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Irs Com

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Irs com Internal Revenue Bulletin:  2013-7  February 11, 2013  Rev. Irs com Proc. Irs com 2013-16 Table of Contents SECTION 1. Irs com PURPOSE SECTION 2. Irs com BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE SECTION 3. Irs com BACKGROUND—APPLICABLE PROVISIONS OF LAW SECTION 4. Irs com FEDERAL INCOME TAX TREATMENT SECTION 5. Irs com INFORMATION-REPORTING OBLIGATIONS SECTION 6. Irs com HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA SECTION 7. Irs com PENALTY RELIEF FOR 2012 SECTION 8. Irs com SCOPE AND EFFECTIVE DATE SECTION 9. Irs com DRAFTING INFORMATION SECTION 1. Irs com PURPOSE This revenue procedure provides guidance to mortgage loan holders, loan servicers, and borrowers who are participating in the Department of the Treasury’s (Treasury) and Department of Housing and Urban Development’s (HUD) Home Affordable Modification Program® (HAMP®). Irs com Under HAMP, a borrower may be eligible for principal reduction of the outstanding balance of a qualifying mortgage pursuant to the program’s Principal Reduction AlternativeSM (PRA). Irs com In appropriate cases, HAMP has been offering the PRA as part of a HAMP loan modification since the last quarter of 2010. Irs com Current plans call for HAMP to continue accepting new borrowers through the end of 2013. Irs com The Internal Revenue Service (Service) is providing this guidance to address the tax consequences for borrowers (HAMP-PRA borrowers) who are participating in the PRA and the reporting obligations for participating mortgage loan holders and servicers. Irs com SECTION 2. Irs com BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE . Irs com 01 To help distressed borrowers lower their monthly mortgage payments, Treasury and HUD established HAMP for mortgage loans that are not owned or guaranteed by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). Irs com A description of the program can be found at www. Irs com makinghomeaffordable. Irs com gov. Irs com . Irs com 02 Under HAMP, a participating loan servicer, acting on behalf of the mortgage loan holder, must consider a sequence of modification steps for each eligible borrower’s mortgage loan until the borrower’s monthly payment is reduced to a monthly payment amount determined under the HAMP guidelines. Irs com These steps include a reduction in the mortgage loan’s interest rate, an extension of the mortgage loan’s term, and a reduction in the mortgage loan’s principal balance. Irs com . Irs com 03 In some cases, the unpaid principal balance of the modified mortgage loan is divided into (1) an amount that bears stated interest and that is used to calculate the borrower’s new monthly mortgage payment (the “Non-forbearance Portion”), and (2) a forbearance amount, which does not bear stated interest and on which periodic payments of stated principal are not required. Irs com The stated principal of the forbearance amount is due upon the earliest of the borrower’s transfer of the property, payoff of the balance on the Non-forbearance Portion of the mortgage loan, or maturity of the mortgage loan. Irs com However, as noted in section 2. Irs com 06 of this revenue procedure, a HAMP-PRA borrower sometimes may not have to pay all or a portion of the forbearance amount. Irs com (The forbearance amount associated with a HAMP-PRA principal reduction is called the “PRA Forbearance Amount. Irs com ”) . Irs com 04 If a mortgage loan is being considered for a HAMP modification and the amount owed on the mortgage loan is greater than 115 percent of the value of the property, then the servicer must consider whether principal reduction under PRA should be used as part of the HAMP modification. Irs com . Irs com 05 The first step toward a HAMP modification is a trial period plan, in which the borrower’s monthly mortgage payment is set at a monthly payment amount determined under the HAMP guidelines. Irs com The trial period plan effective date is the due date for the first of the reduced payments that are to be made under the trial period plan. Irs com (It is the first day of either the first or the second month after the servicer transmits the trial period notice to the borrower. Irs com ) In general, the trial period is three months, and, during this period, the borrower must satisfy certain conditions before the changes to the terms of the mortgage loan become permanent (the “Trial Period Conditions”). Irs com Specifically, depending on the borrower’s trial period payment history, the borrower’s compliance with HAMP and servicer guidelines, and his or her satisfaction of all other Trial Period Conditions, the borrower will be offered a permanent modification of the terms of the mortgage loan, including monthly mortgage payments that are lower than those under the old mortgage loan. Irs com Until the effective date of a permanent modification, the terms of the existing mortgage loan continue to apply. Irs com . Irs com 06 After the mortgage loan is permanently modified under HAMP, if the modified mortgage loan is in good standing on the first, second, or third annual anniversary of the trial period plan effective date (the “Three-year Period”), the servicer must reduce the unpaid principal balance of the mortgage loan on the respective anniversary date by one-third of the initial PRA Forbearance Amount. Irs com (The servicer allocates the entire reduction to the remaining PRA Forbearance Amount. Irs com ) In general, if a HAMP-PRA borrower’s mortgage loan is in good standing and if the HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan prior to the reduction of the entire PRA Forbearance Amount, the servicer must reduce the remaining outstanding principal balance of the mortgage loan by the remaining PRA Forbearance Amount. Irs com . Irs com 07 In connection with every HAMP loan modification, the HAMP program administrator (acting on behalf of the federal government) provides incentives to the borrower, the servicer, and the investor (that is, the holder of the mortgage loan). Irs com If a HAMP loan modification includes a PRA principal reduction, the HAMP program administrator makes additional incentive payments to the investor. Irs com These additional incentives are called “PRA Investor Incentive Payments” and are generally spread over three years. Irs com The size of the PRA Investor Incentive Payments depends on the amount of principal reduced, the loan-to-value ratio at the time of the HAMP modification, and the loan’s payment history before the modification. Irs com The PRA Investor Incentive Payments range from 18 to 63 percent of the principal amounts reduced. Irs com For purposes of this revenue procedure, the excess of the initial PRA Forbearance Amount of a mortgage loan over the aggregate PRA Investor Incentive Payments scheduled to be paid with respect to that loan is called the “PRA Adjusted Forbearance Amount. Irs com ” . Irs com 08 A PRA Investor Incentive Payment is earned by the investor on each date on which the servicer reduces the unpaid principal balance of the mortgage loan by a portion of the PRA Forbearance Amount (generally, on the first three annual anniversaries of the trial period plan effective date). Irs com . Irs com 09 If a HAMP-PRA borrower’s early payment in full of the Non-forbearance Portion of the mortgage loan accelerates the reduction of the remaining PRA Forbearance Amount (described above in section 2. Irs com 06 of this revenue procedure), the remaining PRA Investor Incentive Payments from the HAMP program administrator are also accelerated. Irs com . Irs com 10 If, prior to completion of the Three-year Period, a mortgage loan ceases to be in good standing because of the HAMP-PRA borrower’s payment history, then the remaining PRA Forbearance Amount is not further reduced and is due when the HAMP-PRA borrower transfers the property, the HAMP-PRA borrower refinances, or otherwise pays off the Non-forbearance Portion of the mortgage loan, or the mortgage loan matures. Irs com SECTION 3. Irs com BACKGROUND—APPLICABLE PROVISIONS OF LAW . Irs com 01 Under § 61 of the Internal Revenue Code, except as otherwise provided in subtitle A, gross income means all income from whatever source derived, including income from discharge of indebtedness. Irs com See § 61(a)(12). Irs com . Irs com 02 Under § 1. Irs com 1001-3 of the Income Tax Regulations, if a debt instrument undergoes a significant modification, then the modification results in an exchange of the original debt instrument for the modified debt instrument. Irs com In general, an agreement to change a term of a debt instrument is a modification at the time the borrower and holder enter into the agreement, even if the change in term is not immediately effective. Irs com However, if the change is conditioned on reasonable closing conditions, a modification occurs on the closing date of the agreement. Irs com See § 1. Irs com 1001-3(c)(6). Irs com . Irs com 03 Under § 108(e)(10), in the case of a debt-for-debt exchange (including a deemed exchange under § 1. Irs com 1001-3), the borrower is treated as having satisfied the original debt instrument with an amount of money equal to the issue price of the new debt instrument. Irs com If the amount of debt satisfied in this manner exceeds that issue price, the borrower realizes discharge of indebtedness income on the exchange. Irs com See also § 1. Irs com 61-12(c). Irs com . Irs com 04 The issue price of a non-publicly traded debt instrument issued for non-publicly traded property generally reflects the amount of principal that the borrower is required to pay to the holder of the instrument. Irs com If a borrower has the ability to avoid paying certain amounts (including principal) without violating the terms of the instrument, the payment schedule for the instrument is generally determined based on an assumption that the borrower will avoid any requirement to make those payments. Irs com See, e. Irs com g. Irs com , §§ 1. Irs com 1272-1(c)(5) and 1. Irs com 1274-2(d). Irs com . Irs com 05 Under § 108(a), gross income does not include any amount that but for § 108(a) would be includible in gross income by reason of the discharge (in whole or in part) of a taxpayer’s indebtedness if (1) the indebtedness discharged is qualified principal residence indebtedness that is discharged before January 1, 2014, or (2) the discharge occurs when the taxpayer is insolvent. Irs com Section 108(a)(1)(E) and 108(a)(1)(B). Irs com (Although § 108 contains other exclusions as well, this revenue procedure focuses on these two exclusions because they are the most likely to apply to the greatest number of HAMP-PRA borrowers. Irs com ) . Irs com 06 Under §§ 108(h) and 163(h)(3)(B), qualified principal residence indebtedness is any indebtedness that is incurred by a borrower to buy, build, or substantially improve the borrower’s principal residence and is secured by that residence. Irs com . Irs com 07 Qualified principal residence indebtedness also includes a loan secured by the borrower’s principal residence that refinances qualified principal residence indebtedness, but only to the extent of the amount of the refinanced indebtedness. Irs com See §§ 108(h) and 163(h)(3)(B)(i). Irs com . Irs com 08 The maximum amount of discharged indebtedness that a borrower may exclude from gross income under the qualified principal residence indebtedness exclusion is $2,000,000 ($1,000,000 for a married individual filing a separate return). Irs com Under § 108(h)(4), if only part of the discharged indebtedness is qualified principal residence indebtedness, then the exclusion applies only to the amount of the discharged indebtedness that exceeds the amount of the loan (determined immediately before the discharge) that is not qualified principal residence indebtedness. Irs com . Irs com 09 Under § 108(a)(3), the insolvency exclusion applies to the lesser of the amount of the debt discharged or the amount by which the taxpayer is insolvent immediately before the discharge. Irs com . Irs com 10 Section 108(d)(3) provides that, for purposes of the insolvency exclusion, a taxpayer is insolvent to the extent that the taxpayer’s total liabilities exceed the fair market value of all of the taxpayer’s assets immediately before the discharge of indebtedness. Irs com Under § 108(a)(2)(C), the qualified principal residence indebtedness exclusion takes precedence over the insolvency exclusion when both exclusions apply to discharged indebtedness, unless the taxpayer elects to apply the insolvency exclusion. Irs com . Irs com 11 If an amount is excluded from gross income as a discharge of qualified principal residence indebtedness, the taxpayer must reduce the basis of the taxpayer’s principal residence. Irs com See § 108(h)(1). Irs com If a discharged amount is excluded from gross income because the taxpayer was insolvent when the discharge occurred, the taxpayer must reduce certain tax attributes (possibly including basis). Irs com