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State Income Tax Form

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State Income Tax Form

State income tax form Publication 15-A - Main Content Table of Contents 1. State income tax form Who Are Employees?Independent Contractors Common-Law Employees Statutory Employees Statutory Nonemployees Misclassification of Employees 2. State income tax form Employee or Independent Contractor?Common-Law Rules Industry Examples 3. State income tax form Employees of Exempt OrganizationsSocial security and Medicare taxes. State income tax form FUTA tax. State income tax form 4. State income tax form Religious Exemptions and Special Rules for MinistersForm W-2. State income tax form Self-employed. State income tax form Employees. State income tax form 5. State income tax form Wages and Other CompensationRelocating for Temporary Work Assignments Employee Achievement Awards Scholarship and Fellowship Payments Outplacement Services Withholding for Idle Time Back Pay Supplemental Unemployment Benefits Golden Parachute Payments Interest-Free and Below-Market-Interest-Rate Loans Leave Sharing Plans Nonqualified Deferred Compensation Plans Tax-Sheltered Annuities Contributions to a Simplified Employee Pension (SEP) SIMPLE Retirement Plans 6. State income tax form Sick Pay ReportingSick Pay Payments That Are Not Sick Pay Sick Pay Plan Third-Party Payers of Sick Pay Social Security, Medicare, and FUTA Taxes on Sick Pay Income Tax Withholding on Sick Pay Depositing and Reporting Example of Figuring and Reporting Sick Pay 7. State income tax form Special Rules for Paying TaxesCommon Paymaster Agents Reporting Agents Employee's Portion of Taxes Paid by Employer International Social Security Agreements 8. State income tax form Pensions and AnnuitiesFederal Income Tax Withholding 9. State income tax form Alternative Methods for Figuring WithholdingTerm of continuous employment. State income tax form Formula Tables for Percentage Method Withholding (for Automated Payroll Systems) Wage Bracket Percentage Method Tables (for Automated Payroll Systems) Combined Federal Income Tax, Employee Social Security Tax, and Employee Medicare Tax Withholding Tables 10. State income tax form Tables for Withholding on Distributions of Indian Gaming Profits to Tribal MembersWithholding Tables How To Get Tax Help 1. State income tax form Who Are Employees? Before you can know how to treat payments that you make to workers for services, you must first know the business relationship that exists between you and the person performing the services. State income tax form The person performing the services may be: An independent contractor, A common-law employee, A statutory employee, or A statutory nonemployee. State income tax form This discussion explains these four categories. State income tax form A later discussion, Employee or Independent Contractor in section 2, points out the differences between an independent contractor and an employee and gives examples from various types of occupations. State income tax form If an individual who works for you is not an employee under the common-law rules (see section 2), you generally do not have to withhold federal income tax from that individual's pay. State income tax form However, in some cases you may be required to withhold under the backup withholding requirements on these payments. State income tax form See Publication 15 (Circular E) for information on backup withholding. State income tax form Independent Contractors People such as doctors, veterinarians, and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees. State income tax form However, whether such people are employees or independent contractors depends on the facts in each case. State income tax form The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result. State income tax form Common-Law Employees Under common-law rules, anyone who performs services for you is generally your employee if you have the right to control what will be done and how it will be done. State income tax form This is so even when you give the employee freedom of action. State income tax form What matters is that you have the right to control the details of how the services are performed. State income tax form For a discussion of facts that indicate whether an individual providing services is an independent contractor or employee, see section 2. State income tax form If you have an employer-employee relationship, it makes no difference how it is labeled. State income tax form The substance of the relationship, not the label, governs the worker's status. State income tax form It does not matter whether the individual is employed full time or part time. State income tax form For employment tax purposes, no distinction is made between classes of employees. State income tax form Superintendents, managers, and other supervisory personnel are all employees. State income tax form An officer of a corporation is generally an employee; however, an officer who performs no services or only minor services, and neither receives nor is entitled to receive any pay, is not considered an employee. State income tax form A director of a corporation is not an employee with respect to services performed as a director. State income tax form You generally have to withhold and pay income, social security, and Medicare taxes on wages that you pay to common-law employees. State income tax form However, the wages of certain employees may be exempt from one or more of these taxes. State income tax form See Employees of Exempt Organizations (section 3) and Religious Exemptions and Special Rules for Ministers (section 4). State income tax form Leased employees. State income tax form   Under certain circumstances, a firm that furnishes workers to other firms is the employer of those workers for employment tax purposes. State income tax form For example, a temporary staffing service may provide the services of secretaries, nurses, and other similarly trained workers to its clients on a temporary basis. State income tax form   The staffing service enters into contracts with the clients under which the clients specify the services to be provided and a fee is paid to the staffing service for each individual furnished. State income tax form The staffing service has the right to control and direct the worker's services for the client, including the right to discharge or reassign the worker. State income tax form The staffing service hires the workers, controls the payment of their wages, provides them with unemployment insurance and other benefits, and is the employer for employment tax purposes. State income tax form For information on employee leasing as it relates to pension plan qualification requirements, see Leased employee in Publication 560, Retirement Plans for Small Business. State income tax form Additional information. State income tax form   For more information about the treatment of special types of employment, the treatment of special types of payments, and similar subjects, see Publication 15 (Circular E) or Publication 51 (Circular A), Agricultural Employer's Tax Guide. State income tax form Statutory Employees If workers are independent contractors under the common law rules, such workers may nevertheless be treated as employees by statute, (also known as “statutory employees”) for certain employment tax purposes. State income tax form This would happen if they fall within any one of the following four categories and meet the three conditions described next under Social security and Medicare taxes . State income tax form A driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission. State income tax form A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company. State income tax form An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done. State income tax form A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. State income tax form The goods sold must be merchandise for resale or supplies for use in the buyer's business operation. State income tax form The work performed for you must be the salesperson's principal business activity. State income tax form See Salesperson in section 2. State income tax form Social security and Medicare taxes. State income tax form   You must withhold social security and Medicare taxes from the wages of statutory employees if all three of the following conditions apply. State income tax form The service contract states or implies that substantially all the services are to be performed personally by them. State income tax form They do not have a substantial investment in the equipment and property used to perform the services (other than an investment in facilities for transportation, such as a car or truck). State income tax form The services are performed on a continuing basis for the same payer. State income tax form Federal unemployment (FUTA) tax. State income tax form   For FUTA tax (the unemployment tax paid under the Federal Unemployment Tax Act), the term “employee” means the same as it does for social security and Medicare taxes, except that it does not include statutory employees defined above in categories 2 and 3. State income tax form Any individual who is a statutory employee described above under category 1 or 4 is also an employee for FUTA tax purposes and subject to FUTA tax. State income tax form Income tax. State income tax form   Do not withhold federal income tax