File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

File Free State And Federal Taxes

Do Students Need To File A Tax ReturnWhere Can I File Just My State Taxes1040ez Free FilingFree Tax Filing Federal And StateIrs 1040x InstructionsFederal Amended Tax Return1040ez Tax Form 2010Filing State Tax ReturnsTurbo Tax Free File2012 1040ez Tax FormWww Irs Gov Efile Com1040nr Ez Instruction2012 1040 FormsFederal Tax Return AmendmentFree 2012 TaxesFile My 1040x ElectronicallyTax Form 1040a10 Ez Form2011 Federal Tax FormsIrs Forms 1040ez InstructionsTaxslayer2012 Ez FormFree Federal 1040ez EfileFiling State ReturnFree Tax Filing For MilitaryUnited Way Free Tax PreparationFile Taxes Online Free 2012Tax Software 2005 2006File 2010 Income TaxTax Questions For Students1040ez 2012 InstructionsTaxact 2012 ReturnCan I Still E File 2011 Taxes1040ez Form PrintableFiling A 1040 Ez1040x Tax FormsFree Income Tax PreparationFree Tax ServicesCan You File 1040ez OnlineHow To File 2006 Taxes Online Free

File Free State And Federal Taxes

File free state and federal taxes Publication 971 - Main Content Table of Contents How To Request ReliefException for agreements relating to TEFRA partnership proceedings. File free state and federal taxes The IRS Must Contact Your Spouse or Former Spouse Tax Court Review of Request Community Property LawsRelief for Married Persons Who Did Not File Joint Returns Innocent Spouse ReliefUnderstated Tax Erroneous Items Actual Knowledge or Reason To Know Indications of Unfairness for Innocent Spouse Relief Separation of Liability ReliefLimitations on Relief Equitable ReliefConditions for Getting Equitable Relief Factors for Determining Whether To Grant Equitable Relief RefundsProof Required Refunds Under Equitable Relief Limit on Amount of Refund Filled-in Form 8857 Flowcharts How To Request Relief File Form 8857 to ask the IRS for the types of relief discussed in this publication. File free state and federal taxes If you are requesting relief for more than three tax years, you must file an additional Form 8857. File free state and federal taxes The IRS will review your Form 8857 and let you know if you qualify. File free state and federal taxes A completed Form 8857 is shown later. File free state and federal taxes When to file Form 8857. File free state and federal taxes   You should file Form 8857 as soon as you become aware of a tax liability for which you believe only your spouse or former spouse should be held responsible. File free state and federal taxes The following are some of the ways you may become aware of such a liability. File free state and federal taxes The IRS is examining your tax return and proposing to increase your tax liability. File free state and federal taxes The IRS sends you a notice. File free state and federal taxes   You must file Form 8857 no later than two years after the date on which the IRS first attempted to collect the tax from you that occurs after July 22, 1998. File free state and federal taxes (But see the exceptions below for different filing deadlines that apply. File free state and federal taxes ) For this reason, do not delay filing because you do not have all the documentation. File free state and federal taxes   Collection activities that may start the 2-year period are: The IRS offset your income tax refund against an amount you owed on a joint return for another year and the IRS informed you about your right to file Form 8857. File free state and federal taxes The filing of a claim by the IRS in a court proceeding in which you were a party or the filing of a claim in a proceeding that involves your property. File free state and federal taxes This includes the filing of a proof of claim in a bankruptcy proceeding. File free state and federal taxes The filing of a suit by the United States against you to collect the joint liability. File free state and federal taxes The issuance of a section 6330 notice, which notifies you of the IRS' intent to levy and your right to a collection due process (CDP) hearing. File free state and federal taxes The collection-related notices include, but are not limited to, Letter 11 and Letter 1058. File free state and federal taxes Exception for equitable relief. File free state and federal taxes   On July 25, 2011, the IRS issued Notice 2011-70 (available at www. File free state and federal taxes irs. File free state and federal taxes gov/irb/2011-32_IRB/ar11. File free state and federal taxes html) expanding the amount of time to request equitable relief. File free state and federal taxes The amount of time to request equitable relief depends on whether you are seeking relief from a balance due, seeking a credit or refund, or both: Balance Due – Generally, you must file your request within the time period the IRS has to collect the tax. File free state and federal taxes Generally, the IRS has 10 years from the date the tax liability was assessed to collect the tax. File free state and federal taxes In certain cases, the 10-year period is suspended. File free state and federal taxes The amount of time the suspension is in effect will extend the time the IRS has to collect the tax. File free state and federal taxes See Pub. File free state and federal taxes 594, The IRS Collection Process, for details. File free state and federal taxes Credit or Refund – Generally, you must file your request within 3 years after the date the original return was filed or within 2 years after the date the tax was paid, whichever is later. File free state and federal taxes But you may have more time to file if you live in a federally declared disaster area or you are physically or mentally unable to manage your financial affairs. File free state and federal taxes See Pub. File free state and federal taxes 556, Examination of Returns, Appeal Rights, and Claims for Refund, for details. File free state and federal taxes Both a Balance Due and a Credit or Refund – If you are seeking a refund of amounts you paid and relief from a balance due over and above what you have paid, the time period for credit or refund will apply to any payments you have made, and the time period for collection of a balance due amount will apply to any unpaid liability. File free state and federal taxes Exception for relief based on community property laws. File free state and federal taxes   If you are requesting relief based on community property laws, a different filing deadline applies. File free state and federal taxes See Relief from liability arising from community property law discussed later under Community Property Laws . File free state and federal taxes Form 8857 filed by or on behalf of a decedent. File free state and federal taxes   An executor (including any other duly appointed representative) may pursue a Form 8857 filed during the decedent's lifetime. File free state and federal taxes An executor (including any other duly appointed representative) may also file Form 8857 as long as the decedent satisfied the eligibility requirements while alive. File free state and federal taxes For purposes of separation of liability relief (discussed later), the decedent's marital status is determined on the earlier of the date relief was requested or the date of death. File free state and federal taxes Situations in which you are not entitled to relief. File free state and federal taxes   You are not entitled to innocent spouse relief for any tax year to which the following situations apply. File free state and federal taxes In a final decision dated after July 22, 1998, a court considered whether to grant you relief from joint liability and decided not to do so. File free state and federal taxes In a final decision dated after July 22, 1998, a court did not consider whether to grant you relief from joint liability, but you meaningfully participated in the proceeding and could have asked for relief. File free state and federal taxes You entered into an offer in compromise with the IRS. File free state and federal taxes You entered into a closing agreement with the IRS that disposed of the same liability for which you want to seek relief. File free state and federal taxes Exception for agreements relating to TEFRA partnership proceedings. File free state and federal taxes   You may be entitled to relief, discussed in (4) earlier, if you entered into a closing agreement for both partnership items and nonpartnership items, while you were a party to a pending TEFRA partnership proceeding. File free state and federal taxes (TEFRA is an acronym that refers to the “Tax Equity and Fiscal Responsibility Act of 1982” that prescribed the tax treatment of partnership items. File free state and federal taxes ) You are not entitled to relief for the nonpartnership items, but you will be entitled to relief for the partnership items (if you otherwise qualify). File free state and federal taxes Transferee liability not affected by innocent spouse relief provisions. File free state and federal taxes   The innocent spouse relief provisions do not affect tax liabilities that arise under federal or state transferee liability or property laws. File free state and federal taxes Therefore, even if you are relieved of the tax liability under the innocent spouse relief provisions, you may remain liable for the unpaid tax, interest, and penalties to the extent provided by these laws. File free state and federal taxes Example. File free state and federal taxes Herb and Wanda timely filed their 2008 joint income tax return on April 15, 2009. File free state and federal taxes Herb died in March 2010, and the executor of Herb's will transferred all of the estate's assets to Wanda. File free state and federal taxes In August 2010, the IRS assessed a deficiency for the 2008 return. File free state and federal taxes The items causing the deficiency belong to Herb. File free state and federal taxes Wanda is relieved of the deficiency under the innocent spouse relief provisions, and Herb's estate remains solely liable for it. File free state and federal taxes However, the IRS may collect