See § 108(b). Irs com For further discussion of income from the discharge of indebtedness, the qualified principal residence indebtedness exclusion, the insolvency exclusion, and other exclusions from gross income that may apply, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). Irs com . Irs com 12 Taxpayers who exclude any discharged amounts from gross income report both the exclusion and the resulting reduction in basis or other tax attributes on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). Irs com See Form 982 instructions and Publication 4681. Irs com This form is to be filed with the tax return for the taxable year in which the amount is discharged but is excluded from gross income. Irs com . Irs com 13 Governmental payments made to or on behalf of individuals or other persons are included within the broad definition of gross income under § 61 unless an exception applies. Irs com See Notice 2003-18, 2003-1 C. Irs com B. Irs com 699, and Rev. Irs com Rul. Irs com 79-356, 1979-2 C. Irs com B. Irs com 28. Irs com However, if disbursements are made by a governmental unit to individuals in the interest of the general welfare (that is, are generally based on individual or family need) and the disbursements do not represent compensation for services, then the amounts disbursed are excluded from the income of the recipient (general welfare exclusion). Irs com See Rev. Irs com Rul. Irs com 2005-46, 2005-2 C. Irs com B. Irs com 120, and Rev. Irs com Rul. Irs com 75-246, 1975-1 C. Irs com B. Irs com 24. Irs com . Irs com 14 Under § 451 and § 1. Irs com 451-1(a), a taxpayer that uses the cash receipts and disbursements method of accounting includes income in gross income when the taxpayer actually or constructively receives the income. Irs com . Irs com 15 Section 6041 requires every person engaged in a trade or business (including the United States and its agencies) to (1) file an information return (Form 1099-MISC, Miscellaneous Income, is used for this purpose) for each calendar year in which the person makes, in the course of its trade or business, payments to another person of fixed or determinable income aggregating $600 or more, and (2) furnish a copy of the information return to that other person. Irs com See § 6041(a) and (d) and § 1. Irs com 6041-1(a)(1) and (b). Irs com . Irs com 16 Section 6050P requires applicable entities (including the United States and its agencies, financial entities, and any organization a significant trade or business of which is the lending of money) to (1) file an information return (Form 1099-C, Cancellation of Debt, is used for this purpose) for each calendar year in which it discharges indebtedness of another person of $600 or more, and (2) furnish a copy of the information return to that other person. Irs com See § 6050P(a)-(c) and §§ 1. Irs com 6050P-1(a) and 1. Irs com 6050P-2(a) and (d). Irs com . Irs com 17 Section 6721 imposes penalties with respect to information returns required to be filed with the Service. Irs com These penalties apply in the case of a failure to timely file an information return, a failure to include all required information on the return, or the inclusion of incorrect information on the return. Irs com Section 6724(d)(1) includes Forms 1099-MISC and 1099-C in the term “information return. Irs com ” . Irs com 18 Section 6722 imposes penalties with respect to payee statements required to be furnished to payees. Irs com These penalties apply in the case of a failure to timely furnish a payee statement, a failure to include all required information on the statement, or the inclusion of incorrect information on the payee statement. Irs com Section 6724(d)(2) includes in the term “payee statement” copies of Forms 1099-MISC and 1099-C that are required to be furnished to taxpayers. Irs com SECTION 4. Irs com FEDERAL INCOME TAX TREATMENT . Irs com 01 Because a HAMP modification with a PRA principal reduction is a significant modification, it results in a deemed debt-for-debt exchange in which the HAMP-PRA borrower satisfies the old mortgage loan by issuing a new one. Irs com See § 1. Irs com 1001-3. Irs com At the time of the modification, therefore, under § 108 and this revenue procedure, the HAMP-PRA borrower realizes discharge of indebtedness income equal to any excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new (post-modification) mortgage loan. Irs com See also § 61(a)(12) and § 1. Irs com 61-12(c). Irs com . Irs com 02 A HAMP-PRA borrower has the ability to avoid payment of the PRA Adjusted Forbearance Amount. Irs com Because the HAMP-PRA borrower has this ability, that amount should not be taken into account in determining the issue price of the new mortgage loan. Irs com Because the issue price of the new mortgage loan does not include the PRA Adjusted Forbearance Amount, the PRA Adjusted Forbearance Amount contributes to the excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new mortgage loan. Irs com . Irs com 03 On the other hand, the investor has not given up its right to receive the remainder of the PRA Forbearance Amount, because the HAMP program administrator is expected to make those payments on the HAMP-PRA borrower’s behalf by making the PRA Investor Incentive Payments. Irs com Because the remainder of the PRA Forbearance Amount is payable in this manner, that remainder is included in the issue price of the new mortgage loan. Irs com . Irs com 04 The Trial Period Conditions are reasonable closing conditions that must be satisfied before the changes to the terms of the mortgage loan become permanent. Irs com Therefore, for purposes of § 1. Irs com 1001-3, the date of the modification is the date of the permanent modification. Irs com . Irs com 05 Unless an exclusion applies, the HAMP-PRA borrower includes in gross income the discharge of indebtedness income described in section 4. Irs com 01 of this revenue procedure for the taxable year in which the permanent modification occurs. Irs com Under certain conditions, however, section 6 of this revenue procedure permits a borrower to report the discharge of indebtedness under HAMP-PRA over the Three-year Period. Irs com The qualified principal residence indebtedness exclusion under § 108(a)(1)(E) and the insolvency exclusion under § 108(a)(1)(B) are two exclusions that may apply to the discharge. Irs com . Irs com 06 The PRA Investor Incentive Payment is treated as a payment on the mortgage loan by the HAMP program administrator on behalf of the HAMP-PRA borrower. Irs com . Irs com 07 To the extent that the HAMP-PRA borrower uses the property as the HAMP-PRA borrower’s principal residence or the property is occupied by the HAMP-PRA borrower’s legal dependent, parent, or grandparent without rent being charged or collected, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the PRA Investor Incentive Payments that the HAMP program administrator makes to the investor in the mortgage loan. Irs com This is consistent with Rev. Irs com Rul. Irs com 2009-19, 2009-28 I. Irs com R. Irs com B. Irs com 111, which addressed the treatment of Pay-for-Performance Success Payments. Irs com . Irs com 08 To the extent that the HAMP-PRA borrower uses the property as a rental property or holds the property vacant and available for rent, the HAMP-PRA borrower includes PRA Investor Incentive Payments in gross income. Irs com If the HAMP-PRA borrower uses the cash receipts and disbursements method of accounting, then the HAMP-PRA borrower includes a PRA Investor Incentive Payment in gross income in the taxable year in which it is applied as a payment on the HAMP-PRA borrower’s mortgage loan. Irs com . Irs com 09 As described in section 2. Irs com 09 of this revenue procedure, if a HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan while the loan is in good standing and prior to completion of the Three-year Period, that payment accelerates both the reduction in the remaining PRA Forbearance Amount and the PRA Investor Incentive Payments from the HAMP program administrator. Irs com To the extent that the HAMP-PRA borrower is described in section 4. Irs com 07 of this revenue procedure, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the accelerated PRA Investor Incentive Payments. Irs com To the extent that the HAMP-PRA borrower is described in section 4. Irs com 08 of this revenue procedure, the HAMP-PRA borrower includes in income in the year of the acceleration the remaining amount of the PRA Investor Incentive Payment. Irs com SECTION 5. Irs com INFORMATION-REPORTING OBLIGATIONS . Irs com 01 Under § 6050P, the investor is required to file a Form 1099-C with respect to a borrower who realizes discharge of indebtedness of $600 or more. Irs com A copy of this form is required to be furnished to the borrower. Irs com . Irs com 02 As stated in sections 4. Irs com 01 and 4. Irs com 04 of this revenue procedure, the HAMP-PRA discharge of indebtedness is realized at the time of the permanent modification of the mortgage loan. Irs com . Irs com 03 An investor is an applicable entity that is required under § 1. Irs com 6050P-1 and this revenue procedure to issue a Form 1099-C for discharge of indebtedness. Irs com Under § 1. Irs com 6050P-1(b)(2)(F), the permanent modification of a mortgage loan is an identifiable event. Irs com Identifiable events determine when Forms 1099-C have to be issued. Irs com Thus, the Form 1099-C is issued for the calendar year in which the permanent mortgage loan modification occurs. Irs com This rule under § 1. Irs com 6050P-1(b)(2)(F) applies even if, under section 6 of this revenue procedure, the HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the times when the unpaid principal balance of the new mortgage loan is reduced. Irs com . Irs com 04 The investor (or the loan servicer acting on behalf of the investor) reports the full amount of the discharge on the Form 1099-C regardless of whether some or all of the amount is excludible from income under the qualified principal residence indebtedness exclusion, the insolvency exclusion, or any other exclusion that may apply. Irs com That discharged amount will generally be the PRA Adjusted Forbearance Amount (which does not include the amounts expected to be satisfied by PRA Investor Incentive Payments). Irs com . Irs com 05 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. Irs com 07 of this revenue procedure, the PRA Investor Incentive Payments are excluded from the gross income of the HAMP-PRA borrower, and thus they are not fixed or determinable income to the HAMP-PRA borrower. Irs com Under § 6041, these payments are not subject to information reporting. Irs com See Notice 2011-14, 2011-11 I. Irs com R. Irs com B. Irs com 544, 546. Irs com . Irs com 06 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. Irs com 08 of this revenue procedure, the PRA Investor Incentive Payments are includible in gross income as fixed or determinable income in the taxable year required by the HAMP-PRA borrower’s method of accounting. Irs com The payment is subject to the information reporting requirements of § 6041, as described in section 3. Irs com 15 of this revenue procedure. Irs com Accordingly, the HAMP program administrator is required to issue a Form 1099-MISC reporting the PRA Investor Incentive Payment. Irs com SECTION 6. Irs com HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA . Irs com 01 In general. Irs com The HAMP-PRA program began in the last quarter of 2010, and since that time there has been uncertainty about whether the amount of the discharge of indebtedness should be reported in the year of the permanent modification or over the Three-year Period (when the unpaid principal balance on the new mortgage loan is reduced). Irs com As a result, some HAMP-PRA borrowers have been reporting the discharge of indebtedness under HAMP-PRA over the Three-year Period. Irs com Given the temporary nature of the program and the issuance of this guidance after participation in the program has begun, in the interests of equitable and sound tax administration, HAMP-PRA borrowers may report discharges of indebtedness under HAMP-PRA under the rules in this section 6. Irs com A HAMP-PRA borrower may choose to report discharges of indebtedness under HAMP-PRA pursuant to the rules in this section 6 only if the borrower applies the same borrower option under section 6. Irs com 02 of this revenue procedure consistently to the taxable year of the permanent modification and to all subsequent taxable years. Irs com Thus, a HAMP-PRA borrower may not choose a borrower option under section 6. Irs com 02 of this revenue procedure if a statute of limitations has expired for any of the taxable years that are necessary for consistent application of that option. Irs com . Irs com 02 HAMP-PRA borrower options. Irs com A HAMP-PRA borrower may treat the HAMP-PRA discharge as being realized in either of the following ways— (1) One hundred percent of the PRA Adjusted Forbearance Amount at the time of the permanent modification; or (2) One third of the PRA