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Income Tax Filing Online

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Income Tax Filing Online

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

a. General Guidance

b. PTIN Scenarios

c. Supervised, Non-Signing, and Non-1040 Preparers

d. SSN Requirements for Obtaining a PTIN


a. General Guidance


1. Who needs a Preparer Tax Identification Number (PTIN)? (revised 2/22/12)

A PTIN must be obtained by all enrolled agents, as well as all tax return preparers who are compensated for preparing, or assisting in the preparation of, all or substantially all of any U.S. federal tax return, claim for refund, or other tax form submitted to the IRS except the following:

Form SS-4, Application for Employer Identification Number;
Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding;
Form SS-16, Certificate of Election of Coverage under FICA;
Form W-2 series of returns;
Form W-7, Application for IRS Individual Taxpayer Identification Number;
Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding;
Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment;
Form 872, Consent to Extend the Time to Assess Tax;
Form 906, Closing Agreement On Final Determination Covering Specific Matters;
Form 1098 series;
Form 1099 series;
Form 2848, Power of Attorney and Declaration of Representative;
Form 3115, Application for Change in Accounting Method;
Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits;
Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners;
Form 4419, Application for Filing Information Returns Electronically;
Form 5300, Application for Determination for Employee Benefit Plan;
Form 5307, Application for Determination for Adopters of Master or Prototype or Volume Submitter Plans;
Form 5310, Application for Determination for Terminating Plan;
Form 5500 series;
Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips;
Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests;
Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests;
Form 8508, Request for Waiver From Filing Information Returns Electronically;
Form 8717, User Fee for Employee Plan Determination, Opinion, and Advisory Letter Request;
Form 8809, Application for Extension of Time to File Information Return;
Form 8821, Tax Information Authorization;
Form 8942, Application for Certification of Qualified Investments Eligible for Credits and Grants Under the Qualifying Therapeutic Discovery Project Program

Refer to the scenarios for additional guidance.

2. Are individuals who are active attorneys and certified public accountants required to obtain a PTIN if they do not prepare all or substantially all of any tax return? (revised 2/22/12)

Attorneys and certified public accountants do not need to obtain a PTIN unless they prepare for compensation all or substantially all of a federal tax return or claim for refund.

3. Are enrolled retirement plan agents required to obtain a PTIN? (posted 11/4/11)

Enrolled Retirement Plan Agents are only required to obtain a PTIN if they prepare or assist in the preparation of all or substantially all of any tax return or claim for refund that is not on the list of forms exempt from the PTIN requirement. ERPAs that prepare only Form 5300 or 5500 series returns are not required to obtain a PTIN. See Notice 2011-91 for more information.

4. Can multiple individuals or one office share one PTIN? (revised 6/9/11)

No, every individual who, for compensation, prepares or assists in the preparation of a tax return or claim for refund must have his or her own PTIN and each tax return preparer may only obtain one PTIN.

5. If I don't have a PTIN, can I still prepare tax returns for compensation? (revised 10/10/13)

No. You must have a PTIN to prepare tax returns for compensation. 

6. Is there an age requirement for obtaining a PTIN? (posted 9/30/10)

Yes, applicants must be at least 18 years of age.

7. What penalties can be imposed against tax return preparers who don't have a current PTIN? (revised 2/22/12)

Failure to have a current PTIN could result in the imposition of Internal Revenue Code section 6695 penalties, injunction, and/or disciplinary action by the IRS Office of Professional Responsibility.

8. What is the difference between a PTIN and an EFIN? Does a preparer need both? (revised 2/22/12)

A Preparer Tax Identification Number (PTIN) is a number issued by the IRS to paid tax return preparers. It is used as the tax return preparer’s identification number and, when applicable, must be placed in the Paid Preparer section of a tax return that the tax return preparer prepared for compensation. There is an initial fee of $64.25 and an annual renewal fee of $63.00.