the deficiency from Wanda to the extent permitted under federal or state transferee liability or property laws. File free state and federal taxes The IRS Must Contact Your Spouse or Former Spouse By law, the IRS must contact your spouse or former spouse. File free state and federal taxes There are no exceptions, even for victims of spousal abuse or domestic violence. File free state and federal taxes We will inform your spouse or former spouse that you filed Form 8857 and will allow him or her to participate in the process. File free state and federal taxes If you are requesting relief from joint and several liability on a joint return, the IRS must also inform him or her of its preliminary and final determinations regarding your request for relief. File free state and federal taxes However, to protect your privacy, the IRS will not disclose your personal information (for example, your current name, address, phone number(s), information about your employer, your income or assets) or any other information that does not relate to making a determination about your request for relief from liability. File free state and federal taxes If you petition the Tax Court (explained below), your spouse or former spouse may see your personal information. File free state and federal taxes Tax Court Review of Request After you file Form 8857, you may be able to petition (ask) the United States Tax Court to review your request for relief in the following two situations. File free state and federal taxes The IRS sends you a final determination letter regarding your request for relief. File free state and federal taxes You do not receive a final determination letter from the IRS within six months from the date you filed Form 8857. File free state and federal taxes If you seek equitable relief for an underpaid tax, you will be able to get a Tax Court review of your request only if the tax arose or remained unpaid on or after December 20, 2006. File free state and federal taxes The United States Tax Court is an independent judicial body and is not part of the IRS. File free state and federal taxes You must file a petition with the United States Tax Court in order for it to review your request for relief. File free state and federal taxes You must file the petition no later than the 90th day after the date the IRS mails its final determination notice to you. File free state and federal taxes If you do not file a petition, or you file it late, the Tax Court cannot review your request for relief. File free state and federal taxes You can get a copy of the rules for filing a petition by writing to the Tax Court at the following address:    United States Tax Court 400 Second Street, NW Washington, DC 20217 Or you can visit the Tax Court's website at www. File free state and federal taxes ustaxcourt. File free state and federal taxes gov Community Property Laws You must generally follow community property laws when filing a tax return if you are married and live in a community property state. File free state and federal taxes Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. File free state and federal taxes Generally, community property laws require you to allocate community income and expenses equally between both spouses. File free state and federal taxes However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. File free state and federal taxes Relief for Married Persons Who Did Not File Joint Returns Married persons who live in community property states, but who did not file joint returns, have two ways to get relief. File free state and federal taxes Relief From Liability Arising From Community Property Law You are not responsible for the tax relating to an item of community income if all the following conditions exist. File free state and federal taxes You did not file a joint return for the tax year. File free state and federal taxes You did not include the item of community income in gross income. File free state and federal taxes The item of community income you did not include is one of the following: Wages, salaries, and other compensation your spouse (or former spouse) received for services he or she performed as an employee. File free state and federal taxes Income your spouse (or former spouse) derived from a trade or business he or she operated as a sole proprietor. File free state and federal taxes Your spouse's (or former spouse's) distributive share of partnership income. File free state and federal taxes Income from your spouse's (or former spouse's) separate property (other than income described in (a), (b), or (c)). File free state and federal taxes Use the appropriate community property law to determine what is separate property. File free state and federal taxes Any other income that belongs to your spouse (or former spouse) under community property law. File free state and federal taxes You establish that you did not know of, and had no reason to know of, that community income. File free state and federal taxes See  Actual Knowledge or Reason To Know , below. File free state and federal taxes Under all facts and circumstances, it would not be fair to include the item of community income in your gross income. File free state and federal taxes See Indications of unfairness for liability arising from community property law, later. File free state and federal taxes Actual knowledge or reason to know. File free state and federal taxes   You knew or had reason to know of an item of community income if: You actually knew of the item of community income, or A reasonable person in similar circumstances would have known of the item of community income. File free state and federal taxes Amount of community income unknown. File free state and federal taxes   If you are aware of the source of the item of community income or the income-producing activity, but are unaware of the specific amount, you are considered to know or have reason to know of the item of community income. File free state and federal taxes Not knowing the specific amount is not a basis for relief. File free state and federal taxes Reason to know. File free state and federal taxes   The IRS will consider all facts and circumstances in determining whether you had reason to know of an item of community income. File free state and federal taxes The facts and circumstances include: The nature of the item of community income and the amount of the item relative to other income items. File free state and federal taxes The financial situation of you and your spouse (or former spouse). File free state and federal taxes Your educational background and business experience. File free state and federal taxes Whether the item of community income represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). File free state and federal taxes Indications of unfairness for liability arising from community property law. File free state and federal taxes   The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax due to the item of community income. File free state and federal taxes   The following are examples of factors the IRS will consider. File free state and federal taxes Whether you received a benefit, either directly or indirectly, from the omitted item of community income (defined below). File free state and federal taxes Whether your spouse (or former spouse) deserted you. File free state and federal taxes Whether you and your spouse have been divorced or separated. File free state and federal taxes  For other factors see Factors for Determining Whether To Grant Equitable Relief later. File free state and federal taxes Benefit from omitted item of community income. File free state and federal taxes   A benefit includes normal support, but does not include de minimis (small) amounts. File free state and federal taxes Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers received several years after the filing of the return. File free state and federal taxes   For example, if you receive property, including life insurance proceeds, from your spouse (or former spouse) and the property is traceable to omitted items of community income attributable to your spouse (or former spouse), you are considered to have benefitted from those omitted items of community income. File free state and federal taxes Equitable Relief If you do not qualify for the relief described above and are now liable for an underpaid or understated tax you believe should be paid only by your spouse (or former spouse), you may request equitable relief (discussed later). File free state and federal taxes How and When To Request Relief You request relief by filing Form 8857, as discussed earlier. File free state and federal taxes Fill in Form 8857 according to the instructions. File free state and federal taxes For relief from liability arising from community property law, you must file Form 8857 no later than 6 months before the expiration of the period of limitations on assessment (including extensions) against your spouse for the tax year for which you are requesting relief. File free state and federal taxes However, if the IRS begins an examination of your return during that 6-month period, the latest time for requesting relief is 30 days after the date the IRS' initial contact letter to you. File free state and federal taxes The period of limitation on assessment is the amount of time, generally three years, that the IRS has from the date you filed the return to assess taxes that you owe. File free state and federal taxes Innocent Spouse Relief By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return. File free state and federal taxes Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse (or former spouse). File free state and federal taxes However, you are jointly and individually responsible for any tax, interest, and penalties that do not qualify for relief. File free state and federal taxes The IRS can collect these amounts from either you or your spouse (or former spouse). File free state and federal taxes You must meet all of the following conditions to qualify for