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Tax Credit For Military

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Tax Credit For Military

Tax credit for military Publication 517 - Main Content Table of Contents Social Security CoverageCoverage of Members of the Clergy Coverage of Religious Workers (Church Employees) U. Tax credit for military S. Tax credit for military Citizens and Resident and Nonresident Aliens Ministerial ServicesMinisters Members of Religious Orders Christian Science Practitioners and Readers Exemption From Self-Employment (SE) TaxMembers of the Clergy Members of Recognized Religious Sects Self-Employment Tax: Figuring Net EarningsRegular Method Nonfarm Optional Method Income Tax: Income and ExpensesIncome Items Expense Items Income Tax Withholding and Estimated Tax Filing Your Return Retirement Savings ArrangementsDeducting contributions to tax-sheltered annuity plans. Tax credit for military Full-time student. Tax credit for military Adjusted gross income. Tax credit for military More information. Tax credit for military Earned Income Credit Comprehensive ExampleForm W-2 From Church Form W-2 From College Schedule C-EZ (Form 1040) Form 2106-EZ Schedule A (Form 1040) Schedule SE (Form 1040) Form 1040 Attachment 1 Attachment 2 How To Get Tax HelpLow Income Taxpayer Clinics Social Security Coverage This section gives information about which system (SECA or FICA) is used to collect social security and Medicare taxes from members of the clergy (ministers, members of a religious order, and Christian Science practitioners and readers) and religious workers (church employees). Tax credit for military Coverage of Members of the Clergy The services you perform in the exercise of your ministry, of the duties required by your religious order, or of your profession as a Christian Science practitioner or reader are covered by social security and Medicare under SECA. Tax credit for military Your earnings for these ministerial services (defined later) are subject to self-employment (SE) tax unless one of the following applies. Tax credit for military You are a member of a religious order who has taken a vow of poverty. Tax credit for military You ask the Internal Revenue Service (IRS) for an exemption from SE tax for your services and the IRS approves your request. Tax credit for military See Exemption From Self-Employment (SE) Tax , later. Tax credit for military You are subject only to the social security laws of a foreign country under the provisions of a social security agreement between the United States and that country. Tax credit for military For more information, see Bilateral Social Security (Totalization) Agreements in Publication 54. Tax credit for military Your earnings that are not from ministerial services may be subject to social security tax under FICA or SECA according to the rules that apply to taxpayers in general. Tax credit for military See Ministerial Services , later. Tax credit for military Ministers If you are a minister of a church, your earnings for the services you perform in your capacity as a minister are subject to SE tax, even if you perform these services as an employee of that church. Tax credit for military However, you can request that the IRS grant you an exemption, as discussed under Exemption From Self-Employment (SE) Tax , later. Tax credit for military For the specific services covered, see Ministerial Services , later. Tax credit for military Ministers defined. Tax credit for military   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. Tax credit for military Ministers have the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the prescribed tenets and practices of that church or denomination. Tax credit for military   If a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister to be treated as a minister for social security purposes. Tax credit for military Employment status for other tax purposes. Tax credit for military   Even though all of your income from performing ministerial services is subject to self-employment tax for social security tax purposes, you may be an employee for income tax or retirement plan purposes in performing those same services. Tax credit for military For income tax or retirement plan purposes, your income earned as an employee will be considered wages. Tax credit for military Common-law employee. Tax credit for military   Under common-law rules, you are considered either an employee or a self-employed person. Tax credit for military Generally, you are an employee if you perform services for someone who has the legal right to control both what you do and how you do it, even if you have considerable discretion and freedom of action. Tax credit for military For more information about the common-law rules, see Publication 15-A, Employer's Supplemental Tax Guide. Tax credit for military   If a congregation employs you and pays you a salary, you are generally a common-law employee and income from the exercise of your ministry is wages for income tax purposes. Tax credit for military However, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services, are not wages; such amounts are self-employment income for both income tax purposes and social security tax purposes. Tax credit for military Example. Tax credit for military A church hires and pays you a salary to perform ministerial services subject to its control. Tax credit for military Under the common-law rules, you are an employee of the church while performing those services. Tax credit for military Form SS-8. Tax credit for military   If you are not certain whether you are an employee or a self-employed person, you can get a determination from the IRS by filing Form SS-8. Tax credit for military Members of Religious Orders If you are a member of a religious order who has not taken a vow of poverty, your earnings for ministerial services you perform as a member of the order are subject to SE tax. Tax credit for military See Ministerial Services , later. Tax credit for military However, you can request that the IRS grant you an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. Tax credit for military Vow of poverty. Tax credit for military   If you are a member of a religious order and have taken a vow of poverty, you are already exempt from paying SE tax on your earnings for ministerial services you perform as an agent of your church or its agencies. Tax credit for military You do not need to request a separate exemption. Tax credit for military For income tax purposes, the earnings are tax free to you. Tax credit for military Your earnings are considered the income of the religious order. Tax credit for military Services covered under FICA at the election of the order. Tax credit for military   However, even if you have taken a vow of poverty, the services you perform for your church or its agencies may be covered under social security. Tax credit for military Your services are covered if your order, or an autonomous subdivision of the order, elects social security coverage for its current and future vow-of-poverty members. Tax credit for military   The order or subdivision elects coverage by filing Form SS-16. Tax credit for military The election may cover certain vow-of-poverty members for a retroactive period of up to 20 calendar quarters before the quarter in which it files the certificate. Tax credit for military If the election is made, the order or subdivision pays both the employer's and employee's share of the tax. Tax credit for military You do not pay any of the FICA tax. Tax credit for military Services performed outside the order. Tax credit for military   Even if you are a member of a religious order who has taken a vow of poverty and the order requires you to turn over amounts you earn, your earnings are subject to federal income tax and either SE tax or FICA tax (including estimated tax payments and/or withholding) if you: Are self-employed or an employee of an organization outside your religious community, and Perform work not required by, or done on behalf of, the order. Tax credit for military   In these cases, your income from self-employment or as an employee of that outside organization is taxable to you directly. Tax credit for military You may, however, be able to take a charitable deduction for the amount you turn over to the order. Tax credit for military See Publication 526, Charitable Contributions. Tax credit for military Rulings. Tax credit for military   Organizations and individuals may request rulings from the IRS on whether they are religious orders, or members of a religious order, respectively, for FICA tax, SE tax, and federal income tax withholding purposes. Tax credit for military To request a ruling, follow the procedures in Revenue Procedure 2014-1, 2014-1 I. Tax credit for military R. Tax credit for military B. Tax credit for military 1, available at www. Tax credit for military irs. Tax credit for military gov/irb/2014-1_IRB/ar05. Tax credit for military html. Tax credit for military Christian Science Practitioners and Readers Generally, your earnings from services you perform in your profession as a Christian Science practitioner or reader are subject to SE tax. Tax credit for military However, you can request an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. Tax credit for military Practitioners. Tax credit for military   Christian Science practitioners are members in good standing of the Mother Church, The First Church of Christ, Scientist, in Boston, Massachusetts, who practice healing according to the teachings of Christian Science. Tax credit for military State law specifically exempts Christian Science practitioners from licensing requirements. Tax credit for military   Some Christian Science practitioners also are Christian Science teachers or lecturers. Tax credit for military Income from teaching or lecturing is considered the same as income from their work as practitioners. Tax credit for military Readers. Tax credit for military   For tax purposes, Christian Science readers are considered the same as ordained, commissioned, or licensed ministers. Tax credit for military Coverage of Religious Workers (Church Employees) If you are a religious worker (a church employee) and are not in one of the classes already discussed, your wages are generally subject to social security and Medicare tax under FICA, not SECA. Tax credit for military Some exceptions are discussed next. Tax credit for military Election by Church To Exclude Its Employees From FICA Coverage Churches and qualified church-controlled organizations (church organizations) that are opposed for religious reasons to the payment of social security and Medicare taxes can elect to exclude their employees from FICA coverage. Tax credit for military If your employer makes this election, it does not pay the employer's portion of the FICA taxes or withhold from your pay your portion of the FICA taxes. Tax credit for military Instead, your wages are subject to SECA and you must pay SE tax on your wages if they exceed $108. Tax credit for military 28 during the tax year. Tax credit for military However, you can request an exemption from SE tax if you are a member of a recognized religious sect, as discussed below. Tax credit for military Churches and church organizations make this election by filing two copies of Form 8274. Tax credit for military For more information about making this election, see Form 8274. Tax credit for military Election by Certain Church Employees Who Are Opposed to Social Security and Medicare You may be able to choose to be exempt from social security and Medicare taxes, including the SE tax, if you are a member of a recognized religious sect or division and work for a church (or church-controlled nonprofit division) that does not pay the employer's part of the social security tax on wages. Tax credit for military This exemption does not apply to your service, if any, as a minister of a church or as a member of a religious order. Tax credit for military Make this choice by filing Form 4029. Tax credit for military See Requesting Exemption—Form 4029 , later, under Members of Recognized Religious Sects. Tax credit for military U. Tax credit for military S. Tax credit for military Citizens and Resident and Nonresident Aliens To be covered under the SE tax provisions (SECA), individuals generally must be citizens or resident aliens of the United States. Tax credit for military Nonresident aliens are not covered under SECA unless a social security agreement in effect between the United States and the foreign country determines that you are covered under the U. Tax credit for military S. Tax credit for military social security system. Tax credit for military To determine your alien status, see Publication 519, U. Tax credit for military S. Tax credit for military Tax Guide for Aliens. Tax credit for military Residents of Puerto Rico, the U. Tax credit for military S. Tax credit for military Virgin Islands, Guam, the CNMI, and American Samoa. Tax credit for military   If you are a resident of one of these U. Tax credit for military S. Tax credit for military possessions but not a U. Tax credit for military S. Tax credit for military citizen, for SE tax purposes you are treated the same as a citizen or resident alien of the United States. Tax credit for military For information on figuring the tax, see Self-Employment Tax: Figuring Net Earnings , later. Tax credit for military Ministerial Services Ministerial services, in general, are the services you perform in the exercise of your ministry, in the exercise of your duties as required by your religious order, or in the exercise of your profession as a Christian Science practitioner or reader. Tax credit for military Income you receive for performing ministerial services is subject to SE tax unless you have an exemption as explained later. Tax credit for military Even if you have an exemption, only the income you receive for performing ministerial services is exempt. Tax credit for military The exemption does not apply to any other income. Tax credit for military The following discussions provide more detailed information on ministerial services of ministers, members of a religious order, and Christian Science practitioners and readers. Tax credit for military Ministers Most services you perform as a minister, priest, rabbi, etc. Tax credit for military , are ministerial services. Tax credit for military These services include: Performing sacerdotal functions, Conducting religious worship, and Controlling, conducting, and maintaining religious organizations (including the religious boards, societies, and other integral agencies of such organizations) that are under the authority of a religious body that is a church or denomination. Tax credit for military You are considered to control, conduct, and maintain a religious organization if you direct, manage, or promote the organization's activities. Tax credit for military A religious organization is under the authority of a religious body that is a church or denomination if it is organized for and dedicated to carrying out the principles of a faith according to the requirements governing the creation of institutions of the faith. Tax credit for military Services for nonreligious organizations. Tax credit for military   Your services for a nonreligious organization are ministerial services if the services are assigned or designated by your church. Tax credit for military Assigned or designated services qualify even if they do not involve performing sacerdotal functions or conducting religious worship. Tax credit for military   If your services are not assigned or designated by your church, they are ministerial services only if they involve performing sacerdotal functions or conducting religious worship. Tax credit for military Services that are not part of your ministry. Tax credit for military   Income from services you perform as an employee that are not ministerial services is subject to social security and Medicare tax withholding under FICA (not SECA) under the rules that apply to employees in general. Tax credit for military The following are not ministerial services. Tax credit for military Services you perform for nonreligious organizations other than the services stated above. Tax credit for military Services you perform as a duly ordained, commissioned, or licensed minister of a church as an employee of the United States, the District of Columbia, a foreign government, or any of their political subdivisions. Tax credit for military These services are not ministerial services even if you are performing sacerdotal functions or conducting religious worship. Tax credit for military (For example, if you perform services as a chaplain in the Armed Forces of the United States, those services are not ministerial services. Tax credit for military ) Services you perform in a government-owned and operated hospital. Tax credit for military (These services are considered performed by a government employee, not by a minister as part of the ministry. Tax credit for military ) However, services that you perform at a church-related hospital or health and welfare institution, or a private nonprofit hospital, are considered to be part of the ministry and are considered ministerial services. Tax credit for military Books or articles. Tax credit for military   Writing religious books or articles is considered to be in the exercise of your ministry and is considered a ministerial service. Tax credit for military   This rule also applies to members of religious orders and to Christian Science practitioners and readers. Tax credit for military Members of Religious Orders Services you perform as a member of a religious order in the exercise of duties required by the order are ministerial services. Tax credit for military The services are considered ministerial because you perform them as an agent of the order. Tax credit for military For example, if the order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to perform the services as an agent of the order. Tax credit for military However, if the order directs you to work outside the order, this employment will not be considered a duty required by the order unless: Your services are the kind that are ordinarily performed by members of the order, and Your services are part of the duties that must be exercised for, or on behalf of, the religious order as its agent. Tax credit for military Effect of employee status. Tax credit for military   Ordinarily, if your services are not considered directed or required of you by the order, you and the outside party for whom you work are considered employee and employer. Tax credit for military In this case, your earnings from the services are taxed under the rules that apply to employees in general, not under the rules for services provided as agent for the order. Tax credit for military This result is true even if you have taken a vow of poverty. Tax credit for military Example. Tax credit for military Pat Brown and Chris Green are members of a religious order and have taken vows of poverty. Tax credit for military They renounce all claims to their earnings. Tax credit for military The earnings belong to the order. Tax credit for military Pat is a licensed attorney. Tax credit for military The superiors of the order instructed her to get a job with a law firm. Tax credit for military Pat joined a law firm as an employee and, as she requested, the firm made the salary payments directly to the order. Tax credit for military Chris is a secretary. Tax credit for military The superiors of the order instructed him to accept a job with the business office of the church that supervises the order. Tax credit for military Chris took the job and gave all his earnings to the order. Tax credit for military Pat's services are