from the wages of statutory employees. State income tax form Reporting payments to statutory employees. State income tax form   Furnish Form W-2 to a statutory employee, and check “Statutory employee” in box 13. State income tax form Show your payments to the employee as “other compensation” in box 1. State income tax form Also, show social security wages in box 3, social security tax withheld in box 4, Medicare wages in box 5, and Medicare tax withheld in box 6. State income tax form The statutory employee can deduct his or her trade or business expenses from the payments shown on Form W-2. State income tax form He or she reports earnings as a statutory employee on line 1 of Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. State income tax form A statutory employee's business expenses are deductible on Schedule C (Form 1040) or C-EZ (Form 1040) and are not subject to the reduction by 2% of his or her adjusted gross income that applies to common-law employees. State income tax form H-2A agricultural workers. State income tax form   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. State income tax form Statutory Nonemployees There are three categories of statutory nonemployees: direct sellers, licensed real estate agents, and certain companion sitters. State income tax form Direct sellers and licensed real estate agents are treated as self-employed for all federal tax purposes, including income and employment taxes, if: Substantially all payments for their services as direct sellers or real estate agents are directly related to sales or other output, rather than to the number of hours worked, and Their services are performed under a written contract providing that they will not be treated as employees for federal tax purposes. State income tax form Direct sellers. State income tax form   Direct sellers include persons falling within any of the following three groups. State income tax form Persons engaged in selling (or soliciting the sale of) consumer products in the home or place of business other than in a permanent retail establishment. State income tax form Persons engaged in selling (or soliciting the sale of) consumer products to any buyer on a buy-sell basis, a deposit-commission basis, or any similar basis prescribed by regulations, for resale in the home or at a place of business other than in a permanent retail establishment. State income tax form Persons engaged in the trade or business of delivering or distributing newspapers or shopping news (including any services directly related to such delivery or distribution). State income tax form   Direct selling includes activities of individuals who attempt to increase direct sales activities of their direct sellers and who earn income based on the productivity of their direct sellers. State income tax form Such activities include providing motivation and encouragement; imparting skills, knowledge, or experience; and recruiting. State income tax form Licensed real estate agents. State income tax form   This category includes individuals engaged in appraisal activities for real estate sales if they earn income based on sales or other output. State income tax form Companion sitters. State income tax form   Companion sitters are individuals who furnish personal attendance, companionship, or household care services to children or to individuals who are elderly or disabled. State income tax form A person engaged in the trade or business of putting the sitters in touch with individuals who wish to employ them (that is, a companion sitting placement service) will not be treated as the employer of the sitters if that person does not receive or pay the salary or wages of the sitters and is compensated by the sitters or the persons who employ them on a fee basis. State income tax form Companion sitters who are not employees of a companion sitting placement service are generally treated as self-employed for all federal tax purposes. State income tax form Misclassification of Employees Consequences of treating an employee as an independent contractor. State income tax form   If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you are liable for employment taxes for that worker and the relief provision, discussed next, will not apply. State income tax form See section 2 in Publication 15 (Circular E) for more information. State income tax form Relief provision. State income tax form   If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. State income tax form To get this relief, you must file all required federal information returns on a basis consistent with your treatment of the worker. State income tax form You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. State income tax form Technical service specialists. State income tax form   This relief provision does not apply for a technical services specialist you provide to another business under an arrangement between you and the other business. State income tax form A technical service specialist is an engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work. State income tax form   This limit on the application of the rule does not affect the determination of whether such workers are employees under the common-law rules. State income tax form The common-law rules control whether the specialist is treated as an employee or an independent contractor. State income tax form However, if you directly contract with a technical service specialist to provide services for your business and not for another business, you may still be entitled to the relief provision. State income tax form Test proctors and room supervisors. State income tax form   The consistent treatment requirement does not apply to services performed after December 31, 2006, by an individual as a test proctor or room supervisor assisting in the administration of college entrance or placement examinations if the individual: Is performing the services for a section 501(c) organization exempt from tax under section 501(a) of the code, and Is not otherwise treated as an employee of the organization for employment taxes. State income tax form Voluntary Classification Settlement Program (VCSP). State income tax form   Employers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to voluntarily reclassify their workers as employees for future tax periods may be eligible to participate in the VCSP if certain requirements are met. State income tax form To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). State income tax form For more information, visit IRS. State income tax form gov and enter “VCSP” in the search box. State income tax form 2. State income tax form Employee or Independent Contractor? An employer must generally withhold federal income taxes, withhold and pay over social security and Medicare taxes, and pay unemployment tax on wages paid to an employee. State income tax form An employer does not generally have to withhold or pay over any federal taxes on payments to independent contractors. State income tax form Common-Law Rules To determine whether an individual is an employee or an independent contractor under the common law, the relationship of the worker and the business must be examined. State income tax form In any employee-independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered. State income tax form Facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties. State income tax form These facts are discussed next. State income tax form Behavioral control. State income tax form   Facts that show whether the business has a right to direct and control how the worker does the task for which the worker is hired include the type and degree of: Instructions that the business gives to the worker. State income tax form   An employee is generally subject to the business' instructions about when, where, and how to work. State income tax form All of the following are examples of types of instructions about how to do work. State income tax form When and where to do the work. State income tax form What tools or equipment to use. State income tax form What workers to hire or to assist with the work. State income tax form Where to purchase supplies and services. State income tax form What work must be performed by a specified  individual. State income tax form What order or sequence to follow. State income tax form   The amount of instruction needed varies among different jobs. State income tax form Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to control how the work results are achieved. State income tax form A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. State income tax form The key consideration is whether the business has retained the right to control the details of a worker's performance or instead has given up that right. State income tax form Training that the business gives to the worker. State income tax form   An employee may be trained to perform services in a particular manner. State income tax form Independent contractors ordinarily use their own methods. State income tax form Financial control. State income tax form   Facts that show whether the business has a right to control the business aspects of the worker's job include: The extent to which the worker has unreimbursed business expenses. State income tax form   Independent contractors are more likely to have unreimbursed expenses than are employees. State income tax form Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. State income