innocent spouse relief. File free state and federal taxes You filed a joint return. File free state and federal taxes There is an understated tax on the return that is due to erroneous items (defined later) of your spouse (or former spouse). File free state and federal taxes You can show that when you signed the joint return you did not know, and had no reason to know, that the understated tax existed (or the extent to which the understated tax existed). File free state and federal taxes See Actual Knowledge or Reason To Know, later. File free state and federal taxes Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated tax. File free state and federal taxes See Indications of Unfairness for Innocent Spouse Relief , later. File free state and federal taxes Innocent spouse relief will not be granted if the IRS proves that you and your spouse (or former spouse) transferred property to one another as part of a fraudulent scheme. File free state and federal taxes A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. File free state and federal taxes Understated Tax You have an understated tax if the IRS determined that your total tax should be more than the amount that was actually shown on your return. File free state and federal taxes Erroneous Items Erroneous items are either of the following. File free state and federal taxes Unreported income. File free state and federal taxes This is any gross income item received by your spouse (or former spouse) that is not reported. File free state and federal taxes Incorrect deduction, credit, or basis. File free state and federal taxes This is any improper deduction, credit, or property basis claimed by your spouse (or former spouse). File free state and federal taxes The following are examples of erroneous items. File free state and federal taxes The expense for which the deduction is taken was never paid or incurred. File free state and federal taxes For example, your spouse, a cash-basis taxpayer, deducted $10,000 of advertising expenses on Schedule C of your joint Form 1040, but never paid for any advertising. File free state and federal taxes The expense does not qualify as a deductible expense. File free state and federal taxes For example, your spouse claimed a business fee deduction of $10,000 that was for the payment of state fines. File free state and federal taxes Fines are not deductible. File free state and federal taxes No factual argument can be made to support the deductibility of the expense. File free state and federal taxes For example, your spouse claimed $4,000 for security costs related to a home office, which were actually veterinary and food costs for your family's two dogs. File free state and federal taxes Actual Knowledge or Reason To Know You knew or had reason to know of an understated tax if: You actually knew of the understated tax, or A reasonable person in similar circumstances would have known of the understated tax. File free state and federal taxes Actual knowledge. File free state and federal taxes   If you actually knew about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. File free state and federal taxes You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. File free state and federal taxes For information about the criteria for determining whether you actually knew about an erroneous item, see Actual Knowledge later under Separation of Liability Relief. File free state and federal taxes Reason to know. File free state and federal taxes   If you had reason to know about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. File free state and federal taxes You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. File free state and federal taxes   The IRS will consider all facts and circumstances in determining whether you had reason to know of an understated tax due to an erroneous item. File free state and federal taxes The facts and circumstances include: The nature of the erroneous item and the amount of the erroneous item relative to other items. File free state and federal taxes The financial situation of you and your spouse (or former spouse). File free state and federal taxes Your educational background and business experience. File free state and federal taxes The extent of your participation in the activity that resulted in the erroneous item. File free state and federal taxes Whether you failed to ask, at or before the time the return was signed, about items on the return or omitted from the return that a reasonable person would question. File free state and federal taxes Whether the erroneous item represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). File free state and federal taxes Partial relief when a portion of erroneous item is unknown. File free state and federal taxes   You may qualify for partial relief if, at the time you filed your return, you had no knowledge or reason to know of only a portion of an erroneous item. File free state and federal taxes You will be relieved of the understated tax due to that portion of the item if all other requirements are met for that portion. File free state and federal taxes Example. File free state and federal taxes At the time you signed your joint return, you knew that your spouse did not report $5,000 of gambling winnings. File free state and federal taxes The IRS examined your tax return several months after you filed it and determined that your spouse's unreported gambling winnings were actually $25,000. File free state and federal taxes You established that you did not know about, and had no reason to know about, the additional $20,000 because of the way your spouse handled gambling winnings. File free state and federal taxes The understated tax due to the $20,000 will qualify for innocent spouse relief if you meet the other requirements. File free state and federal taxes The understated tax due to the $5,000 of gambling winnings you knew about will not qualify for relief. File free state and federal taxes Indications of Unfairness for Innocent Spouse Relief The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax. File free state and federal taxes The following are examples of factors the IRS will consider. File free state and federal taxes Whether you received a significant benefit (defined below), either directly or indirectly, from the understated tax. File free state and federal taxes Whether your spouse (or former spouse) deserted you. File free state and federal taxes Whether you and your spouse have been divorced or separated. File free state and federal taxes Whether you received a benefit on the return from the understated tax. File free state and federal taxes For other factors, see Factors for Determining Whether To Grant Equitable Relief later under Equitable Relief. File free state and federal taxes Significant benefit. File free state and federal taxes   A significant benefit is any benefit in excess of normal support. File free state and federal taxes Normal support depends on your particular circumstances. File free state and federal taxes Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers that may be received several years after the year of the understated tax. File free state and federal taxes Example. File free state and federal taxes You receive money from your spouse that is beyond normal support. File free state and federal taxes The money can be traced to your spouse's lottery winnings that were not reported on your joint return. File free state and federal taxes You will be considered to have received a significant benefit from that income. File free state and federal taxes This is true even if your spouse gives you the money several years after he or she received it. File free state and federal taxes Separation of Liability Relief Under this type of relief, the understated tax (plus interest and penalties) on your joint return is allocated between you and your spouse (or former spouse). File free state and federal taxes The understated tax allocated to you is generally the amount you are responsible for. File free state and federal taxes This type of relief is available only for unpaid liabilities resulting from the understated tax. File free state and federal taxes Refunds are not allowed. File free state and federal taxes To request separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. File free state and federal taxes You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. File free state and federal taxes (Under this rule, you are no longer married if you are widowed. File free state and federal taxes ) You were not a member of the same household (explained below) as the spouse with whom you filed the joint return at any time during the 12-month per- iod ending on the date you file Form 8857. File free state and federal taxes Members of the same household. File free state and federal taxes   You and your spouse are not members of the same household if you are living apart and are estranged. File free state and federal taxes However, you and your spouse are considered members of the same household if any of the following conditions are met. File free state and federal taxes You and your spouse reside in the same dwelling. File free state and federal taxes You and your spouse reside in separate dwellings but are not estranged, and one of you is temporarily absent from the other's household as explained in (3) below. File free state and federal taxes Either spouse is temporarily absent from the household and it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return. File free state and federal taxes Examples of temporary absences include absence due to imprisonment, illness, business, vacation, military service, or education. File free state and federal taxes Burden of proof. File free state and federal taxes   You must be able to prove that you meet all of the requirements for separation of liability relief (except actual knowledge) and that you did not transfer property to avoid tax (discussed later). File free state and federal taxes You must also establish the basis for allocating the