not duties required by the order. Tax credit for military Her earnings are subject to social security and Medicare tax under FICA and to federal income tax. Tax credit for military Chris' services are duties required by the order. Tax credit for military He is acting as an agent of the order and not as an employee of a third party. Tax credit for military He does not include the earnings in gross income, and they are not subject to income tax withholding or to social security and Medicare tax under FICA or SECA. Tax credit for military Christian Science Practitioners and Readers Services you perform as a Christian Science practitioner or reader in the exercise of your profession are ministerial services. Tax credit for military Amounts you receive for performing these services are generally subject to SE tax. Tax credit for military You may request an exemption from SE tax, discussed next, which applies only to those services. Tax credit for military Exemption From Self-Employment (SE) Tax You can request an exemption from SE tax if you are a member of the clergy (minister, member of a religious order, or Christian Science practitioner or reader) or a member of a recognized religious sect. Tax credit for military Generally, members of religious orders who have taken a vow of poverty are already exempt from paying SE tax, as discussed earlier under Members of Religious Orders under Social Security Coverage. Tax credit for military They do not have to request the exemption. Tax credit for military Who cannot be exempt. Tax credit for military   You cannot be exempt from SE tax if you made one of the following elections to be covered under social security. Tax credit for military These elections are irrevocable. Tax credit for military You elected to be covered under social security by filing Form 2031, Revocation of Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners, for your 1986, 1987, 2000, or 2001 tax year. Tax credit for military You elected before 1968 to be covered under social security for your ministerial services. Tax credit for military Requesting exemption. Tax credit for military    Table 2, earlier, briefly summarizes the procedure for requesting exemption from the SE tax. Tax credit for military More detailed explanations follow. Tax credit for military If you are a minister, member of a religious order, or Christian Science practitioner, an approved exemption only applies to earnings you receive for ministerial services, discussed earlier. Tax credit for military It does not apply to any other self-employment income. Tax credit for military Table 2. Tax credit for military The Self-Employment Tax Exemption Application and Approval Process   Who Can Apply Members of the Clergy Members of Recognized  Religious Sects How File Form 4361 File Form 4029 When File by the due date (including extensions) of your income tax return for the second tax year in which you had at least $400 of net earnings from self-employment (at least part from ministerial services) File anytime Approval If approved, you will receive an approved copy of Form 4361 If approved, you will receive an approved copy of Form 4029 Effective Date For all tax years after 1967 in which you have at least $400 of net earnings from self-employment For all tax years beginning with the first year you meet the eligibility requirements discussed later Members of the Clergy To claim the exemption from SE tax, you must meet all of the following conditions. Tax credit for military You file Form 4361, described below under Requesting Exemption—Form 4361 . Tax credit for military You are conscientiously opposed to public insurance because of your individual religious considerations (not because of your general conscience), or you are opposed because of the principles of your religious denomination. Tax credit for military You file for other than economic reasons. Tax credit for military You inform the ordaining, commissioning, or licensing body of your church or order that you are opposed to public insurance if you are a minister or a member of a religious order (other than a vow-of-poverty member). Tax credit for military This requirement does not apply to Christian Science practitioners or readers. Tax credit for military You establish that the organization that ordained, commissioned, or licensed you, or your religious order, is a tax-exempt religious organization. Tax credit for military You establish that the organization is a church or a convention or association of churches. Tax credit for military You did not make an election discussed earlier under Who cannot be exempt . Tax credit for military You sign and return the statement the IRS mails to you to certify that you are requesting an exemption based on the grounds listed on the statement. Tax credit for military Requesting Exemption—Form 4361 To request exemption from SE tax, file Form 4361 in triplicate (original and two copies) with the IRS. Tax credit for military The IRS will return to you a copy of the Form 4361 that you filed indicating whether it has approved your exemption. Tax credit for military If it is approved, keep the approved copy of Form 4361 in your permanent records. Tax credit for military When to file. Tax credit for military   File Form 4361 by the date your income tax return is due, including extensions, for the second tax year in which both of the following are true. Tax credit for military You have net earnings from self-employment of at least $400. Tax credit for military Any part of those net earnings was from ministerial services you performed as a: Minister, Member of a religious order, or Christian Science practitioner or reader. Tax credit for military The 2 years do not have to be consecutive tax years. Tax credit for military    The approval process can take some time, so you should file Form 4361 as soon as possible. Tax credit for military Example 1. Tax credit for military Rev. Tax credit for military Lawrence Jaeger, a clergyman ordained in 2013, has net self-employment earnings as a minister of $450 in 2013 and $500 in 2014. Tax credit for military He must file his application for exemption by the due date, including extensions, for his 2014 income tax return. Tax credit for military However, if Rev. Tax credit for military Jaeger does not receive IRS approval for an exemption by April 15, 2015, his SE tax for 2014 is due by that date. Tax credit for military Example 2. Tax credit for military Rev. Tax credit for military Louise Wolfe has only $300 in net self-employment earnings as a minister in 2013, but earned more than $400 in 2012 and expects to earn more than $400 in 2014. Tax credit for military She must file her application for exemption by the due date, including extensions, for her 2014 income tax return. Tax credit for military However, if she does not receive IRS approval for an exemption by April 15, 2015, her SE tax for 2014 is due by that date. Tax credit for military Example 3. Tax credit for military In 2011, Rev. Tax credit for military David Moss was ordained a minister and had $700 in net self-employment earnings as a minister. Tax credit for military In 2012, he received $1,000 as a minister, but his related expenses were over $1,000. Tax credit for military Therefore, he had no net self-employment earnings as a minister in 2012. Tax credit for military Also in 2012, he opened a book store and had $8,000 in net self-employment earnings from the store. Tax credit for military In 2013, he had net self-employment earnings of $1,500 as a minister and $10,000 net self-employment earnings from the store. Tax credit for military Rev. Tax credit for military Moss had net earnings from self-employment in 2011 and 2013 that were $400 or more each year, and part of the self-employment earnings in each of those years was for his services as a minister. Tax credit for military Thus, he must file his application for exemption by the due date, including extensions, for his 2013 income tax return. Tax credit for military Death of individual. Tax credit for military   The right to file an application for exemption ends with an individual's death. Tax credit for military A surviving spouse, executor, or administrator cannot file an exemption application for a deceased clergy member. Tax credit for military Effective date of exemption. Tax credit for military   An approved exemption is effective for all tax years after 1967 in which you have $400 or more of net earnings from self-employment and any part of those earnings is for services as a member of the clergy. Tax credit for military Once the exemption is approved, it is irrevocable. Tax credit for military Example. Tax credit for military Rev. Tax credit for military Trudy Austin, ordained in 2010, had $400 or more in net self-employment earnings as a minister in both 2010 and 2013. Tax credit for military She files an application for exemption on February 20, 2014. Tax credit for military If an exemption is granted, it is effective for 2010 and the following years. Tax credit for military Refunds of SE tax. Tax credit for military   If, after receiving an approved Form 4361, you find that you overpaid SE tax, you can file a claim for refund on Form 1040X. Tax credit for military Generally, for a refund, you must file Form 1040X within 3 years from the date you filed the return or within 2 years from the date you paid the tax, whichever is later. Tax credit for military A return you filed, or tax you paid, before the due date is considered to have been filed or paid on the due date. Tax credit for military   If you file a claim after the 3-year period but within 2 years from the time you paid the tax, the credit or refund will not be more than the tax you paid within the 2 years immediately before you file the claim. Tax credit for military Members of Recognized Religious Sects If you are a member of a recognized religious sect, or a division of a recognized religious sect, you can apply for an exemption from payment of social security and Medicare taxes on both your self-employment income and the wages you earn from an employer who also has an exemption. Tax credit for military Exception. Tax credit for military   If you received social security benefits or payments, or anyone else received these benefits or payments based on your wages or self-employment income, you cannot apply. Tax credit for military However, if you pay your benefits back, you may be considered for exemption. Tax credit for military Contact your local Social Security Administration office to find out the amount you must pay back. Tax credit for military Eligibility requirements. Tax credit for military   To claim this exemption from SE tax, all the following requirements must be met. Tax credit for military You must file Form 4029, discussed later under Requesting Exemption—Form 4029 . Tax credit for military As a follower of the established teachings of the sect or division, you must be conscientiously opposed to accepting benefits of any private or public insurance that makes payments for death, disability, old age, retirement, or medical care, or provides services for medical care. Tax credit for military You must waive all rights to receive any social security payment or benefit and agree that no benefits or payments will be made to anyone else based on your wages and self-employment income. Tax credit for military The Commissioner of Social Security must determine that: Your sect or division has the established teachings as described in (2) above, It is the practice, and has been for a substantial period of time, for members of the sect or division to provide for their dependent members in a manner that is reasonable in view of the members' general level of living, and The sect or division has existed at all times since December 31, 1950. Tax credit for military Requesting Exemption—Form 4029 To request the exemption, file Form 4029 in triplicate (original and two copies) with the Social Security Administration at the address shown on the form. Tax credit for military The sect or division must complete part of the form. Tax credit for military The IRS will return to you a copy of the Form 4029 that you filed indicating whether it has approved your exemption. Tax credit for military If it is approved, keep the approved copy of Form 4029 in your permanent records. Tax credit for military When to file. Tax credit for military   You can file Form 4029 at any time. Tax credit for military   If you have an approved exemption from SE tax and for some reason that approved exemption ended, you must file a new Form 4029 if you subsequently meet the eligibility requirements, discussed earlier. Tax credit for military See Effective date of exemption next for information on when the newly approved exemption would become effective. Tax credit for military    If you have a previously approved exemption from SE tax and you change membership to another recognized religious sect, without any change to your eligibility requirements, then you do not need to file a new Form 4029. Tax credit for military Effective date of exemption. Tax credit for military   An approved exemption from SE tax generally is effective for all tax years beginning with the first year you meet the eligibility requirements discussed earlier. Tax credit for military (For example, if you meet the eligibility requirements in 2011, you file Form 4029 in 2012, and the IRS approves your exemption in 2013, your exemption is effective for tax year 2011 and all later years. Tax credit for military )   The exemption will end if you fail to meet the eligibility requirements or if the Commissioner of Social Security determines that the sect or division fails to meet them. Tax credit for military You must notify the IRS within 60 days if you are no longer a member of the religious group, or if you no longer follow the established teachings of this group. Tax credit for military The exemption will end for the tax year where you or your sect/division first fails to meet the eligibility requirements. Tax credit for military Refunds of SE tax paid. Tax credit for military    To get a refund of any SE tax you paid while the exemption was in effect, file Form 1040X. Tax credit for military For information on filing this form, see Refunds of SE tax under Requesting Exemption—Form 4361, earlier. Tax credit for military Exemption From FICA Taxes Generally, under FICA, the employer and the employee each pay half of the social security and Medicare tax. Tax credit for military Both the employee and the employer, if they meet the eligibility requirements discussed earlier, can apply to be exempt from their share of FICA taxes on wages paid by the employer to the employee. Tax credit for military A partnership in which each partner holds a religious exemption from social security and Medicare is an employer for this purpose. Tax credit for military If the employer's application is approved, the exemption will apply only to FICA taxes on wages paid to employees who also received an approval of identical applications. Tax credit for military Information for employers. Tax credit for military   If you have an approved Form 4029 and you have an employee who has an approved Form 4029, do not report wages you paid to the employee as social security and Medicare wages. Tax credit for military   If you have an employee who does not have an approved Form 4029, you must withhold the employee's share of social security and Medicare taxes and pay the employer's share. Tax credit for military Form W-2. Tax credit for military   When preparing a Form W-2 for an employee with an approved Form 4029, enter “Form 4029” in box 14, “Other. Tax credit for military ” Do not make any entries in boxes 3, 4, 5, or 6. Tax credit for military Forms 941, 943, and 944. Tax credit for military   If both you and your employee have received approved Forms 4029, do not include these exempt wages on the following forms. Tax credit for military Instead, follow the instructions given below. Tax credit for military Form 941, Employer's QUARTERLY Federal Tax Return: check the box on line 4 and enter “Form 4029” in the empty space below the check box. Tax credit for military Form 943, Employer's Annual Federal Tax Return for Agricultural Employees: enter “Form 4029” on the dotted line next to the lines 2 and 4 entry spaces. Tax credit for military Form 944, Employer's ANNUAL Federal Tax Return: check the box on line 3 and enter “Form 4029” in the empty space below the check box. Tax credit for military Effective date. Tax credit for military   An approved exemption from FICA becomes effective on the first day of the first calendar quarter after the quarter in which you file Form 4029. Tax credit for military The exemption will end on the last day of the calendar quarter before the quarter in which the employer, employee, sect, or division fails to meet the requirements. Tax credit for military Self-Employment Tax: Figuring Net Earnings There are two methods for figuring your net earnings from self-employment as a member of the clergy or a religious worker. Tax credit for military Regular method. Tax credit for military Nonfarm optional method. Tax credit for military You may find Worksheets 1 through 4 helpful in figuring your net earnings from self-employment. Tax credit for military Blank worksheets are in the back of this publication, after the Comprehensive Example. Tax credit for military Regular Method Most people use the regular method. Tax credit for military Under this method, figure your net earnings from self-employment by totaling your gross income for services you performed as a minister, a member of a religious order who has not taken a vow of poverty, or a Christian Science practitioner or reader. Tax credit for military Then, subtract your allowable business deductions and multiply the difference by 92. Tax credit for military 35% (. Tax credit for military 9235). Tax credit for military Use Schedule SE (Form 1040) to figure your net earnings and SE tax. Tax credit for military If you are an employee of a church that elected to exclude you from FICA coverage, figure net earnings by multiplying your church wages shown on Form W-2 by 92. Tax credit for military 35% (. Tax credit for military 9235). Tax credit for military Do not reduce your wages by any business deductions when making this computation. Tax credit for military Use Schedule SE (Form 1040), Section B, to figure your net earnings and SE tax. Tax credit for military If you have an approved exemption, or you are automatically exempt, do not include the income or deductions from ministerial services in figuring your net earnings from self-employment. Tax credit for military Amounts included in gross income. Tax credit for military   To figure your net earnings from self-employment (on Schedule SE (Form 1040)), include in gross income: Salaries and fees for your ministerial services (discussed earlier), Offerings you receive for marriages, baptisms, funerals, masses, etc. Tax credit for military , The value of meals and lodging provided to you, your spouse, and your dependents for your employer's convenience, The fair rental value of a parsonage provided to you (including the cost of utilities that are furnished) and the rental allowance (including an amount for payment of utilities) paid to you, and Any amount a church pays toward your income tax or SE tax, other than withholding the amount from your salary. Tax credit for military This amount is also subject to income tax. Tax credit for military   For the income tax treatment of items (2) and (4), see Income Tax: Income and Expenses , later. Tax credit for military Example. Tax credit for military Pastor Roger Adams receives an annual salary of $39,000 as a full-time minister. Tax credit for military The $39,000 includes $5,000 that is designated as a