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Free Income Tax Software

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Free Income Tax Software

Free income tax software 4. Free income tax software   Detailed Examples Table of Contents These examples use actual forms to help you prepare your income tax return. Free income tax software However, the information shown on the filled-in forms is not from any actual person or scenario. Free income tax software Example 1—Mortgage loan modification. Free income tax software    In 2007, Nancy Oak bought a main home for $435,000. Free income tax software Nancy took out a $420,000 mortgage loan to buy the home and made a down payment of $15,000. Free income tax software The loan was secured by the home. Free income tax software The mortgage loan was a recourse debt, meaning that Nancy was personally liable for the debt. Free income tax software In 2008, Nancy took out a second mortgage loan (also a recourse debt) in the amount of $30,000 that was used to substantially improve her kitchen. Free income tax software    In 2011, when the outstanding principal of the first and second mortgage loans was $440,000, Nancy refinanced the two recourse loans into one recourse loan in the amount of $475,000. Free income tax software The FMV of Nancy's home at the time of the refinancing was $500,000. Free income tax software Nancy used the additional $35,000 debt ($475,000 new mortgage loan minus $440,000 outstanding principal of Nancy's first and second mortgage loans immediately before the refinancing) to pay off personal credit cards and to pay college tuition for her son. Free income tax software After the refinancing, Nancy has qualified principal residence indebtedness in the amount of $440,000 because the refinanced debt is qualified principal residence indebtedness only to the extent the amount of debt is not more than the old mortgage principal just before the refinancing. Free income tax software   In 2013, Nancy was unable to make her mortgage loan payments. Free income tax software On August 31, 2013, when the outstanding balance of her refinanced mortgage loan was still $475,000 and the FMV of the property was $425,000, Nancy's bank agreed to a loan modification (a “workout”) that resulted in a $40,000 reduction in the principal balance of her loan. Free income tax software Nancy was neither insolvent nor in bankruptcy at the time of the loan modification. Free income tax software   Nancy received a 2013 Form 1099-C from her bank in January 2014 showing canceled debt of $40,000 in box 2. Free income tax software Identifiable event code "F" appears in box 6. Free income tax software This box shows the reason the creditor has filed Form 1099-C. Free income tax software To determine if she must include the canceled debt in her income, Nancy must determine whether she meets any of the exceptions or exclusions that apply to canceled debts. Free income tax software Nancy determines that the only exception or exclusion that applies to her is the qualified principal residence indebtedness exclusion. Free income tax software   Next, Nancy determines the amount, if any, of the $40,000 of canceled debt that was qualified principal residence indebtedness. Free income tax software Although Nancy has $440,000 of qualified principal residence indebtedness, part of her loan ($35,000) was not qualified principal residence indebtedness because it was used to pay off personal credit cards and college tuition for her son. Free income tax software Applying the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent the amount canceled is more than the amount of the debt (immediately before the cancellation) that is not qualified principal residence indebtedness. Free income tax software Thus, Nancy can exclude only $5,000 of the canceled debt as qualified principal residence indebtedness ($40,000 amount canceled minus $35,000 nonqualified debt). Free income tax software   Because Nancy does not meet any other exception or exclusion, she checks only the box on line 1e of Form 982 and enters $5,000 on line 2. Free income tax software Nancy must also enter $5,000 on line 10b and reduce the basis of her main home by the $5,000 she excluded from income, bringing the adjusted basis in her home to $460,000 ($435,000 purchase price plus $30,000 substantial improvement minus $5,000). Free income tax software Nancy must also include the $35,000 nonqualified debt portion in income on Form 1040, line 21. Free income tax software You can see Nancy's Form 1099-C and a portion of her Form 1040 below. Free income tax software Nancy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. Free income tax software Please click the link to view the image. Free income tax software Form 1099-C, Cancellation of Debt Nancy's 2013 Form 1040 This image is too large to be displayed in the current screen. Free income tax software Please click the link to view the image. Free income tax software Form 1040, U. Free income tax software S. Free income tax software Individual Income Tax Nancy's Form 982 This image is too large to be displayed in the current screen. Free income tax software Please click the link to view the image. Free income tax software Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)              Example 2—Mortgage loan foreclosure. Free income tax software    In 2005, John and Mary Elm bought a main home for $335,000. Free income tax software John and Mary took out a $320,000 mortgage loan to buy the home and made a down payment of $15,000. Free income tax software The loan was secured by the home and is a recourse debt, meaning John and Mary are personally liable for the debt. Free income tax software   John and Mary became unable to make their mortgage loan payments and on March 1, 2013, when the outstanding balance of the mortgage loan was $315,000 and the FMV of the property was $290,000, the bank foreclosed on the property and simultaneously canceled the remaining mortgage debt. Free income tax software Immediately before the foreclosure, John and Mary's only other assets and liabilities were a checking account with a balance of $6,000, retirement savings of $13,000, and credit card debt of $5,500. Free income tax software   John and Mary received a 2013 Form 1099-C showing canceled debt of $25,000 in box 2 ($315,000 outstanding balance minus $290,000 FMV) and an FMV of $290,000 in box 7. Free income tax software Identifiable event code "D" appears in box 6. Free income tax software This box shows the reason the creditor has filed Form 1099-C. Free income tax software In order to determine if John and Mary must include the canceled debt in income, they must first determine whether they meet any of the exceptions or exclusions that apply to canceled debts. Free income tax software In this example, John and Mary meet both the insolvency and qualified principal residence indebtedness exclusions. Free income tax software Their sample Form 1099-C is shown on this page. Free income tax software   John and Mary complete the insolvency worksheet and determine that they were insolvent immediately before the cancellation because at that time their liabilities exceeded the FMV of their assets by $11,500 ($320,500 total liabilities minus $309,000 FMV of total assets). Free income tax software However, because the entire debt canceled is qualified principal residence indebtedness, the insolvency exclusion only applies if John and Mary elect to apply the insolvency exclusion instead of the qualified principal residence exclusion. Free income tax software   John and Mary do not elect to apply the insolvency exclusion instead of the qualified principal residence exclusion because under the insolvency exclusion their exclusion would be limited to the amount by which they were insolvent ($11,500). Free income tax software Instead, John and Mary check box 1e of Form 982 to exclude the canceled debt under the qualified principal residence exclusion. Free income tax software Under the qualified principal residence exclusion, the amount that John and Mary can exclude is not limited because their qualified principal residence indebtedness is not more than $2 million and no portion of the loan was nonqualified debt. Free income tax software As a result, John and Mary enter the full $25,000 of canceled debt on line 2 of Form 982. Free income tax software Because John and Mary no longer own the home due to the foreclosure, John and Mary have no remaining basis in the home at the time of the debt cancellation. Free income tax software Thus, John and Mary leave line 10b of Form 982 blank. Free income tax software   John and Mary must also determine whether they have a gain or loss from the foreclosure. Free income tax software John and Mary complete Table 1-1 (shown below) and find that they have a $45,000 loss from the foreclosure. Free income tax software Because this loss relates to their home, it is a nondeductible loss. Free income tax software   John and Mary's Form 1099-C, Insolvency Worksheet, and Form 982 follow. Free income tax software John and Mary's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. Free income tax software Please click the link to view the image. Free income tax software Form 1099-C, Cancellation of Debt Table 1-1. Free income tax software Worksheet for Foreclosures and Repossessions (for John and Mary Elm) Part 1. Free income tax software Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). Free income tax software Otherwise, go to Part 2. Free income tax software 1. Free income tax software Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property $315,000. Free income tax software 00 2. Free income tax software Enter the fair market value of the transferred property $290,000. Free income tax software 00 3. Free income tax software Ordinary income from the cancellation of debt upon foreclosure or repossession. Free income tax software * Subtract line 2 from line 1. Free income tax software If less than zero, enter zero. Free income tax software Next, go to Part 2 $ 25,000. Free income tax software 00 Part 2. Free income tax software Gain or loss from foreclosure or repossession. Free income tax software   4. Free income tax software Enter the smaller of line 1 or line 2. Free income tax software If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property $290,000. Free income tax software 00 5. Free income tax software Enter any proceeds you received from the foreclosure sale   6. Free income tax software Add line 4 and line 5 $290,000. Free income tax software 00 7. Free income tax software Enter the adjusted basis of the transferred property $335,000. Free income tax software 00 8. Free income tax software Gain or loss from foreclosure or repossession. Free income tax software Subtract line 7 from line 6 ($ 45,000. Free income tax software 00) * The income may not be taxable. Free income tax software See chapter 1 for more details. Free income tax software Insolvency Worksheet—John and Mary Elm Date debt was canceled (mm/dd/yy) 03/01/13 Part I. Free income tax software Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. Free income tax software Credit card debt $ 5,500 2. Free income tax software Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 315,000 3. Free income tax software Car and other vehicle loans $ 4. Free income tax software Medical bills owed $ 5. Free income tax software Student loans $ 6. Free income tax software Accrued or past-due mortgage interest $ 7. Free income tax software Accrued or past-due real estate taxes $ 8. Free income tax software Accrued or past-due utilities (water, gas, electric) $ 9. Free income tax software Accrued or past-due child care costs $ 10. Free income tax software Federal or state income taxes remaining due (for prior tax years) $ 11. Free income tax software Judgments $ 12. Free income tax software Business debts (including those owed as a sole proprietor or partner) $ 13. Free income tax software Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. Free income tax software Other liabilities (debts) not included above $ 15. Free income tax software Total liabilities immediately before the cancellation. Free income tax software Add lines 1 through 14. Free income tax software $ 320,500 Part II. Free income tax software Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. Free income tax software Cash and bank account balances $ 6,000 17. Free income tax software Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 290,000 18. Free income tax software Cars and other vehicles $ 19. Free income tax software Computers $ 20. Free income tax software Household goods and furnishings (for example, appliances, electronics, furniture, etc. Free income tax software ) $ 21. Free income tax software Tools $ 22. Free income tax software Jewelry $ 23. Free income tax software Clothing $ 24. Free income tax software Books $ 25. Free income tax software Stocks and bonds $ 26. Free income tax software Investments in coins, stamps, paintings, or other collectibles $ 27. Free income tax software Firearms, sports, photographic, and other hobby equipment $ 28. Free income tax software Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 13,000 29. Free income tax software Interest in a pension plan $ 30. Free income tax software Interest in education accounts $ 31. Free income tax software Cash value of life insurance $ 32. Free income tax software Security deposits with landlords, utilities, and others $ 33. Free income tax software Interests in