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

Free Efile H&r Block

1042 EzFree E File 2010Instruction Booklet For 1040xFiling State Taxes Online For FreeCan I E File A 2012 Tax Return1040 Long FormIrs Amended Tax Form 1040xHow To Amend 2012 Tax ReturnIrs Amended ReturnHandr Block1040 Ez Tax Form 20121040 Ez FormIrs Form 1040ez 2012How Do I Amend My 2010 TaxesHow To File 1040ez OnlineFree E-file For 2011Irs Form 1040x InstructionsTax 1040ezHrblock FreefileEz Federal Tax FormState Tax Return1040ez Tax Form 20142010 Federal Tax Return Form2012 TaxesHow To File 2011 Taxes OnlineFree Federal And Free State Tax FilingFile State Taxes OnlyForm 1040ezNeed Do 2011 TaxesFiling State Taxes2012 Tax Forms 1040aAmended Tax Form 2012Fillable State Tax FormsWhere To E- File 2012 Federal Tax Return For FreeState Tax Forms OnlineSnaptax2010 Federal Tax FormsTax Forms 1040ezTurbotax Deluxe Federal E File 2012How To Amend Tax Return

Free Efile H&r Block

Free efile h&r block Publication 584SP - Additional Material Table of Contents This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block Pasillo de Entrada (Entrance Hall) This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block Sala de Estar (Living Room) This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block Comedor (Dining Room) This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block Cocina (Kitchen) This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block Cuarto de Trabajo (Den) This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block Dormitorios (Bedrooms) This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block Baños (Bathrooms) This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block Cuarto de Recreación/Juegos (Recreation Room) This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block Lavadero y Sótano (Laundry and Basement) This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block Garaje (Garage) This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block Equipo Deportivo (Sporting Equipment) This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block Ropa de Hombres (Men's Clothing) This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block Ropa de Mujeres (Women's Clothing) This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block Ropa de Niños (Children's Clothing) This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block Joyería (Jewelry) This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block Enseres Eléctricos (Electrical Appliances) This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block Artículos de Hilo (Linens) This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block Artículos Misceláneos (Miscellaneous) This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block vehículos motorizados This image is too large to be displayed in the current screen. Free efile h&r block Please click the link to view the image. Free efile h&r block Hogar (Excluyendo su contenido) Hoja de Trabajo A. Free efile h&r block Costo u Otra Base (Ajustada) Precaución:Vea Instrucciones de la Hoja de Trabajo A antes de usar esta hoja de trabajo. Free efile h&r block         (a) Parte Personal (b) Parte Comercial/de Alquiler 1. Free efile h&r block   Anote el precio de compra de la vivienda dañada o destruida. Free efile h&r block (Si usted presentó el Formulario 2119 cuando en un principio adquirió dicha vivienda para aplazar ganancias provenientes de la venta de una vivienda anterior antes del 7 de mayo de 1997, anote la base ajustada de la vivienda nueva, usando la cantidad que aparece en dicho Formulario 2119). Free efile h&r block 1. Free efile h&r block     2. Free efile h&r block   Puntos pagados por el vendedor para una vivienda comprada después de 1990. Free efile h&r block No incluya puntos pagados por el vendedor que ya restó para llegar a la cantidad anotada en la línea 1 2. Free efile h&r block     3. Free efile h&r block   Reste la línea 2 de la línea 1 3. Free efile h&r block     4. Free efile h&r block   Cargos por liquidación o costos de cierre. Free efile h&r block (Vea Settlement Costs (Costos de Liquidación) en la Publicación 551, en inglés). Free efile h&r block Si la línea 1 incluye la base ajustada de la vivienda nueva del Formulario 2119, ignore las líneas 4a a la 4g y 5; para entonces pasar a la línea 6. Free efile h&r block         a. Free efile h&r block Honorarios por estudios de escritura 4a. Free efile h&r block       b. Free efile h&r block Honorarios legales (incluyendo honorarios por trámites relacionados con la escritura y la preparación de documentos) 4b. Free efile h&r block       c. Free efile h&r block Estudios topográficos 4c. Free efile h&r block       d. Free efile h&r block Seguro de escritura de propietario 4d. Free efile h&r block       e. Free efile h&r block Impuestos de traspaso o de sello 4e. Free efile h&r block       f. Free efile h&r block Cantidades que el vendedor adeudaba y que usted acordó pagar (impuestos atrasados o intereses, costos de registro o cargos hipotecarios y comisiones sobre las ventas) 4f. Free efile h&r block       g. Free efile h&r block Otros gastos 4g. Free efile h&r block     5. Free efile h&r block   Sume las líneas 4a a la 4g 5. Free efile h&r block     6. Free efile h&r block   Costo de ampliaciones y mejoras. Free efile h&r block (Vea Increases to Basis (Aumentos en la Base) en la Publicación 551, en inglés). Free efile h&r block No incluya ninguna de las ampliaciones o mejoras incluidas en la línea 1 6. Free efile h&r block     7. Free efile h&r block   Tasaciones tributarias especiales pagadas por concepto de mejoras locales, tales como calles y aceras o banquetas 7. Free efile h&r block     8. Free efile h&r block   Otros aumentos en la base 8. Free efile h&r block     9. Free efile h&r block   Sume las líneas 3, 5, 6, 7 y 8 9. Free efile h&r block     10. Free efile h&r block   Depreciación (permitida o permisible) relacionada con el uso comercial o alquiler de la vivienda 10. Free efile h&r block 0   11. Free efile h&r block   Otras disminuciones en la base (Vea Decreases to Basis (Disminuciones en la Base) en la Publicación 551, en inglés). Free efile h&r block 11. Free efile h&r block     12. Free efile h&r block   Sume las líneas 10 y 11 12. Free efile h&r block     13. Free efile h&r block   Costo u otra base (ajustada) de la vivienda dañada o destruida. Free efile h&r block Reste la línea 12 de la línea 9. Free efile h&r block Anote dicha cantidad aquí y en la línea 2 del Anexo 20 13. Free efile h&r block     Instrucciones para la Hoja de Trabajo A. Free efile h&r block Si usted usa la Hoja de Trabajo A para calcular el costo u otra base (ajustada) de su vivienda, siga estas instrucciones. Free efile h&r block NO utilice esta hoja de trabajo para determinar el costo de su base si adquirió interés de su vivienda por un difunto que falleció en 2010 y el albacea de su caudal hereditario presentó el Formulario 8939. Free efile h&r block SI. Free efile h&r block . Free efile h&r block . Free efile h&r block   ENTONCES. Free efile h&r block . Free efile h&r block . Free efile h&r block usted heredó su vivienda de un difunto que falleció antes o depués del 2010, o de un difunto que falleció en el 2010 pero la albacea de su caudal hereditario no presentó el Formulario 8939. Free efile h&r block 1 omita las líneas 1 a la 4 de la hoja de trabajo. Free efile h&r block 2 encuentre su base utilizando las reglas bajo Inherited Property (Bienes Heredados) en la Publicación 551, en inglés. Free efile h&r block Anote esta cantidad en la línea 5 de la hoja de trabajo. Free efile h&r block 3 llene las líneas 6 a la 13 de la hoja de trabajo. Free efile h&r block usted recibió su vivienda como un regalo (donación) 1 lea Property Received as Gift (Bienes Recibidos como Regalo (Donación)) en la Publicación 551, en inglés, y anote en las líneas 1 y 3 de la hoja de trabajo la base ajustada del donante o el valor justo de mercado de la vivienda en el momento del regalo (donación), lo que proceda. Free efile h&r block 2 si usted puede sumar algún impuesto federal sobre donaciones a su base, anote esa cantidad en la línea 5 de la hoja de trabajo. Free efile h&r block 3 llene el resto de la hoja de trabajo. Free efile h&r block usted recibió su vivienda como un canje por otra propiedad 1 anote en la línea 1 de la hoja de trabajo el valor justo de mercado de la otra propiedad al tiempo del canje. Free efile h&r block (Pero si usted recibió su vivienda como un canje por su vivienda