erroneous items. File free state and federal taxes Limitations on Relief Even if you meet the requirements discussed previously, separation of liability relief will not be granted in the following situations. File free state and federal taxes The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. File free state and federal taxes A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. File free state and federal taxes The IRS proves that at the time you signed your joint return, you had actual knowledge (explained below) of any erroneous items giving rise to the deficiency that were allocable to your spouse (or former spouse). File free state and federal taxes For the definition of erroneous items, see Erroneous Items earlier under Innocent Spouse Relief. File free state and federal taxes Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. File free state and federal taxes See Transfers of Property To Avoid Tax , later. File free state and federal taxes Actual Knowledge The relief discussed here does not apply to any part of the understated tax due to your spouse's (or former spouse's) erroneous items of which you had actual knowledge. File free state and federal taxes You and your spouse (or former spouse) remain jointly and severally liable for this part of the understated tax. File free state and federal taxes If you had actual knowledge of only a portion of an erroneous item, the IRS will not grant relief for that portion of the item. File free state and federal taxes You had actual knowledge of an erroneous item if: You knew that an item of unreported income was received. File free state and federal taxes (This rule applies whether or not there was a receipt of cash. File free state and federal taxes ) You knew of the facts that made an incorrect deduction or credit unallowable. File free state and federal taxes For a false or inflated deduction, you knew that the expense was not incurred, or not incurred to the extent shown on the tax return. File free state and federal taxes Knowledge of the source of an erroneous item is not sufficient to establish actual knowledge. File free state and federal taxes Also, your actual knowledge may not be inferred when you merely had a reason to know of the erroneous item. File free state and federal taxes Similarly, the IRS does not have to establish that you knew of the source of an erroneous item in order to establish that you had actual knowledge of the item itself. File free state and federal taxes Your actual knowledge of the proper tax treatment of an erroneous item is not relevant for purposes of demonstrating that you had actual knowledge of that item. File free state and federal taxes Neither is your actual knowledge of how the erroneous item was treated on the tax return. File free state and federal taxes For example, if you knew that your spouse received dividend income, relief is not available for that income even if you did not know it was taxable. File free state and federal taxes Example. File free state and federal taxes Bill and Karen Green filed a joint return showing Karen's wages of $50,000 and Bill's self-employment income of $10,000. File free state and federal taxes The IRS audited their return and found that Bill did not report $20,000 of self-employment income. File free state and federal taxes The additional income resulted in a $6,000 understated tax, plus interest and penalties. File free state and federal taxes After obtaining a legal separation from Bill, Karen filed Form 8857 to request separation of liability relief. File free state and federal taxes The IRS proved that Karen actually knew about the $20,000 of additional income at the time she signed the joint return. File free state and federal taxes Bill is liable for all of the understated tax, interest, and penalties because all of it was due to his unreported income. File free state and federal taxes Karen is also liable for the understated tax, interest, and penalties due to the $20,000 of unreported income because she actually knew of the item. File free state and federal taxes The IRS can collect the entire $6,000 plus interest and penalties from either Karen or Bill because they are jointly and individually liable for it. File free state and federal taxes Factors supporting actual knowledge. File free state and federal taxes   The IRS may rely on all facts and circumstances in determining whether you actually knew of an erroneous item at the time you signed the return. File free state and federal taxes The following are examples of factors the IRS may use. File free state and federal taxes Whether you made a deliberate effort to avoid learning about the item in order to be shielded from liability. File free state and federal taxes Whether you and your spouse (or former spouse) jointly owned the property that resulted in the erroneous item. File free state and federal taxes Exception for spousal abuse or domestic violence. File free state and federal taxes   Even if you had actual knowledge, you may still qualify for relief if you establish that: You were the victim of spousal abuse or domestic violence before signing the return, and Because of that abuse, you did not challenge the treatment of any items on the return because you were afraid your spouse (or former spouse) would retaliate against you. File free state and federal taxes   If you establish that you signed your joint return under duress (threat of harm or other form of coercion), then it is not a joint return, and you are not liable for any tax shown on that return or any tax deficiency for that return. File free state and federal taxes However, you may be required to file a separate return for that tax year. File free state and federal taxes For more information about duress, see the instructions for Form 8857. File free state and federal taxes Transfers of Property To Avoid Tax If your spouse (or former spouse) transfers property (or the right to property) to you for the main purpose of avoiding tax or payment of tax, the tax liability allocated to you will be increased by the fair market value of the property on the date of the transfer. File free state and federal taxes The increase may not be more than the entire amount of the liability. File free state and federal taxes A transfer will be presumed to have as its main purpose the avoidance of tax or payment of tax if the transfer is made after the date that is 1 year before the date on which the IRS sent its first letter of proposed deficiency. File free state and federal taxes This presumption will not apply if: The transfer was made under a divorce decree, separate maintenance agreement, or a written instrument incident to such an agreement, or You establish that the transfer did not have as its main purpose the avoidance of tax or payment of tax. File free state and federal taxes If the presumption does not apply, but the IRS can establish that the purpose of the transfer was the avoidance of tax or payment of tax, the tax liability allocated to you will be increased as explained above. File free state and federal taxes Equitable Relief If you do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law, you may still be relieved of responsibility for tax, interest, and penalties through equitable relief. File free state and federal taxes Unlike innocent spouse relief or separation of liability relief, you can get equitable relief from an understated tax (defined earlier under Innocent Spouse Relief ) or an underpaid tax. File free state and federal taxes An underpaid tax is an amount of tax you properly reported on your return but you have not paid. File free state and federal taxes For example, your joint 2009 return shows that you and your spouse owed $5,000. File free state and federal taxes You paid $2,000 with the return. File free state and federal taxes You have an underpaid tax of $3,000. File free state and federal taxes Conditions for Getting Equitable Relief You may qualify for equitable relief if you meet all of the following conditions. File free state and federal taxes You are not eligible for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. File free state and federal taxes You have an understated tax or an underpaid tax. File free state and federal taxes You did not pay the tax. File free state and federal taxes However, see Refunds , later, for situations in which you are entitled to a refund of payments you made. File free state and federal taxes You establish that, taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated or underpaid tax. File free state and federal taxes See Factors for Determining Whether To Grant Equitable Relief, later. File free state and federal taxes You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. File free state and federal taxes A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. File free state and federal taxes Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. File free state and federal taxes See Transfers of Property To Avoid Tax, earlier, under Separation of Liability Relief. File free state and federal taxes You did not file or fail to file your return with the intent to commit fraud. File free state and federal taxes The income tax liability from which you seek relief must be attributable to an item of the spouse (or former spouse) with whom you filed the joint return, unless one of the following exceptions applies: The item is attributable or partially attributable to you solely due to the operation of community property law. File free state and federal taxes If you meet this exception, that item will be considered attributable to your spouse (or former spouse) for purposes of equitable relief. File free state and federal taxes If the item is titled in your name, the item is presumed to be attributable to you. File free state and federal taxes However, you can rebut this presumption based on the facts and circumstances. File free state and federal taxes You did not know, and had no reason to know, that funds intended for the payment of tax were misappropriated by your