An Electronic Filing Identification Number (EFIN) is a number issued by the IRS to individuals or firms that have been approved as authorized IRS e-file providers.  It is included with all electronic return data transmitted to the IRS.  There is no fee for an EFIN.

Preparer Tax Identification Numbers are issued to individuals.  Electronic Filing Identification Numbers are issued to individuals or firms.  Most preparers need both.

9. If an employee of a business prepares the business’ tax returns as part of their job responsibilities, do they need to obtain a PTIN? (revised 9/28/10)

No. An employee who prepares his employer’s federal tax returns is not required to sign as a paid preparer. Accordingly, unless the employee prepares other federal tax returns for compensation, he or she is not required to register and obtain a PTIN.

10. Are e-file transmitters or intermediate service providers that do not prepare returns subject to the PTIN requirements? (revised 9/28/10)

No. E-file providers that assist in the formatting and transmission of tax returns electronically, but do not prepare all or substantially all of a federal tax return or claim for refund for compensation, are not required to obtain a PTIN.

11. Will the IRS share my PTIN application information with other people? (revised 4/19/12)

The law allows vendors and others to obtain the PTIN holder listing. PTIN holders are not allowed to opt out of the disclosure of their contact information because Freedom of Information Act (FOIA) laws make the information public. If you receive unwanted email solicitations due to this required disclosure, the Federal Trade Commission, Bureau of Consumer Protection can best advise you whether an email violates the CAN-SPAM Act of 2003 and how to report violations.

You should also review the PTIN application Privacy Policy.

In order to maintain privacy PTIN holders may want to review and/or update contact information


b. PTIN Scenarios


1. I am a tax return preparer, and I have a PTIN.  My firm employs a bookkeeper.  She gathers client receipts and invoices, and organizes and records all information for me.  Although I use the information that our bookkeeper has compiled, I prepare my clients’ tax returns and make all substantive determinations that go into computing the tax liability.  Does my bookkeeper need to have a PTIN? (posted 9/28/10)

No, she is not a tax return preparer, and is not required to have a PTIN.

2. I am a tax return preparer, and I have a PTIN.  Every tax filing season I hire two paid interns from the accounting program at a local college to help me during the busy season.  The interns perform data entry from the tax organizer that my clients fill out, and assemble the documentation that the clients have submitted.  Where clients have submitted incomplete information, or more information is needed, the interns may call clients to gather information missing from the tax organizer, but they are not allowed to provide advice or answer tax law questions.  I prepare and sign all my clients’ returns.  Do my interns need to have a PTIN?  (posted 9/28/10)

No, the interns are not tax return preparers, and are not required to have a PTIN.

3. Same facts as above, but in order to help my interns get exposure to the tax system, I allow them to work with clients who have very simple tax situations, and prepare the Form 1040-EZ.  I review the forms carefully, and sign them.  Are my interns required to have PTINs? (posted 9/28/10)

Yes, the interns are tax return preparers and are required to have a PTIN, whether or not they sign the returns.

4. I am a tax return preparer, and I have a PTIN.  I have an administrative assistant in the office who also performs data entry during tax filing season.  At times, clients call and provide him with information, which he records in the system.  Using the data he has entered, I meet with my clients and provide advice as needed.   I then prepare and sign their returns.  Is my administrative assistant required to have a PTIN? posted 9/28/10)

No, the administrative assistant is not a tax return preparer, and is not required to have a PTIN.

5. I am a retired tax professional, and I volunteer during the tax filing season.  I volunteer at a VITA site, where I prepare individual tax returns for lower-income individuals for no compensation.  Do I need to have a PTIN? (revised 10/10/13)

No, you are not required to have a PTIN.

6. I run a small tax return preparation business that is heavily software-based.  I employ four associates who sit with taxpayers and walk through a step-by-step software program that uses an “interview” process that results in a draft tax return.  I check and sign the returns, and I have a PTIN.  Do my four associates need to have a PTIN? (posted 9/28/10)

You will need to perform additional analysis to determine whether your four associates must have a PTIN.  The answer depends on the specific circumstances of your firm.  In general, if individuals prepare, or assist in preparing, all or substantially all of a tax return, including making determinations that affect tax liability, they must have a PTIN.