anterior antes del 7 de mayo de 1997, y tuvo una ganancia en que el canje se aplazó utilizando el Formulario 2119, anote en la línea 1 de la hoja de trabajo la base ajustada de la vivienda nueva que aparece en dicho formulario). Free efile h&r block 2 llene el resto de la hoja de trabajo. Free efile h&r block usted construyó su vivienda 1 sume el precio de compra del terreno y el costo de la construcción de la vivienda. Free efile h&r block Anote ese total en la línea 1 de la hoja de trabajo. Free efile h&r block (Sin embargo, si usted presentó un Formulario 2119 para aplazar ganancias en la venta de una vivienda anterior antes del 7 de mayo de 1997, anote en la línea 1 de la hoja de trabajo la base ajustada de la vivienda nueva que aparece en dicho formulario). Free efile h&r block 2 llene el resto de la hoja de trabajo. Free efile h&r block usted recibió su vivienda de su cónyuge después del 18 de julio de 1984 1 ignore las líneas 1 a la 4 de la hoja de trabajo. Free efile h&r block 2 anote en la línea 5 de la hoja de trabajo el costo u otra base (ajustada) de su cónyuge en la vivienda justo antes de que usted la haya recibido. Free efile h&r block 3 llene las líneas 6 a la 13 de la hoja de trabajo, haciendo ajustes a la base solamente por acontecimientos después del traspaso. Free efile h&r block usted fue dueño de una vivienda conjuntamente con su cónyuge, el cual le traspasó su participación en la misma después del 18 de julio de 1984     llene una hoja de trabajo, haciendo los ajustes a la base por acontecimientos tanto antes como después del traspaso. Free efile h&r block   usted recibió su vivienda de su cónyuge antes del 19 de julio de 1984 1 ignore las líneas 1 a la 4 de la hoja de trabajo. Free efile h&r block 2 anote en la línea 5 de la hoja de trabajo el valor justo de mercado de la vivienda cuando usted la recibió. Free efile h&r block 3 llene las líneas 6 a la 13 de la hoja de trabajo, ajustando la base solamente por acontecimientos después del traspaso. Free efile h&r block usted fue dueño de una vivienda conjuntamente con su cónyuge, el cual le traspasó su participación en la misma antes del 19 de julio de 1984 1 llene una hoja de trabajo, las líneas 1 a la 13, ajustando la base solamente por acontecimientos antes del traspaso. Free efile h&r block 2 multiplique la cantidad de la línea 13 de esa hoja de trabajo por 0. Free efile h&r block 5 para obtener la base ajustada de la mitad de su participación a la hora del traspaso. Free efile h&r block 3 multiplique el valor justo de mercado de la vivienda a la hora del traspaso por 0. Free efile h&r block 5. Free efile h&r block Generalmente, el resultado corresponde a la base de la mitad de la participación de su cónyuge. Free efile h&r block 4 sume las cantidades de los pasos 2 y 3 y anote el total en la línea 5 de una segunda hoja de trabajo. Free efile h&r block 5 complete el resto de la segunda hoja de trabajo, ajustando la base solamente por acontecimientos después del traspaso. Free efile h&r block usted fue dueño de su vivienda conjuntamente con alguien (aparte de cónyuges que presenten una declaración conjunta) 1 llene las líneas 1 a la 13 de la hoja de trabajo. Free efile h&r block 2 multiplique la cantidad de la línea 13 para obtener la base ajustada suya por el porcentaje de su parte de su participación de la vivienda. Free efile h&r block Instrucciones para la Hoja de Trabajo A. Free efile h&r block (Continuación) SI. Free efile h&r block . Free efile h&r block . Free efile h&r block   ENTONCES. Free efile h&r block . Free efile h&r block . Free efile h&r block usted fue dueño de su vivienda conjuntamente con su cónyuge que falleció antes de 2010 y antes de un hecho fortuito 1 llene una hoja de trabajo, las líneas 1 a la 13, incluyendo ajustes a la base solamente por acontecimientos antes del fallecimiento de su cónyuge. Free efile h&r block 2 multiplique la cantidad de la línea 13 de esa hoja de trabajo por 0. Free efile h&r block 5 para obtener la base ajustada de la mitad de su participación a la fecha del fallecimiento. Free efile h&r block 3 calcule la base de la mitad de la participación de su cónyuge. Free efile h&r block Esto corresponde a la mitad del valor justo de mercado en la fecha del fallecimiento (o la valoración alternativa usada posteriormente para propósitos de los impuestos de sucesiones o caudales hereditarios). Free efile h&r block (La base de su mitad seguirá siendo la mitad de la base ajustada determinada en el paso 2). Free efile h&r block 4 sume las cantidades de los pasos 2 y 3 y anote el total en la línea 5 de una segunda hoja de trabajo. Free efile h&r block 5 complete las líneas 6 a la 13 de la segunda hoja de trabajo, ajustando la base solamente por acontecimientos después del fallecimiento de su cónyuge. Free efile h&r block usted fue dueño de su vivienda conjuntamente con su cónyuge que falleció antes de 2010 y antes de un hecho fortuito y, su vivienda permanente está en un estado donde rigen las leyes de la comunidad de bienes matrimoniales 1 ignore las líneas 1 a la 4 de la hoja de trabajo. Free efile h&r block 2 anote la cantidad de su base en la línea 5 de la hoja de trabajo. Free efile h&r block Generalmente, esto corresponde al valor justo de mercado de la vivienda al momento del fallecimiento. Free efile h&r block (No obstante, vea Community Property (Comunidad de Bienes Matrimoniales) en la Publicación 551, en inglés, para reglas especiales). Free efile h&r block 3 llene el resto de la hoja de trabajo, ajustando la base solamente por acontecimientos después del fallecimiento de su cónyuge. Free efile h&r block usted fue dueño de su vivienda conjuntamente con alguien (que no sean cónyuges que presenten la declaración conjunta) que falleció antes de 2010 y antes de un hecho fortuito 1 llene las líneas 1 a la 13 de la hoja de trabajo, incluyendo ajustes a la base solamente por acontecimientos antes del fallecimiento del codueño. Free efile h&r block 2 multiplique la cantidad de la línea 13 por el porcentaje de su parte de su participación de la vivienda para obtener la base ajustada suyo en la fecha del fallecimiento. Free efile h&r block 3 multiplique el valor justo del mercado en la fecha del fallecimiento (o use la valuació alterna usada posteriormente para propositos de los impuestos de sucesiones o caudales hereditarios) por el porcentaje que corresponde a la participación del codueño. Free efile h&r block Ésta es la base para el interés parcial del codueño. Free efile h&r block 4 sume las cantidades de los pasos 2 y 3 y anote el total en la línea 5 de una segunda hoja de trabajo. Free efile h&r block 5 complete las líneas 6 a la 13 de la segunda hoja de trabajo incluyendo ajustes a la base solamente por acontecimientos después del fallecimiento del codueño. Free efile h&r block alguna vez su vivienda sufrió daños debido a un hecho fortuito anterior 1 en la línea 8 de la hoja de trabajo, anote toda cantidad que haya gastado para restaurar la vivienda a su estado original antes del hecho fortuito anterior. Free efile h&r block 2 en la línea 11 anote: todo reembolso de seguros que usted haya recibido (o espera recibir) por la pérdida anterior  y toda pérdida por hecho fortuito deducible de años anteriores no cubierta por  su seguro. Free efile h&r block la persona que le vendió su vivienda pagó puntos sobre su préstamo y usted compró su vivienda después de 1990 pero antes del 4 de abril de 1994   en la línea 2 anote los puntos pagados por el vendedor solamente si usted los dedujo como intereses hipotecarios de la vivienda en el año en que fueron pagados (a no ser que haya utilizado los puntos pagados por el vendedor para reducir la cantidad de la línea 1). Free efile h&r block la persona que le vendió su vivienda pagó puntos sobre su préstamo y usted compró su vivienda después del 3 de abril de 1994   en la línea 2 anote los puntos pagados por el vendedor aun si usted no los dedujo (a no ser que haya utilizado los puntos pagados por el vendedor para reducir la cantidad de la línea 1). Free efile h&r block usted usó parte de la propiedad como su vivienda y parte de ella para propósitos comerciales o para generar ingresos de alquiler   usted debe asignar las anotaciones en la Hoja de Trabajo A entre la parte personal (columna (a)) y la parte comercial/de alquiler (columna (b)). Free efile h&r block no corresponde ninguno de los puntos anteriores   llene completamente la hoja de trabajo. Free efile h&r block Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