rental allowance to pay utilities. Tax credit for military His church owns a parsonage that has a fair rental value of $12,000 per year. Tax credit for military The church gives Pastor Adams the use of the parsonage. Tax credit for military He is not exempt from SE tax. Tax credit for military He must include $51,000 ($39,000 plus $12,000) when figuring his net earnings for SE tax purposes. Tax credit for military The results would be the same if, instead of the use of the parsonage and receipt of the rental allowance for utilities, Pastor Adams had received an annual salary of $51,000 of which $17,000 ($5,000 plus $12,000) per year was designated as a rental allowance. Tax credit for military Overseas duty. Tax credit for military   Your net earnings from self-employment are determined without any foreign earned income exclusion or the foreign housing exclusion or deduction if you are a U. Tax credit for military S. Tax credit for military citizen or resident alien serving abroad and living in a foreign country. Tax credit for military   For information on excluding foreign earned income or the foreign housing amount, see Publication 54. Tax credit for military Example. Tax credit for military Diane Jones was the minister of a U. Tax credit for military S. Tax credit for military church in Mexico. Tax credit for military She earned $35,000 in that position and was able to exclude it all for income tax purposes under the foreign earned income exclusion. Tax credit for military The United States does not have a social security agreement with Mexico, so Mrs. Tax credit for military Jones is subject to U. Tax credit for military S. Tax credit for military SE tax and must include $35,000 when figuring net earnings from self-employment. Tax credit for military Specified U. Tax credit for military S. Tax credit for military possessions. Tax credit for military    The exclusion from gross income for amounts derived from American Samoa or Puerto Rico does not apply in computing net earnings from self-employment. Tax credit for military Also see Residents of Puerto Rico, the U. Tax credit for military S. Tax credit for military Virgin Islands, Guam, the CNMI, and American Samoa , earlier, under U. Tax credit for military S. Tax credit for military Citizens and Resident and Nonresident Aliens. Tax credit for military Amounts not included in gross income. Tax credit for military   Do not include the following amounts in gross income when figuring your net earnings from self-employment. Tax credit for military Offerings that others made to the church. Tax credit for military Contributions by your church to a tax-sheltered annuity plan set up for you, including any salary reduction contributions (elective deferrals) that are not included in your gross income. Tax credit for military Pension payments or retirement allowances you receive for your past ministerial services. Tax credit for military The rental value of a parsonage or a parsonage allowance provided to you after you retire. Tax credit for military Allowable deductions. Tax credit for military   When figuring your net earnings from self-employment, deduct all your expenses related to your ministerial services performed as a self-employed person. Tax credit for military These are ministerial expenses you incurred while working other than as a common-law employee of the church. Tax credit for military They include expenses incurred in performing marriages and baptisms, and in delivering speeches. Tax credit for military Deduct these expenses on Schedule C or C-EZ (Form 1040), and carry the net amount to line 2 of Schedule SE (Form 1040), Section A or B. Tax credit for military   Wages earned as a common-law employee (explained earlier) of a church are generally subject to self-employment tax unless an exemption is requested, as discussed earlier under Exemption From Self-Employment (SE) Tax . Tax credit for military Subtract any allowable expenses (including unreimbursed employee business expenses) from those wages, include the net amount on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. Tax credit for military Do not complete Schedule C or C-EZ (Form 1040). Tax credit for military However, for income tax purposes, the expenses are allowed only as an itemized deduction on Schedule A (Form 1040) to the extent they exceed 2% of adjusted gross income. Tax credit for military Employee reimbursement arrangements. Tax credit for military   If you received an advance, allowance, or reimbursement for your employee expenses, how you report this amount and your employee expenses depends on whether your employer reimbursed you under an accountable plan or a nonaccountable plan. Tax credit for military Ask your employer if you are not sure if it reimburses you using an accountable or a nonaccountable plan. Tax credit for military Accountable plans. Tax credit for military   To be an accountable plan, your employer's reimbursement arrangement must include all three of the following rules. Tax credit for military Your expenses must have a business connection—that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. Tax credit for military You must adequately account to your employer for these expenses within a reasonable period of time. Tax credit for military You must return any excess reimbursement or allowance within a reasonable period of time. Tax credit for military   The reimbursement is not reported on your Form W-2. Tax credit for military Generally, if your expenses equal your reimbursement, you have no deduction. Tax credit for military If your expenses are more than your reimbursement, you can deduct your excess expenses for SE tax and income tax purposes. Tax credit for military Nonaccountable plan. Tax credit for military   A nonaccountable plan is a reimbursement arrangement that does not meet all three of the rules listed under Accountable plans above. Tax credit for military In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan. Tax credit for military Excess reimbursements you fail to return to your employer. Tax credit for military Reimbursement of nondeductible expenses related to your employer's business. Tax credit for military   Your employer will combine any reimbursement paid to you under a nonaccountable plan with your wages, salary, or other compensation and report the combined total in box 1 of your Form W-2. Tax credit for military Since reimbursements under a nonaccountable plan are included in your gross income, you can deduct your related expenses (for SE tax and income tax purposes) regardless of whether they are more than, less than, or equal to your reimbursement. Tax credit for military   For more information on accountable and nonaccountable plans, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Tax credit for military Married Couple Missionary Team If both spouses are duly ordained, commissioned, or licensed ministers of a church and have an agreement that each will perform specific services for which they are paid jointly or separately, they must divide the self-employment income according to the agreement. Tax credit for military If the agreement is with one spouse only and the other spouse is not paid for any specific duties, amounts received for their services are included only in the self-employment income of the spouse having the agreement. Tax credit for military Earnings Subject to SE Tax For 2013, the maximum net earnings from self-employment subject to social security (old age, survivors, and disability insurance) tax is $113,700 minus any wages and tips you earned that were subject to social security tax. Tax credit for military The tax rate for the social security part is 12. Tax credit for military 4%. Tax credit for military In addition, all of your net earnings are subject to the Medicare (hospital insurance) part of the SE tax. Tax credit for military This tax rate is 2. Tax credit for military 9%. Tax credit for military The combined self-employment tax rate is 15. Tax credit for military 3%. Tax credit for military Additional Medicare Tax. Tax credit for military   Beginning in 2013, a 0. Tax credit for military 9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 for any other filing status. Tax credit for military Medicare wages and self-employment income are combined to determine if income exceeds the threshold. Tax credit for military A self-employment loss is not considered for purposes of this tax. Tax credit for military RRTA compensation is separately compared to the threshold. Tax credit for military For more information, see Form 8959, Additional Medicare Tax, and its separate instructions. Tax credit for military Nonfarm Optional Method You may be able to use the nonfarm optional method for figuring your net earnings from self-employment. Tax credit for military In general, the nonfarm optional method is intended to permit continued coverage for social security and Medicare purposes when your income for the tax year is low. Tax credit for military You may use the nonfarm optional method if you meet all the following tests. Tax credit for military You are self-employed on a regular basis. Tax credit for military You meet this test if your actual net earnings from self-employment were $400 or more in at least 2 of the 3 tax years before the one for which you use this method. Tax credit for military The net earnings can be from either farm or nonfarm earnings or both. Tax credit for military You have used this method less than 5 prior years. Tax credit for military (There is a 5-year lifetime limit. Tax credit for military ) The years do not have to be consecutive. Tax credit for military Your net nonfarm profits were: Less than $5,024, and Less than 72. Tax credit for military 189% of your gross nonfarm income. Tax credit for military If you meet all three tests, use Table 3 to figure your net earnings from self-employment under the nonfarm optional method. Tax credit for military Table 3. Tax credit for military Figuring Nonfarm Net Earnings IF your gross nonfarm income is . Tax credit for military . Tax credit for military . Tax credit for military THEN your net earnings are equal to . Tax credit for military . Tax credit for military . Tax credit for military $6,960 or less Two-thirds of your gross nonfarm income. Tax credit for military More than $6,960 $4,640. Tax credit for military Actual net earnings. Tax credit for military   Multiply your total earnings subject to SE tax by 92. Tax credit for military 35% (. Tax credit for military 9235) to get actual net earnings. Tax credit for military Actual net earnings are equivalent to net earnings under the “Regular Method. Tax credit for military ” More information. Tax credit for military   For more information on the nonfarm optional method, see Publication 334, Tax Guide for Small Business, and the Schedule SE (Form 1040) instructions. Tax credit for military Income Tax: Income and Expenses Some income and expense items are treated the same for both income tax and SE tax purposes and some are treated differently. Tax credit for military Note. Tax credit for military For purposes of this section, references to members of the clergy are only to ministers or members of a religious order. Tax credit for military Income Items The tax treatment of offerings and fees, outside earnings, rental allowances, rental value of a parsonage, earnings of members of religious orders, and foreign earned income is discussed here. Tax credit for military Offerings and Fees If you are a member of the clergy, you must include in your income offerings and fees you receive for marriages, baptisms, funerals, masses, etc. Tax credit for military , in addition to your salary. Tax credit for military If the offering is made to the religious institution, it is not taxable to you. Tax credit for military Outside Earnings If you are a member of a religious organization and you give your outside earnings to the organization, you still must include the earnings in your income. Tax credit for military However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. Tax credit for military For more information, see Publication 526. Tax credit for military Exclusion of Rental Allowance and Fair Rental Value of a Parsonage Ordained, commissioned, or licensed ministers of the gospel may be able to exclude from income tax the rental allowance or fair rental value of a parsonage that is provided to them as pay for their services. Tax credit for military Services include: Ministerial services, discussed earlier, Administrative duties and teaching at theological seminaries, and The ordinary duties of a minister performed as an employee of the United States (other than as a chaplain in the Armed Forces), a state, possession, political subdivision, or the District of Columbia. Tax credit for military This exclusion applies only for income tax purposes. Tax credit for military It does not apply for SE tax purposes, as discussed earlier under Amounts included in gross income under Self-Employment Tax: Figuring Net Earnings. Tax credit for military Designation requirement. Tax credit for military   The church or organization that employs you must officially designate the payment as a housing allowance before it makes the payment. Tax credit for military It must designate a definite amount. Tax credit for military It cannot determine the amount of the housing allowance at a later date. Tax credit for military If the church or organization does not officially designate a definite amount as a housing allowance, you must include your total salary in your income. Tax credit for military   If you are employed and paid by a local congregation, a resolution by a national church agency of your denomination does not effectively designate a housing allowance for you. Tax credit for military The local congregation must officially designate the part of your salary that is a housing allowance. Tax credit for military However, a resolution of a national church agency can designate your housing allowance if you are directly employed by the national agency. Tax credit for military Rental allowances. Tax credit for military   If you receive in your salary an amount officially designated as a rental allowance (including an amount to pay utility costs), you can exclude the allowance from your gross income if: You use the amount to provide or rent a home, and The amount is not more than reasonable pay for your services. Tax credit for military   The amount you exclude cannot be more than the fair rental value of the home, including furnishings, plus the cost of utilities. Tax credit for military Fair rental value of parsonage. Tax credit for military   You can exclude from gross income the fair rental value of a house or parsonage, including utilities, furnished to you as part of your earnings. Tax credit for military However, the exclusion cannot be more than the reasonable pay for your services. Tax credit for military If you pay for the utilities, you can exclude any allowance designated for utility costs, up to your actual cost. Tax credit for military Example. Tax credit for military Rev. Tax credit for military Joanna Baker is a full-time minister. Tax credit for military The church allows her to use a parsonage that has an annual fair rental value of $24,000. Tax credit for military The church pays her an annual salary of $67,000, of which $7,500 is designated for utility costs. Tax credit for military Her actual utility costs during the year were $7,000. Tax credit for military For income tax purposes, Rev. Tax credit for military Baker excludes $31,000 from gross income ($24,000 fair rental value of the parsonage plus $7,000 from the allowance for utility costs). Tax credit for military She will report $60,000 ($59,500 salary plus $500 of unused utility allowance). Tax credit for military Her income for SE tax purposes, however, is $91,000 ($67,000 salary + $24,000 fair rental value of the parsonage). Tax credit for military Home ownership. Tax credit for military   If you own your home and you receive as part of your salary a housing or rental allowance, you may exclude from gross income the smallest of: The amount actually used to provide a home, The amount officially designated as a rental allowance, or The fair rental value of the home, including furnishings, utilities, garage, etc. Tax credit for military Excess rental allowance. Tax credit for military   You must include in gross income the amount of any rental allowance that is more than the smallest of: Your reasonable salary, The fair rental value of the home plus utilities, or The amount actually used to provide a home. Tax credit for military   Include in the total on Form 1040, line 7. Tax credit for military On the dotted line next to line 7, enter “Excess allowance” and the amount. Tax credit for military You may deduct the home mortgage interest and real estate taxes paid on your home even though you pay all or part of those expenses with funds you get through a tax-free rental or parsonage allowance. Tax credit for military However, you can only deduct these expenses as itemized deductions on Schedule A (Form 1040). Tax credit for military Retired ministers. Tax credit for military   If you are a retired minister, you can exclude from your gross income the rental value of a home (plus utilities) furnished to you by your church as a part of your pay for past services, or the part of your pension that was designated as a rental allowance. Tax credit for military However, a minister's surviving spouse cannot exclude the rental value unless the rental value is for ministerial services he or she performs or performed. Tax credit for military Teachers or administrators. Tax credit for military   If you are a minister employed as a teacher or administrator by a church school, college, or university, you are performing ministerial services for purposes of the housing exclusion. Tax credit for military However, if you perform services as a teacher or administrator on the faculty of a nonchurch college, you cannot exclude from your income a housing allowance or the value of a home that the college provides to you. Tax credit for military    If you live in faculty lodging as an employee of an educational institution or academic health center, all or part of the value of that lodging may be nontaxable under a different rule. Tax credit for military In Publication 525, see Faculty lodging in the discussion on meals and lodging under Fringe Benefits. Tax credit for military   If you serve as a minister of music or minister of education, or serve in an administrative or other function of your religious organization, but are not authorized to perform substantially all of the religious duties of an ordained minister in your church (even if you are commissioned as a minister of the gospel), the housing exclusion does not apply to you. Tax credit for military Theological students. Tax credit for military   If you are a theological student serving a required internship as a part-time or assistant pastor, you cannot exclude a parsonage or rental allowance from your income unless you are ordained, commissioned, or licensed as a minister. Tax credit for military Traveling evangelists. Tax credit for military   You can exclude a designated rental allowance from out-of-town churches if you meet all of the following requirements. Tax credit for military You are an ordained minister. Tax credit for military You perform ministerial services at churches located away from your community. Tax credit for military You actually use the rental allowance to maintain your permanent home. Tax credit for military Cantors. Tax credit for military   If you have a bona fide commission and your congregation employs you on a full-time basis to perform substantially all the religious functions of the Jewish faith, you can exclude a rental