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Tax Credits For Students

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Tax Credits For Students

Tax credits for students 3. Tax credits for students   Claiming the Special Depreciation Allowance Table of Contents Introduction What Is Qualified Property?Qualified Reuse and Recycling Property Qualified Cellulosic Biofuel Plant Property Qualified Disaster Assistance Property Certain Qualified Property Acquired After December 31, 2007 Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance How Much Can You Deduct? How Can You Elect Not To Claim an Allowance? When Must You Recapture an Allowance? Introduction You can take a special depreciation allowance to recover part of the cost of qualified property (defined next), placed in service during the tax year. Tax credits for students The allowance applies only for the first year you place the property in service. Tax credits for students For qualified property placed in service in 2013, you can take an additional 50% special allowance. Tax credits for students The allowance is an additional deduction you can take after any section 179 deduction and before you figure regular depreciation under MACRS for the year you place the property in service. Tax credits for students This chapter explains what is qualified property. Tax credits for students It also includes rules regarding how to figure an allowance, how to elect not to claim an allowance, and when you must recapture an allowance. Tax credits for students Corporations can elect to accelerate certain minimum tax credits in lieu of claiming the special depreciation allowance for eligible qualified property. Tax credits for students See Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance , later. Tax credits for students See chapter 6 for information about getting publications and forms. Tax credits for students What Is Qualified Property? Your property is qualified property if it is one of the following. Tax credits for students Qualified reuse and recycling property. Tax credits for students Qualified cellulosic biofuel plant property. Tax credits for students Qualified disaster assistance property. Tax credits for students Certain qualified property acquired after December 31, 2007. Tax credits for students The following discussions provide information about the types of qualified property listed above for which you can take the special depreciation allowance. Tax credits for students Qualified Reuse and Recycling Property You can take a 50% special depreciation allowance for qualified reuse and recycling property. Tax credits for students Qualified reuse and recycling property is any machinery or equipment (not including buildings or real estate), along with any appurtenance, that is used exclusively to collect, distribute, or recycle qualified reuse and recyclable materials (as defined in section 168(m)(3)(B) of the Internal Revenue Code). Tax credits for students Qualified reuse and recycling property also includes software necessary to operate such equipment. Tax credits for students The property must meet the following requirements. Tax credits for students The property must be depreciated under MACRS. Tax credits for students The property must have a useful life of at least 5 years. Tax credits for students The original use of the property must begin with you after August 31, 2008. Tax credits for students You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2 ) after August 31, 2008, with no binding written contract for the acquisition in effect before September 1, 2008. Tax credits for students The property must be placed in service for use in your trade or business after August 31, 2008. Tax credits for students Excepted Property Qualified reuse and recycling property does not include any of the following. Tax credits for students Any rolling stock or other equipment used to transport reuse or recyclable materials. Tax credits for students Property required to be depreciated using the Alternative Depreciation System (ADS). Tax credits for students For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . Tax credits for students Other bonus depreciation property to which section 168(k) of the Internal Revenue Code applies. Tax credits for students Property for which you elected not to claim any special depreciation allowance (discussed later). Tax credits for students Property placed in service and disposed of in the same tax year. Tax credits for students Property converted from business use to personal use in the same tax year acquired. Tax credits for students Property converted from personal use to business use in the same or later tax year may be qualified reuse and recycling property. Tax credits for students Qualified Cellulosic Biofuel Plant Property You can take a 50% special depreciation allowance for qualified cellulosic biofuel plant property. Tax credits for students Cellulosic biofuel is any liquid fuel which is produced from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis. Tax credits for students Examples include bagasse (from sugar cane), corn stalks, and switchgrass. Tax credits for students The property must meet the following requirements. Tax credits for students The property is used in the United States solely to produce cellulosic biofuel. Tax credits for students The original use of the property must begin with you after December 20, 2006. Tax credits for students You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2 ) after December 20, 2006, with no binding written contract for acquisition in effect before December 21, 2006. Tax credits for students The property must be placed in service for use in your trade or business or for the production of income after October 3, 2008, and before January 3, 2013. Tax credits for students Note. Tax credits for students For property placed in service after January 2, 2013, and before January 1, 2014, you can take a 50% special depreciation allowance for qualified second generation biofuel plant property that is used solely in the United States to produce second generation biofuel (as defined in section 40(b)(6)(E)). Tax credits for students The other requirements for qualified second generation biofuel plant property to be eligible for the special depreciation allowance are identical to the requirements discussed for Qualified Cellulosic Biofuel Plant Property above. Tax credits for students Special Rules Sale-leaseback. Tax credits for students   If you sold qualified cellulosic biofuel plant property you placed in service after October 3, 2008, and leased it back within 3 months after you originally placed it in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback. Tax credits for students   The property will not qualify for the special allowance if the lessee or a related person to the lessee or lessor had a written binding contract in effect for the acquisition of the property before December 21, 2006. Tax credits for students Syndicated leasing transactions. Tax credits for students   If qualified cellulosic biofuel plant property is originally placed in service by a lessor after October 3, 2008, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale. Tax credits for students   Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of sale if the property is sold within 3 months after the final unit is placed in service and the period between the times the first and last units are placed in service does not exceed 12 months. Tax credits for students Excepted Property Qualified cellulosic biofuel plant property does not include any of the following. Tax credits for students Property placed in service and disposed of in the same tax year. Tax credits for students Property converted from business use to personal use in the same tax year it is acquired. Tax credits for students Property converted from personal use to business use in the same or later tax year may be qualified cellulosic biomass ethanol plant property. Tax credits for students Property required to be depreciated using the Alternative Depreciation System (ADS). Tax credits for students For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . Tax credits for students Property any portion of which is financed with the proceeds of any obligation the interest on which is exempt from tax under section 103 of the Internal Revenue Code. Tax credits for students Property for which you elected not to claim any special depreciation allowance (discussed later). Tax credits for students Property for which a deduction was taken under section 179C for certain qualified refinery property. Tax credits for students Other bonus depreciation property to which section 168(k) of the Internal Revenue Code applies. Tax credits for students Qualified Disaster Assistance Property You can take a 50% special depreciation allowance for qualified disaster assistance property placed in service in federally declared disaster areas in which the disaster occurred in 2009. Tax credits for students A list of the federally declared disaster areas is available at the FEMA website at www. Tax credits for students fema. Tax credits for students gov. Tax credits for students Your property is qualified disaster assistance property if it meets the following requirements. Tax credits for students The property is nonresidential real property or residential real property placed in service before January 1, 2014, in a federally declared disaster area in which the disaster occurred in 2009. Tax credits for students You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2 ) on or after the applicable disaster date, with no binding written contract for the acquisition in effect before the applicable disaster date. Tax credits for students The property must rehabilitate property damaged, or replace property destroyed or condemned, as a result of the applicable federally declared disaster. Tax credits for students The property must be similar in nature to, and located in the same county as, the rehabilitated or replaced property. Tax credits for students The original use of the property within the applicable disaster area must have begun with you on or after the applicable disaster date. Tax credits for students The property is placed in service by you on or before the date which is the last day of the fourth calendar year. Tax credits for students Substantially all (80% or more) of the use of the property must be in the active conduct of your trade or business in a federally declared disaster area, occurring in 2009. Tax credits for students It is not excepted property (explained later in Excepted Property ). Tax credits for students Special Rules Sale-leaseback. Tax credits for students   If you sold qualified disaster assistance property you placed in service after the applicable disaster date and leased it back within 3 months after you originally placed it in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback. Tax credits for students   The property will not qualify for the special allowance if the lessee or a related person to the lessee or lessor had a written binding contract in effect for the acquisition of the property before the applicable disaster date. Tax credits for students Syndicated leasing transactions. Tax credits for students   If qualified disaster assistance property is originally placed in service by a lessor after the applicable disaster date, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale. Tax credits for students   Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of sale if the property is sold within 3 months after the final unit is placed in service and the period between the times the first and last units are placed in service does not exceed 12 months. Tax credits for students Excepted Property Qualified disaster assistance property does not include any of the following. Tax credits for students Property required to be depreciated using the Alternative Depreciation System (ADS). Tax credits for students For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . Tax credits for students Property any portion of which is financed with the proceeds of a tax-exempt obligation under section 103 of the Internal Revenue Code. Tax credits for students Any qualified revitalization building (defined later) placed in service before January 1, 2010, for which you have elected to claim a commercial revitalization deduction for qualified revitalization expenditures. Tax credits for students Any property used in connection with any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, or any store, the principal business of which is the sale of alcoholic beverages for consumption off premises. Tax credits for students Any property for which the special allowance under section 168(k) or section 1400N(d) of the Internal Revenue Code applies. Tax credits for students Property for which you elected not to claim any special depreciation allowance (discussed later). Tax credits for students Property placed in service and disposed of in the same tax year. Tax credits for students Property converted from business use to personal use in the same tax year acquired. Tax credits for students Property converted from personal use to business use in the same or later tax year may be qualified disaster assistance property. Tax credits for students Any gambling or animal racing property (defined later). Tax credits for students Qualified revitalization building. Tax credits for students   This is a commercial building and its structural components that you placed in service in a renewal community before January 1, 2010. Tax credits for students If the building is new, the original use of the building must begin with you. Tax credits for students If the building is not new, you must substantially rehabilitate the building and then place it in service. Tax credits for students For more information, including definitions of substantially