7. I am a reporting agent who prepares Forms 94X series returns for my clients for compensation.  I do not exercise any discretion or independent judgment on my client's underlying tax positions and I do not render tax advice to any of my clients.  Do I need a PTIN?  (revised 1/3/11)

No.  The PTIN regulations incorporate the carve-out from the definition of tax return preparer in Treasury Regulation section 301.7701–15(f) for individuals who provide only typing, reproduction, or other mechanical assistance in the preparation of a return or claim for refund.  Example one under Treasury Regulation section 301.7701-15(f)(6) provides that reporting agents who do not exercise any discretion or independent judgment on the client's underlying tax positions and who do not render tax advice to any clients are carved-out under this exception and, therefore, are not tax return preparers.

8. I am a reporting agent who prepares Forms 94X series returns for my clients for compensation.  On occasion, my clients ask me for assistance with issues such as determining whether their workers are employees or independent contractors for federal tax purposes.  Do I need a PTIN? (revised 1/3/11)

Yes.  The PTIN regulations require all tax return preparers who are compensated for preparing, or assisting in the preparation of, all or substantially all of a tax return or claim for refund of tax to register and obtain a PTIN.  The carve-out from the definition of tax return preparer for individuals who provide only typing, reproduction, or other mechanical assistance in the preparation of a return or claim for refund does not apply to reporting agents who render tax advice to any client (example two under Treasury Regulation section 301.7701-15(f)(6)).

9. I am a retirement plan administrator who prepares Forms 5500 and the accompanying schedules for my clients. I also prepare Forms 8955-SSA and Form 5558 for my clients. While the Form 5500 series returns are included in the list of forms exempted from the PTIN requirements in Notice 2011-6, the Forms 8955-SSA and Forms 5558 are not included in that list. Am I required to obtain a PTIN? (posted 3/4/11)

No. The Form 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Participants, and Form 5558, Application for Extension of Time to File Certain Employee Plan Returns, are, for purposes of Notice 2011-6, part of the "Form 5500 series" of tax returns inasmuch as these forms are prepared either in conjunction with the filing of a retirement plan's Form 5500 filing or to request an extension of time to file a Form 5500 series tax return.

10. Is an attorney or a certified public accountant required to obtain a PTIN if the attorney or certified public accountant only advises a client regarding an issue that is reflected on a claim for refund? (posted 3/4/11)

An attorney or certified public accountant is required to obtain a PTIN if the attorney or certified public accountant prepares, or assists in preparing, all or substantially all of a return or claim for refund. Under the authority of section 1.6109-2(h), however, an attorney or certified public accountant will not be required to obtain a PTIN if the attorney or certified public accountant only advises a client regarding an issue that is reflected on a claim for refund and neither the attorney or certified public accountant nor any person in the firm of the attorney or certified public accountant signs or is required to sign the claim for refund under Treasury Regulation sections 301.7701-15(b)(1) and 1.6695-1(b). The attorney or certified public accountant in question is still a nonsigning tax return preparer subject to penalty under section 6694 if the attorney or certified public accountant has prepared all or a substantial portion of the claim for refund within the meaning of Treasury Regulation section 301.7701-15(b)(3).

11. Our company prepares Forms 2290 for our clients.  It is the only federal tax form we prepare.  Are our employees subject to any of the new regulations? (revised 2/7/13)

Yes, any individual who receives compensation for preparing Forms 2290 is required to register with the IRS and obtain a PTIN.

12. If someone only prepares or assists with preparing Form 1023 for compensation, should they obtain a PTIN? (posted 3/7/12)
 
Generally yes.  More information about PTIN requirements for preparers of exempt organization forms is available here


c. Supervised, Non-Signing, and Non-1040 Preparers


1.  What is a supervised preparer?  Do supervised preparers need a PTIN? (revised 2/7/13)

A supervised preparer is a non-signing preparer who is employed by a law firm, CPA firm or other recognized firm (a firm that is at least 80 percent owned by attorneys, CPAs, or enrolled agents).  The returns they prepare are signed by a supervising attorney, CPA or enrolled agent at the firm. 