Industry Issue Resolution Program

The IRS offers a number of programs and tools to assist taxpayers in resolving contentious and industry-specific tax issues. In addition to the Industry Issue Resolution Program, other programs available include:

The Industry Issue Resolution (IIR) Program resolves frequently disputed or burdensome tax issues that affect a significant number of business taxpayers through the issuance of guidance. IRS solicits suggestions for issues from taxpayers, representatives and associations for the IIR Program. For each issue selected for the program, a resolution team of IRS, Chief Counsel and Treasury personnel is assembled to gather and analyze relevant information for the issue and develop and recommend guidance.

IIR Program:

Issues Submitted/Selected for IIR Program:

 

New IIR Selection dated 11-19-2012 - 2012 Issue Selected for the IIR Program
IR-2010-40 dated 04-02-2010 - 2009/2010 Issues Reviewed/Selected for the IIR Program
IR-2008-110 dated 09-25-2008 - 2008 Issues Reviewed/Selected for the IIR Program 
 IR-2007-39 dated 02-22-2007 - 2006 Issues Reviewed/Selected for the IIR Program
 IR 2005-81 dated 08-08-2005 - 2005 Issues Reviewed/Selected for the IIR Program 
 IR-2004-154 dated 12-21-2004 - 2004 Issues Reviewed/Selected for the IIR Program - 2nd Review 
 IR-2004-100 dated 07-29-2004 - 2004 Issues Reviewed/Selected for the IIR Program - 1st Review 
 IR-2003-92 dated 07-24-2003 - 2003 Issues Reviewed/Selected for the IIR Program 