allowance from your gross income. Tax credit for military Earnings—Members of Religious Orders Your earnings may be exempt from both income tax and SE tax if you are a member of a religious order who: Has taken a vow of poverty, Receives earnings for services performed as an agent of the order and in the exercise of duties required by the order, and Renounces the earnings and gives them to the order. Tax credit for military See Members of Religious Orders , earlier, under Social Security Coverage. Tax credit for military Foreign Earned Income Certain income may be exempt from income tax if you work in a foreign country or in a specified U. Tax credit for military S. Tax credit for military possession. Tax credit for military Publication 54 discusses the foreign earned income exclusion. Tax credit for military Publication 570, Tax Guide for Individuals With Income From U. Tax credit for military S. Tax credit for military Possessions, covers the rules for taxpayers with income from U. Tax credit for military S. Tax credit for military possessions. Tax credit for military You can get these free publications from the Internal Revenue Service at IRS. Tax credit for military gov or from most U. Tax credit for military S. Tax credit for military Embassies or consulates. Tax credit for military Expense Items The tax treatment of ministerial trade or business expenses, expenses allocable to tax-free income, and health insurance costs is discussed here. Tax credit for military Ministerial Trade or Business Expenses as an Employee When you figure your income tax, you must itemize your deductions on Schedule A (Form 1040) to claim allowable deductions for ministerial trade or business expenses incurred while working as an employee. Tax credit for military You also may have to file Form 2106, Employee Business Expenses (or Form 2106-EZ, Unreimbursed Employee Business Expenses). Tax credit for military You claim these expenses as miscellaneous itemized deductions that are subject to the 2%-of-adjusted-gross-income (AGI) limit. Tax credit for military See Publication 529 for more information on this limit. Tax credit for military However, you cannot deduct any of your employee business expenses that are allocable to tax-free income (discussed next). Tax credit for military Expenses Allocable to Tax-Free Income If you receive a rental or parsonage allowance that is exempt from income tax (tax free), you must allocate a portion of the expenses of operating your ministry to that tax-free income. Tax credit for military You cannot deduct the portion of your expenses that you allocate to your tax-free rental or parsonage allowance. Tax credit for military Exception. Tax credit for military   This rule does not apply to your deductions for home mortgage interest or real estate taxes on your home. Tax credit for military Figuring the allocation. Tax credit for military   Figure the portion of your otherwise deductible expenses that you cannot deduct (because you must allocate that portion to tax-free income) by multiplying the expenses by the following fraction:      Tax-free rental or parsonage allowance     All income (taxable and tax free) earned from your ministry           When figuring the allocation, include the income and expenses related to the ministerial duties you perform both as an employee and as a self-employed person. Tax credit for military    Reduce your otherwise deductible expenses only in figuring your income tax, not your SE tax. Tax credit for military Example. Tax credit for military Rev. Tax credit for military Charles Ashford received $40,000 in earnings for ministerial services consisting of a $28,000 salary for ministerial services performed as an employee, $2,000 for weddings and baptisms performed as a self-employed person, and a $10,000 tax-free parsonage allowance. Tax credit for military He incurred $4,000 of unreimbursed expenses connected with his earnings for ministerial services. Tax credit for military $3,500 of the $4,000 is for employee expenses related to his ministerial salary, and $500 is related to the weddings and baptisms he performed as a self-employed person. Tax credit for military Rev. Tax credit for military Ashford figures the nondeductible (tax-free) portion of expenses related to his ministerial salary as follows: ($10,000 ÷ $40,000) x $3,500 = $875   Rev. Tax credit for military Ashford figures the nondeductible (tax-free) portion of expenses related to his wedding and baptism income as follows: ($10,000 ÷ $40,000) x $500 = $125 Required statement. Tax credit for military   If you receive a tax-free rental or parsonage allowance and have ministerial expenses, attach a statement to your tax return. Tax credit for military The statement must contain all of the following information. Tax credit for military A list of each item of taxable ministerial income by source (such as wages, salary, weddings, baptisms, etc. Tax credit for military ) plus the amount. Tax credit for military A list of each item of tax-free ministerial income by source (parsonage allowance) plus the amount. Tax credit for military A list of each item of otherwise deductible ministerial expenses plus the amount. Tax credit for military How you figured the nondeductible part of your otherwise deductible expenses. Tax credit for military A statement that the other deductions claimed on your tax return are not allocable to your tax-free income. Tax credit for military   See the attachments prepared for the Comprehensive Example , later. Tax credit for military Following the example, you will find blank worksheets for your own use. Tax credit for military Health Insurance Costs of Self-Employed Ministers If you are self-employed, you may be able to deduct the amount you paid in 2013 for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents. Tax credit for military If you qualify, you can take this deduction as an adjustment to income on Form 1040, line 29. Tax credit for military See the Instructions for Form 1040 to figure your deduction. Tax credit for military The following special rules apply to the self-employed health insurance deduction. Tax credit for military You cannot take a medical expense deduction on Schedule A (Form 1040) for any expenses you claim for purposes of the self-employed health insurance deduction. Tax credit for military You cannot take the deduction for any month you are eligible to participate in a subsidized plan of your (or your spouse's) employer. Tax credit for military The deduction cannot exceed your net earnings from the business under which the insurance plan is established. Tax credit for military Your net earnings under this rule do not include the income you earned as a common-law employee (discussed earlier) of a church. Tax credit for military More information. Tax credit for military   For more information about the self-employed health insurance deduction, see chapter 6 in Publication 535. Tax credit for military Deduction for SE Tax You can deduct one-half of your SE tax in figuring adjusted gross income. Tax credit for military This is an income tax deduction only, on Form 1040, line 27. Tax credit for military Do not claim this deduction in figuring net earnings from self-employment subject to SE tax. Tax credit for military Income Tax Withholding and Estimated Tax The federal income tax is a pay-as-you-go tax. Tax credit for military You must pay the tax as you earn or receive income during the year. Tax credit for military An employee usually has income tax withheld from his or her wages or salary. Tax credit for military However, your salary is not subject to federal income tax withholding if both of the following conditions apply. Tax credit for military You are a duly ordained, commissioned, or licensed minister, a member of a religious order (who has not taken a vow of poverty), or a Christian Science practitioner or reader. Tax credit for military Your salary is for ministerial services (see Ministerial Services , earlier). Tax credit for military If your salary is not subject to withholding, or if you do not pay enough tax through withholding, you may need to make estimated tax payments to avoid penalties for not paying enough tax as you earn your income. Tax credit for military You generally must make estimated tax payments if you expect to owe taxes, including SE tax, of $1,000 or more, when you file your return. Tax credit for military Determine your estimated tax by using the worksheets in Publication 505, Tax Withholding and Estimated Tax. Tax credit for military Pay the entire estimated tax for 2014 or the first installment by April 15, 2014. Tax credit for military See Form 1040-ES for the different payment methods. Tax credit for military The April 15 date applies whether or not your tax home and your abode are outside the United States and Puerto Rico. Tax credit for military For more information, see chapter 2 of Publication 505. Tax credit for military If you perform your services as a common-law employee of the church and your salary is not subject to income tax withholding, you can enter into a voluntary withholding agreement with the church to cover any income and SE tax that may be due. Tax credit for military Filing Your Return You must file an income tax return for 2013 if your gross income was at least the amount shown in the third column of Table 4 above. Tax credit for military Table 4. Tax credit for military 2013 Filing Requirements for Most Taxpayers IF your filing status is . Tax credit for military . Tax credit for military . Tax credit for military AND at the end of 2013 you were* . Tax credit for military . Tax credit for military . Tax credit for military THEN file a return if your gross income** was at least . Tax credit for military . Tax credit for military . Tax credit for military single under age 65 65 or older   $10,000 $11,500   married filing jointly*** under 65 (both spouses) 65 or older (one spouse) 65 or older (both spouses)   $20,000  $21,200  $22,400   married filing separately any age   $3,900   head of household under 65 65 or older   $12,850 $14,350   qualifying widow(er) with dependent child under 65 65 or older   $16,100  $17,300   * If you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. Tax credit for military ** Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). Tax credit for military Do not include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time in 2013, or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). Tax credit for military If (a) or (b) applies, see the instructions for Form 1040, lines 20a and 20b, to figure the taxable part of social security benefits you must include in gross income. Tax credit for military Gross income includes gains, but not losses, reported on Form 8949 or Schedule D (Form 1040). Tax credit for military Gross income from a business means, for example, the amount on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. Tax credit for military But, in figuring gross income, do not reduce your income by any losses, including any loss on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. Tax credit for military *** If you did not live with your spouse at the end of 2013 (or on the date your spouse died) and your gross income was at least $3,900, you must file a return regardless of your age. Tax credit for military Additional requirements. Tax credit for military   Even if your income was less than the amount shown in Table 4, you must file an income tax return on Form 1040, and attach a completed Schedule SE (Form 1040), if:    You are not exempt from SE tax, and you have net earnings from self-employment (discussed earlier under Self-Employment Tax: Figuring Net Earnings ) of $400 or more in the tax year, You are exempt from SE tax on earnings from ministerial services and you have $400 or more of other net earnings subject to SE tax, or You had wages of $108. Tax credit for military 28 or more from an electing church or church-controlled organization (see Coverage of Religious Workers (Church Employees) , earlier, under Social Security Coverage). Tax credit for military Self-employment tax. Tax credit for military   If you are liable for SE tax, you must file Schedule SE (Form 1040) with your return. Tax credit for military   If you filed Form 4361 and did not receive approval from the IRS, you must pay SE tax on your ministerial earnings, as explained earlier. Tax credit for military You should report ministerial earnings and expenses from nonemployee ministerial services on Schedule C or C-EZ (Form 1040). Tax credit for military You should then carry the net amount over to line 2 of Schedule SE (Form 1040), Section A or B. Tax credit for military However, if you were a duly ordained minister who was an employee of a church and you must pay SE tax on the wages you earned for those services, do not report those wages on Schedule C or C-EZ (Form 1040). Tax credit for military Instead, report those wages less any allowable expenses (including any unreimbursed employee business expenses), on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. Tax credit for military Note. Tax credit for military For income tax purposes, the unreimbursed employee business expenses that you incurred as an employee of the church and subtracted from your wages on line 2 of Schedule SE (Form 1040) are allowed only as an itemized deduction on Schedule A (Form 1040) if they exceed 2% of your adjusted gross income. Tax credit for military You cannot deduct these expenses on Schedule C or C-EZ (Form 1040) as a trade or business expense. Tax credit for military Exemption from SE tax. Tax credit for military   If you filed Form 4361 and received IRS approval not to be taxed on your ministerial earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). Tax credit for military Instead, enter “Exempt—Form 4361” on the dotted line next to Form 1040, line 56. Tax credit for military However, if you had net earnings from another trade or business of $400 or more subject to SE tax, see line A at the top of Schedule SE (Form 1040), Section B. Tax credit for military    If you filed Form 4029 and received IRS approval not to be taxed on those earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). Tax credit for military Instead, enter “Exempt—Form 4029” on the dotted line next to Form 1040, line 56. Tax credit for military More information. Tax credit for military   For more information on filing your return, including when and where to file it, see the Instructions for Form 1040. Tax credit for military Retirement Savings Arrangements Retirement savings arrangements are plans that offer you a tax-favored way to save for your retirement. Tax credit for military You generally can deduct your contributions to the plan. Tax credit for military Your contributions and the earnings on them are not taxed until they are distributed. Tax credit for military Retirement plans for the self-employed. Tax credit for military   To set up one of the following plans you must be self-employed. Tax credit for military SEP (simplified employee pension) plan. Tax credit for military SIMPLE (savings incentive match plan for employees) plan. Tax credit for military Qualified retirement plan (also called a Keogh or H. Tax credit for military R. Tax credit for military 10 plan). Tax credit for military   The common-law rules determine whether you are an employee or a self-employed person for purposes of setting up a retirement plan. Tax credit for military See Employment status for other tax purposes under Coverage of Members of the Clergy, earlier. Tax credit for military This result is true even if your compensation for ministerial services (defined earlier) is subject to SE tax. Tax credit for military   For example, if a congregation pays you a salary for performing ministerial services and you are subject to the congregation's control, you generally are a common-law employee. Tax credit for military You are not a self-employed person for purposes of setting up a retirement plan. Tax credit for military This result is true even if your salary is subject to SE tax. Tax credit for military   On the other hand, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services that you report on Schedule C or C-EZ (Form 1040), are earnings from self-employment for all tax purposes. Tax credit for military   For more information on establishing a SEP, SIMPLE, or qualified retirement plan, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). Tax credit for military Individual retirement arrangements (IRAs). Tax credit for military   The traditional IRA and the Roth IRA are two individual retirement arrangements you can use to save money for your retirement. Tax credit for military Generally, your maximum contribution for 2013 to either of these plans (or to a combination of the two) is the smaller of your taxable compensation or $5,500 ($6,500 if you are age 50 or older). Tax credit for military   However, your maximum contribution to a Roth IRA will be further reduced or eliminated if your adjusted gross income is above a certain amount. Tax credit for military You cannot deduct Roth IRA contributions, but if you satisfy certain requirements, all earnings in the Roth IRA are tax free and neither your nondeductible contributions nor any earnings on them are taxable when distributed. Tax credit for military   If you contribute to a traditional IRA, your contribution may be deductible. Tax credit for military However, your deduction may be reduced or eliminated if you or your spouse is covered by an employer retirement plan (including, but not limited to, a SEP, SIMPLE, or qualified retirement plan). Tax credit for military   For more information on IRAs, see Publication 590. Tax credit for military Tax-sheltered annuity plans. Tax credit for military   Church employees, members of religious orders, and duly ordained, commissioned, or licensed ministers working as ministers or chaplains can participate in tax-sheltered annuity (403(b)) plans. Tax credit for military For more
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The Tax Credit For Military