A supervised preparer does need a PTIN and must provide their supervisor’s PTIN on their PTIN application or renewal.

Additional guidance on supervised preparers is available in Notice 2011-6 (or view the Fact Sheet).

2. I own a tax preparation business and I review and sign all the returns my employees prepare.  Do they need PTINs?  (revised 2/7/13)

Yes.  Anyone you hire to prepare tax returns needs a PTIN regardless of whether you review and sign the returns.

3. What are the requirements for people who prepare returns other than the Form 1040 series? (revised 2/7/13)

Non-1040 preparers generally need a PTIN.  For exemptions to the PTIN requirement, see FAQ 1 at the top of this page under General Guidance

4. When multiple paid preparers are involved in preparation and/or review of a return, who is required to sign the return?  (posted 8/11/10)

Existing Treasury regulations under sections 1.6695-1(b) and 301.7701-15(b)(1) provide that a signing tax return preparer is the individual tax return preparer who has the primary responsibility for the overall accuracy of the preparation of a return.  The PTIN requirements, which require all preparers to register and obtain a PTIN, do not change the existing rules regarding who is the signing tax return preparer.

5. Are non-signing preparers disclosed on each return prepared even if another preparer reviews and signs it? (revised 2/7/13)

No, the names of non-signing preparers are not disclosed on the return.  Although there is no plan to expand the paid preparer section of the return to include non-signing preparers, they still are required to have a PTIN.

6. If I don't prepare any Form 1040 returns but prepare returns that flow-through to Forms 1040 such as Schedules K-1 for Forms 1065 or 1120S, how do I answer the question, &quotDo you prepare Form 1040 series tax returns?&quot (posted 10/12/11)
 
You should answer &quotno&quot.


d. SSN Requirements for Obtaining a PTIN


1. Is a social security number required to obtain a PTIN? (revised 4/13/11)

Individuals generally are required to provide their social security numbers when they obtain a PTIN.  However, U.S. citizens who have a conscientious objection to obtaining a social security number for religious reasons and foreign persons who are not eligible to obtain a social security number and have a permanent non-U.S. address may obtain a PTIN without a social security number.  These individuals are required to provide supplemental documentation to verify their identity and substantiate their eligibility for a PTIN under these specific exceptions.  See questions 2 and 3 below or Revenue Procedure 2010-41 for additional guidance.

Individuals who have an Individual Taxpayer Identification Number (ITIN) are not eligible for a PTIN unless they are foreign persons with a permanent non-U.S. address, and can provide documentation to support that status.

2. How do U.S. citizens without a social security number due to a conscientious objection for religious reasons obtain a PTIN? (updated 3/21/14)

U.S. citizens who have a conscientious objection to obtaining a social security number for religious reasons must complete Form W-12, IRS Paid Preparer Tax Identification Number (PTIN) Application, either online or on paper, and a paper Form 8945, PTIN Supplemental Application For U.S. Citizens Without a Social Security Number Due To Conscientious Religious Objection.

Documentation to substantiate identity, U.S. citizenship, and status as a member of a recognized religious group must accompany the Form 8945.  Documentation requirements and mailing information are included in the Form 8945 instructions. Allow 4-6 weeks to process your PTIN application.

3. How do foreign preparers without a social security number obtain a PTIN? (updated 3/21/14)

A foreign preparer who does not have and is not eligible to obtain a social security number and is neither a citizen of the U.S. nor a resident alien of the U.S. as defined in section 7701(b)(1)(A) will need to complete the Form W-12, IRS Paid Preparer Tax Identification Number (PTIN) Application, either online or on paper, and a paper Form 8946, PTIN Supplemental Application For Foreign Persons Without a Social Security Number. Only preparers that have a foreign (non-U.S.) address may file this form.

