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You must withhold the same taxes on supplemental wages that you withhold on regular wages. But, how you withhold them is different for supplemental pay. Read on to learn the types of taxes you must deduct from employee pay and how to calculate tax on bonus pay. Gross pay is the total amount an employee earns before you take out payroll deductions. Payroll deductions include taxes and benefits employees elect to receive. Your employee fills out Form W-4 when they are first hired.

On Form W-4, employees can claim withholding allowances. The more claims an employee has, the less you withhold from their wages. Use the number of allowances along with the tax withholding tables in IRS Publication 15 to determine the amount of federal income tax to withhold. FICA tax is a flat rate of 7.

You also contribute a matching 7. Only withhold and contribute 6. There is no wage base limit for Medicare tax, but there is an additional Medicare tax. But, you do not contribute to additional Medicare tax. And, supplemental wages can affect the amount you pay for FUTA tax. Taxes on bonuses follow the rules for federal income tax on supplemental wages. They can be taxed one of two ways:. The percentage method is easier than the aggregate method, making it popular among small business owners.

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Updated March 27, For additional information about these rules, see Treasury Decision , I. You may use a substitute version of Form W-4 to meet your business needs. However, your substitute Form W-4 must contain language that is identical to the official Form W-4 and your form must meet all current IRS rules for substitute forms. At the time you provide your substitute form to the employee, you must provide him or her with all tables, instructions, and worksheets from the current Form W You can't accept substitute Forms W-4 developed by employees.

An employee who submits an employee-developed substitute Form W-4 after October 10, , will be treated as failing to furnish a Form W However, continue to honor any valid employee-developed Forms W-4 you accepted before October 11, Any unauthorized change or addition to Form W-4 makes it invalid.

This includes taking out any language by which the employee certifies the form is correct. A Form W-4 is also invalid if, by the date an employee gives it to you, he or she indicates in any way it is false. You may treat a Form W-4 as invalid if the employee wrote "exempt" on line 7 and also entered a number on line 5 or an amount on line 6. When you get an invalid Form W-4, don't use it to figure federal income tax withholding. Tell the employee it is invalid and ask for another one.

If the employee doesn't give you a valid one, withhold tax as if the employee is single with zero withholding allowances. However, if you have an earlier Form W-4 for this worker that is valid, withhold as you did before. If a levy issued in a prior year is still in effect and the taxpayer submits a new Statement of Exemptions and Filing Status, use the current year Pub.

The old-age, survivors, and disability insurance part is financed by the social security tax. The hospital insurance part is financed by the Medicare tax.

Each of these taxes is reported separately. Certain types of wages and compensation aren't subject to social security and Medicare taxes. See section 5 and section 15 for details. Generally, employee wages are subject to social security and Medicare taxes regardless of the employee's age or whether he or she is receiving social security benefits.

If the employee reported tips, see section 6. Social security and Medicare taxes have different rates and only the social security tax has a wage base limit.

The wage base limit is the maximum wage subject to the tax for the year. Determine the amount of withholding for social security and Medicare taxes by multiplying each payment by the employee tax rate. There are no withholding allowances for social security and Medicare taxes.

For , the social security tax rate is 6. The tax rate for Medicare is 1. There is no wage base limit for Medicare tax; all covered wages are subject to Medicare tax. In addition to withholding Medicare tax at 1. Additional Medicare Tax is only imposed on the employee. There is no employer share of Additional Medicare Tax.

For more information on what wages are subject to Medicare tax, see section Also see Revenue Procedure , I. Early in , you bought all of the assets of a plumbing business from Mr.

Brown, who had been employed by Mr. The wages you paid to Mr. Medicare tax is due on all of the wages you pay him during the calendar year. Brown received while employed by Mr. Martin in determining whether Mr. For more information, including the definition of a motion picture project employer and motion picture project worker, see Internal Revenue Code section Withholding social security and Medicare taxes on nonresident alien employees.

In general, if you pay wages to nonresident alien employees, you must withhold social security and Medicare taxes as you would for a U. The United States has social security agreements, also known as totalization agreements, with many countries that eliminate dual taxation and dual coverage. Compensation subject to social security and Medicare taxes may be exempt under one of these agreements.

You can get more information and a list of agreement countries from the SSA at socialsecurity. An exemption from social security and Medicare taxes is available to members of a recognized religious sect opposed to insurance.

This exemption is available only if both the employee and the employer are members of the sect. Under IRC section z , for services performed after July 31, , a foreign person who meets both of the following conditions is generally treated as an American employer for purposes of paying FICA taxes on wages paid to an employee who is a United States citizen or resident.

The employee of the foreign person performs services in connection with a contract between the U. Government or an instrumentality of the U. Government and any member of the domestically controlled group of entities. Part-time workers and workers hired for short periods of time are treated the same as full-time employees, for federal income tax withholding and social security, Medicare, and FUTA tax purposes. Generally, it doesn't matter whether the part-time worker or worker hired for a short period of time has another job or has the maximum amount of social security tax withheld by another employer.

See Successor employer above for an exception to this rule. Income tax withholding may be figured the same way as for full-time workers or it may be figured by the part-year employment method explained in section 9 of Pub. You must notify employees who have no federal income tax withheld that they may be able to claim a tax refund because of the EIC.

This is because eligible employees may get a refund of the amount of EIC that is more than the tax they owe. If a substitute for Form W-2 is given to the employee on time but doesn't have the required statement, you must notify the employee within 1 week of the date the substitute for Form W-2 is given.

If Form W-2 is required but isn't given on time, you must give the employee Notice or your written statement by the date Form W-2 is required to be given. If Form W-2 isn't required, you must notify the employee by February 7, Generally, you must deposit federal income tax withheld and both the employer and employee social security and Medicare taxes. See How To Deposit , later in this section, for information on electronic deposit requirements.

The credit against employment taxes for COBRA assistance payments is treated as a deposit of taxes on the first day of your return period. You may make a payment with Form or Form instead of depositing, without incurring a penalty, if one of the following applies.

Employers must have deposited any tax liability due for the first, second, and third quarters according to the deposit rules to avoid an FTD penalty for deposits during those quarters.

Separate deposit requirements for nonpayroll Form tax liabilities. Separate deposits are required for nonpayroll and payroll income tax withholding. Don't combine deposits for Forms or Form and Form tax liabilities. Generally, the deposit rules for nonpayroll liabilities are the same as discussed next, except the rules apply to an annual rather than a quarterly return period.

See the separate Instructions for Form for more information. There are two deposit schedules—monthly and semiweekly—for determining when you deposit social security, Medicare, and withheld income taxes. These schedules tell you when a deposit is due after a tax liability arises for example, when you have a payday. The deposit schedule you must use is based on the total tax liability you reported on Form during a lookback period, discussed next.

Your deposit schedule isn't determined by how often you pay your employees or make deposits. See special rules for Forms and , later. Also see Application of Monthly and Semiweekly Schedules , later in this section. These rules don't apply to FUTA tax. See section 14 for information on depositing FUTA tax.

The lookback period begins July 1 and ends June 30 as shown next in Table 1. Lookback Period for Calendar Year The lookback period for a Form filer who filed Form in either or is calendar year The lookback period for for a Form filer is calendar year Adjustments made on Form X, Form X, and Form X don't affect the amount of tax liability for previous periods for purposes of the lookback rule.

The term deposit period refers to the period during which tax liabilities are accumulated for each required deposit due date. For monthly schedule depositors, the deposit period is a calendar month.

The deposit periods for semiweekly schedule depositors are Wednesday through Friday and Saturday through Tuesday. Under the monthly deposit schedule, deposit employment taxes on payments made during a month by the 15th day of the following month.

Monthly schedule depositors shouldn't file Form or Form on a monthly basis. Your tax liability for any quarter in the lookback period before you started or acquired your business is considered to be zero. Semiweekly deposit period spanning two quarters Form filers. If you have a pay date on Saturday, September 30, third quarter , and another pay date on Sunday, October 1, fourth quarter , two separate deposits would be required even though the pay dates fall within the same semiweekly period.

Both deposits would be due Friday, October 6, Semiweekly deposit period spanning two return periods Form or Form filers. If you have more than one pay date during a semiweekly period and the pay dates fall in different return periods, you'll need to make separate deposits for the separate liabilities. For example, if you have a pay date on Saturday, December 30, , and another pay date on Tuesday, January 2, , two separate deposits will be required even though the pay dates fall within the same semiweekly period.

Both deposits will be due Friday, January 5, 3 business days from the end of the semiweekly deposit period. However, for , Rose Co. If a deposit is required to be made on a day that isn't a business day, the deposit is considered timely if it is made by the close of the next business day. A business day is any day other than a Saturday, Sunday, or legal holiday. For example, if a deposit is required to be made on a Friday and Friday is a legal holiday, the deposit will be considered timely if it is made by the following Monday if that Monday is a business day.

Semiweekly schedule depositors have at least 3 business days following the close of the semiweekly period to make a deposit. For example, if a semiweekly schedule depositor accumulated taxes for payments made on Friday and the following Monday is a legal holiday, the deposit normally due on Wednesday may be made on Thursday this allows 3 business days to make the deposit.

The term "legal holiday" means any legal holiday in the District of Columbia. For purposes of the deposit rules, the term "legal holiday" doesn't include other statewide legal holidays. Legal holidays for are listed next.

The terms identify which set of deposit rules you must follow when an employment tax liability arises. The deposit rules are based on the dates when wages are paid for example, cash basis ; not on when tax liabilities are accrued for accounting purposes. It paid wages each Friday during July but didn't pay any wages during August. Under the monthly deposit schedule, Spruce Co. The deposit, however, will be made under the semiweekly deposit schedule as follows: Under the semiweekly deposit schedule, liabilities for wages paid on Wednesday through Friday must be deposited by the following Wednesday.

For example, Fir Co. On Monday, Fir Co. On Tuesday, Fir Co. On Friday, May 12, Elm, Inc. Because this was the first year of its business, the tax liability for its lookback period is considered to be zero, and it would be a monthly schedule depositor based on the lookback rules. However, since Elm, Inc. It will be a semiweekly schedule depositor for the remainder of and for Deposit the shortfall or pay it with your return by the due date of your return for the return period in which the shortfall occurred.

Deposit by the earlier of:. The first Wednesday or Friday whichever comes first that falls on or after the 15th of the month following the month in which the shortfall occurred, or. For example, if a semiweekly schedule depositor has a deposit shortfall during June , the shortfall makeup date is July 19, Wednesday. However, if the shortfall occurred on the required April 5, Wednesday , deposit due date for a March 31, Friday , pay date, the return due date for the March 31, , pay date May 1, would come before the May 17, Wednesday , shortfall makeup date.

In this case, the shortfall must be deposited by May 1, You must deposit employment taxes, including Form taxes, by EFT. See Payment with return , earlier in this section, for exceptions explaining when taxes may be paid with the tax return instead of being deposited. You must use EFT to make all federal tax deposits such as deposits of employment tax, excise tax, and corporate income tax. Call the toll-free number located in your "How to Activate Your Enrollment" brochure to activate your enrollment and begin making your payroll tax deposits.

If you outsource any of your payroll and related tax duties to a third party payer, such as a PSP or reporting agent, be sure to tell them about your EFTPS enrollment.

The number can be used as a receipt or to trace the payment. Eastern time the day before the date the deposit is due. If you use a third party to make a deposit on your behalf, they may have different cutoff times. Please check with your financial institution regarding availability, deadlines, and costs. Your financial institution may charge you a fee for payments made this way. If you deposited more than the right amount of taxes for a quarter, you can choose on Form for that quarter or on Form for that year to have the overpayment refunded or applied as a credit to your next return.

Although the deposit penalties information provided next refers specifically to Form , these rules also apply to Form and Form if the employer required to file Form doesn't qualify for the exception to the deposit requirements discussed under Payment with return , earlier in this section.