spouse (or former spouse) for his or her benefit. File free state and federal taxes If you meet this exception, the IRS will consider granting equitable relief although the underpaid tax may be attributable in part or in full to your item, and only to the extent the funds intended for payment were taken by your spouse (or former spouse). File free state and federal taxes You establish that you were the victim of spousal abuse or domestic violence before signing the return, and that, as a result of the prior abuse, you did not challenge the treatment of any items on the return for fear of your spouse's (or former spouse's) retaliation. File free state and federal taxes If you meet this exception, relief will be considered although the understated tax or underpaid tax may be attributable in part or in full to your item. File free state and federal taxes Factors for Determining Whether To Grant Equitable Relief The IRS will consider all of the facts and circumstances in order to determine whether it is unfair to hold you responsible for the understated or underpaid tax. File free state and federal taxes The following are examples of factors that the IRS will consider to determine whether to grant equitable relief. File free state and federal taxes The IRS will consider all factors and weigh them appropriately. File free state and federal taxes Relevant Factors The following are examples of factors that may be relevant to whether the IRS will grant equitable relief. File free state and federal taxes Whether you are separated (whether legally or not) or divorced from your spouse. File free state and federal taxes A temporary absence, such as an absence due to imprisonment, illness, business, vacation, military service, or education, is not considered separation for this purpose. File free state and federal taxes A temporary absence is one where it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return. File free state and federal taxes Whether you would suffer a significant economic hardship if relief is not granted. File free state and federal taxes (In other words, you would not be able to pay your reasonable basic living expenses. File free state and federal taxes ) Whether you have a legal obligation under a divorce decree or agreement to pay the tax. File free state and federal taxes This factor will not weigh in favor of relief if you knew or had reason to know, when entering into the divorce decree or agreement, that your former spouse would not pay the income tax liability. File free state and federal taxes Whether you received a significant benefit (beyond normal support) from the underpaid tax or item causing the understated tax. File free state and federal taxes (For a definition of significant benefit, see Indications of Unfairness for Innocent Spouse Relief earlier. File free state and federal taxes ) Whether you have made a good faith effort to comply with federal income tax laws for the tax year for which you are requesting relief or the following years. File free state and federal taxes Whether you knew or had reason to know about the items causing the understated tax or that the tax would not be paid, as explained next. File free state and federal taxes Knowledge or reason to know. File free state and federal taxes   In the case of an underpaid tax, the IRS will consider whether you did not know and had no reason to know that your spouse (or former spouse) would not pay the income tax liability. File free state and federal taxes   In the case of an income tax liability that arose from an understated tax, the IRS will consider whether you did not know and had no reason to know of the item causing the understated tax. File free state and federal taxes Reason to know of the item giving rise to the understated tax will not be weighed more heavily than other factors. File free state and federal taxes Actual knowledge of the item giving rise to the understated tax, however, is a strong factor weighing against relief. File free state and federal taxes This strong factor may be overcome if the factors in favor of equitable relief are particularly compelling. File free state and federal taxes Reason to know. File free state and federal taxes   In determining whether you had reason to know, the IRS will consider your level of education, any deceit or evasiveness of your spouse (or former spouse), your degree of involvement in the activity generating the income tax liability, your involvement in business and household financial matters, your business or financial expertise, and any lavish or unusual expenditures compared with past spending levels. File free state and federal taxes Example. File free state and federal taxes You and your spouse filed a joint 2009 return. File free state and federal taxes That return showed you owed $10,000. File free state and federal taxes You had $5,000 of your own money and you took out a loan to pay the other $5,000. File free state and federal taxes You gave 2 checks for $5,000 each to your spouse to pay the $10,000 liability. File free state and federal taxes Without telling you, your spouse took the $5,000 loan and spent it on himself. File free state and federal taxes You and your spouse were divorced in 2010. File free state and federal taxes In addition, you had no knowledge or reason to know at the time you signed the return that the tax would not be paid. File free state and federal taxes These facts indicate to the IRS that it may be unfair to hold you liable for the $5,000 underpaid tax. File free state and federal taxes The IRS will consider these facts, together with all of the other facts and circumstances, to determine whether to grant you equitable relief from the $5,000 underpaid tax. File free state and federal taxes Factors Weighing in Favor of Equitable Relief The following are examples of factors that will weigh in favor of equitable relief, but will not weigh against equitable relief. File free state and federal taxes Whether your spouse (or former spouse) abused you. File free state and federal taxes Whether you were in poor mental or physical health on the date you signed the return or at the time you requested relief. File free state and federal taxes Refunds If you are granted relief, refunds are: Permitted under innocent spouse relief as explained later under Limit on Amount of Refund . File free state and federal taxes Not permitted under separation of liability relief. File free state and federal taxes Permitted in limited circumstances under equitable relief, as explained under Refunds Under Equitable Relief. File free state and federal taxes Proof Required The IRS will only refund payments you made with your own money. File free state and federal taxes However, you must provide proof that you made the payments with your own money. File free state and federal taxes Examples of proof are a copy of your bank statement or a canceled check. File free state and federal taxes No proof is required if your individual refund was used by the IRS to pay a tax you owed on a joint tax return for another year. File free state and federal taxes Refunds Under Equitable Relief In the following situations, you are eligible to receive a refund of certain payments you made. File free state and federal taxes Underpaid tax. File free state and federal taxes   If you are granted relief for an underpaid tax, you are eligible for a refund of separate payments that you made after July 22, 1998. File free state and federal taxes However, you are not eligible for refunds of payments made with the joint return, joint payments, or payments that your spouse (or former spouse) made. File free state and federal taxes For example, withholding tax and estimated tax payments cannot be refunded because they are considered made with the joint return. File free state and federal taxes   The amount of the refund is subject to the limit discussed later under Limit on Amount of Refund. File free state and federal taxes Understated tax. File free state and federal taxes   If you are granted relief for an understated tax, you are eligible for a refund of certain payments made under an installment agreement that you entered into with the IRS, if you have not defaulted on the installment agreement. File free state and federal taxes You are not in default if the IRS did not issue you a notice of default or take any action to end the installment agreement. File free state and federal taxes Only installment payments made after the date you filed Form 8857 are eligible for a refund. File free state and federal taxes   The amount of the refund is subject to the limit discussed next. File free state and federal taxes Limit on Amount of Refund The amount of your refund is limited. File free state and federal taxes Read the following chart to find out the limit. File free state and federal taxes IF you file Form 8857. File free state and federal taxes . File free state and federal taxes . File free state and federal taxes THEN the refund cannot be more than. File free state and federal taxes . File free state and federal taxes . File free state and federal taxes Within 3 years after filing your return The part of the tax paid within 3 years (plus any extension of time for filing your return) before you filed Form 8857. File free state and federal taxes After the 3-year period, but within 2 years from the time you paid the tax The tax you paid within 2 years immediately before you filed Form 8857. File free state and federal taxes Filled-in Form 8857 This part explains how Janie Boulder fills out Form 8857 to request innocent spouse relief. File free state and federal taxes Janie and Joe Boulder filed a joint tax return for 2007. File free state and federal taxes They claimed one dependency exemption for their son Michael. File free state and federal taxes Their return was adjusted by the IRS because Joe did not report a $5,000 award he won that year. File free state and federal taxes Janie did not know about the award when the return was filed. File free state and federal taxes They