Individuals who have an Individual Taxpayer Identification Number (ITIN) are not eligible for a PTIN unless they are foreign persons with a permanent non-U.S. address.

Documentation to substantiate identity and eligibility must accompany the Form 8946. Documentation requirements and mailing information are included in the Form 8946 instructions.

Allow 4-6 weeks to process your PTIN application.  

4. I have a social security number, but have not filed an income tax return with the IRS. My individual income tax returns were filed with the Departamento de Hacienda (Puerto Rico). How do I obtain a PTIN? (updated 3/21/2014)

A Puerto Rican resident who has never filed a U.S. individual income tax return must submit a paper Form W-12 PTIN application. Ensure the address on Line 15 of the Form W-12 matches the information from your Hacienda tax return information. 

Include the following with your W-12 application:

  • Check or money order for $64.25 (make payable to IRS Tax Pro PTIN Fee)  
  • An original, certified, or notarized copy of your social security card along with one other government issued document that contains a current photo ID. Examples of acceptable supporting documents are listed below. All documents must be a current original, certified, or notarized and must verify your name. Refer to Form W-12 instructions for complete information regarding acceptable supporting documentation and application requirements.
    Examples of acceptable supporting documents:
    - Passport/Passport Card
    - Driver's License
    - U.S. State ID Card
    - Military ID Card
    - National ID card

