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Free State Tax File

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Free State Tax File

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

Website: Better Business Bureau

Email: info@utah.bbb.org

Address: Better Business Bureau
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Salt Lake City, UT 84123

Phone Number: 801-892-6009

The Free State Tax File

Free state tax file It's easy, accurate and fast. So why would you file your taxes any other way? Free state tax file Old fashioned paper tax forms have been around for decades, but it might be time for them to go the way of the dodo. Who wants to wait for weeks to get their check in the mail when you can just efile your tax return electronically with the IRS and start enjoying your refund in as little as 7 days. Free state tax file If you consider the money the IRS holds on to while you wait for your refund as an interest free loan, then you’ll realize that you are losing money. No one other than the IRS can get an interest free loan and that doesn’t seem fair, does it? Enter the internet age. Commercial companies have been moving online for years now - when was the last time you've mailed a check or received a paper statement from your bank? Now, even the government sites are starting to get with the program and are offering quick and easy efile to everyone. Here are a few reasons why I switched to efile; maybe it’s time you do to!