partnerships $ 34. Free income tax software Value of investment in a business $ 35. Free income tax software Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. Free income tax software Other assets not included above $ 37. Free income tax software FMV of total assets immediately before the cancellation. Free income tax software Add lines 16 through 36. Free income tax software $ 309,000 Part III. Free income tax software Insolvency 38. Free income tax software Amount of Insolvency. Free income tax software Subtract line 37 from line 15. Free income tax software If zero or less, you are not insolvent. Free income tax software $ 11,500 John and Mary's Form 982 This image is too large to be displayed in the current screen. Free income tax software Please click the link to view the image. Free income tax software Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)          Example 3—Mortgage loan foreclosure with debt exceeding $2 million limit. Free income tax software    In 2011, Kathy and Frank Willow got married and entered into a contract with Hive Construction Corporation to build a house for $3,000,000 to be used as their main home. Free income tax software Kathy and Frank made a $400,000 down payment and took out a $2,600,000 mortgage to finance the remaining cost of the house. Free income tax software Kathy and Frank are personally liable for the mortgage loan, which is secured by the home. Free income tax software   In November 2013, when the outstanding principal balance on the mortgage loan was $2,500,000, the FMV of the property fell to $1,750,000 and Kathy and Frank abandoned the property by permanently moving out. Free income tax software The lender foreclosed on the property and, on December 5, 2013, sold the property to another buyer for $1,750,000. Free income tax software On December 26, 2013, the lender canceled the remaining debt. Free income tax software Kathy and Frank have no tax attributes other than basis of personal-use property. Free income tax software   The lender issued a 2013 Form 1099-C to Kathy and Frank showing canceled debt of $750,000 in box 2 (the remaining balance on the $2,500,000 mortgage debt after application of the foreclosure sale proceeds) and $1,750,000 in box 7 (FMV of the property). Free income tax software Identifiable event code "D" appears in box 6. Free income tax software This box shows the reason the creditor has filed Form 1099-C. Free income tax software Although Kathy and Frank abandoned the property, the lender did not need to also file a Form 1099-A because the lender canceled the debt in connection with the foreclosure in the same calendar year. Free income tax software Kathy and Frank are filing a joint return for 2013. Free income tax software   Because the foreclosure occurred prior to the debt cancellation, Kathy and Frank first calculate their gain or loss from the foreclosure using Table 1-1. Free income tax software Because Kathy and Frank remained personally liable for the $750,000 debt remaining after the foreclosure ($2,500,000 outstanding debt immediately before the foreclosure minus $1,750,000 satisfied through the sale of the home), Kathy and Frank enter $1,750,000 on line 1 of Table 1-1 ($2,500,000 outstanding debt immediately before the foreclosure minus the $750,000 for which they remained liable). Free income tax software Completing Table 1-1, Kathy and Frank find that they have no ordinary income from the cancellation of debt upon foreclosure and that they have a $1,250,000 loss. Free income tax software Because this loss relates to their home, it is a nondeductible loss. Free income tax software   Because the lender later canceled the remaining amount of the debt, Kathy and Frank must also determine whether that canceled debt is taxable. Free income tax software Immediately before the cancellation, Kathy and Frank had $15,000 in a savings account, household furnishings with an FMV of $17,000, a car with an FMV of $10,000, and $18,000 in credit card debt. Free income tax software Kathy and Frank also had the $750,000 remaining balance on the mortgage loan at that time. Free income tax software The household furnishings originally cost $30,000. Free income tax software The car had been fully paid off (so there was no related outstanding debt) and was originally purchased for $16,000. Free income tax software Kathy and Frank had no adjustments to the cost basis of the car. Free income tax software Kathy and Frank had no other assets or liabilities at the time of the cancellation. Free income tax software Kathy and Frank complete the insolvency worksheet to calculate that they were insolvent to the extent of $726,000 immediately before the cancellation ($768,000 of total liabilities minus $42,000 FMV of total assets). Free income tax software   At the beginning of 2014, Kathy and Frank had $9,000 in their savings account and $15,000 in credit card debt. Free income tax software Kathy and Frank also owned the same car at that time (still with an FMV of $10,000 and basis of $16,000) and the same household furnishings (still with an FMV of $17,000 and a basis of $30,000). Free income tax software Kathy and Frank had no other assets or liabilities at that time. Free income tax software Kathy and Frank no longer own the home because the lender foreclosed on it in 2013. Free income tax software   Because the canceled debt is qualified principal residence indebtedness, the insolvency exclusion does not apply unless Kathy and Frank elect to apply the insolvency exclusion instead of the qualified principal residence indebtedness exclusion. Free income tax software The maximum amount that Kathy and Frank can treat as qualified principal residence indebtedness is $2,000,000. Free income tax software The remaining $500,000 ($2,500,000 outstanding mortgage loan minus $2,000,000 limit on qualified principal residence indebtedness) is not qualified principal residence indebtedness. Free income tax software Because only a part of the loan is qualified principal residence indebtedness, Kathy and Frank must apply the ordering rule to the canceled debt. Free income tax software Under the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent that the amount canceled ($750,000) exceeds the amount of the loan (immediately before the cancellation) that is not qualified principal residence indebtedness ($500,000). Free income tax software This means that Kathy and Frank can only exclude $250,000 ($750,000 amount canceled minus $500,000 nonqualified debt) under the qualified principal residence indebtedness exclusion. Free income tax software   Kathy and Frank do not elect to have the insolvency exclusion apply instead of the qualified principal residence exclusion. Free income tax software Nonetheless, they can still apply the insolvency exclusion to the $500,000 nonqualified debt because it is not qualified principal residence indebtedness. Free income tax software Kathy and Frank can exclude the remaining $500,000 canceled debt under the insolvency exclusion because they were insolvent immediately before the cancellation to the extent of $726,000. Free income tax software Thus, Kathy and Frank check the boxes on lines 1b and 1e of Form 982 and enter $750,000 on line 2 ($250,000 excluded under the qualified principal residence indebtedness exclusion plus $500,000 excluded under the insolvency exclusion). Free income tax software   Next, Kathy and Frank reduce their tax attributes using Part II of Form 982. Free income tax software Because Kathy and Frank no longer own the home due to the foreclosure, Kathy and Frank have no remaining basis in the home at the time of the debt cancellation. Free income tax software Thus, Kathy and Frank leave line 10b of Form 982 blank. Free income tax software However, Kathy and Frank are also excluding nonqualified debt under the insolvency exclusion. Free income tax software As a result, Kathy and Frank must reduce the basis of property they own based on the amount of canceled debt they are excluding from income under the insolvency rules. Free income tax software Because Kathy and Frank have no tax attributes other than basis of personal-use property to reduce, Kathy and Frank figure the amount they must include on line 10a of Form 982 by taking the smallest of: The $46,000 bases of their personal-use property held at the beginning of 2014 ($16,000 basis in the car plus $30,000 basis in household furnishings), The $500,000 of the nonbusiness debt (other than qualified principal residence indebtedness) that they are excluding from income on line 2 of Form 982, or The $43,000 excess of the total bases of the property and the amount of money they held immediately after the cancellation over their total liabilities immediately after the cancellation ($15,000 in savings account plus $30,000 basis in household furnishings plus $16,000 adjusted basis in car minus $18,000 credit card debt). Free income tax software Kathy and Frank enter $43,000 on Form 982, line 10a and reduce their bases in the car and the household furnishings in proportion to the total adjusted bases in all their property. Free income tax software Kathy and Frank reduce the basis in the car by $14,956. Free income tax software 52 ($43,000 x $16,000/$46,000). Free income tax software And they reduce the basis in the household furnishings by $28,043. Free income tax software 48 ($43,000 x $30,000/$46,000). Free income tax software   Following are Kathy and Frank's sample forms and worksheets. Free income tax software Frank and Kathy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. Free income tax software Please click the link to view the image. Free income tax software Form 1099-C, Cancellation of Debt Table 1-1. Free income tax software Worksheet for Foreclosures and Repossessions (for Frank and Kathy Willow) Part 1. Free income tax software Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). Free income tax software Otherwise, go to Part 2. Free income tax software 1. Free income tax software Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property $1,750,000. Free income tax software 00 2. Free income tax software Enter the fair market value of the transferred property $1,750,000. Free income tax software 00 3. Free income tax software Ordinary income from the cancellation of debt upon foreclosure or repossession. Free income tax software * Subtract line 2 from line 1. Free income tax software If less than zero, enter zero. Free income tax software Next, go to Part 2 $0. Free income tax software 00 Part 2. Free income tax software Gain or loss from foreclosure or repossession. Free income tax software   4. Free income tax software Enter the smaller of line 1 or line 2. Free income tax software If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property. Free income tax software $1,750,000. Free income tax software 00 5. Free income tax software Enter any proceeds you received from the foreclosure sale   6. Free income tax software Add line 4 and line 5 $1,750,000. Free income tax software 00 7. Free income tax software Enter the adjusted basis of the transferred property $3,000,000. Free income tax software 00 8. Free income tax software Gain or loss from foreclosure or repossession. Free income tax software Subtract line 7 from line 6 ($1,250,000. Free income tax software 00) * The income may not be taxable. Free income tax software See chapter 1 for more details. Free income tax software    Insolvency Worksheet—Frank and Kathy Willow Date debt was canceled (mm/dd/yy) 12/26/13 Part I. Free income tax software Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. Free income tax software Credit card debt $ 18,000 2. Free income tax software Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 750,000 3. Free income tax software Car and other vehicle loans $ 4. Free income tax software Medical bills owed $ 5. Free income tax software Student loans $ 6. Free income tax software Accrued or past-due mortgage interest $ 7. Free income tax software Accrued or past-due real estate taxes $ 8. Free income tax software Accrued or past-due utilities (water, gas, electric) $ 9. Free income tax software Accrued or past-due child care costs $ 10. Free income tax software Federal or state income taxes remaining due (for prior tax years) $ 11. Free income tax software Judgments $ 12. Free income tax software Business debts (including those owed as a sole proprietor or partner) $ 13. Free income tax software Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. Free income tax software Other liabilities (debts) not included above $ 15. Free income tax software Total liabilities immediately before the cancellation. Free income tax software Add lines 1 through 14. Free income tax software $ 768,000 Part II. Free income tax software Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. Free income tax software Cash and bank account balances $ 15,000 17. Free income tax software Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 18. Free income tax software Cars and other vehicles $ 10,000 19. Free income tax software Computers $ 20. Free income tax software Household goods and furnishings (for example, appliances, electronics, furniture, etc. Free income tax software ) $ 17,000 21. Free income tax software Tools $ 22. Free income tax software Jewelry $ 23. Free income tax software Clothing $ 24. Free income tax software Books $ 25. Free income tax software Stocks and bonds $ 26. Free income tax software Investments in coins, stamps, paintings, or other collectibles $ 27. Free income tax software Firearms, sports, photographic, and other hobby equipment $ 28. Free income tax software Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 29. Free income tax software Interest in a pension plan $ 30. Free income tax software Interest in education accounts $ 31. Free income tax software Cash value of life insurance $ 32. Free income tax software Security deposits with landlords, utilities, and others $ 33. Free income tax software Interests in partnerships $ 34. Free income tax software Value of investment in a business $ 35. Free income tax software Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. Free income tax software Other assets not included above $ 37. Free income tax software FMV of total assets immediately before the cancellation. Free income tax software Add lines 16 through 36. Free income tax software $ 42,000 Part III. Free income tax software Insolvency 38. Free income tax software Amount of Insolvency. Free income tax software Subtract line 37 from line 15. Free income tax software If zero or less, you are not insolvent. Free income tax software $ 726,000    Frank and Kathy's Form 982 This image is too large to be displayed in the current screen. Free income tax software Please click the link to view the image. Free income tax software Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) Prev  Up  Next   Home   More Online Publications