Return to Return Preparer Program FAQs

Page Last Reviewed or Updated: 21-Mar-2014

The Income Tax Filing Online

Income tax filing online 1. Income tax filing online   Scholarships, Fellowships, Grants, and Tuition Reductions Table of Contents Reminder Introduction Scholarships and FellowshipsTax-Free Scholarships and Fellowships Taxable Scholarships and Fellowships Reporting Scholarships and Fellowships Other Types of Educational AssistanceFulbright Grants Pell Grants and Other Title IV Need-Based Education Grants Payment to Service Academy Cadets Veterans' Benefits Qualified Tuition Reduction Reminder Individual retirement arrangements (IRAs). Income tax filing online  You can set up and make contributions to an IRA if you receive taxable compensation. Income tax filing online Under this rule, a taxable scholarship or fellowship is compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. Income tax filing online For more information about IRAs, see Publication 590. Income tax filing online Introduction This chapter discusses the income tax treatment of various types of educational assistance you may receive if you are studying, teaching, or researching in the United States. Income tax filing online The educational assistance can be for a primary or secondary school, a college or university, or a vocational school. Income tax filing online Included are discussions of: Scholarships, Fellowships, Need-based education grants, such as a Pell Grant, and Qualified tuition reductions. Income tax filing online Many types of educational assistance are tax free if they meet the requirements discussed here. Income tax filing online Special rules apply to U. Income tax filing online S. Income tax filing online citizens and resident aliens who have received scholarships or fellowships for studying, teaching, or researching abroad. Income tax filing online For information about these rules, see Publication 54, Tax Guide for U. Income tax filing online S. Income tax filing online Citizens and Resident Aliens Abroad. Income tax filing online Scholarships and Fellowships A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of his or her studies. Income tax filing online A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. Income tax filing online Amount of scholarship or fellowship. Income tax filing online   The amount of a scholarship or fellowship includes the following: The value of contributed services and accommodations. Income tax filing online This includes such services and accommodations as room (lodging), board (meals), laundry service, and similar services or accommodations that are received by an individual as a part of a scholarship or fellowship. Income tax filing online The amount of tuition, matriculation, and other fees that are paid or remitted to the student to aid the student in pursuing study or research. Income tax filing online Any amount received in the nature of a family allowance as a part of a scholarship or fellowship. Income tax filing online Tax-Free Scholarships and Fellowships A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution. Income tax filing online A scholarship or fellowship is tax free only to the extent: It does not exceed your expenses; It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship. Income tax filing online (But for exceptions, see Payment for services,later. Income tax filing online Use Worksheet 1–1 to figure the amount of a scholarship or fellowship you can exclude from gross income. Income tax filing online Candidate for a degree. Income tax filing online   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an educational institution that: Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency. Income tax filing online Eligible educational institution. Income tax filing online   An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Income tax filing online Qualified education expenses. Income tax filing online   For purposes of tax-free scholarships and fellowships, these are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Income tax filing online These items must be required of all students in your course of instruction. Income tax filing online Expenses that do not qualify. Income tax filing online   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. Income tax filing online Payment for services. Income tax filing online   Generally, you cannot exclude from your gross income the part of any scholarship or fellowship that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. Income tax filing online This applies even if all candidates for a degree must perform the services to receive the degree. Income tax filing online (See exceptions next. Income tax filing online ) Exceptions. Income tax filing online   You do not have to treat as payment for services the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Income tax filing online Example 1. Income tax filing online You received a scholarship of $2,500. Income tax filing online The scholarship was not received under either of the exceptions mentioned above. Income tax filing online As a condition for receiving the scholarship, you must serve as a part-time teaching assistant. Income tax filing online Of the $2,500 scholarship, $1,000 represents payment for teaching. Income tax filing online The provider of your scholarship gives you a Form W-2 showing $1,000 as income. Income tax filing online Your qualified education expenses were at least $1,500. Income tax filing online Assuming that all other conditions are met, $1,500 of your scholarship is tax free. Income tax filing online The $1,000 you received for teaching is taxable. Income tax filing online Example 2. Income tax filing online You are a candidate for a degree at a medical school. Income tax filing online You receive a scholarship (not under either of the exceptions mentioned above) for your medical education and training. Income tax filing online The terms of your scholarship require you to perform future services. Income tax filing online A substantial penalty applies if you do not comply. Income tax filing online The entire amount of your grant is taxable as payment for services in the year it is received. Income tax filing online Athletic Scholarships An athletic scholarship is tax free only if and to the extent it meets the requirements discussed later. Income tax filing online Worksheet 1-1. Income tax filing online    You can use Worksheet 1-1, Taxable Scholarship and Fellowship Income , later, to figure the tax-free and taxable parts of your athletic