tax form However, employees may also incur unreimbursed expenses in connection with the services that they perform for their employer. State income tax form The extent of the worker's investment. State income tax form   An independent contractor often has a significant investment in the facilities or tools he or she uses in performing services for someone else. State income tax form However, a significant investment is not necessary for independent contractor status. State income tax form The extent to which the worker makes his or her services available to the relevant market. State income tax form   An independent contractor is generally free to seek out business opportunities. State income tax form Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market. State income tax form How the business pays the worker. State income tax form   An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. State income tax form This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. State income tax form An independent contractor is often paid a flat fee or on a time and materials basis for the job. State income tax form However, it is common in some professions, such as law, to pay independent contractors hourly. State income tax form The extent to which the worker can realize a profit or loss. State income tax form   An independent contractor can make a profit or loss. State income tax form Type of relationship. State income tax form   Facts that show the parties' type of relationship include: Written contracts describing the relationship the parties intended to create. State income tax form Whether or not the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay. State income tax form The permanency of the relationship. State income tax form If you engage a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that your intent was to create an employer-employee relationship. State income tax form The extent to which services performed by the worker are a key aspect of the regular business of the company. State income tax form If a worker provides services that are a key aspect of your regular business activity, it is more likely that you will have the right to direct and control his or her activities. State income tax form For example, if a law firm hires an attorney, it is likely that it will present the attorney's work as its own and would have the right to control or direct that work. State income tax form This would indicate an employer-employee relationship. State income tax form IRS help. State income tax form   If you want the IRS to determine whether or not a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS. State income tax form Industry Examples The following examples may help you properly classify your workers. State income tax form Building and Construction Industry Example 1. State income tax form Jerry Jones has an agreement with Wilma White to supervise the remodeling of her house. State income tax form She did not advance funds to help him carry on the work. State income tax form She makes direct payments to the suppliers for all necessary materials. State income tax form She carries liability and workers' compensation insurance covering Jerry and others that he engaged to assist him. State income tax form She pays them an hourly rate and exercises almost constant supervision over the work. State income tax form Jerry is not free to transfer his assistants to other jobs. State income tax form He may not work on other jobs while working for Wilma. State income tax form He assumes no responsibility to complete the work and will incur no contractual liability if he fails to do so. State income tax form He and his assistants perform personal services for hourly wages. State income tax form Jerry Jones and his assistants are employees of Wilma White. State income tax form Example 2. State income tax form Milton Manning, an experienced tile setter, orally agreed with a corporation to perform full-time services at construction sites. State income tax form He uses his own tools and performs services in the order designated by the corporation and according to its specifications. State income tax form The corporation supplies all materials, makes frequent inspections of his work, pays him on a piecework basis, and carries workers' compensation insurance on him. State income tax form He does not have a place of business or hold himself out to perform similar services for others. State income tax form Either party can end the services at any time. State income tax form Milton Manning is an employee of the corporation. State income tax form Example 3. State income tax form Wallace Black agreed with the Sawdust Co. State income tax form to supply the construction labor for a group of houses. State income tax form The company agreed to pay all construction costs. State income tax form However, he supplies all the tools and equipment. State income tax form He performs personal services as a carpenter and mechanic for an hourly wage. State income tax form He also acts as superintendent and foreman and engages other individuals to assist him. State income tax form The company has the right to select, approve, or discharge any helper. State income tax form A company representative makes frequent inspections of the construction site. State income tax form When a house is finished, Wallace is paid a certain percentage of its costs. State income tax form He is not responsible for faults, defects of construction, or wasteful operation. State income tax form At the end of each week, he presents the company with a statement of the amount that he has spent, including the payroll. State income tax form The company gives him a check for that amount from which he pays the assistants, although he is not personally liable for their wages. State income tax form Wallace Black and his assistants are employees of the Sawdust Co. State income tax form Example 4. State income tax form Bill Plum contracted with Elm Corporation to complete the roofing on a housing complex. State income tax form A signed contract established a flat amount for the services rendered by Bill Plum. State income tax form Bill is a licensed roofer and carries workers' compensation and liability insurance under the business name, Plum Roofing. State income tax form He hires his own roofers who are treated as employees for federal employment tax purposes. State income tax form If there is a problem with the roofing work, Plum Roofing is responsible for paying for any repairs. State income tax form Bill Plum, doing business as Plum Roofing, is an independent contractor. State income tax form Example 5. State income tax form Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. State income tax form She is to receive $1,280 every 2 weeks for the next 10 weeks. State income tax form This is not considered payment by the hour. State income tax form Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. State income tax form She also performs additional electrical installations under contracts with other companies, that she obtained through advertisements. State income tax form Vera is an independent contractor. State income tax form Trucking Industry Example. State income tax form Rose Trucking contracts to deliver material for Forest, Inc. State income tax form , at $140 per ton. State income tax form Rose Trucking is not paid for any articles that are not delivered. State income tax form At times, Jan Rose, who operates as Rose Trucking, may also lease another truck and engage a driver to complete the contract. State income tax form All operating expenses, including insurance coverage, are paid by Jan Rose. State income tax form All equipment is owned or rented by Jan and she is responsible for all maintenance. State income tax form None of the drivers are provided by Forest, Inc. State income tax form Jan Rose, operating as Rose Trucking, is an independent contractor. State income tax form Computer Industry Example. State income tax form Steve Smith, a computer programmer, is laid off when Megabyte, Inc. State income tax form , downsizes. State income tax form Megabyte agrees to pay Steve a flat amount to complete a one-time project to create a certain product. State income tax form It is not clear how long that it will take to complete the project, and Steve is not guaranteed any minimum payment for the hours spent on the program. State income tax form Megabyte provides Steve with no instructions beyond the specifications for the product itself. State income tax form Steve and Megabyte have a written contract, which provides that Steve is considered to be an independent contractor, is required to pay federal and state taxes, and receives no benefits from Megabyte. State income tax form Megabyte will file Form 1099-MISC, Miscellaneous Income, to report the amount paid to Steve. State income tax form Steve works at home and is not expected or allowed to attend meetings of the software development group. State income tax form Steve is an independent contractor. State income tax form Automobile Industry Example 1. State income tax form Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. State income tax form She works six days a week and is on duty in Bob's showroom on certain assigned days and times. State income tax form She appraises trade-ins, but her appraisals are subject to the sales manager's approval. State income tax form Lists of prospective customers