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The Free Income Tax Software

Free income tax software Publication 80 - Main Content Table of Contents Introduction 1. Free income tax software Employer Identification Number (EIN) 2. Free income tax software Who Are Employees?Tests. Free income tax software Business Owned and Operated by Spouses Farm Crew Leaders 3. Free income tax software Employee's Social Security Number (SSN)Registering for SSNVS. Free income tax software 4. Free income tax software Wages and Other CompensationFringe Benefits 5. Free income tax software TipsOrdering rule. Free income tax software 6. Free income tax software Social Security and Medicare Taxes for FarmworkersThe $150 Test or the $2,500 Test 7. Free income tax software How To Figure Social Security and Medicare TaxesHousehold and agricultural employers. Free income tax software 8. Free income tax software Depositing TaxesPayment with Return When To Deposit How To Deposit Deposit Penalties 9. Free income tax software Employer's ReturnsReporting Adjustments to Form 941-SS, 944-SS, 944, or 943 Current Period Adjustments Prior Period Adjustments 10. Free income tax software Wage and Tax StatementsWaiver. Free income tax software 11. Free income tax software Federal Unemployment (FUTA) Tax—U. Free income tax software S. Free income tax software Virgin Islands Employers Only How To Get Tax Help Introduction This publication is for employers whose principal place of business is in the U. Free income tax software S. Free income tax software Virgin Islands, Guam, American Samoa, or the Commonwealth of the Northern Mariana Islands, or who have employees who are subject to income tax withholding for any of these jurisdictions. Free income tax software Employers and employees in these areas are generally subject to social security and Medicare taxes under the Federal Insurance Contributions Act (FICA). Free income tax software See section 6 and section 7 for more information. Free income tax software This publication summarizes employer responsibilities to collect, pay, and report these taxes. Free income tax software Whenever the term “United States” is used in this publication, it includes U. Free income tax software S. Free income tax software Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands. Free income tax software This publication also provides employers in the U. Free income tax software S. Free income tax software Virgin Islands with a summary of their responsibilities in connection with the tax under the Federal Unemployment Tax Act, known as FUTA tax. Free income tax software See section 11 for more information. Free income tax software Except as shown in the table in section 12, social security, Medicare, and FUTA taxes apply to every employer who pays taxable wages to employees or who has employees who report tips. Free income tax software This publication does not include information relating to the self-employment tax (for social security and Medicare of self-employed persons). Free income tax software See Publication 570, Tax Guide for Individuals With Income From U. Free income tax software S. Free income tax software Possessions, if you need this information. Free income tax software This publication also does not include information relating to income tax withholding. Free income tax software In U. Free income tax software S. Free income tax software Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands, contact your local tax department for information about income tax withholding. Free income tax software See Publication 15 (Circular E), for information on U. Free income tax software S. Free income tax software federal income tax withholding. Free income tax software Comments and suggestions. Free income tax software   We welcome your comments about this publication and your suggestions for future editions. Free income tax software   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Free income tax software NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Free income tax software Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Free income tax software    You can also send us comments from www. Free income tax software irs. Free income tax software gov/formspubs. Free income tax software Click on More Information and then click on Comment on Tax Forms and Publications. Free income tax software   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax forms, instructions, and publications. Free income tax software 1. Free income tax software Employer Identification Number (EIN) An employer identification number (EIN) is a nine-digit number that the IRS issues. Free income tax software Its format is 00-0000000. Free income tax software It is used to identify the tax accounts of employers and certain other organizations and entities that have no employees. Free income tax software Use your EIN on all of the items that you send to the IRS and SSA for your business. Free income tax software If you do not have an EIN, you may apply for one online. Free income tax software Go to IRS. Free income tax software gov and click on the Apply for an EIN Online link under Tools. Free income tax software You may also apply for an EIN by calling 1-800-829-4933, (U. Free income tax software S. Free income tax software Virgin Islands only) or 267-941-1099 (toll call), or you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. Free income tax software Do not use a social security number (SSN) in place of an EIN. Free income tax software If you do not have an EIN by the time a return is due, file a paper return and enter “Applied For” and the date that you applied for it in the space shown for the number. Free income tax software If you took over another employer's business, do not use that employer's EIN. Free income tax software You should have only one EIN. Free income tax software If you have more than one, write to the IRS office where you file your returns using the “without a payment” address in the Instructions for Form 941-SS, Instructions for Form 944, or Instructions for Form 943. Free income tax software Or call the IRS Business & Specialty Tax Line at 1-800-829-4933 (U. Free income tax software S. Free income tax software Virgin Islands only) or 267-941-1000 (toll call). Free income tax software Persons who are deaf, hard of hearing, or have a speech disability (TDD/TTY users) in the U. Free income tax software S. Free income tax software Virgin Islands may call 1-800-829-4059. Free income tax software The IRS will tell you which EIN to use. Free income tax software For more information, see Publication 1635, Employer Identification Number: Understanding Your EIN, or Publication 583, Starting a Business and Keeping Records. Free income tax software 2. Free income tax software Who Are Employees? Generally, employees are defined either under common law or under special statutes for certain situations. Free income tax software See Publication 15-A, Employer's Supplemental Tax Guide, for details on statutory employees and nonemployees. Free income tax software Employee status under common law. Free income tax software   Generally, a worker who performs services for you is your employee if you can control what will be done and how it will be done. Free income tax software This is so even when you give the employee freedom of action. Free income tax software What matters is that you have the right to control the details of how the services are performed. Free income tax software See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. Free income tax software    Generally, people in business for themselves are not employees. Free income tax software For example, doctors, lawyers, veterinarians, and others in an independent trade in which they offer their services to the public are usually not employees. Free income tax software However, if the business is incorporated, corporate officers who work in the business are employees of the corporation. Free income tax software   If an employer-employee relationship exists, it does not matter what it is called. Free income tax software The employee may be called an agent or independent contractor. Free income tax software It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time. Free income tax software Statutory employees. Free income tax software   There are also some special definitions of employees for social security, Medicare, and FUTA taxes. Free income tax software   While the following persons may not be common law employees, they are considered employees for social security and Medicare purposes if the conditions under Tests , discussed later, are met. Free income tax software a. Free income tax software   An agent (or commission) driver who delivers food or beverages (other than milk) or picks up and delivers laundry or dry cleaning for someone else. Free income tax software b. Free income tax software   A full-time life insurance salesperson who sells primarily for one company. Free income tax software c. Free income tax software   A homeworker who works by the guidelines of the person for whom the work is done, with materials furnished by and returned to that person or to someone that person designates. Free income tax software d. Free income tax software   A traveling or city salesperson (other than an agent-driver or commission-driver) who works full time (except for sideline sales activities) for one firm or person getting orders from customers. Free income tax software The orders must be for merchandise for resale or supplies for use in the customer's business. Free income tax software The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging. Free income tax software Tests. Free income tax software   Withhold social security and Medicare taxes from statutory employees' wages if all three of the following tests apply. Free income tax software The service contract states or implies that almost all of the services are to be performed personally by them. Free income tax software They have little or no investment in the equipment and property used to perform the services (other than an investment in transportation facilities). Free income tax software The services are performed on a continuing basis for the same payer. Free income tax software Persons in a or d, earlier, are also employees for FUTA tax purposes if tests 1 through 3 are met (U. Free income tax software S. Free income tax software Virgin Islands only). Free income tax software   Publication 15-A gives examples of the employer-employee relationship. Free income tax software Statutory nonemployees. Free income tax software   Certain direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. Free income tax software They are generally treated as self-employed for employment tax purposes. Free income tax software See Publication 15-A for details. Free income tax software H-2A agricultural workers. Free income tax software   On Form W-2, do not check box 13 (Statutory employee) as H-2A workers are not statutory employees. Free income tax software Treating employees as nonemployees. Free income tax software   If you incorrectly treated an employee as a nonemployee and did not withhold social security and Medicare taxes, you will be liable for the taxes. Free income tax software See Treating employees as nonemployees in section 2 of Publication 15 (Circular E), for details on Internal Revenue Code section 3509, which may apply. Free income tax software IRS help. Free income tax software   If you want the IRS to determine if a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. Free income tax software Voluntary Classification Settlement Program (VCSP). Free income tax software   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 income tax software To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Free income tax software For more information, visit IRS. Free income tax software gov and enter “VCSP” in the search box. Free income tax software Business Owned and Operated by Spouses If you and your spouse jointly own and operate a business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Free income tax software See Publication 