21.7.2  Employment and Railroad Tax Returns (Cont. 1)

21.7.2.4 
Employment Tax Returns Procedures

21.7.2.4.8 
Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees

21.7.2.4.8.1  (10-01-2014)
Wages Subject to FICA and Income Tax Withholding

  1. All cash wages paid to farmworkers are subject to FICA (including Additional Medicare Tax to the extent wages and tips paid to an employee exceed $200,000 for a calendar year beginning after December 31, 2012) and income tax withholding during the year, if either of the two tests below are met:

    1. Cash and non-cash wages paid during the year to all farmworkers totals $2,500 or more.

    2. Annual cash wages of $150 or more are paid to a farmworker (this test is applied separately to each farm worker).

  2. Cash wages paid to a farm worker who receives less than $150 during the year are not subject to FICA and income tax withholding, even if the total paid to all employees exceeds $2,500 or more, if the farm worker:

    1. Is employed as a hand-harvest laborer

    2. Is paid piece-rates in an operation usually paid on a piece-rate basis in the region of employment

    3. Commutes daily from their permanent home to the farm, and

    4. Had been employed in agriculture less than 13 weeks in the preceding calendar year

    Note:

    Amounts paid to these farm workers, however, count toward the $2,500 or more test for determining the social security and Medicare liability regarding other farm workers.

  3. Cash wages paid to a household worker are not counted in the $2,500 test and are not subject to FICA taxes unless the worker is paid cash wages at least equal to the threshold established by the Social Security Domestic Employment Reform Act of 1994 (SSDERA) for that particular year:

    • For tax year 2014, the threshold is $1,900.

    • For tax years 2012 and 2013, the threshold was $1,800.

    • Thresholds for prior years may be found in IRM 21.7.4.4.1.11.1(3) or in the Pub 926, Household Employer's Tax Guide, for the year in question.

  4. Foreign agricultural workers may be temporarily admitted into the United States on H-2A visas:

    • Compensation paid to H-2A agricultural workers are not subject to social security or Medicare taxes. However, compensation paid to H-2A agricultural workers is counted towards the tests discussed in (1) and (2) above.

    • Employers are not required to withhold federal income tax from compensation paid to an H-2A visa agricultural worker. However, if both the employer and employee agree, federal income tax may be withheld from compensation and those amounts would be reportable on Form 943.

    • H-2A agricultural workers are eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA) and should provide that information to the agricultural employer. An H-2A agricultural worker who fails to provide the employer with their Taxpayer Identification Number (TIN) may be subject to backup withholding (BUWH) which would be reportable on Form 945.

    • Beginning in 2011, an employer must report compensation of $600 or more paid to an H-2A agricultural worker in a calendar year for agricultural labor on Form W-2, Wage and Tax Statement.

    • Additional information may be found on the IRS website at:Foreign Agricultural Workers.

21.7.2.4.8.2  (10-01-2011)
Incorrect Type of Return Filed — Forms 941 and 943

  1. There are instances where taxpayer files one type of employment tax return but should file another. The most common cases are agricultural employers who file Forms 941, but should file Form 943.

  2. When a taxpayer files Forms 941 for one or more quarters of a tax year but should have filed an annual Form 943, take the following actions to resolve the accounts:

    1. Research taxpayer’s account to locate all deposits claimed.

    2. When necessary, contact taxpayer to determine which return must be filed.

    3. Adjust the quarterly Form 941 accounts to remove tax using TC 291 and the appropriate IRN's.

    4. Input credit transfers to move FTD's or other credits from Form 941 accounts to the Form 943 account as appropriate.

    5. Input CC BNCHG to delete the Form 941 filing requirement.

    6. If you have the taxpayer's Form 943 and it is not already on file, route it for processing. Otherwise, instruct the taxpayer to file a Form 943 (if not already on file) when closing the case.

    Example:

    A taxpayer files Form 941 for the 201403, 201406, and 201409 quarters and makes deposits for these accounts. At the end of the year, the taxpayer files Form 943 for 201412 and claims deposits made during the year which triggers a balance due notice. The taxpayer responds to the notice and verifies they are an agricultural employer. In that situation, we would back the tax off the 201403, 201406, and 201409 Form 941 accounts, transfer all credits on MFT 01 for 2014 to MFT 11, and correct the filing requirements as necessary.

21.7.2.4.8.3  (02-27-2013)
Form 943-X, Adjusted Employer's Annual Tax Return for Agricultural Employees or Claim for Refund (including Form 943-X (PR))

  1. Form 943-X (or Form 943-X (PR)) is filed to correct income tax withholding and/or FICA tax information (including Additional Medicare Tax for tax periods beginning after December 31, 2012) previously reported on Form 943 or Form 943-PR. Taxpayers can choose to either file:

    • An adjusted employment tax return, or

    • A claim

    Note:

    If the taxpayer does not check a box in Part 1 (or checks both boxes) and the Form 943-X reflects a tax decrease, make two attempts to contact the taxpayer by phone (if a telephone number is available) to determine whether they intended to follow the adjustment process or the claim process. If unable to contact the taxpayer by phone, verify which set of certification box(es) were checked. If the taxpayer checked the adjustment certification(s) or checked both the adjustment certification(s) and the claim certification(s), process as an adjusted employment tax return. If the taxpayer checked only the claim certification(s), process as a claim for refund.

    Reminder:

    When contacting the taxpayer or authorized representative, follow taxpayer authentication guidelines in IRM 21.1.3.

  2. Taxpayers are required to certify on Form 943-X that they have filed or will file Forms W-2, or Forms W-2c, as required. They must also complete the applicable certification box based on their selection in Part 1 of Form 943-X.

    Example:

    If taxpayer checks box 1 in Part 1, then they must check the applicable certification box(es) in line 4. If taxpayer checks box 2 in Part 1, then they must check the applicable certification box(es) in line 5.

    Note:

    If the certification box checked in Part 2 is inconsistent with the process selected in Part 1, continue processing the Form 943-X based on the information provided in Part 1.

  3. Item Reference Numbers (IRNs) valid for Form 943-X are: 003, 004, 007, 073, 074 (tax periods after December 31, 2012), 184 (tax periods through 200812 only), and 185. Also, IRNs 115, 116, and 117 are valid for tax period 201012 HIRE credit related adjustments.

    Caution:

    For tax periods after 200812, IRN 185 is only used on Form 943 adjustments for fractions of cents and third party sick pay.

    Note:

    IRN 074 will be used to adjust Taxable Wages & tips subject to Additional Medicare Tax withholding for tax periods beginning after December 31, 2012. IRN 007 will be used to make adjustments to Additional Medicare Tax on Form 943 accounts.

  4. Credit Reference Numbers (CRNs) valid for Form 943 are: 766/767 (AEITC increase/decrease), valid for tax periods 201012 and prior; CRN 299 (COBRA refundable credit), valid for tax periods 200912 and subsequent; and CRN 296 (HIRE refundable credit), valid for Form 943 tax period 201012 only.

    Caution:

    Although CRN 290 is valid for MFT 11, this credit cannot be claimed or adjusted by filing a Form 943-X. This credit is only allowed during the processing of Forms 5884-C. See IRM 21.7.2.5.22, Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, for more information.

21.7.2.4.8.3.1  (10-01-2014)
Form 943-X Tax Decreases — Adjusted Employment Tax Return

  1. These tax decreases involve income tax withholding and/or FICA tax (including Additional Medicare Tax for tax periods beginning after December 31, 2012).

  2. Verify all required items on Form 943-X are complete, such as:

    • Name, address, and EIN

    • Calendar year being corrected

    • Part 1 Box 1 is checked

    • Applicable certification is checked on line 4a, 4b or 4c

    • Detailed explanation

    • Signature

  3. If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.

    Caution:

    The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.

  4. If a taxpayer files an adjusted employment tax return within 90 days of the expiration of the period of limitations, the adjustment must be converted to a claim for refund and the taxpayer must be notified. Take the following actions:

    1. Notate the Form 943-X with the following text: "90 day - Claim" .

    2. Process the Form 943-X per procedures in IRM 21.7.2.4.8.3.2 and refer to IRM 21.7.2.4.6.5 for additional information on 90 day - Claims.

    3. Generate Letter 4384C to the taxpayer explaining the adjustment has been converted to a claim.

  5. A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A), for additional information.

  6. Math verify adjustments to income tax withholding, social security tax, Medicare tax, and Additional Medicare Tax (AdMT).

  7. Process adjusted employment tax returns as follows::

    1. Input TC 291, HC 1, BS 20 and the appropriate IRN's for the amount of decrease.

      Note:

      Overpayments arising from adjustments made under these procedures are subject to offset. Omit Hold Code 1 with the adjustment and allow the computer to systemically offset the credit if it will be fully absorbed by an outstanding balance due. Otherwise, if conditions prevent the computer from completing the offset, or if only part of the credit needs to be offset, manual offsets using TC 820/TC 700 transactions will be required.

      Caution:

      For tax decreases with an unreversed FTD penalty, see IRM 20.1.4.21.5.

    2. Transfer the applicable overpayment using TC 830/710 to the period in which the Form 943-X was filed.

      Caution:

      To prevent either debit or credit interest from generating, use the later of the return due date of the tax period being adjusted or the availability date of the overpayment as the transaction date of the TC 830 and use the due date of the return the credit is being applied to as the transaction date of the TC 710. See IRM 21.5.8.4.3(3), Determining Correct Credit Transfer Format, for more information.

    3. If the entire credit is not available to be transferred, generate Letter 4384C to the taxpayer. Explain why the entire amount was not available (for example, there was a balance due on the tax period being adjusted or the credit is being offset to a balance due on another tax period).

21.7.2.4.8.3.2  (02-27-2013)
Form 943-X Tax Decreases — Claim

  1. These tax decreases involve income tax withholding, FICA (including Additional Medicare Tax for tax periods beginning after December 31, 2012), and/or AEITC.

    Note:

    AEITC was legislatively eliminated for tax periods after 201012.

  2. Verify all required items on Form 943-X are complete, such as:

    • Name, address, and EIN

    • Calendar year being corrected

    • Part 1 Box 2 is checked

    • Applicable certification is checked on line 5a, 5b, 5c or 5d

    • Detailed explanation

    • Signature

  3. If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.

    Caution:

    The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.

    Exception:

    Claims filed without consent. If taxpayer has not checked a box on line 5 and states (in the explanation or in response to our contact) they are not required to obtain the consents prior to filing the claim and the claim is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , send claim CAT-A. Exam will correspond with the taxpayer to secure applicable certifications. In certain situations, taxpayers may not have repaid or reimbursed their employees or obtained their consents prior to filing a claim (Form 943-X). However, they must certify they have repaid or reimbursed their employees or obtained consents before the Service can accept the claim. See Instructions for Form 943-X for more information.

  4. A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A), for additional information.

  5. Math verify adjustments to income tax, social security tax, Medicare tax, and Additional Medicare Tax (AdMT).

  6. Input TC 291, BS 20 and the appropriate IRN's for the amount of the decrease.

    Caution:

    For tax decreases with an unreversed FTD penalty, see IRM 20.1.4.21.5.

  7. If the entire credit is not available to be refunded to the taxpayer, generate Letter 4384C to the taxpayer explaining the discrepancy.

21.7.2.4.8.3.3  (02-27-2013)
Form 943-X Tax Increases — Adjusted Employment Tax Return

  1. These tax increases involve income tax withholding and/or FICA tax (including Additional Medicare Tax for tax periods beginning after December 31, 2012).

  2. Verify all required items on Form 943-X are complete.

  3. Check for the date the taxpayer discovered the error. If not entered on page 1, review the explanation to see if it was entered there.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , if the ascertained date is not provided and a telephone number is available, make two attempts to contact the taxpayer by phone to obtain the information. If the ascertained date cannot be obtained by phone, input the adjustment as a TC 290.

    Exception:

    If you receive a Form 943-X for the immediately preceding tax year prior to the due date for the current tax year (for example, a Form 943-X reporting a tax increase for tax year 2013 received on or before January 31, 2015), it is not necessary to contact the taxpayer for an ascertained date. In that situation, input a TC 298 with the applicable interest computation date. See IRM 21.7.2.4.6.2, Interest-Free Adjustments (Employment Tax Returns), for more information.

  4. Math verify adjustments to income tax withholding, social security tax, Medicare tax, and Additional Medicare Tax (AdMT).

  5. Use the table below to make your adjustment(s).

    If Then
    The Form 943-X was filed by the due date of the return for the period in which the taxpayer discovered the reporting error Input TC 298 and BS 20 with the correct interest computation date (INTCMP-DT). See IRM 21.7.2.4.6.2 and example below for additional information.
    The Form 943-X was not filed by the due date of the return for the return period in which the error was ascertained or "date you discovered errors" was blank or the date error was discovered was not furnished in Part 4 Input TC 290 with BS 20.

    Example:

    An employer discovers an error on February 1, 2014 and files a Form 943-X which is received by the IRS on March 1, 2014 for the 11/201312 tax period. The interest computation date would be March 1, 2014.

  6. Adjust the FTD penalty when using either a TC 290 (see IRM 20.1.4.21.3) or a TC 298 (see IRM 20.1.4.21.5).

    Note:

    See IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941-X, 943-X, 944-X, 945-X, and CT-1X), when using a TC 298 or TC 291 and an amended ROFTL was provided with the adjusted return.

  7. If payment for the additional tax reported on the Form 943-X is not reflected on the tax period being adjusted, research the taxpayer's account for the missing credit and, if located, transfer the payment as appropriate.

21.7.2.4.9  (10-01-2014)
Form 944, Employer's ANNUAL Federal Tax Return

  1. Form 944 is the annual employment tax return for small employers. Instead of filing quarterly tax returns (Form 941), certain eligible employers file an annual tax return (Form 944).

  2. Form 944 is processed under MFT 14 and the tax class is "1" . The first tax year for which Form 944 could be filed was 2006.

    Caution:

    MFT 14 is also the MFT for Non-Master File (NMF) Form 8613, Return of Excise Tax on Undistributed Income of Regulated Investment Companies. When generating a "C" letter from a Form 944 account, make sure the letter contains the correct form number.