rehabilitated building and qualified revitalization expenditure, see section 1400I(b) of the Internal Revenue Code. Tax credits for students Gambling or animal racing property. Tax credits for students   Gambling or animal racing property includes the following personal and real property. Tax credits for students Any equipment, furniture, software, or other property used directly in connection with gambling, the racing of animals, or the on-site viewing of such racing. Tax credits for students Any real property determined by square footage (other than any portion that is less than 100 square feet) that is dedicated to gambling, the racing of animals, or the on-site viewing of such racing. Tax credits for students Certain Qualified Property Acquired After December 31, 2007 You can take a 50% special depreciation deduction allowance for certain qualified property acquired after December 31, 2007. Tax credits for students Your property is qualified property if it meets the following requirements. Tax credits for students It is one of the following types of property. Tax credits for students Tangible property depreciated under MACRS with a recovery period of 20 years or less. Tax credits for students Water utility property. Tax credits for students Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. Tax credits for students (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Tax credits for students ) Qualified leasehold improvement property (defined under Qualified leasehold improvement property later). Tax credits for students You must have acquired the property after December 31, 2007, with no binding written contract for the acquisition in effect before January 1, 2008. Tax credits for students The property must be placed in service for use in your trade or business or for the production of income before January 1, 2014 (before January 1, 2015, for certain property with a long production period and certain aircraft (defined next)). Tax credits for students The original use of the property must begin with you after December 31, 2007. Tax credits for students It is not excepted property (explained later in Excepted property). Tax credits for students Qualified leasehold improvement property. Tax credits for students    Generally, this is any improvement to an interior part of a building that is nonresidential real property, if all the following requirements are met. Tax credits for students The improvement is made under or according to a lease by the lessee (or any sublessee) or the lessor of that part of the building. Tax credits for students That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part. Tax credits for students The improvement is placed in service more than 3 years after the date the building was first placed in service by any person. Tax credits for students The improvement is section 1250 property. Tax credits for students See chapter 3 in Publication 544, Sales and Other Dispositions of Assets, for the definition of section 1250 property. Tax credits for students   However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following. Tax credits for students The enlargement of the building. Tax credits for students Any elevator or escalator. Tax credits for students Any structural component benefiting a common area. Tax credits for students The internal structural framework of the building. Tax credits for students   Generally, a binding commitment to enter into a lease is treated as a lease and the parties to the commitment are treated as the lessor and lessee. Tax credits for students However, a lease between related persons is not treated as a lease. Tax credits for students Related persons. Tax credits for students   For this purpose, the following are related persons. Tax credits for students Members of an affiliated group. Tax credits for students An individual and a member of his or her family, including only a spouse, child, parent, brother, sister, half-brother, half-sister, ancestor, and lineal descendant. Tax credits for students A corporation and an individual who directly or indirectly owns 80% or more of the value of the outstanding stock of that corporation. Tax credits for students Two corporations that are members of the same controlled group. Tax credits for students A trust fiduciary and a corporation if 80% or more of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust. Tax credits for students The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Tax credits for students The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. Tax credits for students A tax-exempt educational or charitable organization and any person (or, if that person is an individual, a member of that person's family) who directly or indirectly controls the organization. Tax credits for students Two S corporations, and an S corporation and a regular corporation, if the same persons own 80% or more of the value of the outstanding stock of each corporation. Tax credits for students A corporation and a partnership if the same persons own both of the following. Tax credits for students 80% or more of the value of the outstanding stock of the corporation. Tax credits for students 80% or more of the capital or profits interest in the partnership. Tax credits for students The executor and beneficiary of any estate. Tax credits for students Long Production Period Property To be qualified property, long production period property must meet the following requirements. Tax credits for students It must meet the requirements in (2)-(5), above. Tax credits for students The property has a recovery period of at least 10 years or is transportation property. Tax credits for students Transportation property is tangible personal property used in the trade or business of transporting persons or property. Tax credits for students The property is subject to section 263A of the Internal Revenue Code. Tax credits for students The property has an estimated production period exceeding 1 year and an estimated production cost exceeding $1,000,000. Tax credits for students Noncommercial Aircraft To be qualified property, noncommercial aircraft must meet the following requirements. Tax credits for students It must meet the requirements in (2)-(5), above. Tax credits for students The aircraft must not be tangible personal property used in the trade or business of transporting persons or property (except for agricultural or firefighting purposes). Tax credits for students The aircraft must be purchased (as discussed under Property Acquired by Purchase in chapter 2 ) by a purchaser who at the time of the contract for purchase, makes a nonrefundable deposit of the lesser of 10% of the cost or $100,000. Tax credits for students The aircraft must have an estimated production period exceeding four months and a cost exceeding $200,000. Tax credits for students Special Rules Sale-leaseback. Tax credits for students   If you sold qualified property you placed in service after December 31, 2007, and leased it back within 3 months after you originally placed in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback. Tax credits for students   The property will not qualify for the special depreciation allowance if the lessee or a related person to the lessee or lessor had a written binding contract in effect for the acquisition of the property before January 1, 2008. Tax credits for students Syndicated leasing transactions. Tax credits for students   If qualified property is originally placed in service by a lessor after December 31, 2007, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale. Tax credits for students   Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of the last sale if the property is sold within 3 months after the final unit is placed in service and the period between the time the first and last units are placed in service does not exceed 12 months. Tax credits for students Excepted Property Qualified property does not include any of the following. Tax credits for students Property placed in service and disposed of in the same tax year. Tax credits for students Property converted from business use to personal use in the same tax year acquired. Tax credits for students Property converted from personal use to business use in the same or later tax year may be qualified property. Tax credits for students Property required to be depreciated under the Alternative Depreciation System (ADS). Tax credits for students This includes listed property used 50% or less in a qualified business use. Tax credits for students For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . Tax credits for students Qualified restaurant property (as defined in section 168(e)(7) of the Internal Revenue Code). Tax credits for students Qualified retail improvement property (as defined in section 168(e)(8) of the Internal Revenue Code). Tax credits for students Property for which you elected not to claim any special depreciation allowance (discussed later). Tax credits for students Property for which you elected to accelerate certain credits in lieu of the special depreciation allowance (discussed next). Tax credits for students Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance An election made by a corporation to claim pre-2006 unused minimum tax credits in lieu of claiming the special depreciation allowance for either its first tax year ending after March 31, 2008, its first tax year ending after December 31, 2008, or its first tax year ending after December 31, 2010, continues to apply to round 2 extension property (as defined in section 168(k)(4)(I)(iv)), unless the corporation made an election not to apply the section 168(k)(4) election to round 2 extension property for its first tax year ending after December 31, 2010. Tax credits for students For 2013, round 2 extension property generally is long production period and noncommercial aircraft if acquired after March 31, 2008, and placed in service after December 31, 2012, but before January 1, 2014. Tax credits for students An election made by a corporation to claim pre-2006 unused minimum tax credits in lieu of claiming the special depreciation allowance for either its first tax year ending after March 31, 2008, its first tax year ending after December 31, 2008, or its first tax year ending after December 31, 2010, continues to apply to round 3 extension property (as defined in section 168(k)(4)(J)(iv)), unless the corporation makes an election not to apply the section 168(k)(4) election to round 3 extension property. Tax credits for students If a corporation did not make a section 168(k)(4) election for either its first tax year ending after March 31, 2008, its first tax year ending after December 31, 2008, or its first tax year ending after December 31, 2010, the corporation may elect for its first tax year ending after December 31, 2012, to claim pre-2006 unused minimum tax credits in lieu of claiming the special depreciation allowance for only round 3 extension property. Tax credits for students If you make an election to accelerate these credits in lieu of claiming the special depreciation allowance for eligible property, you must not take the 50% special depreciation allowance for the property and must depreciate the basis in the property under MACRS using the straight line method. Tax credits for students See Which Depreciation Method Applies in chapter 4 . Tax credits for students Once made, the election cannot be revoked without IRS consent. Tax credits for students Additional guidance. Tax credits for students   For additional guidance on the election to accelerate the research or minimum tax credit in lieu of claiming the special depreciation allowance, see Rev. Tax credits for students Proc. Tax credits for students 2008-65 on page 1082 of Internal Revenue Bulletin 2008-44, available at www. Tax credits for students irs. Tax credits for students gov/pub/irs-irbs/irb08-44. Tax credits for students pdf, Rev. Tax credits for students Proc. Tax credits for students 2009-16 on page 449 of Internal Revenue Bulletin 2009-06, available at www. Tax credits for students irs. Tax credits for students gov/pub/irs-irbs/irb09-06. Tax credits for students pdf, and Rev. Tax credits for students Proc. Tax credits for students 2009-33 on page 150 of Internal Revenue Bulletin 2009-29, available at www. Tax credits for students irs. Tax credits for students gov/pub/irs-irbs/irb09-29. Tax credits for students pdf. Tax credits for students Also, see Form 3800, General Business Credit; Form 8827, Credit for Prior Year Minimum Tax — Corporations; and related instructions. Tax credits for students   Additional guidance regarding the election to accelerate the minimum tax credit in lieu of claiming the special depreciation allowance for round 2 extension property and round 3 extension property may also be available in later Internal Revenue Bulletins available at www. Tax credits for students irs. Tax credits for students gov/irb. Tax credits for students How Much Can You Deduct? Figure the special depreciation allowance by multiplying the depreciable basis of qualified reuse and recycling property, qualified cellulosic biofuel plant property, qualified disaster assistance property, and certain qualified property acquired after December 31, 2007, by 50%. Tax credits for students For qualified property other than listed property, enter the special allowance on line 14 in Part II of Form 4562. Tax credits for students For qualified property that is listed property, enter the special allowance on line 25 in Part V of Form 4562. Tax credits for students If you place qualified property in service in a short tax year, you can take the full amount of a special depreciation allowance. Tax credits for students Depreciable basis. Tax credits for students   This is the property's cost or other basis multiplied by the percentage of business/investment use, reduced by the total amount of any credits and deductions