belong to the dealer. State income tax form She is required to develop leads and report results to the sales manager. State income tax form Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. State income tax form She is paid a commission and is eligible for prizes and bonuses offered by Bob. State income tax form Bob also pays the cost of health insurance and group-term life insurance for Donna. State income tax form Donna is an employee of Bob Blue. State income tax form Example 2. State income tax form Sam Sparks performs auto repair services in the repair department of an auto sales company. State income tax form He works regular hours and is paid on a percentage basis. State income tax form He has no investment in the repair department. State income tax form The sales company supplies all facilities, repair parts, and supplies; issues instructions on the amounts to be charged, parts to be used, and the time for completion of each job; and checks all estimates and repair orders. State income tax form Sam is an employee of the sales company. State income tax form Example 3. State income tax form An auto sales agency furnishes space for Helen Bach to perform auto repair services. State income tax form She provides her own tools, equipment, and supplies. State income tax form She seeks out business from insurance adjusters and other individuals and does all of the body and paint work that comes to the agency. State income tax form She hires and discharges her own helpers, determines her own and her helpers' working hours, quotes prices for repair work, makes all necessary adjustments, assumes all losses from uncollectible accounts, and receives, as compensation for her services, a large percentage of the gross collections from the auto repair shop. State income tax form Helen is an independent contractor and the helpers are her employees. State income tax form Attorney Example. State income tax form Donna Yuma is a sole practitioner who rents office space and pays for the following items: telephone, computer, on-line legal research linkup, fax machine, and photocopier. State income tax form Donna buys office supplies and pays bar dues and membership dues for three other professional organizations. State income tax form Donna has a part-time receptionist who also does the bookkeeping. State income tax form She pays the receptionist, withholds and pays federal and state employment taxes, and files a Form W-2 each year. State income tax form For the past 2 years, Donna has had only three clients, corporations with which there have been long-standing relationships. State income tax form Donna charges the corporations an hourly rate for her services, sending monthly bills detailing the work performed for the prior month. State income tax form The bills include charges for long distance calls, on-line research time, fax charges, photocopies, postage, and travel, costs for which the corporations have agreed to reimburse her. State income tax form Donna is an independent contractor. State income tax form Taxicab Driver Example. State income tax form Tom Spruce rents a cab from Taft Cab Co. State income tax form for $150 per day. State income tax form He pays the costs of maintaining and operating the cab. State income tax form Tom Spruce keeps all fares that he receives from customers. State income tax form Although he receives the benefit of Taft's two-way radio communication equipment, dispatcher, and advertising, these items benefit both Taft and Tom Spruce. State income tax form Tom Spruce is an independent contractor. State income tax form Salesperson To determine whether salespersons are employees under the usual common-law rules, you must evaluate each individual case. State income tax form If a salesperson who works for you does not meet the tests for a common-law employee, discussed earlier in this section, you do not have to withhold federal income tax from his or her pay (see Statutory Employees in section 1). State income tax form However, even if a salesperson is not an employee under the usual common-law rules for income tax withholding, his or her pay may still be subject to social security, Medicare, and FUTA taxes as a statutory employee. State income tax form To determine whether a salesperson is an employee for social security, Medicare, and FUTA tax purposes, the salesperson must meet all eight elements of the statutory employee test. State income tax form A salesperson is a statutory employee for social security, Medicare, and FUTA tax purposes if he or she: Works full time for one person or company except, possibly, for sideline sales activities on behalf of some other person, Sells on behalf of, and turns his or her orders over to, the person or company for which he or she works, Sells to wholesalers, retailers, contractors, or operators of hotels, restaurants, or similar establishments, Sells merchandise for resale, or supplies for use in the customer's business, Agrees to do substantially all of this work personally, Has no substantial investment in the facilities used to do the work, other than in facilities for transportation, Maintains a continuing relationship with the person or company for which he or she works, and Is not an employee under common-law rules. State income tax form 3. State income tax form Employees of Exempt Organizations Many nonprofit organizations are exempt from federal income tax. State income tax form Although they do not have to pay federal income tax themselves, they must still withhold federal income tax from the pay of their employees. State income tax form However, there are special social security, Medicare, and FUTA tax rules that apply to the wages that they pay their employees. State income tax form Section 501(c)(3) organizations. State income tax form   Nonprofit organizations that are exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code include any community chest, fund, or foundation organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary or educational purposes, fostering national or international amateur sports competition, or for the prevention of cruelty to children or animals. State income tax form These organizations are usually corporations and are exempt from federal income tax under section 501(a). State income tax form Social security and Medicare taxes. State income tax form   Wages paid to employees of section 501(c)(3) organizations are subject to social security and Medicare taxes unless one of the following situations applies. State income tax form The organization pays an employee less than $100 in a calendar year. State income tax form The organization is a church or church-controlled organization opposed for religious reasons to the payment of social security and Medicare taxes and has filed Form 8274, Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption From Employer Social Security and Medicare Taxes, to elect exemption from social security and Medicare taxes. State income tax form The organization must have filed for exemption before the first date on which a quarterly employment tax return (Form 941) or annual employment tax return (Form 944) would otherwise be due. State income tax form   An employee of a church or church-controlled organization that is exempt from social security and Medicare taxes must pay self-employment tax if the employee is paid $108. State income tax form 28 or more in a year. State income tax form However, an employee who is a member of a qualified religious sect can apply for an exemption from the self-employment tax by filing Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits. State income tax form See Members of recognized religious sects opposed to insurance in section 4. State income tax form FUTA tax. State income tax form   An organization that is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code is also exempt from FUTA tax. State income tax form This exemption cannot be waived. State income tax form Do not file Form 940 to report wages paid by these organizations or pay the tax. State income tax form Note. State income tax form An organization wholly owned by a state or its political subdivision should contact the appropriate state official for information about reporting and getting social security and Medicare coverage for its employees. State income tax form Other than section 501(c)(3) organizations. State income tax form   Nonprofit organizations that are not section 501(c)(3) organizations may also be exempt from federal income tax under section 501(a) or section 521. State income tax form However, these organizations are not exempt from withholding federal income, social security, or Medicare tax from their employees' pay, or from paying FUTA tax. State income tax form Two special rules for social security, Medicare, and FUTA taxes apply. State income tax form If an employee is paid less than $100 during a calendar year, his or her wages are not subject to social security and Medicare taxes. State income tax form If an employee is paid less than $50 in a calendar quarter, his or her wages are not subject to FUTA tax for the quarter. State income tax form The above rules do not apply to employees who work for pension plans and other similar organizations described in section 401(a). State income tax form 4. State income tax form Religious Exemptions and Special Rules for Ministers Special rules apply to the treatment of ministers for social security and Medicare