IIR Guidance Issued

Page Last Reviewed or Updated: 04-Sep-2013

The Free Efile H&r Block

Free efile h&r block Publication 15-A - Main Content Table of Contents 1. Free efile h&r block Who Are Employees?Independent Contractors Common-Law Employees Statutory Employees Statutory Nonemployees Misclassification of Employees 2. Free efile h&r block Employee or Independent Contractor?Common-Law Rules Industry Examples 3. Free efile h&r block Employees of Exempt OrganizationsSocial security and Medicare taxes. Free efile h&r block FUTA tax. Free efile h&r block 4. Free efile h&r block Religious Exemptions and Special Rules for MinistersForm W-2. Free efile h&r block Self-employed. Free efile h&r block Employees. Free efile h&r block 5. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block Special Rules for Paying TaxesCommon Paymaster Agents Reporting Agents Employee's Portion of Taxes Paid by Employer International Social Security Agreements 8. Free efile h&r block Pensions and AnnuitiesFederal Income Tax Withholding 9. Free efile h&r block Alternative Methods for Figuring WithholdingTerm of continuous employment. Free efile h&r block 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. Free efile h&r block Tables for Withholding on Distributions of Indian Gaming Profits to Tribal MembersWithholding Tables How To Get Tax Help 1. Free efile h&r block 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. Free efile h&r block The person performing the services may be: An independent contractor, A common-law employee, A statutory employee, or A statutory nonemployee. Free efile h&r block This discussion explains these four categories. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block However, in some cases you may be required to withhold under the backup withholding requirements on these payments. Free efile h&r block See Publication 15 (Circular E) for information on backup withholding. Free efile h&r block 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. Free efile h&r block However, whether such people are employees or independent contractors depends on the facts in each case. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block This is so even when you give the employee freedom of action. Free efile h&r block What matters is that you have the right to control the details of how the services are performed. Free efile h&r block For a discussion of facts that indicate whether an individual providing services is an independent contractor or employee, see section 2. Free efile h&r block If you have an employer-employee relationship, it makes no difference how it is labeled. Free efile h&r block The substance of the relationship, not the label, governs the worker's status. Free efile h&r block It does not matter whether the individual is employed full time or part time. Free efile h&r block For employment tax purposes, no distinction is made between classes of employees. Free efile h&r block Superintendents, managers, and other supervisory personnel are all employees. Free efile h&r block 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. Free efile h&r block A director of a corporation is not an employee with respect to services performed as a director. Free efile h&r block You generally have to withhold and pay income, social security, and Medicare taxes on wages that you pay to common-law employees. Free efile h&r block However, the wages of certain employees may be exempt from one or more of these taxes. Free efile h&r block See Employees of Exempt Organizations (section 3) and Religious Exemptions and Special Rules for Ministers (section 4). Free efile h&r block Leased employees. Free efile h&r block   Under certain circumstances, a firm that furnishes workers to other firms is the employer of those workers for employment tax purposes. Free efile h&r block 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. Free efile h&r block   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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block For information on employee leasing as it relates to pension plan qualification requirements, see Leased employee in Publication 560, Retirement Plans for Small Business. Free efile h&r block Additional information. Free efile h&r block   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. Free efile h&r block 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. Free efile h&r block 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 . Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block The goods sold must be merchandise for resale or supplies for use in the buyer's business operation. Free efile h&r block The work performed for you must be the salesperson's principal business activity. Free efile h&r block See Salesperson in section 2. Free efile h&r block Social security and Medicare taxes. Free efile h&r block   You must withhold social security and Medicare taxes from the wages of statutory employees if all three of the following conditions apply. Free efile h&r block The service contract states or implies that substantially all the services are to be performed personally by them. Free efile h&r block 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). Free efile h&r block The services are performed on a continuing basis for the same payer. Free efile h&r block Federal unemployment (FUTA) tax. Free efile h&r block   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. Free efile h&r block 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. Free efile h&r block Income tax. Free efile h&r block   Do not withhold federal income tax from the wages of statutory employees. Free efile h&r block Reporting payments to statutory employees. Free efile h&r block   Furnish Form W-2 to a statutory employee, and check “Statutory employee” in box 13. Free efile h&r block Show your payments to the employee as “other compensation” in box 1. Free efile h&r block 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. Free efile h&r block The statutory employee can deduct his or her trade or business expenses from the payments shown on Form W-2. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block H-2A agricultural workers. Free efile h&r block   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Free efile h&r block Statutory Nonemployees There are three categories of statutory nonemployees: direct sellers, licensed real estate agents, and certain companion sitters. Free efile h&r block 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. Free efile h&r block Direct sellers. Free efile h&r block   Direct sellers include persons falling within any of the following three groups. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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). Free efile h&r block   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. Free efile h&r block Such activities include providing motivation and encouragement; imparting skills, knowledge, or experience; and recruiting. Free efile h&r block Licensed real estate agents. Free efile h&r block   This category includes individuals engaged in appraisal activities for real estate sales if they earn income based on sales or other output. Free efile h&r block Companion sitters. Free efile h&r block   Companion sitters are individuals who furnish personal attendance, companionship, or household care services to children or to individuals who are elderly or disabled. Free efile h&r block 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. Free efile h&r block Companion sitters who are not employees of a companion sitting placement service are generally treated as self-employed for all federal tax purposes. Free efile h&r block Misclassification of Employees Consequences of treating an employee as an independent contractor. Free efile h&r block   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. Free efile h&r block See section 2 in Publication 15 (Circular E) for more information. Free efile h&r block Relief provision. Free efile h&r block   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. Free efile h&r block To get this relief, you must file all required federal information returns on a basis consistent with your treatment of the worker. Free efile h&r block You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. Free efile h&r block Technical service specialists. Free efile h&r block   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. Free efile h&r block 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. Free efile h&r block   This limit on the application of the rule does not affect the determination of whether such workers are employees under the common-law rules. Free efile h&r block The common-law rules control whether the specialist is treated as an employee or an independent contractor. Free efile h&r block 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. Free efile h&r block Test proctors and room supervisors. Free efile h&r block   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. Free efile h&r