allocable to the property. Tax credits for students   The following are examples of some credits and deductions that reduce depreciable basis. Tax credits for students Any section 179 deduction. Tax credits for students Any deduction for removal of barriers to the disabled and the elderly. Tax credits for students Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. Tax credits for students Basis adjustment to investment credit property under section 50(c) of the Internal Revenue Code. Tax credits for students   For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. Tax credits for students   For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property in chapter 1 . Tax credits for students For a discussion of business/investment use, see Partial business or investment use under Property Used in Your Business or Income-Producing Activity in chapter 1 . Tax credits for students Depreciating the remaining cost. Tax credits for students   After you figure your special depreciation allowance for your qualified property, you can use the remaining cost to figure your regular MACRS depreciation deduction (discussed in chapter 4 . Tax credits for students Therefore, you must reduce the depreciable basis of the property by the special depreciation allowance before figuring your regular MACRS depreciation deduction. Tax credits for students Example. Tax credits for students On November 1, 2013, Tom Brown bought and placed in service in his business qualified property that cost $450,000. Tax credits for students He did not elect to claim a section 179 deduction. Tax credits for students He deducts 50% of the cost ($225,000) as a special depreciation allowance for 2013. Tax credits for students He uses the remaining $225,000 of cost to figure his regular MACRS depreciation deduction for 2013 and later years. Tax credits for students Like-kind exchanges and involuntary conversions. Tax credits for students   If you acquire qualified property in a like-kind exchange or involuntary conversion, the carryover basis of the acquired property is eligible for a special depreciation allowance. Tax credits for students After you figure your special allowance, you can use the remaining carryover basis to figure your regular MACRS depreciation deduction. Tax credits for students In the year you claim the allowance (the year you place in service the property received in the exchange or dispose of involuntarily converted property), you must reduce the carryover basis of the property by the allowance before figuring your regular MACRS depreciation deduction. Tax credits for students See Figuring the Deduction for Property Acquired in a Nontaxable Exchange , in chapter 4 under How Is the Depreciation Deduction Figured . Tax credits for students The excess basis (the part of the acquired property's basis that exceeds its carryover basis) is also eligible for a special depreciation allowance. Tax credits for students How Can You Elect Not To Claim an Allowance? You can elect, for any class of property, not to deduct any special allowances for all property in such class placed in service during the tax year. Tax credits for students To make an election, attach a statement to your return indicating what election you are making and the class of property for which you are making the election. Tax credits for students When to make election. Tax credits for students   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. Tax credits for students   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). Tax credits for students Attach the election statement to the amended return. Tax credits for students On the amended return, write “Filed pursuant to section 301. Tax credits for students 9100-2. Tax credits for students ” Revoking an election. Tax credits for students   Once you elect not to deduct a special depreciation allowance for a class of property, you cannot revoke the election without IRS consent. Tax credits for students A request to revoke the election is a request for a letter ruling. Tax credits for students If you elect not to have any special allowance apply, the property may be subject to an alternative minimum tax adjustment for depreciation. Tax credits for students When Must You Recapture an Allowance? When you dispose of property for which you claimed a special depreciation allowance, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the special depreciation allowance previously allowed or allowable. Tax credits for students See When Do You Recapture MACRS Depreciation in chapter 4 or more information. Tax credits for students Recapture of allowance deducted for qualified GO Zone property. Tax credits for students   If, in any year after the year you claim the special depreciation allowance for qualified GO Zone property (including specified GO Zone extension property), the property ceases to be used in the GO Zone, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. Tax credits for students For additional guidance, see Notice 2008-25 on page 484 of Internal Revenue Bulletin 2008-9. Tax credits for students Qualified cellulosic biomass ethanol plant property and qualified cellulosic biofuel plant property. Tax credits for students   If, in any year after the year you claim the special depreciation allowance for any qualified cellulosic biomass ethanol plant property or qualified biofuel plant property, the property ceases to be qualified cellulosic biomass ethanol plant property or qualified biofuel plant property, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. Tax credits for students Recapture of allowance for qualified Recovery Assistance property. Tax credits for students   If, in any year after the year you claim the special depreciation allowance for qualified Recovery Assistance property, the property ceases to be used in the Kansas disaster area, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. Tax credits for students For additional guidance, see Notice 2008-67 on page 307 of Internal Revenue Bulletin 2008-32. Tax credits for students Recapture of allowance for qualified disaster assistance property. Tax credits for students   If, in any year after the year you claim the special depreciation allowance for qualified disaster assistance property, the property ceases to be used in the applicable disaster area, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. Tax credits for students   For additional guidance, see Notice 2008-67 on page 307 of Internal Revenue Bulletin 2008-32. Tax credits for students Prev  Up  Next   Home   More Online Publications
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Understanding Your CP160 Notice

You received this notice to remind you of the amount you owe in tax, penalty and interest.


What you need to do

Page Last Reviewed or Updated: 26-Mar-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
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The Tax Credits For Students

Tax credits for students Publication 15 - Main Content Table of Contents 1. Tax credits for students Employer Identification Number (EIN) 2. Tax credits for students Who Are Employees?Relief provisions. Tax credits for students Business Owned and Operated by Spouses 3. Tax credits for students Family Employees 4. Tax credits for students Employee's Social Security Number (SSN)Registering for SSNVS. Tax credits for students 5. Tax credits for students Wages and Other CompensationAccountable plan. Tax credits for students Nonaccountable plan. Tax credits for students Per diem or other fixed allowance. Tax credits for students 50% test. Tax credits for students Health Savings Accounts and medical savings accounts. Tax credits for students Nontaxable fringe benefits. Tax credits for students When fringe benefits are treated as paid. Tax credits for students Valuation of fringe benefits. Tax credits for students Withholding on fringe benefits. Tax credits for students Depositing taxes on fringe benefits. Tax credits for students 6. Tax credits for students TipsOrdering rule. Tax credits for students 7. Tax credits for students Supplemental Wages 8. Tax credits for students Payroll Period 9. Tax credits for students Withholding From Employees' WagesIncome Tax Withholding Social Security and Medicare Taxes Part-Time Workers 10. Tax credits for students Required Notice to Employees About the Earned Income Credit (EIC) 11. Tax credits for students Depositing TaxesWhen To Deposit How To Deposit Deposit Penalties 12. Tax credits for students Filing Form 941 or Form 944 13. Tax credits for students Reporting Adjustments to Form 941 or Form 944Current Period Adjustments Prior Period Adjustments Wage Repayments 14. Tax credits for students Federal Unemployment (FUTA) TaxSuccessor employer. Tax credits for students Household employees. Tax credits for students When to deposit. Tax credits for students Household employees. Tax credits for students Electronic filing by reporting agents. Tax credits for students 16. Tax credits for students How To Use the Income Tax Withholding TablesWage Bracket Method Percentage Method Alternative Methods of Income Tax Withholding How To Get Tax Help 1. Tax credits for students Employer Identification Number (EIN) If you are required to report employment taxes or give tax statements to employees or annuitants, you need an EIN. Tax credits for students The EIN is a nine-digit number the IRS issues. Tax credits for students The digits are arranged as follows: 00-0000000. Tax credits for students It is used to identify the tax accounts of employers and certain others who have no employees. Tax credits for students Use your EIN on all of the items you send to the IRS and SSA. Tax credits for students For more information, see Publication 1635, Employer Identification Number: Understanding Your EIN. Tax credits for students If you do not have an EIN, you may apply for one online. Tax credits for students Go to the IRS. Tax credits for students gov and click on the Apply for an EIN Online link under Tools. Tax credits for students You may also apply for an EIN by calling 1-800-829-4933, or you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. Tax credits for students Do not use an SSN in place of an EIN. Tax credits for students You should have only one EIN. Tax credits for students If you have more than one and are not sure which one to use, call 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability). Tax credits for students Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Tax credits for students The IRS will tell you which number to use. Tax credits for students If you took over another employer's business (see Successor employer in section 9), do not use that employer's EIN. Tax credits for students If you have applied for an EIN but do not have your EIN by the time a return is due, file a paper return and write “Applied For” and the date you applied for it in the space shown for the number. Tax credits for students 2. Tax credits for students Who Are Employees? Generally, employees are defined either under common law or under statutes for certain situations. Tax credits for students See Publication 15-A for details on statutory employees and nonemployees. Tax credits for students Employee status under common law. Tax credits for students   Generally, a worker who performs services for you is your employee if you have the right to control what will be done and how it will be done. Tax credits for students This is so even when you give the employee freedom of action. Tax credits for students What matters is that you have the right to control the details of how the services are performed. Tax credits for students See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. Tax credits for students   Generally, people in business for themselves are not employees. Tax credits for students For example, doctors, lawyers, veterinarians, and others in an independent trade in which they offer their services to the public are usually not employees. Tax credits for students However, if the business is incorporated, corporate officers who work in the business are employees of the corporation. Tax credits for students   If an employer-employee relationship exists, it does not matter what it is called. Tax credits for students The employee may be called an agent or independent contractor. Tax credits for students It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time. Tax credits for students Statutory employees. Tax credits for students   If someone who works for you is not an employee under the common law rules discussed earlier, do not withhold federal income tax from his or her pay, unless backup withholding applies. Tax credits for students Although the following persons may not be common law employees, they are considered employees by statute for social security, Medicare, and FUTA tax purposes under certain conditions. Tax credits for students An agent (or commission) driver who delivers food, beverages (other than milk), laundry, or dry cleaning for someone else. Tax credits for students A full-time life insurance salesperson who sells primarily for one company. Tax credits for students A homeworker who works by guidelines of the person for whom the work is done, with materials furnished by and returned to that person or to someone that person designates. Tax credits for students A traveling or city salesperson (other than an agent-driver or commission-driver) who works full time (except for sideline sales activities) for one firm or person getting orders from customers. Tax credits for students The orders must be for merchandise for resale or supplies for use in the customer's business. Tax credits for students The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging. Tax credits for students    Statutory nonemployees. Tax credits for students   Direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. Tax credits for students They are generally treated as