Tax credit for military Publication 515 - Main Content Table of Contents Withholding of TaxWithholding Agent Withholding and Reporting Obligations Persons Subject to NRA WithholdingIdentifying the Payee Foreign Persons DocumentationBeneficial Owners Foreign Intermediaries and Foreign Flow-Through Entities Standards of Knowledge Presumption Rules Income Subject to NRA WithholdingSource of Income Fixed or Determinable Annual or Periodical Income (FDAP) Withholding on Specific IncomeEffectively Connected Income Income Not Effectively Connected Pay for Personal Services Performed Artists and Athletes (Income Codes 42 and 43) Other Income Foreign Governments and Certain Other Foreign Organizations U. Tax credit for military S. Tax credit for military Taxpayer Identification NumbersUnexpected payment. Tax credit for military Depositing Withheld TaxesWhen Deposits Are Required Adjustment for Overwithholding Returns RequiredJoint owners. Tax credit for military Electronic reporting. Tax credit for military Partnership Withholding on Effectively Connected IncomeWho Must Withhold Foreign Partner Publicly Traded Partnerships U. Tax credit for military S. Tax credit for military Real Property InterestForeign corporations. Tax credit for military Domestic corporations. Tax credit for military U. Tax credit for military S. Tax credit for military real property holding corporations. Tax credit for military Partnerships. Tax credit for military Trusts and estates. Tax credit for military Domestically controlled QIE. Tax credit for military Late filing of certifications or notices. Tax credit for military Certifications. Tax credit for military Liability of agent or qualified substitute. Tax credit for military Reporting and Paying the Tax Withholding Certificates Tax Treaty TablesTable 1 Table 2 Table 3 How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Tax credit for military Withholding of Tax In most cases, a foreign person is subject to U. Tax credit for military S. Tax credit for military tax on its U. Tax credit for military S. Tax credit for military source income. Tax credit for military Most types of U. Tax credit for military S. Tax credit for military source income received by a foreign person are subject to U. Tax credit for military S. Tax credit for military tax of 30%. Tax credit for military A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. Tax credit for military The tax is generally withheld (NRA withholding) from the payment made to the foreign person. Tax credit for military The term “NRA withholding” is used in this publication descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. Tax credit for military In most cases, NRA withholding describes the withholding regime that requires withholding on a payment of U. Tax credit for military S. Tax credit for military source income. Tax credit for military Payments to foreign persons, including nonresident alien individuals, foreign entities, and governments, may be subject to NRA withholding. Tax credit for military NRA withholding does not include withholding under section 1445 of the Code (see U. Tax credit for military S. Tax credit for military Real Property Interest, later) or under section 1446 of the Code (see Partnership Withholding on Effectively Connected Income , later). Tax credit for military A withholding agent (defined next) is the person responsible for withholding on payments made to a foreign person. Tax credit for military However, a withholding agent that can reliably associate the payment with documentation (discussed later) from a U. Tax credit for military S. Tax credit for military person is not required to withhold. Tax credit for military In addition, a withholding agent may apply a reduced rate of withholding (including an exemption from withholding) if it can reliably associate the payment with documentation from a beneficial owner that is a foreign person entitled to a reduced rate of withholding. Tax credit for military Withholding Agent You are a withholding agent if you are a U. Tax credit for military S. Tax credit for military or foreign person that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. Tax credit for military A withholding agent may be an individual, corporation, partnership, trust, association, nominee (under section 1446 of the Code), or any other entity, including any foreign intermediary, foreign partnership, or U. Tax credit for military S. Tax credit for military branch of certain foreign banks and insurance companies. Tax credit for military You may be a withholding agent even if there is no requirement to withhold from a payment or even if another person has withheld the required amount from the payment. Tax credit for military Although several persons may be withholding agents for a single payment, the full tax is required to be withheld only once. Tax credit for military In most cases, the U. Tax credit for military S. Tax credit for military person who pays an amount subject to NRA withholding is the person responsible for withholding. Tax credit for military However, other persons may be required to withhold. Tax credit for military For example, a payment made by a flow-through entity or nonqualified intermediary that knows, or has reason to know, that the full amount of NRA withholding was not done by the person from which it receives a payment is required to do the appropriate withholding since it also falls within the definition of a withholding agent. Tax credit for military In addition, withholding must be done by any qualified intermediary, withholding foreign partnership, or withholding foreign trust in accordance with the terms of its withholding agreement, discussed later. Tax credit for military Liability for tax. Tax credit for military   As a withholding agent, you are personally liable for any tax required to be withheld. Tax credit for military This liability is independent of the tax liability of the foreign person to whom the payment is made. Tax credit for military If you fail to withhold and the foreign payee fails to satisfy its U. Tax credit for military S. Tax credit for military tax liability, then both you and the foreign person are liable for tax, as well as interest and any applicable penalties. Tax credit for military   The applicable tax will be collected only once. Tax credit for military If the foreign person satisfies its U. Tax credit for military S. Tax credit for military tax liability, you are not liable for the tax but remain liable for any interest and penalties for failure to withhold. Tax credit for military Determination of amount to withhold. Tax credit for military   You must withhold on the gross amount subject to NRA withholding. Tax credit for military You cannot reduce the gross amount by any deductions. Tax credit for military However, see Scholarships and Fellowship Grants and Pay for Personal Services Performed , later, for when a deduction for a personal exemption may be allowed. Tax credit for military   If the determination of the source of the income or the amount subject to tax depends on facts that are not known at the time of payment, you must withhold an amount sufficient to ensure that at least 30% of the amount subsequently determined to be subject to withholding is withheld. Tax credit for military In no case, however, should you withhold more than 30% of the total amount paid. Tax credit for military Or, you may make a reasonable estimate of the amount from U. Tax credit for military S. Tax credit for military sources and put a corresponding part of the amount due in escrow until the amount from U. Tax credit for military S. Tax credit for military sources can be determined, at which time withholding becomes due. Tax credit for military When to withhold. Tax credit for military   Withholding is required at the time you make a payment of an amount subject to withholding. Tax credit for military A payment is made to a person if that person realizes income, whether or not there is an actual transfer of cash or other property. Tax credit for military A payment is considered made to a person if it is paid for that person's benefit. Tax credit for military For example, a payment made to a creditor of a person in satisfaction of that person's debt to the creditor is considered made to the person. Tax credit for military A payment also is considered made to a person if it is made to that person's agent. Tax credit for military   A U. Tax credit for military S. Tax credit for military partnership should withhold when any distributions that include amounts subject to withholding are made. Tax credit for military However, if a foreign partner's distributive share of income subject to withholding is not actually distributed, the U. Tax credit for military S. Tax credit for military partnership must withhold on the foreign partner's distributive share of the income on the earlier of the date that a Schedule K-1 (Form 1065) is provided or mailed to the partner or the due date for furnishing that schedule. Tax credit for military If the distributable amount consists of effectively connected income, see Partnership Withholding on Effectively Connected Income , later. Tax credit for military A U. Tax credit for military S. Tax credit for military trust is required to withhold on the amount includible in the gross income of a foreign beneficiary to the extent the trust's distributable net income consists of an amount subject to withholding. Tax credit for military To the extent a U. Tax credit for military S. Tax credit for military trust is required to distribute an amount subject to withholding but does not actually distribute the amount, it must withhold on the foreign beneficiary's allocable share at the time the income is required to be reported on Form 1042-S. Tax credit for military Withholding and Reporting Obligations You are required to report payments subject to NRA withholding on Form 1042-S and to file a tax return on Form 1042. Tax credit for military (See Returns Required , later. Tax credit for military ) An exception from reporting may apply to individuals who are not required to withhold from a payment and who do not make the payment in the course of their trade or business. Tax credit for military Form 1099 reporting and backup withholding. Tax credit for military    You also may be responsible as a payer for reporting on Form 1099 payments made to a U. Tax credit for military S. Tax credit for military person. Tax credit for military You must withhold 28% (backup withholding rate) from a reportable payment made to a U. Tax credit for military S. Tax credit for military person that is subject to Form 1099 reporting if any of the following apply. Tax credit for military The U. Tax credit for military S. Tax credit for military person has not provided its taxpayer identification number (TIN) in the manner required. Tax credit for military The IRS notifies you that the TIN furnished by the payee is incorrect. Tax credit for military There has been a notified payee underreporting. Tax credit for military There has been a payee certification failure. Tax credit for military In most cases, a TIN must be provided by a U. Tax credit for military S. Tax credit for military non-exempt recipient on Form W-9, Request for Taxpayer Identification Number and Certification. Tax credit for military A payer files a tax return on Form 945, Annual Return of Withheld Federal Income Tax, for backup withholding. Tax credit for military You may be required to file Form 1099 and, if appropriate, backup withhold, even if you do not make the payments directly to that U. Tax credit for military S. Tax credit for military person. Tax credit for military For example, you are required to report income paid to a foreign intermediary or flow-through entity that collects for a U. Tax credit for military S. Tax credit for military person subject to Form 1099 reporting. Tax credit for military See Identifying the Payee , later, for more information. Tax credit for military Also see Section S. Tax credit for military Special Rules for Reporting Payments Made Through Foreign Intermediaries and Foreign Flow-Through Entities on Form 1099 in the General Instructions for Certain Information Returns. Tax credit for military Foreign persons who provide Form W-8BEN, Form W-8ECI, or Form W-8EXP (or applicable documentary evidence) are exempt from backup withholding and Form 1099 reporting. Tax credit for military Wages paid to employees. Tax credit for military   If you are the employer of a nonresident alien, you generally must withhold taxes at graduated rates. Tax credit for military See Pay for Personal Services Performed , later. Tax credit for military Effectively connected income by partnerships. Tax credit for military   A withholding agent that is a partnership (whether U. Tax credit for military S. Tax credit for military or foreign) is also responsible for withholding on its income effectively connected with a U. Tax credit for military S. Tax credit for military trade or business that is allocable to foreign partners. Tax credit for military See Partnership Withholding on Effectively Connected Income , later, for more information. Tax credit for military U. Tax credit for military S. Tax credit for military real property interest. Tax credit for military   A withholding agent also may be responsible for withholding if a foreign person transfers a U. Tax credit for military S. Tax credit for military real property interest to the agent, or if it is a corporation, partnership, trust, or estate that distributes a U. Tax credit for military S. Tax credit for military real property interest to a shareholder, partner, or beneficiary that is a foreign person. Tax credit for military See U. Tax credit for military S. Tax credit for military Real Property Interest , later. Tax credit for military Persons Subject to NRA Withholding NRA withholding applies only to payments made to a payee that is a foreign person. Tax credit for military It does not apply to payments made to U. Tax credit for military S. Tax credit for military persons. Tax credit for military Usually, you determine the payee's status as a U. Tax credit for military S. Tax credit for military or foreign person based on the documentation that person provides. Tax credit for military See Documentation , later. Tax credit for military However, if you have received no documentation or you cannot reliably associate all or a part of a payment with documentation, then you must apply certain presumption rules, discussed later. Tax credit for military Identifying the Payee In most cases, the payee is the person to whom you make the payment, regardless of whether that person is the beneficial owner of the income. Tax credit for military However, there are situations in which the payee is a person other than the one to whom you actually make a payment. Tax credit for military U. Tax credit for military S. Tax credit for military agent of foreign person. Tax credit for military   If you make a payment to a U. Tax credit for military S. Tax credit for military person and you have actual knowledge that the U. Tax credit for military S. Tax credit for military person is receiving the payment as an agent of a foreign person, you must treat the payment as made to the foreign person. Tax credit for military However, if the U. Tax credit for military S. Tax credit for military person is a financial institution, you may treat the institution as the payee provided you have no reason to believe that the institution will not comply with its own obligation to withhold. Tax credit for military   If the payment is not subject to NRA withholding (for example, gross proceeds from the sales of securities), you must treat the payment as made to a U. Tax credit for military S. Tax credit for military person and not as a payment to a foreign person. Tax credit for military You may be required to report the payment on Form 1099 and, if applicable, backup withhold. Tax credit for military Disregarded entities. Tax credit for military   A business entity that is not a corporation and that has a single owner may be disregarded as an entity separate from its owner (a disregarded entity) for federal tax purposes. Tax credit for military The payee of a payment made to a disregarded entity is the owner of the entity. Tax credit for military   If the owner of the entity is a foreign person, you must apply NRA withholding unless you can treat the foreign owner as a beneficial owner entitled to a reduced rate of withholding. Tax credit for military   If the owner is a U. Tax credit for military S. Tax credit for military person, you do not apply NRA withholding. Tax credit for military However, you may be required to report the payment on Form 1099 and, if applicable, backup withhold. Tax credit for military You may assume that a foreign entity is not a disregarded entity unless you can reliably associate the payment with documentation provided by the owner or you have actual knowledge or reason to know that the foreign entity is a disregarded entity. Tax credit for military Flow-Through Entities The payees of payments (other than income effectively connected with a U. Tax credit for military S. Tax credit for military trade or business) made to a foreign flow-through entity are the owners or beneficiaries of the flow-through entity. Tax credit for military This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Tax credit for military Income that is, or is deemed to be, effectively connected with the conduct of a U. Tax credit for military S. Tax credit for military trade or business of a flow-through entity is treated as paid to the entity. Tax credit for military All of the following are flow-through entities. Tax credit for military A foreign partnership (other than a withholding foreign partnership). Tax credit for military A foreign simple or foreign grantor trust (other than a withholding foreign trust). Tax credit for military A fiscally transparent entity receiving income for which treaty benefits are claimed. Tax credit for military See Fiscally transparent entity , later. Tax credit for military In most cases, you treat a payee as a flow-through entity if it provides you with a Form W-8IMY (see Documentation , later) on which it claims such status. Tax credit for military You also may be required to treat the entity as a flow-through entity under the presumption rules, discussed later. Tax credit for military You must determine whether the owners or beneficiaries of a flow-through entity are U. Tax credit for military S. Tax credit for military or foreign persons, how much of the payment relates to each owner or beneficiary, and, if the owner or beneficiary is foreign, whether a reduced rate of NRA withholding applies. Tax credit for military You make these determinations based on the documentation and other information (contained in a withholding statement) that is associated with the flow-through entity's Form W-8IMY. Tax credit for military If you do not have all of the information that is required to reliably associate a payment with a specific payee, you must apply the presumption rules. Tax credit for military See Documentation and Presumption Rules , later. Tax credit for military Withholding foreign partnerships and withholding foreign trusts are not flow-through entities. Tax credit for military Foreign partnerships. Tax credit for military    A foreign partnership is any partnership that is not organized under the laws of any state of the United States or the District of Columbia or any partnership that is treated as foreign under the income tax regulations. Tax credit for military If a foreign partnership is not a withholding foreign partnership, the payees of income are the partners of the partnership, provided the partners are not themselves a flow-through entity or a foreign intermediary. Tax credit for military However, the payee is the partnership itself if the partnership is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. Tax credit for military If a partner is a foreign flow-through entity or a foreign intermediary, you apply the payee determination rules to that partner to determine the payees. Tax credit for military Example 1. Tax credit for military A nonwithholding foreign partnership has three partners: a nonresident alien individual; a foreign corporation; and a U. Tax credit for military S. Tax credit for military citizen. Tax credit for military You make a payment of U. Tax credit for military S. Tax credit for military source interest to the partnership. Tax credit for military It gives you a Form W-8IMY with which it associates Form W-8BEN from the nonresident alien; Form W-8BEN from the foreign corporation; and Form W-9 from the U. Tax credit for military S. Tax credit for military citizen. Tax credit for military The partnership also gives you a complete withholding statement that enables you to associate a part of the interest payment to each partner. Tax credit for military You must treat all three partners as the payees of the interest payment as if the payment were made directly to them. Tax credit for military Report the payment to the nonresident alien and the foreign corporation on Forms 1042-S. Tax credit for military Report the payment to the U. Tax credit for military S. Tax credit for military citizen on Form 1099-INT. Tax credit for military Example 2. Tax credit for military A nonwithholding foreign partnership has two partners: a foreign corporation and a nonwithholding foreign partnership. Tax credit for military The second partnership has two