask for your password or account number via e-mail. Protect yourself:

  • Call the company directly to determine if the email is trustworthy
  • Forward the email to the Federal Trade Commission at spam@uce.gov.
  • Do not reveal personal or financial information in emails
  • Contact the company directly. Do not use contact information provided on a web site connected to the request; instead, use contact information from account statements that you already have.
  • Don’t reply to the email, even if it threatens to disable your account.

Beware: Cash Top-Up Scams

Cash top-up cards can be a convenient way to transfer money to other accounts. They are not designed to be used directly with retailers or online merchants; rather they are used to reload money on accounts that you control, such as your debit card.
Unfortunately, scammers know the ease and convenience of using these cards. They persuade you to share your top-up card number directly with them instead of using a wire or escrow service. However, if you send the top-up number you’ll be left without the merchandise you were promised or your money. To protect yourself from these scams:

  • Guard your top-up card like it is cash.
  • Be wary of advertisements where you are asked to pay with a cash top-up card.
  • Don’t share your top-up card number with someone you don’t know, even if a merchant asks you to e-mail it to them.
  • Never use these cards to pay taxes or fees on lottery or sweepstakes winnings. It’s likely that you haven’t won anything.

Protect Your PIN

Beware of “shoulder surfers.” Be suspicious of anyone lurking around an ATM or watching over your shoulder while you use your card. Some thieves even put a device over the card slot of an ATM to read the magnetic strip and record your PIN; this is known as “skimming”. If you suspect criminal activity, walk away and use a different ATM.

The Federal Tax Extension

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