self-employed for all federal tax purposes, including income and employment taxes. Tax credits for students H-2A agricultural workers. Tax credits for students   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Tax credits for students Treating employees as nonemployees. Tax credits for students   You will generally be liable for social security and Medicare taxes and withheld income tax if you do not deduct and withhold these taxes because you treated an employee as a nonemployee. Tax credits for students You may be able to calculate your liability using special section 3509 rates for the employee share of social security and Medicare taxes and the federal income tax withholding. Tax credits for students The applicable rates depend on whether you filed required Forms 1099. Tax credits for students You cannot recover the employee share of social security, or Medicare tax, or income tax withholding from the employee if the tax is paid under section 3509. Tax credits for students You are liable for the income tax withholding regardless of whether the employee paid income tax on the wages. Tax credits for students You continue to owe the full employer share of social security and Medicare taxes. Tax credits for students The employee remains liable for the employee share of social security and Medicare taxes. Tax credits for students See Internal Revenue Code section 3509 for details. Tax credits for students Also see the Instructions for Form 941-X. Tax credits for students   Section 3509 rates are not available if you intentionally disregard the requirement to withhold taxes from the employee or if you withheld income taxes but not social security or Medicare taxes. Tax credits for students Section 3509 is not available for reclassifying statutory employees. Tax credits for students See Statutory employees , earlier in this section. Tax credits for students   If the employer issued required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Tax credits for students 2% plus 20% of the employee rate (see the Instructions for Form 941-X). Tax credits for students For Medicare taxes; employer rate of 1. Tax credits for students 45% plus 20% of the employee rate of 1. Tax credits for students 45%, for a total rate of 1. Tax credits for students 74% of wages. Tax credits for students For Additional Medicare Tax; 0. Tax credits for students 18% (20% of the employee rate of 0. Tax credits for students 9%) of wages subject to Additional Medicare Tax. Tax credits for students For income tax withholding, the rate is 1. Tax credits for students 5% of wages. Tax credits for students   If the employer did not issue required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Tax credits for students 2% plus 40% of the employee rate (see the Instructions for Form 941-X). Tax credits for students For Medicare taxes; employer rate of 1. Tax credits for students 45% plus 40% of the employee rate of 1. Tax credits for students 45%, for a total rate of 2. Tax credits for students 03% of wages. Tax credits for students For Additional Medicare Tax; 0. Tax credits for students 36% (40% of the employee rate of 0. Tax credits for students 9%) of wages subject to Additional Medicare Tax. Tax credits for students For income tax withholding, the rate is 3. Tax credits for students 0% of wages. Tax credits for students Relief provisions. Tax credits for students   If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. Tax credits for students To get this relief, you must file all required federal tax returns, including information returns, on a basis consistent with your treatment of the worker. Tax credits for students You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. Tax credits for students See Publication 1976, Do You Qualify for Relief Under Section 530. Tax credits for students IRS help. Tax credits for students   If you want the IRS to determine whether a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. Tax credits for students Voluntary Classification Settlement Program (VCSP). Tax credits for students   Employers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to voluntarily reclassify their workers as employees for future tax periods may be eligible to participate in the VCSP if certain requirements are met. Tax credits for students To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Tax credits for students For more information visit IRS. Tax credits for students gov and enter “VCSP” in the search box. Tax credits for students Business Owned and Operated by Spouses If you and your spouse jointly own and operate a business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Tax credits for students See Publication 541, Partnerships, for more details. Tax credits for students The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. Tax credits for students Exception—Qualified joint venture. Tax credits for students   For tax years beginning after December 31, 2006, the Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28) provides that a “qualified joint venture,” whose only members are spouses filing a joint income tax return, can elect not to be treated as a partnership for federal tax purposes. Tax credits for students A qualified joint venture conducts a trade or business where: The only members of the joint venture are spouses who file a joint income tax return, Both spouses materially participate (see Material participation in the Instructions for Schedule C (Form 1040), line G) in the trade or business (mere joint ownership of property is not enough), Both spouses elect to not be treated as a partnership, and The business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or limited liability company (LLC). Tax credits for students   To make the election, all items of income, gain, loss, deduction, and credit must be divided between the spouses, in accordance with each spouse's interest in the venture, and reported on separate Schedules C or F as sole proprietors. Tax credits for students Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable. Tax credits for students   Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally do not need an EIN. Tax credits for students If employment taxes are owed by the qualified joint venture, either spouse may report and pay the employment taxes due on the wages paid to the employees using the EIN of that spouse's sole proprietorship. Tax credits for students Generally, filing as a qualified joint venture will not increase the spouses' total tax owed on the joint income tax return. Tax credits for students However, it gives each spouse credit for social security earnings on which retirement benefits are based and for Medicare coverage without filing a partnership return. Tax credits for students    Note. Tax credits for students If your spouse is your employee, not your partner, see One spouse employed by another in section 3. Tax credits for students   For more information on qualified joint ventures, visit IRS. Tax credits for students gov and enter “qualified joint venture” in the search box. Tax credits for students Exception—Community income. Tax credits for students   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. Tax credits for students S. Tax credits for students possession, you can treat the business either as a sole proprietorship (of the spouse who carried on the business) or a partnership. Tax credits for students You may still make an election to be taxed as a qualified joint venture instead of a partnership. Tax credits for students See Exception—Qualified joint venture , earlier. Tax credits for students 3. Tax credits for students Family Employees Child employed by parents. Tax credits for students   Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. Tax credits for students If these payments are for work other than in a trade or business, such as domestic work in the parent's private home, they are not subject to social security and Medicare taxes until the child reaches age 21. Tax credits for students However, see Covered services of a child or spouse , later in this section. Tax credits for students Payments for the services of a child under age 21 who works for his or her parent, whether or not in a trade or business, are not subject to FUTA tax. Tax credits for students Payments for the services of a child of any age who works for his or her parent are generally subject to income tax withholding unless the payments are for domestic work in the parent's home, or unless the payments are for work other than in a trade or business and are less than $50 in the quarter or the child is not regularly employed to do such work. Tax credits for students One spouse employed by another. Tax credits for students   The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and social security and Medicare taxes, but not to FUTA tax. Tax credits for students However, the payments for services of one spouse employed by another in other than a trade or business, such as domestic service in a private home, are not subject to social security, Medicare, and FUTA taxes. Tax credits for students Covered services of a child or spouse. Tax credits for students   The wages for the services of a child or spouse are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for: A corporation, even if it is controlled by the child's parent or the individual's spouse; A partnership, even if the child's parent is a partner, unless each partner is a parent of the child; A partnership, even if the individual's spouse is a partner; or An estate, even if it is the estate of a deceased parent. Tax credits for students Parent employed by son or daughter. Tax credits for students   When the employer is a son or daughter employing his or her parent the following rules apply. Tax credits for students Payments for the services of a parent in the son’s or daughter’s (the employer’s) trade or business are subject to income tax withholding and social security and Medicare taxes. Tax credits for students Payments for the services of a parent not in the son’s or daughter’s (the employer’s) trade or business are generally not subject to social security and Medicare taxes. Tax credits for students    Social security and Medicare taxes do apply to payments made to a parent for domestic services if all of the following apply: The parent is employed by his or her son or daughter; The son or daughter (the employer) has a child or stepchild living in the home; The son or daughter (the employer) is a widow or widower, divorced, or living with a spouse who, because of a mental or physical condition, cannot care for the child or stepchild for at least 4 continuous weeks in a calendar quarter; and The child or stepchild is either under age 18 or requires the personal care of an adult for at least 4 continuous weeks in a calendar quarter due to a mental or physical condition. Tax credits for students   Payments made to a parent employed by his or her child are not subject to FUTA tax, regardless of the type of services provided. Tax credits for students 4. Tax credits for students Employee's Social Security Number (SSN) You are required to get each employee's name and SSN and to enter them on Form W-2. Tax credits for students This requirement also applies to resident and nonresident alien employees. Tax credits for students You should ask your employee to show you his or her social security card. Tax credits for students The employee may show the card if it is available. Tax credits for students Do not accept a social security card that says “Not valid for employment. Tax credits for students ” A social security number issued with this legend does not permit employment. Tax credits for students You may, but are not required to, photocopy the social security card if the employee provides it. Tax credits for students If you do not provide the correct employee name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause. Tax credits for students See Publication 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs, for information on the requirement to solicit the employee's SSN. Tax credits for students Applying for a social security card. Tax credits for students   Any employee who is legally eligible to work in the United States and does not have a social security card can get one by completing Form SS-5, Application for a Social Security Card, and submitting the necessary documentation. Tax credits for students You can get Form SS-5 at SSA offices, by calling 1-800-772-1213, or from the SSA website at www. Tax credits for students socialsecurity. Tax credits for students gov/online/ss-5. Tax credits for students html. Tax credits for students The employee must complete and sign Form SS-5; it cannot be filed by the employer. Tax credits for students You may be asked to supply a letter to accompany Form SS-5 if the employee has exceeded his or her yearly or lifetime limit for the number of replacement cards allowed. Tax credits for students Applying for a social security number. Tax credits for students   If you file Form W-2 on paper and your employee applied for an SSN but does not have one when you must file Form W-2, enter “Applied For” on the form. Tax credits for students If you are filing electronically, enter all zeros (000-00-000) in the social security number field. Tax credits for students When the employee receives the SSN, file Copy A of Form W-2c, Corrected Wage and Tax Statement, with the SSA to show the employee's SSN. Tax credits for students Furnish copies B, C, and 2 of Form W-2c to the employee. Tax credits for students Up to 25 Forms W-2c for each Form W-3c, Transmittal of Corrected Wage and Tax Statements, may now be filed per session over the Internet, with no limit on the number of sessions. Tax credits for students For more information, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www. Tax credits for students socialsecurity. Tax credits for students gov/employer. Tax