  3. The same filing, paying, and depositing options available for Form 941 are also currently available for Form 944.

  4. All penalties and interest applicable to Form 941 also apply to Form 944, including FTD penalties. Federal tax deposits are required for Form 944 filers who report tax of $2,500 or more.

  5. To qualify for the Form 944 program one of the following situations must apply:

    • The taxpayer is a new employer who expects to have $1,000 or less in employment tax liability for the calendar year.

    • The taxpayer is an existing employer who expects to have $1,000 or less in employment tax liability for the calendar year, contacts the Service to request to file Form 944 (rather than Form 941), and receives written notice from the Service to file Form 944.

    • The taxpayer was required to file Form 944 for the prior year and reported $1,000 or less in total tax liability.

    Note:

    Domestic employers will generally have $1,000 or less in employment tax liability if they pay wages of $4,000 or less in a year. Employers in U.S. possessions will generally have $1,000 or less in employment tax liability if they pay wages of $6,536 or less in a year.

  6. For tax years 2006 (the first program year) through 2008, the Service ran an extract to identify employers who were eligible for the Form 944 program. If the Service determined an employer was eligible for the program, it would send a notification letter to the employer. Employers who received notification letters were required to file Form 944 to report their social security, Medicare, and withheld federal income taxes for the calendar year unless the employer made a timely request to file Form 941 quarterly instead (to opt out) and received written confirmation that their filing requirement was changed. See archived files of this IRM if information is needed for the notification letters that were issued or handling that was applied to responses.

  7. For tax years after 2008, taxpayers will either self identify during EIN assignment or can contact the Service to request consideration (opt in) for the Form 944 program. The eligibility extract is no longer run.

  8. Generally, existing employers must contact the Service by phone not later than April 1 of the current year, or send a written request postmarked by March 15th to opt in or opt out of the Form 944 program. If the due date falls on a Saturday, Sunday, or legal holiday, the last day employers may call the Service or have their written correspondence postmarked is the next business day following that Saturday, Sunday, or legal holiday.

  9. Eligible new employers can notify the IRS on Form SS-4, Application for Employer Identification Number, that they would like to file Form 944 by checking the box on line 14 of this form. Alternately, they can opt in by contacting the IRS by phone not later than the first day of the month that the first required Form 941 for the current year is due or in written correspondence postmarked on or before the 15th day of the month before the first required Form 941 is due. If the due date falls on a Saturday, Sunday, or legal holiday, the last day employers may call the Service or have their written correspondence postmarked is the next business day following that Saturday, Sunday, or legal holiday.

  10. Prior to January 1, 2010, Form 944 filers could only opt out of the program (i.e., request to file Form 941 instead) if they estimated that their employment tax liability would exceed the $1,000 threshold during the tax year or if they wanted to e-file Forms 941 quarterly. For tax years beginning on or after January 1, 2010, Rev. Proc. 2009-51 allows employers to opt out of the Form 944 program for any reason so long as their request is timely made.

  11. Current procedures for addressing taxpayer inquiries regarding the Form 944 program (including associated letters and notices), as well as for processing Form 944 adjustment requests, are found in the following subsections.

21.7.2.4.9.1  (10-01-2014)
Form 944 Cache

  1. Form 944 filing requirements are recorded and controlled by data contained in the "Form 944 Cache" . The "Form 944 Cache" is researched on the second page of CC BMFOLE and consists of a row of calendar years and a row of cache values corresponding to each calendar year. Valid Form 944 Cache values are as follows:

    • "blank" : The employer is required to file Forms 941 for the calendar year, or no filing requirement determination has yet been made for the calendar year in question.

    • "1" : The employer is required to file Form 944 for the calendar year in question.

    • "2" : The employer is required to file Form 944 for the current calendar year but will be required to file Form 941 in the following calendar year. A cache value of "2" automatically updates to a cache value of "1" at the end of the current calendar year.

    Example:

    If CC BMFOLE for an employer reflects a F944 CACHE YRS: 2011 = "blank" , 2012 = "1" , 2013 = "1" , and 2014 = "2" , then the employer was required to file Forms 941 for 2011, Forms 944 for 2012 through 2014, and will be required to file Forms 941 for 2015.

  2. Forms 941 will not post to a calendar year for which the Form 944 Cache reflects a value of "1" or "2" . And, a Form 944 will not post to a calendar year for which the Form 944 Cache reflects a "blank" value. This is true regardless of the filing requirement displayed on CC ENMOD or CC BMFOLE which should reflect current filing requirements. It is therefore imperative that the Form 944 Cache on page 2 of BMFOLE be researched any time a taxpayer inquiry is received regarding Form 944 versus Form 941 filing requirements.

    Note:

    Form 944 Cache data is also displayed on CC ENMOD. However, it is not recommended that CC ENMOD be used for research purposes because the data is displayed as a string of values without a clear indication of corresponding calendar years.

  3. Throughout the following subsections there are instructions to change filing requirements when appropriate. Those references are in regards to changing Form 944 Cache values to reflect a Form 944 filing requirement or Form 941 filing requirement (as appropriate) for a particular calendar year via CC BNCHG rather than changing the separate filing requirement indicators which will display on CC ENMOD and CC BMFOLE. Changing filing requirement indicators without changing the Form 944 Cache value will have no impact on what type of return, Form 941 or Form 944, that the computer will allow to post to a given calendar year.

    • See the description of CC BNCHG element "F944-YR/IND" in Exhibit 2.4.9-13, BMF CC BNCHG General Format, for the input format of Form 944 Cache value changes.

    • The year for which the Form 944 Cache value is being changed must be input along with an indicator of "1" to turn on Form 944 requirements or "9" to turn off Form 944 requirements (as appropriate).

    • If the Form 944 Cache value of more than one year needs to be corrected, separate CC BNCHG inputs must be completed for each year.

21.7.2.4.9.2  (10-01-2014)
Form 944 Program — Opt-In and Opt-Out Inquiries

  1. For tax years 2006 through 2008, the Service identified employers who were eligible for the Form 944 program via an extract. Notification letters were issued yearly on or around February 1st to newly eligible taxpayers. (Taxpayers who were already Form 944 filers did not receive another notification letter.) The notification letters instructed the taxpayer that they were required to file Form 944 and to contact the IRS for any questions, including requests to "opt out" of the program. See archived files of this IRM if information is needed about the notification letters that were previously issued or handling of responses.

    Note:

    For tax years 2006 through 2009, Form 944 filers could only opt out (i.e., request to file Form 941 instead) if they estimated that their employment tax liability would exceed the $1,000 threshold during the tax year or if they wanted to e-file Forms 941 quarterly.

  2. For tax years after 2008, the eligibility extract is no longer run to identify taxpayers eligible for the Form 944 program. Taxpayers who wish to participate in the program will either self identify during EIN assignment or can contact the Service to request consideration (opt in) for the Form 944 program.

  3. For tax years beginning on or after January 1, 2010, Rev. Proc. 2009-51 allows employers to opt out of the Form 944 program for any reason, but they must contact the Service by phone by April 1st of the year or send a written request postmarked by March 15th. If the due date falls on a Saturday, Sunday, or legal holiday, the last day employers may call the Service or have their written correspondence postmarked is the next business day following that Saturday, Sunday, or legal holiday.

  4. The chart below provides procedures for handling most opt-in and opt-out inquiries.

    If And Then
    Taxpayer with Form 944 filing requirements wishes to file Form 941 for the current year (opt-out) for any reason The taxpayer contact is on or before April 1 or is in correspondence postmarked by March 15th Change the filing requirement from Form 944 to Form 941 and issue Letter 3007C to confirm filing requirement change.
    Taxpayer with Form 944 filing requirements wishes to file Form 941 for the current year (opt-out) for any reason The taxpayer contact is after April 1 or is in correspondence postmarked after March 15th Instruct the taxpayer as follows:
    1. They must file Form 944 for the current year.

    2. If their Form 944 for the current year reports tax of $1,000 or more, they will be notified that they are no longer eligible to file Form 944.

    3. They should contact us again after the close of the current year but before April 1 if they want to opt-out of filing Form 944 for the following year.

    Exception:

    If the taxpayer is a new employer, see the last row of this table.

         
    Taxpayer states they are not liable for an employment tax return (no employees, etc.) An employment tax filing requirement is open Close the open employment tax filing requirement.

    Note:

    You must verify the date the last wages were paid.

    Existing Form 941 filer (or existing taxpayer with no current employment tax filing requirement) wants to file Form 944 The taxpayer contact is on or before April 1 or is in correspondence postmarked by March 15th Review the taxpayer's Form 941 accounts for the current and preceding tax years.
    • If the tax reported for the preceding year is $1,000 or less, change filing requirement from Form 941 to Form 944 and issue Letter 3007C to confirm filing requirement change.

    • If the tax reported for the preceding year is more than $1,000, inform the taxpayer that they must file Form 941 for the current year and can request to file Form 944 for the following year if they meet eligibility requirements and contact us after the close of the year but before April 1.

    Note:

    If the tax for the preceding year was slightly over $1,000 and account analysis indicates a decreasing tax liability, the first bullet above can be followed. However, use caution when considering this action.

    Existing Form 941 filer (or existing taxpayer with no current employment tax filing requirement) wants to file Form 944 The taxpayer contact is after April 1 or is in correspondence postmarked after March 15th Instruct the taxpayer as follows that they must file Form 941 for the current year and to contact us again after the close of the current year but before April 1 if they want to file Form 944 for the following year.
    Taxpayer states they are a new employer and believe their liability will not exceed $1,000 for the year and want to file Form 944 It is any time during the year Research CC ENMOD. If CC ENMOD shows no filing requirement prior to the current year, establish filing requirements for Form 944 (delete Form 941 filing requirements if applicable) and issue 3007C letter to taxpayer.
    The taxpayer is a new employer that received a CP 575 stating they have Form 944 filing requirements and wants to file Form 941 instead because they expect to exceed the $1,000 threshold for the year ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Change the filing requirement from Form 944 to Form 941 and issue Letter 3007C to confirm filing requirement change.

    Caution:

    Any time the filing requirements are changed per the above instructions, it is necessary to consider all payments previously made for the current tax year. If payments have been applied to MFT 01 for tax that will be reported on MFT 14, or if payments have been applied to MFT 14 for tax that will be reported on MFT 01, transfer those payments to the appropriate tax account and tax period.

    Note:

    Do not change the filing requirement to Form 944 for any taxpayer that has a tax period in the preceding tax year which is in MasterFile status 02 or 03 (TDI status).

    Reminder:

    Always research the "Form 944 Cache" when addressing taxpayer contacts regarding Form 944 filing requirements. See IRM 21.7.2.4.9.1., Form 944 Cache, for more information on researching the "Form 944 Cache" and changing filing requirements to and from Form 944.

  5. If the taxpayer requests immediate confirmation of a filing requirement change made per the instructions in (5) above and the taxpayer will accept a hand written faxed document, notate on approved IRS fax cover sheet and sign statement indicating the taxpayer's request for filing requirement change has been made. Make sure the filing requirement change is made prior to closing the call.

    Caution:

    If faxing an acknowledgement, refer to IRM 11.3.1.11, Facsimile Transmission of Tax Information, for proper faxing guidance.

  6. Chief Counsel has determined that Reporting Agents (RA) are not permitted to request to "opt out" of the Form 944 program on behalf of their clients. Do not change filing requirements based on a request from an RA unless the RA also has a valid Power of Attorney (POA) (i.e. Form 2848) either on file or that can be faxed to us. Third Party PIN designees are also not authorized to "opt out" of the Form 944 program for the taxpayer.

21.7.2.4.9.3  (10-01-2014)
Form 944 — CP Notices and Letters

  1. There are three CP notices that may be issued to employers informing them of changes to their filing requirements based on the taxes reported on their most recently processed Form 944.

    • CP 250A — See IRM 21.7.2.4.9.3.1, CP 250A

    • CP 250B — See IRM 21.7.2.4.9.3.2, CP 250B

    • CP 250C — See IRM 21.7.2.4.9.3.3, CP 250C

  2. There are also three "C" letters used for Form 944 filing requirement issues:

    • Letter 3007C — Issued when changing filing requirement to or from Form 944. Instructions to send this Letter 3007C are found throughout these procedures for Form 944 issues.

    • Letter 4148C — Issued when a taxpayer files a Form 941 but is instead required to file Form 944. See IRM 21.7.2.4.9.3.4Taxpayer Files Form 944 or Form 941 in Error — Letter 4148C/4086C Inquiries.

    • Letter 4086C — Issued when a taxpayer files a Form 941 but is instead required to file Form 944. See IRM 21.7.2.4.9.3.4Taxpayer Files Form 944 or Form 941 in Error — Letter 4148C/4086C Inquiries.

    Reminder:

    Always research the "Form 944 Cache" when addressing taxpayer contacts regarding Form 944 filing requirements. See IRM 21.7.2.4.9.1., Form 944 Cache, for more information on researching the "Form 944 Cache" and changing filing requirements to and from Form 944.

21.7.2.4.9.3.1  (10-01-2014)
CP 250A

  1. CP 250A is issued to taxpayers who filed Form 944 with a total reported tax liability of more than $1,000 on line 7 and the Form 944 was posted in cycle 09 or earlier.

  2. The notice instructs the taxpayer that they are no longer eligible to file Form 944 and that Form 941 must be filed quarterly for the current year. The notice also informs the taxpayer that they may be required to make federal tax deposits as appropriate.

  3. The Form 944 Cache on CC BMFOLE will continue to reflect a value of "1" for the prior tax year when a CP 250A is issued to show they were eligible to file Form 944 for that tax year. However, the current year Cache value will be blank and the filing requirements will be changed to Form 941 to show that the taxpayer is no longer eligible for the Form 944 program.

  4. Follow the chart below for inquiries from taxpayers who received CP 250A.

    If Then
    The taxpayer states they want to remain in the Form 944 program and will not exceed the $1,000 threshold in the current year Verify with the taxpayer that they will in fact have a total tax liability of $1,000 or less for the current year. If the explanation provided is reasonable , allow the taxpayer to remain in the Form 944 program.
    1. Change the filing requirement to Form 944.

    2. Issue Letter 3007C to the taxpayer for verification of filing requirement change.

    3. Instruct the taxpayer of their deposit requirements.

    Note:

    Taxpayers may have exceeded the $1,000 threshold for many reasons (for example, the taxpayer corrected an administrative error from a prior year or a unique situation occurred in the preceding tax year that will not recur in the current year). However, if doubt exists do not allow the taxpayer to change back to Form 944 filing requirements for the current year.