tax purposes. State income tax form An exemption from social security and Medicare taxes is available for ministers and certain other religious workers and members of certain recognized religious sects. State income tax form For more information on getting an exemption, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. State income tax form Ministers. State income tax form   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. State income tax form They are given the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances and sacraments according to the prescribed tenets and practices of that religious organization. State income tax form   Ministers are employees if they perform services in the exercise of ministry and are subject to your will and control. State income tax form The common-law rules discussed in section 1 and section 2 should be applied to determine whether a minister is your employee or is self-employed. State income tax form Whether the minister is an employee or self-employed, the earnings of a minister are not subject to federal income, social security, and Medicare tax withholding. State income tax form However, even if the minister is a common law employee, the earnings as reported on the minister's Form 1040 are subject to self-employment tax and federal income tax. State income tax form You do not withhold these taxes from wages earned by a minister, but if the minister is your employee, you may agree with the minister to voluntarily withhold tax to cover the minister's liability for self-employment tax and federal income tax. State income tax form For more information, see Publication 517. State income tax form Form W-2. State income tax form   If your minister is an employee, report all taxable compensation as wages in box 1 on Form W-2. State income tax form Include in this amount expense allowances or reimbursements paid under a nonaccountable plan, discussed in section 5 of Publication 15 (Circular E). State income tax form Do not include a parsonage allowance (excludable housing allowance) in this amount. State income tax form You may report a designated parsonage or rental allowance (housing allowance) and a utilities allowance, or the rental value of housing provided in a separate statement or in box 14 on Form W-2. State income tax form Do not show on Form W-2, Form 941, or Form 944 any amount as social security or Medicare wages, or any withholding for social security or Medicare taxes. State income tax form If you withheld federal income tax from the minister under a voluntary agreement, this amount should be shown in box 2 on Form W-2 as federal income tax withheld. State income tax form For more information on ministers, see Publication 517. State income tax form Exemptions for ministers and others. State income tax form   Certain ordained ministers, Christian Science practitioners, and members of religious orders who have not taken a vow of poverty may apply to exempt their earnings from self-employment tax on religious grounds. State income tax form The application must be based on conscientious opposition because of personal considerations to public insurance that makes payments in the event of death, disability, old age, or retirement, or that makes payments toward the cost of, or provides services for, medical care, including social security and Medicare benefits. State income tax form The exemption applies only to qualified services performed for the religious organization. State income tax form See Revenue Procedure 91-20, 1991-1 C. State income tax form B. State income tax form 524, for guidelines to determine whether an organization is a religious order or whether an individual is a member of a religious order. State income tax form   To apply for the exemption, the employee should file Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners. State income tax form See Publication 517 for more information about claiming an exemption from self-employment tax using Form 4361. State income tax form Members of recognized religious sects opposed to insurance. State income tax form   If you belong to a recognized religious sect or to a division of such sect that is opposed to insurance, you may qualify for an exemption from the self-employment tax. State income tax form To qualify, you must be conscientiously opposed to accepting the benefits of any public or private insurance that makes payments because of death, disability, old age, or retirement, or makes payments toward the cost of, or provides services for, medical care (including social security and Medicare benefits). State income tax form If you buy a retirement annuity from an insurance company, you will not be eligible for this exemption. State income tax form Religious opposition based on the teachings of the sect is the only legal basis for the exemption. State income tax form In addition, your religious sect (or division) must have existed since December 31, 1950. State income tax form Self-employed. State income tax form   If you are self-employed and a member of a recognized religious sect opposed to insurance, you can apply for exemption by filing Form 4029 to waive all social security and Medicare benefits. State income tax form Employees. State income tax form   The social security and Medicare tax exemption available to the self-employed who are members of a recognized religious sect opposed to insurance is also available to their employees who are members of such a sect. State income tax form This applies to partnerships only if each partner is a member of the sect. State income tax form This exemption for employees applies only if both the employee and the employer are members of such a sect, and the employer has an exemption. State income tax form To get the exemption, the employee must file Form 4029. State income tax form   An employee of a church or church-controlled organization that is exempt from social security and Medicare taxes can also apply for an exemption on Form 4029. State income tax form 5. State income tax form Wages and Other Compensation Publication 15 (Circular E) provides a general discussion of taxable wages. State income tax form Publication 15-B discusses fringe benefits. State income tax form The following topics supplement those discussions. State income tax form Relocating for Temporary Work Assignments If an employee is given a temporary work assignment away from his or her regular place of work, certain travel expenses reimbursed or paid directly by the employer in accordance with an accountable plan (see section 5 in Publication 15 (Circular E)) may be excludable from the employee's wages. State income tax form Generally, a temporary work assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. State income tax form If the employee's new work assignment is indefinite, any living expenses reimbursed or paid by the employer (other than qualified moving expenses) must be included in the employee's wages as compensation. State income tax form For the travel expenses to be excludable: The new work location must be outside of the city or general area of the employee's regular work place or post of duty, The travel expenses must otherwise qualify as deductible by the employee, and The expenses must be for the period during which the employee is at the temporary work location. State income tax form If you reimburse or pay any personal expenses of an employee during his or her temporary work assignment, such as expenses for home leave for family members or for vacations, these amounts must be included in the employee's wages. State income tax form See chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses, and section 5 of Publication 15 (Circular E), for more information. State income tax form These rules generally apply to temporary work assignments both inside and outside the U. State income tax form S. State income tax form Employee Achievement Awards Do not withhold federal income, social security, or Medicare taxes on the fair market value of an employee achievement award if it is excludable from your employee's gross income. State income tax form To be excludable from your employee's gross income, the award must be tangible personal property (not cash, gift certificates, or securities) given to an employee for length of service or safety achievement, awarded as part of a meaningful presentation, and awarded under circumstances that do not indicate that the payment is disguised compensation. State income tax form Excludable employee achievement awards also are not subject to FUTA tax. State income tax form Limits. State income tax form   The most that you can exclude for the cost of all employee achievement awards to the same employee for the year is $400. State income tax form A higher limit of $1,600 applies to qualified plan awards. State income tax form Qualified plan awards are employee achievement awards under a written plan that does not discriminate in favor of highly compensated employees. State income tax form An award cannot be treated as a qualified plan award if the average cost per recipient of all awards under all of your qualified plans is more than $400. State income tax form   If during the year an employee receives awards not made under a qualified plan and also receives awards under a qualified plan, the exclusion for the total cost of all awards to that employee cannot be more than $1,600. State income tax form The $400 and $1,600 limits