credits for students Advise your employee to correct the SSN on his or her original Form W-2. Tax credits for students Correctly record the employee's name and SSN. Tax credits for students   Record the name and number of each employee as they are shown on the employee's social security card. Tax credits for students If the employee's name is not correct as shown on the card (for example, because of marriage or divorce), the employee should request a corrected card from the SSA. Tax credits for students Continue to report the employee's wages under the old name until the employee shows you an updated social security card with the new name. Tax credits for students If the SSA issues the employee a replacement card after a name change, or a new card with a different social security number after a change in alien work status, file a Form W-2c to correct the name/SSN reported for the most recently filed Form W-2. Tax credits for students It is not necessary to correct other years if the previous name and number were used for years before the most recent Form W-2. Tax credits for students IRS individual taxpayer identification numbers (ITINs) for aliens. Tax credits for students   Do not accept an ITIN in place of an SSN for employee identification or for work. Tax credits for students An ITIN is only available to resident and nonresident aliens who are not eligible for U. Tax credits for students S. Tax credits for students employment and need identification for other tax purposes. Tax credits for students You can identify an ITIN because it is a nine-digit number, beginning with the number “9” with either a “7” or “8” as the fourth digit and is formatted like an SSN (for example, 9NN-7N-NNNN). Tax credits for students    An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN. Tax credits for students If the individual is currently eligible to work in the United States, instruct the individual to apply for an SSN and follow the instructions under Applying for a social security number, earlier. Tax credits for students Do not use an ITIN in place of an SSN on Form W-2. Tax credits for students Verification of social security numbers. Tax credits for students   Employers and authorized reporting agents can use the Social Security Number Verification Service (SSNVS) to instantly verify up to 10 names and SSNs (per screen) at a time, or submit an electronic file of up to 250,000 names and SSNs and usually receive the results the next business day. Tax credits for students Visit www. Tax credits for students socialsecurity. Tax credits for students gov/employer/ssnv. Tax credits for students htm for more information. Tax credits for students Registering for SSNVS. Tax credits for students   You must register online and receive authorization from your employer to use SSNVS. Tax credits for students To register, visit SSA's website at www. Tax credits for students ssa. Tax credits for students gov/employer and click on the Business Services Online link. Tax credits for students Follow the registration instructions to obtain a user identification (ID) and password. Tax credits for students You will need to provide the following information about yourself and your company. Tax credits for students Name. Tax credits for students SSN. Tax credits for students Date of birth. Tax credits for students Type of employer. Tax credits for students EIN. Tax credits for students Company name, address, and telephone number. Tax credits for students Email address. Tax credits for students   When you have completed the online registration process, SSA will mail a one-time activation code to your employer. Tax credits for students You must enter the activation code online to use SSNVS. Tax credits for students 5. Tax credits for students Wages and Other Compensation Wages subject to federal employment taxes generally include all pay you give to an employee for services performed. Tax credits for students The pay may be in cash or in other forms. Tax credits for students It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. Tax credits for students It does not matter how you measure or make the payments. Tax credits for students Amounts an employer pays as a bonus for signing or ratifying a contract in connection with the establishment of an employer-employee relationship and an amount paid to an employee for cancellation of an employment contract and relinquishment of contract rights are wages subject to social security, Medicare, and FUTA taxes and income tax withholding. Tax credits for students Also, compensation paid to a former employee for services performed while still employed is wages subject to employment taxes. Tax credits for students More information. Tax credits for students   See section 6 for a discussion of tips and section 7 for a discussion of supplemental wages. Tax credits for students Also, see section 15 for exceptions to the general rules for wages. Tax credits for students Publication 15-A provides additional information on wages, including nonqualified deferred compensation, and other compensation. Tax credits for students Publication 15-B provides information on other forms of compensation, including: Accident and health benefits, Achievement awards, Adoption assistance, Athletic facilities, De minimis (minimal) benefits, Dependent care assistance, Educational assistance, Employee discounts, Employee stock options, Employer-provided cell phones, Group-term life insurance coverage, Health Savings Accounts, Lodging on your business premises, Meals, Moving expense reimbursements, No-additional-cost services, Retirement planning services, Transportation (commuting) benefits, Tuition reduction, and Working condition benefits. Tax credits for students Employee business expense reimbursements. Tax credits for students   A reimbursement or allowance arrangement is a system by which you pay the advances, reimbursements, and charges for your employees' business expenses. Tax credits for students How you report a reimbursement or allowance amount depends on whether you have an accountable or a nonaccountable plan. Tax credits for students If a single payment includes both wages and an expense reimbursement, you must specify the amount of the reimbursement. Tax credits for students   These rules apply to all ordinary and necessary employee business expenses that would otherwise qualify for a deduction by the employee. Tax credits for students Accountable plan. Tax credits for students   To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules. Tax credits for students They must have paid or incurred deductible expenses while performing services as your employees. Tax credits for students The reimbursement or advance must be paid for the expense and must not be an amount that would have otherwise been paid by the employee. Tax credits for students They must substantiate these expenses to you within a reasonable period of time. Tax credits for students They must return any amounts in excess of substantiated expenses within a reasonable period of time. Tax credits for students   Amounts paid under an accountable plan are not wages and are not subject to income, social security, Medicare, and FUTA taxes. Tax credits for students   If the expenses covered by this arrangement are not substantiated (or amounts in excess of substantiated expenses are not returned within a reasonable period of time), the amount paid under the arrangement in excess of the substantiated expenses is treated as paid under a nonaccountable plan. Tax credits for students This amount is subject to income, social security, Medicare, and FUTA taxes for the first payroll period following the end of the reasonable period of time. Tax credits for students   A reasonable period of time depends on the facts and circumstances. Tax credits for students Generally, it is considered reasonable if your employees receive their advance within 30 days of the time they incur the expenses, adequately account for the expenses within 60 days after the expenses were paid or incurred, and return any amounts in excess of expenses within 120 days after the expenses were paid or incurred. Tax credits for students Also, it is considered reasonable if you give your employees a periodic statement (at least quarterly) that asks them to either return or adequately account for outstanding amounts and they do so within 120 days. Tax credits for students Nonaccountable plan. Tax credits for students   Payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wages and are treated as supplemental wages and subject to income, social security, Medicare, and FUTA taxes. Tax credits for students Your payments are treated as paid under a nonaccountable plan if: Your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation, You advance an amount to your employee for business expenses and your employee is not required to or does not return timely any amount he or she does not use for business expenses, You advance or pay an amount to your employee regardless of whether you reasonably expect the employee to have business expenses related to your business, or You pay an amount as a reimbursement you would have otherwise paid as wages. Tax credits for students   See section 7 for more information on supplemental wages. Tax credits for students Per diem or other fixed allowance. Tax credits for students   You may reimburse your employees by travel days, miles, or some other fixed allowance under the applicable revenue procedure. Tax credits for students In these cases, your employee is considered to have accounted to you if your reimbursement does not exceed rates established by the Federal Government. Tax credits for students The 2013 standard mileage rate for auto expenses was 56. Tax credits for students 5 cents per mile. Tax credits for students The rate for 2014 is 56 cents per mile. Tax credits for students   The government per diem rates for meals and lodging in the continental United States are listed in Publication 1542, Per Diem Rates. Tax credits for students Other than the amount of these expenses, your employees' business expenses must be substantiated (for example, the business purpose of the travel or the number of business miles driven). Tax credits for students   If the per diem or allowance paid exceeds the amounts substantiated, you must report the excess amount as wages. Tax credits for students This excess amount is subject to income tax withholding and payment of social security, Medicare, and FUTA taxes. Tax credits for students Show the amount equal to the substantiated amount (for example, the nontaxable portion) in box 12 of Form W-2 using code “L. Tax credits for students ” Wages not paid in money. Tax credits for students   If in the course of your trade or business you pay your employees in a medium that is neither cash nor a readily negotiable instrument, such as a check, you are said to pay them “in kind. Tax credits for students ” Payments in kind may be in the form of goods, lodging, food, clothing, or services. Tax credits for students Generally, the fair market value of such payments at the time they are provided is subject to federal income tax withholding and social security, Medicare, and FUTA taxes. Tax credits for students   However, noncash payments for household work, agricultural labor, and service not in the employer's trade or business are exempt from social security, Medicare, and FUTA taxes. Tax credits for students Withhold income tax on these payments only if you and the employee agree to do so. Tax credits for students Nonetheless, noncash payments for agricultural labor, such as commodity wages, are treated as cash payments subject to employment taxes if the substance of the transaction is a cash payment. Tax credits for students Moving expenses. Tax credits for students   Reimbursed and employer-paid qualified moving expenses (those that would otherwise be deductible by the employee) paid under an accountable plan are not includible in an employee's income unless you have knowledge the employee deducted the expenses in a prior year. Tax credits for students Reimbursed and employer-paid nonqualified moving expenses are includible in income and are subject to employment taxes and income tax withholding. Tax credits for students For more information on moving expenses, see Publication 521, Moving Expenses. Tax credits for students Meals and lodging. Tax credits for students   The value of meals is not taxable income and is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the meals are furnished for the employer's convenience and on the employer's premises. Tax credits for students The value of lodging is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the lodging is furnished for the employer's convenience, on the employer's premises, and as a condition of employment. Tax credits for students    “For the convenience of the employer” means you have a substantial business reason for providing the meals and lodging other than to provide additional compensation to the employee. Tax credits for students For example, meals you provide at the place of work so that an employee is available for emergencies during his or her lunch period are generally considered to be for your convenience. Tax credits for students   However, whether meals or lodging are provided for the convenience of the employer depends on all of the facts and circumstances. Tax credits for students A written statement that the meals or lodging are for your convenience is not sufficient. Tax credits for students 50% test. Tax credits for students   If over 50% of the employees who are provided meals on an employer's business premises receive these meals for the convenience of the employer, all meals provided on the premises are treated as furnished for the convenience of the employer. Tax credits for students If this 50% test is met, the value of the meals is excludable from income for all employees