    The taxpayer states they want to remain in the Form 944 program even though they will again exceed the threshold in the current year Instruct the taxpayer that they are not eligible for the Form 944 program and must file Form 941 for the current year.

    Reminder:

    Always research the "Form 944 Cache" when addressing taxpayer contacts regarding Form 944 filing requirements. See IRM 21.7.2.4.9.1., Form 944 Cache, for more information on researching the "Form 944 Cache" and changing filing requirements to and from Form 944.

21.7.2.4.9.3.2  (10-01-2014)
CP 250B

  1. CP 250B is issued to taxpayers who filed Form 944 with a total reported tax liability on line 7 of more than $1,000and the Form 944 was posted in cycles 10 through 49.

  2. The notice instructs the taxpayer that they are no longer eligible to file Form 944 and that Form 941 must be filed quarterly for the current year. The notice instructs the taxpayer that:

    • They must file Form 944 for the current year.

    • They may be required to make federal tax deposits as appropriate for the current year.

    • They will not be eligible to file Form 944 for the following tax year and that Form 941 must be filed quarterly for the following tax year.

    Note:

    Taxpayers that receive CP 250B in the current year will also receive a CP 250C later in the year reminding them that they must file Form 941 quarterly for the following year. See IRM 21.7.2.4.9.3.3 for more information.

  3. The Form 944 Cache on CC BMFOLE will initially reflect a value of "2" when a CP 250B is issued because a Form 944 posted in cycles 10 through 49 and the tax reported exceeds the $1,000 threshhold. This cache value allows the computer to correctly identify taxpayers who should be sent CP 250C at the end of the year. Once the CP 250C is issued, the cache value will update for the year in which the CP 250B was issued from "2" to "1" .

    Example:

    Taxpayer filed Form 944 for 201312 which posted after cycle 09 (in 2014) and reported a tax liability of more than $1,000 (taxpayer will receive CP 250B). The "Form 944 Cache" for tax year 2014 is set to "2" when the 2013 return posts and will remain that value until the end of the year when MasterFile generates a CP 250C reminder notice to the taxpayer regarding their Form 941 filing requirement for 2015. At that time, the "2" cache value for 2014 will change to a "1" and the taxpayer's filing requirement will be changed to Form 941 for tax year 2015.

  4. Follow the chart below for inquiries from taxpayers who received CP 250B.

    If And Then
    Taxpayer states they wish to file Form 941 for the current year It is April 1 or prior (or postmarked on or before March 15th for written responses) Allow the taxpayer to file Form 941 for the current year.
    1. Change the filing requirement to Form 941.

    2. Issue Letter 3007C to the taxpayer for verification of filing requirement change.

    3. Inform taxpayer of their deposit requirements and Form 941 due dates.

    4. Verify that all applicable deposits are transferred to the Form 941 account.

    Taxpayer states they wish to file Form 941 for the current year It is after April 1 (or postmarked after March 15th for written responses) Instruct the taxpayer they must file Form 944 for the current year and that they will be required to file Form 941 quarterly for the following year.
    Taxpayer contacts us in the current year and states they wish to remain in the Form 944 program for the following tax year   Inform the taxpayer that we cannot consider their request until they file their Form 944 for the current year. Instruct the taxpayer to contact us again once they have filed their Form 944 for the current year but not later than April 1 of the following year.
    Taxpayer contacts us in the year following the issuance of the CP 250B and states they wish to remain in the Form 944 program for that year The taxpayer reported a tax liability of $1,000 or less on the Form 944 filed for the year in which the CP 250B and it is April 1 or prior (or postmarked on or before March 15th for written responses) Allow the taxpayer to remain in the Form 944 program.
    1. Change the filing requirement for the current year to Form 944.

    2. Issue Letter 3007C to the taxpayer for verification of filing requirement change.

    3. Instruct the taxpayer of their deposit requirements.

    Taxpayer contacts us in the year following the issuance of the CP 250B and states they wish to remain in the Form 944 program for that year The taxpayer reported a tax liability of more than $1,000 on the Form 944 filed for the year in which the CP 250B was issued or it is after April 1 (or postmarked after March 15th for written responses) Instruct the taxpayer that they are not eligible for the Form 944 program for the current year and must file Form 941.

    Note:

    If the due date falls on a Saturday, Sunday, or legal holiday, the last day employers may call the Service or have their written correspondence postmarked is the next business day following that Saturday, Sunday, or legal holiday.

    Reminder:

    Always research the "Form 944 Cache" when addressing taxpayer contacts regarding Form 944 filing requirements. See IRM 21.7.2.4.9.1., Form 944 Cache, for more information on researching the "Form 944 Cache" and changing filing requirements to and from Form 944.

    Note:

    If you receive an inquiry from a taxpayer stating they filed their Form 944 and it exceeds the $1,000 threshold and the return has not posted, do not change the filing requirement. Allow the Form 944 to post and the taxpayer will either receive a CP 250A or CP 250B, depending on when the 944 posts. Instruct the taxpayer to respond to the notice at that time.

21.7.2.4.9.3.3  (10-01-2014)
CP 250C

  1. CP 250C is generated in cycle 52 and is issued to taxpayers who:

    • Received a CP 250B earlier in the year; or,

    • Filed a Form 944 reporting more than $1,000 in total tax liability which posted after cycle 49 of the current calendar year. (Due to the timing involved, these taxpayers will receive a CP 250C but not a CP 250B,)

  2. The notice instructs the taxpayer that they are no longer eligible to file Form 944 and that Form 941 must be filed quarterly for the current year. The notice also informs the taxpayer that they may be required to make federal tax deposits as appropriate.

  3. Follow the chart below for inquiries from taxpayers who received CP 250C.

    If And Then
    The taxpayer states they want to remain in the Form 944 program for the current year It is April 1 or prior Follow the procedures for CP 250A responses provided in the table in IRM 21.7.2.4.9.3.1 (4).
    The taxpayer states they want to remain in the Form 944 program for the current year It is after April 1 Instruct the taxpayer that they are not eligible for the Form 944 program and must file Form 941 for the current year.

    Reminder:

    Always research the "Form 944 Cache" when addressing taxpayer contacts regarding Form 944 filing requirements. See IRM 21.7.2.4.9.1., Form 944 Cache, for more information on researching the "Form 944 Cache" and changing filing requirements to and from Form 944.

21.7.2.4.9.3.4  (10-01-2014)
Taxpayer Files Form 944 or Form 941 in Error — Letter 4148C/4086C Inquiries

  1. If a taxpayer files a Form 941 in a calendar year in which they are designated as a Form 944 filer, the Form 941 unposts. Similarly, if a taxpayer files a Form 944 for a year in which they are designated to file Form 941, the Form 944 will unpost. See IRM 21.7.2.4.9.1, Form 944 Cache, for information on researching the taxpayer's filing requirement.

  2. If it is April 1st or prior, Entity Unpostables makes contact with the taxpayer to determine their intent and changes the filing requirement, as appropriate. If it is after April 1st, Entity Unpostables processes the return as a Reject and issues the appropriate letter to the taxpayer:

    • Letter 4148C is used to inform taxpayers who filed Form 941 in error that they must file Form 944 annually.

    • Letter 4086C is used to inform to taxpayers who filed Form 944 in error that they must file Form 941 quarterly.

  3. If you receive an inquiry concerning Letter 4148C, follow the procedures below:

    If And Then
    Taxpayer states that they opted out of the Form 944 program by the April 1st deadline

    Note:

    Taxpayer must have submitted a written request and/or made contact via phone and the request was not processed. Accept the taxpayer's word.

    The filing requirement was not changed to Form 941 and the 944 Cache is set to the current year and request is received in the current year

    Example:

    Taxpayer is required to file Form 944 in 2014 and the request is received in 2014.

    Allow the taxpayer to continue to file Form 941.
    1. Request the originally filed return from Files using the DLN (Document Locator Number) of the unpostable/rejected TC 150. If you are not able to secure the originally filed return, request a signed copy of the originally filed Form 941 from the taxpayer, via fax. (See NOTE below table.)

    2. Change the filing requirement to Form 941.

    3. Send Letter 3007C to confirm filing requirement change, even if resulting from a phone call.

    4. Transfer all applicable deposits to the Form 941 account.

    5. Send Form 941, secured from Files, for processing as the original. (If you are unable to secure the original return from Files and must use a faxed return, edit the received date on faxed forms to reflect a timely filed return. See Note below table.)

    Exception:

    If you are staffing the toll-free telephone lines at a remote call site, do not follow steps 1-5 above; instead complete Form 4442/e-4442 and route to the Campus AM account paper function within your Directorate or designated campus. Include the DLN of the unpostable/Rejected TC 150 on the Form 4442.

    Taxpayer states they opted out of the 944 program by the April 1st deadline The filing requirement was not changed to Form 941 and the 944 Cache is set to the current year and request is received in a subsequent year

    Example:

    Taxpayer is required to file Form 944 in 2014 and a request is received in 2015.

    DO NOT change the filing requirement. Explain to the taxpayer they must file a Form 944 for the year in question because we are not able to change the 944 filing requirement in a subsequent year.
    Taxpayer did not opt out of the 944 program by April 1st   DO NOT change the taxpayer's filing requirement to Form 941.
    1. Instruct the taxpayer that they must file Form 944 and deposit accordingly.

    2. Input history items (via CC ACTON) to document that the taxpayer did not opt out and must file Form 944.

    3. Ensure all applicable deposits are applied to the 944 account.

    4. Advise taxpayer that if they file a timely Form 944 and exceed the $1,000 annual threshold, they will be notified that they are required to file a Form 941 for the next year.

    Taxpayer cites any other extenuating circumstances   Refer to your manager/lead for approval.

    Note:

    If the unpostable/rejected DLN of the Form 941 is not available on IDRS, the Letter 4148C contains the DLN of the unprocessed return and can be used to request the return from Files. If you secure the originally filed return from Files and are forwarding to be processed as the original, cross out the DLN and make sure the received date is on the return.

    Reminder:

    Only the taxpayer or their authorized representatives may "opt out" of the Form 944 program. Chief Counsel has determined that Reporting Agents are not permitted to "opt out" of the program on behalf of their clients. Do not change filing requirements based on a request from an RA unless the RA also has a valid Power of Attorney (POA) (i.e. Form 2848) either on file or that can be faxed to us. Third Party PIN designees are also not authorized to "opt out" of the Form 944 program for the taxpayer.

    Reminder:

    If the taxpayer's filing requirement is changed based on a 4148C reply, be sure to secure any missing returns (not already filed) that need to be filed. If the taxpayer has missing Forms 941, secure the returns, preferably by fax. Once returns are received, forward for processing with the actual received date.

  4. Letter 4086C responses are not common. And, the letter will generally only be issued after the close of the tax year when it is too late to opt in to the Form 944 program. If a taxpayer responds to a 4086c and states they wish to file Form 944 instead of Form 941 for the tax year in question, do not change the filing requirement to Form 944 unless the taxpayer provides a copy of a written notification from the Service (i.e. Letter 3007C) instructing the taxpayer to file Form 944 for that tax year or there is clear documentation in the IRS records that a timely request to opt-in was made but failed to be properly acted upon by the Service.

21.7.2.4.9.4  (10-01-2014)
Form 944-X — Adjusted Employer's ANNUAL Federal Tax Return or Claim for Refund (including Form 944-X (PR) and 944-X (SP))

  1. Form 944-X (Form 944-X (PR)) is filed to correct income tax withholding and/or FICA tax information (including Additional Medicare Tax for tax periods beginning after December 31, 2012) previously reported on Form 944, Form 944-SS, Form 944(SP), or Form 944-PR. Taxpayers can choose to either file:

    • An adjusted employment tax return, or

    • A claim

    Note:

    If the taxpayer does not check a box in Part 1 (or checks both boxes) and the Form 944-X reflects a tax decrease, make two attempts to contact the taxpayer by phone (if a telephone number is available) to determine whether they intended to follow the adjustment process or the claim process. If unable to contact the taxpayer by phone, verify which set of certification box(es) were checked. If the taxpayer checked the adjustment certification(s) or checked both the adjustment certification(s) and the claim certification(s), process as an adjusted employment tax return. If the taxpayer checked only the claim certification(s), process as a claim for refund.

    Reminder:

    When contacting the taxpayer or authorized representative, follow taxpayer authentication guidelines in IRM 21.1.3.

  2. Taxpayers are required to certify on Form 944-X that they have filed or will file Forms W-2, or Forms W-2c, as required. They must also complete the applicable certification box based on their selection in Part 1 of Form 944-X.

    Example:

    If taxpayer checks box 1 in Part 1, then they must check the applicable certification box(es) in line 4. If taxpayer checks box 2 in Part 1, then they must check the applicable certification box(es) in line 5.

    Note:

    If the certification box checked in Part 2 is inconsistent with the process selected in Part 1, continue processing the Form 944-X based on the information provided in Part 1.

  3. Refer to the table below for valid item reference numbers for Form 944-X.

    Item Reference Number Explanation
    111 Income tax withheld from wages, tips, and other compensation (line 7 of Form 944-X - column 4).
    004 Taxable social security wages (line 8 of Form 944-X - column 3 plus line 15 of Form 944-X - column 3).
    005 Taxable social security tips (line 9 of Form 944-X - column 3).
    073 Taxable Medicare wages and tips (line 10 of Form 944-X - column 3 plus line 16 of Form 944-X - column 3).
    074 Taxable Wages & tips subject to Additional Medicare Tax withholding (valid for tax periods beginning after December 31, 2012) (line 11 of Form 944-X - column 3 plus line 17 of Form 944-X - column 3).
    112 Total social security, Medicare tax, and Additional Medicare Tax (for tax periods beginning after December 31, 2012).
    115 Exempt wages/tips paid to qualified employees after March 31 (line 12b of Form 944-X - column 3). For MFT 14, only valid for tax period 14/201012.
    116 Taxes on exempt wages/tips paid to qualified employees after March 31 (line 12b of Form 944-X - column 4). For MFT 14, only valid for tax period 14/201012.
    106 Tax adjustments (line 13 of Form 944-X - column 4).
    104 Income tax withheld figured at IRC Section 3509 tax rate on Special addition to wages for federal income tax (line 14 of Form 944-X - column 4).
    105 Social security, Medicare taxes, and (for tax periods beginning after December 31, 2012) Additional Medicare taxes figured at IRC Section 3509 tax rates on Special addition to wages for social security taxes, Special addition to wages for Medicare taxes, and Special addition to wages for Additional Medicare Tax (total of lines 15, 16, and 17 from Form 944-X - column 4).
    113 Total adjustments (total of lines 12, 13, 14, and 15 of Form 944-X - column 4).