block Voluntary Classification Settlement Program (VCSP). Free efile h&r block   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. Free efile h&r block To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Free efile h&r block For more information, visit IRS. Free efile h&r block gov and enter “VCSP” in the search box. Free efile h&r block 2. Free efile h&r block 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. Free efile h&r block An employer does not generally have to withhold or pay over any federal taxes on payments to independent contractors. Free efile h&r block 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. Free efile h&r block In any employee-independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered. Free efile h&r block 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. Free efile h&r block These facts are discussed next. Free efile h&r block Behavioral control. Free efile h&r block   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. Free efile h&r block   An employee is generally subject to the business' instructions about when, where, and how to work. Free efile h&r block All of the following are examples of types of instructions about how to do work. Free efile h&r block When and where to do the work. Free efile h&r block What tools or equipment to use. Free efile h&r block What workers to hire or to assist with the work. Free efile h&r block Where to purchase supplies and services. Free efile h&r block What work must be performed by a specified  individual. Free efile h&r block What order or sequence to follow. Free efile h&r block   The amount of instruction needed varies among different jobs. Free efile h&r block 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. Free efile h&r block A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. Free efile h&r block 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. Free efile h&r block Training that the business gives to the worker. Free efile h&r block   An employee may be trained to perform services in a particular manner. Free efile h&r block Independent contractors ordinarily use their own methods. Free efile h&r block Financial control. Free efile h&r block   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. Free efile h&r block   Independent contractors are more likely to have unreimbursed expenses than are employees. Free efile h&r block Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. Free efile h&r block However, employees may also incur unreimbursed expenses in connection with the services that they perform for their employer. Free efile h&r block The extent of the worker's investment. Free efile h&r block   An independent contractor often has a significant investment in the facilities or tools he or she uses in performing services for someone else. Free efile h&r block However, a significant investment is not necessary for independent contractor status. Free efile h&r block The extent to which the worker makes his or her services available to the relevant market. Free efile h&r block   An independent contractor is generally free to seek out business opportunities. Free efile h&r block Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market. Free efile h&r block How the business pays the worker. Free efile h&r block   An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. Free efile h&r block This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. Free efile h&r block An independent contractor is often paid a flat fee or on a time and materials basis for the job. Free efile h&r block However, it is common in some professions, such as law, to pay independent contractors hourly. Free efile h&r block The extent to which the worker can realize a profit or loss. Free efile h&r block   An independent contractor can make a profit or loss. Free efile h&r block Type of relationship. Free efile h&r block   Facts that show the parties' type of relationship include: Written contracts describing the relationship the parties intended to create. Free efile h&r block Whether or not the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay. Free efile h&r block The permanency of the relationship. Free efile h&r block 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. Free efile h&r block The extent to which services performed by the worker are a key aspect of the regular business of the company. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block This would indicate an employer-employee relationship. Free efile h&r block IRS help. Free efile h&r block   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. Free efile h&r block Industry Examples The following examples may help you properly classify your workers. Free efile h&r block Building and Construction Industry Example 1. Free efile h&r block Jerry Jones has an agreement with Wilma White to supervise the remodeling of her house. Free efile h&r block She did not advance funds to help him carry on the work. Free efile h&r block She makes direct payments to the suppliers for all necessary materials. Free efile h&r block She carries liability and workers' compensation insurance covering Jerry and others that he engaged to assist him. Free efile h&r block She pays them an hourly rate and exercises almost constant supervision over the work. Free efile h&r block Jerry is not free to transfer his assistants to other jobs. Free efile h&r block He may not work on other jobs while working for Wilma. Free efile h&r block He assumes no responsibility to complete the work and will incur no contractual liability if he fails to do so. Free efile h&r block He and his assistants perform personal services for hourly wages. Free efile h&r block Jerry Jones and his assistants are employees of Wilma White. Free efile h&r block Example 2. Free efile h&r block Milton Manning, an experienced tile setter, orally agreed with a corporation to perform full-time services at construction sites. Free efile h&r block He uses his own tools and performs services in the order designated by the corporation and according to its specifications. Free efile h&r block The corporation supplies all materials, makes frequent inspections of his work, pays him on a piecework basis, and carries workers' compensation insurance on him. Free efile h&r block He does not have a place of business or hold himself out to perform similar services for others. Free efile h&r block Either party can end the services at any time. Free efile h&r block Milton Manning is an employee of the corporation. Free efile h&r block Example 3. Free efile h&r block Wallace Black agreed with the Sawdust Co. Free efile h&r block to supply the construction labor for a group of houses. Free efile h&r block The company agreed to pay all construction costs. Free efile h&r block However, he supplies all the tools and equipment. Free efile h&r block He performs personal services as a carpenter and mechanic for an hourly wage. Free efile h&r block He also acts as superintendent and foreman and engages other individuals to assist him. Free efile h&r block The company has the right to select, approve, or discharge any helper. Free efile h&r block A company representative makes frequent inspections of the construction site. Free efile h&r block When a house is finished, Wallace is paid a certain percentage of its costs. Free efile h&r block He is not responsible for faults, defects of construction, or wasteful operation. Free efile h&r block At the end of each week, he presents the company with a statement of the amount that he has spent, including the payroll. Free efile h&r block The company gives him a check for that amount from which he pays the assistants, although he is not personally liable for their wages. Free efile h&r block Wallace Black and his assistants are employees of the Sawdust Co. Free efile h&r block Example 4. Free efile h&r block Bill Plum contracted with Elm Corporation to complete the roofing on a housing complex. Free efile h&r block A signed contract established a flat amount for the services rendered by Bill Plum. Free efile h&r block Bill is a licensed roofer and carries workers' compensation and liability insurance under the business name, Plum Roofing. Free efile h&r block He hires his own roofers who are treated as employees for federal employment tax purposes. Free efile h&r block If there is a problem with the roofing work, Plum Roofing is responsible for paying for any repairs. Free efile h&r block Bill Plum, doing business as Plum Roofing, is an independent contractor. Free efile h&r block Example 5. Free efile h&r block Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. Free efile h&r block She is to receive $1,280 every 2 weeks for the next 10 weeks. Free efile h&r block This is not considered payment by the hour. Free efile h&r block Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. Free efile h&r block She also performs additional electrical installations under contracts with other companies, that she obtained through advertisements. Free efile h&r