and is not subject to federal income tax withholding or employment taxes. Tax credits for students For more information, see Publication 15-B. Tax credits for students Health insurance plans. Tax credits for students   If you pay the cost of an accident or health insurance plan for your employees, including an employee's spouse and dependents, your payments are not wages and are not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Tax credits for students Generally, this exclusion also applies to qualified long-term care insurance contracts. Tax credits for students However, for income tax withholding, the value of health insurance benefits must be included in the wages of S corporation employees who own more than 2% of the S corporation (2% shareholders). Tax credits for students For social security, Medicare, and FUTA taxes, the health insurance benefits are excluded from the wages only for employees and their dependents or for a class or classes of employees and their dependents. Tax credits for students See Announcement 92-16 for more information. Tax credits for students You can find Announcement 92-16 on page 53 of Internal Revenue Bulletin 1992-5. Tax credits for students Health Savings Accounts and medical savings accounts. Tax credits for students   Your contributions to an employee's Health Savings Account (HSA) or Archer medical savings account (MSA) are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding if it is reasonable to believe at the time of payment of the contributions they will be excludable from the income of the employee. Tax credits for students To the extent it is not reasonable to believe they will be excludable, your contributions are subject to these taxes. Tax credits for students Employee contributions to their HSAs or MSAs through a payroll deduction plan must be included in wages and are subject to social security, Medicare, and FUTA taxes and income tax withholding. Tax credits for students However, HSA contributions made under a salary reduction arrangement in a section 125 cafeteria plan are not wages and are not subject to employment taxes or withholding. Tax credits for students For more information, see the Instructions for Form 8889, Health Savings Accounts (HSAs). Tax credits for students Medical care reimbursements. Tax credits for students   Generally, medical care reimbursements paid for an employee under an employer's self-insured medical reimbursement plan are not wages and are not subject to social security, Medicare, and FUTA taxes, or income tax withholding. Tax credits for students See Publication 15-B for an exception for highly compensated employees. Tax credits for students Differential wage payments. Tax credits for students   Differential wage payments are any payments made by an employer to an individual for a period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days and represent all or a portion of the wages the individual would have received from the employer if the individual were performing services for the employer. Tax credits for students   Differential wage payments are wages for income tax withholding, but are not subject to social security, Medicare, or FUTA taxes. Tax credits for students Employers should report differential wage payments in box 1 of Form W-2. Tax credits for students For more information about the tax treatment of differential wage payments, visit IRS. Tax credits for students gov and enter “employees in a combat zone” in the search box. Tax credits for students Fringe benefits. Tax credits for students   You generally must include fringe benefits in an employee's gross income (but see Nontaxable fringe benefits next). Tax credits for students The benefits are subject to income tax withholding and employment taxes. Tax credits for students Fringe benefits include cars you provide, flights on aircraft you provide, free or discounted commercial flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events. Tax credits for students In general, the amount you must include is the amount by which the fair market value of the benefits is more than the sum of what the employee paid for it plus any amount the law excludes. Tax credits for students There are other special rules you and your employees may use to value certain fringe benefits. Tax credits for students See Publication 15-B for more information. Tax credits for students Nontaxable fringe benefits. Tax credits for students   Some fringe benefits are not taxable (or are minimally taxable) if certain conditions are met. Tax credits for students See Publication 15-B for details. Tax credits for students The following are some examples of nontaxable fringe benefits. Tax credits for students Services provided to your employees at no additional cost to you. Tax credits for students Qualified employee discounts. Tax credits for students Working condition fringes that are property or services the employee could deduct as a business expense if he or she had paid for it. Tax credits for students Examples include a company car for business use and subscriptions to business magazines. Tax credits for students Certain minimal value fringes (including an occasional cab ride when an employee must work overtime and meals you provide at eating places you run for your employees if the meals are not furnished at below cost). Tax credits for students Qualified transportation fringes subject to specified conditions and dollar limitations (including transportation in a commuter highway vehicle, any transit pass, and qualified parking). Tax credits for students Qualified moving expense reimbursement. Tax credits for students See Moving expenses , earlier in this section, for details. Tax credits for students The use of on-premises athletic facilities, if substantially all of the use is by employees, their spouses, and their dependent children. Tax credits for students Qualified tuition reduction an educational organization provides to its employees for education. Tax credits for students For more information, see Publication 970, Tax Benefits for Education. Tax credits for students Employer-provided cell phones provided primarily for a noncompensatory business reason. Tax credits for students   However, do not exclude the following fringe benefits from the income of highly compensated employees unless the benefit is available to other employees on a nondiscriminatory basis. Tax credits for students No-additional-cost services. Tax credits for students Qualified employee discounts. Tax credits for students Meals provided at an employer operated eating facility. Tax credits for students Reduced tuition for education. Tax credits for students  For more information, including the definition of a highly compensated employee, see Publication 15-B. Tax credits for students When fringe benefits are treated as paid. Tax credits for students   You may choose to treat certain noncash fringe benefits as paid by the pay period, by the quarter, or on any other basis you choose as long as you treat the benefits as paid at least once a year. Tax credits for students You do not have to make a formal choice of payment dates or notify the IRS of the dates you choose. Tax credits for students You do not have to make this choice for all employees. Tax credits for students You may change methods as often as you like, as long as you treat all benefits provided in a calendar year as paid by December 31 of the calendar year. Tax credits for students See Publication 15-B for more information, including a discussion of the special accounting rule for fringe benefits provided during November and December. Tax credits for students Valuation of fringe benefits. Tax credits for students   Generally, you must determine the value of fringe benefits no later than January 31 of the next year. Tax credits for students Before January 31, you may reasonably estimate the value of the fringe benefits for purposes of withholding and depositing on time. Tax credits for students Withholding on fringe benefits. Tax credits for students   You may add the value of fringe benefits to regular wages for a payroll period and figure withholding taxes on the total, or you may withhold federal income tax on the value of the fringe benefits at the optional flat 25% supplemental wage rate. Tax credits for students However, see Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages during the calendar year in section 7. Tax credits for students   You may choose not to withhold income tax on the value of an employee's personal use of a vehicle you provide. Tax credits for students You must, however, withhold social security and Medicare taxes on the use of the vehicle. Tax credits for students See Publication 15-B for more information on this election. Tax credits for students Depositing taxes on fringe benefits. Tax credits for students   Once you choose when fringe benefits are paid, you must deposit taxes in the same deposit period you treat the fringe benefits as paid. Tax credits for students To avoid a penalty, deposit the taxes following the general deposit rules for that deposit period. Tax credits for students   If you determine by January 31 you overestimated the value of a fringe benefit at the time you withheld and deposited for it, you may claim a refund for the overpayment or have it applied to your next employment tax return. Tax credits for students See Valuation of fringe benefits , earlier. Tax credits for students If you underestimated the value and deposited too little, you may be subject to a failure-to-deposit penalty. Tax credits for students See section 11 for information on deposit penalties. Tax credits for students   If you deposited the required amount of taxes but withheld a lesser amount from the employee, you can recover from the employee the social security, Medicare, or income taxes you deposited on his or her behalf, and included in the employee's Form W-2. Tax credits for students However, you must recover the income taxes before April 1 of the following year. Tax credits for students Sick pay. Tax credits for students   In general, sick pay is any amount you pay under a plan to an employee who is unable to work because of sickness or injury. Tax credits for students These amounts are sometimes paid by a third party, such as an insurance company or an employees' trust. Tax credits for students In either case, these payments are subject to social security, Medicare, and FUTA taxes. Tax credits for students Sick pay becomes exempt from these taxes after the end of 6 calendar months after the calendar month the employee last worked for the employer. Tax credits for students The payments are always subject to federal income tax. Tax credits for students See Publication 15-A for more information. Tax credits for students 6. Tax credits for students Tips Tips your employee receives from customers are generally subject to withholding. Tax credits for students Your employee must report cash tips to you by the 10th of the month after the month the tips are received. Tax credits for students The report should include tips you paid over to the employee for charge customers, tips the employee received directly from customers, and tips received from other employees under any tip-sharing arrangement. Tax credits for students Both directly and indirectly tipped employees must report tips to you. Tax credits for students No report is required for months when tips are less than $20. Tax credits for students Your employee reports the tips on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. Tax credits for students The statement must be signed by the employee and must include: The employee's name, address, and SSN, Your name and address, The month or period the report covers, and The total of tips received during the month or period. Tax credits for students Both Forms 4070 and 4070-A, Employee's Daily Record of Tips, are included in Publication 1244, Employee's Daily Record of Tips and Report to Employer. Tax credits for students You are permitted to establish a system for electronic tip reporting by employees. Tax credits for students See Regulations section 31. Tax credits for students 6053-1(d). Tax credits for students Collecting taxes on tips. Tax credits for students   You must collect income tax, employee social security tax, and employee Medicare tax on the employee's tips. Tax credits for students The withholding rules for withholding an employee's share of Medicare tax on tips also apply to withholding the Additional Medicare Tax once wages and tips exceed $200,000 in the calendar year. Tax credits for students If an employee reports to you in writing $20 or more of tips in a month, the tips are also subject to FUTA tax. Tax credits for students   You can collect these taxes from the employee's wages or from other funds he or she makes available. Tax credits for students See Tips treated as supplemental wages in section 7 for more information. Tax credits for students Stop collecting the employee social security tax when his or her wages and tips for tax year 2014 reach $117,000; collect the income and employee Medicare taxes for the whole year on all wages and tips. Tax credits for students You are responsible for the employer social security tax on wages and tips until the wages (including tips) reach the limit. Tax credits for students You are responsible for the employer Medicare tax for the whole year on all wages and tips. Tax credits for students File Form 941 or Form 944 to report withholding and employment taxes on tips. Tax credits for students Ordering rule. Tax credits for students   If, by the 10th of the month after the month for which you received an employee's report on tips, you do not have enough employee funds available to deduct the employee tax, you no longer have to collect it. Tax credits for students If there are not enough funds available, withhold taxes in the following order. Tax credits