    Reminder:

    IRN 113 must be used when adjusting IRNs 104 through 106.

    117 Exempt wages/tips paid to qualified employees March 19 - 31 (line 18d of Form 941-X - column 3). For MFT 14, this credit can only be claimed on tax period 14/201012.
    Credit Reference Numbers (CRN)
    766/767 Advance Earned Income Tax Credit (AEITC) (line 17 of Form 944-X - column 4).

    Note:

    AEITC has been legislatively eliminated for tax periods after 201012.

    299 COBRA premium assistance payments (line 18a of Form 944-X - column 4).
    296 Refundable tax credit on exempt wages/tips paid to qualified employees March 19 - 31 (line 20d of Form 944-X - column 4). For MFT 14, this credit can only be claimed on tax period 14/201012.

    Caution:

    Form 944-X is revised on a regular basis and line numbers for particular adjustment items occasionally change. However, there is no requirement for the taxpayer to use the most current version of Form 944-X. Although line numbers are provided in the table above for easy reference, employees are responsible for ensuring the proper adjustment action is taken based on the form version filed by the taxpayer.

    Note:

    See IRM 21.7.2.4.1 for additional requirements with specific item reference numbers.

    Caution:

    Although CRN 290 is valid for MFT 14, this credit cannot be claimed or adjusted by filing a Form 944-X. This credit is only allowed during the processing of Forms 5884-C. See IRM 21.7.2.5.22, Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, for more information.

21.7.2.4.9.4.1  (10-01-2014)
Form 944-X Decreases — Adjusted Employment Tax Return

  1. These tax decreases involve income tax withholding and/or FICA (including Additional Medicare Tax for tax periods beginning after December 31, 2012).

  2. Verify all required items on Form 944-X are complete, such as:

    • Name, address, and EIN

    • Type of return being corrected

    • Calendar year being corrected

    • Part 1 Box 1 is checked

    • Applicable certification is checked on line 4a, 4b or 4c

    • Detailed explanation

    • Signature

  3. If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.

    Caution:

    The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.

  4. If a taxpayer files an adjusted employment tax return within 90 days of the expiration of the period of limitations, the adjustment must be converted to a claim for refund and the taxpayer must be notified. Take the following actions:

    1. Notate the Form 944-X with the following text: "90 day - Claim" .

    2. Process the Form 944-X per procedures in IRM 21.7.2.4.9.4.2 and refer to IRM 21.7.2.4.6.5 for additional information on 90 day - Claims.

    3. Generate Letter 4384C to the taxpayer explaining the adjustment has been converted to a claim.

  5. A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A), for additional information.

  6. Math verify adjustments to income tax, social security tax, Medicare tax, and Additional Medicare Tax (AdMT).

  7. Process adjusted employment tax returns as follows::

    1. Input TC 291, HC 1, BS 20 and the appropriate IRN's for the amount of decrease.

      Note:

      Overpayments arising from adjustments made under these procedures are subject to offset. Omit Hold Code 1 with the adjustment and allow the computer to systemically offset the credit if it will be fully absorbed by an outstanding balance due. Otherwise, if conditions prevent the computer from completing the offset, or if only part of the credit needs to be offset, manual offsets using TC 820/TC 700 transactions will be required.

      Caution:

      For tax decreases with an unreversed FTD penalty, see IRM 20.1.4.21.5.

    2. Transfer the applicable overpayment using TC 830/TC 710 to the period in which the Form 944-X was filed.

      Caution:

      To prevent either debit or credit interest from generating, use the later of the return due date of the tax period being adjusted or the availability date of the overpayment as the transaction date of the TC 830 and use the due date of the return the credit is being applied to as the transaction date of the TC 710. See IRM 21.5.8.4.3(3), Determining Correct Credit Transfer Format, for more information.

    3. If the entire credit is not available to be transferred, generate Letter 4384C to the taxpayer. Explain why the entire amount was not available (for example, there was a balance due on the tax period being adjusted or the credit is being offset to a balance due on another tax period).

  8. If the taxpayer's filing requirement has changed from Form 944 to Form 941 or vice versa, the credit will be transferred to the filing requirement that was active for the period in which the adjusted return was filed.

21.7.2.4.9.4.2  (02-27-2013)
Form 944-X Decreases — Claim

  1. These tax decreases involve income tax withholding, FICA tax (including Additional Medicare Tax for tax periods beginning after December 31, 2012), and/or AEITC.

    Note:

    AEITC has been legislatively eliminated for tax periods after 201012.

  2. Verify all required items on Form 944-X are complete, such as:

    • Name, address, and EIN

    • Type of return being corrected

    • Calendar year being corrected

    • Part 1 Box 2 is checked

    • Applicable certification is checked on line 5a, 5b, 5c or 5d

    • Detailed explanation

    • Signature

  3. If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.

    Caution:

    The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.

    Exception:

    Claims filed without consent. If taxpayer has not checked a box on line 5 and states (in the explanation or in response to our contact) they are not required to obtain the consents prior to filing the claim and the claim is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , send claim CAT-A. Exam will correspond with the taxpayer to secure applicable certifications. In certain situations, taxpayers may not have repaid or reimbursed their employees or obtained their consents prior to filing a claim (Form 944-X). However, they must certify they have repaid or reimbursed their employees or obtained consents before the Service can accept the claim. See Instructions for Form 944-X for more information.

  4. A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A) — General, for additional information.

  5. Math verify adjustments to income tax, social security tax, Medicare tax, and Additional Medicare Tax (AdMT).

  6. Input TC 291, BS 20 and the appropriate IRN's for the amount of the decrease.

    Caution:

    For tax decreases with an unreversed FTD penalty, see IRM 20.1.4.21.5.

  7. If the entire credit is not available to be refunded to the taxpayer, generate Letter 4384C to the taxpayer explaining the discrepancy.

21.7.2.4.9.4.3  (02-27-2013)
Form 944-X Increases — Adjusted Employment Tax Return

  1. These tax increases involve income tax withholding and/or FICA tax (including Additional Medicare Tax for tax periods beginning after December 31, 2012).

  2. Verify all required items on Form 944-X are complete.

  3. Check for the date the taxpayer discovered the error. If not entered on page 1, review the explanation.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , if the ascertained date is not provided and a telephone number is available, make two attempts to contact the taxpayer by phone to obtain the information. If the ascertained date cannot be obtained by phone, input the adjustment as a TC 290.

    Exception:

    If you receive a Form 944-X for the immediately preceding tax year prior to the due date for the current tax year (for example, a Form 944-X reporting a tax increase for tax year 2013 received on or before January 31, 2015), it is not necessary to contact the taxpayer for an ascertained date. In that situation, input a TC 298 with the applicable interest computation date. See IRM 21.7.2.4.6.2, Interest-Free Adjustments (Employment Tax Returns), for more information.

  4. Math verify adjustments to income tax withholding, social security tax, Medicare tax, and Additional Medicare Tax (AdMT).

  5. Use the table below to make your adjustment(s).

    If Then
    Return is filed by the due date of the return for the period in which the taxpayer discovered the reporting error Input TC 298, BS 20 and the correct interest computation date (INTCMP-DT). See IRM 21.7.2.4.6.2 and example below for additional information.
    Return is not filed by the due date of the return for the return period in which the error was ascertained or "date you discovered errors" was blank or the date error was discovered was not furnished in Part 4 Input TC 290 with BS 20.

    Example:

    An employer discovers an error on February 1, 2014 and files a Form 944-X which is received by the IRS on March 1, 2014 for the 14/201312 tax period. The interest computation date would be March 1, 2014.

  6. Adjust the FTD penalty when using either a TC 290 (see IRM 20.1.4.21.3) or a TC 298 (see IRM 20.1.4.21.5).

    Note:

    See IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941-X, 943-X, 944-X, 945-X, and CT-1X), when using a TC 298 or TC 291 and an amended ROFTL was provided with the adjusted return.

  7. Be sure any payments are credited to period(s) where the tax is being assessed.

21.7.2.4.10  (10-01-2012)
Form 945, Annual Return of Withheld Federal Income Tax

  1. Form 945, Annual Return of Withheld Federal Income Tax, must be filed to report backup withholding (BUWH) and income tax withheld from non-payroll items, such as:

    • Pensions

    • Annuities

    • IRA's

    • Military retirement

    • Gambling winnings

    • Indian Gaming Profits

    Note:

    As a general rule, all income tax withholding and BUWH (backup withholding) reported on Forms 1099 or W-2G must be reported on Form 945.

  2. Form 945 is an annual return due January 31 following the close of the calendar year.

    Exception:

    The return due date for Form 945 is extended 10 days if timely deposits are made which full pay the amount of tax reported.

  3. A taxpayer is required to file Form 945 only for a calendar year in which the taxpayer is required to withhold tax required to be reported on Form 945.

  4. The threshold for making deposits for Form 945 is $2,500. Form 945 tax deposit requirements are separate from Form 941. They cannot be combined. Taxpayers follow either semi-weekly or monthly deposit schedules determined by the Form 945 lookback period. See IRM 20.1.4, Failure to Deposit Penalty.

  5. Forms 945 are recorded on MFT 16 and the tax class is 1.

  6. Valid IRN's for Form 945 are 003 (federal income tax withheld) and 008 (BUWH).

    Note:

    IRN 184 (adjustment of withheld income tax) was valid for Form 945 for tax periods 199512 through 200812.

21.7.2.4.10.1  (10-01-2011)
Form 945-X — Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund

  1. Form 945-X is filed to correct income tax withholding and/or BUWH information previously reported on Form 945. Taxpayers can choose to either file:

    • An adjusted return of withheld federal income tax, or

    • A claim

    Note:

    If the taxpayer does not check a box in Part 1 (or checks both boxes) and the Form 945-X reflects a tax decrease, make two attempts to contact the taxpayer by phone (if a telephone number is available) to determine whether the they intended to follow the adjustment process or the claim process. If unable to contact the taxpayer by phone, process as an adjusted employment tax return.

    Reminder:

    When contacting the taxpayer or authorized representative, follow taxpayer authentication guidelines in IRM 21.1.3.

  2. Adjustments on Form 945-X can only be made if they are the result of an administrative error.

    1. See IRM 21.7.2.4.6.3.1 for more information on administrative errors.

    2. Even if income tax or BUWH was erroneously withheld, it cannot be corrected in a subsequent year. This includes erroneous withholding on IRA's.

    3. The amount withheld must be reported on Form 945-X under the same EIN as was actually used to do the withholding. Withholding amounts cannot be transferred or delegated to different EIN's, unless such action involves a successor employer.

    Example:

    The mutual fund industry has an "industry practice" involving transfer agents where one agent has control of an account and withholds taxes for part of the year. Another agent may take control of the account and withhold taxes for the remainder of the year. The industry practice is for the agent in control of the account at the end of the year to report all taxes withheld. This CANNOT be done. Each agent must report and deposit the amount of tax withheld under their own EIN and issue a Form 1099. Any requests for adjustments involving this practice must be denied. Input TC 290 .00 in block 98 (without return) or 99 (with return) and issue Letter 105C or 106C as appropriate.

  3. Item reference numbers valid for Form 945-X are 003 and/or 008.

21.7.2.4.10.1.1  (10-01-2014)
Form 945-X Decreases — Adjusted Employment Tax Return

  1. These tax decreases involve income tax withholding and/or BUWH.

  2. Verify all required items on Form 945-X are complete, such as:

    • Name, address, and EIN

    • Calendar year being corrected

    • Part 1 Box 1 is checked

    • Detailed explanation

    • Signature

  3. If a taxpayer files an adjusted employment tax return within 90 days of the expiration of the period of limitations, the adjustment must be converted to a claim for refund and the taxpayer must be notified. Take the following actions:

    1. Notate the Form 945-X with the following text: "90 day - Claim" .

    2. Process the Form 945-X per procedures in IRM 21.7.2.4.10.1.2 and refer to IRM 21.7.2.4.6.5 for additional information on 90 day - Claims.

    3. Generate Letter 4384C to the taxpayer explaining the adjustment has been converted to a claim.

  4. A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A) — General, for additional information.

  5. Math verify adjustments to income tax and/or BUWH.

  6. Process adjusted employment tax returns as follows::

    1. Input TC 291, HC 1, BS 20 and the appropriate IRN's for the amount of decrease.

      Note:

      Overpayments arising from adjustments made under these procedures are subject to offset. Omit Hold Code 1 with the adjustment and allow the computer to systemically offset the credit if it will be fully absorbed by an outstanding balance due. Otherwise, if conditions prevent the computer from completing the offset, or if only part of the credit needs to be offset, manual offsets using TC 820/TC 700 transactions will be required.

      Caution:

      For tax decreases with an unreversed FTD penalty, see IRM 20.1.4.21.5.

    2. Transfer the applicable overpayment using TC 830/710 to the period in which the Form 945-X was filed.

      Caution:

      To prevent either debit or credit interest from generating, use the later of the return due date of the tax period being adjusted or the availability date of the overpayment as the transaction date of the TC 830 and use the due date of the return the credit is being applied to as the transaction date of the TC 710. See IRM 21.5.8.4.3(3), Determining Correct Credit Transfer Format, for more information.

    3. If the entire credit is not available to be transferred, generate Letter 4384C to the taxpayer. Explain why the entire amount was not available (for example, there was a balance due on the tax period being adjusted or the credit is being offset to a balance due on another tax period).

21.7.2.4.10.1.2  (10-01-2012)
Form 945-X Decreases — Claim

  1. These tax decreases involve income tax withholding and/or BUWH.

  2. Verify all required items on Form 945-X are complete, such as:

    • Name, address, and EIN

    • Calendar year being corrected

    • Part 1 Box 2 is checked

    • Detailed explanation

    • Signature

  3. A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2, Examination Criteria (CAT-A) — General, for additional information.