cannot be added together to exclude more than $1,600 for the cost of awards to any one employee during the year. State income tax form Scholarship and Fellowship Payments Only amounts that you pay as a qualified scholarship to a candidate for a degree may be excluded from the recipient's gross income. State income tax form A qualified scholarship is any amount granted as a scholarship or fellowship that is used for: Tuition and fees required to enroll in, or to attend, an educational institution, or Fees, books, supplies, and equipment that are required for courses at the educational institution. State income tax form The exclusion from income does not apply to the portion of any amount received that represents payment for teaching, research, or other services required as a condition of receiving the scholarship or tuition reduction. State income tax form These amounts are reportable on Form W-2. State income tax form However, the exclusion will still apply for any amount received under two specific programs—the National Health Service Corps Scholarship Program and the Armed Forces Health Professions Scholarship and Financial Assistance Program—despite any service condition attached to those amounts. State income tax form Any amounts that you pay for room and board are not excludable from the recipient's gross income. State income tax form A qualified scholarship is not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. State income tax form For more information, see Publication 970, Tax Benefits for Education. State income tax form Outplacement Services If you provide outplacement services to your employees to help them find new employment (such as career counseling, resume assistance, or skills assessment), the value of these benefits may be income to them and subject to all withholding taxes. State income tax form However, the value of these services will not be subject to any employment taxes if: You derive a substantial business benefit from providing the services (such as improved employee morale or business image) separate from the benefit that you would receive from the mere payment of additional compensation, and The employee would be able to deduct the cost of the services as employee business expenses if he or she had paid for them. State income tax form However, if you receive no additional benefit from providing the services, or if the services are not provided on the basis of employee need, then the value of the services is treated as wages and is subject to federal income tax withholding and social security and Medicare taxes. State income tax form Similarly, if an employee receives the outplacement services in exchange for reduced severance pay (or other taxable compensation), then the amount the severance pay is reduced is treated as wages for employment tax purposes. State income tax form Withholding for Idle Time Payments made under a voluntary guarantee to employees for idle time (any time during which an employee performs no services) are wages for the purposes of social security, Medicare, and FUTA taxes, and federal income tax withholding. State income tax form Back Pay Treat back pay as wages in the year paid and withhold and pay employment taxes as required. State income tax form If back pay was awarded by a court or government agency to enforce a federal or state statute protecting an employee's right to employment or wages, special rules apply for reporting those wages to the Social Security Administration. State income tax form These rules also apply to litigation actions and settlement agreements or agency directives that are resolved out of court and not under a court decree or order. State income tax form Examples of pertinent statutes include, but are not limited to, the National Labor Relations Act, Fair Labor Standards Act, Equal Pay Act, and Age Discrimination in Employment Act. State income tax form See Publication 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration, and Form SSA-131, Employer Report of Special Wage Payments, for details. State income tax form Supplemental Unemployment Benefits If you pay, under a plan, supplemental unemployment benefits to a former employee, all or part of the payments may be taxable and subject to federal income tax withholding, depending on how the plan is funded. State income tax form Amounts that represent a return to the employee of amounts previously subject to tax are not taxable and are not subject to withholding. State income tax form You should withhold federal income tax on the taxable part of the payments made, under a plan, to an employee who is involuntarily separated because of a reduction in force, discontinuance of a plant or operation, or other similar condition. State income tax form It does not matter whether the separation is temporary or permanent. State income tax form There are special rules that apply in determining whether benefits qualify as supplemental unemployment benefits that are excluded from wages for social security, Medicare, and FUTA tax purposes. State income tax form To qualify as supplemental unemployment benefits for these purposes, the benefits must meet the following requirements. State income tax form Benefits are paid only to unemployed former employees who are laid off by the employer. State income tax form Eligibility for benefits depends on meeting prescribed conditions after termination. State income tax form The amount of weekly benefits payable is based upon state unemployment benefits, other compensation allowable under state law, and the amount of regular weekly pay. State income tax form The right to benefits does not accrue until a prescribed period after termination. State income tax form Benefits are not attributable to the performance of particular services. State income tax form No employee has any right to the benefits until qualified and eligible to receive benefits. State income tax form Benefits may not be paid in a lump sum. State income tax form Withholding on taxable supplemental unemployment benefits must be based on the withholding certificate (Form W-4) that the employee gave to you. State income tax form Golden Parachute Payments A golden parachute payment, in general, is a payment made under a contract entered into by a corporation and key personnel. State income tax form Under the agreement, the corporation agrees to pay certain amounts to its key personnel in the event of a change in ownership or control of the corporation. State income tax form Payments to employees under golden parachute contracts are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. State income tax form See Regulations section 1. State income tax form 280G-1 for more information. State income tax form No deduction is allowed to the corporation for any excess parachute payment. State income tax form To determine the amount of the excess parachute payment, you must first determine if there is a parachute payment for purposes of section 280G. State income tax form A parachute payment for purposes of section 280G is any payment that meets all of the following. State income tax form The payment is in the nature of compensation. State income tax form The payment is to, or for the benefit of, a disqualified individual. State income tax form A disqualified individual is anyone who at any time during the 12-month period prior to and ending on the date of the change in ownership or control of the corporation (the disqualified individual determination period) was an employee or independent contractor and was, in regard to that corporation, a shareholder, an officer, or highly compensated individual. State income tax form The payment is contingent on a change in ownership of the corporation, the effective control of the corporation, or the ownership of a substantial portion of the assets of the corporation. State income tax form The payment has an aggregate present value of at least three times the individual's base amount. State income tax form The base amount is the average annual compensation for service includible in the individual's gross income over the most recent 5 taxable years. State income tax form An excess parachute payment amount is the excess of any parachute payment over the base amount. State income tax form For more information, see Regulations section 1. State income tax form 280G-1. State income tax form The recipient of an excess parachute payment is subject to a 20% nondeductible excise tax. State income tax form If the recipient is an employee, the 20% excise tax is to be withheld by the corporation. State income tax form Example. State income tax form An officer of a corporation receives a golden parachute payment of $400,000. State income tax form This is more than three times greater than his or her average compensation of $100,000 over the previous 5-year period. State income tax form The excess parachute payment is $300,000 ($400,000 minus $100,000). State income tax form The corporation cannot deduct the $300,000 and must withhold the excise tax of $60,000 (20% of $300,000). State income tax form Reporting golden parachute payments. State income tax form   Golden parachute payments to employees must be reported on Form W-2. State income tax form See the General Instructions for Forms W-2 and W-3 for details. State income tax form For nonemployee reporting of these payments, see Box 7. State income tax form Nonemployee Compensation in the Instructions for Form 