partners, both nonresident alien individuals. Tax credit for military You make a payment of U. Tax credit for military S. Tax credit for military source interest to the first partnership. Tax credit for military It gives you a valid Form W-8IMY with which it associates a Form W-8BEN from the foreign corporation and a Form W-8IMY from the second partnership. Tax credit for military In addition, Forms W-8BEN from the partners are associated with the Form W-8IMY from the second partnership. Tax credit for military The Forms W-8IMY from the partnerships have complete withholding statements associated with them. Tax credit for military Because you can reliably associate a part of the interest payment with the Form W-8BEN provided by the foreign corporation and the Forms W-8BEN provided by the nonresident alien individual partners as a result of the withholding statements, you must treat them as the payees of the interest. Tax credit for military Example 3. Tax credit for military You make a payment of U. Tax credit for military S. Tax credit for military source dividends to a withholding foreign partnership. Tax credit for military The partnership has two partners, both foreign corporations. Tax credit for military You can reliably associate the payment with a valid Form W-8IMY from the partnership on which it represents that it is a withholding foreign partnership. Tax credit for military You must treat the partnership as the payee of the dividends. Tax credit for military Foreign simple and grantor trust. Tax credit for military   A trust is foreign unless it meets both of the following tests. Tax credit for military A court within the United States is able to exercise primary supervision over the administration of the trust. Tax credit for military One or more U. Tax credit for military S. Tax credit for military persons have the authority to control all substantial decisions of the trust. Tax credit for military   In most cases, a foreign simple trust is a foreign trust that is required to distribute all of its income annually. Tax credit for military A foreign grantor trust is a foreign trust that is treated as a grantor trust under sections 671 through 679 of the Code. Tax credit for military   The payees of a payment made to a foreign simple trust are the beneficiaries of the trust. Tax credit for military The payees of a payment made to a foreign grantor trust are the owners of the trust. Tax credit for military However, the payee is the foreign simple or grantor trust itself if the trust is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. Tax credit for military If the beneficiaries or owners are themselves flow-through entities or foreign intermediaries, you apply the payee determination rules to that beneficiary or owner to determine the payees. Tax credit for military Example. Tax credit for military A foreign simple trust has three beneficiaries: two nonresident alien individuals and a U. Tax credit for military S. Tax credit for military citizen. Tax credit for military You make a payment of interest to the foreign trust. Tax credit for military It gives you a Form W-8IMY with which it associates Forms W-8BEN from the nonresident aliens and a Form W-9 from the U. Tax credit for military S. Tax credit for military citizen. Tax credit for military The trust also gives you a complete withholding statement that enables you to associate a part of the interest payment with the forms provided by each beneficiary. Tax credit for military You must treat all three beneficiaries as the payees of the interest payment as if the payment were made directly to them. Tax credit for military Report the payment to the nonresident aliens on Forms 1042-S. Tax credit for military Report the payment to the U. Tax credit for military S. Tax credit for military citizen on Form 1099-INT. Tax credit for military Fiscally transparent entity. Tax credit for military   If a reduced rate of withholding under an income tax treaty is claimed, a flow-through entity includes any entity in which the interest holder must treat the entity as fiscally transparent. Tax credit for military The determination of whether an entity is fiscally transparent is made on an item of income basis (that is, the determination is made separately for interest, dividends, royalties, etc. Tax credit for military ). Tax credit for military The interest holder in an entity makes the determination by applying the laws of the jurisdiction where the interest holder is organized, incorporated, or otherwise considered a resident. Tax credit for military An entity is considered to be fiscally transparent for the income to the extent the laws of that jurisdiction require the interest holder to separately take into account on a current basis the interest holder's share of the income, whether or not distributed to the interest holder, and the character and source of the income to the interest holder are determined as if the income was realized directly from the source that paid it to the entity. Tax credit for military Subject to the standards of knowledge rules discussed later, you generally make the determination that an entity is fiscally transparent based on a Form W-8IMY provided by the entity. Tax credit for military   The payees of a payment made to a fiscally transparent entity are the interest holders of the entity. Tax credit for military Example. Tax credit for military Entity A is a business organization organized under the laws of country X that has an income tax treaty in force with the United States. Tax credit for military A has two interest holders, B and C. Tax credit for military B is a corporation organized under the laws of country Y. Tax credit for military C is a corporation organized under the laws of country Z. Tax credit for military Both countries Y and Z have an income tax treaty in force with the United States. Tax credit for military A receives royalty income from U. Tax credit for military S. Tax credit for military sources that is not effectively connected with the conduct of a trade or business in the United States. Tax credit for military For U. Tax credit for military S. Tax credit for military income tax purposes, A is treated as a partnership. Tax credit for military Country X treats A as a partnership and requires the interest holders in A to separately take into account on a current basis their respective shares of the income paid to A even if the income is not distributed. Tax credit for military The laws of country X provide that the character and source of the income to A's interest holders are determined as if the income was realized directly from the source that paid it to A. Tax credit for military Accordingly, A is fiscally transparent in its jurisdiction, country X. Tax credit for military B and C are not fiscally transparent under the laws of their respective countries of incorporation. Tax credit for military Country Y requires B to separately take into account on a current basis B's share of the income paid to A, and the character and source of the income to B is determined as if the income was realized directly from the source that paid it to A. Tax credit for military Accordingly, A is fiscally transparent for that income under the laws of country Y, and B is treated as deriving its share of the U. Tax credit for military S. Tax credit for military source royalty income for purposes of the U. Tax credit for military S. Tax credit for military -Y income tax treaty. Tax credit for military Country Z, on the other hand, treats A as a corporation and does not require C to take into account its share of A's income on a current basis whether or not distributed. Tax credit for military Therefore, A is not treated as fiscally transparent under the laws of country Z. Tax credit for military Accordingly, C is not treated as deriving its share of the U. Tax credit for military S. Tax credit for military source royalty income for purposes of the U. Tax credit for military S. Tax credit for military -Z income tax treaty. Tax credit for military Foreign Intermediaries In most cases, if you make payments to a foreign intermediary, the payees are the persons for whom the foreign intermediary collects the payment, such as account holders or customers, not the intermediary itself. Tax credit for military This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Tax credit for military You may, however, treat a qualified intermediary that has assumed primary withholding responsibility for a payment as the payee, and you are not required to withhold. Tax credit for military An intermediary is a custodian, broker, nominee, or any other person that acts as an agent for another person. Tax credit for military A foreign intermediary is either a qualified intermediary or a nonqualified intermediary. Tax credit for military In most cases, you determine whether an entity is a qualified intermediary or a nonqualified intermediary based on the representations the intermediary makes on Form W-8IMY. Tax credit for military You must determine whether the customers or account holders of a foreign intermediary are U. Tax credit for military S. Tax credit for military or foreign persons and, if the account holder or customer is foreign, whether a reduced rate of NRA withholding applies. Tax credit for military You make these determinations based on the foreign intermediary's Form W-8IMY and associated information and documentation. Tax credit for military If you do not have all of the information or documentation that is required to reliably associate a payment with a payee, you must apply the presumption rules. Tax credit for military See Documentation and Presumption Rules , later. Tax credit for military Nonqualified intermediary. Tax credit for military   A nonqualified intermediary (NQI) is any intermediary that is a foreign person and that is not a qualified intermediary. Tax credit for military The payees of a payment made to an NQI are the customers or account holders on whose behalf the NQI is acting. Tax credit for military Example. Tax credit for military You make a payment of interest to a foreign bank that is a nonqualified intermediary. Tax credit for military The bank gives you a Form W-8IMY and the Forms W-8BEN of two foreign persons, and a Form W-9 from a U. Tax credit for military S. Tax credit for military person for whom the bank is collecting the payments. Tax credit for military The bank also associates with its Form W-8IMY a withholding statement on which it allocates the interest payment to each account holder and provides all other information required to be on the withholding statement. Tax credit for military The account holders are the payees of the interest payment. Tax credit for military You should report the part of the interest paid to the two foreign persons on Forms 1042-S and the part paid to the U. Tax credit for military S. Tax credit for military person on Form 1099-INT. Tax credit for military Qualified intermediary. Tax credit for military   A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U. Tax credit for military S. Tax credit for military intermediary) that has entered into a qualified intermediary withholding agreement (discussed later) with the IRS. Tax credit for military You may treat a QI as a payee to the extent the QI assumes primary withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for a payment. Tax credit for military In this situation, the QI is required to withhold the tax. Tax credit for military You can determine whether a QI has assumed responsibility from the Form W-8IMY provided by the QI. Tax credit for military   A payment to a QI to the extent it does not assume primary NRA withholding responsibility is considered made to the person on whose behalf the QI acts. Tax credit for military If a QI does not assume Form 1099 reporting and backup withholding responsibility, you must report on Form 1099 and, if applicable, backup withhold as if you were making the payment directly to the U. Tax credit for military S. Tax credit for military person. Tax credit for military Branches of financial institutions. Tax credit for military   Branches of financial institutions are not permitted to operate as QIs if they are located outside of countries having approved “know-your-customer” (KYC) rules. Tax credit for military The countries with approved KYC rules are listed on IRS. Tax credit for military gov. Tax credit for military QI withholding agreement. Tax credit for military   Foreign financial institutions and foreign branches of U. Tax credit for military S. Tax credit for military financial institutions can enter into an agreement with the IRS to be a qualified intermediary. Tax credit for military   A QI is entitled to certain simplified withholding and reporting rules. Tax credit for military In general, there are three major areas whereby intermediaries with QI status are afforded such simplified treatment. Tax credit for military   To apply for QI status, complete Form 14345, Qualified Intermediary Application, and Form SS-4, Application for Employer Identification Number. Tax credit for military These forms, and the procedures required to obtain a QI withholding agreement are available at www. Tax credit for military irs. Tax credit for military gov/Businesses/Corporations/Qualified-Intermediaries-(QI). Tax credit for military Documentation. Tax credit for military   A QI is not required to forward documentation obtained from foreign account holders to the U. Tax credit for military S. Tax credit for military withholding agent from whom the QI receives a payment of U. Tax credit for military S. Tax credit for military source income. Tax credit for military The QI maintains such documentation at its location and provides the U. Tax credit for military S. Tax credit for military withholding agent with withholding rate pools. Tax credit for military A withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding. Tax credit for military   A QI is required to provide the U. Tax credit for military S. Tax credit for military withholding agent with information regarding U. Tax credit for military S. Tax credit for military persons subject to Form 1099 information reporting unless the QI assumes the primary obligation to do Form 1099 reporting and backup withholding. Tax credit for military   If a QI obtains documentary evidence under the “know-your-customer” rules that apply to the QI under local law, and the documentary evidence is of a type specified in an attachment to the QI agreement, the documentary evidence remains valid until there is a change in circumstances or the QI knows the information is incorrect. Tax credit for military This indefinite validity period rule does not apply to Forms W-8 or to documentary evidence that is not of the type specified in the attachment to the agreement. Tax credit for military Form 1042-S reporting. Tax credit for military   A QI is permitted to report payments made to its direct foreign account holders on a pooled basis rather than reporting payments to each direct account holder specifically. Tax credit for military Pooled basis reporting is not available for payments to certain account holders, such as a nonqualified intermediary or a flow-through entity (discussed earlier). Tax credit for military Collective refund procedures. Tax credit for military   A QI may seek a refund on behalf of its direct account holders. Tax credit for military The direct account holders, therefore, are not required to file returns with the IRS to obtain refunds, but rather may obtain them from the QI. Tax credit for military U. Tax credit for military S. Tax credit for military branches of foreign banks and foreign insurance companies. Tax credit for military   Special rules apply to a U. Tax credit for military S. Tax credit for military branch of a foreign bank subject to Federal Reserve Board supervision or a foreign insurance company subject to state regulatory supervision. Tax credit for military If you agree to treat the branch as a U. Tax credit for military S. Tax credit for military person, you may treat the branch as a U. Tax credit for military S. Tax credit for military payee for a payment subject to NRA withholding provided you receive a Form W-8IMY from the U. Tax credit for military S. Tax credit for military branch on which the agreement is evidenced. Tax credit for military If you treat the branch as a U. Tax credit for military S. Tax credit for military payee, you are not required to withhold. Tax credit for military Even though you agree to treat the branch as a U. Tax credit for military S. Tax credit for military person, you must report the payment on Form 1042-S. Tax credit for military   A financial institution organized in a U. Tax credit for military S. Tax credit for military possession is treated as a U. Tax credit for military S. Tax credit for military branch. Tax credit for military The special rules discussed in this section apply to a possessions financial institution. Tax credit for military   If you are paying a U. Tax credit for military S. Tax credit for military branch an amount that is not subject to NRA withholding, treat the payment as made to a foreign person, irrespective of any agreement to treat the branch as a U. Tax credit for military S. Tax credit for military person for amounts subject to NRA withholding. Tax credit for military Consequently, amounts not subject to NRA withholding that are paid to a U. Tax credit for military S. Tax credit for military branch are not subject to Form 1099 reporting or backup withholding. Tax credit for military   Alternatively, a U. Tax credit for military S. Tax credit for military branch may provide you with a Form W-8IMY with which it associates the documentation of the persons on whose behalf it acts. Tax credit for military In this situation, the payees are the persons on whose behalf the branch acts provided you can reliably associate the payment with valid documentation from those persons. Tax credit for military See Nonqualified Intermediaries under  Documentation, later. Tax credit for military   If the U. Tax credit for military S. Tax credit for military branch does not provide you with a Form W-8IMY, then you should treat a payment subject to NRA withholding as made to the foreign person of which the branch is a part and the income as effectively connected with the conduct of a trade or business in the United States. Tax credit for military Withholding foreign partnership and foreign trust. Tax credit for military   A withholding foreign partnership (WP) is any foreign partnership that has entered into a WP withholding agreement with the IRS and is acting in that capacity. Tax credit for military A withholding foreign trust (WT) is a foreign simple or grantor trust that has entered into a WT withholding agreement with the IRS and is acting in that capacity. Tax credit for military   A WP or WT may act in that capacity only for payments of amounts subject to NRA withholding that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. Tax credit for military A WP or WT acting in that capacity must assume NRA withholding responsibility for these amounts. Tax credit for military You may treat a WP or WT as a payee if it has provided you with documentation (discussed later) that represents that it is acting as a WP or WT for such amounts. Tax credit for military WP and WT withholding agreements. Tax credit for military   The WP and WT withholding agreements and the application procedures for the agreements are in Revenue Procedure 2003-64. Tax credit for military Also see the following items. Tax credit for military Revenue Procedure 2004-21. Tax credit for military Revenue Procedure 2005-77. Tax credit for military Employer identification number (EIN). Tax credit for military   A completed Form SS-4 must be submitted with the