541, Partnerships, for more details. Free income tax software The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. Free income tax software Exception—Qualified Joint Venture. Free income tax software   If you and your spouse materially participate as the only members of a jointly owned and operated business, and you file a joint Form 1040, U. Free income tax software S. Free income tax software Individual Income Tax Return, or joint Form 1040-SS, U. Free income tax software S. Free income tax software Self-Employment Tax Return—U. Free income tax software S. Free income tax software Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, or Puerto Rico, you can make a joint election to be taxed as a qualified joint venture instead of a partnership. Free income tax software See the Instructions for Schedule C (Form 1040) or the Instructions for Form 1040-SS. Free income tax software Spouses electing qualified joint venture status are treated as sole proprietors for federal tax purposes. Free income tax software Either of the sole proprietor spouses may report and pay the employment taxes due on wages paid to the employees, using the EIN of that spouse’s sole proprietorship. Free income tax software For more information on qualified joint ventures, visit IRS. Free income tax software gov and enter “qualified joint venture” in the search box. Free income tax software Farm Crew Leaders You are an employer of farmworkers if you are a crew leader. Free income tax software A crew leader is a person who furnishes and pays (either on his or her own behalf or on behalf of the farm operator) workers to do farmwork for the farm operator. Free income tax software If there is no written agreement between you and the farm operator stating that you are his or her employee, and if you pay the workers (either for yourself or for the farm operator), then you are a crew leader. Free income tax software 3. Free income tax software Employee's Social Security Number (SSN) An employee's social security number (SSN) consists of nine digits separated as follows: 000-00-0000. Free income tax software You must get each employee's name and SSN and enter them on Form W-2AS, W-2CM, W-2GU, or W-2VI. Free income tax software If you do not report the employee's correct name and SSN, you may owe a penalty unless you have reasonable cause. Free income tax software See Publication 1586, Reasonable Cause Regulations and Requirements for Missing and Incorrect Name/TINs, for information on the requirement to solicit the employee's SSN. Free income tax software Employee's social security card. Free income tax software   You should ask the employee to show you his or her social security card. Free income tax software The employee may show the card if it is available. Free income tax software Do not accept a social security card that says “Not valid for employment. Free income tax software ” A social security number issued with this legend does not permit employment. Free income tax software You may, but you are not required to, photocopy the social security card if the employee provides it. Free income tax software If an employee does not have a social security card or needs a new one, the employee should apply for one on Form SS-5 and submit the necessary documentation. Free income tax software The employee must complete and sign Form SS-5; it cannot be filed by the employer. Free income tax software You may be asked to supply a letter to accompany Form SS-5 if the employee has exceeded his or her yearly or lifetime limit for the number of replacement cards allowed. Free income tax software If your employee has applied for an SSN but has not received the card before you must file your Form W-2 reports, and you are filing your reports on paper, enter “Applied For” in box d. Free income tax software Enter all zeroes in the SSN field if filing electronically. Free income tax software When the employee receives the SSN, file Copy A of Form W-2c with SSA to show the employee's SSN. Free income tax software Correctly record the employee's name and SSN. Free income tax software   Record the name and number of each employee as they appear on his or her social security card. Free income tax software If the name is not correct as shown on the card (for example, because of marriage or divorce), the employee should request a corrected card from the SSA. Free income tax software Continue to use the old name until the employee shows you the replacement social security card with the corrected name. Free income tax software   If the SSA issues the employee a replacement card after a name change, or a new card with a different social security number after a change in alien work status, file a Form W-2c to correct the name/SSN reported on the most recently filed Form W-2AS, W-2CM, W-2GU, or W-2VI. Free income tax software It is not necessary to correct other years if the previous name and SSN were used for years before the most recent Form W-2. Free income tax software Where to get and file social security number application forms. Free income tax software    U. Free income tax software S. Free income tax software Virgin Islands—U. Free income tax software S. Free income tax software Social Security Administration, 8000 Nisky Center, First Floor, Suite 2, St. Free income tax software Thomas, VI 00802. Free income tax software  Guam—U. Free income tax software S. Free income tax software Social Security Administration, 655 Harmon Loop Road, Suite 300, Dededo, GU 96929. Free income tax software  American Samoa—U. Free income tax software S. Free income tax software Social Security Administration, Pago Plaza, Suite 117, Pago Pago, AS 96799. Free income tax software  Commonwealth of the Northern Mariana Islands—U. Free income tax software S. Free income tax software Social Security Administration, MH Building, Suite 201, Saipan, MP 96950. Free income tax software Verification of social security numbers. Free income tax software   Employers and authorized reporting agents can use the Social Security Number Verification Service (SSNVS) to instantly verify up to 10 names and SSNs (per screen) at a time, or submit an electronic file of up to 250,000 names and SSNs and usually receive the results the next business day. Free income tax software Visit www. Free income tax software socialsecurity. Free income tax software gov/employer/ssnv. Free income tax software htm for more information. Free income tax software Registering for SSNVS. Free income tax software   You must register online and receive authorization from your employer to use SSNVS. Free income tax software To register, visit SSA's website at www. Free income tax software ssa. Free income tax software gov/employer and click on the Business Services Online link. Free income tax software Follow the registration instructions to obtain a user identification (ID) and password. Free income tax software You will need to provide the following information about yourself and your company. Free income tax software Name. Free income tax software SSN. Free income tax software Date of birth. Free income tax software Type of employer. Free income tax software EIN. Free income tax software Company name, address, and telephone number. Free income tax software Email address. Free income tax software   When you have completed the online registration process, SSA will mail a one-time activation code to your employer. Free income tax software You must enter the activation code online to use SSNVS. Free income tax software 4. Free income tax software Wages and Other Compensation Generally, all wages are subject to social security and Medicare tax (and FUTA tax for U. Free income tax software S. Free income tax software Virgin Islands employers). Free income tax software However, wages subject to social security tax and FUTA tax are limited by a wage base amount that you pay to each employee for the year. Free income tax software The wage base for social security tax is $117,000 for 2014. Free income tax software After you pay $117,000 to an employee in 2014, including tips, do not withhold social security tax on any amount that you later pay to the employee for the year. Free income tax software The wage base for FUTA tax is $7,000 for 2014. Free income tax software All wages are subject to Medicare tax. Free income tax software The wages may be in cash or in other forms, such as an automobile for personal use. Free income tax software Wages include salaries, vacation allowances, bonuses, commissions, and fringe benefits. Free income tax software It does not matter how payments are measured or paid. Free income tax software See the table in section 12 for exceptions to social security, Medicare, and FUTA taxes on wages. Free income tax software See section 5 and section 6 for a discussion of how the rules apply to tips and farmworkers. Free income tax software Social security and Medicare taxes apply to most payments of sick pay, including payments by third parties such as insurance companies. Free income tax software Special rules apply to the reporting of third-party sick pay. Free income tax software For details, see Publication 15-A. Free income tax software Determine the value of noncash pay (such as goods, lodging, and meals) by its fair market value. Free income tax software However, see Fringe Benefits , later in this section. Free income tax software Except for farmworkers and household employees, this kind of pay may be subject to social security, Medicare, and FUTA taxes. Free income tax software Back pay, including retroactive wage increases (but not amounts paid as liquidated damages), is taxed as ordinary wages in the year paid. Free income tax software For information on reporting back pay to the Social Security Administration, see Publication 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration. Free income tax software Travel and business expenses. Free income tax software   Payments to your employee for travel and other necessary expenses of your business generally are included in taxable wages if (a) your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation, or (b) you advance an amount to your employee for business expenses and your employee is not required to or does not return timely any amount that he or she does not substantiate. Free income tax software Sick pay. Free income tax software   In general, sick pay is any amount that you pay, under a plan that you take part in, to an employee because of sickness or injury. Free income tax software These amounts are sometimes paid by a third party, such as an insurance company. Free income tax software In either case, these payments are subject to social security and Medicare taxes (and FUTA tax for U. Free income tax software S. Free income tax software Virgin Islands employers). Free income tax software Sick pay becomes exempt from these taxes after the end of 6 calendar months after the calendar month the employee last worked for the employer. Free income tax software Publication 15-A explains the employment tax rules that apply to sick pay, disability benefits, and similar payments to employees. Free income tax software Fringe Benefits Generally, fringe benefits are includible in the gross income of an employee and are subject to employment taxes. Free income tax software Examples of fringe benefits include the use of an automobile, aircraft flights that you provide, free or discounted commercial airline flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events. Free income tax software In general, the amount included in the employee's income is the excess of the fair market value of the benefit over the sum of any amount paid for it by the employee and any amount excluded by law. Free income tax software For more information, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Free income tax software When fringe benefits are treated as paid. Free income tax software   You can choose to treat certain noncash fringe benefits (including personal use of an automobile provided by you) as paid by the pay period, quarter, or on any other basis that you choose, but they must be treated as paid at least annually. Free income tax software You do not have to make a formal choice of payment dates or notify the IRS. Free income tax software You do not have to use the same basis for all employees. Free income tax software You may change methods as often as you like, as long as all benefits provided in a calendar year are treated as paid no later than December 31 of the calendar year. Free income tax software However, see Special accounting rule for fringe benefits provided during November and December , later in this section. Free income tax software   You can treat the value of a single taxable noncash fringe benefit as paid on one or more dates in the same calendar year, even if the employee gets the entire benefit at one time. Free income tax software However, once you elect the payment dates, you must report the taxes on your return in the same tax period in which you treated them as paid. Free income tax software This election does not apply to a fringe benefit where real property or investment personal property is transferred. Free income tax software Withholding social security and Medicare taxes on fringe benefits. Free income tax software   You add the value of fringe benefits to regular wages for a payroll period and figure social security and Medicare taxes on the total. Free income tax software   If you withhold less than the required amount of social security and