Adjusted Forbearance Amount on each of the first three annual anniversaries of the trial period plan effective date (described in section 2. Irs com 06 of this revenue procedure), when, as required by the terms of the new mortgage loan, the servicer reduces the unpaid principal balance of the new mortgage loan. Irs com If some or all of the reduction in the unpaid principal balance is accelerated (as described in section 2. Irs com 06 of this revenue procedure) because the HAMP-PRA borrower prepays the Non-forbearance Portion of the mortgage loan, then the HAMP-PRA discharge represented by the amount of the reduction that was accelerated is treated as being realized at the time of the accelerated reduction. Irs com . Irs com 03 HAMP-PRA borrowers who choose to realize the HAMP-PRA discharge at the time of the permanent modification. Irs com (1) If a HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the time of the permanent modification, then for the taxable year in which the permanent modification occurs, the HAMP-PRA borrower reports on Form 982 the amount, if any, of the discharge that is excluded from gross income and includes in gross income any remaining discharge. Irs com (2) If a HAMP-PRA borrower’s mortgage loan was permanently modified under HAMP in 2010 or 2011, and if the borrower was reporting the discharge of indebtedness using the method described in section 6. Irs com 02(2) of this revenue procedure, then the borrower may change to reporting the discharge of indebtedness using the method described in section 6. Irs com 02(1) of this revenue procedure by filing a 2012 Form 982 with the borrower’s timely filed (with extensions) 2012 income tax return. Irs com This section 6. Irs com 03(2) applies only if the change to reporting the discharge using the method described in section 6. Irs com 02(1) of this revenue procedure does not change the borrower’s federal income tax liability (including any change in federal income tax liability due to a change in basis or tax attributes (under § 108(h)(1) or § 108(b))) for any taxable year prior to the borrower’s 2012 taxable year. Irs com To make this change, the borrower must— (i) Compute the amount of discharge of indebtedness that would be included in income under § 61(a)(12) or excluded from gross income under § 108, basing the computation of the discharge on the facts as of the year of the permanent modification; and (ii) Report on a 2012 Form 982 the reduction in basis or tax attributes (under § 108(h)(1) or § 108(b)) due to the permanent modification that the borrower would have reported on the Form 982 for the taxable year of the permanent modification, minus any reductions due to the permanent modification that the borrower actually reported on Forms 982 for taxable years prior to 2012. Irs com (3) Example. Irs com The following example illustrates the application of section 6. Irs com 03(2) of this revenue procedure. Irs com In 2010, B’s basis in B’s principal residence was $330,000. Irs com In 2010, B’s mortgage loan on the principal residence is permanently modified under HAMP-PRA. Irs com B realized $30,000 of cancellation of indebtedness from the permanent modification, all of which qualifies for the exclusion from income for qualified principal residence indebtedness under § 108(a)(1)(E). Irs com The trial period plan effective date also fell in 2010. Irs com B’s federal income tax return for 2010 was consistent with B’s reporting this discharge of indebtedness using the method described in section 6. Irs com 02(2) of this revenue procedure. Irs com That is, B’s 2010 return did not include income from discharge of indebtedness under HAMP-PRA, nor did the return contain a Form 982 reporting exclusion of any such discharge of indebtedness. Irs com The next year, B reported on line 10(b) of the 2011 Form 982 that B filed with B’s 2011 federal income tax return a $10,000 reduction in basis in the principal residence. Irs com For 2012, B chooses to change to reporting the discharge of indebtedness using the method described in section 6. Irs com 02(1) of this revenue procedure. Irs com Thus, B files a 2012 Form 982 with B’s timely filed (including extensions) 2012 federal income tax return, and on line 10(b) of that form, B reports a $20,000 basis reduction in the principal residence ($30,000 basis reduction that B would have excluded from income in 2010 using the method described in section 6. Irs com 02(1) of this revenue procedure, minus the $10,000 basis reduction that B reported on B’s 2011 Form 982). Irs com (4) If a HAMP-PRA borrower reports the entire HAMP-PRA discharge using the method described in section 6. Irs com 02(1) of this revenue procedure, and if that HAMP-PRA borrower’s mortgage loan ceases to be in good standing during the Three-year Period as described in section 2. Irs com 10 of this revenue procedure, then some or all of the anticipated reductions in the PRA Adjusted Forbearance Amount will not take place. Irs com Because the amount of these anticipated reductions was not included in determining the issue price of the new mortgage loan that, pursuant to § 1. Irs com 1001-3, the HAMP-PRA borrower is deemed to issue in satisfaction of the old mortgage loan, the issue price of the new mortgage loan was understated. Irs com Under these circumstances, the discharge of indebtedness income determined as of the date of the permanent modification will have been overstated. Irs com (5) The Service will not challenge a HAMP-PRA borrower who is described in section 6. Irs com 03(4) of this revenue procedure and who takes the following corrective measures: (i) If a HAMP-PRA borrower included any of the discharge of indebtedness in gross income, the HAMP-PRA borrower may file an amended return that does not include the amount of the discharge of indebtedness that was previously reported as gross income but that, because of the HAMP-PRA borrower’s failure to keep the new mortgage loan in good standing, was not ultimately discharged. Irs com The amended return should be for the taxable year in which the income was included (that is, the year of the permanent modification), provided the applicable statute of limitations remains open for that taxable year. Irs com (ii) If the HAMP-PRA borrower did not include any of the discharge of indebtedness in gross income (that is, if the HAMP-PRA borrower excluded all of it), the HAMP-PRA borrower may file a new Form 982 that the Service will treat as superseding the earlier Form 982. Irs com The new Form 982 will reflect the revised reduction in basis or in tax attributes (under § 108(h)(1) or § 108(b)). Irs com The new Form 982 should be the Form 982 for the year of the permanent modification and should be filed with the return for the taxable year in which the HAMP-PRA borrower’s mortgage loan ceased to be in good standing. Irs com . Irs com 04 HAMP-PRA borrowers who choose to treat the HAMP-PRA discharge as being realized on the dates on which the unpaid principal balance of the mortgage loan is reduced. Irs com (1) If a HAMP-PRA borrower chooses to realize the HAMP-PRA discharge at the times that the unpaid principal balance on the new mortgage loan is reduced, instead of at the time of the permanent modification, then the HAMP-PRA borrower’s federal income tax returns for the taxable year that contains the permanent modification and for the subsequent taxable years must not treat any of the discharge as being realized at the time of the permanent modification and must treat the entire HAMP-PRA discharge as being realized in the amounts—and at the times—of the reductions in the unpaid principal balance. Irs com Except as described in the last sentence of this paragraph, therefore, the income tax return for the year of the permanent modification must include no gross income from—nor report on Form 982 an exclusion of—any amount of the HAMP-PRA discharge. Irs com Instead, the HAMP-PRA discharge is included in gross income (or is reported on Form 982 as excluded from gross income) in the subsequent years in which the unpaid principal balance is reduced. Irs com If the first such reduction occurs in the year of the permanent modification, however, then the amount of any such reduction is reflected as an inclusion or exclusion on the federal income tax return for that year. Irs com (2) A HAMP-PRA borrower who has been using the method described in section 6. Irs com 02(1) of this revenue procedure may change to the method described in section 6. Irs com 02(2) but must comply with the consistency and open-year requirements described in section 6. Irs com 01 of this revenue procedure. Irs com SECTION 7. Irs com PENALTY RELIEF FOR 2012 . Irs com 01 The Service will not assert penalties under § 6721 or § 6722 against an investor for failing to timely file and furnish a 2012 Form 1099-C as required by section 5. Irs com 03 through 5. Irs com 04 and section 8. Irs com 02 of this revenue procedure with respect to discharge of indebtedness resulting from HAMP-PRA permanent modifications that take place during calendar year 2012 if the following requirements are satisfied: (1) Not later than February 28, 2013, a statement is sent to the HAMP-PRA borrower containing the following: (a) The HAMP-PRA borrower’s name, address, and taxpayer identification number; and (b) The date and amount of the discharge of indebtedness (as described in sections 4. Irs com 01 through 4. Irs com 04 of this revenue procedure) that is required to be reported for 2012. Irs com (2) Not later than March 28, 2013, a statement is sent to the Service. Irs com It must be in the form of a single statement that separately lists for each HAMP-PRA borrower the information specified in section 7. Irs com 01(1) of this revenue procedure. Irs com The statement should be sent to the Service at the following address: Internal Revenue Service Center Stop 6728AUSC Austin, TX 73301 . Irs com 02 The Service will not assert penalties under § 6721 or § 6722 with respect to any Forms 1099-MISC for 2012 that sections 5. Irs com 06 and 8. Irs com 02 of this revenue procedure require to be filed with the Service and furnished to taxpayers. Irs com . Irs com 03 Section 8. Irs com 03 and 8. Irs com 04 of this revenue procedure, below, describes penalty relief regarding Forms 1099-C and 1099-MISC for 2010 and 2011. Irs com SECTION 8. Irs com SCOPE AND EFFECTIVE DATE . Irs com 01 This revenue procedure applies to all borrowers, investors, and servicers who participate, or have participated, in the HAMP-PRA, regardless of when the permanent modification occurs. Irs com . Irs com 02 Section 5 of this revenue procedure is effective for Forms 1099-C and 1099-MISC due or filed after January 24, 2013. Irs com . Irs com 03 Because of the effective date in section 8. Irs com 02 of this revenue procedure, an investor is not subject to penalties under § 6721 or § 6722 on the grounds that the investor failed to timely file and furnish a 2010 or 2011 Form 1099-C as described in section 5. Irs com 03 through 5. Irs com 04 of this revenue procedure (or on the grounds that the investor filed or furnished a 2010 or 2011 Form 1099-C that is inconsistent with section 5. Irs com 03 through 5. Irs com 04 of this revenue procedure), provided that the investor demonstrates a good faith attempt to comply with the requirements of § 6050P and that the failure was not due to willful neglect. Irs com . Irs com 04 Because of the effective date in section 8. Irs com 02 of this revenue procedure, the Service will not assert penalties under § 6721 or § 6722 on the grounds of a failure to timely file and furnish a 2010 or 2011 Form 1099-MISC, as described in section 5. Irs com 06 of this revenue procedure. Irs com SECTION 9. Irs com DRAFTING INFORMATION The principal authors of this revenue procedure are Ronald J. Irs com Goldstein of the Office of Chief Counsel (Procedure and Administration); Shareen S. Irs com Pflanz and Sheldon A. Irs com Iskow of the Office of Chief Counsel (Income Tax and Accounting); and Andrea M. Irs com Hoffenson of the Office of Chief Counsel (Financial Institutions and Products). Irs com For further information regarding this revenue procedure, contact Procedure and Administration branch 1 at (202) 622-4910, Income Tax and Accounting branch 4 at (202) 622-4920, or Financial Institutions and Products branch 1 at (202) 622-3920 (not toll-free calls). Irs com Prev  Up  Next   Home   More Internal Revenue Bulletins