1099-MISC. State income tax form Exempt payments. State income tax form   Payments by most small business corporations and payments under certain qualified plans are exempt from the golden parachute rules. State income tax form See section 280G(b)(5) and (6) for more information. State income tax form Interest-Free and Below-Market-Interest-Rate Loans In general, if an employer lends an employee more than $10,000 at an interest rate less than the current applicable federal rate (AFR), the difference between the interest paid and the interest that would be paid under the AFR is considered additional compensation to the employee. State income tax form This rule applies to a loan of $10,000 or less if one of its principal purposes is the avoidance of federal tax. State income tax form This additional compensation to the employee is subject to social security, Medicare, and FUTA taxes, but not to federal income tax withholding. State income tax form Include it in compensation on Form W-2 (or Form 1099-MISC for an independent contractor). State income tax form The AFR is established monthly and published by the IRS each month in the Internal Revenue Bulletin. State income tax form You can get these rates by calling 1-800-829-4933 or by visiting IRS. State income tax form gov. State income tax form For more information, see section 7872 and its related regulations. State income tax form Leave Sharing Plans If you establish a leave sharing plan for your employees that allows them to transfer leave to other employees for medical emergencies, the amounts paid to the recipients of the leave are considered wages. State income tax form These amounts are includible in the gross income of the recipients and are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. State income tax form Do not include these amounts in the income of the transferors. State income tax form These rules apply only to leave sharing plans that permit employees to transfer leave to other employees for medical emergencies. State income tax form Nonqualified Deferred Compensation Plans Income Tax and Reporting Section 409A provides that all amounts deferred under a nonqualified deferred compensation (NQDC) plan for all tax years are currently includible in gross income (to the extent not subject to a substantial risk of forfeiture and not previously included in gross income) and subject to additional taxes, unless certain requirements are met pertaining to, among other things, elections to defer compensation and distributions under a NQDC plan. State income tax form Section 409A also includes rules that apply to certain trusts or similar arrangements associated with NQDC plans if the trusts or arrangements are located outside of the United States, are restricted to the provision of benefits in connection with a decline in the financial health of the plan sponsor, or contributions are made to the trust during certain periods such as when a qualified plan of the service recipient is underfunded. State income tax form Employers must withhold federal income tax (but not the additional Section 409A taxes) on any amount includible in gross income under section 409A. State income tax form Other changes to the Internal Revenue Code provide that the deferrals under a NQDC plan must be reported separately on Form W-2 or Form 1099-MISC, whichever applies. State income tax form Specific rules for reporting are provided in the instructions to the forms. State income tax form The provisions do not affect the application or reporting of social security, Medicare, or FUTA taxes. State income tax form The provisions do not prevent the inclusion of amounts in income or wages under other provisions of the Internal Revenue Code or common law principles, such as when amounts are actually or constructively received or irrevocably contributed to a separate fund. State income tax form For more information about nonqualified deferred compensation plans, see Regulations sections 1. State income tax form 409A-1 through 1. State income tax form 409A-6. State income tax form Notice 2008-113 provides guidance on the correction of certain operation failures of a NQDC plan. State income tax form Notice 2008-113, 2008-51 I. State income tax form R. State income tax form B. State income tax form 1305, is available at www. State income tax form irs. State income tax form gov/irb/2008-51_IRB/ar12. State income tax form html. State income tax form Also see Notice 2010-6, 2010-3 I. State income tax form R. State income tax form B. State income tax form 275, available at www. State income tax form irs. State income tax form gov/irb/2010-03_IRB/ar08. State income tax form html and Notice 2010-80, 2010-51 I. State income tax form R. State income tax form B. State income tax form 853, available at www. State income tax form irs. State income tax form gov/irb/2010-51_IRB/ar08. State income tax form html. State income tax form Social security, Medicare, and FUTA taxes. State income tax form   Employer contributions to nonqualified deferred compensation (NQDC) plans, as defined in the applicable regulations, are treated as wages subject to social security, Medicare, and FUTA taxes when the services are performed or the employee no longer has a substantial risk of forfeiting the right to the deferred compensation, whichever is later. State income tax form   Amounts deferred are subject to social security, Medicare, and FUTA taxes at that time unless the amount that is deferred cannot be reasonably ascertained; for example, if benefits are based on final pay. State income tax form If the value of the future benefit is based on any factors that are not yet reasonably ascertainable, you may choose to estimate the value of the future benefit and withhold and pay social security, Medicare, and FUTA taxes on that amount. State income tax form You will have to determine later, when the amount is reasonably ascertainable, whether any additional taxes are required. State income tax form If taxes are not paid before the amounts become reasonably ascertainable, when the amounts become reasonably ascertainable they are subject to social security, Medicare, and FUTA taxes on the amounts deferred plus the income attributable to those amounts deferred. State income tax form For more information, see Regulations sections 31. State income tax form 3121(v)(2)-1 and 31. State income tax form 3306(r)(2)-1. State income tax form Tax-Sheltered Annuities Employer payments made by a public educational institution or a tax-exempt organization to purchase a tax-sheltered annuity for an employee (annual deferrals) are included in the employee's social security and Medicare wages, if the payments are made because of a salary reduction agreement. State income tax form However, they are not included in box 1 on Form W-2 in the year the deferrals are made and are not subject to federal income tax withholding. State income tax form See Regulations section 31. State income tax form 3121(a)(5)-2 for the definition of a salary reduction agreement. State income tax form Contributions to a Simplified Employee Pension (SEP) An employer's SEP contributions to an employee's individual retirement arrangement (IRA) are excluded from the employee's gross income. State income tax form These excluded amounts are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding. State income tax form However, any SEP contributions paid under a salary reduction agreement (SARSEP) are included in wages for purposes of social security, Medicare, and FUTA taxes. State income tax form See Publication 560 for more information about SEPs. State income tax form Salary reduction simplified employee pensions (SARSEP) repealed. State income tax form   You may not establish a SARSEP after 1996. State income tax form However, SARSEPs established before January 1, 1997, may continue to receive contributions. State income tax form SIMPLE Retirement Plans Employer and employee contributions to a savings incentive match plan for employees (SIMPLE) retirement account (subject to limitations) are excludable from the employee's income and are exempt from federal income tax withholding. State income tax form An employer's nonelective (2%) or matching contributions are exempt from social security, Medicare, and FUTA taxes. State income tax form However, an employee's salary reduction contributions to a SIMPLE are subject to social security, Medicare, and FUTA taxes. State income tax form For more information about SIMPLE retirement plans, see Publication 560. State income tax form 6. State income tax form Sick Pay Reporting The IRS expects to change the third-party sick pay recap reporting and filing requirements for wages paid in 2014. State income tax form Information about this change will be included in the revision of Publication 15-A that is expected to post to IRS. State income tax form gov in December 2014. State income tax form Special rules apply to the reporting of sick pay payments to employees. State income tax form How these payments are reported depends on whether the payments are made by the employer or a third party, such as an insurance company. State income tax form Sick pay is usually subject to social security, Medicare, and FUTA taxes. State income tax form For exceptions, see Social Security, Medicare, and FUTA Taxes on Sick Pay , later in this section. State income tax form Sick pay may also be subject to either mandatory or voluntary federal income tax