application for being a WP or WT. Tax credit for military The WP or WT will be assigned a WP-EIN or WT-EIN to be used only when acting in that capacity. Tax credit for military Documentation. Tax credit for military   A WP or WT must provide you with a Form W-8IMY that certifies that the WP or WT is acting in that capacity and a written statement identifying the amounts for which it is so acting. Tax credit for military The statement is not required to contain withholding rate pool information or any information relating to the identity of a direct partner, beneficiary, or owner. Tax credit for military The Form W-8IMY must contain the WP-EIN or WT-EIN. Tax credit for military Foreign Persons A payee is subject to NRA withholding only if it is a foreign person. Tax credit for military A foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, and any other person that is not a U. Tax credit for military S. Tax credit for military person. Tax credit for military It also includes a foreign branch of a U. Tax credit for military S. Tax credit for military financial institution if the foreign branch is a qualified intermediary. Tax credit for military In most cases, the U. Tax credit for military S. Tax credit for military branch of a foreign corporation or partnership is treated as a foreign person. Tax credit for military Nonresident alien. Tax credit for military   A nonresident alien is an individual who is not a U. Tax credit for military S. Tax credit for military citizen or a resident alien. Tax credit for military A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding. Tax credit for military Married to U. Tax credit for military S. Tax credit for military citizen or resident alien. Tax credit for military   Nonresident alien individuals married to U. Tax credit for military S. Tax credit for military citizens or resident aliens may choose to be treated as resident aliens for certain income tax purposes. Tax credit for military However, these individuals are still subject to the NRA withholding rules that apply to nonresident aliens for all income except wages. Tax credit for military Wages paid to these individuals are subject to graduated withholding. Tax credit for military See Wages Paid to Employees—Graduated Withholding . Tax credit for military Resident alien. Tax credit for military   A resident alien is an individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year. Tax credit for military Green card test. Tax credit for military An alien is a resident alien if the individual was a lawful permanent resident of the United States at any time during the calendar year. Tax credit for military This is known as the green card test because these aliens hold immigrant visas (also known as green cards). Tax credit for military Substantial presence test. Tax credit for military An alien is considered a resident alien if the individual meets the substantial presence test for the calendar year. Tax credit for military Under this test, the individual must be physically present in the United States on at least: 31 days during the current calendar year, and 183 days during the current year and the 2 preceding years, counting all the days of physical presence in the current year, but only 1/3 the number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year. Tax credit for military   In most cases, the days the alien is in the United States as a teacher, student, or trainee on an “F,” “J,” “M,” or “Q” visa are not counted. Tax credit for military This exception is for a limited period of time. Tax credit for military   For more information on resident and nonresident status, the tests for residence, and the exceptions to them, see Publication 519. Tax credit for military Note. Tax credit for military   If your employee is late in notifying you that his or her status changed from nonresident alien to resident alien, you may have to make an adjustment to Form 941 if that employee was exempt from withholding of social security and Medicare taxes as a nonresident alien. Tax credit for military For more information on making adjustments, see chapter 13 of Publication 15 (Circular E). Tax credit for military Resident of a U. Tax credit for military S. Tax credit for military possession. Tax credit for military   A bona fide resident of Puerto Rico, the U. Tax credit for military S. Tax credit for military Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or American Samoa who is not a U. Tax credit for military S. Tax credit for military citizen or a U. Tax credit for military S. Tax credit for military national is treated as a nonresident alien for the withholding rules explained here. Tax credit for military A bona fide resident of a possession is someone who: Meets the presence test, Does not have a tax home outside the possession, and Does not have a closer connection to the United States or to a foreign country than to the possession. Tax credit for military   For more information, see Publication 570, Tax Guide for Individuals With Income From U. Tax credit for military S. Tax credit for military Possessions. Tax credit for military Foreign corporations. Tax credit for military   A foreign corporation is one that does not fit the definition of a domestic corporation. Tax credit for military A domestic corporation is one that was created or organized in the United States or under the laws of the United States, any of its states, or the District of Columbia. Tax credit for military Guam or Northern Mariana Islands corporations. Tax credit for military   A corporation created or organized in, or under the laws of, Guam or the CNMI is not considered a foreign corporation for the purpose of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons; and At least 20% of the corporation's gross income is derived from sources within Guam or the CNMI for the 3-year period ending with the close of the preceding tax year of the corporation (or the period the corporation has been in existence, if less). Tax credit for military Note. Tax credit for military   The provisions discussed below under U. Tax credit for military S. Tax credit for military Virgin Islands and American Samoa corporations will apply to Guam or CNMI corporations when an implementing agreement is in effect between the United States and that possession. Tax credit for military U. Tax credit for military S. Tax credit for military Virgin Islands and American Samoa corporations. Tax credit for military   A corporation created or organized in, or under the laws of, the U. Tax credit for military S. Tax credit for military Virgin Islands or American Samoa is not considered a foreign corporation for the purposes of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons, At least 65% of the corporation's gross income is effectively connected with the conduct of a trade or business in the U. Tax credit for military S. Tax credit for military Virgin Islands, American Samoa, Guam, the CNMI, or the United States for the 3-year period ending with the close of the tax year of the corporation (or the period the corporation or any predecessor has been in existence, if less), and No substantial part of the income of the corporation is used, directly or indirectly, to satisfy obligations to a person who is not a bona fide resident of the U. Tax credit for military S. Tax credit for military Virgin Islands, American Samoa, Guam, the CNMI, or the United States. Tax credit for military Foreign private foundations. Tax credit for military   A private foundation that was created or organized under the laws of a foreign country is a foreign private foundation. Tax credit for military Gross investment income from sources within the United States paid to a qualified foreign private foundation is subject to NRA withholding at a 4% rate (unless exempted by a treaty) rather than the ordinary statutory 30% rate. Tax credit for military Other foreign organizations, associations, and charitable institutions. Tax credit for military   An organization may be exempt from income tax under section 501(a) of the Internal Revenue Code even if it was formed under foreign law. Tax credit for military In most cases, you do not have to withhold tax on payments of income to these foreign tax-exempt organizations unless the IRS has determined that they are foreign private foundations. Tax credit for military   Payments to these organizations, however, must be reported on Form 1042-S, even though no tax is withheld. Tax credit for military   You must withhold tax on the unrelated business income (as described in Publication 598, Tax on Unrelated Business Income of Exempt Organizations) of foreign tax-exempt organizations in the same way that you would withhold tax on similar income of nonexempt organizations. Tax credit for military U. Tax credit for military S. Tax credit for military branches of foreign persons. Tax credit for military   In most cases, a payment to a U. Tax credit for military S. Tax credit for military branch of a foreign person is a payment made to the foreign person. Tax credit for military However, you may treat payments to U. Tax credit for military S. Tax credit for military branches of foreign banks and foreign insurance companies (discussed earlier) that are subject to U. Tax credit for military S. Tax credit for military regulatory supervision as payments made to a U. Tax credit for military S. Tax credit for military person, if you and the U. Tax credit for military S. Tax credit for military branch have agreed to do so, and if their agreement is evidenced by a withholding certificate, Form W-8IMY. Tax credit for military For this purpose, a financial institution organized under the laws of a U. Tax credit for military S. Tax credit for military possession is treated as a U. Tax credit for military S. Tax credit for military branch. Tax credit for military Documentation In most cases, you must withhold 30% from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes either of the following. Tax credit for military The payee is a U. Tax credit for military S. Tax credit for military person. Tax credit for military The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding. Tax credit for military In most cases, you must get the documentation before you make the payment. Tax credit for military The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. Tax credit for military See Standards of Knowledge , later. Tax credit for military If you cannot reliably associate a payment with valid documentation, you must use the presumption rules discussed later. Tax credit for military For example, if you do not have documentation or you cannot determine the part of a payment that is allocable to specific documentation, you must use the presumption rules. Tax credit for military The specific types of documentation are discussed in this section. Tax credit for military However, see Withholding on Specific Income , later, as well as the instructions to the particular forms. Tax credit for military As the withholding agent, you also may want to see the Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY. Tax credit for military Section 1446 withholding. Tax credit for military   Under section 1446 of the Code, a partnership must withhold tax on its effectively connected income allocable to a foreign partner. Tax credit for military In most cases, a partnership determines if a partner is a foreign partner and the partner's tax classification based on the withholding certificate provided by the partner. Tax credit for military This is the same documentation that is filed for NRA withholding, but may require additional information as discussed under each of the forms in this section. Tax credit for military Joint owners. Tax credit for military    If you make a payment to joint owners, you need to get documentation from each owner. Tax credit for military Form W-9. Tax credit for military   In most cases, you can treat the payee as a U. Tax credit for military S. Tax credit for military person if the payee gives you a Form W-9. Tax credit for military The Form W-9 can be used only by a U. Tax credit for military S. Tax credit for military person and must contain the payee's taxpayer identification number (TIN). Tax credit for military If there is more than one owner, you may treat the total amount as paid to a U. Tax credit for military S. Tax credit for military person if any one of the owners gives you a Form W-9. Tax credit for military See U. Tax credit for military S. Tax credit for military Taxpayer Identification Numbers , later. Tax credit for military U. Tax credit for military S. Tax credit for military persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding. Tax credit for military Form W-8. Tax credit for military   In most cases, a foreign payee of the income should give you a form in the Form W-8 series. Tax credit for military Until further notice, you can rely upon Forms W-8 that contain a P. Tax credit for military O. Tax credit for military box as a permanent residence address provided you do not know, or have reason to know, that the person providing the form is a U. Tax credit for military S. Tax credit for military person and that a street address is available. Tax credit for military You may rely on Forms W-8 for which there is a U. Tax credit for military S. Tax credit for military mailing address provided you received the form prior to December 31, 2001. Tax credit for military   If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8. Tax credit for military You can rely on documentary evidence in lieu of a Form W-8 for a payment made in a U. Tax credit for military S. Tax credit for military possession. Tax credit for military Other documentation. Tax credit for military   Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. Tax credit for military The nonresident alien individual may have to give you a Form W-4 or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. Tax credit for military These forms are discussed in Pay for Personal Services Performed under Withholding on Specific Income. Tax credit for military Beneficial Owners If all the appropriate requirements have been established on a Form W-8BEN, W-8ECI, W-8EXP or, if applicable, on documentary evidence, you may treat the payee as a foreign beneficial owner. Tax credit for military Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. Tax credit for military   This form is used by a foreign person to: Establish foreign status; Claim that such person is the beneficial owner of the income for which the form is being furnished or a partner in a partnership subject to section 1446 withholding; and If applicable, claim a reduced rate of, or exemption from, withholding under an income tax treaty. Tax credit for military   Form W-8BEN also may be used to claim that the foreign person is exempt from Form 1099 reporting and backup withholding for income that is not subject to NRA withholding. Tax credit for military For example, a foreign person may provide a Form W-8BEN to a broker to establish that the gross proceeds from the sale of securities are not subject to Form 1099 reporting or backup withholding. Tax credit for military Claiming treaty benefits. Tax credit for military   You may apply a reduced rate of withholding to a foreign person that provides a Form W-8BEN claiming a reduced rate of withholding under an income tax treaty only if the person provides a U. Tax credit for military S. Tax credit for military TIN and certifies that: It is a resident of a treaty country; It is the beneficial owner of the income; If it is an entity, it derives the income within the meaning of section 894 of the Internal Revenue Code (it is not fiscally transparent); and It meets any limitation on benefits provision contained in the treaty, if applicable. Tax credit for military   If the foreign beneficial owner claiming a treaty benefit is related to you, the foreign beneficial owner also must certify on Form W-8BEN that it will file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), if the amount subject to NRA withholding received during a calendar year exceeds, in the aggregate, $500,000. Tax credit for military   An entity derives income for which it is claiming treaty benefits only if the entity is not treated as fiscally transparent for that income. Tax credit for military See Fiscally transparent entity discussed earlier under Flow-Through Entities. Tax credit for military   Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. Tax credit for military For example, a foreign corporation may not be entitled to a reduced rate of withholding unless a minimum percentage of its owners are citizens or residents of the United States or the treaty country. Tax credit for military   The exemptions from, or reduced rates of, U. Tax credit for military S. Tax credit for military tax vary under each treaty. Tax credit for military You must check the provisions of the tax treaty that apply. Tax credit for military Tables at the end of this publication show the countries with which the United States has income tax treaties and the rates of withholding that apply in cases where all conditions of the particular treaty articles are satisfied. Tax credit for military   If you know, or have reason to know, that an owner of income is not eligible for treaty benefits claimed, you must not apply the treaty rate. Tax credit for military You are not, however, responsible for misstatements on a Form W-8, documentary evidence, or statements accompanying documentary evidence for which you did not have actual knowledge, or reason to know, that the statements were incorrect. Tax credit for military Exceptions to TIN requirement. Tax credit for military   A foreign person does not have to provide a TIN to claim a reduced rate of withholding under a treaty if the requirements for the following exceptions are met. Tax credit for military Income from marketable securities (discussed next). Tax credit for military Unexpected payments to an individual (discussed under U. Tax credit for military S. Tax credit for military Taxpayer Identification Numbers ). Tax credit for military Marketable securities. Tax credit for military   A Form W-8BEN provided to claim treaty benefits does not need a U. Tax credit for military S. Tax credit for military TIN if the foreign beneficial owner is claiming the benefits on income from marketable securities. Tax credit for military For this purpose, income from a marketable security consists of the following items. Tax credit for military Dividends and interest from stocks and debt obligations that are actively traded. Tax credit for military Dividends from any redeemable security issued by an investment company registered under the Investment Company Act of 1940 (mutual fund). Tax credit for military Dividends, interest, or royalties from units of beneficial interest in a unit investment trust that are (or were upon issuance) publicly offered and are registered with the SEC under the Securities Act of 1933. Tax credit for military Income related to loans of any of the above securities. Tax credit for military Offshore accounts. Tax credit for military   If a payment is made outside the United States to an offshore account, a payee may give you documentary evidence, rather than Form W-8BEN. Tax credit for military   In most cases, a payment is made outside the United States if you complete the acts necessary to effect the payment outside the United States. Tax credit for military However, an amount paid by a bank or other financial institution on a deposit or account usually will be treated as paid at the branch or office where the amount is credited. Tax credit for military An offshore account is an account maintained at an office or branch of a U. Tax credit for military S. Tax credit for military or foreign bank or other financial institution at