agreed to the adjustment but could not pay the additional amount due of $815 ($650 tax + $165 penalty and interest). File free state and federal taxes Janie and Joe were divorced on May 13, 2009. File free state and federal taxes In February 2010, Janie filed her 2009 federal income tax return as head of household. File free state and federal taxes She expected a refund of $1,203. File free state and federal taxes In May 2010, she received a notice informing her that the IRS had offset her refund against the $815 owed on her joint 2007 income tax return and that she had a right to file Form 8857. File free state and federal taxes Janie applies the conditions listed earlier under Innocent Spouse Relief to see if she qualifies for relief. File free state and federal taxes Janie meets the first and second conditions because the joint tax return they filed has an understated tax due to Joe's erroneous item. File free state and federal taxes Janie believes she meets the third condition. File free state and federal taxes She did not know about the award and had no reason to know about it because of the secretive way Joe conducted his financial affairs. File free state and federal taxes Janie believes she meets the fourth condition. File free state and federal taxes She believes it would be unfair to be held liable for the tax because she did not benefit from the award. File free state and federal taxes Joe spent it on personal items for his use only. File free state and federal taxes Because Janie believes she qualifies for innocent spouse relief, she first completes Part I of Form 8857 to determine if she should file the form. File free state and federal taxes In Part I, she makes all entries under the Tax Year 1 column because she is requesting relief for only one year. File free state and federal taxes Part I Line 1. File free state and federal taxes   She enters “2007” on line 1 because this is the tax year for which she is requesting relief. File free state and federal taxes Line 2. File free state and federal taxes   She checks the box because she wants a refund. File free state and federal taxes Note. File free state and federal taxes Because the IRS used her individual refund to pay the tax owed on the joint tax return, she does not need to provide proof of payment. File free state and federal taxes Line 3. File free state and federal taxes   She checks the “No” box because the IRS did not use her share of a joint refund to pay Joe's past-due debts. File free state and federal taxes Line 4. File free state and federal taxes   She checks the “Yes” box because she filed a joint tax return for tax year 2007. File free state and federal taxes Line 5. File free state and federal taxes   She skips this line because she checked the “Yes” box on line 4. File free state and federal taxes Part II Line 6. File free state and federal taxes   She enters her name, address, social security number, county, and best daytime phone number. File free state and federal taxes Part III Line 7. File free state and federal taxes   She enters Joe's name, address, social security number, and best daytime phone number. File free state and federal taxes Line 8. File free state and federal taxes   She checks the “divorced since” box and enters the date she was divorced as “05/13/2009. File free state and federal taxes ” She attaches a copy of her entire divorce decree (not Illustrated) to the form. File free state and federal taxes Line 9. File free state and federal taxes   She checks the box for “High school diploma, equivalent, or less,” because she had completed high school when her 2007 joint tax return was filed. File free state and federal taxes Line 10. File free state and federal taxes   She checks the “No” box because she was not a victim of spousal abuse or domestic violence. File free state and federal taxes Line 11. File free state and federal taxes   She checks the “No” box because neither she nor Joe incurred any large expenses during the year for which she wants relief. File free state and federal taxes Line 12. File free state and federal taxes   She checks the “Yes” box because she signed the 2007 joint tax return. File free state and federal taxes Line 13. File free state and federal taxes   She checks the “No” box because she did not have a mental or physical condition when the return was filed and does not have one now. File free state and federal taxes Part IV Line 14. File free state and federal taxes   Because she was not involved in preparing the return, she checks the box, “You were not involved in preparing the returns. File free state and federal taxes ” Line 15. File free state and federal taxes   She checks the box, “You did not know anything was incorrect or missing” because she did not know that Joe had received a $5,000 award. File free state and federal taxes She explains this in the space provided. File free state and federal taxes Line 16. File free state and federal taxes   She checks the box, “You knew that person had income” because she knew Joe had income from wages. File free state and federal taxes She also lists Joe's income. File free state and federal taxes Under “Type of Income” she enters “wages. File free state and federal taxes ” Under “Who paid it to that person,” she enters the name of Joe's employer, “Allied. File free state and federal taxes ” Under “Tax Year 1” she enters the amount of Joe's wages, “$40,000. File free state and federal taxes ” Because she is only requesting relief for one tax year, she leaves the entry spaces for “Tax Year 2” and “Tax Year 3” blank. File free state and federal taxes Line 17. File free state and federal taxes   She checks the “No” box because she did not know any amount was owed to the IRS when the 2007 return was signed. File free state and federal taxes Line 18. File free state and federal taxes   She checks the “No” box because, when the return was signed, she was not having financial problems. File free state and federal taxes Line 19. File free state and federal taxes   She checks the box, “You were not involved in handling money for the household” because Joe handled all the money for the household. File free state and federal taxes She provides additional information in the space provided. File free state and federal taxes Line 20. File free state and federal taxes   She checks the “No” box because Joe has never transferred money or property to her. File free state and federal taxes Part V Line 21. File free state and federal taxes   She enters the number “1” on both the line for “Adults” and the line for “Children” because her current household consists of herself and her son. File free state and federal taxes Line 22. File free state and federal taxes   She enters her average monthly income for her entire household. File free state and federal taxes Line 23. File free state and federal taxes   She lists her assets, which are $500 for the fair market value of a car, $450 in her checking account, and $100 in her savings account. File free state and federal taxes Signing and mailing Form 8857. File free state and federal taxes    Janie signs and dates the form. File free state and federal taxes She attaches the copy of her divorce decree (not illustrated) required by line 8. File free state and federal taxes Finally, she sends the form to the IRS address or fax number shown in the instructions for Form 8857. File free state and federal taxes This image is too large to be displayed in the current screen. File free state and federal taxes Please click the link to view the image. File free state and federal taxes Boulder's filled-in Form 8857 page 1 This image is too large to be displayed in the current screen. File free state and federal taxes Please click the link to view the image. File free state and federal taxes Boulder's filled-in Form 8857 page 2 This image is too large to be displayed in the current screen. File free state and federal taxes Please click the link to view the image. File free state and federal taxes Boulder's filled-in Form 8857 page 3 This image is too large to be displayed in the current screen. File free state and federal taxes Please click the link to view the image. File free state and federal taxes Boulder's filled-in Form 8857 page 4 Flowcharts The following flowcharts provide a quick way for determining whether you may qualify for relief. File free state and federal taxes But do not rely on these flowcharts alone. File free state and federal taxes Also read the earlier discussions. File free state and federal taxes Figure A. File free state and federal taxes Do You Qualify for Innocent Spouse Relief? Please click here for the text description of the image. File free state and federal taxes "Do You Qualify for Innocent Spouse Relief?" Figure B. File free state and federal taxes Do You Qualify for Separation of Liability Relief? Please click here for the text description of the image. File free state and federal taxes "Do You Qualify for Separation of Liability Relief?" Figure C. File free state and federal taxes Do You Qualify for Equitable Relief? This image is too large to be displayed in the current screen. File free state and federal taxes Please click the link to view the image. File free state and federal taxes "Do You Qualify for Equitable Relief?" Prev  Up  Next   Home   More Online Publications
Español

Family

Find resources to help your family.


  • Parents
    Find health, education, safety, child care, and other resources for parents.
  • Seniors
    Get government resources for seniors on money, housing, health, consumer protection, and more.
  • Caregivers
    Assistance for those who care for a loved one.
  • Grandparents Raising Grandchildren
    Find grandparent programs in your state and get information about benefits, assistance, and more.
  • Persons with Disabilities
    Information about benefits, education, employment, health, housing, and more.
  • Teens
    Get resources on driving, managing money, working, and more.
  • Kids
    Information for kids in grades K-8 and teachers.