Medicare taxes from the employee in a calendar year but report and pay the proper amount, you may recover the taxes from the employee. Free income tax software Depositing taxes on fringe benefits. Free income tax software   Once you choose payment dates for taxable noncash fringe benefits, you must deposit taxes in the same deposit period that you treat the fringe benefits as paid. Free income tax software You may make a reasonable estimate of the value of the fringe benefits. Free income tax software In general, the value of taxable noncash fringe benefits provided in a calendar year must be determined by January 31 of the following year. Free income tax software   You may claim a refund of overpayments or elect to have any overpayment applied to the next employment tax return. Free income tax software If deposits are underpaid, see Deposit Penalties in section 8. Free income tax software Valuation of vehicles provided to employees. Free income tax software    If you provide a vehicle to your employees, you may either determine the actual value of the benefit for the entire calendar year, taking into account the business use of the vehicle, or consider the entire use for the calendar year as personal and include 100% of the value of the vehicle in the employee's income. Free income tax software For reporting information to employees, see the box 14 instructions in the General Instructions for Forms W-2 and W-3. Free income tax software Special accounting rule for fringe benefits provided during November and December. Free income tax software   You may choose to treat the value of taxable noncash fringe benefits provided during November and December as paid in the next year. Free income tax software However, this applies only to those benefits that you actually provided during November and December, not to those you merely treated as paid during those months. Free income tax software   If you use this rule, you must notify each affected employee between the time of the employee's last paycheck of the calendar year and at or near the time that you give the employee Form W-2AS, W-2CM, W-2GU, or W-2VI. Free income tax software If you use the special accounting rule, your employee must also use it for the same period that you use it. Free income tax software You cannot use this rule for a fringe benefit of real property or tangible or intangible real property of a kind normally held for investment that is transferred to your employee. Free income tax software 5. Free income tax software Tips Tips that your employee receives from customers are generally subject to social security and Medicare withholding. Free income tax software Your employee must report cash tips to you by the 10th of the month after the month that the tips are received. Free income tax software The report should include tips you paid over to the employee for charge customers, tips the employee received directly from customers, and tips received from other employees under any tip-sharing arrangement. Free income tax software Both directly and indirectly tipped employees must report tips to you. Free income tax software The report should not include tips that the employee paid out to other employees. Free income tax software No report is required for months when tips are less than $20. Free income tax software Your employees report tips on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. Free income tax software They may also use Form 4070A, Employee's Daily Record of Tips, to keep a record of their tips. Free income tax software Both forms are included in Publication 1244, Employee's Daily Record of Tips and Report to Employer, available at IRS. Free income tax software gov. Free income tax software The statement must be signed by the employee and must include: The employee's name, address, and SSN, Your name and address, The month or period that the report covers, and The total tips received during the month or period. Free income tax software You are permitted to establish a system for electronic tip reporting by employees. Free income tax software See Regulations section 31. Free income tax software 6053-1(d). Free income tax software Collecting taxes on tips. Free income tax software   You must collect the employee social security and Medicare taxes on the employee's tips. Free income tax software You can also collect these taxes from the employee's wages or from other funds that he or she makes available. Free income tax software Stop collecting the employee social security tax when his or her total wages and tips for 2014 reach $117,000. Free income tax software Collect the employee Medicare tax for the whole year on all wages and tips. Free income tax software   You are responsible for the employer social security tax on wages and tips until the wages (including tips) reach the wage base limit. Free income tax software You are responsible for the employer Medicare tax for the whole year on all wages and tips. Free income tax software File Form 941-SS (or Form 944) to report withholding and employer taxes on tips. Free income tax software The withholding rules for withholding an employee's share of Medicare tax on tips also apply to withholding the Additional Medicare Tax once wages and tips exceed $200,000 in the calendar year. Free income tax software Ordering rule. Free income tax software   If, by the 10th of the month after the month you received an employee's report on tips, you do not have enough employee funds available to deduct the employee social security and Medicare tax on tips, you no longer have to collect it and are not liable for it. Free income tax software Reporting tips. Free income tax software   Report tips and any collected and uncollected social security in boxes 1, 5, 7, and 12 on Forms W-2AS, W-2CM, W-2GU, or W-2VI and on Form 941-SS, lines 5b, 5c, and 5d (Form 944, lines 4b, 4c, and 4d). Free income tax software Do not include any uncollected Additional Medicare Tax in box 12 of Form W-2. Free income tax software Report an adjustment on Form 941-SS, line 9 (Form 944, line 6), for the uncollected social security and Medicare taxes. Free income tax software The table in section 12 shows how tips are treated for FUTA tax purposes. Free income tax software   Revenue Ruling 2012-18 provides guidance for employers regarding social security and Medicare taxes imposed on tips, including information on the reporting of the employer share of social security and Medicare taxes under section 3121(q), the difference between tips and service charges, and the section 45B credit. Free income tax software See Revenue Ruling 2012-18, 2012-26 I. Free income tax software R. Free income tax software B. Free income tax software 1032, available at www. Free income tax software irs. Free income tax software gov/irb/2012-26_IRB/ar07. Free income tax software html. Free income tax software 6. Free income tax software Social Security and Medicare Taxes for Farmworkers The tests described below apply only to services that are defined as agricultural labor (farmwork). Free income tax software In general, you are an employer of farmworkers if your employees: Raise or harvest agricultural or horticultural products on your farm (including the raising and feeding of livestock); Work in connection with the operation, management, conservation, improvement, or maintenance of your farm and its tools and equipment; Provide services relating to salvaging timber, or clearing land of brush and other debris, left by a hurricane (also known as hurricane labor); Handle, process, or package any agricultural or horticultural commodity if you produced over half of the commodity (for a group of up to 20 unincorporated operators, all of the commodity); or Do work for you related to cotton ginning, turpentine, gum resin products, or the operation and maintenance of irrigation facilities. Free income tax software For this purpose, the term “farm” includes stock, dairy, poultry, fruit, fur-bearing animal, and truck farms, as well as plantations, ranches, nurseries, ranges, greenhouses or other similar structures used primarily for the raising of agricultural or horticultural commodities, and orchards. Free income tax software Farmwork does not include reselling activities that do not involve any substantial activity of raising agricultural or horticultural commodities, such as a retail store or a greenhouse used primarily for display or storage. Free income tax software A “share farmer” working for you is not your employee. Free income tax software However, the share farmer may be subject to self-employment tax. Free income tax software In general, share farming is an arrangement in which certain commodity products are shared between the farmer and the owner (or tenant) of the land. Free income tax software For details, see Regulations section 31. Free income tax software 3121(b)(16)-1. Free income tax software The $150 Test or the $2,500 Test All cash wages that you pay to any employee for farmwork are subject to social security and Medicare taxes if either of the following two tests is met. Free income tax software You pay cash wages to the employee of $150 or more in a year (count all cash wages paid on a time, piecework, or other basis) for farmwork. Free income tax software The $150 test applies separately to each farmworker that you employ. Free income tax software If you employ a family of workers, each member is treated separately. Free income tax software Do not count wages paid by other employers. Free income tax software The total that you pay for farmwork (cash and noncash) to all of your employees is $2,500 or more during the year. Free income tax software Exceptions. Free income tax software   The $150 and $2,500 tests do not apply to wages that you pay to a farmworker who receives less than $150 in annual cash wages and the wages are not subject to social security and Medicare taxes even if you pay $2,500 or more in that year to all of your farmworkers if the farmworker: Is employed in agriculture as a hand-harvest laborer, Is paid piece rates in an operation that is usually paid on a piece-rate basis in the region of employment, Commutes daily from his or her home to the farm, and Had been employed in agriculture less than 13 weeks in the preceding calendar year. Free income tax software   Amounts that you pay to these seasonal farmworkers, however, count toward the $2,500-or-more test to determine whether wages that you pay to other farmworkers are subject to social security and Medicare taxes. Free income tax software 7. Free income tax software How To Figure Social Security and Medicare Taxes The tax rate for social security is 6. Free income tax software 2% (amount withheld) each for the employer and employee (12. Free income tax software 4% total). Free income tax software The social security wage base limit is $117,000. Free income tax software The tax rate for Medicare is 1. Free income tax software 45% (amount withheld) each for the employee and employer (2. Free income tax software 9% total). Free income tax software There is no wage base limit for Medicare tax; all covered wages are subject to Medicare tax. Free income tax software Multiply each wage payment by these percentages to figure the tax to withhold from employees. Free income tax software Employers report both the employee and employer shares on Forms 941-SS, 944, or Form 943 (farm employment). Free income tax software See section 5 for information on tips. Free income tax software Additional Medicare Tax withholding. Free income tax software   In addition to withholding Medicare tax at 1. Free income tax software 45%, you must withhold a 0. Free income tax software 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Free income tax software You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. Free income tax software Additional Medicare Tax is only imposed on the employee. Free income tax software There is no employer share of Additional Medicare Tax. Free income tax software All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. Free income tax software   For more information on what wages are subject to Medicare tax, see the chart Special Rules for Various Types of Employment and Payments in section 12. Free income tax software For more information on Additional Medicare Tax, visit IRS. Free income tax software gov and enter “Additional Medicare Tax” in the search box. Free income tax software Deducting the tax. Free income tax software   Deduct the employee tax from each wage payment. Free income tax software If you are not sure that the wages that you pay to a farmworker during the year will be taxable, you may either deduct the tax when you make the payments or wait until the $2,500 test or the $150 test explained in section 6 has been met. Free income tax software Employee's portion of taxes paid by employer. Free income tax software   If you pay your employee's social security and Medicare taxes without deducting them from the employee's pay, you must include the amount of the payments in the employee's wages for social security and Medicare taxes. Free income tax software This increase in the employee's wage payment for your payment of the employee's social security and Medicare taxes is also subject to employee social security and Medicare taxes. Free income tax software This again increases the amount of the additional taxes that you must pay. Free income tax software Household and agricultural employers. Free income tax software   This discussion does not apply to household