Penalties may apply if you don't make required deposits on time or if you make deposits for less than the required amount.

The penalties don't apply if any failure to make a proper and timely deposit was due to reasonable cause and not to willful neglect. If you receive a penalty notice, you can provide an explanation of why you believe reasonable cause exists. If you timely filed your employment tax return, the IRS may also waive deposit penalties if you inadvertently failed to deposit and it was the first quarter that you were required to deposit any employment tax, or if you inadvertently failed to deposit the first time after your deposit frequency changed.

Late deposit penalty amounts are determined using calendar days, starting from the due date of the liability. If you filed Form for the prior year and file Forms for the current year, the FTD penalty won't apply to a late deposit of employment taxes for January of the current year if the taxes are deposited in full by March 15 of the current year.

Deposits generally are applied to the most recent tax liability within the quarter. If you receive an FTD penalty notice, you may designate how your deposits are to be applied in order to minimize the amount of the penalty if you do so within 90 days of the date of the notice. Follow the instructions on the penalty notice you received. For more information on designating deposits, see Revenue Procedure It doesn't make the deposit on May On June 15, Cedar, Inc.

The penalty on this underdeposit will apply as explained above. If federal income, social security, or Medicare taxes that must be withheld that is, trust fund taxes aren't withheld or aren't deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. The penalty is the full amount of the unpaid trust fund tax. This penalty may apply to you if these unpaid taxes can't be immediately collected from the employer or business.

The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, or paying over these taxes, and who acted willfully in not doing so. A responsible person also may include one who signs checks for the business or otherwise has authority to cause the spending of business funds.

Willfully means voluntarily, consciously, and intentionally. A responsible person acts willfully if the person knows the required actions of collecting, accounting for, or paying over trust fund taxes aren't taking place, or recklessly disregards obvious and known risks to the government's right to receive trust fund taxes. Separate accounting when deposits aren't made or withheld taxes aren't paid.

Separate accounting may be required if you don't pay over withheld employee social security, Medicare, or income taxes; deposit required taxes; make required payments; or file tax returns. In this case, you would receive written notice from the IRS requiring you to deposit taxes into a special trust account for the U. You may be charged with criminal penalties if you don't comply with the special bank deposit requirements for the special trust account for the U. Improperly completed Schedule B Form by, for example, entering tax deposits instead of tax liabilities in the numbered spaces.

The FTD penalty is figured by distributing your total tax liability shown on Form , line 12, equally throughout the tax period.

As a result, your deposits and payments may not be counted as timely because the actual dates of your tax liabilities can't be accurately determined. You can avoid an "averaged" FTD penalty by reviewing your return before you file it. Follow these steps before submitting your Form Verify your total liability shown on Form , line 16, or the bottom of Schedule B Form equals your tax liability shown on Form , line For prior period errors don't adjust your tax liabilities reported on Form , line 16, or on Schedule B Form Form must be filed by the last day of the month that follows the end of the quarter.

See the Calendar , earlier. If you receive written notification you qualify for the Form program, you must file Form instead of Form If you received this notification, but prefer to file Form , you can request to have your filing requirement changed to Form during the first calendar quarter of the tax year.

Employers who must file Form have until the last day of the month that follows the end of the year to file Form Seasonal employers who no longer file for quarters when they regularly have no tax liability because they have paid no wages. To alert the IRS you won't have to file a return for one or more quarters during the year, check the "Seasonal employer" box on Form , line When you fill out Form , be sure to check the box on the top of the form that corresponds to the quarter reported.

Generally, the IRS won't inquire about unfiled returns if at least one taxable return is filed each year. However, you must check the "Seasonal employer" box on every Form you file.

Otherwise, the IRS will expect a return to be filed for each quarter. Otherwise, report social security and Medicare taxes and income tax withholding for household employees on Schedule H Form Virgin Islands, or Puerto Rico.

If your employees aren't subject to U. If you have both employees who are subject to U. Agricultural employers reporting social security, Medicare, and withheld income taxes.

Report these taxes on Form The Form e-file program allows a taxpayer to electronically file Form or Form using a computer with an internet connection and commercial tax preparation software. Reporting agents filing Forms or Form for groups of taxpayers can file them electronically. See Reporting Agents in section 7 of Pub. Also, for each whole or part month the tax is paid late disregarding any extensions of the payment deadline , there is a failure-to-pay FTP penalty of 0.

For individual filers only, the FTP penalty is reduced from 0. You must have filed your return on or before the due date of the return to qualify for the reduced penalty. The penalties won't be charged if you have a reasonable cause for failing to file or pay. In addition to any penalties, interest accrues from the due date of the tax on any unpaid balance.

If income, social security, or Medicare taxes that must be withheld aren't withheld or aren't paid, you may be personally liable for the trust fund recovery penalty. See Trust fund recovery penalty in section Generally, the use of a third party payer, such as a PSP or reporting agent, doesn't relieve an employer of the responsibility to ensure tax returns are filed and all taxes are paid or deposited correctly and on time. Don't file more than one Form per quarter or more than one Form per year.

Employers with multiple locations or divisions must file only one Form per quarter or one Form per year.

Filing more than one return may result in processing delays and may require correspondence between you and the IRS. For information on making adjustments to previously filed returns, see section See the Instructions for Form or the Instructions for Form for information on preparing the form. If you go out of business, you must file a final return for the last quarter last year for Form in which wages are paid. If you continue to pay wages or other compensation for periods following termination of your business, you must file returns for those periods.

See the Instructions for Form or the Instructions for Form for details on how to file a final return. If possible, get a copy of Form or Form and separate instructions with a revision date showing the year for which your delinquent return is being filed.

Contact the IRS at if you have any questions about filing late returns. Social Security and Medicare Tax Rates for 3 prior years. Report bonuses as wages and as social security and Medicare wages on Forms W-2 and on Form or Form Report both social security and Medicare wages and taxes separately on Forms W-2, W-3, , and Report employee share of social security taxes on Form W-2 in the box for social security tax withheld box 4 , not as social security wages.

Report employee share of Medicare taxes on Form W-2 in the box for Medicare tax withheld box 6 , not as Medicare wages. Don't report noncash wages that aren't subject to social security or Medicare taxes as social security or Medicare wages. Reconcile Form W-3 with your four quarterly Forms or annual Form by comparing amounts reported for the following items.

Social security and Medicare taxes. Generally, the amounts shown on Forms or annual Form , including current year adjustments, should be approximately twice the amounts shown on Form W Don't report backup withholding or withholding on nonpayroll payments, such as pensions, annuities, and gambling winnings, on Form or Form Withholding on nonpayroll payments is reported on Forms or W-2G and must be reported on Form Only taxes and withholding reported on Form W-2 should be reported on Form or Form See the Instructions for Schedule D Form if you need to explain any discrepancies that were caused by an acquisition, statutory merger, or consolidation.

In certain cases, amounts reported as social security and Medicare taxes on Form , lines 5a—5d, column 2 Form , lines 4a—4d, column 2 , must be adjusted to arrive at your correct tax liability for example, excluding amounts withheld by a third party payor or amounts you weren't required to withhold.

Current period adjustments are reported on Form , lines 7—9, or Form , line 6, and include the following types of adjustments. If there is a small difference between total taxes after adjustments and credits Form , line 12; Form , line 7 and total deposits Form , line 13; Form , line 8 , it may have been caused, all or in part, by rounding to the nearest cent each time you computed payroll.

This rounding occurs when you figure the amount of social security and Medicare tax to be withheld and deposited from each employee's wages. The IRS refers to rounding differences relating to employee withholding of social security and Medicare taxes as "fractions-of-cents" adjustments. To determine if you have a fractions-of-cents adjustment for , multiply the total wages and tips for the quarter subject to:. Compare these amounts the employee share of social security and Medicare taxes with the total social security and Medicare taxes actually withheld from employees for the quarter from your payroll records.

The difference, positive or negative, is your fractions-of-cents adjustment to be reported on Form , line 7, or Form , line 6. If the actual amount withheld is less, report a negative adjustment using a minus sign if possible, otherwise use parentheses in the entry space. If the actual amount is more, report a positive adjustment. For the above adjustments, prepare and retain a brief supporting statement explaining the nature and amount of each.

Don't attach the statement to Form or Form This difference was caused by adding or dropping fractions of cents when figuring social security and Medicare taxes for each wage payment. Adjustment of tax on third-party sick pay. Report both the employer and employee shares of social security and Medicare taxes for sick pay on Form , lines 5a and 5c Form , lines 4a and 4c.

Show as a negative adjustment on Form , line 8 Form , line 6 , the social security and Medicare taxes withheld on sick pay by a third-party payor. See section 6 of Pub. If, by the 10th of the month after the month you received an employee's report on tips, you don't have enough employee funds available to withhold the employee's share of social security and Medicare taxes, you no longer have to collect it.

However, report the entire amount of these tips on Form , lines 5b and 5c Form , lines 4b and 4c. Include as a negative adjustment on Form , line 9 Form , line 6 , the total uncollected employee share of the social security and Medicare taxes.

Adjustment of tax on group-term life insurance premiums paid for former employees. However, include all social security and Medicare taxes for such coverage on Form , lines 5a and 5c Form , lines 4a and 4c. Back out the amount of the employee share of these taxes as a negative adjustment on Form , line 9 Form , line 6. Don't make any changes to your record of federal tax liability reported on Form , line 16, or Schedule B Form Form A for Form filers for current period adjustments.

The amounts reported on the record reflect the actual amounts you withheld from employees' wages for social security and Medicare taxes. Because the current period adjustments make the amounts reported on Form , lines 5a—5d, column 2 Form , lines 4a—4d, column 2 , equal the actual amounts you withheld the amounts reported on the record , no additional changes to the record of federal tax liability are necessary for these adjustments.

Use Form X or Form X to make a correction after you discover an error on a previously filed Form or Form Use Form when requesting a refund or abatement of assessed interest or penalties. Treasury Decision changed the process for making interest-free adjustments to employment taxes reported on Form and Form and for filing a claim for refund of employment taxes.

Treasury Decision , I. We use the terms "correct" and "corrections" to include interest-free adjustments under sections and , and claims for refund and abatement under sections , , and of the Internal Revenue Code. Continue to report current quarter adjustments for fractions of cents, third-party sick pay, tips, and group-term life insurance on Form using lines 7—9, and on Form using line 6. See the chart on the back of Form X or Form X for help in choosing whether to use the adjustment process or the claim process.

See the Instructions for Form X or the Instructions for Form X for details on how to make the adjustment or claim for refund or abatement. In a current calendar year, correct prior quarter income tax withholding errors by making the correction on Form X when you discover the error. You may make an adjustment only to correct income tax withholding errors discovered during the same calendar year in which you paid the wages.

This is because the employee uses the amount shown on Form W-2 as a credit when filing his or her income tax return Form , etc. You can't adjust amounts reported as income tax withheld in a prior calendar year unless it is to correct an administrative error or IRC section applies. An administrative error occurs if the amount you entered on Form or Form isn't the amount you actually withheld. For example, if the total income tax actually withheld was incorrectly reported on Form or Form due to a mathematical or transposition error, this would be an administrative error.

The administrative error adjustment corrects the amount reported on Form or Form to agree with the amount actually withheld from employees and reported on their Forms W Generally, the rules discussed above under Income tax withholding adjustments apply to Additional Medicare Tax withholding adjustments. That is, you may make an adjustment to correct Additional Medicare Tax withholding errors discovered during the same calendar year in which you paid wages.

You can't adjust amounts reported in a prior calendar year unless it is to correct an administrative error or IRC section applies.