withholding, depending on who pays it. State income tax form Sick Pay Sick pay generally means any amount paid under a plan because of an employee's temporary absence from work due to injury, sickness, or disability. State income tax form It may be paid by either the employer or a third party, such as an insurance company. State income tax form Sick pay includes both short- and long-term benefits. State income tax form It is often expressed as a percentage of the employee's regular wages. State income tax form Payments That Are Not Sick Pay Sick pay does not include the following payments. State income tax form Disability retirement payments. State income tax form Disability retirement payments are not sick pay and are not discussed in this section. State income tax form Those payments are subject to the rules for federal income tax withholding from pensions and annuities. State income tax form See section 8. State income tax form Workers' compensation. State income tax form Payments because of a work-related injury or sickness that are made under a workers' compensation law are not sick pay and are not subject to employment taxes. State income tax form But see Payments in the nature of workers' compensation—public employees next. State income tax form Payments in the nature of workers' compensation—public employees. State income tax form State and local government employees, such as police officers and firefighters, sometimes receive payments due to an injury in the line of duty under a statute that is not the general workers' compensation law of a state. State income tax form If the statute limits benefits to work-related injuries or sickness and does not base payments on the employee's age, length of service, or prior contributions, the statute is “in the nature of” a workers' compensation law. State income tax form Payments under a statute in the nature of a workers' compensation law are not sick pay and are not subject to employment taxes. State income tax form For more information, see Regulations section 31. State income tax form 3121(a)(2)-1. State income tax form Medical expense payments. State income tax form Payments under a definite plan or system for medical and hospitalization expenses, or for insurance covering these expenses, are not sick pay and are not subject to employment taxes. State income tax form Payments unrelated to absence from work. State income tax form Accident or health insurance payments unrelated to absence from work are not sick pay and are not subject to employment taxes. State income tax form These include payments for: Permanent loss of a member or function of the body, Permanent loss of the use of a member or function of the body, or Permanent disfigurement of the body. State income tax form Example. State income tax form Donald was injured in a car accident and lost an eye. State income tax form Under a policy paid for by Donald's employer, Delta Insurance Co. State income tax form paid Donald $20,000 as compensation for the loss of his eye. State income tax form Because the payment was determined by the type of injury and was unrelated to Donald's absence from work, it is not sick pay and is not subject to federal employment taxes. State income tax form Sick Pay Plan A sick pay plan is a plan or system established by an employer under which sick pay is available to employees generally or to a class or classes of employees. State income tax form This does not include a situation in which benefits are provided on a discretionary or occasional basis with merely an intention to aid particular employees in time of need. State income tax form You have a sick pay plan or system if the plan is in writing or is otherwise made known to employees, such as by a bulletin board notice or your long and established practice. State income tax form Some indications that you have a sick pay plan or system include references to the plan or system in the contract of employment, employer contributions to a plan, or segregated accounts for the payment of benefits. State income tax form Definition of employer. State income tax form   The employer for whom the employee normally works, a term used in the following discussion, is either the employer for whom the employee was working at the time that the employee became sick or disabled or the last employer for whom the employee worked before becoming sick or disabled, if that employer made contributions to the sick pay plan on behalf of the sick or disabled employee. State income tax form Note. State income tax form Contributions to a sick pay plan through a cafeteria plan (by direct employer contributions or salary reduction) are employer contributions unless they are after-tax employee contributions (that is, included in taxable wages). State income tax form Third-Party Payers of Sick Pay Employer's agent. State income tax form   An employer's agent is a third party that bears no insurance risk and is reimbursed on a cost-plus-fee basis for payment of sick pay and similar amounts. State income tax form A third party may be your agent even if the third party is responsible for determining which employees are eligible to receive payments. State income tax form For example, if a third party provides administrative services only, the third party is your agent. State income tax form If the third party is paid an insurance premium and is not reimbursed on a cost-plus-fee basis, the third party is not your agent. State income tax form Whether an insurance company or other third party is your agent depends on the terms of their agreement with you. State income tax form   A third party that makes payments of sick pay as your agent is not considered the employer and generally has no responsibility for employment taxes. State income tax form This responsibility remains with you. State income tax form However, under an exception to this rule, the parties may enter into an agreement that makes the third-party agent responsible for employment taxes. State income tax form In this situation, the third-party agent should use its own name and EIN (rather than your name and EIN) for the responsibilities that it has assumed. State income tax form Third party not employer's agent. State income tax form   A third party that makes payments of sick pay other than as an agent of the employer is liable for federal income tax withholding (if requested by the employee) and the employee part of the social security and Medicare taxes. State income tax form   The third party is also liable for the employer part of the social security and Medicare taxes, and the FUTA tax, unless the third party transfers this liability to the employer for whom the employee normally works. State income tax form This liability is transferred if the third party takes the following steps. State income tax form Withholds the employee social security and Medicare taxes from the sick pay payments. State income tax form Makes timely deposits of the employee social security and Medicare taxes. State income tax form Notifies the employer for whom the employee normally works of the payments on which employee taxes were withheld and deposited. State income tax form The third party must notify the employer within the time required for the third party's deposit of the employee part of the social security and Medicare taxes. State income tax form For instance, if the third party is a monthly schedule depositor, it must notify the employer by the 15th day of the month following the month in which the sick pay payment is made because that is the day by which the deposit is required to be made. State income tax form The third party should notify the employer as soon as information on payments is available so that an employer required to make electronic deposits can make them timely. State income tax form For multi-employer plans, see the special rule discussed next. State income tax form Multi-employer plan timing rule. State income tax form   A special rule applies to sick pay payments made to employees by a third-party insurer under an insurance contract with a multi-employer plan established under a collectively bargained agreement. State income tax form If the third-party insurer making the payments complies wi
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Understanding Your CP295A Notice

We charged you a penalty on your Form 5500.


What you need to do

  • Pay the amount due to avoid additional penalty and interest charges.

  • Answers to Common Questions

    What steps can I take if I can't pay the full amount?
    Visit our website under the payment tab for more information about payment options.

    What if I don't pay the amount by the due date?
    Additional penalties and interest will accrue.

    Can I request the penalty be removed or reduced?
    If you believe a penalty should be reconsidered, mail a signed statement to the address on your notice. Identify which penalty you want reconsidered and why. We'll review the information and let you know if we accept your explanation.


    Understanding your notice

    Your notice may look different from the sample because the information contained in your notice is tailored to your situation.

    Notice CP295A, Page 1

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Page Last Reviewed or Updated: 30-Jan-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The State Income Tax Form

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