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Irs com 8. Irs com   Paying Tax Through Withholding or Estimated Tax Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Notification of Alien Status Withholding From CompensationWithholding on Wages Withholding on Pensions Withholding on Tip Income Independent Contractors Withholding From Other IncomeTax Withheld on Partnership Income Withholding on Scholarships and Fellowship Grants Income Entitled to Tax Treaty BenefitsStudents, teachers, and researchers. Irs com Tax Withheld on Real Property Sales Social Security and Medicare TaxesStudents and Exchange Visitors Agricultural Workers Self-Employment Tax International Social Security Agreements Estimated Tax Form 1040-ES (NR)Fiscal year. Irs com Introduction This chapter discusses how to pay your U. Irs com S. Irs com income tax as you earn or receive income during the year. Irs com In general, the federal income tax is a pay as you go tax. Irs com There are two ways to pay as you go. Irs com Withholding. Irs com If you are an employee, your employer probably withholds income tax from your pay. Irs com Tax may also be withheld from certain other income—including pensions, bonuses, commissions, and gambling winnings. Irs com In each case, the amount withheld is paid to the U. Irs com S. Irs com Treasury in your name. Irs com Estimated tax. Irs com If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. Irs com People who are in business for themselves generally will have to pay their tax this way. Irs com You may have to pay estimated tax if you receive income such as dividends, interest, rent, and royalties. Irs com Estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well. Irs com Topics - This chapter discusses: How to notify your employer of your alien status, Income subject to withholding of income tax, Exemptions from withholding, Social security and Medicare taxes, and Estimated tax rules. Irs com Useful Items - You may want to see: Publication 515 Withholding of Tax on Nonresident Aliens and Foreign Entities 901 U. Irs com S. Irs com Tax Treaties Form (and Instructions) W-4 Employee's Withholding Allowance Certificate W-8BEN Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals) W-8ECI Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States W-9 Request for Taxpayer Identification Number and Certification 1040-ES (NR) U. Irs com S. Irs com Estimated Tax for Nonresident Alien Individuals 8233 Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual 8288-B Application for Withholding Certificate for Dispositions by Foreign Persons of U. Irs com S. Irs com Real Property Interests 13930 Application for Central Withholding Agreement See chapter 12 for information about getting these publications and forms. Irs com Notification of Alien Status You must let your employer know whether you are a resident or a nonresident alien so your employer can withhold the correct amount of tax from your wages. Irs com If you are a resident alien under the rules discussed in chapter 1, you must file Form W-9 or a similar statement with your employer. Irs com If you are a nonresident alien under those rules, you must furnish to your employer Form 8233 or Form W-8BEN, establishing that you are a foreign person, or Form W-4, establishing that your compensation is subject to graduated withholding at the same rates as resident aliens or U. Irs com S. Irs com citizens. Irs com If you are a resident alien and you receive income other than wages (such as dividends and royalties) from sources within the United States, file Form W-9 or similar statement with the withholding agent (generally, the payer of the income) so the agent will not withhold tax on the income at the 30% (or lower treaty) rate. Irs com If you receive this type of income as a nonresident alien, file Form W-8BEN with the withholding agent so that the agent will withhold tax at the 30% (or lower treaty) rate. Irs com However, if the income is effectively connected with a U. Irs com S. Irs com trade or business, file Form W-8ECI instead. Irs com Withholding From Compensation The following discussion generally applies only to nonresident aliens. Irs com Tax is withheld from resident aliens in the same manner as U. Irs com S. Irs com citizens. Irs com Wages and other compensation paid to a nonresident alien for services performed as an employee are usually subject to graduated withholding at the same rates as resident aliens and U. Irs com S. Irs com citizens. Irs com Therefore, your compensation, unless it is specifically excluded from the term “wages” by law, or is exempt from tax by treaty, is subject to graduated withholding. Irs com Withholding on Wages If you are an employee and you receive wages subject to graduated withholding, you will be required to fill out a Form W-4. Irs com Also fill out Form W-4 for a scholarship or fellowship grant to the extent it represents payment for past, present, or future services and for which you are not claiming a tax treaty withholding exemption on Form 8233 (discussed later under Income Entitled to Tax Treaty Benefits). Irs com These are services you are required to perform as an employee and as a condition of receiving the scholarship or fellowship (or tuition reduction). Irs com Nonresident aliens should fill out Form W-4 using the following instructions instead of the instructions on the Form W-4. Irs com This is because of the restrictions on a nonresident alien's filing status, the limited number of personal exemptions a nonresident alien is allowed, and because a nonresident alien cannot claim the standard deduction. Irs com Enter your social security number (SSN) on line 2. Irs com Do not enter an individual taxpayer identification number (ITIN). Irs com Check only “Single” marital status on line 3 (regardless of your actual marital status). Irs com Claim only one allowance on line 5, unless you are a resident of Canada, Mexico, or South Korea, or a U. Irs com S. Irs com national. Irs com Write “Nonresident Alien” or “NRA” on the dotted line on line 6. Irs com You can request additional withholding on line 6 at your option. Irs com Do not claim “Exempt” withholding status on line 7. Irs com A U. Irs com S. Irs com national is an individual who, although not a U. Irs com S. Irs com citizen, owes his or her allegiance to the United States. Irs com U. Irs com S. Irs com nationals include American Samoans, and Northern Mariana Islanders who chose to become U. Irs com S. Irs com nationals instead of U. Irs com S. Irs com citizens. Irs com See Withholding on Scholarships and Fellowship Grants later, for how to fill out Form W-4 if you receive a U. Irs com S. Irs com source scholarship or fellowship grant that is not a payment for services. Irs com Students and business apprentices from India. Irs com   If you are eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty, you may claim an additional withholding allowance for the standard deduction. Irs com You can claim an additional withholding allowance for your spouse only if your spouse will have no gross income for 2013 and cannot be claimed as a dependent on another U. Irs com S. Irs com taxpayer's 2013 return. Irs com You may also claim an additional withholding allowance for each of your dependents not admitted to the United States on “F-2,” “J-2,” or “M-2” visas if they meet the same rules that apply to U. Irs com S. Irs com citizens. Irs com Household employees. Irs com   If you work as a household employee, your employer does not have to withhold income tax. Irs com However, you may agree to voluntary income tax withholding by filing a Form W-4 with your employer. Irs com The agreement goes into effect when your employer accepts the agreement by beginning the withholding. Irs com You or your employer may end the agreement by letting the other know in writing. Irs com Agricultural workers. Irs com   If you are an agricultural worker on an H-2A visa, your employer does not have to withhold income tax. Irs com However, your employer will withhold income tax only if you and your employer agree to withhold. Irs com In that case, you must provide your employer with a properly completed Form W-4. Irs com You can find more information about not having tax withheld at www. Irs com irs. Irs com gov/Individuals/International-Taxpayers/Foreign-Agricultural-Workers. Irs com Wages Exempt From Withholding Wages that are exempt from U. Irs com S. Irs com income tax under an income tax treaty are generally exempt from withholding. Irs com For information on how to claim this exemption from withholding, see Income Entitled to Tax Treaty Benefits , later. Irs com Wages paid to aliens who are residents of American Samoa, Canada, Mexico, Puerto Rico, or the U. Irs com S. Irs com Virgin Islands may be exempt from withholding. Irs com The following paragraphs explain these exemptions. Irs com Residents of Canada or Mexico engaged in transportation-related employment. Irs com   Certain residents of Canada or Mexico who enter or leave the United States at frequent intervals are not subject to withholding on their wages. Irs com These persons either: Perform duties in transportation service between the United States and Canada or Mexico, or Perform duties connected to the construction, maintenance, or operation of a waterway, viaduct, dam, or bridge crossed by, or crossing, the boundary between the United States and Canada or the boundary between the United States and Mexico. Irs com    This employment is subject to withholding of social security and Medicare taxes unless the services are performed for a railroad. Irs com   To qualify for the exemption from withholding during a tax year, a Canadian or Mexican resident must give the employer a statement in duplicate with name, address, and identification number, certifying that the resident: Is not a U. Irs com S. Irs com citizen or resident, Is a resident of Canada or Mexico, whichever applies, and Expects to perform duties previously described during the tax year in question. Irs com   The statement can be in any form, but it must be dated and signed by the employee and must include a written declaration that it is made under the penalties of perjury. Irs com Residents of American Samoa and Puerto Rico. Irs com   If you are a nonresident alien employee who is a resident of American Samoa or Puerto Rico, wages for services performed in American Samoa or Puerto Rico are generally not subject to withholding unless you are an employee of the United States or any of its agencies in American Samoa or Puerto Rico. Irs com Residents of the U. Irs com S. Irs com Virgin Islands. Irs com   Nonresident aliens who are bona fide residents of the U. Irs com S Virgin Islands are not subject to withholding of U. Irs com S. Irs com tax on income earned while temporarily employed in the United States. Irs com This is because those persons pay their income tax to the U. Irs com S. Irs com Virgin Islands. Irs com To avoid having tax withheld on income earned in the United States, bona fide residents of the U. Irs com S. Irs com Virgin Islands should write a letter, in duplicate, to their employers, stating that they are bona fide residents of the U. Irs com S. Irs com Virgin Islands and expect to pay tax on all income to the U. Irs com S. Irs com Virgin Islands. Irs com Withholding on Pensions If you receive a pension as a result of personal services performed in the United States, the pension income is subject to the 30% (or lower treaty) rate of withholding. Irs com You may, however, have tax withheld at graduated rates on the portion of the pension that arises from the performance of services in the United States after December 31, 1986. Irs com You must fill out Form W-8BEN and give it to the withholding agent or payer before the income is paid or credited to you. Irs com Withholding on Tip Income Tips you receive during the year for services performed in the United States are subject to U. Irs com S. Irs com income tax. Irs com Include them in taxable income. Irs com In addition, tips received while working for one employer, amounting to $20 or more in a month, are subject to graduated withholding. Irs com Independent Contractors If there is no employee-employer relationship between you and the person for whom you perform services, your compensation is subject to the 30% (or lower treaty) rate of withholding. Irs com However, if you are engaged in a trade or business in the United States during the tax year, your compensation for personal services as an independent contractor (independent personal services) may be entirely or partly exempt from withholding if you reach an agreement with the Internal Revenue Service on the amount of withholding required. Irs com An agreement that you reach with the IRS regarding withholding from your compensation for independent personal services is effective for payments covered by the agreement after it is agreed to by all parties. Irs com You must agree to timely file an income tax return for the current tax year. Irs com Central withholding agreements. Irs com   If you are a nonresident alien entertainer or athlete performing or participating in athletic events in the United States, you may be able to enter into a withholding agreement with the IRS for reduced withholding provided certain requirements are met. Irs com Under no circumstances will such a withholding agreement reduce taxes withheld to less than the anticipated amount of income tax liability. Irs com   File Form 13930 and the required attachments with the IRS to request a central withholding agreement. Irs com Either you or your authorized representative can file the