  4. Math verify adjustments to income tax and/or BUWH.

  5. Input TC 291, BS 20 and the appropriate IRN's for the amount of the decrease.

    Caution:

    For tax decreases with an unreversed FTD penalty, see IRM 20.1.4.21.5.

  6. If the entire credit is not available to be refunded to the taxpayer, generate Letter 4384C to the taxpayer. Explain why the entire amount was not available (for example, there was a balance due on the tax period being adjusted or the credit is being offset to a balance due on another tax period).

21.7.2.4.10.1.3  (10-01-2012)
Form 945-X Increases — Adjusted Employment Tax Return

  1. These tax increases involve income tax withholding and/or BUWH.

  2. Verify all required items on Form 945-X are complete.

  3. Check for the date the taxpayer discovered the error. If not entered on page 1, review the explanation.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , if the ascertained date is not provided and a telephone number is available, make two attempts to contact the taxpayer by phone to obtain the information. If the ascertained date cannot be obtained by phone, input the adjustment as a TC 290.

    Exception:

    If you receive a Form 945-X for the immediately preceding tax year prior to the due date for the current tax year (for example, a Form 945-X reporting a tax increase for tax year 2013 received on or before January 31, 2015), it is not necessary to contact the taxpayer for an ascertained date. In that situation, input a TC 298 with the applicable interest computation date. See IRM 21.7.2.4.6.2, Interest-Free Adjustments (Employment Tax Returns), for more information.

  4. Math verify adjustments to income tax and/or BUWH.

  5. Use the table below to make your adjustment(s).

    If Then
    The Form 945-X was filed by the due date of the return for the period in which the taxpayer discovered the reporting error Input TC 298, BS 20 and the correct interest computation date (INTCMP-DT). See IRM 21.7.2.4.6.2 and example below for additional information.
    The Form 945-X was not filed by the due date of the return for the return period in which the error was ascertained or "date you discovered errors" was blank or the date error was discovered was not furnished in Part 4 Input TC 290 with BS 20.

    Example:

    An employer discovers an error on February 1, 2014 and files a Form 945-X which is received by the IRS on March 1, 2014 for the 16/201312 tax period. The interest computation date would be March 1, 2014.

  6. Adjust the FTD penalty when using either a TC 290 (see IRM 20.1.4.21.3) or a TC 298 (see IRM 20.1.4.21.5).

    Note:

    See IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941-X, 943-X, 944-X, 945-X, and CT-1X), when using a TC 298 or TC 291 and an amended ROFTL was provided with the adjusted return.

  7. If payment for the additional tax reported on the Form 945-X is not reflected on the tax period being adjusted, research the taxpayer's account for the missing credit and, if located, transfer the payment as appropriate.

21.7.2.4.10.2  (10-01-2014)
Taxpayer Reports Non-Payroll Withholding on Incorrect Form

  1. Non-payroll items including backup withholding and withholding for pensions, annuities, gambling winnings, Individual Retirement Account (IRA), 401K, military pensions, etc. are required to be reported on Form 945, Annual Return of Withheld Federal Income Tax. However, taxpayers occasionally report these amounts on an incorrect tax form. If taxpayer contact (or a referral from SP) is received identifying a situation in which non-payroll items were reported on Form 941, process as follows:

    If And Then
    Taxpayer has filed Form 945 Previously reported non-payroll withholding on Form 941 Advise the taxpayer (use the appropriate "C" letter if working paper correspondence) to file a Form 941-X for each quarter in which they incorrectly reported non-payroll withholding on Form 941 and attach a statement detailing the amounts of any federal tax deposits or other payments which should be reapplied to their Form 945 tax account.
    Taxpayer has not yet filed Form 945 Previously reported non-payroll withholding on Form 941 Advise the taxpayer (use the appropriate "C" letter if working paper correspondence) to take the following actions:
    1. File a Form 945 reflecting the correct non-payroll withholding for the tax year

    2. File a Form 941-X for each quarter in which they incorrectly reported non-payroll withholding on Form 941 and attach a statement detailing the amounts of any federal tax deposits or other payments which should be reapplied to their Form 945 tax account.

    Taxpayer files Form 941 indicating non-payroll items were included on the return Code & Edit (C&E) identifies the situation As per procedures in (4) of IRM 3.11.13.13, C&E will correspond with the taxpayer to determine their intent. If the taxpayer's reply indicates they should have filed Form 945, C&E will forward the Form 941 to Accounts Management on Form 3465 indicating "Non-payroll on Form 941" Take the following actions to resolve the situation:
    1. If appropriate, delete the filing requirements for Form 941 and establish Form 945 filing requirements.

    2. Return the Form 941 to the taxpayer using the appropriate "C" letter and inform the taxpayer of their correct filing requirements.

    3. Input credit transfers as appropriate to move credits from the Form 941 account to the Form 945 account.

21.7.2.4.10.3  (10-01-2014)
BUWH Claims on Form 945

  1. For payments made from 1993 through August 6, 2001, BUWH was imposed at the rate of 31% on reportable payments of interest, dividends, patronage dividends, etc. See below for changes in rates.

    1. 30.5% for payments in 2002 that began August 7, 2001

    2. 30% for tax year 2002

    3. 28% for tax years 2003 through 2014

  2. Some payors withhold the tax from exempt recipients who are not otherwise required to file an income tax return, and advise them to secure refunds from IRS. Basically, a payor is not required to withhold on a payment made to a payee described in IRC 3406(g)(1).

  3. The following types of entities are exempt from withholding:

    1. An organization exempt from taxation under IRC 501(a) or an individual retirement plan

    2. The United States, its wholly owned agency or instrumentality

    3. A state, the District of Columbia, a possession of the United States, or any political subdivision, wholly owned agency, or instrumentality of these entities.

    4. A foreign government or political subdivision of a foreign government, wholly owned agency, or instrumentality of these entities.

    5. An international organization (e.g., the United Nations and the Organization of American States)

  4. If an organization is exempt under IRC 501(a) or an individual retirement plan, and has been erroneously subjected to BUWH, it must file Form 990-T, Exempt Organization Business Income Tax Return, to claim a refund of such withholding.

    Exception:

    A Private Foundation can claim erroneous BUWH on Form 990-PF, Return of Private Foundation, instead of Form 990-T.

    Note:

    See IRM 5.19.3, Backup Withholding Program and IRM 21.7.7.4.3.5, Backup Withholding, for additional information on BUWH.

21.7.2.4.10.3.1  (10-01-2012)
Form 945 BUWH Refunds for Exempt Entities

  1. The procedures listed below on issuing a refund from the employer’s Form 945 account apply only to the exempt entities described in list items (b), (c) and (d) in IRM 21.7.2.4.10.3 (3).

  2. If a payor withholds on an exempt recipient, the payor may treat the amount as erroneously withheld and refund it to the payee as long as the refund is made prior to the end of calendar year, and prior to the time the appropriate Form 1099, Statement for Recipient, is furnished.

    1. If a payor makes a refund after having made last deposit for tax year, but before the Form 945 is filed, then only the correct amount of BUWH should be reported but nevertheless includes the BUWH amount of the Form 945 and the overpayment automatically refunded to taxpayer (payor).

    2. If a payor makes a refund during the calendar year but after last deposit has been made for tax year, then a Form 843 claim must be filed to obtain a refund.

  3. If recipient is exempt from filing an income tax return, use the following procedure:

    1. The exempt recipient must file Form 843 or similar statement.

    2. Attach a statement to Form 843 from each payor who erroneously withheld tax, setting forth the amount of tax withheld, the date withheld, and a statement to the effect the payor did not repay or reimburse the recipient and will not claim an adjustment for the amount on Form 945.

    3. The statement must be signed by the person authorized to sign the payor’s Form 945, and list the TIN (Taxpayer Identification Number) of the account the BUWH was paid under. See the table below for processing instructions.

    If Then
    Payee files a Form 843 for tax withheld before the end of the tax year Advise payee to seek reimbursement from the payor.
    Tax year has ended and the required statement is attached Follow normal procedures to issue a manual refund to the exempt recipient from the payor’s Form 945. Include manual interest and verify posting of the manual refund.
    The tax year has ended and the required statement is not attached Advise the payee to obtain the required statement from the payor.

21.7.2.4.10.3.2  (10-01-2011)
BUWH Claims for Taxpayers Other Than Exempt Entities

  1. All other taxpayers must claim BUWH on a related income tax return. See IRM 21.7.4.4.10, Backup Withholding (BUWH) on Income Tax Returns, for more information.

  2. If a Form 94XX or Form 843 claim is filed for BUWH on any employment tax account, including Form 945, reject the claim and explain to taxpayer an income tax return must be filed to claim the credit.

21.7.2.4.10.4  (10-01-2013)
Tax Equity and Fiscal Responsibility Act (TEFRA)

  1. TEFRA requires pension trusts to withhold federal income tax from pension income. The withholding is subject to deposit rules and is reported on Form 945.

  2. Taxpayers can request a separate EIN for the pension trust, however, it is not a requirement. Separate branches within a company may want a different EIN for internal purposes only.

  3. If multiple Form 945 tax returns are filed under one EIN and the taxpayer’s intent cannot be determined:

    1. Correspond to inform taxpayer to combine all the withholding from pension incomes on one Form 945, or to request separate EIN's for each pension trust.

    2. Inform taxpayer, if separate EIN's are assigned, they are responsible for all filing requirements and penalty assessments.


    If Then
    No reply, or taxpayer states they do not want separate EIN's Input TC 290 to assess any additional tax.
    Taxpayer requests separate EIN's Photocopy the case file and forward to Entity for assignment of EIN's. When EIN's are assigned, re-input the returns and transfer any credits to the new EIN's.
    Refunds were issued prior to the posting of the second return Contact taxpayer as stated in (3) above.

21.7.2.4.11  (10-01-2013)
Household Employment Taxes

  1. The Social Security and Domestic Employment Reform Act of 1994 (SSDERA) added IRC 3510 which provides that the collection of domestic service employment taxes on services performed after December 31, 1994 be coordinated with the collection of income taxes.

  2. Domestic service in the private home of the employer is also referred to as household employment. Domestic employees are also referred to as household employees. The FICA taxes, federal income tax withholding (if any), and FUTA taxes incurred by employers of household employees are referred to as household employment taxes.

    Note:

    Household employers will be required to withhold Additional Medicare Tax on household employees who they pay wages/tips in excess of $200,000 for a calendar year beginning after December 31, 2012.

  3. Although collected with income tax, household employment taxes are employment taxes.

  4. See IRM 21.7.2.4.11.1, Forms Used in Reporting Employment Taxes for Household Employees, for information on the proper form to be filed for reporting household employment taxes.

  5. For additional guidance on household employment taxes, see:

    • Pub 926, Household Employer's Tax Guide

    • Notice 95-18 (1995-1 C.B. 300) which clarifies issues related to SSDERA.

21.7.2.4.11.1  (10-01-2013)
Forms Used in Reporting Employment Taxes for Household Employees

  1. Schedule H (Form 1040) is used to report FICA tax, any federal income tax withheld, and FUTA tax for household employees as follows:

    • Individuals file Schedule H (Form 1040) with their Form 1040 series income tax return. These are processed on MFT 30. See IRM 21.6.4.4.8, Schedule H, Household Employment Taxes, for more information.

    • Trusts file Schedule H (Form 1040) with Form 1041. These are processed on MFT 05. See IRM 21.7.4.4.1.11, Social Security Domestic Employment Reform Act and BMF Schedules H , for more information.

    • If no income tax return is required to be filed, Schedule H (Form 1040) is filed by itself. These are processed to either MFT 30 or MFT 05 as appropriate.

  2. Taxpayers who are sole proprietors, or whose home is on a farm operated for profit, may include FICA tax and income tax withholding for domestic employees on their employment tax returns (Forms 941, 943, or 944 as appropriate) along with the employment taxes for their other business or farm employees. If the employer chooses to report household employment taxes in this manner, FUTA taxes for the household employees must be reported on Form 940.

  3. Partnerships cannot be domestic employers.

  4. Corporations cannot be domestic employers.

  5. See IRM 21.7.2.4.11.3, Household Employment Taxes and Section 3504 Agents, for filing and payment requirements when an employer has designated an agent (including state and local governments or their subagents) to withhold, report, and make payment of household employment taxes.

21.7.2.4.11.2  (01-08-2014)
Procedures for Household Employment Tax Inquiries

  1. The table below provides guidance for handling common household employment tax inquiries received in Accounts Management.

    If And Then
    A general inquiry is received regarding household employment taxes.

    Example:

    Questions regarding wage thresholds, tax rates, forms to be filed, etc.

      Research Pub 926, Household Employer's Tax Guide, forms, and form instructions as appropriate to provide the taxpayer with the guidance needed.
    An inquiry is received about a Schedule H (Form 1040) which was or will be filed with Form 1041.   See IRM 21.7.4.4.1.11, Social Security Domestic Employment Reform Act and BMF Schedules H , for more information.
    An inquiry is received about a Schedule H (Form 1040) which was or will be filed with Form 1040.   See IRM 21.6.4.4.8, Schedule H, Household Employment Taxes for more information.
    An inquiry is received about a Form 941, Form 943, Form 944 filed to report household employment taxes (FICA and/or federal income tax withheld). The household employment taxes (FICA and/or federal income tax withheld) should have instead been reported on Schedule H (Form 1040) with a Form 1040 See IRM 21.6.4.4.8.12, BMF Form 941 Filed Instead of IMF Schedule H, for more information.
    An inquiry is received about a Form 941, Form 943, Form 944 filed to report household employment taxes (FICA and/or federal income tax withheld). The household employment taxes (FICA and/or federal income tax withheld) should have instead been reported on Schedule H (Form 1040) with a Form 1041 See paragraph (5) of IRM 21.7.4.4.1.11.2.3, Adjustments (Amended Returns, TRNS 193s, etc.) Involving Forms 1041 With Schedule H, for more information.
    An inquiry is received regarding a Form 940 filed to report FUTA taxes for household employees. The FUTA tax should have instead been reported on Schedule H (Form 1040) with either a Form 1040 or Form 1041 See IRM 21.7.3.4.13, Schedule H FUTA Erroneously Reported.
    An inquiry is received from an entity claiming to be a partnership The entity has reported household employment taxes Advise the taxpayer that a partnership cannot be a domestic employer. Instruct the taxpayer that they must follow one of the following options for reporting household employment wages and tax:
    1. One member of the unit can report all taxes and wages on Schedule H filed with their Form 1040, or;

    2. Each member can report their portion on Schedule H filed with their Form 1040.

    An inquiry is received from a state or local government acting as an IRC 3504 agent on behalf of Home Care Service Recipients (HCSR)

    Note:

    These entities may be identified by the presence of Employment Code "A" , the literals "HHCSR" or "HCSR" in the name line, or use of the following terms: "Household Employer Agency" , "Fiscal Agent" , or "Choreworker" .