scholarship. Income tax filing online    Worksheet 1-1. Income tax filing online Taxable Scholarship and Fellowship Income 1. Income tax filing online Enter the total amount of any scholarship or fellowship for 2013. Income tax filing online See Amount of scholarship or fellowship, earlier. Income tax filing online 1. Income tax filing online       If you are a degree candidate at an eligible educational institution, go to line 2. Income tax filing online If you are not a degree candidate at an eligible educational institution, stop here. Income tax filing online The entire amount is taxable. Income tax filing online For information on how to report this amount on your tax return, see Reporting Scholarships and Fellowships , earlier, in this chapter. Income tax filing online       2. Income tax filing online Enter the amount from line 1 that was for teaching, research, or any other services required as a condition for receiving the scholarship. Income tax filing online (Do not include amounts received for these items under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program. Income tax filing online ) 2. Income tax filing online     3. Income tax filing online Subtract line 2 from line 1 3. Income tax filing online     4. Income tax filing online Enter the amount from line 3 that your scholarship or fellowship required you to use for other than qualified education expenses 4. Income tax filing online     5. Income tax filing online Subtract line 4 from line 3 5. Income tax filing online     6. Income tax filing online Enter the amount of your qualified education expenses 6. Income tax filing online     7. Income tax filing online Enter the smaller of line 5 or line 6. Income tax filing online This amount is the most you can exclude from your gross income (the tax-free part of the scholarship or fellowship) 7. Income tax filing online     8. Income tax filing online Subtract line 7 from line 5 8. Income tax filing online     9. Income tax filing online Taxable part. Income tax filing online Add lines 2, 4, and 8. Income tax filing online See Reporting Scholarships and Fellowships , earlier, for how to report this amount on your tax return 9. Income tax filing online     Taxable Scholarships and Fellowships If and to the extent your scholarship or fellowship does not meet the requirements described earlier, it is taxable and must be included in gross income. Income tax filing online You can use Worksheet 1–1, Taxable Scholarship and Fellowship Income, later, to figure the tax-free and taxable parts of your scholarship or fellowship. Income tax filing online Reporting Scholarships and Fellowships Whether you must report your scholarship or fellowship depends on whether you must file a return and whether any part of your scholarship or fellowship is taxable. Income tax filing online If your only income is a completely tax-free scholarship or fellowship, you do not have to file a tax return and no reporting is necessary. Income tax filing online If all or part of your scholarship or fellowship is taxable and you are required to file a tax return, report the taxable amount as explained below. Income tax filing online You must report the taxable amount whether or not you received a Form W-2. Income tax filing online If you receive an incorrect Form W-2, ask the payer for a corrected one. Income tax filing online For information on whether you must file a return, see Publication 501, Exemptions, Standard Deduction, and Filing Information, or your income tax form instructions. Income tax filing online How To Report How you report any taxable scholarship or fellowship income depends on which return you file. Income tax filing online Form 1040EZ. Income tax filing online   If you file Form 1040EZ, include the taxable amount in the total on line 1. Income tax filing online If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 1. Income tax filing online Form 1040A. Income tax filing online   If you file Form 1040A, include the taxable amount in the total on line 7. Income tax filing online If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 7. Income tax filing online Form 1040. Income tax filing online   If you file Form 1040, include the taxable amount in the total on line 7. Income tax filing online If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7. Income tax filing online Schedule SE (Form 1040). Income tax filing online   To determine your net earnings from self-employment, include amounts you receive under a scholarship as pay for your services that are reported to you on Form 1099-MISC, Miscellaneous Income. Income tax filing online If your net earnings are $400 or more, you must pay self-employment tax. Income tax filing online Use Schedule SE, Self-Employment Tax, to figure this tax. Income tax filing online Form 1040NR. Income tax filing online   If you file Form 1040NR, report the taxable amount on line 12. Income tax filing online Generally, you must report the amount shown in box 2 of Form(s) 1042-S, Foreign Person's U. Income tax filing online S. Income tax filing online Source Income Subject to Withholding. Income tax filing online See the Instructions for Form 1040NR for more information. Income tax filing online Form 1040NR-EZ. Income tax filing online   If you file Form 1040NR-EZ, report the taxable amount on line 5. Income tax filing online Generally, you must report the amount shown in box 2 of Form(s) 1042-S. Income tax filing online See the Instructions for Form 1040NR-EZ for more information. Income tax filing online Other Types of Educational Assistance The following discussions deal with other common types of educational assistance. Income tax filing online Fulbright Grants A Fulbright grant is generally treated as a scholarship or fellowship in figuring how much of the grant is tax free. Income tax filing online Pell Grants and Other Title IV Need-Based Education Grants These need-based grants are treated as scholarships for purposes of determining their tax treatment. Income tax filing online They are tax free to the extent used for qualified education expenses during the period for which a grant is awarded. Income tax filing online Payment to Service Academy Cadets An appointment to a United States military academy is not a scholarship or fellowship. Income tax filing online Payment you receive as a cadet or midshipman at an armed services academy is pay for personal services and will be reported to you in box 1 of Form W-2. Income tax filing online Include this pay in your income in the year you receive it unless