any location outside the United States. Tax credit for military   You may rely on documentary evidence given to you by a nonqualified intermediary or a flow-through entity with its Form W-8IMY. Tax credit for military This rule applies even though you make the payment to a nonqualified intermediary or flow-through entity in the United States. Tax credit for military In most cases, the nonqualified intermediary or flow-through entity that gives you documentary evidence also will have to give you a withholding statement, discussed later. Tax credit for military Documentary evidence. Tax credit for military   You may apply a reduced rate of withholding to income from marketable securities (discussed earlier) paid outside the United States to an offshore account if the beneficial owner gives you documentary evidence in place of a Form W-8BEN. Tax credit for military To claim treaty benefits, the documentary evidence must be one of the following: A certificate of residence that: Is issued by a tax official of the treaty country of which the foreign beneficial owner claims to be a resident, States that the person has filed its most recent income tax return as a resident of that country, and Is issued within 3 years prior to being presented to you. Tax credit for military Documentation for an individual that: Includes the individual's name, address, and photograph, Is an official document issued by an authorized governmental body, and Is issued no more than 3 years prior to being presented to you. Tax credit for military Documentation for an entity that: Includes the name of the entity, Includes the address of its principal office in the treaty country, and Is an official document issued by an authorized governmental body. Tax credit for military In addition to the documentary evidence, a foreign beneficial owner that is an entity must provide a statement that it derives the income for which it claims treaty benefits and that it meets one or more of the conditions set forth in a limitation on benefits article, if any, (or similar provision) contained in the applicable treaty. Tax credit for military Form W-8ECI, Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States. Tax credit for military   This form is used by a foreign person to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim that the income is effectively connected with the conduct of a trade or business in the United States. Tax credit for military (See Effectively Connected Income , later. Tax credit for military )   Effectively connected income for which a valid Form W-8ECI has been provided is generally not subject to NRA withholding. Tax credit for military   If a partner submits this form to a partnership, the income claimed to be effectively connected with the conduct of a U. Tax credit for military S. Tax credit for military trade or business is subject to withholding under section 1446. Tax credit for military If the partner has made, or will make, an election under section 871(d) or 882(d), the partner must submit Form W-8ECI, and attach a copy of the election, or a statement of intent to elect, to the form. Tax credit for military    If the partner's only effectively connected income is the income allocated from the partnership and the partner is not making the election under section 871(d) or 882(d), the partner should provide Form W-8BEN to the partnership. Tax credit for military Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding. Tax credit for military   This form is used by a foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U. Tax credit for military S. Tax credit for military possession to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim a reduced rate of, or an exemption from, withholding as such an entity. Tax credit for military   If the government or organization is a partner in a partnership carrying on a trade or business in the United States, the effectively connected income allocable to the partner is subject to withholding under section 1446. Tax credit for military   See Foreign Governments and Certain Other Foreign Organizations , later. Tax credit for military Foreign Intermediaries and Foreign Flow-Through Entities Payments made to a foreign intermediary or foreign flow-through entity are treated as made to the payees on whose behalf the intermediary or entity acts. Tax credit for military The Form W-8IMY provided by a foreign intermediary or flow-through entity must be accompanied by additional information for you to be able to reliably associate the payment with a payee. Tax credit for military The additional information required depends on the type of intermediary or flow-through entity and the extent of the withholding responsibilities it assumes. Tax credit for military Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U. Tax credit for military S. Tax credit for military Branches for United States Tax Withholding. Tax credit for military   This form is used by foreign intermediaries and foreign flow-through entities, as well as certain U. Tax credit for military S. Tax credit for military branches, to: Represent that a foreign person is a qualified intermediary or nonqualified intermediary, Represent, if applicable, that the qualified intermediary is assuming primary NRA withholding responsibility and/or primary Form 1099 reporting and backup withholding responsibility, Represent that a foreign partnership or a foreign simple or grantor trust is a withholding foreign partnership or a withholding foreign trust, Represent that a foreign flow-through entity is a nonwithholding foreign partnership, or a nonwithholding foreign trust and that the income is not effectively connected with the conduct of a trade or business in the United States, Represent that the provider is a U. Tax credit for military S. Tax credit for military branch of a foreign bank or insurance company and either is agreeing to be treated as a U. Tax credit for military S. Tax credit for military person or is transmitting documentation of the persons on whose behalf it is acting, or Represent that, for purposes of section 1446, it is an upper-tier foreign partnership or a foreign grantor trust and that the form is being used to transmit the required documentation. Tax credit for military For information on qualifying as an upper-tier foreign partnership, see Regulations section 1. Tax credit for military 1446-5. Tax credit for military Qualified Intermediaries In most cases, a QI is any foreign intermediary that has entered into a QI withholding agreement (discussed earlier) with the IRS. Tax credit for military A foreign intermediary that has received a QI employer identification number (QI-EIN) may represent on Form W-8IMY that it is a QI before it receives a fully executed agreement. Tax credit for military The intermediary can claim that it is a QI until the IRS revokes its QI-EIN. Tax credit for military The IRS will revoke a QI-EIN if the QI agreement is not executed and returned to the IRS within a reasonable period of time after the agreement was sent to the intermediary for signature. Tax credit for military Responsibilities. Tax credit for military   Payments made to a QI that does not assume NRA withholding responsibility are treated as paid to its account holders and customers. Tax credit for military However, a QI is not required to provide you with documentation it obtains from its foreign account holders and customers. Tax credit for military Instead, it provides you with a withholding statement that contains withholding rate pool information. Tax credit for military A withholding rate pool is a payment of a single type of income, determined in accordance with the categories of income reported on Form 1042-S that is subject to a single rate of withholding. Tax credit for military A qualified intermediary is required to provide you with information regarding U. Tax credit for military S. Tax credit for military persons subject to Form 1099 reporting and to provide you withholding rate pool information separately for each such U. Tax credit for military S. Tax credit for military person unless it has assumed Form 1099 reporting and backup withholding responsibility. Tax credit for military For the alternative procedure for providing rate pool information for U. Tax credit for military S. Tax credit for military non-exempt persons, see the Form W-8IMY instructions. Tax credit for military   The withholding statement must: Designate those accounts for which it acts as a qualified intermediary, Designate those accounts for which it assumes primary NRA withholding responsibility and/or primary Form 1099 and backup withholding responsibility, and Provide sufficient information for you to allocate the payment to a withholding rate pool. Tax credit for military   The extent to which you must have withholding rate pool information depends on the withholding and reporting obligations assumed by the QI. Tax credit for military Primary responsibility not assumed. Tax credit for military   If a QI does not assume primary NRA withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for the payment, you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to each withholding rate pool for foreign payees. Tax credit for military Unless the alternative procedure applies, the qualified intermediary must provide you with a separate withholding rate pool for each U. Tax credit for military S. Tax credit for military person subject to Form 1099 reporting and/or backup withholding. Tax credit for military The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. Tax credit for military Primary NRA withholding responsibility assumed. Tax credit for military   If you make a payment to a QI that assumes primary NRA withholding responsibility (but not primary Form 1099 reporting and backup withholding responsibility), you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to the withholding rate pool for which the QI assumes primary NRA withholding responsibility and the part of the payment attributable to withholding rate pools for each U. Tax credit for military S. Tax credit for military person, unless the alternative procedure applies, subject to Form 1099 reporting and/or backup withholding. Tax credit for military The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. Tax credit for military Primary NRA and Form 1099 responsibility assumed. Tax credit for military   If you make a payment to a QI that assumes both primary NRA withholding responsibility and primary Form 1099 reporting and backup withholding responsibility, you can reliably associate a payment with valid documentation provided that you receive a valid Form W-8IMY. Tax credit for military It is not necessary to associate the payment with withholding rate pools. Tax credit for military Example. Tax credit for military You make a payment of dividends to a QI. Tax credit for military It has five customers: two are foreign persons who have provided documentation entitling them to a 15% rate of withholding on dividends; two are foreign persons subject to a 30% rate of withholding on dividends; and one is a U. Tax credit for military S. Tax credit for military individual who provides it with a Form W-9. Tax credit for military Each customer is entitled to 20% of the dividend payment. Tax credit for military The QI does not assume any primary withholding responsibility. Tax credit for military The QI gives you a Form W-8IMY with which it associates the Form W-9 and a withholding statement that allocates 40% of the dividend to a 15% withholding rate pool, 40% to a 30% withholding rate pool, and 20% to the U. Tax credit for military S. Tax credit for military individual. Tax credit for military You should report on Forms 1042-S 40% of the payment as made to a 15% rate dividend pool and 40% of the payment as made to a 30% rate dividend pool. Tax credit for military The part of the payment allocable to the U. Tax credit for military S. Tax credit for military individual (20%) is reportable on Form 1099-DIV. Tax credit for military Smaller partnerships and trusts. Tax credit for military   A QI may apply special rules to a smaller partnership or trust (Joint Account Provision) only if the partnership or trust meets the following conditions. Tax credit for military It is a foreign partnership or foreign simple or grantor trust. Tax credit for military It is a direct account holder of the QI. Tax credit for military It does not have any partner, beneficiary, or owner that is a U. Tax credit for military S. Tax credit for military person or a pass- through partner, beneficiary, or owner. Tax credit for military   For information on these rules, see section 4A. Tax credit for military 01 of the QI agreement. Tax credit for military This is found in Appendix 3 of Revenue Procedure 2003-64. Tax credit for military Also see Revenue Procedure 2004-21. Tax credit for military Related partnerships and trusts. Tax credit for military    A QI may apply special rules to a related partnership or trust only if the partnership or trust meets the following conditions. Tax credit for military It is a foreign partnership or foreign simple or grantor trust. Tax credit for military It is either: A direct account holder of the QI, or An indirect account holder of the QI that is a direct partner, beneficiary, or owner of a partnership or trust to which the QI has applied this rule. Tax credit for military For information on these rules, see section 4A. Tax credit for military 02 of the QI agreement. Tax credit for military This is found in Appendix 3 of Revenue Procedure 2003-64. Tax credit for military Also see Revenue Procedure 2005-77. Tax credit for military Nonqualified Intermediaries If you are making a payment to an NQI, foreign flow-through entity, or U. Tax credit for military S. Tax credit for military branch that is using Form W-8IMY to transmit information about the branch's account holders or customers, you can treat the payment (or a part of the payment) as reliably associated with valid documentation from a specific payee only if, prior to making the payment: You can allocate the payment to a valid Form W-8IMY, You can reliably determine how much of the payment relates to valid documentation provided by a payee (a person that is not itself a foreign intermediary, flow- through entity, or U. Tax credit for military S. Tax credit for military branch), and You have sufficient information to report the payment on Form 1042-S or Form 1099, if reporting is required. Tax credit for military The NQI, flow-through entity, or U. Tax credit for military S. Tax credit for military branch must give you certain information on a withholding statement that is associated with the Form W-8IMY. Tax credit for military A withholding statement must be updated to keep the information accurate prior to each payment. Tax credit for military Withholding statement. Tax credit for military   In most cases, a withholding statement must contain the following information. Tax credit for military The name, address, and TIN (if any, or if required) of each person for whom documentation is provided. Tax credit for military The type of documentation (documentary evidence, Form W-8, or Form W-9) for every person for whom documentation has been provided. Tax credit for military The status of the person for whom the documentation has been provided, such as whether the person is a U. Tax credit for military S. Tax credit for military exempt recipient (U. Tax credit for military S. Tax credit for military person exempt from Form 1099 reporting), U. Tax credit for military S. Tax credit for military non-exempt recipient (U. Tax credit for military S. Tax credit for military person subject to Form 1099 reporting), or a foreign person. Tax credit for military For a foreign person, the statement must indicate whether the person is a beneficial owner or a foreign intermediary, flow-through entity, or a U. Tax credit for military S. Tax credit for military branch. Tax credit for military The type of recipient the person is, based on the recipient codes used on Form 1042-S. Tax credit for military Information allocating each payment, by income type, to each payee (including U. Tax credit for military S. Tax credit for military exempt and U. Tax credit for military S. Tax credit for military non-exempt recipients) for whom documentation has been provided. Tax credit for military The rate of withholding that applies to each foreign person to whom a payment is allocated. Tax credit for military A foreign payee's country of residence. Tax credit for military If a reduced rate of withholding is claimed, the basis for a reduced rate of withholding (for example, portfolio interest, treaty benefit, etc. Tax credit for military ). Tax credit for military In the case of treaty benefits claimed by entities, whether the applicable limitation on benefits statement and the statement that the foreign person derives the income for which treaty benefits are claimed, have been made. Tax credit for military The name, address, and TIN (if any) of any other NQI, flow-through entity, or U. Tax credit for military S. Tax credit for military branch from which the payee will directly receive a payment. Tax credit for military Any other information a withholding agent requests to fulfill its reporting and withholding obligations. Tax credit for military Alternative procedure. Tax credit for military   Under this alternative procedure the NQI can give you the information that allocates each payment to each foreign and U. Tax credit for military S. Tax credit for military exempt recipient by January 31 following the calendar year of payment, rather than prior to the payment being made as otherwise required. Tax credit for military To take advantage of this procedure, the NQI must: (a) inform you, on its withholding statement, that it is using the alternative procedure; and (b) obtain your consent. Tax credit for military You must receive the withholding statement with all the required information (other than item 5) prior to making the payment. Tax credit for military    This alternative procedure cannot be used for payments to U. Tax credit for military S. Tax credit for military non-exempt recipients. Tax credit for military Therefore, an NQI must always provide you with allocation information for all U. Tax credit for military S. Tax credit for military non-exempt recipients prior to a payment being made. Tax credit for military Pooled withholding information. Tax credit for military   If an NQI uses the alternative procedure, it must provide you with withholding rate pool information, as opposed to individual allocation information, prior to the payment of a reportable amount. Tax credit for military A withholding rate pool is a payment of a single type of income (as determined by the income categories on Form 1042-S) that is subject to a single rate of withholding. Tax credit for military For example, an NQI that has foreign account holders receiving royalties and dividends, both subject to the 15% rate, will provide you with information for two withholding rate pools (one for royalties and one for dividends). Tax credit for military The NQI must provide you with the payee specific allocation information (information allocating each payment to each payee) by January 31 following the calendar year of payment. Tax credit for military Failure to provide allocation information. Tax credit for military   If an NQI fails to provide you with the payee specific allocation information for a withholding rate pool by January 31, you must not apply the alternative procedure to any of the NQI's withholding rate pools from that date forward. Tax credit for military You must treat the payees as undocumented and apply the presumption rules, discussed later in Presumption Rules . Tax credit for military An NQI is deemed to have f