    An FTD penalty has been charged (on any tax module) Abate any FTD penalties identified on these accounts even if taxpayer is not requesting abatement. Taxes can be paid with the return. No deposits are necessary. See IRM 20.1.4.5, State and Local Health Welfare, for more information.
    An inquiry is received from a party who is operating as an IRC 3504 agent for one or more household employers but is not a state or local government. An FTD penalty has been charged Do not adjust the penalty unless other abatement criteria applies. These agents are responsible for making timely federal tax deposits as any other employer or Section 3504 agent.

    Note:

    Starting January 2, 2014, see (5), (6), and (7) in IRM 21.1.1.6, Customer Service Representative (CSR) Duties, for new tax law procedures.

21.7.2.4.11.3  (10-01-2014)
Household Employment Taxes and Section 3504 Agents

  1. An employer may appoint an agent under IRC Section 3504 to withhold, report and pay Federal employment taxes. To request approval to act as a Section 3504 agent for an employer, the agent files Form 2678, Employer/Payer Appointment of Agent, with the IRS.

    Note:

    Form 2678 processing information may be found in IRM 3.13.2.16, Form 2678, Employer/Payer Appointment of Agent.

  2. Specific rules apply when the employer is a Home Care Service Recipient (HCSR).

    • A Home Care Service Recipient (HCSR) is an individual who receives home care services while enrolled in a program administered by a Federal, state, or local government agency that provides funding for the home care services.

    • "Home care services" are personal and attendant care services rendered to the Home Care Service Recipient.

    • Generally, the Home Care Service Recipient (HCSR) is the employer if they have the right to direct and control the provision of services by the home care services provider. The provision of services to the HCSR also generally constitutes household employment.

    • The Home Care Service Recipient (HCSR) may designate, and the IRS may approve, a Section 3504 agent to act on behalf of the HCSR to withhold, report and pay the Federal employment taxes for the workers they hire to provide home care services. Agents may be also be authorized for purposes of Federal Unemployment Tax Act (FUTA) taxes if they are acting on behalf of an HCSR (only).

  3. There are two types of Section 3504 agents that act on behalf of Home Care Service Recipients (HCSRs):

    • Federal, state or local government agency operating in accordance with Rev. Proc. 2013-39. See IRM 21.7.2.4.11.3.1, State or Local Government Agency Acting as IRC 3504 Agent, for special procedures that apply to these agents and their subagents.

    • Any other non-governmental entity engaged by the Federal, state or local government agency to participate in various aspects of a home care services program. These entities may choose to act as the Section 3504 agent for the HCSRs in accordance with Rev. Proc. 2013-39 by filing a Form 2678 for each HCSR.

    Note:

    Both types of agents may elect to perform the employment tax obligations themselves or to further contract with a reporting agent or subagent.

21.7.2.4.11.3.1  (10-01-2014)
State or Local Government Agency Acting as IRC 3504 Agent for Home Care Service Recipients

  1. A state or local government agency may be approved to act as a Section 3504 agent on behalf of Home Care Service Recipients (HCSRs) who hire home care service providers.

  2. These entities may be identified by one or more of the following characteristics:

    • The presence of Employment Code "A" .

    • The literals "HHCSR" or "HCSR" in the name line of the entity.

    • Returns or correspondence referencing the terms "Household Employer Agency" , "Fiscal Agent" , or "Choreworker" .

  3. Rev. Proc. 2013-39, 2013-52 I.R.B. 830, provides guidance to state and local government health and welfare agencies acting on behalf of HCSRs. Rev. Proc. 2013-39 superseded Rev. Proc. 70-6 , Rev. Proc. 80-4 , and Notice 2003-70 .

  4. If the government agency operates according to Rev. Proc. 2013-39, then several special procedures apply:

    • Government agencies acting on behalf of HCSRs enrolled in a program they administer do not need to file a Form 2678, Employer/Payer Appointment of Agent, for each HCSR. For more information on Form 2678, see IRM 21.7.2.3.7, Section 3504 Agents, and IRM 3.13.2.16, Form 2678, Employer/Payer Appointment of Agent.

    • The government agency obtains a special EIN that is used for the sole purpose of acting as a Section 3504 agent for HCSRs. See Rev. Proc. 2013-39, section 10.03(3).

    • The government agency files aggregate Form 941 and Form 940 tax returns using the government agency’s special EIN to report all wages paid on behalf of HCSRs.

      Note:

      Section 3504 agents are required to attach an allocation schedule when filing aggregate employment tax returns. See IRM 21.7.2.4.4.3, Schedule R (Form 941): Allocation Schedule for Aggregate Form 941 Filers, and IRM 21.7.3.4.6.1, Schedule R (Form 940): Allocation Schedule for Aggregate Form 940 Filers, for more information.

    • The government agency may remit all taxes related to HCSRs with a timely filed Form 941 or Form 940. Government agencies acting as Section 3504 agents for HCSRs are not required to make Federal Tax Deposits (FTDs) or follow the deposit schedules applicable to employers and other Section 3504 agents. If the government agency hires a reporting agent to perform employment tax obligations, the reporting agent may perform those obligations as if it were the government agency. However, if the government agency uses Form 2678 to appoint a Section 3504 Agent (called a "subagent" ) to perform the employment tax obligations of the HCSRs, the subagent must file returns using its own EIN and make deposits under normal deposit rules.

      Note:

      FTD penalties are systemically waived for accounts bearing Employment Code "A" . However, incorrect penalties may be charged on accounts which have not been correctly coded. See the table in IRM 21.7.2.4.11.2, Procedures for Household Employment Tax Inquiries, for instructions on addressing FTD penalties charged on accounts of state or local government agencies acting as Section 3504 agents for HCSRs.

21.7.2.5  (10-01-2011)
Specific Claims and Other Issues

  1. This section includes information and procedures for specific claims and other issues associated with employment taxes.

21.7.2.5.1  (10-01-2013)
Frivolous Employment Tax Claims

  1. Claims citing IRC 861 may be frivolous claims and must be sent to the Ogden Compliance Campus Frivolous Return Program as outlined in IRM 21.5.3.4.16.7, Identifying Frivolous Returns/Correspondence and Responding to Frivolous Arguments . Do not, under any circumstances, adjust the account prior to sending to Ogden.

  2. Some claims may be received that don't indicate this section. However, they may also be considered frivolous. See (3) for examples.

  3. There may be a Form 941c, or Form 941 annotated across the top "Amended or Corrected" , or Form 941-X filed to reduce payroll taxes ≡ ≡ ≡ ≡ for all open payroll tax quarters. Most of these returns have been prepared by hand.

    • The explanation generally states "see attached..." which is usually a cover letter. The letters do not state a specific reason for filing the amended return, or they provide a general explanation such as "I have enclosed a corrected Form 941-X as required by law when the filer discovers any error made on such return." Often the cover letter contains a cc: to a congressperson.

    • The taxpayer only cites "Administrative Error" and does not indicate further why they are reducing the tax ≡ ≡ ≡ ≡ ≡ ≡ .

  4. If doubt exists as to whether the claim is frivolous, do not send the claim to Ogden. Reject the claim back to the taxpayer following "No Consideration" procedures outlined in IRM 21.5.3.4.6 , No Consideration and Disallowance of Claims and Amended Returns. Inform the taxpayer sufficient information was not received to consider the claim at this time and that a detailed explanation is necessary. If the claim received is a numbered return, or statute is imminent, contact the taxpayer for a complete explanation before adjusting the account.

21.7.2.5.2  (02-27-2013)
Employer’s Wages Erroneously Reported on Form 941, 943 or 944

  1. On occasion, individual taxpayers erroneously treat personal withdrawals as wages and pay FICA taxes on Form 941, Form 943, or Form 944. To correct such errors in reporting, taxpayers must file the appropriate Form 94XX.

  2. If a taxpayer files a Form 94XX on this basis, take the following actions:

    1. Review the Form 94XX to ensure all required items are complete.

    2. Input TC 291 with IRN's 004, 073 and 074 (as appropriate) for wages and 112 for tax to each period involved. Use the appropriate Hold Code. Attach a copy of the Form 94XX to each adjustment document.

    3. If manual penalties (such as TC's 160, 180, or 270) are assessed for any periods being adjusted, re-compute penalties based on the portion of tax being decreased. Adjust any TC 186 as instructed in IRM 20.1.4.21.3, Amended or Supplemental Return (Tax Decrease or Non-Interest Free Tax Increase).

    4. If the taxpayer wishes the overpayment(s) on the employment tax return(s) to be applied to their individual Form 1040 account (for example, to pay a balance due), input credit transfers as appropriate. See IRM 21.5.8, Credit Transfers, for general guidance on credit transfers.

21.7.2.5.3  (10-01-2014)
Worker Classification Determinations

  1. A worker, whose firm reported earnings on a Form 1099-MISC, can request IRS to determine whether or not they are an employee. (The term "Firm" is used here instead of "employer" since the issuer of the Form 1099-MISC has not been determined to be an employer at this stage.) A Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, must be filed by the worker or the firm in order for the IRS to make the determination. The form can also be filed by workers treated as employees if they want to determine their proper classification.

  2. In order to file Form SS-8:

    • The worker must have filed a tax return(s) for the period(s) in question. (See (6) or (7) below, depending on tax year, for procedures when the taxpayer has not yet filed a return for the period(s) in question.)

    • The statute of limitations must be open for that period(s).

    • The worker must have no objection to disclosing their name to the firm.

    Note:

    If the taxpayer initially objects to disclosing their name to the firm, encourage them to do so. If Form SS-8 is not filed, the matter becomes an issue which the worker must resolve. Usually this involves contact with the firm. That process is time consuming and frustrating for both the worker and the firm. If worker still objects, see (5) below.

  3. If the worker meets the criteria in (2) above, follow the steps below.

    1. Send Form SS-8 to the worker.

    2. Instruct the worker to complete Form SS-8 and mail it to the address provided in the "Where to File" section of the Instructions for Form SS-8.)

    3. Alert the taxpayer that the determination can take up to 180 days after the Form SS-8 is received.

      Note:

      If the statute of limitations for the period in question may expire before the determination is made, inform the worker that a letter will be sent when the Form SS-8 is received advising of procedures for filing a protective claim for that period.

  4. The SS-8 group contacts the firm and asks them to complete Form SS-8 from their perspective of the work relationship. The SS-8 group compares the two Forms SS-8. The SS-8 group makes a determination, and:

    If And Then
    Worker is determined to be an employee Worker originally filed Schedule SE and paid self-employment tax Worker should file Form 8919 to report only the employee share of social security and Medicare tax and file Form 1040X attaching an amended Schedule SE to correct the self-employment tax previously reported.
    Worker is determined to be an employee Worker originally reported only the employee share of social security and Medicare tax

    Note:

    Currently the use of Form 8919, Uncollected Social Security and Medicare Tax on Wages, requires the filing of a Form SS-8 except in limited cases indicated on the form.

    Worker does not need to file Form 1040X, but simply keeps a copy of the determination letter for their records.
    Worker is determined to be an employee Section 530 of the Revenue Act of 1978 applies to the firm The firm is not required to treat worker as an employee for employment tax purposes. The worker is liable for only the employee share of social security and Medicare taxes. IRM 21.6.4.4.15, Employees Filing Under the Revenue Act of 1978, Section 530, contains additional information.
    Worker is determined to be an independent contractor   The SS-8 group sends the worker a letter advising of the necessary actions including self-employment tax liability.
  5. See the Note in (2) above. Form SS-8 will not be processed if the worker does not agree to disclose their name to the firm. In that situation, the worker must determine to the best of their knowledge whether they are an employee. A worker receiving a Form 1099-MISC would be assumed to not be an employee (unless the worker can convince the employer they are, in fact, an employee and have Form W-2 issued instead of Form 1099-MISC). A worker who does not agree to disclose their name to the firm should be advised as follows:

    If Then
    The worker believes they should be classified as an employee and determination has not been made The worker should report the income on the "wages" line on Form 1040 and attach Form 1099-MISC. The taxpayer will not be assessed self-employment tax on original processing. However, Examination may review the return to determine if the taxpayer is liable for self-employment tax.
    The worker believes they should be classified as self-employed The worker should:
    1. Report income on Schedule C.
    2. Compute self-employment tax on Schedule SE.
    3. Attach Forms 1099-MISC, Schedule C, and Schedule SE to Form 1040.

    Note:

    Always encourage the workers to participate in the Form SS-8 process. Only inform the workers of the filing/reporting options in the table above if they refuse to participate. Inform them that if they do report the income as if they were an employee, it is possible they could be classified as self-employed at a later date and owe additional taxes.

  6. If the taxpayer has not yet filed a return for the tax period involved and the tax year is 2006 or prior, see archived files for this IRM for handling instructions.

  7. If the taxpayer has not yet filed a return for the tax period involved (2007 or subsequent), instruct them to:

    1. File Form 1040.

    2. Report the amount on Form 1099-MISC on the "wages" line. (The taxpayer may also want to indicate "Form SS-8 filed" on the dotted line to the left of the "wages" if they filed, or will file, Form SS-8.)

    3. Complete Form 8919 and attach it to Form 1040.

    4. Follow the instructions on Form 8919 for computing the social security and Medicare tax, and enter the amount on Form 1040, page 2 as instructed on Form 8919.

    5. File Form SS-8 by mailing it to the address provided in the “Where to File” section of the Instructions for Form SS-8. It is not to be filed with Form 1040.