If you have overpaid Additional Medicare Tax, you can't file a claim for refund for the amount of the overpayment unless the amount wasn't actually withheld from the employee's wages which would be an administrative error. If a prior year error was a nonadministrative error, you may correct only the wages and tips subject to Additional Medicare Tax withholding. If you withheld no income, social security, or Medicare taxes or less than the correct amount from an employee's wages, you can make it up from later pay to that employee.

Reimbursement is a matter for settlement between you and the employee. Underwithheld income tax and Additional Medicare Tax must be recovered from the employee on or before the last day of the calendar year. There are special rules for tax on tips see section 6 and fringe benefits see section 5.

If you withheld more than the correct amount of income, social security, or Medicare taxes from wages paid, repay or reimburse the employee the excess.

Any excess income tax or Additional Medicare Tax withholding must be repaid or reimbursed to the employee before the end of the calendar year in which it was withheld. Keep in your records the employee's written receipt showing the date and amount of the repayment or record of reimbursement.

If you didn't repay or reimburse the employee, you must report and pay each excess amount when you file Form for the quarter or Form for the year in which you withheld too much tax.

When adjustments are made to correct wages and social security and Medicare taxes because of a change in the wage totals reported for a previous year, you also need to file Form W-2c and Form W-3c with the SSA.

Up to 25 Forms W-2c per Form W-3c may now be filed per session over the Internet, with no limit on the number of sessions. If an employee repays you for wages received in error, don't offset the repayments against current-year wages unless the repayments are for amounts received in error in the current year.

If you receive repayments for wages paid during a prior quarter in the current year, report adjustments on Form X to recover income tax withholding and social security and Medicare taxes for the repaid wages.

If you receive repayments for wages paid during a prior year, report an adjustment on Form X or Form X to recover the social security and Medicare taxes. You can't make an adjustment for income tax withholding because the wages were income to the employee for the prior year.

You can't make an adjustment for Additional Medicare Tax withholding because the employee determines liability for Additional Medicare Tax on the employee's income tax return for the prior year. Don't correct wages box 1 on Form W-2c for the amount paid in error.

are many

It is used to identify the tax accounts of employers and certain others who have no employees. You should have only one EIN. Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business.

The IRS will tell you which number to use. If you took over another employer's business see Successor employer in section 9 , don't use that employer's EIN.

Generally, employees are defined either under common law or under statutes for certain situations. 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. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed. Generally, people in business for themselves aren't employees. For example, doctors, lawyers, veterinarians, and others in an independent trade in which they offer their services to the public are usually not employees.

However, if the business is incorporated, corporate officers who work in the business are employees of the corporation. If an employer-employee relationship exists, it doesn't matter what it is called.

The employee may be called an agent or independent contractor. If someone who works for you isn't an employee under the common law rules discussed above, don't withhold federal income tax from his or her pay, unless backup withholding applies.

An agent or commission driver who delivers food, beverages other than milk , laundry, or dry cleaning for someone else. 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. 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.

The orders must be for merchandise for resale or supplies for use in the customer's business. The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging.

Direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. You may be able to calculate your liability using special IRC section rates for the employee share of social security and Medicare taxes and the federal income tax withholding.

The applicable rates depend on whether you filed required Forms You can't recover the employee share of social security tax, Medicare tax, or income tax withholding from the employee if the tax is paid under IRC section You continue to owe the full employer share of social security and Medicare taxes. The employee remains liable for the employee share of social security and Medicare taxes. See IRC section for details.

Also see the Instructions for Form X. IRC section rates aren't 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. IRC section isn't available for reclassifying statutory employees.

See Statutory employees above. For social security taxes; employer rate of 6. For Medicare taxes; employer rate of 1. For Additional Medicare Tax; 0. 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. 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.

You or your predecessor must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 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.

For more information visit IRS. If you and your spouse jointly own and operate a business and share in the profits and losses, you may be partners in a partnership, whether or not you have a formal partnership agreement.

The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. For tax years beginning after December 31, , the Small Business and Work Opportunity Tax Act of Public Law 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.

A qualified joint venture conducts a trade or business where:. Both spouses materially participate see Material participation in the Instructions for Schedule C Form , line G in the trade or business mere joint ownership of property isn't enough ,. The business is co-owned by both spouses and isn't held in the name of a state law entity such as a partnership or limited liability company LLC.

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. Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable.

Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally don't need an EIN. 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.

Generally, filing as a qualified joint venture won't increase the spouses' total tax owed on the joint income tax return.

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. If your spouse is your employee, not your partner, see One spouse employed by another in section 3. For more information on qualified joint ventures, visit IRS. 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.

You may still make an election to be taxed as a qualified joint venture instead of a partnership. See Exception—Qualified joint venture above. Payments for the services of a child under age 18 who works for his or her parent in a trade or business aren't 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.

However, see Covered services of a child or spouse , later. 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, aren't subject to FUTA tax. 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.

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, aren't subject to social security, Medicare, and FUTA taxes. 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 partnership, even if the child's parent is a partner, unless each partner is a parent of the child;.

Social security and Medicare taxes do apply to payments made to a parent for domestic services if all of the following apply:. 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, can't 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.

Payments made to a parent employed by his or her child aren't subject to FUTA tax, regardless of the type of services provided.

This requirement also applies to resident and nonresident alien employees. You should ask your employee to show you his or her social security card. The employee may show the card if it is available. Don't accept a social security card that says "Not valid for employment.

You may, but aren't required to, photocopy the social security card if the employee provides it. If you don't provide the correct employee name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause.

Any employee who is legally eligible to work in the United States and doesn't have a social security card can get one by completing Form SS-5, Application for a Social Security Card, and submitting the necessary documentation. The employee must complete and sign Form SS-5; it can't be filed by the employer. 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.

Furnish copies B, C, and 2 of Form W-2c to the employee. If the employee's name isn't correct as shown on the card for example, because of marriage or divorce , the employee should request an updated card from the SSA.

Continue to report the employee's wages under the old name until the employee shows you the updated social security card with the corrected name.

It isn't necessary to correct other years if the previous name and number were used for years before the most recent Form W 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 an SSN , earlier.

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 , names and SSNs and usually receive the results the next business day.

To register, visit the SSA's website at socialsecurity. Follow the registration instructions to obtain a user identification ID and password. When you have completed the online registration process, the SSA will mail a one-time activation code to your employer. Wages subject to federal employment taxes generally include all pay you give to an employee for services performed.

The pay may be in cash or in other forms. It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. It doesn't matter how you measure or make the payments. 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.

Also, compensation paid to a former employee for services performed while still employed is wages subject to employment taxes. See section 6 for a discussion of tips and section 7 for a discussion of supplemental wages. Also, see section 15 for exceptions to the general rules for wages.

A reimbursement or allowance arrangement is a system by which you pay the advances, reimbursements, and charges for your employees' business expenses. How you report a reimbursement or allowance amount depends on whether you have an accountable or a nonaccountable plan.

If a single payment includes both wages and an expense reimbursement, you must specify the amount of the reimbursement. These rules apply to all ordinary and necessary employee business expenses that would otherwise qualify for a deduction by the employee.

To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules. They must have paid or incurred deductible expenses while performing services as your employees. The reimbursement or advance must be payment for the expenses and must not be an amount that would have otherwise been paid to the employee as wages. They must return any amounts in excess of substantiated expenses within a reasonable period of time.

Amounts paid under an accountable plan aren't wages and aren't subject to income, social security, Medicare, and FUTA taxes. If the expenses covered by this arrangement aren't substantiated or amounts in excess of substantiated expenses aren't 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.

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. A reasonable period of time depends on the facts and circumstances. 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 days after the expenses were paid or incurred.

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 days. 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.

Your payments are treated as paid under a nonaccountable plan if:. Your employee isn't required to or doesn't substantiate timely those expenses to you with receipts or other documentation,. You advance an amount to your employee for business expenses and your employee isn't required to or doesn't return timely any amount he or she doesn't 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. See section 7 for more information on supplemental wages.

You may reimburse your employees by travel days, miles, or some other fixed allowance under the applicable revenue procedure. In these cases, your employee is considered to have accounted to you if your reimbursement doesn't exceed rates established by the Federal Government.

The standard mileage rate for auto expenses was 54 cents per mile. The rate for is The government per diem rates for meals and lodging in the continental United States can be found by visiting the U. 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.

For information on substantiation methods, see Pub. If the per diem or allowance paid exceeds the amounts substantiated, you must report the excess amount as wages. This excess amount is subject to income tax withholding and payment of social security, Medicare, and FUTA taxes.

Show the amount equal to the substantiated amount for example, the nontaxable portion in box 12 of Form W-2 using code "L. 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.

Withhold income tax on these payments only if you and the employee agree to do so. 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. Reimbursed and employer-paid qualified moving expenses those that would otherwise be deductible by the employee paid under an accountable plan aren't includible in an employee's income unless you have knowledge the employee deducted the expenses in a prior year.

Reimbursed and employer-paid nonqualified moving expenses are includible in income and are subject to employment taxes and income tax withholding. For more information on moving expenses, see Pub. The value of meals isn't taxable income and isn't 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.

The value of lodging isn't 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. 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.

However, whether meals or lodging are provided for the convenience of the employer depends on all of the facts and circumstances. A written statement that the meals or lodging are for your convenience isn't sufficient. If you pay the cost of an accident or health insurance plan for your employees, including an employee's spouse and dependents, your payments aren't wages and aren't subject to social security, Medicare, and FUTA taxes, or federal income tax withholding.

Generally, this exclusion also applies to qualified long-term care insurance contracts. 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.

See Announcement for more information. You can find Announcement on page 53 of Internal Revenue Bulletin However, HSA contributions made under a salary reduction arrangement in a section cafeteria plan aren't wages and aren't subject to employment taxes or withholding.

For more information, see the Instructions for Form Generally, medical care reimbursements paid for an employee under an employer's self-insured medical reimbursement plan aren't wages and aren't subject to social security, Medicare, and FUTA taxes, or income tax withholding. 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.

Differential wage payments are wages for income tax withholding, but aren't subject to social security, Medicare, or FUTA taxes. Employers should report differential wage payments in box 1 of Form W For more information about the tax treatment of differential wage payments, visit IRS.

You generally must include fringe benefits in an employee's gross income but see Nontaxable fringe benefits next. The benefits are subject to income tax withholding and employment taxes. 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.

In general, the amount you must include is the amount by which the fair market value of the benefit is more than the sum of what the employee paid for it plus any amount the law excludes.

There are other special rules you and your employees may use to value certain fringe benefits. Some fringe benefits aren't taxable or are minimally taxable if certain conditions are met.

The following are some examples of nontaxable fringe benefits. Working condition fringes that are property or services the employee could deduct as a business expense if he or she had paid for them.

Examples include a company car for business use and subscriptions to business magazines. 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 aren't furnished at below cost. Qualified transportation fringes subject to specified conditions and dollar limitations including transportation in a commuter highway vehicle, any transit pass, and qualified parking.

Qualified moving expense reimbursement. See Moving expenses , earlier in this section, for details. The use of on-premises athletic facilities operated by you, if substantially all of the use is by employees, their spouses, and their dependent children. Qualified tuition reduction an educational organization provides to its employees for education.

However, don't exclude the following fringe benefits from the income of highly compensated employees unless the benefit is available to other employees on a nondiscriminatory basis. For more information, including the definition of a highly compensated employee, see Pub. 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.

You don't have to make a formal choice of payment dates or notify the IRS of the dates you choose. You don't have to make this choice for all employees. 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. Generally, you must determine the value of fringe benefits no later than January 31 of the next year. Before January 31, you may reasonably estimate the value of the fringe benefits for purposes of withholding and depositing on time.