and agricultural employers. Free income tax software If you pay a household or agricultural employee's social security and Medicare taxes, these payments must be included in the employee's wages. Free income tax software However, this wage increase due to the tax payments is not subject to social security or Medicare taxes as discussed in this section. Free income tax software See Publication 15-A for details. Free income tax software Sick pay payments. Free income tax software   Social security and Medicare taxes apply to most payments of sick pay, including payments made by third parties such as insurance companies. Free income tax software For details on third-party payers of sick pay, see Publication 15-A. Free income tax software 8. Free income tax software Depositing Taxes You must deposit social security and Medicare taxes if your tax liability (Form 941-SS, line 10; Form 944, line 7; or Form 943, line 11) is $2,500 or more for the tax return period. Free income tax software You must make the deposit by electronic funds transfer. Free income tax software For more information about electronic funds transfers, see How To Deposit , later in this section. Free income tax software Payment with Return $2,500 rule. Free income tax software   Instead of making deposits during the current quarter, you can pay your total Form 941-SS tax liability when you timely file Form 941-SS if: Your total Form 941-SS tax liability for either the current quarter or the preceding quarter is less than $2,500 and You do not incur a $100,000 next-day deposit obligation during the current quarter. Free income tax software   If you are not sure your total liability for the current quarter will be less than $2,500, (and your liability for the preceding quarter was not less than $2,500), make deposits using the semiweekly or monthly rules so you won't be subject to failure to deposit penalties. Free income tax software Employers who have been notified to file Form 944 can pay their tax liability due for the fourth quarter with Form 944, if their fourth quarter tax liability is less than $2,500. Free income tax software Employers must have deposited any tax liability due for the first, second, and third quarters, according to the deposit rules, in order to avoid failure-to-deposit penalties for deposits due during those quarters. Free income tax software Only monthly schedule depositors are allowed to make an Accuracy of Deposits Rule payment with the return. Free income tax software Semiweekly schedule depositors must timely deposit the amount. Free income tax software See Accuracy of Deposits Rule and How To Deposit, later in this section. Free income tax software When To Deposit Under the rules discussed below, the only difference between farm and nonfarm workers' employment tax deposit rules is the lookback period. Free income tax software Therefore, farm and nonfarm workers are discussed together except where noted. Free income tax software Depending on your total taxes reported during a lookback period (discussed later), you are either a monthly schedule depositor or a semiweekly schedule depositor. Free income tax software The terms “monthly schedule depositor” and “semiweekly schedule depositor” do not refer to how often you pay your employees or how often you are required to make deposits. Free income tax software The terms identify which set of rules that you must follow when a tax liability arises (for example, when you have a payday). Free income tax software You will need to determine your deposit schedule for a calendar year based on the total employment taxes reported on Forms 941-SS, line 10; Form 944, line 7; or Form 943, line 9, for your lookback period (defined below). Free income tax software If you filed both Forms 941-SS and 941 during the lookback period, combine the tax liabilities for these returns for purposes of determining your deposit schedule. Free income tax software Determine your deposit schedule for Form 943 separately from Forms 941-SS and 941. Free income tax software Lookback period for employers of nonfarm workers. Free income tax software   The lookback period for Form 941-SS (or Form 941) consists of four quarters beginning July 1 of the second preceding year and ending June 30 of the prior year. Free income tax software These four quarters are your lookback period even if you did not report any taxes for any of the quarters. Free income tax software For 2014, the lookback period is July 1, 2012, through June 30, 2013. Free income tax software    Table 1. Free income tax software Lookback Period for Calendar Year 2014 Lookback Period July 1, 2012 Oct. Free income tax software 1, 2012 Jan. Free income tax software 1, 2013 Apr. Free income tax software 1, 2013 through through through through Sep. Free income tax software 30, 2012 Dec. Free income tax software 31, 2012 Mar. Free income tax software 31, 2013 June 30, 2013    The lookback period for Form 944 is the second calendar year preceding the current calendar year. Free income tax software For example, the lookback period for calendar year 2014 is calendar year 2012. Free income tax software In addition, for employers who filed Form 944 for 2012 or for 2013 and will file Form 941-SS (or Form 941) for 2014, the lookback period for 2014 is the second calendar year preceding the current calendar year, that is, 2012. Free income tax software Lookback period for employers of farmworkers. Free income tax software   The lookback period for Form 943 is the second calendar year preceding the current calendar year. Free income tax software The lookback period for calendar year 2014 is calendar year 2012. Free income tax software Adjustments to lookback period taxes. Free income tax software   To determine your taxes for the lookback period, use only the tax that you reported on the original returns (Forms 941-SS, 943, or 944). Free income tax software Do not include any adjustments shown on Form 941-X, 943-X, or 944-X. Free income tax software Example. Free income tax software   An employer originally reported total taxes of $45,000 for the lookback period. Free income tax software The employer discovered during January 2014 that the tax reported during the lookback period was understated by $10,000 and corrected this error by filing Form 941-X. Free income tax software The employer is a monthly schedule depositor for 2014 because the lookback period tax liabilities are based on the amounts originally reported, and they were $50,000 or less. Free income tax software Deposit Period The term “deposit period” refers to the period during which tax liabilities are accumulated for each required deposit due date. Free income tax software For monthly schedule depositors, the deposit period is a calendar month. Free income tax software The deposit periods for semiweekly schedule depositors are Wednesday through Friday and Saturday through Tuesday. Free income tax software Monthly Deposit Schedule If your total tax reported for the lookback period is $50,000 or less, you are a monthly schedule depositor for the current year. Free income tax software You must deposit taxes on wage payments made during a calendar month by the 15th day of the following month. Free income tax software New employers. Free income tax software   Your tax liability for any quarter in the lookback period before the date you started or acquired your business is considered to be zero. Free income tax software Therefore, you are a monthly schedule depositor for the first calendar year of your business (but see the $100,000 Next-Day Deposit Rule , later in this section). Free income tax software Semiweekly Deposit Schedule If your total tax reported for the lookback period is more than $50,000, you are a semiweekly schedule depositor for the current year. Free income tax software If you are a semiweekly schedule depositor, you must deposit on Wednesday and/or Friday, depending on what day of the week that you make wage payments, as follows. Free income tax software Deposit taxes on wage payments made on Wednesday, Thursday, and/or Friday by the following Wednesday. Free income tax software Deposit taxes on wage payments made on Saturday, Sunday, Monday, and/or Tuesday by the following Friday. Free income tax software Semiweekly depositors are generally not required to deposit twice a week if their payments were in the same semiweekly period unless the $100,000 Next-Day Deposit Rule , discussed later in this section, applies. Free income tax software For example, if you made a payment on both Wednesday and Friday and incurred taxes of $10,000 for each pay date, deposit the $20,000 on the following Wednesday. Free income tax software If you made no additional payments on Saturday through Tuesday, no deposit is due on Friday. Free income tax software Semiweekly deposit period spanning two quarters. Free income tax software   If you have more than one pay date during a semiweekly period and the pay dates fall in different calendar quarters, you will need to make separate deposits for the separate liabilities. Free income tax software Example. Free income tax software   If you have a pay date on Monday, March 31, 2014 (first quarter), and another pay date on Tuesday, April 1, 2014 (second quarter), two separate deposits will be required even though the pay dates fall within the same semiweekly period. Free income tax software Both deposits will be due on Friday, April 4, 2014 (3 business days from the end of the semiweekly deposit period). Free income tax software Examples of Monthly and Semiweekly Schedules Employers of nonfarm workers. Free income tax software   Rose Co. Free income tax software reported Form 941-SS taxes as follows: 2013 Lookback Period 3rd Quarter 2011 $12,000 4th Quarter 2011 12,000 1st Quarter 2012 12,000 2nd Quarter 2012 12,000   $48,000 2014 Lookback Period 3rd Quarter 2012 $12,000 4th Quarter 2012 12,000 1st Quarter 2013 12,000 2nd Quarter 2013 15,000   $51,000 Rose Co. Free income tax software is a monthly schedule depositor for 2013 because its taxes for the four quarters in its lookback period ($48,000 for the 3rd quarter of 2011 through the 2nd quarter of 2012) were not more than $50,000. Free income tax software However, for 2014, Rose Co. Free income tax software is a semiweekly schedule depositor because the total taxes for the four quarters in its lookback period ($51,000 for the 3rd quarter of 2012 through the 2nd quarter of 2013) exceeded $50,000. Free income tax software Employers of farmworkers. Free income tax software   Red Co. Free income tax software reported taxes on its 2012 Form 943, line 9, of $48,000. Free income tax software On its 2013 Form 943, line 11, it reported taxes of $60,000. Free income tax software   Red Co. Free income tax software is a monthly schedule depositor for 2014 because its taxes for its lookback period ($48,000 for calendar year 2012) were not more than $50,000. Free income tax software However, for 2015, Red Co. Free income tax software is a semiweekly schedule depositor because the total taxes for its lookback period ($60,000 for calendar year 2013) exceeded $50,000. Free income tax software New agricultural employers. Free income tax software   New agricultural employers filing Form 943 are monthly schedule depositors for the first and second calendar years of their business because their taxes for the lookback period (2 years) are considered to be zero. Free income tax software However, see the $100,000 Next-Day Deposit Rule , later in this section. Free income tax software Deposits on Business Days Only If a deposit due date falls on a day that is not a business day, the deposit is considered timely if it is made by the close of the next business day. Free income tax software A business day is any day other than a Saturday, Sunday, or legal holiday. Free income tax software For example, if a deposit is required to be made on Friday, but Friday is a legal holiday, the deposit is considered timely if it is made by the following Monday (if Monday is a business day). Free income tax software Semiweekly schedule depositors have at least 3 business days to make a deposit. Free income tax software If any of the 3 weekdays after the end of a semiweekly period is a legal holiday, you will have an additional day for each day that is a legal holiday to make the required deposit. Free income tax software For example, if a semiweekly schedule depositor accumulated taxes for payments made on Friday and the following Monday is a legal holiday, the deposit normally due on Wednesday may be made on Thursday (this allows 3 business days to make the deposit). Free income tax software Legal holiday. Free income tax software   The term “legal holiday” means any legal holiday in the District of Columbia. Free income tax software Legal holidays for 2014 are listed below. Free income tax software January 1—New Year's Day January 20—Birthday of Martin Luther King, Jr. Free income tax software February 17—Washington's Birthday April 16—District of Columbia Emancipation Day May 26—Memorial Day July 4—Independence Day September 1—Labor Day October 13—Columbus Day November 11—Veterans Day November 27—Thanksgiving Day December 25—Christmas Day Application of Monthly and Semiweekly Schedules The following examples illustrate the procedure for determining the deposit date under the two different deposit schedules. Free income tax software Monthly schedule example. Free income tax software   Spruce Co. Free income tax software is a monthly schedule depositor with seasonal