  8. If taxpayer inquiry is received during current year and wants a determination prior to the end of the year, instruct taxpayer to complete the SS-8 and mail accordingly. The taxpayer does not have to wait until the year is over before asking for a determination.

21.7.2.5.4  (10-01-2014)
IRC Section 3509

  1. In certain circumstances, IRC 3509 provides for reduced employer liability for employment taxes when a worker is reclassified from being treated as an independent contractor to being treated as an employee. If IRC 3509 tax rates apply, the amount of employment taxes owed by the employer will depend on whether information returns (e.g. Form 1099–MISC) were filed as required for treatment of the individuals as independent contractors. The employer pays their share of FICA tax and either 20% or 40% of the employee's share (including Additional Medicare Tax to the extent wages and tips paid to an employee exceed $200,000 for a calendar year beginning after December 31, 2012). The employer also pays income tax withholding figured at either 1.5% or 3% of the wages.

  2. IRC 3509 assessments are often made by the Service and can be identified by the use of IRN 079. However, the employer may self-assess under IRC 3509 provisions if they determine the worker was misclassified and all requirements are satisfied. See Pub 4341, Information Guide for Employers Filing Form 941 or Form 944, Frequently Asked Questions about the Reclassification of Workers as Employees.

  3. The following procedures address employer self-assessments of employment taxes for misclassified employees where IRC 3509 special tax rates apply.

    Note:

    The following paragraphs reference the line numbers for Form 941 and Form 941-X. If the employer is filing another adjusted employment tax return, use the applicable line and column numbers.

  4. For misclassified workers discovered on or after January 1, 2009, employers must file Form 941-X (or other applicable "X" form) for each tax period involved to report employment taxes owed under the special IRC 3509 tax rates. The Form 941-X must be prepared as follows:

    1. The wage amounts must be entered in column 1 on lines 14, 15, 16, and 17.

    2. Zeroes should be entered in column 2 of lines 14, 15, 16, and 17.

    3. Columns 3 and 4 must be completed as per the Part 3 instructions.

    Note:

    See archived IRM 21.7.2 if information is needed on IRC 3509 handling prior to January 1, 2009.

  5. If an original tax return was not filed for each tax period involved, the employer must also file the delinquent tax return(s) as follows:

    1. An original tax return must be prepared for each tax period with "Misclassified Employees" written in dark, bold letters across the top margin of page 1.

    2. A zero must be entered on line 10 ("Total taxes after adjustments" ).

    3. Part 5 ("Sign here" ) must be completed.

    4. The completed Form 941-X (or other applicable "X" form) must be attached to the original return being filed.

    Note:

    These filing instructions are an exception to normal filing and processing. Submission Processing has instructions to forward Forms 941-X filed under these special procedures to Accounts Management for adjustment action and will code the original return to freeze any credit on the tax module. See IRM 3.11.13.10.3, Non-Taxable Returns With No Line Entries.

  6. Adjust the tax account per the Form 941-X (or other applicable "X" form) as follows:

    1. Input an increase to IRN 004 to match the figure in column 3 of line 15.

    2. Input an increase to IRN 073 to match the figure in column 3 of line 16.

    3. Input an increase to IRN 074 to match the figure in column 3 of line 17 (valid for Forms 941/943/944 for tax periods beginning after December 31, 2012).

    4. Input an increase to IRN 104 to match the figure in column 4 of line 14.

    5. Input an increase to IRN 105 for the combined figures found in column 4 for lines 15, 16 and 17 (and any amount reported for AdMT).

      Note:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    6. Input an increase to IRN 113 for the combined IRN 104 and IRN 105 figures as determined above.

    7. Input a TC 290 or TC 298 increase as per IRM 21.7.2.4.6.2, Interest-Free Adjustments (Employment Tax Returns), procedures to match the IRN 113 figure as determined above.

  7. Adjust the FTD penalty when using either a TC 290 (see IRM 20.1.4.21.3) or a TC 298 (see IRM 20.1.4.21.5).

    Note:

    See IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941-X, 943-X, 944-X, 945-X, and CT-1X), when using a TC 298 or TC 291 and an amended ROFTL was provided with the adjusted return.

  8. If payment for the additional tax reported on the Form 941-X is not reflected on the tax period being adjusted, research the taxpayer's account for the missing credit and, if located, transfer the payment as appropriate.

    Note:

    Employers who discover they have misclassified employees but who do not qualify for the special IRC 3509 tax rates are also required to file Form 941-X (or other applicable "X" form) to report the employment taxes owed and may qualify for interest-free tax adjustments. In cases where the employer did not file an original return for the tax period involved, the employer is instructed to file an original tax return with "Misclassified Employees" written across the top margin of page 1 in dark, bold letters and to attach a completed Form 941-X (or other applicable "X" form). Accounts Management may receive documents filed under those procedures for misclassified employees. Normal tax rates and adjustment procedures are to be applied when the special IRC 3509 rates do not apply.

21.7.2.5.5  (01-13-2005)
Railroad Retirement Board (RRB) Determinations

  1. If a Form 941-X mentions RRB determinations or transferring overpaid FICA taxes to Form CT-1, see IRM 21.7.2.6.5.8.

21.7.2.5.6  (10-01-2014)
Form SS-16, Certificate of Election of Coverage Under the Federal Insurance Contributions Act (FICA)

  1. A religious order whose members are required to take a vow of poverty (or any autonomous subdivision of such an order) may elect to have FICA extended to services performed by its members in the exercise of duties required by such order. They are excluded from "employment" for FICA purposes, except when an election of coverage is in effect. See IRC 3121(b)(8)(A) and § 31.3121(b)(8)-1; IRC 3121(r) and § 31.3121(r)-1.

  2. A religious order making an election of coverage must file Form SS-16, Certificate of Election of Coverage Under the Federal Insurance Contributions Act. See IRM 3.13.12.15, Form SS-16, for additional information.

  3. On Form SS-16, the religious order must designate one of the following dates as the effective date for the election:

    • The first day of the calendar quarter in which the Form SS-16 was filed, or

    • The first day of the calendar quarter immediately after the calendar quarter in which Form SS-16 is filed, or

    • The first day of any one of the 20 quarters before the quarter in which the Form SS-16 was filed.

  4. The following table illustrates the last day the Form SS-16 can be filed to elect retroactive coverage for 20 quarters:

    If the religious order wants coverage retroactive to: Then Form SS-16 is due:
    January 1, 2009 (1st quarter 2009) March 31, 2014
    April 1, 2009 (2nd quarter 2009) June 30, 2014
    July 1, 2009 (3rd quarter 2009) September 30, 2014
    October 1, 2009 (4th quarter 2009) December 31, 2014
    January 1, 1010 (1st quarter 2010) March 31, 2015
    April 1, 2010 (2nd quarter 2010) June 30, 2015
    July 1, 2010 (3rd quarter 2010) September 30, 2015
    October 1, 2010 (4th quarter 2010) December 31, 2015
    If Then
    Form SS-16 is made effective the first day of the calendar quarter in which the SS-16 is filed The return is due the normal due date for Form 941 for the current quarter.
    Form SS-16 is made effective the first day of the calendar quarter immediately after the calendar quarter in which the SS-16 is filed The return is due the normal due date for Form 941.
  5. Under IRC 3121(r), the due date of the returns for all retroactive quarters is determined by the date the Form SS-16 is "filed " . The due date for filing the returns and paying the tax, for calendar quarters prior to the quarter in which the SS-16 is filed, is the last day of the calendar month following the calendar quarter in which the Form SS-16 is filed.

    If the Form SS-16 is filed any day during the Then all the returns for the retroactive quarters must be filed and tax paid by
    1st quarter 2014 April 30, 2014
    2nd quarter 2014 July 31, 2014
    3rd quarter 2014 October 31, 2014
    4th quarter 2014 January 31, 2015
    1st quarter 2015 April 30, 2015
    2nd quarter 2015 July 31, 2015
    3rd quarter 2015 October 31, 2015
    4th quarter 2015 January 31, 2016

    Note:

    Generally, the received date is the date Form SS-16 is "filed" for purposes of determining when returns are due. If the religious order or subdivision selects an effective date that is the first day of the 20th calendar quarter preceding the quarter in which Form SS-16 is postmarked, but the Form SS-16 is received in a later quarter, the IRS will use the postmark date to determine the date filed to ensure the intended 20th quarter can be included.

  6. A religious order will not be subject to a failure to pay penalty or interest, if it files the returns for the retroactive quarters and pays the total tax liability by the due date. IRC 3121(r) provides that the period of limitations for assessment for retroactive quarters will not expire before the expiration of 3 years from such due date.

  7. A religious order must report its tax liability for each quarter it is electing coverage. The form that must be filed for each of the retroactive quarters depends on whether an original Form 941, Employer's QUARTERLY Federal Tax Return, was filed for the specific retroactive period. Refer to table below:

    If Then
    Form 941 was never filed for one or more quarters for which the election is effective The religious order must file Forms 941 for those retroactive quarters.
    Original Forms 941 were filed for any of the retroactive quarters for which the election is effective The religious order must file Form 941-X, Employer's QUARTERLY Federal Tax Return or Claim for Refund, for those retroactive quarters.

21.7.2.5.7  (04-25-2012)
Federal Labor Laws — Wage Payments Made by Federal Agencies

  1. Certain government agencies are empowered to collect wages from employers that were erroneously not paid to current or former employees. These federal agencies disburse the wage amounts to the employees concerned. Agencies allowed to take this action and some of the provisions which allow such action are:

    • Department of Labor (DOL) – Fair Labor Standards Act

    • Government Accountability Office (GAO) – Davis-Bacon Act

    • Housing and Urban Development (HUD) – Davis-Bacon Act

    • National Labor Relations Board (NLRB) – Labor Management Relations Act

    Note:

    Extensive investigations are performed by the federal agencies to determine if claims for back wages or unfair labor practices are valid. Therefore, a relatively long period of time may elapse between the time employees become entitled to the wages and the time they actually receive payment from the agency involved.

21.7.2.5.7.1  (01-09-2012)
Processing of Tax Returns Filed by Federal Agencies to Report Withheld Income Taxes and Employee Share of FICA Taxes (Wage Payments Made by Federal Agencies)

  1. Federal agencies making wage determinations withhold income taxes and the employee's share of FICA taxes from payments made to employees. The federal agency then reports and pays the withheld income taxes and the employee share of FICA with an employment tax return filed with the IRS under a separate EIN assigned to the federal agency.

  2. Employment tax returns filed by the federal agencies are processed at the campus of receipt.

  3. In addition to federal income tax withheld, the federal agency will report wages on the appropriate lines of Form 941 and compute the full amount of FICA taxes. The employer share of FICA is then deducted on one of the adjustment lines of Form 941 as a negative adjustment.

    Note:

    Wages may also be reported on Form 943 or Form 944.

  4. An aggregate Form 941-X will generally be attached to the federal agency's Form 941.

    1. The aggregate Form 941-X will reflect the total wages and tax withheld for all employees for which wage determinations were made by the federal agency for that tax period.

    2. In the explanation area, the agency indicates the name of the agency and the Act which authorizes them to collect and pay back wages.

    3. The Form 941-X is stamped "Do Not Transmit to SSA" .

    Note:

    The federal agency also prepares two copies of Form 941-X for each employer showing the wage determinations for their employees and the FICA taxes owed by the employer. The federal agency sends one copy to the employer to inform them of their tax liability. The federal agency files the other copy with the IRS for assessment of the employer's share of FICA on the employer's EIN. See IRM 21.7.2.5.7.2, Processing of Forms 941-X Filed by Federal Agencies to Report Employer Share of FICA Taxes (Wage Payments Made by Federal Agencies), for instructions on processing those Forms 941-X.

21.7.2.5.7.2  (02-27-2013)
Processing of Forms 941-X Filed by Federal Agencies to Report Employer Share of FICA Taxes (Wage Payments Made by Federal Agencies)

  1. Federal agencies collecting wages from employers on behalf of employees withhold income taxes and the employee's share of FICA taxes from the payments made to the employees. However, the employer remains liable for the employer's share of FICA taxes.

  2. The federal agency prepares two copies of Form 941-X for the employer showing the wage determinations for their employees and the FICA taxes owed by the employer. One copy is sent to the employer to inform them of their tax liability. The other copy is filed by the federal agency with the IRS for assessment of the employer's share of FICA on the employer's EIN.

    Reminder:

    Additional Medicare Tax (AdMT) is only imposed on the employee (for tax periods beginning after December 31, 2012). There is no employer share of AdMT. Therefore, no AdMT should be assessed in the course of handling cases per the procedures found in the following subsections.

  3. The Form 941-X used by federal agencies for this purpose is generally not filed on the official Form 941-X version and does not include line numbers. However, it will be accepted so long as all information needed to compute the employer's share of the FICA tax liability and to process the adjustment is provided.

21.7.2.5.7.2.1  (10-01-2014)
Return Posted (TC 150), Account Not in TDA (Taxpayer Delinquent Account) Status (Wage Payments Made by Federal Agencies)

  1. If a return for the employer is posted:

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Caution:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Example:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. Use IRN 004 to show the amount of taxable social security wages.

    3. Input IRN 073 to show the amount of taxable Medicare wages.

    4. Input IRN 112 for the total FICA tax adjustment (employee and employer shares).

    5. Input IRN 110 and IRN 113 to reduce tax for the employee share of FICA tax already collected from the employee's wages by the federal agency.

    6. Initiate Letter 134C to the employer (use the address currently showing on ENMOD/BMFOLE) advising a bill for employer’s portion of FICA will be issued in the near future and include a copy of Form 941-X from the government agency.

    Caution:

    Do not include FITW (Federal Income Tax Withheld) (IRN 003/111) in the adjustment.

    Note:

    If the TC 150 on the module was a dummy return prepared per procedures later in this IRM section and there is a credit balance on the module which exceeds the amount of the assessment reflected on the Form 941-X filed by the federal agency, then use Hold Code 1 with the adjustment to hold the credit and allow the notice of adjustment to be issued. Also, in this particular situation, inform the employer in the Letter 134C being issued that they must file the appropriate original employment tax return to report any other taxes due and/or to claim a refund for any overpaid taxes.