You may choose not to withhold income tax on the value of an employee's personal use of a vehicle you provide. You must, however, withhold social security and Medicare taxes on the use of the vehicle. Once you choose when fringe benefits are paid, you must deposit taxes in the same deposit period you treat the fringe benefits as paid. To avoid a penalty, deposit the taxes following the general deposit rules for that deposit period.

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.

See Valuation of fringe benefits above. If you underestimated the value and deposited too little, you may be subject to a failure-to-deposit FTD penalty. See section 11 for information on deposit penalties. 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 However, you must recover the income taxes before April 1 of the following year.

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. These amounts are sometimes paid by a third party, such as an insurance company or an employees' trust.

These taxes don't apply to sick pay paid more than 6 calendar months after the last calendar month in which the employee worked for the employer. The payments are always subject to federal income tax.

Tips your employee receives from customers are generally subject to withholding. Your employee must report cash tips to you by the 10th of the month after the month the tips are received.

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.

Both directly and indirectly tipped employees must report tips to you. Your employee reports the tips on Form or on a similar statement. The statement must be signed by the employee and must include:.

The month and year or the beginning and ending dates, if the statement is for a period of less than 1 calendar month the report covers, and. See Regulations section You must collect income tax, employee social security tax, and employee Medicare tax on the employee's tips. You can collect these taxes from the employee's wages or from other funds he or she makes available. See Tips treated as supplemental wages in section 7 for more information.

File Form or Form to report withholding and employment taxes on tips. If, by the 10th of the month after the month for which you received an employee's report on tips, you don't have enough employee funds available to deduct the employee tax, you no longer have to collect it. If there aren't enough funds available, withhold taxes in the following order.

Report tips and any collected and uncollected social security and Medicare taxes on Form W-2 and on Form , lines 5b, 5c, and 5d Form , lines 4b, 4c, and 4d. Report an adjustment on Form , line 9 Form , line 6 , for the uncollected social security and Medicare taxes.

Enter the amount of uncollected social security tax and Medicare tax on Form W-2, box 12, with codes "A" and "B. For additional information on reporting tips, see section 13 and the General Instructions for Forms W-2 and W Revenue Ruling 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 q , the difference between tips and service charges, and the section 45B credit.

See Revenue Ruling , I. If you operate a large food or beverage establishment, you must report allocated tips under certain circumstances. However, don't withhold income, social security, or Medicare taxes on allocated tips. 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. The tips may be allocated by one of three methods—hours worked, gross receipts, or good faith agreement.

For information about these allocation methods, including the requirement to file Forms electronically if or more forms are filed, see the Instructions for Form 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.

Supplemental wages are wage payments to an employee that aren't regular wages. They include, but aren't 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. Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan.

How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. Also see Revenue Ruling , I. Withhold using the In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control.

For more information, see Treasury Decision , I. If you pay supplemental wages with regular wages but don't specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period. 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.

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. If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. 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.

Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Subtract the tax withheld from the regular wages. Withhold the remaining tax from the supplemental wages. 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.

If you didn't withhold income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1-b.

This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages. You pay John Peters a base salary on the 1st of each month. He is single and claims one withholding allowance. You pay Sharon Warren a base salary on the 1st of each month. She is single and claims one allowance.

Electing to use supplemental wage withholding method 1-b, you:. The facts are the same as in Example 2, except you elect to use the flat rate method of withholding on the bonus. Using supplemental wage withholding method 1-b, you:. Withhold income tax on tips from wages earned by the employee or from other funds the employee makes available.

If an employee receives regular wages and reports tips, figure income tax withholding as if the tips were supplemental wages. If you haven't withheld income tax from the regular wages, add the tips to the regular wages. Then withhold income tax on the total. 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. Vacation pay is subject to withholding as if it were a regular wage payment.

When vacation pay is in addition to regular wages for the vacation period, treat it as a supplemental wage payment. 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. Your payroll period is a period of service for which you usually pay wages. When you have a regular payroll period, withhold income tax for that time period even if your employee doesn't work the full period.

When you don't have a regular payroll period, withhold the tax as if you paid wages for a daily or miscellaneous payroll period. Figure the number of days including Sundays and holidays in the period covered by the wage payment. 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:.

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 isn't working for any other employer during the same week for wages subject to withholding, figure withholding based on a weekly payroll period. If the employee later begins to work for another employer for wages subject to withholding, the employee must notify you within 10 days.

You then figure withholding based on the daily or miscellaneous period. To know how much federal income tax to withhold from employees' wages, you should have a Form W-4 on file for each employee. Encourage your employees to file an updated Form W-4 for , especially if they owed taxes or received a large refund when filing their tax return. Ask all new employees to give you a signed Form W-4 when they start work.

Make the form effective with the first wage payment. If a new employee doesn't give you a completed Form W-4, withhold income tax as if he or she is single, with no withholding allowances. You may establish a system to electronically receive Forms W-4 from your employees.

A Form W-4 remains in effect until the employee gives you a new one. When you receive a new Form W-4 from an employee, don't adjust withholding for pay periods before the effective date of the new form.

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 A Form W-4 that makes a change for the next calendar year won't take effect in the current calendar year. See Revenue Procedure , I.

The amount of any federal income tax withholding must be based on marital status and withholding allowances. Your employees may not base their withholding amounts on a fixed dollar amount or percentage. 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 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.

Along with Form W-4, you may wish to order Pub. Don't accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W 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.

See the Form W-4 instructions for more information. However, the wages are still subject to social security and Medicare taxes.

See also Invalid Forms W-4 , later in this section. A Form W-4 claiming exemption from withholding is effective when it is filed with the employer and only for that calendar year. To continue to be exempt from withholding in the next calendar year, an employee must give you a new Form W-4 by February If the employee doesn't give you a new Form W-4 by February 15, begin withholding based on the last Form W-4 for the employee that didn't claim an exemption from withholding or, if one wasn't furnished, then withhold tax as if he or she is single with zero withholding allowances.

Withholding income taxes on the wages of nonresident alien employees. In general, you must withhold federal income taxes on the wages of nonresident alien employees. Also see section 3 of Pub. 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.

Nonresident alien students from India and business apprentices from India aren't subject to this procedure. 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.

Add to the wages paid to the nonresident alien employee for the payroll period the amount shown in the chart next for the applicable payroll period. The tax on bonus payments is separate from regular wages. To find how much federal income tax to withhold, separate regular and bonus wages. The aggregate method is a little more complex than the percentage method. For the aggregate method, you will add the bonus wages to the regular wages that are paid at the same time.

You have a single employee with two allowances claimed on Form W For this example, the employee has less taken out of their bonus wages with the aggregate method than the percentage method. If your employee is worried that the method you use takes more out of their wages, remind them that they might receive a refund to even out the withholdings come tax season.

The FICA tax rate is still the standard 7. Need an easy way to track bonus payments? That way, you know how much you pay employees in regular wages as well as supplemental wages. Get your free trial today! Home Accounting Payroll About Login.

What Is the Bonus Tax Rate? By Rachel Gray on September 1, Supplemental wages Supplemental wages are additional dollars you give employees on top of regular wages. The following are considered supplemental wages: Bonuses Commissions Overtime pay Payments for accumulated sick leave Severance pay Awards Prizes Back pay Retro pay increases Payments for nondeductible moving expenses As you can see, bonuses are supplemental wages.

Bonus tax rate Here are a few frequently asked questions about bonus pay tax: This form lists your name, address and Social Security number. You can request a specific amount of withholding tax to be taken out of any jackpot you win. Some player like to do this to avoid a big tax payment in April when they file their income tax returns.

The additional withholding may not be necessary if you keep a log book. The law allows you to deduct gambling loses up to the amount of your winnings. You can only do this if you have documentation of your losses. For this reason, you should always carry a valid form of identification with you when you visit the casino.

The key level

Under these programs, employees may donate their vacation, sick, or personal leave in exchange for employer cash payments made before January 1, , to qualified tax-exempt organizations providing relief for the victims of the severe storms and flooding in Louisiana that began on August 11, The donated leave won't be included in the income or wages of the employee. The employer may deduct the cash payments as business expenses or charitable contributions.

For more information, see Notice , I. Leave-based donation programs to aid victims of Hurricane Matthew. Under these programs, employees may donate their vacation, sick, or personal leave in exchange for employer cash payments made before January 1, , to qualified tax-exempt organizations providing relief for the victims of Hurricane Matthew. Work opportunity tax credit for qualified tax-exempt organizations hiring qualified veterans.

The work opportunity tax credit is available for eligible unemployed veterans who begin work on or after November 22, , and before January 1, Qualified tax-exempt organizations that hire eligible unemployed veterans can claim the work opportunity tax credit against their payroll tax liability using Form C. COBRA premium assistance credit. Notice provides that certain Medicaid waiver payments are excludable from income for federal income tax purposes. See Notice , I. For more information, including questions and answers related to Notice , visit IRS.

No federal income tax withholding on disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States. Disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States or its allies aren't included in income.

Because federal income tax withholding is only required when a payment is includable in income, no federal income tax should be withheld from these payments. A shareholder of an ANC may request voluntary income tax withholding on dividends and other distributions paid by an ANC.

For more information see Notice , I. A marriage of two individuals is recognized for federal tax purposes if the marriage is recognized by the state, possession, or territory of the United States in which the marriage is entered into, regardless of legal residence.

Two individuals who enter into a relationship that is denominated as marriage under the laws of a foreign jurisdiction are recognized as married for federal tax purposes if the relationship would be recognized as marriage under the laws of at least one state, possession, or territory of the United States, regardless of legal residence.

Individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that isn't denominated as a marriage under the law of the state, possession, or territory of the United States where such relationship was entered into aren't recognized as married for federal tax purposes, regardless of legal residence. Notice provides special administrative procedures for employers to make claims for refunds or adjustments of overpayments of social security and Medicare taxes with respect to certain same-sex spouse benefits before expiration of the period of limitations.

Notice , I. You may correct errors to federal income tax withholding and Additional Medicare Tax withheld for prior years if the amount reported on your employment tax return doesn't agree with the amount you actually withheld. This type of error is an administrative error.

You may also correct errors to federal income tax withholding and Additional Medicare Tax withheld for prior years if section rates apply. You remain responsible if the third party fails to perform any required action. If you choose to outsource any of your payroll and related tax duties that is, withholding, reporting, and paying over social security, Medicare, FUTA, and income taxes to a third-party payer, such as a payroll service provider PSP or reporting agent, visit IRS.

For more information on the different types of third party payer arrangements, see section Severance payments are subject to social security and Medicare taxes, income tax withholding, and FUTA tax. Severance payments are wages subject to social security and Medicare taxes. As noted in section 15 , severance payments are also subject to income tax withholding and FUTA tax. You must receive written notice from the IRS to file Form You must receive written notice from the IRS to file Form instead of Forms before you may file this form.

For more information on requesting to file Form , including the methods and deadlines for making a request, see the Instructions for Form Employers can request to file Forms instead of Form If you received notice from the IRS to file Form but would like to file Forms instead, you must contact the IRS during the first calendar quarter of the tax year to request to file Forms You must receive written notice from the IRS to file Forms instead of Form before you may file these forms.

For more information on requesting to file Forms , including the methods and deadlines for making a request, see the Instructions for Form Federal tax deposits must be made by electronic funds transfer EFT. You must use EFT to make all federal tax deposits.

If you don't want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf.

Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. For more information on making federal tax deposits, see How To Deposit in section Aggregate Form filers.

To request approval to act as an agent for an employer, the agent files Form with the IRS. Aggregate Forms can be filed by agents acting on behalf of home care service recipients who receive home care services through a program administered by a federal, state, or local government. To request approval to act as an agent on behalf of home care service recipients, the agent files Form with the IRS. Now, more than ever before, businesses can enjoy the benefits of filing and paying their federal taxes electronically.