employees. Free income tax software It paid wages each Friday during August but did not pay any wages during September. Free income tax software Under the monthly deposit schedule, Spruce Co. Free income tax software must deposit the combined tax liabilities for the four August paydays by September 15. Free income tax software Spruce Co. Free income tax software does not have a deposit requirement for September (due by October 15) because no wages were paid and, therefore, it did not have a tax liability for September. Free income tax software Semiweekly schedule example. Free income tax software   Green, Inc. Free income tax software is a semiweekly schedule depositor and pays wages once each month on the last Friday of the month. Free income tax software Although Green, Inc. Free income tax software , has a semiweekly deposit schedule, it will deposit just once a month because it pays wages only once a month. Free income tax software The deposit, however, will be made under the semiweekly deposit schedule as follows: Green, Inc. Free income tax software ’s tax liability for the April 25, 2014 (Friday), payday must be deposited by April 30, 2014 (Wednesday). Free income tax software Under the semiweekly deposit schedule, liabilities for wages paid on Wednesday through Friday must be deposited by the following Wednesday. Free income tax software $100,000 Next-Day Deposit Rule If you accumulate taxes of $100,000 or more on any day during a deposit period, you must deposit by the close of the next business day, whether you are a monthly or a semiweekly schedule depositor. Free income tax software For purposes of the $100,000 rule, do not continue accumulating taxes after the end of a deposit period. Free income tax software For example, if a semiweekly schedule depositor has accumulated taxes of $95,000 on Tuesday and $10,000 on Wednesday, the $100,000 next-day deposit rule does not apply because the $10,000 is accumulated in the next deposit period. Free income tax software Thus, $95,000 must be deposited by Friday and $10,000 must be deposited by the following Wednesday. Free income tax software However, once you accumulate at least $100,000 in a deposit period, stop accumulating at the end of that day and begin to accumulate anew on the next day. Free income tax software For example, Fir Co. Free income tax software is a semiweekly schedule depositor. Free income tax software On Monday, Fir Co. Free income tax software accumulates taxes of $110,000 and must deposit on Tuesday, the next business day. Free income tax software On Tuesday, Fir Co. Free income tax software accumulates additional taxes of $30,000. Free income tax software Because the $30,000 is not added to the previous $110,000 and is less than $100,000, Fir Co. Free income tax software does not have to deposit the $30,000 until Friday (following the semiweekly deposit schedule). Free income tax software If you are a monthly schedule depositor and you accumulate a $100,000 tax liability on any day during a month, you become a semiweekly schedule depositor on the next day and remain so for the remainder of the calendar year and for the following calendar year. Free income tax software Example. Free income tax software   Elm, Inc. Free income tax software started its business on May 1, 2014. Free income tax software On May 8, it paid wages for the first time and accumulated a tax liability of $40,000. Free income tax software On Friday, May 9, Elm, Inc. Free income tax software paid wages and accumulated a liability of $60,000, making its accumulated Form 941-SS tax liability total $100,000. Free income tax software Elm, Inc. Free income tax software must deposit $100,000 by Monday, May 12, the next business day. Free income tax software Because this was the first year of its business, the tax liability for its lookback period is considered to be zero, and it would be a monthly schedule depositor based on the lookback rules. Free income tax software However, because Elm, Inc. Free income tax software accumulated $100,000 on May 9, it became a semiweekly schedule depositor on May 10. Free income tax software It will be a semiweekly schedule depositor for the remainder of 2014 and for 2015. Free income tax software Accuracy of Deposits Rule You are required to deposit 100% of your tax liability on or before the deposit due date. Free income tax software However, penalties will not be applied for depositing less than 100% if both of the following conditions are met. Free income tax software Any deposit shortfall does not exceed the greater of $100 or 2% of the amount of taxes otherwise required to be deposited, and The deposit shortfall is paid or deposited by the shortfall makeup date as described below. Free income tax software Makeup date for deposit shortfall: Monthly schedule depositor. Free income tax software Deposit or pay the shortfall by the due date of your Form 941-SS, 944, or 943 for the period in which the shortfall occurred. Free income tax software You may pay the shortfall with your return even if the amount is $2,500 or more. Free income tax software Semiweekly schedule depositor. Free income tax software Deposit by the earlier of: The first Wednesday or Friday (whichever comes first) that comes on or after the 15th of the month following the month in which the shortfall occurred, or The return due date for the period in which the shortfall occurred. Free income tax software For example, if a semiweekly schedule depositor filing Form 941-SS has a deposit shortfall during July 2014, the shortfall makeup date is August 15, 2014 (Friday). Free income tax software However, if the shortfall occurred on the required April 2 (Wednesday), deposit date for a March 28 (Friday) pay date, the return due date for the March 28 pay date (April 30) would come before the May 16 (Friday) shortfall makeup date. Free income tax software In this case, the shortfall must be deposited by April 30, 2014. Free income tax software Employers of Both Farm and Nonfarm Workers If you employ both farm and nonfarm workers, you must treat employment taxes for the farmworkers (Form 943 taxes) separately from employment taxes for the nonfarm workers (Form 941-SS or 944 taxes). Free income tax software Form 943 taxes and Form 941-SS (or Form 944) taxes are not combined for purposes of applying any of the deposit rules. Free income tax software If a deposit is due, deposit the Form 941-SS (or Form 944) taxes and Form 943 taxes separately, as discussed next. Free income tax software How To Deposit You must deposit employment taxes by electronic funds transfer. Free income tax software See Payment with Return , earlier in this section, for exceptions explaining when taxes may be paid with the tax return instead of being deposited. Free income tax software Electronic deposit requirement. Free income tax software   You must use electronic funds transfer to make all federal tax deposits (such as deposits of employment tax, excise tax, and corporate income tax). Free income tax software Generally, electronic fund transfers are made using the Electronic Federal Tax Payment System (EFTPS). Free income tax software If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. Free income tax software   EFTPS is a free service provided by the Department of the Treasury. Free income tax software To get more information or to enroll in EFTPS, call 1-800-555-4477 (U. Free income tax software S. Free income tax software Virgin Islands only) or 303-967-5916 (toll call). Free income tax software You can also visit the EFTPS website at www. Free income tax software eftps. Free income tax software gov. Free income tax software Additional information about EFTPS is also available in Publication 966. Free income tax software When you receive your EIN. Free income tax software   If you are a new employer that indicated a federal tax obligation when requesting an EIN, you will be pre-enrolled in EFTPS. Free income tax software You will receive information about Express Enrollment in your Employer Identification Number (EIN) Package and an additional mailing containing your EFTPS personal identification number (PIN) and instructions for activating your PIN. Free income tax software Follow the steps in your “How to Activate Your Enrollment” brochure to activate your enrollment and begin making your payroll tax deposits. Free income tax software If you outsource any of your payroll and related tax duties to a third party payer, such as a payroll service provider or reporting agent, be sure to tell them about your EFTPS enrollment. Free income tax software Deposit record. Free income tax software   For your records, an Electronic Funds Transfer (EFT) Trace Number will be provided with each successful payment. Free income tax software The number can be used as a receipt or to trace the payment. Free income tax software Depositing on time. Free income tax software   For deposits made by EFTPS to be on time, you must initiate the deposit by 8 p. Free income tax software m. Free income tax software Eastern time the day before the date the deposit is due. Free income tax software If you use a third party to make deposits on your behalf, they may have different cutoff times. Free income tax software Same-day payment option. Free income tax software   If you fail to initiate a deposit transaction on EFTPS by 8 p. Free income tax software m. Free income tax software Eastern time the day before the date a deposit is due, you can still make your deposit on time by using the Federal Tax Application (FTA). Free income tax software To use the same-day payment method, you will need to make arrangements with your financial institution ahead of time. Free income tax software Please check with your financial institution regarding availability, deadlines, and costs. Free income tax software Your financial institution may charge you a fee for payments made this way. Free income tax software To learn more about the information you will need to provide your financial institution to make a same-day wire payment, please visit www. Free income tax software eftps. Free income tax software gov to download the Same-Day Payment Worksheet. Free income tax software How to claim credit for overpayments. Free income tax software   If you deposited more than the right amount of taxes for a tax period, you can choose on Form 941-SS, 941, 944, or 943 for that tax period to have the overpayment refunded or applied as a credit to your next return. Free income tax software Do not ask EFTPS to request a refund from the IRS for you. Free income tax software Deposit Penalties Penalties may apply if you do not make required deposits on time or if you make deposits of less than the required amount. Free income tax software The penalties do not apply if any failure to make a proper and timely deposit was due to reasonable cause and not to willful neglect. Free income tax software The IRS may also waive penalties if you inadvertently fail to deposit in the first quarter that a deposit is due, or the first quarter during which your frequency of deposits changed, if you timely filed your employment tax return. Free income tax software For amounts not properly or timely deposited, the penalty rates are as follows. Free income tax software 2% - Deposits made 1 to 5 days late. Free income tax software 5% - Deposits made 6 to 15 days late. Free income tax software 10% - Deposits made 16 or more days late. Free income tax software Also applies to amounts paid within 10 days of the date of the first notice that the IRS sent asking for the tax due. Free income tax software 10% - Amounts (that should have been deposited) paid directly to the IRS or paid with your tax return (but see Payment with Return , earlier in this section, for exceptions). Free income tax software 15% - Amounts still unpaid more than 10 days after the date of the first notice that the IRS sent asking for the tax due or the day on which you received notice and demand for immediate payment, whichever is earlier. Free income tax software Late deposit penalty amounts are determined using calendar days, starting from the due date of the liability. Free income tax software Special rule for former Form 944 filers. Free income tax software    If you filed Form 944 for the prior year and must file Forms 941-SS for the current year because your employment tax liability for the prior year exceeded the Form 944 eligibility requirement ($1,000 or less), the failure-to-deposit penalty will not apply to a late deposit of employment taxes for the first month of the current year if the taxes are deposited in full by March 15 of the current year. Free income tax software Order in which deposits are applied. Free income tax software   Deposits generally are applied to the most recent tax liability within the return period (quarter or year). Free income tax software However, if you receive a failure-to-deposit penalty notice, you may designate how your payment is to be applied in order to minimize the amount of the penalty, if you do so within 90 days of the date of the notice. Free income tax software Follow the instructions on the penalty notice that you received. Free income tax software For more information on designating deposits, see Revenue Procedure 2001-58. Free income tax software You can find Revenue Procedure 2001-58 on page 579 of Internal Revenue Bulletin 2001-50 at www. Free income tax software irs. Free income tax software gov/pub/irs-irbs/irb01-50. Free income tax software pdf. Free income tax software