for students Withhold on regular wages and other compensation. Tax credits for students Withhold social security and Medicare taxes on tips. Tax credits for students Withhold income tax on tips. Tax credits for students Reporting tips. Tax credits for students   Report tips and any collected and uncollected social security and Medicare taxes on Form W-2 and on Form 941, lines 5b, 5c, and 5d (Form 944, lines 4b, 4c, and 4d). Tax credits for students Report an adjustment on Form 941, line 9 (Form 944, line 6), for the uncollected social security and Medicare taxes. Tax credits for students Enter the amount of uncollected social security tax and Medicare tax on Form W-2, box 12, with codes “A” and “B. Tax credits for students ” Do not include any uncollected Additional Medicare Tax in box 12 of Form W-2. Tax credits for students See section 13 and the General Instructions for Forms W-2 and W-3. Tax credits for students   Revenue Ruling 2012-18 provides guidance for employers regarding social security and Medicare taxes imposed on tips, including information on the reporting of the employer share of social security and Medicare taxes under section 3121(q), the difference between tips and service charges, and the section 45B credit. Tax credits for students See Revenue Ruling 2012-18, 2012-26 I. Tax credits for students R. Tax credits for students B. Tax credits for students 1032, available at www. Tax credits for students irs. Tax credits for students gov/irb/2012-26_IRB/ar07. Tax credits for students html. Tax credits for students Allocated tips. Tax credits for students   If you operate a large food or beverage establishment, you must report allocated tips under certain circumstances. Tax credits for students However, do not withhold income, social security, or Medicare taxes on allocated tips. Tax credits for students   A large food or beverage establishment is one that provides food or beverages for consumption on the premises, where tipping is customary, and where there were normally more than 10 employees on a typical business day during the preceding year. Tax credits for students   The tips may be allocated by one of three methods—hours worked, gross receipts, or good faith agreement. Tax credits for students For information about these allocation methods, including the requirement to file Forms 8027 electronically if 250 or more forms are filed, see the Instructions for Form 8027. Tax credits for students For information on filing Form 8027 electronically with the IRS, see Publication 1239. Tax credits for students Tip Rate Determination and Education Program. Tax credits for students   Employers may participate in the Tip Rate Determination and Education Program. Tax credits for students The program primarily consists of two voluntary agreements developed to improve tip income reporting by helping taxpayers to understand and meet their tip reporting responsibilities. Tax credits for students The two agreements are the Tip Rate Determination Agreement (TRDA) and the Tip Reporting Alternative Commitment (TRAC). Tax credits for students A tip agreement, the Gaming Industry Tip Compliance Agreement (GITCA), is available for the gaming (casino) industry. Tax credits for students To get more information about TRDA and TRAC agreements, see Publication 3144, Tips on Tips. Tax credits for students Additionally, visit IRS. Tax credits for students gov and enter “MSU tips” in the search box to get more information about GITCA, TRDA, or TRAC agreements. Tax credits for students 7. Tax credits for students Supplemental Wages Supplemental wages are wage payments to an employee that are not regular wages. Tax credits for students They include, but are not limited to, bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for nondeductible moving expenses. Tax credits for students Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. Tax credits for students How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. Tax credits for students See Regulations section 31. Tax credits for students 3402(g)-1 for additional guidance for wages paid after January 1, 2007. Tax credits for students Also see Revenue Ruling 2008-29, 2008-24 I. Tax credits for students R. Tax credits for students B. Tax credits for students 1149, available at www. Tax credits for students irs. Tax credits for students gov/irb/2008-24_IRB/ar08. Tax credits for students html. Tax credits for students Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages from you during the calendar year. Tax credits for students   Special rules apply to the extent supplemental wages paid to any one employee during the calendar year exceed $1 million. Tax credits for students If a supplemental wage payment, together with other supplemental wage payments made to the employee during the calendar year, exceeds $1 million, the excess is subject to withholding at 39. Tax credits for students 6% (or the highest rate of income tax for the year). Tax credits for students Withhold using the 39. Tax credits for students 6% rate without regard to the employee's Form W-4. Tax credits for students In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control. Tax credits for students For more information, see Treasury Decision 9276, 2006-37 I. Tax credits for students R. Tax credits for students B. Tax credits for students 423, available at www. Tax credits for students irs. Tax credits for students gov/irb/2006-37_IRB/ar09. Tax credits for students html. Tax credits for students Withholding on supplemental wage payments to an employee who does not receive $1 million of supplemental wages during the calendar year. Tax credits for students   If the supplemental wages paid to the employee during the calendar year are less than or equal to $1 million, the following rules apply in determining the amount of income tax to be withheld. Tax credits for students Supplemental wages combined with regular wages. Tax credits for students   If you pay supplemental wages with regular wages but do not specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period. Tax credits for students Supplemental wages identified separately from regular wages. Tax credits for students   If you pay supplemental wages separately (or combine them in a single payment and specify the amount of each), the federal income tax withholding method depends partly on whether you withhold income tax from your employee's regular wages. Tax credits for students If you withheld income tax from an employee's regular wages in the current or immediately preceding calendar year, you can use one of the following methods for the supplemental wages. Tax credits for students Withhold a flat 25% (no other percentage allowed). Tax credits for students If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. Tax credits for students If there are no concurrently paid regular wages, add the supplemental wages to alternatively, either the regular wages paid or to be paid for the current payroll period or the regular wages paid for the preceding payroll period. Tax credits for students Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Tax credits for students Subtract the tax withheld from the regular wages. Tax credits for students Withhold the remaining tax from the supplemental wages. Tax credits for students If there were other payments of supplemental wages paid during the payroll period made before the current payment of supplemental wages, aggregate all the payments of supplemental wages paid during the payroll period with the regular wages paid during the payroll period, calculate the tax on the total, subtract the tax already withheld from the regular wages and the previous supplemental wage payments, and withhold the remaining tax. Tax credits for students If you did not withhold income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1-b. Tax credits for students This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages. Tax credits for students Regardless of the method you use to withhold income tax on supplemental wages, they are subject to social security, Medicare, and FUTA taxes. Tax credits for students Example 1. Tax credits for students You pay John Peters a base salary on the 1st of each month. Tax credits for students He is single and claims one withholding allowance. Tax credits for students In January he is paid $1,000. Tax credits for students Using the wage bracket tables, you withhold $50 from this amount. Tax credits for students In February, he receives salary of $1,000 plus a commission of $2,000, which you combine with regular wages and do not separately identify. Tax credits for students You figure the withholding based on the total of $3,000. Tax credits for students The correct withholding from the tables is $338. Tax credits for students Example 2. Tax credits for students You pay Sharon Warren a base salary on the 1st of each month. Tax credits for students She is single and claims one allowance. Tax credits for students Her May 1 pay is $2,000. Tax credits for students Using the wage bracket tables, you withhold $188. Tax credits for students On May 14 she receives a bonus of $1,000. Tax credits for students Electing to use supplemental wage withholding method 1-b, you: Add the bonus amount to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 = $3,000). Tax credits for students Determine the amount of withholding on the combined $3,000 amount to be $338 using the wage bracket tables. Tax credits for students Subtract the amount withheld from wages on the most recent base salary pay date (May 1) from the combined withholding amount ($338 – $188 = $150). Tax credits for students Withhold $150 from the bonus payment. Tax credits for students Example 3. Tax credits for students The facts are the same as in Example 2, except you elect to use the flat rate method of withholding on the bonus. Tax credits for students You withhold 25% of $1,000, or $250, from Sharon's bonus payment. Tax credits for students Example 4. Tax credits for students The facts are the same as in Example 2, except you elect to pay Sharon a second bonus of $2,000 on May 28. Tax credits for students Using supplemental wage withholding method 1-b, you: Add the first and second bonus amounts to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 + $2,000 = $5,000). Tax credits for students Determine the amount of withholding on the combined $5,000 amount to be $781 using the wage bracket tables. Tax credits for students Subtract the amounts withheld from wages on the most recent base salary pay date (May 1) and the amounts withheld from the first bonus payment from the combined withholding amount ($781 – $188 – $150 = $443). Tax credits for students Withhold $443 from the second bonus payment. Tax credits for students Tips treated as supplemental wages. Tax credits for students   Withhold income tax on tips from wages earned by the employee or from other funds the employee makes available. Tax credits for students If an employee receives regular wages and reports tips, figure income tax withholding as if the tips were supplemental wages. Tax credits for students If you have not withheld income tax from the regular wages, add the tips to the regular wages. Tax credits for students Then withhold income tax on the total. Tax credits for students If you withheld income tax from the regular wages, you can withhold on the tips by method 1-a or 1-b discussed earlier in this section under Supplemental wages identified separately from regular wages. Tax credits for students Vacation pay. Tax credits for students   Vacation pay is subject to withholding as if it were a regular wage payment. Tax credits for students When vacation pay is in addition to regular wages for the vacation period, treat it as a supplemental wage payment. Tax credits for students If the vacation pay is for a time longer than your usual payroll period, spread it over the pay periods for which you pay it. Tax credits for students 8. Tax credits for students Payroll Period Your payroll period is a period of service for which you usually pay wages. Tax credits for students When you have a regular payroll period, withhold income tax for that time period even if your employee does not work the full period. Tax credits for students No regular payroll period. Tax credits for students   When you do not have a regular payroll period, withhold the tax as if you paid wages for a daily or miscellaneous payroll period. Tax credits for students Figure the number of days (including Sundays and holidays) in the period covered by the wage payment. Tax credits for students If the wages are unrelated to a specific length of time (for example, commissions paid on completion of a sale), count back the number of days from the payment period to the latest of: The last wage payment made during the same calendar year, The date employment began, if during the same calendar year, or January 1 of the same year. Tax credits for students Employee paid for period less than 1 week. Tax credits for students   When you pay an employee for a period of less than one week, and the employee signs a statement under penalties of perjury indicating he or she is not working for any other employer during the same week for wages subject to withholding, figure withholding based on a weekly payroll period. Tax credits for students If the employee later begins to work for another employer for wages subject to withholding, the employee must notify you within 10 days. Tax credits for students You then figure withholding based on the daily or miscellaneous period. Tax credits for students 9. Tax credits for students Withholding From Employees' Wages Income Tax Withholding Using Form W-4 to figure withholding. Tax credits for students   To know how much federal income tax to withhold from employees' wages, you should have a Form W-4 on file for each employee. Tax credits for students Encourage your employees to file an updated Form