one of the exceptions, discussed earlier under Payment for services , applies. Income tax filing online Veterans' Benefits Payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax free. Income tax filing online Do not include these payments as income on your federal tax return. Income tax filing online If you qualify for one or more of the education benefits discussed in chapters 2 through 12, you may have to reduce the amount of education expenses qualifying for a specific benefit by part or all of your VA payments. Income tax filing online This applies only to the part of your VA payments that is required to be used for education expenses. Income tax filing online You may want to visit the Veteran's Administration website at www. Income tax filing online gibill. Income tax filing online va. Income tax filing online gov for specific information about the various VA benefits for education. Income tax filing online Example. Income tax filing online You have returned to college and are receiving two education benefits under the latest GI Bill: (1) a $1,534 monthly basic housing allowance (BHA) that is directly deposited to your checking account, and (2) $3,840 paid directly to your college for tuition. Income tax filing online Neither of these benefits is taxable and you do not report them on your tax return. Income tax filing online You also want to claim an American opportunity credit on your return. Income tax filing online You paid $5,000 in qualified education expenses (see chapter 2, American Opportunity Credit , later). Income tax filing online To figure the amount of credit, you must first subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required to be used for education expenses. Income tax filing online You do not subtract any amount of the BHA because it was paid to you and its use was not restricted. Income tax filing online Qualified Tuition Reduction If you are allowed to study tuition free or for a reduced rate of tuition, you may not have to pay tax on this benefit. Income tax filing online This is called a “tuition reduction. Income tax filing online ” You do not have to include a qualified tuition reduction in your income. Income tax filing online A tuition reduction is qualified only if you receive it from, and use it at, an eligible educational institution. Income tax filing online You do not have to use the tuition reduction at the eligible educational institution from which you received it. Income tax filing online In other words, if you work for an eligible educational institution and the institution arranges for you to take courses at another eligible educational institution without paying any tuition, you may not have to include the value of the free courses in your income. Income tax filing online The rules for determining if a tuition reduction is qualified, and therefore tax free, are different if the education provided is below the graduate level or is graduate education. Income tax filing online You must include in your income any tuition reduction you receive that is payment for your services. Income tax filing online Eligible educational institution. Income tax filing online   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Income tax filing online Officers, owners, and highly compensated employees. Income tax filing online   Qualified tuition reductions apply to officers, owners, or highly compensated employees only if benefits are available to employees on a nondiscriminatory basis. Income tax filing online This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees. Income tax filing online The group must be defined under a reasonable classification set up by the employer. Income tax filing online The classification must not discriminate in favor of owners, officers, or highly compensated employees. Income tax filing online Payment for services. Income tax filing online   Generally, you must include in income the part of any qualified tuition reduction that represents payment for teaching, research, or other services by the student required as a condition of receiving the qualified tuition reduction. Income tax filing online This applies even if all candidates for a degree must perform the services to receive the degree. Income tax filing online (See below for exceptions. Income tax filing online ) Exceptions. Income tax filing online   You do not have to include in income the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Income tax filing online Education Below the Graduate Level If you receive a tuition reduction for education below the graduate level (including primary, secondary, or high school), it is a qualified tuition reduction, and therefore tax free, only if your relationship to the educational institution providing the benefit is described below. Income tax filing online You are an employee of the eligible educational institution. Income tax filing online You were an employee of the eligible educational institution, but you retired or left on disability. Income tax filing online You are a widow or widower of an individual who died while an employee of the eligible educational institution or who retired or left on disability. Income tax filing online You are the dependent child or spouse of an individual described in (1) through (3), above. Income tax filing online Child of deceased parents. Income tax filing online   For purposes of the qualified tuition reduction, a child is a dependent child if the child is under age 25 and both parents have died. Income tax filing online Child of divorced parents. Income tax filing online   For purposes of the qualified tuition reduction, a dependent child of divorced parents is treated as the dependent of both parents. Income tax filing online Graduate Education A tuition reduction you receive for graduate education is qualified, and therefore tax free, if both of the following requirements are met. Income tax filing online It is provided by an eligible educational institution. Income tax filing online You are a graduate student who performs teaching or research activities for the educational institution. Income tax filing online You must include in income any other tuition reductions for graduate education that you receive. Income tax filing online How To Report Any tuition reduction that is taxable should be included as wages in box 1 of your Form W-2. Income tax filing online Report the amount from Form W-2, box 1, on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). Income tax filing online Prev  Up  Next   Home   More Online Publications