form. Irs com It should be sent to the IRS at least 45 days before the tour begins or the event occurs. Irs com Exceptions will be considered on a case by case basis. Irs com   For more information on the CWA program, go to www. Irs com irs. Irs com gov/Individuals/International-Taxpayers/Central-Withholding-Agreements. Irs com Final payment exemption. Irs com   Your final payment of compensation during the tax year for independent personal services may be entirely or partly exempt from withholding. Irs com This exemption is available only once during your tax year and applies to a maximum of $5,000 of compensation. Irs com To obtain this exemption, you or your agent must give the following statements and information to the Commissioner or his delegate. Irs com A statement by each withholding agent from whom you have received gross income effectively connected with a trade or business in the United States during the tax year, showing the amount of income paid and the tax withheld. Irs com Each statement must be signed by the withholding agent and verified by a declaration that it is made under penalties of perjury. Irs com A statement by the withholding agent from whom you expect to receive the final payment of compensation, showing the amount of the payment and the amount of tax that would be withheld if a final payment exemption were not granted. Irs com This statement must also be signed by the withholding agent and verified by a declaration that it is made under penalties of perjury. Irs com A statement by you that you do not intend to receive any other income effectively connected with a trade or business in the United States during the current tax year. Irs com The amount of tax that has been withheld or paid under any other provision of the Internal Revenue Code or regulations for any income effectively connected with your trade or business in the United States during the current tax year. Irs com The amount of your outstanding tax liabilities, if any, including interest and penalties, from the current tax year or prior tax periods. Irs com Any provision of an income tax treaty under which a partial or complete exemption from withholding may be claimed, the country of your residence, and a statement of sufficient facts to justify an exemption under the treaty. Irs com A statement signed by you, and verified by a declaration that it is made under penalties of perjury, that all the information given is true and that to your knowledge no relevant information has been omitted. Irs com   If satisfied with the information, the IRS will determine the amount of your tentative income tax for the tax year on gross income effectively connected with your trade or business in the United States. Irs com Ordinary and necessary business expenses can be taken into account if proven to the satisfaction of the Commissioner or his delegate. Irs com   The Commissioner or his delegate will send you a letter, directed to the withholding agent, showing the amount of the final payment of compensation that is exempt from withholding and the amount that can be paid to you because of the exemption. Irs com You must give two copies of the letter to the withholding agent and must also attach a copy of the letter to your income tax return for the tax year for which the exemption is effective. Irs com Allowance for Personal Exemption Withholding on payments for independent personal services is generally based on the amount of your compensation payment minus the value of one exemption ($3,950 for 2014). Irs com To determine the income for independent personal services performed in the United States to which the 30% (or lower treaty) rate will apply, you are allowed one personal exemption if you are not a U. Irs com S. Irs com national and are not a resident of Canada, Mexico, or South Korea. Irs com For purposes of 30% withholding, the exemption is prorated at $10. Irs com 82 a day in 2014 for the period that labor or personal services are performed in the United States. Irs com To claim an exemption from withholding on the personal exemption amount, fill out the applicable parts of Form 8233 and give it to the withholding agent. Irs com Example. Irs com Eric Johannsen, who is a resident of Country X worked under a contract with a U. Irs com S. Irs com firm (not as an employee) in the United States for 100 days during 2014 before returning to his country. Irs com He earned $6,000 for the services performed (not considered wages) in the United States. Irs com Eric is married and has three dependent children. Irs com His wife is not employed and has no income subject to U. Irs com S. Irs com tax. Irs com The amount of the personal exemption to be allowed against the income for his personal services performed within the United States in 2014 is $1,082 (100 days × $10. Irs com 82), and withholding at 30% is applied against the balance. Irs com Thus, $1,475. Irs com 40 in tax is withheld from Eric's earnings (30% of $4,918 ($6,000 − $1,082). Irs com U. Irs com S. Irs com nationals or residents of Canada, Mexico, or South Korea. Irs com   If you are a nonresident alien who is a resident of Canada, Mexico, or South Korea, or who is a national of the United States, you are subject to the same 30% withholding on your compensation for independent personal services performed in the United States. Irs com However, if you are a U. Irs com S. Irs com national or a resident of Canada or Mexico, you are allowed the same personal exemptions as U. Irs com S. Irs com citizens. Irs com For the 30% (or lower treaty) rate withholding, you can take $10. Irs com 82 per day for each allowable exemption in 2014. Irs com If you are a resident of South Korea, you are allowed personal exemptions for yourself and for your spouse and children who live with you in the United States at any time during the tax year. Irs com However, the additional exemptions for your spouse and children must be further prorated as explained in chapter 5 under Exemptions . Irs com Students and business apprentices from India. Irs com   If you are eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty, you are allowed an exemption for your spouse only if your spouse will have no gross income for 2014 and cannot be claimed as a dependent on another U. Irs com S. Irs com taxpayer's 2014 return. Irs com You are also allowed an exemption for each dependent not admitted to the United States on “F-2,” “J-2,” or “M-2” visas if they meet the same rules that apply to U. Irs com S. Irs com citizens. Irs com For the 30% (or lower treaty rate) withholding on compensation for independent personal services performed in the United States, you are allowed $10. Irs com 82 per day for each allowable exemption in 2014. Irs com Refund of Taxes Withheld in Error Multi-level marketing. Irs com   If you are a distributor for a multi-level marketing company who had taxes withheld in error, file a U. Irs com S. Irs com income tax return (Form 1040NR, Form 1040NR-EZ, or Form 1120-F) or, if a tax return has already been filed, a claim for refund (Form 1040X or amended Form 1120-F) to recover the amount withheld in error. Irs com You must also attach to the U. Irs com S. Irs com income tax return or claim for refund supporting information that includes, but is not limited to, the following items. Irs com A copy of your Form W-2, Form 1042-S, or Form 1099 to prove the amount of taxes withheld. Irs com A statement explaining why income reported on your Form W-2, Form 1042-S, or Form 1099 is not subject to U. Irs com S. Irs com taxation. Irs com A statement listing all the dates you entered and left the United States during the taxable year. Irs com If the compensation is multi-year compensation, the statement must list all the dates you entered and left the United States during each of the taxable years to which the compensation is attributable. Irs com A copy of any documents or records that show the number of days you actually were present in the United States during the years listed. Irs com A statement providing: (a) the number of days (or unit of time less than a day, if appropriate) that personal services were performed in the United States in connection with recruiting, training, and supporting your lower-tier distributors; and (b) the total number of days (or unit of time less than a day, if appropriate) that personal services were performed globally in connection with recruiting, training, and supporting your lower-tier distributors. Irs com Any further relevant document or record supporting your claim that the taxes were withheld in error. Irs com Withholding From Other Income Other income subject to 30% withholding generally includes fixed or determinable income such as interest (other than portfolio interest), dividends, pensions and annuities, and gains from certain sales and exchanges, discussed in chapter 4. Irs com It also includes 85% of social security benefits paid to nonresident aliens. Irs com Refund of taxes withheld in error on social security benefits paid to resident aliens. Irs com   Social security benefits paid to a lawful permanent resident (green card holder) are not subject to 30% withholding. Irs com For U. Irs com S. Irs com income tax purposes, green card holders continue to be resident aliens until their lawful permanent resident status under immigration laws is either taken away or is administratively or judicially determined to have been abandoned. Irs com See Green Card Test in chapter 1. Irs com If you are a green card holder and tax was withheld in error on your social security benefits because you have a foreign address, the withholding tax is refundable by the Social Security Administration (SSA) or the IRS. Irs com SSA will refund taxes erroneously withheld if the refund can be processed during the same calendar year in which the tax was withheld. Irs com If SSA cannot refund the taxes withheld, you must file a Form 1040 or 1040A with the Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301 to determine if you are entitled to a refund. Irs com You must also attach the following to your Form 1040 or 1040A. Irs com A copy of Form SSA-1042S, Social Security Benefit Statement. Irs com A copy of the “green card. Irs com ” A signed declaration that includes the following statements: The SSA should not have withheld income tax from my social security benefits because I am a U. Irs com S. Irs com lawful permanent resident and my green card has been neither revoked nor administratively or judicially determined to have been abandoned. Irs com I am filing a U. Irs com S. Irs com income tax return for the tax year as a resident alien reporting all of my worldwide income. Irs com I have not claimed benefits for the tax year under an income tax treaty as the resident of a country other than the United States. Irs com Other income not subject to withholding of 30% (or lower treaty) rate. Irs com   The following income is not subject to withholding at the 30% (or lower treaty) rate if you file Form W-8ECI with the payer of the income. Irs com Income (other than compensation) that is effectively connected with your U. Irs com S. Irs com trade or business. Irs com Income from real property that you choose to treat as effectively connected with a U. Irs com S. Irs com trade or business. Irs com See Income From Real Property in chapter 4 for details about this choice. Irs com   Special rules for withholding on partnership income, scholarships, and fellowships are explained next. Irs com Tax Withheld on Partnership Income If you are a foreign partner in a U. Irs com S. Irs com or foreign partnership, the partnership will withhold tax on your share of effectively connected taxable income (ECTI) from the partnership. Irs com You may be able to reduce your ECTI subject to withholding by certain partner-level deductions. Irs com Generally, you must use Form 8804-C for this purpose. Irs com See the Instructions for Form 8804-C for more information. Irs com The withholding rate on your share of effectively connected income is generally the highest rate of tax specified under section 1 of the Code (39. Irs com 6% for 2014). Irs com However, the partnership may withhold at the highest rate that applies to a particular type of income allocable to you if you gave the partnership the appropriate documentation. Irs com Long-term capital gain is an example of a particular type of income to which the highest tax rate applies. Irs com Claim the tax withheld as a credit on your 2014 Form 1040NR. Irs com The partnership will give you a statement on Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, showing the tax withheld. Irs com A partnership that is publicly traded will withhold tax on your actual distributions of effectively connected income. Irs com In this case the partnership will give you a statement on Form 1042-S, Foreign Person's U. Irs com S. Irs com Source Income Subject to Withholding. Irs com Withholding on Scholarships and Fellowship Grants There is no withholding on a qualified scholarship received by a candidate for a degree. Irs