Whether you rely on a tax professional or handle your own taxes, the IRS offers you convenient programs to make filing and payment easier. Spend less time and worry on taxes and more time running your business. For e-file, visit IRS. If a valid EIN isn't provided, the return or payment won't be processed.

This may result in penalties and delays in processing your return or payment. Electronic funds withdrawal EFW. If you file your employment tax return electronically, you can e-file and e-pay electronic funds withdrawal the balance due in a single step using tax preparation software or through a tax professional.

However, don't use EFW to make federal tax deposits. A fee may be charged to file electronically. Credit or debit card payments. You can pay the balance due shown on your employment tax return by credit or debit card.

Don't use a credit or debit card to make federal tax deposits. You may be eligible to apply for an installment agreement online if you have a balance due when you file your employment tax return. For more information, see Pub. You must verify that each new employee is legally eligible to work in the United States. This includes completing the U. You can get Form I-9 at uscis. A new employee is an employee who hasn't previously been employed by you or was previously employed by you but has been separated from such prior employment for at least 60 consecutive days.

Many states accept a copy of Form W-4 with employer information added. Visit the Office of Child Support Enforcement website at acf. Ask each new employee to complete the Form W Name and social security number SSN. Record each new employee's name and SSN from his or her social security card. Any employee without a social security card should apply for one. Correcting Form or Form If you discover an error on a previously filed Form or Form , make the correction using Form X or Form X.

Forms X and X are stand-alone forms, meaning taxpayers can file them when an error is discovered. Forms X and X are used by employers to claim refunds or abatements of employment taxes, rather than Form See section 13 for more information.

Withhold federal income tax from each wage payment or supplemental unemployment compensation plan benefit payment according to the employee's Form W-4 and the correct withholding table. If you have nonresident alien employees, see Withholding income taxes on the wages of nonresident alien employees in section 9. Withhold from periodic pension and annuity payments as if the recipient is married claiming three withholding allowances, unless he or she has provided Form W-4P, Withholding Certificate for Pension or Annuity Payments, either electing no withholding or giving a different number of allowances, marital status, or an additional amount to be withheld.

Don't withhold on direct rollovers from qualified plans or governmental section b plans. See section 9 and Pub. If you haven't filed a "final" Form or Form , or aren't a "seasonal" employer, you must continue to file a Form or Form , even for periods during which you paid no wages.

You may be required to file information returns to report certain types of payments made during the year. For details about filing Forms and for information about required electronic filing, see the General Instructions for Certain Information Returns for general information and the separate, specific instructions for each information return you file for example, Instructions for Form MISC. Generally, don't use Forms to report wages and other compensation you paid to employees; report these on Form W See the General Instructions for Forms W-2 and W-3 for details about filing Form W-2 and for information about required electronic filing.

If you file or more Forms W-2, you must file them electronically. Information reporting customer service site. The IRS operates an information return customer service site to answer questions about reporting on Forms W-2, W-3, , and other information returns.

The center can also be reached by email at mccirp irs. Don't include tax identification numbers TINs or attachments in email correspondence because electronic mail isn't secure. Separate deposits are required for payroll Form or Form and nonpayroll Form withholding. Pensions including distributions from tax-favored retirement plans, for example, section k , section b , and governmental section b plans and annuities. Certain other payments, such as unemployment compensation, social security, and Tier 1 railroad retirement benefits, subject to voluntary withholding.

For details on depositing and reporting nonpayroll income tax withholding, see the Instructions for Form Distributions from nonqualified pension plans and deferred compensation plans. Because distributions to participants from some nonqualified pension plans and deferred compensation plans including section b plans of tax-exempt organizations are treated as wages and are reported on Form W-2, income tax withheld must be reported on Form or Form , not on Form This withholding is referred to as "backup withholding.

In addition, transactions by brokers and barter exchanges and certain payments made by fishing boat operators are subject to backup withholding. Keep all records of employment taxes for at least 4 years. These should be available for IRS review. Your records should include the following information. Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third party payors made to them.

Records of fringe benefits and expense reimbursements provided to your employees, including substantiation. Notify the IRS immediately if you change your business name. Write to the IRS office where you file your returns, using the Without a payment address provided in the instructions for your employment tax return, to notify the IRS of any business name change.

Notify the IRS immediately if you change your business address or responsible party. You can use certain private delivery services designated by the IRS to mail tax returns and payments. The list includes only the following:. Your private delivery service can tell you how to get written proof of the mailing date. Private delivery services can't deliver items to P. You must use the U.

Help for people with disabilities. You may also use this number for assistance with unresolved tax problems. Additional employment tax information. You can order employer tax forms and publications and information returns online at IRS. In addition, you can print out completed copies of Forms W-2 to file with state or local governments, distribute to your employees, and keep for your records. Form W-3 will be created for you based on your Forms W See the separate instructions for Forms , , , , , or CT-1 for the filing addresses.

Any form of payment that is dishonored and returned from a financial institution is subject to a penalty. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling THE-LOST if you recognize a child. The following is a list of important dates and responsibilities.

If any date shown next for filing a return, furnishing a form, or depositing taxes falls on a Saturday, Sunday, or legal holiday, the due date is the next business day. However, a statewide legal holiday doesn't delay the due date of federal tax deposits. Postal Service on or before the due date, or sent by an IRS-designated private delivery service on or before the due date. See Private Delivery Services under Reminders for more information. This publication explains your tax responsibilities as an employer.

It explains the requirements for withholding, depositing, reporting, paying, and correcting employment taxes. It explains the forms you must give to your employees, those your employees must give to you, and those you must send to the IRS and the SSA. This guide also has tax tables you need to figure the taxes to withhold from each employee for References to "income tax" in this guide apply only to "federal" income tax.

Contact your state or local tax department to determine if their rules are different. When you pay your employees, you don't pay them all the money they earned.

As their employer, you have the added responsibility of withholding taxes from their paychecks. The federal income tax and employees' share of social security and Medicare taxes that you withhold from your employees' paychecks are part of their wages that you pay to the United States Treasury instead of to your employees. Your employees trust that you pay the withheld taxes to the United States Treasury by making federal tax deposits.

This is the reason that these withheld taxes are called trust fund taxes. If federal income, social security, or Medicare taxes that must be withheld aren't withheld or aren't deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. See section 11 for more information.

Additional employment tax information is available in Pub. Most employers must withhold except FUTA , deposit, report, and pay the following employment taxes. There are exceptions to these requirements. See section 15 for guidance. Railroad retirement taxes are explained in the Instructions for Form CT You can send us comments from IRS.

We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. The information in this publication, including the rules for making federal tax deposits, applies to federal agencies. Payments to employees for services in the employ of state and local government employers are generally subject to federal income tax withholding but not FUTA tax.

Most elected and appointed public officials of state or local governments are employees under common law rules. See chapter 3 of Pub. In addition, wages, with certain exceptions, are subject to social security and Medicare taxes.

See section 15 for more information on the exceptions. If an election worker is employed in another capacity with the same government entity, see Revenue Ruling on page of Internal Revenue Bulletin at IRS. You can get information on reporting and social security coverage from your local IRS office. If you have any questions about coverage under a section Social Security Act agreement, contact the appropriate state official.

Disregarded entities and qualified subchapter S subsidiaries QSubs. Eligible single-owner disregarded entities and QSubs are treated as separate entities for employment tax purposes. Eligible single-member entities must report and pay employment taxes on wages paid to their employees using the entities' own names and EINs.

See Regulations sections 1. The Consolidated Omnibus Budget Reconciliation Act of COBRA provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates.

COBRA generally covers multiemployer health plans and health plans maintained by private-sector employers other than churches with 20 or more full and part-time employees. Similar requirements apply under the Federal Employees Health Benefits Program and under some state laws.

For the premium assistance or subsidy discussed below, these requirements are all referred to as COBRA requirements. Under the American Recovery and Reinvestment Act of ARRA , employers are allowed a credit against "payroll taxes" referred to in this publication as "employment taxes" for providing COBRA premium assistance to assistance-eligible individuals.

An assistance-eligible individual is a qualified beneficiary of an employer's group health plan who is eligible for COBRA continuation coverage during the period beginning September 1, , and ending May 31, , due to the involuntarily termination from employment of a covered employee during the period and elects continuation COBRA coverage.

The assistance for the coverage can last up to 15 months. The COBRA premium assistance credit was available to an employer for premiums paid on behalf of employees who were involuntarily terminated from employment between September 1, , and May 31, Therefore, only in rare circumstances will the credit still be available, such as instances where COBRA eligibility was delayed as a result of employer-provided health insurance coverage following termination.

For more information about the credit, see Notice , I. Administrators of the group health plans or other entities that provide or administer COBRA continuation coverage must provide notice to assistance-eligible individuals of the COBRA premium assistance. The reimbursement is made through a credit against the employer's employment tax liabilities. The credit is treated as a deposit made on the first day of the return period quarter or year.

In the case of a multiemployer plan, the credit is claimed by the plan, rather than the employer. In the case of an insured plan subject to state law continuation coverage requirements, the credit is claimed by the insurance company, rather than the employer. Anyone claiming the credit for COBRA premium assistance payments must maintain the following information to support their claim, including the following. In the case of an insurance plan, a copy of an invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA.

In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the assistance-eligible individuals. Attestation of involuntary termination, including the date of the involuntary termination for each covered employee whose involuntary termination is the basis for eligibility for the subsidy. A record of the SSNs of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one individual or two or more individuals.

The digits are arranged as follows: It is used to identify the tax accounts of employers and certain others who have no employees. You should have only one EIN. Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. The IRS will tell you which number to use. If you took over another employer's business see Successor employer in section 9 , don't use that employer's EIN. Generally, employees are defined either under common law or under statutes for certain situations.

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. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.

Generally, people in business for themselves aren't employees. For example, doctors, lawyers, veterinarians, and others in an independent trade in which they offer their services to the public are usually not employees. However, if the business is incorporated, corporate officers who work in the business are employees of the corporation.

If an employer-employee relationship exists, it doesn't matter what it is called. The employee may be called an agent or independent contractor. If someone who works for you isn't an employee under the common law rules discussed above, don't withhold federal income tax from his or her pay, unless backup withholding applies. An agent or commission driver who delivers food, beverages other than milk , laundry, or dry cleaning for someone else.

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. 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. The orders must be for merchandise for resale or supplies for use in the customer's business.

The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging.

Direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. You may be able to calculate your liability using special IRC section rates for the employee share of social security and Medicare taxes and the federal income tax withholding. The applicable rates depend on whether you filed required Forms You can't recover the employee share of social security tax, Medicare tax, or income tax withholding from the employee if the tax is paid under IRC section You continue to owe the full employer share of social security and Medicare taxes.

The employee remains liable for the employee share of social security and Medicare taxes. See IRC section for details. Also see the Instructions for Form X. IRC section rates aren't 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.

IRC section isn't available for reclassifying statutory employees. See Statutory employees above. For social security taxes; employer rate of 6. For Medicare taxes; employer rate of 1. For Additional Medicare Tax; 0. 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. 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.

You or your predecessor must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 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.

For more information visit IRS. If you and your spouse jointly own and operate a business and share in the profits and losses, you may be partners in a partnership, whether or not you have a formal partnership agreement. The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees.

For tax years beginning after December 31, , the Small Business and Work Opportunity Tax Act of Public Law 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. A qualified joint venture conducts a trade or business where:. Both spouses materially participate see Material participation in the Instructions for Schedule C Form , line G in the trade or business mere joint ownership of property isn't enough ,.

The business is co-owned by both spouses and isn't held in the name of a state law entity such as a partnership or limited liability company LLC. 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. Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable. Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally don't need an EIN.

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.

Generally, filing as a qualified joint venture won't increase the spouses' total tax owed on the joint income tax return. 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.