W-4 for 2014, especially if they owed taxes or received a large refund when filing their 2013 tax return. Tax credits for students Advise your employees to use the IRS Withholding Calculator on the IRS website at www. Tax credits for students irs. Tax credits for students gov/individuals for help in determining how many withholding allowances to claim on their Forms W-4. Tax credits for students   Ask all new employees to give you a signed Form W-4 when they start work. Tax credits for students Make the form effective with the first wage payment. Tax credits for students If a new employee does not give you a completed Form W-4, withhold income tax as if he or she is single, with no withholding allowances. Tax credits for students Form in Spanish. Tax credits for students   You can provide Formulario W-4(SP), Certificado de Exención de Retenciones del Empleado, in place of Form W-4, to your Spanish-speaking employees. Tax credits for students For more information, see Publicación 17(SP), El Impuesto Federal sobre los Ingresos (Para Personas Físicas). Tax credits for students The rules discussed in this section that apply to Form W-4 also apply to Formulario W-4(SP). Tax credits for students Electronic system to receive Form W-4. Tax credits for students   You may establish a system to electronically receive Forms W-4 from your employees. Tax credits for students See Regulations section 31. Tax credits for students 3402(f)(5)-1(c) for more information. Tax credits for students Effective date of Form W-4. Tax credits for students   A Form W-4 remains in effect until the employee gives you a new one. Tax credits for students When you receive a new Form W-4 from an employee, do not adjust withholding for pay periods before the effective date of the new form. Tax credits for students If an employee gives you a Form W-4 that replaces an existing Form W-4, begin withholding no later than the start of the first payroll period ending on or after the 30th day from the date when you received the replacement Form W-4. Tax credits for students For exceptions, see Exemption from federal income tax withholding , IRS review of requested Forms W-4 , and Invalid Forms W-4 , later in this section. Tax credits for students A Form W-4 that makes a change for the next calendar year will not take effect in the current calendar year. Tax credits for students Successor employer. Tax credits for students   If you are a successor employer (see Successor employer , later in this section), secure new Forms W-4 from the transferred employees unless the “Alternative Procedure” in section 5 of Revenue Procedure 2004-53 applies. Tax credits for students See Revenue Procedure 2004-53, 2004-34 I. Tax credits for students R. Tax credits for students B. Tax credits for students 320, available at www. Tax credits for students irs. Tax credits for students gov/irb/2004-34_IRB/ar13. Tax credits for students html. Tax credits for students Completing Form W-4. Tax credits for students   The amount of any federal income tax withholding must be based on marital status and withholding allowances. Tax credits for students Your employees may not base their withholding amounts on a fixed dollar amount or percentage. Tax credits for students However, an employee may specify a dollar amount to be withheld in addition to the amount of withholding based on filing status and withholding allowances claimed on Form W-4. Tax credits for students Employees may claim fewer withholding allowances than they are entitled to claim. Tax credits for students They may wish to claim fewer allowances to ensure they have enough withholding or to offset the tax on other sources of taxable income not subject to withholding. Tax credits for students See Publication 505, Tax Withholding and Estimated Tax, for more information about completing Form W-4. Tax credits for students Along with Form W-4, you may wish to order Publication 505 for use by your employees. Tax credits for students Do not accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W-4. Tax credits for students If they require additional withholding, they should submit a new Form W-4 and, if necessary, pay estimated tax by filing Form 1040-ES, Estimated Tax for Individuals, or by using the Electronic Federal Tax Payment System (EFTPS) to make estimated tax payments. Tax credits for students Exemption from federal income tax withholding. Tax credits for students   Generally, an employee may claim exemption from federal income tax withholding because he or she had no income tax liability last year and expects none this year. Tax credits for students See the Form W-4 instructions for more information. Tax credits for students However, the wages are still subject to social security and Medicare taxes. Tax credits for students See also Invalid Forms W-4 , later in this section. Tax credits for students   A Form W-4 claiming exemption from withholding is effective when it is filed with the employer and only for that calendar year. Tax credits for students To continue to be exempt from withholding in the next calendar year, an employee must give you a new Form W-4 by February 15. Tax credits for students If the employee does not give you a new Form W-4 by February 15, begin withholding based on the last Form W-4 for the employee that did not claim an exemption from withholding or, if one was not filed, then withhold tax as if he or she is single with zero withholding allowances. Tax credits for students If the employee provides a new Form W-4 claiming exemption from withholding on February 16 or later, you may apply it to future wages but do not refund any taxes already withheld. Tax credits for students Withholding income taxes on the wages of nonresident alien employees. Tax credits for students   In general, you must withhold federal income taxes on the wages of nonresident alien employees. Tax credits for students However, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for exceptions to this general rule. Tax credits for students Also see section 3 of Publication 51 (Circular A), Agricultural Employer's Tax Guide, for guidance on H-2A visa workers. Tax credits for students Withholding adjustment for nonresident alien employees. Tax credits for students   For 2014, apply the procedure discussed next to figure the amount of income tax to withhold from the wages of nonresident alien employees performing services within the United States. Tax credits for students Nonresident alien students from India and business apprentices from India are not subject to this procedure. Tax credits for students Instructions. Tax credits for students   To figure how much income tax to withhold from the wages paid to a nonresident alien employee performing services in the United States, use the following steps. Tax credits for students Step 1. Tax credits for students   Add to the wages paid to the nonresident alien employee for the payroll period the amount shown in the chart below for the applicable payroll period. Tax credits for students    Amount to Add to Nonresident Alien Employee's Wages for Calculating Income Tax Withholding Only   Payroll Period Add Additional     Weekly $ 43. Tax credits for students 30     Biweekly 86. Tax credits for students 50     Semimonthly 93. Tax credits for students 80     Monthly 187. Tax credits for students 50     Quarterly 562. Tax credits for students 50     Semiannually 1,125. Tax credits for students 00     Annually 2,250. Tax credits for students 00     Daily or Miscellaneous (each day of the payroll period) 8. Tax credits for students 70   Step 2. Tax credits for students   Use the amount figured in Step 1 and the number of withholding allowances claimed (generally limited to one allowance) to figure income tax withholding. Tax credits for students Determine the value of withholding allowances by multiplying the number of withholding allowances claimed by the appropriate amount from Table 5. Tax credits for students Percentage Method—2014 Amount for One Withholding Allowance shown on page 41. Tax credits for students If you are using the Percentage Method Tables for Income Tax Withholding, provided on pages 43–44, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure the income tax withholding. Tax credits for students If you are using the Wage Bracket Method for Income Tax Withholding, provided on pages 45–64, use the amount figured in Step 1 and the number of withholding allowances to figure income tax withholding. Tax credits for students The amounts from the chart above are added to wages solely for calculating income tax withholding on the wages of the nonresident alien employee. Tax credits for students The amounts from the chart should not be included in any box on the employee's Form W-2 and do not increase the income tax liability of the employee. Tax credits for students Also, the amounts from the chart do not increase the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. Tax credits for students This procedure only applies to nonresident alien employees who have wages subject to income tax withholding. Tax credits for students Example. Tax credits for students An employer using the percentage method of withholding pays wages of $500 for a biweekly payroll period to a married nonresident alien employee. Tax credits for students The nonresident alien has properly completed Form W-4, entering marital status as “single” with one withholding allowance and indicating status as a nonresident alien on Form W-4, line 6 (see Nonresident alien employee's Form W-4 , later in this section). Tax credits for students The employer determines the wages to be used in the withholding tables by adding to the $500 amount of wages paid the amount of $86. Tax credits for students 50 from the chart under Step 1 ($586. Tax credits for students 50 total). Tax credits for students The employer then applies the applicable tables to determine the income tax withholding for nonresident aliens (see Step 2 ). Tax credits for students Reminder: If you use the Percentage Method Tables for Income Tax Withholding, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure income tax withholding. Tax credits for students The $86. Tax credits for students 50 added to wages for calculating income tax withholding is not reported on Form W-2, and does not increase the income tax liability of the employee. Tax credits for students Also, the $86. Tax credits for students 50 added to wages does not affect the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. Tax credits for students Supplemental wage payment. Tax credits for students   This procedure for determining the amount of income tax withholding does not apply to a supplemental wage payment (see section 7) if the 39. Tax credits for students 6% mandatory flat rate withholding applies or if the 25% optional flat rate withholding is being used to calculate income tax withholding on the supplemental wage payment. Tax credits for students Nonresident alien employee's Form W-4. Tax credits for students   When completing Forms W-4, nonresident aliens are required to: Not claim exemption from income tax withholding, Request withholding as if they are single, regardless of their actual marital status, Claim only one allowance (if the nonresident alien is a resident of Canada, Mexico, or South Korea, or a student or business apprentice from India, he or she may claim more than one allowance), and Write “Nonresident Alien” or “NRA” above the dotted line on line 6 of Form W-4. Tax credits for students   If you maintain an electronic Form W-4 system, you should provide a field for nonresident aliens to enter nonresident alien status in lieu of writing “Nonresident Alien” or “NRA” above the dotted line on line 6. Tax credits for students A nonresident alien employee may request additional withholding at his or her option for other purposes, although such additions should not be necessary for withholding to cover federal income tax liability related to employment. Tax credits for students Form 8233. Tax credits for students   If a nonresident alien employee claims a tax treaty exemption from withholding, the employee must submit Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, with respect to the income exempt under the treaty, instead of Form W-4. Tax credits for students See Publication 515 for details. Tax credits for students IRS review of requested Forms W-4. Tax credits for students   When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee. Tax credits for students You may also be directed to send certain Forms W-4 to the IRS. Tax credits for students You may receive a notice from the IRS requiring you to submit a copy of Form W-4 for one or more of your named employees. Tax credits for students Send the requested copy or copies of Form W-4 to the IRS at the address provided and in the manner directed by the notice. Tax credits for students The IRS may also require you to submit copies of Form W-4 to the IRS as directed by Treasury Decision 9337, 2007-35 I. Tax credits for students R. Tax credits for students B. Tax credits for students 455, which is available at www. Tax credits for students irs. Tax credits for students gov/irb/2007-35_IRB/ar10. Tax credits for students html. Tax credits for students When we refer to Form W-4, the same rules apply to Formulario W-4(SP), its Spanish translation. Tax credits for students After submitting a copy of a requested Form W-4 to the IRS, continue to withhold federal income tax based on that Form W-4 if it is valid (see Invalid Forms W-4 , later in this section). Tax credits for students However, if the IRS later notifies you in writing the employee is not entitled to claim exemption from withholding or a claimed number of withholding allowances, withhold federal income tax based on the effective date, marital status, and maximum number of withholding allowances specified in the IRS notice (commonly referred to as a "lock-in letter