com See chapter 3. Irs com If you are a nonresident alien student or grantee with an “F,” “J,” “M,” or “Q” visa and you receive a U. Irs com S. Irs com source grant or scholarship that is not fully exempt, the withholding agent (usually the payer of the scholarship) withholds tax at 14% (or lower treaty rate) of the taxable part of the grant or scholarship that is not a payment for services. Irs com However, if you are not a candidate for a degree and the grant does not meet certain requirements, tax will be withheld at the 30% (or lower treaty) rate. Irs com Any part of a scholarship or fellowship grant that is a payment for services is subject to graduated withholding as discussed earlier under Withholding on Wages. Irs com Alternate Withholding Procedure Your withholding agent may choose to use an alternate procedure by asking you to fill out Form W-4 and the Personal Allowances Worksheet (attached to Form W-4). Irs com Use the following instructions instead of the Form W-4 instructions to complete the worksheet. Irs com Line A. Irs com   Enter the total of the following amounts on line A. Irs com Personal exemption. Irs com   Include the prorated part of your allowable personal exemption. Irs com Figure the amount by multiplying the number of days you expect to be in the United States in 2014 by the daily exemption amount ($10. Irs com 82). Irs com Expenses. Irs com   Include expenses that will be deductible on your return. Irs com These include away-from-home expenses (meals, lodging, and transportation), certain state and local income taxes, charitable contributions, and casualty losses, discussed earlier under Itemized Deductions in chapter 5. Irs com They also include business expenses, moving expenses, and the IRA deduction discussed under Deductions in chapter 5. Irs com Nontaxable grant or scholarship. Irs com   Include the part of your grant or scholarship that is not taxable under U. Irs com S. Irs com law or under a tax treaty. Irs com Line B. Irs com   Enter -0- unless the following paragraph applies to you. Irs com   If you are a student who qualifies under Article 21(2) of the United States-India Income Tax Treaty, and you are not claiming deductions for away-from-home expenses or other itemized deductions (discussed earlier), enter the standard deduction on line B. Irs com The standard deduction amount for 2013 is $6,100. Irs com Lines C and D. Irs com   Enter -0- on both lines unless the following paragraphs apply to you. Irs com   If you are a resident of Canada, Mexico, South Korea, or a U. Irs com S. Irs com national, an additional daily exemption amount may be allowed for your spouse and each of your dependents. Irs com   If you are a resident of India who is eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty, you can claim an additional daily exemption amount for your spouse only if your spouse will have no gross income for 2014 and cannot be claimed as a dependent on another U. Irs com S. Irs com taxpayer's 2014 return. Irs com You can also claim an additional amount for each of your dependents not admitted to the United States on “F-2,” “J-2,” or “M-2” visas if they meet the same rules that apply to U. Irs com S. Irs com citizens. Irs com   Enter any additional amount for your spouse on line C. Irs com Enter any additional amount for your dependents on line D. Irs com Lines E, F, and G. Irs com   No entries should be made on lines E, F, and G. Irs com Line H. Irs com   Add the amounts on lines A through D and enter the total on line H. Irs com Form W-4. Irs com   Complete lines 1 through 4 of Form W-4. Irs com Sign and date the form and give it with the Personal Allowances Worksheet to your withholding agent. Irs com   If you file a Form W-4 to reduce or eliminate the withholding on your scholarship or grant, you must file an annual U. Irs com S. Irs com income tax return to be allowed the exemptions and deductions you claimed on that form. Irs com If you are in the United States during more than one tax year, you must attach a statement to your yearly Form W-4 indicating that you have filed a U. Irs com S. Irs com income tax return for the previous year. Irs com If you have not been in the United States long enough to be required to file a return, you must attach a statement to your Form W-4 saying you will file a U. Irs com S. Irs com income tax return when required. Irs com After the withholding agent has accepted your Form W-4, tax will be withheld on your scholarship or grant at the graduated rates that apply to wages. Irs com The gross amount of the income is reduced by the amount on line H of the worksheet and the withholding tax is figured on the remainder. Irs com You will receive a Form 1042-S from the withholding agent (usually the payer of your grant) showing the gross amount of your taxable scholarship or fellowship grant less the withholding allowance amount, the tax rate, and the amount of tax withheld. Irs com Use this form to prepare your annual U. Irs com S. Irs com income tax return. Irs com Income Entitled to Tax Treaty Benefits If a tax treaty between the United States and your country provides an exemption from, or a reduced rate of, tax for certain items of income, you should notify the payor of the income (the withholding agent) of your foreign status to claim a tax treaty withholding exemption. Irs com Generally, you do this by filing either Form W-8BEN or Form 8233 with the withholding agent. Irs com File Form W-8BEN for income that is not personal services income. Irs com File Form 8233 for personal services income as discussed next. Irs com Employees and independent contractors. Irs com   If you perform personal services as an employee or as an independent contractor and you can claim an exemption from withholding on that personal service income because of a tax treaty, give Form 8233 to each withholding agent from whom amounts will be received. Irs com   Even if you submit Form 8233, the withholding agent may have to withhold tax from your income. Irs com This is because the factors on which the treaty exemption is based may not be determinable until after the close of the tax year. Irs com In this case, you must file Form 1040NR (or Form 1040NR-EZ if you qualify) to recover any overwithheld tax and to provide the IRS with proof that you are entitled to the treaty exemption. Irs com Students, teachers, and researchers. Irs com   Students, teachers, and researchers must attach the appropriate statement shown in Appendix A (for students) or Appendix B (for teachers and researchers) at the end of this publication to the Form 8233 and give it to the withholding agent. Irs com For treaties not listed in the appendices, attach a statement in a format similar to those for other treaties. Irs com   If you received a scholarship or fellowship and personal services income from the same withholding agent, use Form 8233 to claim an exemption from withholding based on a tax treaty for both types of income. Irs com Special events and promotions. Irs com   Withholding at the full 30% rate is required for payments made to a nonresident alien or foreign corporation for gate receipts (or television or other receipts) from rock music festivals, boxing promotions, and other entertainment or sporting events, unless the withholding agent has been specifically advised otherwise by letter from the IRS. Irs com Form 13930 is used to request a reduction in withholding. Irs com Withholding may be required even if the income may be exempt from taxation by provisions of a tax treaty. Irs com One reason for this is that the partial or complete exemption is usually based on factors that cannot be determined until after the close of the tax year. Irs com You will be required to pay U. Irs com S. Irs com tax, at the time of your departure from the United States, on any income for which you incorrectly claimed a treaty exemption. Irs com For more details on treaty provisions that apply to compensation, see Publication 901. Irs com Tax Withheld on Real Property Sales If you are a nonresident alien and you dispose of a U. Irs com S. Irs com real property interest, the transferee (buyer) of the property generally must withhold a tax equal to 10% of the amount realized on the disposition. Irs com A distribution by a qualified investment entity to a nonresident alien shareholder that is treated as gain from the sale or exchange of a U. Irs com S. Irs com real property interest by the shareholder is subject to withholding at 35%. Irs com Withholding is also required on certain distributions and other transactions by domestic or foreign corporations, partnerships, trusts, and estates. Irs com These rules are covered in Publication 515. Irs com For information on the tax treatment of dispositions of U. Irs com S. Irs com real property interests, see Real Property Gain or Loss in chapter 4. Irs com If you are a partner in a domestic partnership, and the partnership disposes of a U. Irs com S. Irs com real property interest at a gain, the partnership will withhold tax on the amount of gain allocable to its foreign partners. Irs com Your share of the income and tax withheld will be reported to you on Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, or Form 1042-S, Foreign Person's U. Irs com S. Irs com Source Income Subject to Withholding (in the case of a publicly traded partnership). Irs com Withholding is not required in the following situations. Irs com The property is acquired by the buyer for use as a residence and the amount realized (sales price) is not more than $300,000. Irs com The property disposed of is an interest in a domestic corporation if any class of stock of the corporation is regularly traded on an established securities market. Irs com However, this exception does not apply to certain dispositions of substantial amounts of non-publicly traded interests in publicly traded corporations. Irs com The property disposed of is an interest in a U. Irs com S. Irs com corporation that is not regularly traded on an established market and you (the seller) give the buyer a copy of a statement issued by the corporation certifying that the interest is not a U. Irs com S. Irs com real property interest. Irs com You (the seller) give the buyer a certification stating, under penalties of perjury, that you are not a foreign person, and containing your name, U. Irs com S. Irs com taxpayer identification number, and home address. Irs com You can give the certification to a qualified substitute. Irs com The qualified substitute gives the buyer a statement, under penalties of perjury, that the certification is in the possession of the qualified substitute. Irs com For this purpose, a qualified substitute is (a) the person (including any attorney or title company) responsible for closing the transaction, other than your agent, and (b) the buyer's agent. Irs com The buyer receives a withholding certificate from the Internal Revenue Service. Irs com You give the buyer written notice that you are not required to recognize any gain or loss on the transfer because of a nonrecognition provision in the Internal Revenue Code or a provision in a U. Irs com S. Irs com tax treaty. Irs com The buyer must file a copy of the notice with the Ogden Service Center, P. Irs com O. Irs com Box 409101, Ogden, UT 84409. Irs com You must verify the notice as true and sign it under penalties of perjury. Irs com The notice must contain the following information. Irs com A statement that the notice is a notice of nonrecognition under regulation section 1. Irs com 1445-2(d)(2). Irs com Your name, taxpayer identification number, and home address. Irs com A statement that you are not required to recognize any gain or loss on the transfer. Irs com A brief description of the transfer. Irs com A brief summary of the law and facts supporting your claim that recognition of gain or loss is not required. Irs com You may not give the buyer a written notice for any of the following transfers: the sale of your main home on which you exclude gain, a like-kind exchange that does not qualify for nonrecognition treatment in its entirety, or a deferred like-kind exchange that has not been completed at the time the buyer must file Form 8288. Irs com Instead, a withholding certificate (described next) must be obtained. Irs com The amount you realize on the transfer of a U. Irs com S. Irs com real property interest is zero. Irs com The property is acquired by the United States, a U. Irs com S. Irs com state or possession, a political subdivision, or the District of Columbia. Irs com The distribution is from a domestically controlled qualified investment entity (QIE) and is treated as a distribution of a U. Irs com S. Irs com real property interest only because an interest in the entity was disposed of in an applicable wash sale transaction. Irs com For the definition of a QIE, see Qualified investment entities under Real Property Gain or Loss, earlier. Irs com See Wash sale under Real Property Gain or Loss in chapter 4. Irs com The certifications in (3) and (4) must be