If your spouse is your employee, not your partner, see One spouse employed by another in section 3. For more information on qualified joint ventures, visit IRS. 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. You may still make an election to be taxed as a qualified joint venture instead of a partnership.

See Exception—Qualified joint venture above. Payments for the services of a child under age 18 who works for his or her parent in a trade or business aren't 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.

However, see Covered services of a child or spouse , later. 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, aren't subject to FUTA tax. 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. 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, aren't subject to social security, Medicare, and FUTA taxes.

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 partnership, even if the child's parent is a partner, unless each partner is a parent of the child;. Social security and Medicare taxes do apply to payments made to a parent for domestic services if all of the following apply:.

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, can't 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. Payments made to a parent employed by his or her child aren't subject to FUTA tax, regardless of the type of services provided. This requirement also applies to resident and nonresident alien employees. You should ask your employee to show you his or her social security card. The employee may show the card if it is available.

Don't accept a social security card that says "Not valid for employment. You may, but aren't required to, photocopy the social security card if the employee provides it. If you don't provide the correct employee name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause. Any employee who is legally eligible to work in the United States and doesn't have a social security card can get one by completing Form SS-5, Application for a Social Security Card, and submitting the necessary documentation.

The employee must complete and sign Form SS-5; it can't be filed by the employer. 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. Furnish copies B, C, and 2 of Form W-2c to the employee. If the employee's name isn't correct as shown on the card for example, because of marriage or divorce , the employee should request an updated card from the SSA.

Continue to report the employee's wages under the old name until the employee shows you the updated social security card with the corrected name. It isn't necessary to correct other years if the previous name and number were used for years before the most recent Form W 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 an SSN , earlier.

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 , names and SSNs and usually receive the results the next business day. To register, visit the SSA's website at socialsecurity. Follow the registration instructions to obtain a user identification ID and password. When you have completed the online registration process, the SSA will mail a one-time activation code to your employer.

Wages subject to federal employment taxes generally include all pay you give to an employee for services performed. The pay may be in cash or in other forms. It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. It doesn't matter how you measure or make the payments. 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.

Also, compensation paid to a former employee for services performed while still employed is wages subject to employment taxes. See section 6 for a discussion of tips and section 7 for a discussion of supplemental wages. Also, see section 15 for exceptions to the general rules for wages. A reimbursement or allowance arrangement is a system by which you pay the advances, reimbursements, and charges for your employees' business expenses. How you report a reimbursement or allowance amount depends on whether you have an accountable or a nonaccountable plan.

If a single payment includes both wages and an expense reimbursement, you must specify the amount of the reimbursement. These rules apply to all ordinary and necessary employee business expenses that would otherwise qualify for a deduction by the employee.

To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules. They must have paid or incurred deductible expenses while performing services as your employees.

The reimbursement or advance must be payment for the expenses and must not be an amount that would have otherwise been paid to the employee as wages. They must return any amounts in excess of substantiated expenses within a reasonable period of time. Amounts paid under an accountable plan aren't wages and aren't subject to income, social security, Medicare, and FUTA taxes. If the expenses covered by this arrangement aren't substantiated or amounts in excess of substantiated expenses aren't 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.

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. A reasonable period of time depends on the facts and circumstances. 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 days after the expenses were paid or incurred.

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 days. 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.

Your payments are treated as paid under a nonaccountable plan if:. Your employee isn't required to or doesn't substantiate timely those expenses to you with receipts or other documentation,. You advance an amount to your employee for business expenses and your employee isn't required to or doesn't return timely any amount he or she doesn't 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.

See section 7 for more information on supplemental wages. You may reimburse your employees by travel days, miles, or some other fixed allowance under the applicable revenue procedure. In these cases, your employee is considered to have accounted to you if your reimbursement doesn't exceed rates established by the Federal Government. The standard mileage rate for auto expenses was 54 cents per mile. The rate for is The government per diem rates for meals and lodging in the continental United States can be found by visiting the U.

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. For information on substantiation methods, see Pub. If the per diem or allowance paid exceeds the amounts substantiated, you must report the excess amount as wages.

This excess amount is subject to income tax withholding and payment of social security, Medicare, and FUTA taxes. Show the amount equal to the substantiated amount for example, the nontaxable portion in box 12 of Form W-2 using code "L.

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. Withhold income tax on these payments only if you and the employee agree to do so.

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. Reimbursed and employer-paid qualified moving expenses those that would otherwise be deductible by the employee paid under an accountable plan aren't includible in an employee's income unless you have knowledge the employee deducted the expenses in a prior year.

Reimbursed and employer-paid nonqualified moving expenses are includible in income and are subject to employment taxes and income tax withholding.

For more information on moving expenses, see Pub. The value of meals isn't taxable income and isn't 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. The value of lodging isn't 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. 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.

However, whether meals or lodging are provided for the convenience of the employer depends on all of the facts and circumstances. A written statement that the meals or lodging are for your convenience isn't sufficient.

If you pay the cost of an accident or health insurance plan for your employees, including an employee's spouse and dependents, your payments aren't wages and aren't subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Generally, this exclusion also applies to qualified long-term care insurance contracts.

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. See Announcement for more information. You can find Announcement on page 53 of Internal Revenue Bulletin However, HSA contributions made under a salary reduction arrangement in a section cafeteria plan aren't wages and aren't subject to employment taxes or withholding.

For more information, see the Instructions for Form Generally, medical care reimbursements paid for an employee under an employer's self-insured medical reimbursement plan aren't wages and aren't subject to social security, Medicare, and FUTA taxes, or income tax withholding. 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.

Differential wage payments are wages for income tax withholding, but aren't subject to social security, Medicare, or FUTA taxes. Employers should report differential wage payments in box 1 of Form W For more information about the tax treatment of differential wage payments, visit IRS. You generally must include fringe benefits in an employee's gross income but see Nontaxable fringe benefits next.

The benefits are subject to income tax withholding and employment taxes. 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.

In general, the amount you must include is the amount by which the fair market value of the benefit is more than the sum of what the employee paid for it plus any amount the law excludes. There are other special rules you and your employees may use to value certain fringe benefits. Some fringe benefits aren't taxable or are minimally taxable if certain conditions are met. The following are some examples of nontaxable fringe benefits. Working condition fringes that are property or services the employee could deduct as a business expense if he or she had paid for them.

Examples include a company car for business use and subscriptions to business magazines. 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 aren't furnished at below cost.

Qualified transportation fringes subject to specified conditions and dollar limitations including transportation in a commuter highway vehicle, any transit pass, and qualified parking. Qualified moving expense reimbursement. See Moving expenses , earlier in this section, for details. The use of on-premises athletic facilities operated by you, if substantially all of the use is by employees, their spouses, and their dependent children. Qualified tuition reduction an educational organization provides to its employees for education.

However, don't exclude the following fringe benefits from the income of highly compensated employees unless the benefit is available to other employees on a nondiscriminatory basis. For more information, including the definition of a highly compensated employee, see Pub. 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.

You don't have to make a formal choice of payment dates or notify the IRS of the dates you choose. You don't have to make this choice for all employees. 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.

Generally, you must determine the value of fringe benefits no later than January 31 of the next year. Before January 31, you may reasonably estimate the value of the fringe benefits for purposes of withholding and depositing on time. You may choose not to withhold income tax on the value of an employee's personal use of a vehicle you provide.

You must, however, withhold social security and Medicare taxes on the use of the vehicle. Once you choose when fringe benefits are paid, you must deposit taxes in the same deposit period you treat the fringe benefits as paid. To avoid a penalty, deposit the taxes following the general deposit rules for that deposit period. 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.

See Valuation of fringe benefits above. If you underestimated the value and deposited too little, you may be subject to a failure-to-deposit FTD penalty. See section 11 for information on deposit penalties. 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 However, you must recover the income taxes before April 1 of the following year.

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. These amounts are sometimes paid by a third party, such as an insurance company or an employees' trust. These taxes don't apply to sick pay paid more than 6 calendar months after the last calendar month in which the employee worked for the employer. The payments are always subject to federal income tax. Tips your employee receives from customers are generally subject to withholding.

Your employee must report cash tips to you by the 10th of the month after the month the tips are received. 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. Both directly and indirectly tipped employees must report tips to you. Your employee reports the tips on Form or on a similar statement.

The statement must be signed by the employee and must include:. The month and year or the beginning and ending dates, if the statement is for a period of less than 1 calendar month the report covers, and. See Regulations section You must collect income tax, employee social security tax, and employee Medicare tax on the employee's tips. You can collect these taxes from the employee's wages or from other funds he or she makes available. See Tips treated as supplemental wages in section 7 for more information.

File Form or Form to report withholding and employment taxes on tips. If, by the 10th of the month after the month for which you received an employee's report on tips, you don't have enough employee funds available to deduct the employee tax, you no longer have to collect it. If there aren't enough funds available, withhold taxes in the following order.

Report tips and any collected and uncollected social security and Medicare taxes on Form W-2 and on Form , lines 5b, 5c, and 5d Form , lines 4b, 4c, and 4d. Report an adjustment on Form , line 9 Form , line 6 , for the uncollected social security and Medicare taxes. Enter the amount of uncollected social security tax and Medicare tax on Form W-2, box 12, with codes "A" and "B. For additional information on reporting tips, see section 13 and the General Instructions for Forms W-2 and W Revenue Ruling 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 q , the difference between tips and service charges, and the section 45B credit.

See Revenue Ruling , I. If you operate a large food or beverage establishment, you must report allocated tips under certain circumstances. However, don't withhold income, social security, or Medicare taxes on allocated tips. 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.

The tips may be allocated by one of three methods—hours worked, gross receipts, or good faith agreement. For information about these allocation methods, including the requirement to file Forms electronically if or more forms are filed, see the Instructions for Form 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. Supplemental wages are wage payments to an employee that aren't regular wages.

They include, but aren't 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.

Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. Also see Revenue Ruling , I. Withhold using the In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control.

For more information, see Treasury Decision , I. If you pay supplemental wages with regular wages but don't specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period. 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.

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. If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages.

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.

Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Subtract the tax withheld from the regular wages. Withhold the remaining tax from the supplemental wages.

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.

If you didn't withhold income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1-b. This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages. You pay John Peters a base salary on the 1st of each month. He is single and claims one withholding allowance. You pay Sharon Warren a base salary on the 1st of each month.

She is single and claims one allowance. Electing to use supplemental wage withholding method 1-b, you:. The facts are the same as in Example 2, except you elect to use the flat rate method of withholding on the bonus. Using supplemental wage withholding method 1-b, you:. Withhold income tax on tips from wages earned by the employee or from other funds the employee makes available.

If an employee receives regular wages and reports tips, figure income tax withholding as if the tips were supplemental wages. If you haven't withheld income tax from the regular wages, add the tips to the regular wages.

Then withhold income tax on the total. When you hit a jackpot, you have the option of taking your winnings in cash or check.

Usually, large amounts are paid by check. In the case of the MegaBucks or similar multi-million dollar jackpots, you receive a check for the partial amount, and then you have 90 days to decide if you want to be paid a lump sum or an annual annuity on the balance.

If you select the lump sum option, you receive only a percentage of your actual winnings. For example, the full winnings of one multi-million slot jackpot is paid in 25 annual installments, or you can take a lump sum of 60 percent of the winnings.

This form lists your name, address and Social Security number. You can request a specific amount of withholding tax to be taken out of any jackpot you win. Some player like to do this to avoid a big tax payment in April when they file their income tax returns. The additional withholding may not be necessary if you keep a log book. The law allows you to deduct gambling loses up to the amount of your winnings. You can only do this if you have documentation of your losses.

men have

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. Supplemental wages are wage payments to an employee that aren't regular wages.

They include, but aren't 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.

Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. Also see Revenue Ruling , I. Withhold using the In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control. For more information, see Treasury Decision , I.