block Vera is an independent contractor. Free efile h&r block Trucking Industry Example. Free efile h&r block Rose Trucking contracts to deliver material for Forest, Inc. Free efile h&r block , at $140 per ton. Free efile h&r block Rose Trucking is not paid for any articles that are not delivered. Free efile h&r block At times, Jan Rose, who operates as Rose Trucking, may also lease another truck and engage a driver to complete the contract. Free efile h&r block All operating expenses, including insurance coverage, are paid by Jan Rose. Free efile h&r block All equipment is owned or rented by Jan and she is responsible for all maintenance. Free efile h&r block None of the drivers are provided by Forest, Inc. Free efile h&r block Jan Rose, operating as Rose Trucking, is an independent contractor. Free efile h&r block Computer Industry Example. Free efile h&r block Steve Smith, a computer programmer, is laid off when Megabyte, Inc. Free efile h&r block , downsizes. Free efile h&r block Megabyte agrees to pay Steve a flat amount to complete a one-time project to create a certain product. Free efile h&r block 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. Free efile h&r block Megabyte provides Steve with no instructions beyond the specifications for the product itself. Free efile h&r block 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. Free efile h&r block Megabyte will file Form 1099-MISC, Miscellaneous Income, to report the amount paid to Steve. Free efile h&r block Steve works at home and is not expected or allowed to attend meetings of the software development group. Free efile h&r block Steve is an independent contractor. Free efile h&r block Automobile Industry Example 1. Free efile h&r block Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. Free efile h&r block She works six days a week and is on duty in Bob's showroom on certain assigned days and times. Free efile h&r block She appraises trade-ins, but her appraisals are subject to the sales manager's approval. Free efile h&r block Lists of prospective customers belong to the dealer. Free efile h&r block She is required to develop leads and report results to the sales manager. Free efile h&r block Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. Free efile h&r block She is paid a commission and is eligible for prizes and bonuses offered by Bob. Free efile h&r block Bob also pays the cost of health insurance and group-term life insurance for Donna. Free efile h&r block Donna is an employee of Bob Blue. Free efile h&r block Example 2. Free efile h&r block Sam Sparks performs auto repair services in the repair department of an auto sales company. Free efile h&r block He works regular hours and is paid on a percentage basis. Free efile h&r block He has no investment in the repair department. Free efile h&r block 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. Free efile h&r block Sam is an employee of the sales company. Free efile h&r block Example 3. Free efile h&r block An auto sales agency furnishes space for Helen Bach to perform auto repair services. Free efile h&r block She provides her own tools, equipment, and supplies. Free efile h&r block She seeks out business from insurance adjusters and other individuals and does all of the body and paint work that comes to the agency. Free efile h&r block 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. Free efile h&r block Helen is an independent contractor and the helpers are her employees. Free efile h&r block Attorney Example. Free efile h&r block 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. Free efile h&r block Donna buys office supplies and pays bar dues and membership dues for three other professional organizations. Free efile h&r block Donna has a part-time receptionist who also does the bookkeeping. Free efile h&r block She pays the receptionist, withholds and pays federal and state employment taxes, and files a Form W-2 each year. Free efile h&r block For the past 2 years, Donna has had only three clients, corporations with which there have been long-standing relationships. Free efile h&r block Donna charges the corporations an hourly rate for her services, sending monthly bills detailing the work performed for the prior month. Free efile h&r block 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. Free efile h&r block Donna is an independent contractor. Free efile h&r block Taxicab Driver Example. Free efile h&r block Tom Spruce rents a cab from Taft Cab Co. Free efile h&r block for $150 per day. Free efile h&r block He pays the costs of maintaining and operating the cab. Free efile h&r block Tom Spruce keeps all fares that he receives from customers. Free efile h&r block Although he receives the benefit of Taft's two-way radio communication equipment, dispatcher, and advertising, these items benefit both Taft and Tom Spruce. Free efile h&r block Tom Spruce is an independent contractor. Free efile h&r block Salesperson To determine whether salespersons are employees under the usual common-law rules, you must evaluate each individual case. Free efile h&r block 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). Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 3. Free efile h&r block Employees of Exempt Organizations Many nonprofit organizations are exempt from federal income tax. Free efile h&r block Although they do not have to pay federal income tax themselves, they must still withhold federal income tax from the pay of their employees. Free efile h&r block However, there are special social security, Medicare, and FUTA tax rules that apply to the wages that they pay their employees. Free efile h&r block Section 501(c)(3) organizations. Free efile h&r block   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. Free efile h&r block These organizations are usually corporations and are exempt from federal income tax under section 501(a). Free efile h&r block Social security and Medicare taxes. Free efile h&r block   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. Free efile h&r block The organization pays an employee less than $100 in a calendar year. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block   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. Free efile h&r block 28 or more in a year. Free efile h&r block 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. Free efile h&r block See Members of recognized religious sects opposed to insurance in section 4. Free efile h&r block FUTA tax. Free efile h&r block   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. Free efile h&r block This exemption cannot be waived. Free efile h&r block Do not file Form 940 to report wages paid by these organizations or pay the tax. Free efile h&r block Note. Free efile h&r block 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. Free efile h&r block Other than section 501(c)(3) organizations. Free efile h&r block   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. Free efile h&r block However, these organizations are not exempt from withholding federal income, social security, or Medicare tax from their employees' pay, or from paying FUTA tax. Free efile h&r block Two special rules for social security, Medicare, and FUTA taxes apply. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block The above rules do not apply to employees who work for pension plans and other similar organizations described in section 401(a). Free efile h&r block 4. Free efile h&r block Religious Exemptions and Special Rules for Ministers Special rules apply to the treatment of ministers for social security and Medicare tax purposes. Free efile h&r block An exemption from social security and Medicare taxes is available for ministers and certain other religious workers and members of certain recognized religious sects. Free efile h&r block For more information on getting an exemption, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Free efile h&r block Ministers. Free efile h&r block   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. Free efile h&r block 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. Free efile h&r block   Ministers are employees if they perform services in the exercise of ministry and are subject to your will and control. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block For more information, see Publication 517. Free efile h&r block Form W-2. Free efile h&r block   If your minister is an employee, report all taxable compensation as wages in box 1 on Form W-2. Free efile h&r block Include in this amount expense allowances or reimbursements paid under a nonaccountable plan, discussed in section 5 of Publication 15 (Circular E). Free efile h&r block Do not include a parsonage allowance (excludable housing allowance) in this amount. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block For more information on ministers, see Publication 517. Free efile h&r block Exemptions for ministers and others. Free efile h&r block   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. Free efile h&r block 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. Free efile h&r block The exemption applies only to qualified services performed for the religious organization. Free efile h&r block See Revenue Procedure 91-20, 1991-1 C. Free efile h&r block B. Free efile h&r block 524, for guidelines to determine whether an organization is a religious order or whether an individual is a member of a religious order. Free efile h&r block   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. Free efile h&r block See Publication 517 for more information about claiming an exemption from self-employment tax using Form 4361. Free efile h&r block Members of recognized religious sects opposed to insurance. Free efile h&r block   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. Free efile h&r block 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). Free efile h&r block If you buy a retirement annuity from an insurance company, you will not be eligible for this exemption. Free efile h&r block Religious opposition based on the teachings of the sect is the only legal basis for the exemption. Free efile h&r block In addition, your religious sect (or division) must have existed since December 31, 1950. Free efile h&r block Self-employed. Free efile h&r block   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. Free efile h&r block Employees. Free efile h&r block   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. Free efile h&r block This applies to partnerships only if each partner is a member of the sect. Free efile h&r block 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. Free efile h&r block To get the exemption, the employee must file Form 4029. Free efile h&r block   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. Free efile h&r block 5. Free efile h&r block Wages and Other Compensation Publication 15 (Circular E) provides a general discussion of taxable wages. Free efile h&r block Publication 15-B discusses fringe benefits. Free efile h&r block The following topics supplement those discussions. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block See chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses, and section 5 of Publication 15 (Circular E), for more information. Free efile h&r block These rules generally apply to temporary work assignments both inside and outside the U. Free efile h&r block S. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block Excludable employee achievement awards also are not subject to FUTA tax. Free efile h&r block Limits. Free efile h&r block   The most that you can exclude for the cost of all employee achievement awards to the same employee for the year is $400. Free efile h&r block A higher limit of $1,600 applies to qualified plan awards. Free efile h&r block Qualified plan awards are employee achievement awards under a written plan that does not discriminate in favor of highly compensated employees. Free efile h&r block 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. Free efile h&r block   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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block These amounts are reportable on Form W-2. Free efile h&r block 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. Free efile h&r block Any amounts that you pay for room and board are not excludable from the recipient's gross income. Free efile h&r block A qualified scholarship is not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Free efile h&r block For more information, see Publication 970, Tax Benefits for Education. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block Back Pay Treat back pay as wages in the year paid and withhold and pay employment taxes as required. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block Amounts that represent a return to the employee of amounts previously subject to tax are not taxable and are not subject to withholding. Free efile h&r block 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. Free efile h&r block It does not matter whether the separation is temporary or permanent. Free efile h&r block 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. Free efile h&r block To qualify as supplemental unemployment benefits for these purposes, the benefits must meet the following requirements. Free efile h&r block Benefits are paid only to unemployed former employees who are laid off by the employer. Free efile h&r block Eligibility for benefits depends on meeting prescribed conditions after termination. Free efile h&r block 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. Free efile h&r block The right to benefits does not accrue until a prescribed period after termination. Free efile h&r block Benefits are not attributable to the performance of particular services. Free efile h&r block No employee has any right to the benefits until qualified and eligible to receive benefits. Free efile h&r block Benefits may not be paid in a lump sum. Free efile h&r block Withholding on taxable supplemental unemployment benefits must be based on the withholding certificate (Form W-4) that the employee gave to you. Free efile h&r block Golden Parachute Payments A golden parachute payment, in general, is a payment made under a contract entered into by a corporation and key personnel. Free efile h&r block 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. Free efile h&r block Payments to employees under golden parachute contracts are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. Free efile h&r block See Regulations section 1. Free efile h&r block 280G-1 for more information. Free efile h&r block No deduction is allowed to the corporation for any excess parachute payment. Free efile h&r block To determine the amount of the excess parachute payment, you must first determine if there is a parachute payment for purposes of section 280G. Free efile h&r block A parachute payment for purposes of section 280G is any payment that meets all of the following. Free efile h&r block The payment is in the nature of compensation. Free efile h&r block The payment is to, or for the benefit of, a disqualified individual. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block The payment has an aggregate present value of at least three times the individual's base amount. Free efile h&r block The base amount is the average annual compensation for service includible in the individual's gross income over the most recent 5 taxable years. Free efile h&r block An excess parachute payment amount is the excess of any parachute payment over the base amount. Free efile h&r block For more information, see Regulations section 1. Free efile h&r block 280G-1. Free efile h&r block The recipient of an excess parachute payment is subject to a 20% nondeductible excise tax. Free efile h&r block If the recipient is an employee, the 20% excise tax is to be withheld by the corporation. Free efile h&r block Example. Free efile h&r block An officer of a corporation receives a golden parachute payment of $400,000. Free efile h&r block This is more than three times greater than his or her average compensation of $100,000 over the previous 5-year period. Free efile h&r block The excess parachute payment is $300,000 ($400,000 minus $100,000). Free efile h&r block The corporation cannot deduct the $300,000 and must withhold the excise tax of $60,000 (20% of $300,000). Free efile h&r block Reporting golden parachute payments. Free efile h&r block   Golden parachute payments to employees must be reported on Form W-2. Free efile h&r block See the General Instructions for Forms W-2 and W-3 for details. Free efile h&r block For nonemployee reporting of these payments, see Box 7. Free efile h&r block Nonemployee Compensation in the Instructions for Form 1099-MISC. Free efile h&r block Exempt payments. Free efile h&r block   Payments by most small business corporations and payments under certain qualified plans are exempt from the golden parachute rules. Free efile h&r block See section 280G(b)(5) and (6) for more information. Free efile h&r block 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. Free efile h&r block This rule applies to a loan of $10,000 or less if one of its principal purposes is the avoidance of federal tax. Free efile h&r block This additional compensation to the employee is subject to social security, Medicare, and FUTA taxes, but not to federal income tax withholding. Free efile h&r block Include it in compensation on Form W-2 (or Form 1099-MISC for an independent contractor). Free efile h&r block The AFR is established monthly and published by the IRS each month in the Internal Revenue Bulletin. Free efile h&r block You can get these rates by calling 1-800-829-4933 or by visiting IRS. Free efile h&r block gov. Free efile h&r block For more information, see section 7872 and its related regulations. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block Do not include these amounts in the income of the transferors. Free efile h&r block These rules apply only to leave sharing plans that permit employees to transfer leave to other employees for medical emergencies. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block Employers must withhold federal income tax (but not the additional Section 409A taxes) on any amount includible in gross income under section 409A. Free efile h&r block 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. Free efile h&r block Specific rules for reporting are provided in the instructions to the forms. Free efile h&r block The provisions do not affect the application or reporting of social security, Medicare, or FUTA taxes. Free efile h&r block 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. Free efile h&r block For more information about nonqualified deferred compensation plans, see Regulations sections 1. Free efile h&r block 409A-1 through 1. Free efile h&r block 409A-6. Free efile h&r block Notice 2008-113 provides guidance on the correction of certain operation failures of a NQDC plan. Free efile h&r block Notice 2008-113, 2008-51 I. Free efile h&r block R. Free efile h&r block B. Free efile h&r block 1305, is available at www. Free efile h&r block irs. Free efile h&r block gov/irb/2008-51_IRB/ar12. Free efile h&r block html. Free efile h&r block Also see Notice 2010-6, 2010-3 I. Free efile h&r block R. Free efile h&r block B. Free efile h&r block 275, available at www. Free efile h&r block irs. Free efile h&r block gov/irb/2010-03_IRB/ar08. Free efile h&r block html and Notice 2010-80, 2010-51 I. Free efile h&r block R. Free efile h&r block B. Free efile h&r block 853, available at www. Free efile h&r block irs. Free efile h&r block gov/irb/2010-51_IRB/ar08. Free efile h&r block html. Free efile h&r block Social security, Medicare, and FUTA taxes. Free efile h&r block   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. Free efile h&r block   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. Free efile h&r block 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. Free efile h&r block You will have to determine later, when the amount is reasonably ascertainable, whether any additional taxes are required. Free efile h&r block 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. Free efile h&r block For more information, see Regulations sections 31. Free efile h&r block 3121(v)(2)-1 and 31. Free efile h&r block 3306(r)(2)-1. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block See Regulations section 31. Free efile h&r block 3121(a)(5)-2 for the definition of a salary reduction agreement. Free efile h&r block 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. Free efile h&r block These excluded amounts are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding. Free efile h&r block However, any SEP contributions paid under a salary reduction agreement (SARSEP) are included in wages for purposes of social security, Medicare, and FUTA taxes. Free efile h&r block See Publication 560 for more information about SEPs. Free efile h&r block Salary reduction simplified employee pensions (SARSEP) repealed. Free efile h&r block   You may not establish a SARSEP after 1996. Free efile h&r block However, SARSEPs established before January 1, 1997, may continue to receive contributions. Free efile h&r block 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. Free efile h&r block An employer's nonelective (2%) or matching contributions are exempt from social security, Medicare, and FUTA taxes. Free efile h&r block However, an employee's salary reduction contributions to a SIMPLE are subject to social security, Medicare, and FUTA taxes. Free efile h&r block For more information about SIMPLE retirement plans, see Publication 560. Free efile h&r block 6. Free efile h&r block Sick Pay Reporting The IRS expects to change the third-party sick pay recap reporting and filing requirements for wages paid in 2014. Free efile h&r block Information about this change will be included in the revision of Publication 15-A that is expected to post to IRS. Free efile h&r block gov in December 2014. Free efile h&r block Special rules apply to the reporting of sick pay payments to employees. Free efile h&r block How these payments are reported depends on whether the payments are made by the employer or a third party, such as an insurance company. Free efile h&r block Sick pay is usually subject to social security, Medicare, and FUTA taxes. Free efile h&r block For exceptions, see Social Security, Medicare, and FUTA Taxes on Sick Pay , later in this section. Free efile h&r block Sick pay may also be subject to either mandatory or voluntary federal income tax withholding, depending on who pays it. Free efile h&r block 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. Free efile h&r block It may be paid by either the employer or a third party, such as an insurance company. Free efile h&r block Sick pay includes both short- and long-term benefits. Free efile h&r block It is often expressed as a percentage of the employee's regular wages. Free efile h&r block Payments That Are Not Sick Pay Sick pay does not include the following payments. Free efile h&r block Disability retirement payments. Free efile h&r block Disability retirement payments are not sick pay and are not discussed in this section. Free efile h&r block Those payments are subject to the rules for federal income tax withholding from pensions and annuities. Free efile h&r block See section 8. Free efile h&r block Workers' compensation. Free efile h&r block 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. Free efile h&r block But see Payments in the nature of workers' compensation—public employees next. Free efile h&r block Payments in the nature of workers' compensation—public employees. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block Payments under a statute in the nature of a workers' compensation law are not sick pay and are not subject to employment taxes. Free efile h&r block For more information, see Regulations section 31. Free efile h&r block 3121(a)(2)-1. Free efile h&r block Medical expense payments. Free efile h&r block 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. Free efile h&r block Payments unrelated to absence from work. Free efile h&r block Accident or health insurance payments unrelated to absence from work are not sick pay and are not subject to employment taxes. Free efile h&r block 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. Free efile h&r block Example. Free efile h&r block Donald was injured in a car accident and lost an eye. Free efile h&r block Under a policy paid for by Donald's employer, Delta Insurance Co. Free efile h&r block paid Donald $20,000 as compensation for the loss of his eye. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block Definition of employer. Free efile h&r block   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. Free efile h&r block Note. Free efile h&r block 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). Free efile h&r block Third-Party Payers of Sick Pay Employer's agent. Free efile h&r block   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. Free efile h&r block A third party may be your agent even if the third party is responsible for determining which employees are eligible to receive payments. Free efile h&r block For example, if a third party provides administrative services only, the third party is your agent. Free efile h&r block 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. Free efile h&r block Whether an insurance company or other third party is your agent depends on the terms of their agreement with you. Free efile h&r block   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. Free efile h&r block This responsibility remains with you. Free efile h&r block However, under an exception to this rule, the parties may enter into an agreement that makes the third-party agent responsible for employment taxes. Free efile h&r block 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. Free efile h&r block Third party not employer's agent. Free efile h&r block   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. Free efile h&r block   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. Free efile h&r block This liability is transferred if the third party takes the following steps. Free efile h&r block Withholds the employee social security and Medicare taxes from the sick pay payments. Free efile h&r block Makes timely deposits of the employee social security and Medicare taxes. Free efile h&r block Notifies the employer for whom the employee normally works of the payments on which employee taxes were withheld and deposited. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block 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. Free efile h&r block For multi-employer plans, see the special rule discussed next. Free efile h&r block Multi-employer plan timing rule. Free efile h&r block   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. Free efile h&r block If the third-party insurer making the payments complies wi