disregarded by the buyer if the buyer or qualified substitute has actual knowledge, or receives notice from a seller's or buyer's agent (or substitute), that they are false. Irs com This also applies to the qualified substitute's statement under (4). Irs com Withholding certificates. Irs com   The tax required to be withheld on a disposition can be reduced or eliminated under a withholding certificate issued by the IRS. Irs com Either you or the buyer can request a withholding certificate. Irs com   A withholding certificate can be issued due to any of the following. Irs com The IRS determines that reduced withholding is appropriate because either: The amount required to be withheld would be more than your maximum tax liability, or Withholding of the reduced amount would not jeopardize collection of the tax. Irs com All of your realized gain is exempt from U. Irs com S. Irs com tax. Irs com You or the buyer enters into an agreement for the payment of tax providing security for the tax liability. Irs com   Get Publication 515 and Form 8288-B for information on procedures to request a withholding certificate. Irs com Credit for tax withheld. Irs com   The buyer must report and pay over the withheld tax within 20 days after the transfer using Form 8288, U. Irs com S. Irs com Withholding Tax Return for Dispositions by Foreign Persons of U. Irs com S. Irs com Real Property Interests. Irs com This form is filed with the IRS with copies A and B of Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. Irs com S. Irs com Real Property Interests. Irs com Copy B of this statement will be stamped received by the IRS and returned to you (the seller) if the statement is complete and includes your taxpayer identification number (TIN). Irs com You must file Copy B with your tax return to take credit for the tax withheld. Irs com   A stamped copy of Form 8288-A will not be provided to you if your TIN is not included on that form. Irs com The IRS will send you a letter requesting the TIN and providing instructions for how to get a TIN. Irs com When you provide the IRS with a TIN, the IRS will provide you with a stamped Copy B of Form 8288-A. Irs com Social Security and Medicare Taxes If you work as an employee in the United States, you must pay social security and Medicare taxes in most cases. Irs com Your payments of these taxes contribute to your coverage under the U. Irs com S. Irs com social security system. Irs com Social security coverage provides retirement benefits, survivors and disability benefits, and medical insurance (Medicare) benefits to individuals who meet certain eligibility requirements. Irs com In most cases, the first $113,700 of taxable wages received in 2013 for services performed in the United States is subject to social security tax. Irs com All taxable wages are subject to Medicare tax. Irs com Your employer deducts these taxes from each wage payment. Irs com Your employer must deduct these taxes even if you do not expect to qualify for social security or Medicare benefits. Irs com You can claim a credit for excess social security tax on your income tax return if you have more than one employer and the amount deducted from your combined wages for 2013 is more than $7,049. Irs com 40. Irs com Use the appropriate worksheet in chapter 3 of Publication 505, Tax Withholding and Estimated Tax, to figure your credit. Irs com If any one employer deducted more than $7,049. Irs com 40, you cannot claim a credit for that amount. Irs com Ask your employer to refund the excess. Irs com If your employer does not refund the excess, you can file a claim for refund using Form 843. Irs com In general, U. Irs com S. Irs com social security and Medicare taxes apply to payments of wages for services performed as an employee in the United States, regardless of the citizenship or residence of either the employee or the employer. Irs com In limited situations, these taxes apply to wages for services performed outside the United States. Irs com Your employer should be able to tell you if social security and Medicare taxes apply to your wages. Irs com You cannot make voluntary payments if no taxes are due. Irs com Additional Medicare Tax. Irs com   Beginning in 2013, in addition to the Medicare tax, a 0. Irs com 9% Additional Medicare Tax applies to Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income that are more than: $250,000 if married filing jointly, $125,000 if married filing separately, or $200,000 for any other filing status. Irs com   There are no special rules for nonresident aliens for purposes of Additional Medicare Tax. Irs com Wages, RRTA compensation, and self-employment income that are subject to Medicare tax will also be subject to Additional Medicare Tax if in excess of the applicable threshold. Irs com   Your employer is responsible for withholding the 0. Irs com 9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays to you in excess of $200,000 in the calendar year. Irs com If you intend to file a joint return and you anticipate that you and your spouse's individual wages are not going to be more than $200,000 but your combined wages and self-employment income are going to be more than $250,000, you may want to request additional withholding on Form W-4 and/or make estimated tax payments. Irs com   If you file Form 1040NR, you must pay Additional Medicare Tax if the total of your wages and your self-employment income was more than $125,000 if married (Box 3, 4, or 5 on page 1 of Form 1040NR), or $200,000 if single or qualifying widow(er) (Box 1, 2, or 6 on page 1 of Form 1040NR). Irs com    See Form 8959, Additional Medicare Tax, and the Instructions for Form 8959 to determine whether you are required to pay Additional Medicare Tax. Irs com For more information on Additional Medicare Tax, go to IRS. Irs com gov and enter “Additional Medicare Tax” in the search box. Irs com   Self-employed individuals may also be required to pay Additional Medicare Tax. Irs com See Self-Employment Tax , later. Irs com Students and Exchange Visitors Generally, services performed by you as a nonresident alien temporarily in the United States as a nonimmigrant under subparagraph (F), (J), (M), or (Q) of section 101(a)(15) of the Immigration and Nationality Act are not covered under the social security program if the services are performed to carry out the purpose for which you were admitted to the United States. Irs com This means that there will be no withholding of social security or Medicare taxes from the pay you receive for these services. Irs com These types of services are very limited, and generally include only on-campus work, practical training, and economic hardship employment. Irs com Social security and Medicare taxes will be withheld from your pay for these services if you are considered a resident alien as discussed in chapter 1, even though your nonimmigrant classification (“F,” “J,” “M,” or “Q”) remains the same. Irs com Services performed by a spouse or minor child of nonimmigrant aliens with the classification of “F-2,” “J-2,” “M-2,” and “Q-3” are covered under social security. Irs com Nonresident Alien Students If you are a nonresident alien temporarily admitted to the United States as a student, you generally are not permitted to work for a wage or salary or to engage in business while you are in the United States. Irs com In some cases, a student admitted to the United States in “F-1,” “M-1,” or “J-1” status is granted permission to work. Irs com Social security and Medicare taxes are not withheld from pay for the work unless the student is considered a resident alien. Irs com Any student who is enrolled and regularly attending classes at a school may be exempt from social security and Medicare taxes on pay for services performed for that school. Irs com The U. Irs com S. Irs com Citizenship and Immigration Services (USCIS) permits on-campus work for students in “F-1” status if it does not displace a U. Irs com S. Irs com resident. Irs com On-campus work means work performed on the school's premises. Irs com On-campus work includes work performed at an off-campus location that is educationally affiliated with the school. Irs com On-campus work under the terms of a scholarship, fellowship, or assistantship is considered part of the academic program of a student taking a full course of study and is permitted by the USCIS. Irs com Social security and Medicare taxes are not withheld from pay for this work unless the student is considered a resident alien. Irs com If services performed by a nonresident alien student are not considered as performed to carry out the purpose for which the student was admitted to the United States, social security and Medicare taxes will be withheld from pay for the services unless the pay is exempt under the Internal Revenue Code. Irs com Exchange Visitors Exchange visitors are temporarily admitted to the United States under section 101(a)(15)(J) of the Immigration and Nationality Act. Irs com Social security and Medicare taxes are not withheld on pay for services of an exchange visitor who has been given permission to work and who possesses or obtains a letter of authorization from the sponsor unless the exchange visitor is considered a resident alien. Irs com If services performed by an exchange visitor are not considered as performed to carry out the purpose for which the visitor was admitted to the United States, social security and Medicare taxes are withheld from pay for the services unless the pay is exempt under the Internal Revenue Code. Irs com Nonresident aliens temporarily admitted to the United States as participants in international cultural exchange programs under section 101(a)(15)(Q) of the Immigration and Nationality Act may be exempt from social security and Medicare taxes. Irs com The employer must be the petitioner through whom the alien obtained the “Q” visa. Irs com Social security and Medicare taxes are not withheld from pay for this work unless the alien is considered a resident alien. Irs com Refund of Taxes Withheld in Error If social security or Medicare taxes were withheld in error from pay that is not subject to these taxes, contact the employer who withheld the taxes for a refund. Irs com If you are unable to get a full refund of the amount from your employer, file a claim for refund with the Internal Revenue Service on Form 843, Claim for Refund and Request for Abatement. Irs com Attach the following items to Form 843. Irs com A copy of your Form W-2 to prove the amount of social security and Medicare taxes withheld. Irs com A copy of your visa. Irs com Form I-94 (or other documentation showing your dates of arrival or departure). Irs com If you have an F-1 visa, documentation showing permission to work in the U. Irs com S. Irs com If you have a J-1 visa, documentation showing permission to work in the U. Irs com S. Irs com If you are engaged in optional practical training or employment due to severe economic necessity, documentation showing permission to work in the U. Irs com S. Irs com A statement from your employer indicating the amount of the reimbursement your employer provided and the amount of the credit or refund your employer claimed or you authorized your employer to claim. Irs com If you cannot obtain this statement from your employer, you must provide this information on your own statement and explain why you are not attaching a statement from your employer or on Form 8316 claiming your employer will not issue the refund. Irs com If you were exempt from social security and Medicare tax for only part of the year, pay statements showing the tax paid during the period you were exempt. Irs com File Form 843 (with attachments) with the Department of the Treasury, Internal Revenue Service Center, Ogden, UT 84201-0038. Irs com Do not use Form 843 to request a refund of Additional Medicare Tax. Irs com If Additional Medicare Tax was withheld from your pay in error, you can claim a credit for any withheld Additional Medicare Tax against the total tax liability shown on your tax return by filing Form 8959 with Form 1040 or 1040NR. Irs com If Additional Medicare Tax was withheld in error in a prior year for which you already filed Form 1040 or 1040NR, you must file Form 1040X, Amended U. Irs com S. Irs com Individual Income Tax Return, for the prior year in which the wages or compensation were originally received to recover the Additional Medicare Tax withheld in error. Irs com See the Instructions for Form 1040X. Irs com Agricultural Workers Agricultural workers temporarily admitted into the United States on H-2A visas are exempt from social security and Medicare taxes on compensation paid to them for services performed in connection with the H-2A visa. Irs com You can find more information about not having tax withheld at www. Irs com irs. Irs com gov/Individuals/International-Taxpayers/Foreign-Agricultural-Workers. Irs com Self-Employment Tax Self-employment tax is the social security and Medicare taxes for individuals who are self-employed. Irs com Nonresident aliens