If you pay supplemental wages with regular wages but don't specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period. 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.

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. If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. 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.

Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Subtract the tax withheld from the regular wages. Withhold the remaining tax from the supplemental wages. 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.

If you didn't withhold income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1-b. This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages. You pay John Peters a base salary on the 1st of each month. He is single and claims one withholding allowance. You pay Sharon Warren a base salary on the 1st of each month.

She is single and claims one allowance. Electing to use supplemental wage withholding method 1-b, you:. The facts are the same as in Example 2, except you elect to use the flat rate method of withholding on the bonus. Using supplemental wage withholding method 1-b, you:.

Withhold income tax on tips from wages earned by the employee or from other funds the employee makes available. If an employee receives regular wages and reports tips, figure income tax withholding as if the tips were supplemental wages.

If you haven't withheld income tax from the regular wages, add the tips to the regular wages. Then withhold income tax on the total. 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.

Vacation pay is subject to withholding as if it were a regular wage payment. When vacation pay is in addition to regular wages for the vacation period, treat it as a supplemental wage payment. 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.

Your payroll period is a period of service for which you usually pay wages. When you have a regular payroll period, withhold income tax for that time period even if your employee doesn't work the full period.

When you don't have a regular payroll period, withhold the tax as if you paid wages for a daily or miscellaneous payroll period. Figure the number of days including Sundays and holidays in the period covered by the wage payment. 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:. 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 isn't working for any other employer during the same week for wages subject to withholding, figure withholding based on a weekly payroll period.

If the employee later begins to work for another employer for wages subject to withholding, the employee must notify you within 10 days. You then figure withholding based on the daily or miscellaneous period. To know how much federal income tax to withhold from employees' wages, you should have a Form W-4 on file for each employee. Encourage your employees to file an updated Form W-4 for , especially if they owed taxes or received a large refund when filing their tax return.

Ask all new employees to give you a signed Form W-4 when they start work. Make the form effective with the first wage payment. If a new employee doesn't give you a completed Form W-4, withhold income tax as if he or she is single, with no withholding allowances. You may establish a system to electronically receive Forms W-4 from your employees.

A Form W-4 remains in effect until the employee gives you a new one. When you receive a new Form W-4 from an employee, don't adjust withholding for pay periods before the effective date of the new form.

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 A Form W-4 that makes a change for the next calendar year won't take effect in the current calendar year. See Revenue Procedure , I. The amount of any federal income tax withholding must be based on marital status and withholding allowances.

Your employees may not base their withholding amounts on a fixed dollar amount or percentage. 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 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.

Along with Form W-4, you may wish to order Pub. Don't accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W 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. See the Form W-4 instructions for more information.

However, the wages are still subject to social security and Medicare taxes. See also Invalid Forms W-4 , later in this section. A Form W-4 claiming exemption from withholding is effective when it is filed with the employer and only for that calendar year.

To continue to be exempt from withholding in the next calendar year, an employee must give you a new Form W-4 by February If the employee doesn't give you a new Form W-4 by February 15, begin withholding based on the last Form W-4 for the employee that didn't claim an exemption from withholding or, if one wasn't furnished, then withhold tax as if he or she is single with zero withholding allowances. Withholding income taxes on the wages of nonresident alien employees.

In general, you must withhold federal income taxes on the wages of nonresident alien employees. Also see section 3 of Pub. 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. Nonresident alien students from India and business apprentices from India aren't subject to this procedure. 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.

Add to the wages paid to the nonresident alien employee for the payroll period the amount shown in the chart next for the applicable payroll period.

Use the amount figured in Step 1 and the number of withholding allowances claimed generally limited to one allowance to figure income tax withholding. Determine the value of withholding allowances by multiplying the number of withholding allowances claimed by the appropriate amount from Table 5 shown on page The amounts from the chart above are added to wages solely for calculating income tax withholding on the wages of the nonresident alien employee.

The amounts from the chart shouldn't be included in any box on the employee's Form W-2 and don't increase the income tax liability of the employee. Also, the amounts from the chart don't increase the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer.

This procedure only applies to nonresident alien employees who have wages subject to income tax withholding. 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.

The employer then applies the applicable tables to determine the income tax withholding for nonresident aliens see Step 2. 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. This procedure for determining the amount of income tax withholding doesn't apply to a supplemental wage payment see section 7 if the 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.

If you maintain an electronic Form W-4 system, you should provide a field for nonresident aliens to enter nonresident alien status instead of writing "Nonresident Alien" or "NRA" above the dotted line on line 6. A nonresident alien employee may request additional withholding at his or her option for other purposes, although such additions shouldn't be necessary for withholding to cover federal income tax liability related to employment.

If a nonresident alien employee claims a tax treaty exemption from withholding, the employee must submit Form with respect to the income exempt under the treaty, instead of Form W 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.

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. However, if the IRS later notifies you in writing the employee isn't 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".

The IRS uses information reported on Form W-2 to identify employees with withholding compliance problems. In some cases, if a serious underwithholding problem is found to exist for a particular employee, the IRS may issue a lock-in letter to the employer specifying the maximum number of withholding allowances and marital status permitted for a specific employee.

You must furnish the employee copy to the employee within 10 business days of receipt if the employee is employed by you as of the date of the notice. Begin withholding based on the notice on the date specified in the notice. When you receive the notice specifying the maximum number of withholding allowances and marital status permitted, you may not withhold immediately on the basis of the notice.

You must begin withholding tax on the basis of the notice for any wages paid after the date specified in the notice. The delay between your receipt of the notice and the date to begin the withholding on the basis of the notice permits the employee time to contact the IRS. If you receive a notice for an employee who isn't performing services for you, you must still furnish the employee copy to the employee and withhold based on the notice if any of the following apply.

You reasonably expect the employee to resume services within 12 months of the date of the notice. The employee is on a leave of absence that doesn't exceed 12 months or the employee has a right to reemployment after the leave of absence. If you must furnish and withhold based on the notice and the employment relationship is terminated after the date of the notice, you must continue to withhold based on the notice if you continue to pay any wages subject to income tax withholding.

You must also withhold based on the notice or modification notice explained next if the employee resumes the employment relationship with you within 12 months after the termination of the employment relationship. After issuing the notice specifying the maximum number of withholding allowances and marital status permitted, the IRS may issue a subsequent notice modification notice that modifies the original notice.

You must withhold federal income tax based on the effective date specified in the modification notice. After the IRS issues a notice or modification notice, if the employee provides you with a new Form W-4 claiming complete exemption from withholding or claims a marital status, a number of withholding allowances, and any additional withholding that results in less withholding than would result under the IRS notice or modification notice, disregard the new Form W You must withhold based on the notice or modification notice unless the IRS notifies you to withhold based on the new Form W If the employee wants to put a new Form W-4 into effect that results in less withholding than required, the employee must contact the IRS.

If, after you receive an IRS notice or modification notice, your employee gives you a new Form W-4 that doesn't claim exemption from federal income tax withholding and claims a marital status, a number of withholding allowances, and any additional withholding that results in more withholding than would result under the notice or modification notice, you must withhold tax based on the new Form W Otherwise, disregard any subsequent Forms W-4 provided by the employee and withhold based on the IRS notice or modification notice.

For additional information about these rules, see Treasury Decision , I. You may use a substitute version of Form W-4 to meet your business needs. However, your substitute Form W-4 must contain language that is identical to the official Form W-4 and your form must meet all current IRS rules for substitute forms. At the time you provide your substitute form to the employee, you must provide him or her with all tables, instructions, and worksheets from the current Form W You can't accept substitute Forms W-4 developed by employees.

An employee who submits an employee-developed substitute Form W-4 after October 10, , will be treated as failing to furnish a Form W However, continue to honor any valid employee-developed Forms W-4 you accepted before October 11, Any unauthorized change or addition to Form W-4 makes it invalid.

This includes taking out any language by which the employee certifies the form is correct. A Form W-4 is also invalid if, by the date an employee gives it to you, he or she indicates in any way it is false. You may treat a Form W-4 as invalid if the employee wrote "exempt" on line 7 and also entered a number on line 5 or an amount on line 6.

When you get an invalid Form W-4, don't use it to figure federal income tax withholding. Tell the employee it is invalid and ask for another one. If the employee doesn't give you a valid one, withhold tax as if the employee is single with zero withholding allowances.

However, if you have an earlier Form W-4 for this worker that is valid, withhold as you did before. If a levy issued in a prior year is still in effect and the taxpayer submits a new Statement of Exemptions and Filing Status, use the current year Pub. The old-age, survivors, and disability insurance part is financed by the social security tax. The hospital insurance part is financed by the Medicare tax. Each of these taxes is reported separately. Certain types of wages and compensation aren't subject to social security and Medicare taxes.

See section 5 and section 15 for details. Generally, employee wages are subject to social security and Medicare taxes regardless of the employee's age or whether he or she is receiving social security benefits. If the employee reported tips, see section 6. Social security and Medicare taxes have different rates and only the social security tax has a wage base limit.

The wage base limit is the maximum wage subject to the tax for the year. Determine the amount of withholding for social security and Medicare taxes by multiplying each payment by the employee tax rate.

There are no withholding allowances for social security and Medicare taxes. For , the social security tax rate is 6. The tax rate for Medicare is 1.

There is no wage base limit for Medicare tax; all covered wages are subject to Medicare tax. In addition to withholding Medicare tax at 1. Additional Medicare Tax is only imposed on the employee.

There is no employer share of Additional Medicare Tax. For more information on what wages are subject to Medicare tax, see section Also see Revenue Procedure , I. Early in , you bought all of the assets of a plumbing business from Mr.

Brown, who had been employed by Mr. The wages you paid to Mr. Medicare tax is due on all of the wages you pay him during the calendar year. Brown received while employed by Mr. Martin in determining whether Mr. For more information, including the definition of a motion picture project employer and motion picture project worker, see Internal Revenue Code section Withholding social security and Medicare taxes on nonresident alien employees.

In general, if you pay wages to nonresident alien employees, you must withhold social security and Medicare taxes as you would for a U. The United States has social security agreements, also known as totalization agreements, with many countries that eliminate dual taxation and dual coverage.

Compensation subject to social security and Medicare taxes may be exempt under one of these agreements. You can get more information and a list of agreement countries from the SSA at socialsecurity. An exemption from social security and Medicare taxes is available to members of a recognized religious sect opposed to insurance.

This exemption is available only if both the employee and the employer are members of the sect. Under IRC section z , for services performed after July 31, , a foreign person who meets both of the following conditions is generally treated as an American employer for purposes of paying FICA taxes on wages paid to an employee who is a United States citizen or resident.

The employee of the foreign person performs services in connection with a contract between the U. Government or an instrumentality of the U.

Government and any member of the domestically controlled group of entities. Part-time workers and workers hired for short periods of time are treated the same as full-time employees, for federal income tax withholding and social security, Medicare, and FUTA tax purposes.

Generally, it doesn't matter whether the part-time worker or worker hired for a short period of time has another job or has the maximum amount of social security tax withheld by another employer.

See Successor employer above for an exception to this rule. Income tax withholding may be figured the same way as for full-time workers or it may be figured by the part-year employment method explained in section 9 of Pub.

You must notify employees who have no federal income tax withheld that they may be able to claim a tax refund because of the EIC. This is because eligible employees may get a refund of the amount of EIC that is more than the tax they owe. If a substitute for Form W-2 is given to the employee on time but doesn't have the required statement, you must notify the employee within 1 week of the date the substitute for Form W-2 is given.

If Form W-2 is required but isn't given on time, you must give the employee Notice or your written statement by the date Form W-2 is required to be given.