The File Free State And Federal Taxes

File free state and federal taxes 2. File free state and federal taxes   Employees' Pay Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tests for Deducting PayTest 1—Reasonableness Test 2—For Services Performed Kinds of PayAwards Bonuses Education Expenses Fringe Benefits Loans or Advances Property Reimbursements for Business Expenses Sick and Vacation Pay Introduction You can generally deduct the amount you pay your employees for the services they perform. File free state and federal taxes The pay may be in cash, property, or services. File free state and federal taxes It may include wages, salaries, bonuses, commissions, or other non-cash compensation such as vacation allowances and fringe benefits. File free state and federal taxes For information about deducting employment taxes, see chapter 5. File free state and federal taxes You can claim employment credits, such as the following, if you hire individuals who meet certain requirements. File free state and federal taxes Empowerment zone employment credit (Form 8844). File free state and federal taxes Indian employment credit (Form 8845). File free state and federal taxes Work opportunity credit (Form 5884). File free state and federal taxes Credit for employer differential wage payments (Form 8932). File free state and federal taxes Reduce your deduction for employee wages by the amount of employment credits you claim. File free state and federal taxes For more information about these credits, see the form on which the credit is claimed. File free state and federal taxes Topics - This chapter discusses: Tests for deducting pay Kinds of pay Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits See chapter 12 for information about getting publications and forms. File free state and federal taxes Tests for Deducting Pay To be deductible, your employees' pay must be an ordinary and necessary business expense and you must pay or incur it. File free state and federal taxes These and other requirements that apply to all business expenses are explained in chapter 1. File free state and federal taxes In addition, the pay must meet both of the following tests. File free state and federal taxes Test 1. File free state and federal taxes It must be reasonable. File free state and federal taxes Test 2. File free state and federal taxes It must be for services performed. File free state and federal taxes The form or method of figuring the pay does not affect its deductibility. File free state and federal taxes For example, bonuses and commissions based on sales or earnings, and paid under an agreement made before the services were performed, are both deductible. File free state and federal taxes Test 1—Reasonableness You must be able to prove that the pay is reasonable. File free state and federal taxes Whether the pay is reasonable depends on the circumstances that existed when you contracted for the services, not those that exist when reasonableness is questioned. File free state and federal taxes If the pay is excessive, the excess pay is disallowed as a deduction. File free state and federal taxes Factors to consider. File free state and federal taxes   Determine the reasonableness of pay by the facts and circumstances. File free state and federal taxes Generally, reasonable pay is the amount that a similar business would pay for the same or similar services. File free state and federal taxes   To determine if pay is reasonable, also consider the following items and any other pertinent facts. File free state and federal taxes The duties performed by the employee. File free state and federal taxes The volume of business handled. File free state and federal taxes The character and amount of responsibility. File free state and federal taxes The complexities of your business. File free state and federal taxes The amount of time required. File free state and federal taxes The cost of living in the locality. File free state and federal taxes The ability and achievements of the individual employee performing the service. File free state and federal taxes The pay compared with the gross and net income of the business, as well as with distributions to shareholders if the business is a corporation. File free state and federal taxes Your policy regarding pay for all your employees. File free state and federal taxes The history of pay for each employee. File free state and federal taxes Test 2—For Services Performed You must be able to prove the payment was made for services actually performed. File free state and federal taxes Employee-shareholder salaries. File free state and federal taxes   If a corporation pays an employee who is also a shareholder a salary that is unreasonably high considering the services actually performed, the excessive part of the salary may be treated as a constructive dividend to the employee-shareholder. File free state and federal taxes The excessive part of the salary would not be allowed as a salary deduction by the corporation. File free state and federal taxes For more information on corporate distributions to shareholders, see Publication 542, Corporations. File free state and federal taxes Kinds of Pay Some of the ways you may provide pay to your employees in addition to regular wages or salaries are discussed next. File free state and federal taxes For specialized and detailed information on employees' pay and the employment tax treatment of employees' pay, see Publications 15, 15-A, and 15-B. File free state and federal taxes Awards You can generally deduct amounts you pay to your employees as awards, whether paid in cash or property. File free state and federal taxes If you give property to an employee as an employee achievement award, your deduction may be limited. File free state and federal taxes Achievement awards. File free state and federal taxes   An achievement award is an item of tangible personal property that meets all the following requirements. File free state and federal taxes It is given to an employee for length of service or safety achievement. File free state and federal taxes It is awarded as part of a meaningful presentation. File free state and federal taxes It is awarded under conditions and circumstances that do not create a significant likelihood of disguised pay. File free state and federal taxes Length-of-service award. File free state and federal taxes    An award will qualify as a length-of-service award only if either of the following applies. File free state and federal taxes The employee receives the award after his or her first 5 years of employment. File free state and federal taxes The employee did not receive another length-of-service award (other than one of very small value) during the same year or in any of the prior 4 years. File free state and federal taxes Safety achievement award. File free state and federal taxes    An award for safety achievement will qualify as an achievement award unless one of the following applies. File free state and federal taxes It is given to a manager, administrator, clerical employee, or other professional employee. File free state and federal taxes During the tax year, more than 10% of your employees, excluding those listed in (1), have already received a safety achievement award (other than one of very small value). File free state and federal taxes Deduction limit. File free state and federal taxes   Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following. File free state and federal taxes $400 for awards that are not qualified plan awards. File free state and federal taxes $1,600 for all awards, whether or not qualified plan awards. File free state and federal taxes   A qualified plan award is an achievement award given as part of an established written plan or program that does not favor highly compensated employees as to eligibility or benefits. File free state and federal taxes   A highly compensated employee is an employee who meets either of the following tests. File free state and federal taxes The employee was a 5% owner at any time during the year or the preceding year. File free state and federal taxes The employee received more than $115,000 in pay for the preceding year. File free state and federal taxes You can choose to ignore test (2) if the employee was not also in the top 20% of employees ranked by pay for the preceding year. File free state and federal taxes   An award is not a qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be qualified plan awards except for this limit) is more than $400. File free state and federal taxes To figure this average cost, ignore awards of nominal value. File free state and federal taxes Deduct achievement awards as a nonwage business expense on your return or business schedule. File free state and federal taxes You may not owe employment taxes on the value of some achievement awards you provide to an employee. File free state and federal taxes See Publication 15-B. File free state and federal taxes Bonuses You can generally deduct a bonus paid to an employee if you intended the bonus as additional pay for services, not as a gift, and the services were performed. File free state and federal taxes However, the total bonuses, salaries, and other pay must be reasonable for the services performed. File free state and federal taxes If the bonus is paid in property, see Property , later. File free state and federal taxes Gifts of nominal value. File free state and federal taxes    If, to promote employee goodwill, you distribute food or merchandise of nominal value to your employees at holidays, you can deduct the cost of these items as a nonwage business expense. File free state and federal taxes Your deduction for de minimis gifts of food or drink are not subject to the 50% deduction limit that generally applies to meals. File free state and federal taxes For more information on this deduction limit, see Meals and lodging , later. File free state and federal taxes Education Expenses If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assistance program. File free state and federal taxes Deduct them on the “Employee benefit programs” or other appropriate line of your tax return. File free state and federal taxes For information on educational assistance programs, see Educational Assistance in section 2 of Publication 15-B. File free state and federal taxes Fringe Benefits A fringe benefit is a form of pay for the performance of services. File free state and federal taxes You can generally