Example. Free income tax software Cedar, Inc. Free income tax software is required to make a deposit of $1,000 on July 15 and $1,500 on August 15. Free income tax software It does not make the deposit on July 15. Free income tax software On August 15, Cedar, Inc. Free income tax software deposits $2,000. Free income tax software Under the deposits rule, which applies deposits to the most recent tax liability, $1,500 of the deposit is applied to the August 15 deposit and the remaining $500 is applied to the July deposit. Free income tax software Accordingly, $500 of the July 15 liability remains undeposited. Free income tax software The penalty on this underdeposit will apply as explained earlier. Free income tax software Trust fund recovery penalty. Free income tax software   If federal income, social security, or Medicare taxes that must be withheld are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. Free income tax software The penalty is the full amount of the unpaid trust fund tax. Free income tax software This penalty may apply to you if these unpaid taxes cannot be immediately collected from the employer or business. Free income tax software   The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so. Free income tax software   A responsible person can be an officer or employee of a corporation, a partner or employee of a partnership, an accountant, a volunteer director/trustee, or an employee of a sole proprietorship, or any other person or entity that is responsible for collecting, accounting for, and paying over trust fund taxes. Free income tax software A responsible person also may include one who signs checks for the business or otherwise has authority to cause the spending of business funds. Free income tax software    Willfully means voluntarily, consciously, and intentionally. Free income tax software A responsible person acts willfully if the person knows the required actions of collecting, accounting for or paying over trust fund taxes are not taking place, or recklessly disregards obvious and known risks to the government's right to receive trust fund taxes. Free income tax software “Averaged” failure-to-deposit penalty. Free income tax software   The IRS may assess an “averaged” failure-to-deposit (FTD) penalty of 2% to 10% if you are a monthly schedule depositor and did not properly complete Form 941-SS, line 14, when your tax liability shown on Form 941-SS, line 10, was $2,500 or more. Free income tax software IRS may also assess this penalty of 2% to 10% if you are a semiweekly schedule depositor and your tax liability shown on Form 941-SS, line 10, was $2,500 or more and you did any of the following. Free income tax software Completed Form 941-SS, line 14, instead of Schedule B (Form 941). Free income tax software Failed to attach a properly completed Schedule B (Form 941). Free income tax software Completed Schedule B (Form 941) incorrectly, for example, by entering tax deposits instead of tax liabilities in the numbered spaces. Free income tax software   The IRS figures the penalty by allocating your total tax liability shown on Form 941-SS, line 10, equally throughout the tax period. Free income tax software Your deposits and payments may not be counted as timely because IRS does not know the actual dates of your tax liabilities. Free income tax software   You can avoid the penalty by reviewing your return before filing it. Free income tax software Follow these steps before filing your Form 941-SS. Free income tax software If you are a monthly schedule depositor, report your tax liabilities (not your deposits) in the monthly entry spaces on Form 941-SS, line 14. Free income tax software If you are a semiweekly schedule depositor, report your tax liabilities (not your deposits) on Schedule B (Form 941) in the lines that represent the dates you paid your employees. Free income tax software Verify that your total liability shown on Form 941-SS, line 14, or the bottom of Schedule B (Form 941) equals your tax liability shown on Form 941-SS,  line 10. Free income tax software Do not show negative amounts on Form 941-SS, line 14, or Schedule B (Form 941). Free income tax software For prior period errors, do not adjust your tax liabilities reported on your current Form 941-SS, line 14, or on Schedule B (Form 941). Free income tax software Instead, file an adjusted return (Form 941-X (if you are adjusting a previously filed Form 941-SS) or Form 944-X (if you are adjusting a previously filed Form 944-SS or 944)) if you are also adjusting your tax liability. Free income tax software If you are only adjusting your deposits in response to a failure-to-deposit penalty notice, see the Instructions for Schedule B (Form 941) (if you previously filed Form 941-SS) or the Instructions for Form 944-X (if you previously filed Form 944-SS or 944). Free income tax software If you filed Form 944 for 2013 and line 7 was $2,500 or more, you were required to complete Form 944, lines 13a–13m, or attach Form 945-A, Annual Record of Federal Tax Liability. Free income tax software If you failed to complete lines 13a–13m, or failed to attach Form 945-A, whichever was required, IRS may assess an “averaged” failure-to-deposit (FTD) penalty. Free income tax software 9. Free income tax software Employer's Returns General instructions. Free income tax software   File Forms 941-SS (or Form 944) for nonfarm workers and Form 943 for farmworkers. Free income tax software (U. Free income tax software S. Free income tax software Virgin Islands employers may be required to file Form 940 for the combined wages of nonfarm workers and farmworkers. Free income tax software ) Employers with employees subject to U. Free income tax software S. Free income tax software income tax withholding. Free income tax software   If you have both employees who are subject to U. Free income tax software S. Free income tax software income tax withholding and employees who are not subject to U. Free income tax software S. Free income tax software income tax withholding, you must file only Form 941 (or Form 944) and include all your employees’ wages on that form. Free income tax software Nonfarm employers. Free income tax software   File Form 941-SS for the calendar quarter in which you first pay wages for nonfarm workers and for each quarter thereafter unless you are a seasonal employer or file a final return. Free income tax software Due dates for each quarter of the calendar year are as follows. Free income tax software Quarter Due Jan. Free income tax software , Feb. Free income tax software , Mar. Free income tax software Apr. Free income tax software 30 Apr. Free income tax software , May, June July 31 July, Aug. Free income tax software , Sept. Free income tax software Oct. Free income tax software 31 Oct. Free income tax software , Nov. Free income tax software , Dec. Free income tax software Jan. Free income tax software 31   However, if you deposited all taxes when due for the quarter, you have 10 additional days from the due dates to file the return. Free income tax software If the due date for filing your return falls on a Saturday, Sunday, or legal holiday, you may file on the next business day. Free income tax software   If you closed your business or stopped paying wages and do not have to file returns in the future, check the box on line 15 of your final Form 941-SS and show the date final wages were paid. Free income tax software Form 944. Free income tax software   If IRS notified you to file Form 944, file your 2013 Form 944 by January 31, 2014, or by February 10, 2014 (if you deposited all taxes when due). Free income tax software Household employers reporting social security and Medicare taxes. Free income tax software   If you are a sole proprietor and file Forms 941-SS (or Form 944) for business employees, you may include taxes for household employees on your Forms 941-SS (or Form 944). Free income tax software Otherwise, report social security and Medicare taxes for household employees on Schedule H (Form 1040), Household Employment Taxes. Free income tax software See Publication 926, Household Employer's Tax Guide, for more information. Free income tax software Employers of farmworkers. Free income tax software   Every employer of farmworkers must file a Form 943 for each calendar year beginning with the first year the employer pays $2,500 or more for farmwork or employs a farmworker who meets the $150 test described in section 6. Free income tax software   File a Form 943 each year for all taxable wages paid for farmwork. Free income tax software You may report household workers in a private home on a farm operated for profit on Form 943. Free income tax software Do not report wages for farmworkers on Form 941-SS or 944. Free income tax software   Send Form 943 to the IRS by January 31 of the following year. Free income tax software Send it with payment of any taxes due that you are not required to deposit. Free income tax software If you deposited all taxes when due, you have 10 additional days to file. Free income tax software Penalties. Free income tax software   For each whole or part month that a return is not filed when required (disregarding any extensions of the filing deadline), there is a failure-to-file penalty of 5% of the unpaid tax due with that return. Free income tax software The maximum penalty is generally 25% of the tax due. Free income tax software Also, for each whole or part month that the tax is paid late (disregarding any extensions of the payment deadline), there is a failure-to-pay penalty of 0. Free income tax software 5% per month of the amount of tax. Free income tax software For individual filers only, the failure-to-pay penalty is reduced from 0. Free income tax software 5% per month to 0. Free income tax software 25% per month if an installment agreement is in effect. Free income tax software You must have filed your return on or before the due date of the return to qualify for the reduced penalty. Free income tax software The maximum amount of the failure-to-pay penalty is also 25% of the tax due. Free income tax software If both penalties apply in any month, the failure-to-file penalty is reduced by the amount of the failure-to-pay penalty. Free income tax software The penalties will not be charged if you have a reasonable cause for failing to file or pay. Free income tax software If you receive a penalty notice, you can provide an explanation of why you believe reasonable cause exists. Free income tax software Reporting Adjustments to Form 941-SS, 944-SS, 944, or 943 Current Period Adjustments Make current period adjustments for fractions of cents, sick pay, tips, and group-term life insurance on your Form 941-SS, 944, or 943. Free income tax software See the Instructions for Form 941-SS, Instructions for Form 944, or Instructions for Form 943 for information on how to report these adjustments. Free income tax software Prior Period Adjustments Forms for prior period adjustments. Free income tax software   Use Form 941-X or Form 944-X to make a correction after you discover an error on a previously filed Form 941 or Form 944. Free income tax software There are also Forms 943-X, 945-X, and CT-1X to report corrections on the corresponding returns. Free income tax software Form 941-X and Form 944-X also replace Form 843, Claim for Refund and Request for Abatement, for employers to request a refund or abatement of overreported employment taxes. Free income tax software Continue to use Form 843 when requesting a refund or abatement of assessed interest or penalties. Free income tax software See Revenue Ruling 2009-39, 2009-52 I. Free income tax software R. Free income tax software B. Free income tax software 951, for examples of how the interest-free adjustment and claim for refund rules apply in 10 different situations. Free income tax software You can find Revenue Ruling 2009-39, at www. Free income tax software irs. Free income tax software gov/irb/2009-52_IRB/ar14. Free income tax software html. Free income tax software Background. Free income tax software   Treasury Decision 9405 changed the process for making interest-free adjustments to employment taxes reported on Forms 941-SS, 943, 944-SS, and 944, and for filing a claim for refund of employment taxes. Free income tax software Treasury Decision 9405, 2008-32 I. Free income tax software R. Free income tax software B. Free income tax software 293, is available at www. Free income tax software irs. Free income tax software gov/irb/2008-32_IRB/ar13. Free income tax software html. Free income tax software You will use the adjustment process if you underreported employment taxes and are making a payment, or if you overreported employment taxes and will be applying the credit to the Form 941-SS, 943, or 944 period during which you file Forms 941-X, 943-X, or 944-X, respectively. Free income tax software You will use the claim process if you overreported employment taxes and are requesting a refund or abatement of the overreported amount. Free income tax software We use the terms “correct” and “corrections” to include interest-free adjustments under sections 6205 and 6413, and claims for refund and abatement under sections 6402, 6414, and 6404 of the Internal Revenue Code. Free income tax software Correcting employment taxes. Free income tax software   When you discover an error on a previously filed Form 941-SS, 943, 944-SS, or 944, you must: Correct that error using Form 941-X, Form 943-X, or Form 944-X, File a separate Form 941-X, Form 943-X, or Form 944-X for