If Form W-2 isn't required, you must notify the employee by February 7, Generally, you must deposit federal income tax withheld and both the employer and employee social security and Medicare taxes. See How To Deposit , later in this section, for information on electronic deposit requirements. The credit against employment taxes for COBRA assistance payments is treated as a deposit of taxes on the first day of your return period.

You may make a payment with Form or Form instead of depositing, without incurring a penalty, if one of the following applies. Employers must have deposited any tax liability due for the first, second, and third quarters according to the deposit rules to avoid an FTD penalty for deposits during those quarters.

Separate deposit requirements for nonpayroll Form tax liabilities. Separate deposits are required for nonpayroll and payroll income tax withholding. Don't combine deposits for Forms or Form and Form tax liabilities. Generally, the deposit rules for nonpayroll liabilities are the same as discussed next, except the rules apply to an annual rather than a quarterly return period.

See the separate Instructions for Form for more information. There are two deposit schedules—monthly and semiweekly—for determining when you deposit social security, Medicare, and withheld income taxes.

These schedules tell you when a deposit is due after a tax liability arises for example, when you have a payday. The deposit schedule you must use is based on the total tax liability you reported on Form during a lookback period, discussed next.

Your deposit schedule isn't determined by how often you pay your employees or make deposits. See special rules for Forms and , later.

Also see Application of Monthly and Semiweekly Schedules , later in this section. These rules don't apply to FUTA tax. See section 14 for information on depositing FUTA tax. The lookback period begins July 1 and ends June 30 as shown next in Table 1. Lookback Period for Calendar Year The lookback period for a Form filer who filed Form in either or is calendar year The lookback period for for a Form filer is calendar year Adjustments made on Form X, Form X, and Form X don't affect the amount of tax liability for previous periods for purposes of the lookback rule.

The term deposit period refers to the period during which tax liabilities are accumulated for each required deposit due date.

For monthly schedule depositors, the deposit period is a calendar month. The deposit periods for semiweekly schedule depositors are Wednesday through Friday and Saturday through Tuesday. Under the monthly deposit schedule, deposit employment taxes on payments made during a month by the 15th day of the following month. Monthly schedule depositors shouldn't file Form or Form on a monthly basis. Your tax liability for any quarter in the lookback period before you started or acquired your business is considered to be zero.

Semiweekly deposit period spanning two quarters Form filers. If you have a pay date on Saturday, September 30, third quarter , and another pay date on Sunday, October 1, fourth quarter , two separate deposits would be required even though the pay dates fall within the same semiweekly period.

Both deposits would be due Friday, October 6, Semiweekly deposit period spanning two return periods Form or Form filers. If you have more than one pay date during a semiweekly period and the pay dates fall in different return periods, you'll need to make separate deposits for the separate liabilities.

For example, if you have a pay date on Saturday, December 30, , and another pay date on Tuesday, January 2, , two separate deposits will be required even though the pay dates fall within the same semiweekly period. Both deposits will be due Friday, January 5, 3 business days from the end of the semiweekly deposit period.

However, for , Rose Co. If a deposit is required to be made on a day that isn't a business day, the deposit is considered timely if it is made by the close of the next business day. A business day is any day other than a Saturday, Sunday, or legal holiday. For example, if a deposit is required to be made on a Friday and Friday is a legal holiday, the deposit will be considered timely if it is made by the following Monday if that Monday is a business day. Semiweekly schedule depositors have at least 3 business days following the close of the semiweekly period to make a deposit.

For example, if a semiweekly schedule depositor accumulated taxes for payments made on Friday and the following Monday is a legal holiday, the deposit normally due on Wednesday may be made on Thursday this allows 3 business days to make the deposit.

The term "legal holiday" means any legal holiday in the District of Columbia. For purposes of the deposit rules, the term "legal holiday" doesn't include other statewide legal holidays. Legal holidays for are listed next. The terms identify which set of deposit rules you must follow when an employment tax liability arises. The deposit rules are based on the dates when wages are paid for example, cash basis ; not on when tax liabilities are accrued for accounting purposes.

It paid wages each Friday during July but didn't pay any wages during August. Under the monthly deposit schedule, Spruce Co. The deposit, however, will be made under the semiweekly deposit schedule as follows: Under the semiweekly deposit schedule, liabilities for wages paid on Wednesday through Friday must be deposited by the following Wednesday. For example, Fir Co. On Monday, Fir Co. On Tuesday, Fir Co. On Friday, May 12, Elm, Inc. Because this was the first year of its business, the tax liability for its lookback period is considered to be zero, and it would be a monthly schedule depositor based on the lookback rules.

However, since Elm, Inc. It will be a semiweekly schedule depositor for the remainder of and for Deposit the shortfall or pay it with your return by the due date of your return for the return period in which the shortfall occurred.

Deposit by the earlier of:. The first Wednesday or Friday whichever comes first that falls on or after the 15th of the month following the month in which the shortfall occurred, or. For example, if a semiweekly schedule depositor has a deposit shortfall during June , the shortfall makeup date is July 19, Wednesday. However, if the shortfall occurred on the required April 5, Wednesday , deposit due date for a March 31, Friday , pay date, the return due date for the March 31, , pay date May 1, would come before the May 17, Wednesday , shortfall makeup date.

In this case, the shortfall must be deposited by May 1, You must deposit employment taxes, including Form taxes, by EFT. See Payment with return , earlier in this section, for exceptions explaining when taxes may be paid with the tax return instead of being deposited. You must use EFT to make all federal tax deposits such as deposits of employment tax, excise tax, and corporate income tax. Call the toll-free number located in your "How to Activate Your Enrollment" brochure to activate your enrollment and begin making your payroll tax deposits.

If you outsource any of your payroll and related tax duties to a third party payer, such as a PSP or reporting agent, be sure to tell them about your EFTPS enrollment. The number can be used as a receipt or to trace the payment.

Eastern time the day before the date the deposit is due. If you use a third party to make a deposit on your behalf, they may have different cutoff times.

Please check with your financial institution regarding availability, deadlines, and costs. Your financial institution may charge you a fee for payments made this way.

If you deposited more than the right amount of taxes for a quarter, you can choose on Form for that quarter or on Form for that year to have the overpayment refunded or applied as a credit to your next return.

Although the deposit penalties information provided next refers specifically to Form , these rules also apply to Form and Form if the employer required to file Form doesn't qualify for the exception to the deposit requirements discussed under Payment with return , earlier in this section. Penalties may apply if you don't make required deposits on time or if you make deposits for less than the required amount. The penalties don't apply if any failure to make a proper and timely deposit was due to reasonable cause and not to willful neglect.

If you receive a penalty notice, you can provide an explanation of why you believe reasonable cause exists. If you timely filed your employment tax return, the IRS may also waive deposit penalties if you inadvertently failed to deposit and it was the first quarter that you were required to deposit any employment tax, or if you inadvertently failed to deposit the first time after your deposit frequency changed.

Late deposit penalty amounts are determined using calendar days, starting from the due date of the liability. If you filed Form for the prior year and file Forms for the current year, the FTD penalty won't apply to a late deposit of employment taxes for January of the current year if the taxes are deposited in full by March 15 of the current year.

Deposits generally are applied to the most recent tax liability within the quarter. If you receive an FTD penalty notice, you may designate how your deposits are to be applied in order to minimize the amount of the penalty if you do so within 90 days of the date of the notice. Follow the instructions on the penalty notice you received. For more information on designating deposits, see Revenue Procedure It doesn't make the deposit on May On June 15, Cedar, Inc.

The penalty on this underdeposit will apply as explained above. If federal income, social security, or Medicare taxes that must be withheld that is, trust fund taxes aren't withheld or aren't deposited or paid to the United States Treasury, the trust fund recovery penalty may apply.

The penalty is the full amount of the unpaid trust fund tax. This penalty may apply to you if these unpaid taxes can't be immediately collected from the employer or business. The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, or paying over these taxes, and who acted willfully in not doing so.

A responsible person also may include one who signs checks for the business or otherwise has authority to cause the spending of business funds.

Willfully means voluntarily, consciously, and intentionally. A responsible person acts willfully if the person knows the required actions of collecting, accounting for, or paying over trust fund taxes aren't taking place, or recklessly disregards obvious and known risks to the government's right to receive trust fund taxes. Separate accounting when deposits aren't made or withheld taxes aren't paid.

Separate accounting may be required if you don't pay over withheld employee social security, Medicare, or income taxes; deposit required taxes; make required payments; or file tax returns. In this case, you would receive written notice from the IRS requiring you to deposit taxes into a special trust account for the U. You may be charged with criminal penalties if you don't comply with the special bank deposit requirements for the special trust account for the U.

Improperly completed Schedule B Form by, for example, entering tax deposits instead of tax liabilities in the numbered spaces. The FTD penalty is figured by distributing your total tax liability shown on Form , line 12, equally throughout the tax period. As a result, your deposits and payments may not be counted as timely because the actual dates of your tax liabilities can't be accurately determined. You can avoid an "averaged" FTD penalty by reviewing your return before you file it.

Follow these steps before submitting your Form Verify your total liability shown on Form , line 16, or the bottom of Schedule B Form equals your tax liability shown on Form , line For prior period errors don't adjust your tax liabilities reported on Form , line 16, or on Schedule B Form Form must be filed by the last day of the month that follows the end of the quarter.

See the Calendar , earlier. If you receive written notification you qualify for the Form program, you must file Form instead of Form Payroll deductions include taxes and benefits employees elect to receive.

Your employee fills out Form W-4 when they are first hired. On Form W-4, employees can claim withholding allowances. The more claims an employee has, the less you withhold from their wages. Use the number of allowances along with the tax withholding tables in IRS Publication 15 to determine the amount of federal income tax to withhold. FICA tax is a flat rate of 7.

You also contribute a matching 7. Only withhold and contribute 6. There is no wage base limit for Medicare tax, but there is an additional Medicare tax. But, you do not contribute to additional Medicare tax. And, supplemental wages can affect the amount you pay for FUTA tax. Taxes on bonuses follow the rules for federal income tax on supplemental wages.

They can be taxed one of two ways:. The percentage method is easier than the aggregate method, making it popular among small business owners. The tax on bonus payments is separate from regular wages. To find how much federal income tax to withhold, separate regular and bonus wages.

The aggregate method is a little more complex than the percentage method. For the aggregate method, you will add the bonus wages to the regular wages that are paid at the same time. The law allows you to deduct gambling loses up to the amount of your winnings. You can only do this if you have documentation of your losses. For this reason, you should always carry a valid form of identification with you when you visit the casino.

When the casino checks your identification, it also checks your age to make sure you are legally old enough to play. The minimum age for gambling varies from state to state, but under-age gamblers are not be paid if they hit a jackpot. This is the law in all jurisdictions, and it has been upheld in court. Players become excited when they hit the big one, and this may affect the decisions you make about your winnings.

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This allows you to gamble whenever and where ever you are, hassle free. Follow the Rules to Maximise Bonus Value It is important to check out the online casino bonuses and promotions being offered by a New Zealand casino before you start playing. Games will be offered in download free mobile casino sites that are playable in any device's browser online. Dedicated virtual gamblers have sowed their seeds over the Internet, spreading the word over which casinos to trust and which to avoid. Apple iPhone and iPad players, and those on a Samsung Galaxy and similar devices, are well catered for.

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It is important to check out the online casino bonuses and promotions being offered by a New Zealand casino before you start playing. If the site is owned by a foreign company, you may have to deal with some currency exchanges when you cash out, but other than that it should be smooth sailing when you accept bonus cash. There are a ton of different payment methods available to online gamblers, and each has its own set of risks and benefits to consider. A casino not willing to disclose this information is to be avoided at all costs. Problem gambling is the term used to describe an individual that has lost self-control when it comes to gambling and losing money. This means that if you are eligible as a New Zealand resident to play at a certain online casino, you will be eligible for their bonuses.