deduct the cost of fringe benefits. File free state and federal taxes You may be able to exclude all or part of the value of some fringe benefits from your employees' pay. File free state and federal taxes You also may not owe employment taxes on the value of the fringe benefits. File free state and federal taxes See Table 2-1, Special Rules for Various Types of Fringe Benefits, in Publication 15-B for details. File free state and federal taxes Your deduction for the cost of fringe benefits for activities generally considered entertainment, amusement, or recreation, or for a facility used in connection with such an activity (for example, a company aircraft) for certain officers, directors, and more-than-10% shareholders is limited. File free state and federal taxes Certain fringe benefits are discussed next. File free state and federal taxes See Publication 15-B for more details on these and other fringe benefits. File free state and federal taxes Meals and lodging. File free state and federal taxes   You can usually deduct the cost of furnishing meals and lodging to your employees. File free state and federal taxes Deduct the cost in whatever category the expense falls. File free state and federal taxes For example, if you operate a restaurant, deduct the cost of the meals you furnish to employees as part of the cost of goods sold. File free state and federal taxes If you operate a nursing home, motel, or rental property, deduct the cost of furnishing lodging to an employee as expenses for utilities, linen service, salaries, depreciation, etc. File free state and federal taxes Deduction limit on meals. File free state and federal taxes   You can generally deduct only 50% of the cost of furnishing meals to your employees. File free state and federal taxes However, you can deduct the full cost of the following meals. File free state and federal taxes Meals whose value you include in an employee's wages. File free state and federal taxes Meals that qualify as a de minimis fringe benefit as discussed in section 2 of Publication 15-B. File free state and federal taxes This generally includes meals you furnish to employees at your place of business if more than half of these employees are provided the meals for your convenience. File free state and federal taxes Meals you furnish to your employees at the work site when you operate a restaurant or catering service. File free state and federal taxes Meals you furnish to your employees as part of the expense of providing recreational or social activities, such as a company picnic. File free state and federal taxes Meals you are required by federal law to furnish to crew members of certain commercial vessels (or would be required to furnish if the vessels were operated at sea). File free state and federal taxes This does not include meals you furnish on vessels primarily providing luxury water transportation. File free state and federal taxes Meals you furnish on an oil or gas platform or drilling rig located offshore or in Alaska. File free state and federal taxes This includes meals you furnish at a support camp that is near and integral to an oil or gas drilling rig located in Alaska. File free state and federal taxes Employee benefit programs. File free state and federal taxes   Employee benefit programs include the following. File free state and federal taxes Accident and health plans. File free state and federal taxes Adoption assistance. File free state and federal taxes Cafeteria plans. File free state and federal taxes Dependent care assistance. File free state and federal taxes Education assistance. File free state and federal taxes Life insurance coverage. File free state and federal taxes Welfare benefit funds. File free state and federal taxes   You can generally deduct amounts you spend on employee benefit programs on the applicable line of your tax return. File free state and federal taxes For example, if you provide dependent care by operating a dependent care facility for your employees, deduct your costs in whatever categories they fall (utilities, salaries, etc. File free state and federal taxes ). File free state and federal taxes Life insurance coverage. File free state and federal taxes   You cannot deduct the cost of life insurance coverage for you, an employee, or any person with a financial interest in your business, if you are directly or indirectly the beneficiary of the policy. File free state and federal taxes See Regulations section 1. File free state and federal taxes 264-1 for more information. File free state and federal taxes Welfare benefit funds. File free state and federal taxes   A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent contractors, or their beneficiaries. File free state and federal taxes Welfare benefits are any benefits other than deferred compensation or transfers of restricted property. File free state and federal taxes   Your deduction for contributions to a welfare benefit fund is limited to the fund's qualified cost for the tax year. File free state and federal taxes If your contributions to the fund are more than its qualified cost, carry the excess over to the next tax year. File free state and federal taxes   Generally, the fund's “qualified cost” is the total of the following amounts, reduced by the after-tax income of the fund. File free state and federal taxes The cost you would have been able to deduct using the cash method of accounting if you had paid for the benefits directly. File free state and federal taxes The contributions added to a reserve account that are needed to fund claims incurred but not paid as of the end of the year. File free state and federal taxes These claims can be for supplemental unemployment benefits, severance pay, or disability, medical, or life insurance benefits. File free state and federal taxes   For more information, see sections 419(c) and 419A of the Internal Revenue Code and the related regulations. File free state and federal taxes Loans or Advances You generally can deduct as wages an advance you make to an employee for services performed if you do not expect the employee to repay the advance. File free state and federal taxes However, if the employee performs no services, treat the amount you advanced as a loan. File free state and federal taxes If the employee does not repay the loan, treat it as income to the employee. File free state and federal taxes Below-market interest rate loans. File free state and federal taxes   On certain loans you make to an employee or shareholder, you are treated as having received interest income and as having paid compensation or dividends equal to that interest. File free state and federal taxes See Below-Market Loans in chapter 4. File free state and federal taxes Property If you transfer property (including your company's stock) to an employee as payment for services, you can generally deduct it as wages. File free state and federal taxes The amount you can deduct is the property's fair market value on the date of the transfer less any amount the employee paid for the property. File free state and federal taxes You can claim the deduction only for the tax year in which your employee includes the property's value in income. File free state and federal taxes Your employee is deemed to have included the value in income if you report it on Form W-2, Wage and Tax Statement, in a timely manner. File free state and federal taxes You treat the deductible amount as received in exchange for the property, and you must recognize any gain or loss realized on the transfer, unless it is the company's stock transferred as payment for services. File free state and federal taxes Your gain or loss is the difference between the fair market value of the property and its adjusted basis on the date of transfer. File free state and federal taxes These rules also apply to property transferred to an independent contractor for services, generally reported on Form 1099-MISC, Miscellaneous Income. File free state and federal taxes Restricted property. File free state and federal taxes   If the property you transfer for services is subject to restrictions that affect its value, you generally cannot deduct it and do not report gain or loss until it is substantially vested in the recipient. File free state and federal taxes However, if the recipient pays for the property, you must report any gain at the time of the transfer up to the amount paid. File free state and federal taxes    “Substantially vested” means the property is not subject to a substantial risk of forfeiture. File free state and federal taxes This means that the recipient is not likely to have to give up his or her rights in the property in the future. File free state and federal taxes Reimbursements for Business Expenses You can generally deduct the amount you pay or reimburse employees for business expenses incurred for your business. File free state and federal taxes However, your deduction may be limited. File free state and federal taxes If you make the payment under an accountable plan, deduct it in the category of the expense paid. File free state and federal taxes For example, if you pay an employee for travel expenses incurred on your behalf, deduct this payment as a travel expense. File free state and federal taxes If you make the payment under a nonaccountable plan, deduct it as wages and include it in the employee's Form W-2. File free state and federal taxes See Reimbursement of Travel, Meals, and Entertainment in chapter 11 for more information about deducting reimbursements and an explanation of accountable and nonaccountable plans. File free state and federal taxes Sick and Vacation Pay Sick pay. File free state and federal taxes   You can deduct amounts you pay to your employees for sickness and injury, including lump-sum amounts, as wages. File free state and federal taxes However, your deduction is limited to amounts not compensated by insurance or other means. File free state and federal taxes Vacation pay. File free state and federal taxes   Vacation pay is an employee benefit. File free state and federal taxes It includes amounts paid for unused vacation leave. File free state and federal taxes You can deduct vacation pay only in the tax year in which the employee actually receives it. File free state and federal taxes This rule applies regardless of whether you use the cash or accrual method of accounting. File free state and federal taxes Prev  Up  Next   Home   More Online Publications