are not subject to self-employment tax unless an international social security agreement in effect determines that they are covered under the U. Irs com S. Irs com social security system. Irs com Residents of the U. Irs com S. Irs com Virgin Islands, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa are considered U. Irs com S. Irs com residents for this purpose and are subject to the self-employment tax. Irs com Resident aliens must pay self-employment tax under the same rules that apply to U. Irs com S. Irs com citizens. Irs com However, a resident alien employed by an international organization, a foreign government, or a wholly-owned instrumentality of a foreign government is not subject to the self-employment tax on income earned in the United States. Irs com Self-employment income you receive while you are a resident alien is subject to self-employment tax even if it was paid for services you performed as a nonresident alien. Irs com Example. Irs com Bill Jones is an author engaged in the business of writing books. Irs com Bill had several books published in a foreign country while he was a citizen and resident of that country. Irs com During 2013, Bill entered the United States as a resident alien. Irs com After becoming a U. Irs com S. Irs com resident, he continued to receive royalties from his foreign publisher. Irs com Bill reports his income and expenses on the cash basis (he reports income on his tax return when received and deducts expenses when paid). Irs com Bill's 2013 self-employment income includes the royalties received after he became a U. Irs com S. Irs com resident even though the books were published while he was a nonresident alien. Irs com This royalty income is subject to self-employment tax. Irs com Reporting self-employment tax. Irs com   Use Schedule SE (Form 1040) to report and figure your self-employment tax. Irs com Then enter the tax on Form 1040, line 56, or Form 1040NR, line 54. Irs com Attach Schedule SE to Form 1040 or Form 1040NR. Irs com Additional Medicare Tax. Irs com   Self-employed individuals must pay a 0. Irs com 9% Additional Medicare Tax on self-employment income that exceeds one of the following threshold amounts (based on your filing status): Married filing jointly — $250,000; Married filing separately — $125,000; Single, Head of household, or Qualifying widow(er) — $200,000. Irs com   If you have both wages and self-employment income, the threshold amount for applying the Additional Medicare Tax on the self-employment income is reduced (but not below zero) by the amount of wages subject to Additional Medicare Tax. Irs com A self-employment loss should not be considered for purposes of this tax   If you file Form 1040NR, you must pay Additional Medicare Tax if the total of your wages and your self-employment income was more than $125,000 if married (Box 3, 4, or 5 on page 1 of Form 1040NR), or $200,000 if single or qualifying widow(er) (Box 1, 2, or 6 on page 1 of Form 1040NR). Irs com   See Form 8959, Additional Medicare Tax, and the Instructions for Form 8959 to determine whether you are required to pay Additional Medicare Tax. Irs com For more information on Additional Medicare Tax, go to IRS. Irs com gov and enter “Additional Medicare Tax” in the search box. Irs com Deduction for employer-equivalent portion of self-employment tax. Irs com   If you must pay self-employment tax, you can deduct a portion of the self-employment tax paid in figuring your adjusted gross income. Irs com This deduction is figured on Schedule SE (Form 1040). Irs com Note. Irs com No portion of the Additional Medicare Tax is deductible for self-employment tax. Irs com More information. Irs com   Get Publication 334, Tax Guide for Small Business, for more information about self-employment tax. Irs com International Social Security Agreements The United States has entered into social security agreements with foreign countries to coordinate social security coverage and taxation of workers employed for part or all of their working careers in one of the countries. Irs com These agreements are commonly referred to as totalization agreements. Irs com Under these agreements, dual coverage and dual contributions (taxes) for the same work are eliminated. Irs com The agreements generally make sure that social security taxes (including self-employment tax) are paid only to one country. Irs com Agreements are in effect with the following countries. Irs com Australia. Irs com Austria. Irs com Belgium. Irs com Canada. Irs com Chile. Irs com Czech Republic. Irs com Denmark. Irs com Finland. Irs com France. Irs com Germany. Irs com Greece. Irs com Ireland. Irs com Italy. Irs com Japan. Irs com Korea, South. Irs com Luxembourg. Irs com The Netherlands. Irs com Norway. Irs com Poland. Irs com Portugal. Irs com Spain. Irs com Sweden. Irs com Switzerland. Irs com The United Kingdom. Irs com Agreements with other countries are expected to enter into force in the future. Irs com Employees. Irs com   Generally, under these agreements, you are subject to social security taxes only in the country where you are working. Irs com However, if you are temporarily sent to work for the same employer in the United States and your pay would normally be subject to social security taxes in both countries, most agreements provide that you remain covered only by the social security system of the country from which you were sent. Irs com You can get more information on any agreement by contacting the U. Irs com S. Irs com Social Security Administration at the address given later. Irs com If you have access to the Internet, you can get more information at www. Irs com socialsecurity. Irs com gov/international. Irs com   To establish that your pay is subject only to foreign social security taxes and is exempt from U. Irs com S. Irs com social security taxes (including the Medicare tax) under an agreement, you or your employer should request a certificate of coverage from the appropriate agency of the foreign country. Irs com This will usually be the same agency to which you or your employer pays your foreign social security taxes. Irs com The foreign agency will be able to tell you what information is needed for them to issue the certificate. Irs com Your employer should keep a copy of the certificate because it may be needed to show why you are exempt from U. Irs com S. Irs com social security taxes. Irs com Only wages paid on or after the effective date of the agreement can be exempt from U. Irs com S. Irs com social security taxes. Irs com    Some of the countries with which the United States has agreements will not issue certificates of coverage. Irs com In this case, either you or your employer should request a statement that your wages are not covered by the U. Irs com S. Irs com social security system. Irs com Request the statement from the following address. Irs com U. Irs com S. Irs com Social Security Administration Office of International Programs P. Irs com O. Irs com Box 17741 Baltimore, MD 21235-7741 Self-employed individuals. Irs com   Under most agreements, self-employed individuals are covered by the social security system of the country where they reside. Irs com However, under some agreements, you may be exempt from U. Irs com S. Irs com self-employment tax if you temporarily transfer your business activity to or from the United States. Irs com   If you believe that your self-employment income is subject only to U. Irs com S. Irs com self-employment tax and is exempt from foreign social security taxes, request a certificate of coverage from the U. Irs com S. Irs com Social Security Administration at the address given earlier. Irs com This certificate will establish your exemption from foreign social security taxes. Irs com   To establish that your self-employment income is subject only to foreign social security taxes and is exempt from U. Irs com S. Irs com self-employment tax, request a certificate of coverage from the appropriate agency of the foreign country. Irs com If the foreign country will not issue the certificate, you should request a statement that your income is not covered by the U. Irs com S. Irs com social security system. Irs com Request it from the U. Irs com S. Irs com Social Security Administration at the address given earlier. Irs com Attach a photocopy of either statement to Form 1040 each year you are exempt. Irs com Also print “Exempt, see attached statement” on the line for self-employment tax. Irs com Estimated Tax Form 1040-ES (NR) You may have income from which no U. Irs com S. Irs com income tax is withheld. Irs com Or the amount of tax withheld may be less than the income tax you estimate you will owe at the end of the year. Irs com If so, you may have to pay estimated tax. Irs com Generally, you must make estimated tax payments for 2014 if you expect to owe at least $1,000 in tax and you expect your withholding and certain refundable credits to be less than the smaller of: 90% of the tax to be shown on your 2014 income tax return, or 100% of the tax shown on your 2013 income tax return (if your 2013 return covered all 12 months of the year). Irs com If your adjusted gross income for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing separately), substitute 110% for 100% in (2) above if you are not a farmer or fisherman. Irs com Item (2) does not apply if you did not file a 2013 return. Irs com A nonresident alien should use Form 1040-ES (NR) to figure and pay estimated tax. Irs com If you pay by check, make it payable to the "United States Treasury. Irs com " How to estimate your tax for 2014. Irs com   If you filed a 2013 return on Form 1040NR or Form 1040NR-EZ and expect your income, number of exemptions, and total deductions for 2014 to be nearly the same, you should use your 2013 return as a guide to complete the Estimated Tax Worksheet in the Form 1040-ES (NR) instructions. Irs com If you did not file a return for 2013, or if your income, exemptions, deductions, or credits will be different for 2014, you must estimate these amounts. Irs com Figure your estimated tax liability using the Tax Rate Schedule in the 2014 Form 1040-ES (NR) instructions for your filing status. Irs com Note. Irs com If you expect to be a resident of Puerto Rico during the entire year, use Form 1040-ES or Formulario 1040-ES (PR). Irs com When to pay estimated tax. Irs com   Make your first estimated tax payment by the due date for filing the previous year's Form 1040NR or Form 1040NR-EZ. Irs com If you have wages subject to the same withholding rules that apply to U. Irs com S. Irs com citizens, you must file Form 1040NR or Form 1040NR-EZ and make your first estimated tax payment by April 15, 2014. Irs com If you do not have wages subject to withholding, file your income tax return and make your first estimated tax payment by June 16, 2014. Irs com   If your first estimated tax payment is due April 15, 2014, you can pay your estimated tax in full at that time or in four equal installments by the dates shown next. Irs com 1st installment April 15, 2014 2nd installment June 16, 2014 3rd installment Sept. Irs com 15, 2014 4th installment Jan. Irs com 15, 2015 If your first payment is not due until June 16, 2014, you can pay your estimated tax in full at that time or: ½ of your estimated tax by June 16, 2014, 1/4 of the tax by September 15, 2014, and 1/4 by January 15, 2015. Irs com    You do not have to make the payment due January 15, 2015, if you file your 2014 Form 1040NR or 1040NR-EZ by February 2, 2015, and pay the entire balance due with your return. Irs com Fiscal year. Irs com   If your return is not on a calendar year basis, your due dates are the 15th day of the 4th, 6th, and 9th months of your fiscal year, and the 1st month of the following fiscal year. Irs com If any date falls on a Saturday, Sunday, or legal holiday, use the next day that is not a Saturday, Sunday, or legal holiday. Irs com Changes in income, deductions, or exemptions. Irs com   Even if you are not required to make an estimated tax payment in April or June, your circumstances may change so that you will have to make estimated tax payments later. Irs com This can happen if you receive additional income or if any of your deductions are reduced or eliminated. Irs com If so, see the instructions for Form 1040-ES (NR) and Publication 505 for information on figuring your estimated tax. Irs com Amended estimated tax. Irs com   If, after you have made estimated tax payments, you find your estimated tax is substantially increased or decreased because of a change in your income or exemptions, you should adjust your remaining estimated tax payments. Irs com To do this, see the instructions for Form 1040-ES (NR) and Publication 505. Irs com Penalty for failure to pay estimated income tax. Irs com   You will be subject to a penalty for underpayment of installments of estimated tax except in certain situations. Irs com These situations are explained on Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts. Irs com Prev  Up  Next   Home   More Online Publications