21.7.2.5.7.2.2  (11-04-2010)
Return Posted, Account in TDA Status (Wage Payments Made by Federal Agencies)

  1. If a return for the employer has posted, but the account is in TDA Status, see IRM 21.3.3.4.10.2.1, Amended Returns/Claims - Compliance Criteria, for additional guidance. State the nature and facts of the case if routing per that guidance.

21.7.2.5.7.2.3  (10-01-2014)
No Return Posted, No Filing Requirements (Wage Payments Made by Federal Agencies)

  1. If no return for the employer has posted and there are no filing requirements for the current quarter, take the following actions:

    1. Initiate Letter 134C to the employer (use the address currently showing on ENMOD/BMFOLE).
      • Include a copy of the Form 941-X received from the federal agency.
      • Advise the taxpayer that we will be processing the Form 941-X and will issue a bill once that action is complete.
      • Advise the taxpayer of the amount of tax that will be assessed.
      • Advise the taxpayer that they should go ahead and make payment for the amount of tax to be assessed in order to limit any interest charges that may be due.

    2. Prepare a dummy return on the applicable employment tax return (usually Form 941) showing zero tax for the tax period for which the Form 941-X was filed.
      • Enter "Dummy Return Prepared by IRS — Do Not Correspond for Signature" on the signature line.
      • Mark the block for "Final" return.
      • Enter Computer Condition Codes (CCC) "F" and "X" on the face of the dummy return. DO NOT enter any other Computer Condition Codes such as "M" , "D" , "J" , or "R" to restrict penalties or interest.
      • Route the completed dummy return to Submission Processing.

    3. Monitor the account until the dummy return posts to the module.

    4. Follow the procedures in IRM 21.7.2.5.7.2.1 to adjust the account per the Form 941-X.

      Note:

      Do not issue a second Letter 134C to the employer when the assessment is made under these procedures.

21.7.2.5.7.2.4  (11-04-2010)
No Return Posted, Delinquency Notice Issued (Wage Payments Made by Federal Agencies)

  1. If no return for the employer has posted and a delinquency notice has been issued:

    1. Route to your Campus Collection Function.

    2. State facts in case and amount due.

    3. Attach continuation page(s) of Form 941-X to the memo.

21.7.2.5.7.2.5  (10-01-2012)
No Return Posted, Open Filing Requirements, No Delinquency Notice Issued (Wage Payments Made by Federal Agencies)

  1. A federal agency may submit a Form 941-X before the employer's tax return is processed and posted to their tax account. This includes some rare situations where the federal agency submits the Form 941-X prior to the return due date for the tax period effected.

  2. In these situations, it will be necessary to monitor the employer tax account for posting of their tax return prior to taking action on the Form 941-X. Once posted, the employer's tax return data must also be reviewed to determine whether they have reported the additional wages and tax on their Form 941 and used one of the adjustment lines to back out the employee share collected by the federal agency.

  3. Monitor the account until the tax return posts and take the following action:

    If And Then
    A tax return is filed by the employer There is an entry on one of the adjustment lines corresponding to the federal agency wage determination Input TC 290 .00 and state "taxpayer reported as line item adjustment" in the Remarks section.
    A tax return is filed by the employer There is no entry on one of the adjustment lines corresponding to the federal agency wage determination Follow the procedures in IRM 21.7.2.5.7.2.1, Return Posted (TC 150), Account Not in TDA (Taxpayer Delinquent Account) Status (Wage Payments Made by Federal Agencies) or IRM 21.7.2.5.7.2.2, Return Posted, Account in TDA Status (Wage Payments Made by Federal Agencies), as appropriate.
    A return has not posted within 60 days of the return due date A delinquency notice has been issued Follow the procedures in IRM 21.7.2.5.7.2.4, No Return Posted, Delinquency Notice Issued (Wage Payments Made by Federal Agencies).
    A return has not posted within 60 days of the return due date No delinquency notice has been issued and there is no indication of a return being filed; e.g., Unpostable, Reject, open controls, etc. Follow the procedures in IRM 21.7.2.5.7.2.3except:
    • Do not indicate "Final" and do not CCC"F" .
    • If there are credits on the module, be certain to enter CCC "X" on the dummy return and use Hold Code 1 when adjusting the account to hold any excess credits.

    Reminder:

    All open controls and assignments must be considered and contacts made as appropriate prior to taking action on a tax account per these procedures.

21.7.2.5.7.2.6  (10-01-2014)
Missing or Incorrect Employer EIN (Wage Payments Made by Federal Agencies)

  1. If the Form 941-X is otherwise processable and is missing only a correct EIN for the employer (or an SSN was provided in either SSN or EIN format), research for the correct EIN. If the correct EIN is not found, forward the case to Entity Control (5 day turnaround) and request that they determine the correct EIN or assign an EIN to the business.

  2. If the Form 941-X is missing data (address, money amount, etc.) necessary to process the case in addition to a missing or incorrect EIN, return the Form 941-X to the agency initiating the case and request the missing data. If the agency returns the Form 941-X with the missing information but states the employer does not have an EIN, forward the case to Entity Control as in (1) above.

    Note:

    Use Letter 134C or other appropriate "C" letter when rejecting documents back to the initiating federal agency. Agency addresses may be found in the text of Letter 134C.

21.7.2.5.8  (10-01-2014)
Section 3402(d), Tax Relief in Employment Tax Cases (Forms 4668, 4669, and 4670)

  1. During the course of an examination, the IRS may determine an employer/employee relationship exists and propose the assessment of tax, penalties and interest. This assessment may include income tax that should have been withheld from amounts paid to employees.

  2. Form 4668, Employment Tax Examination Changes Report, is the basic report used for all employment tax return examinations.

    1. It is used to show the additional tax, over-assessment, or delinquent tax proposed by the examiner.

    2. It should be attached to the last quarter return examined as part of the Revenue Agents Report.

      Note:

      TC 971 AC 057 is sometimes used by Exam to designate a cross-reference account where relevant documentation is located.

  3. Form 2504, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment , and Form 2504-WC, Agreement to Assessment and Collection of Additional Employment Tax and Acceptance of Overassessment in Worker Classification Cases, are used to obtain a taxpayer’s agreement to the proposed assessment or over-assessment of employment tax.

    1. An error is considered ascertained on the date the signed Form 2504 is received by the IRS. Therefore, the additional tax must be paid at the time the signed Form 2504 is received in order for the assessment to be completely interest-free.

    2. Form 2504 should be attached to the same period’s return as Form 4668.

  4. IRC 3402(d) provides relief from paying income tax proposed or assessed by Exam in these cases if the employee reported the income and paid the taxes due with the employee's income tax return.

    Note:

    IRC 3402(d) relief also applies to Exam assessments of backup withholding.

    Caution:

    Tax assessed under IRC 3509 is not subject to abatement. See IRM 21.7.2.5.4 for more information on IRC 3509.

    Note:

    IRC 3102(f)(3) provides relief from paying Additional Medicare Tax (AdMT) proposed or assessed by Exam (for tax periods beginning after December 31, 2012) if the employee reported the income and paid AdMT due with the employee's income tax return. It is anticipated that Forms 4668, 4669 and 4670 will be redesigned in the future to address relief requests under IRC 3102(f)(3). This IRM section will be updated when more information is available.

  5. To obtain relief under IRC 3402(d), employers must:

    1. Secure a signed Form 4669, Statement of Payments Received, from the employee(s) covered by the examination.

    2. Prepare and sign a Form 4670, Request for Relief from Payment of Income Tax Withholding, indicating the tax year and number of statements (Form 4669) secured.

    3. Submit the signed Form 4670 with the signed Form(s) 4669 attached.

      Exception:

      If the tax due was paid prior to the filing of the Forms 4670 and 4669, then the Forms 4670 and 4669 must be attached to a properly completed claim form (Form 94XX) since that situation constitutes a claim for refund rather than a request for relief from payment as provided for under IRC 3402(d).

  6. The Revenue Agent/Officer conducting the examination provides the employer with an extra copy of Form 4668 along with blank Forms 4669 and 4670. The employer is instructed to file the copy of the Form 4668, a Form 4670, and Form(s) 4669 with the appropriate campus.

    Note:

    Revenue Agents/Officers may process Forms 4670 and 4669 received before the examination is closed as per guidance in IRM 4.23.8.4.3, Procedures for Granting Relief Under IRC 3402(d) and/or IRC 3102(f)(3) by Examiners.

21.7.2.5.8.1  (10-01-2014)
Processing Procedures for Forms 4669 and 4670

  1. Requests for relief under IRC 3402(d) are not Exam criteria even though they involve tax accounts that were previously examined.

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  3. The Form 4668 for the case must be secured to determine the amount of tax for which relief can be granted under IRC 3402(d). Take the following actions if the employer submits Forms 4669 and 4670 without a copy of the Form 4668:

    1. Make two attempts to contact the employer (or an authorized representative) by phone to obtain a copy of the Form 4668.

    2. If unable to obtain the Form 4668 from the employer, request the TC 30X assessment document (or controlling DLN) on the last quarter of each calendar year shown on Form 4670.

      Note:

      If the TC 30X assessment document is charged out to Examination on an initial document request, suspend the case and request the document again after 30 days.

    3. If a copy of the Form 4668 cannot be obtained from the employer or from Files as per the above procedures, return the Forms 4669 and Form 4670 to the employer with instructions to resubmit the documents with a copy of the Form 4668.

  4. Use Forms 4668 and 4669 to determine the amount to be adjusted as follows:

    Exception:

    Area Office Forms 3870, Request for Adjustment, do not need to be verified against Form 4668.

    1. For each year involved, add the figures shown on line 5, "Amount of Payments (Including Commissions, Bonuses, Prizes, etc.) on Which Income Tax and Social Security Tax Were Not Withheld" , of the Form(s) 4669 submitted with Form 4670.

    2. Multiply the figure determined in step 1 above by 28% (.28).

    3. The amount of the tax adjustment to be made is limited to the lesser of the tax figure determined in step 2 above or the amount shown on line 12, "Maximum tax available for abatement under IRC 3402(d)" , of Form 4668.

      Caution:

      If line 17, Form 4668, is zero, blank or "none" , do not make any adjustment.

  5. When the claim can be processed, adjust the module for the proper amount using either TC 291 or TC 299 (with IRN 003 or IRN 111) as follows:

    If And Then
    The employer signed the Form 2504 Interest is not restricted on the module Input TC 299 with an "interest from" date using the date the original signed Form 2504 was received by the IRS.
    The employer signed the Form 2504 Interest is restricted on the module Interest must be manually computed and adjusted unless the assessment qualified as a completely interest-free adjustment. Input TC 299 with an "interest from" date using the date the original signed Form 2504 was received by the IRS and the appropriate TC 34X amount. No underpayment interest is due on the amount being abated under IRC 3402(d). However, underpayment interest is due on any remaining amount of the assessment from the date the original Form 2504 was received to the date of full payment.

    Note:

    If the Form 2504 is unavailable, and there is a TC 308 on the module, use the date of the TC 308 for the interest computation date when following the procedures in the table above. If there is no TC 308, request the assessment document or contact the employer for a copy of the Form 2504. Fax copies are acceptable.

  6. Restrict any penalty assessments on the module if a tax decrease made under these procedures would cause penalties to recompute. The employer is liable for all penalties as a result of the examination. Penalties should not be decreased when tax is adjusted.

  7. Documentation for the adjustment must include the Forms 4669 and 4670 provided by the employer, copy of the Form 4668, and Form 2504 if secured).

21.7.2.5.9  (10-01-2011)
IRC Section 127, Educational Exclusions

  1. Under IRC Section 127, an employer can exclude from gross income up to $5,250 per employee for educational assistance benefits. This benefit expired and was reinstated a number of times over the years until the Economic Growth and Tax Relief Reconciliation Act of 2001 permanently extended IRC 127.

  2. Employers should account for IRC Section 127 exclusions as they pay wages and report employment taxes during the year. However, employers may file claims on Forms 94XX if necessary when errors in reporting have occurred. Follow the procedures for the appropriate Form 94XX adjusted employment tax return when working these claims or adjustment requests.

  3. Employees unable to obtain refunds from their employer may file Form 843 to obtain a refund. A statement from the employer must be attached listing any amount which has been reimbursed by employer. If employee is unable to obtain this statement, they must provide this information to the best of their ability. (Contact the taxpayer if neither an employer or employee statement has been provided with the claim. Fax copies are acceptable.) When the required documentation is secured, follow procedures in IRM 21.7.2.4.6.4.2, Excess FICA Tax Withheld — Employee Claims for Refund, under "Claim is correctly filed with employer's statement attached" , in the "If/Then" table.

  4. See archived IRM 21.7.2 if information is needed with regards to the handling of claims for tax years ending December 31, 2001 or earlier.

21.7.2.5.10  (11-10-2011)
Medical/Dental Residents Excess FICA Claims (United States vs. Mayo Foundation or Minnesota vs. Apfel)

  1. In the court case Minnesota vs. Apfel, 151 F.3d 742 (8th Cir. 1998), the court ruled that certain medical/dental residents may be considered students and, therefore, not subject to FICA taxes.

  2. On March 2, 2010, the Internal Revenue Service made an administrative determination to accept the position that medical residents are excepted from FICA taxes based on the student exception for tax periods ending before April 1, 2005 when new IRS regulations went into effect. The IRS has contacted hospitals and universities as well as medical residents who filed FICA (social security and Medicare tax) refund claims for these tax periods for the purpose of perfecting the claims. Additional information may be found on the IRS website at:IRS to Honor Medical Resident FICA Refund Claims.

  3. Final regulations under IRC 3121(b)(10) (the "student exception" ) clarified who can be considered a student for purposes of the student exception. The final regulations provide that an employee whose normal work schedule is 40 hours or more per week is considered a full-time employee and is not eligible for the student FICA exception (the "full-time employee" rule). This prevents medical residents from being considered students and therefore wages earned by medical residents are considered wages subject to FICA taxes. The final regulations are applicable with respect to services performed on or after April 1, 2005.

  4. In Mayo Foundation for Medical Education and Research et al v. United States, 131 S. Ct. 701 (2011), the Supreme Court held that the full-time employee rule was valid. This resolved the FICA tax treatment of wages paid to medical residents for tax periods beginning April 1, 2005.

  5. Two explanations frequently used by taxpayers when attempting to claim exemption from FICA (social security and Medicare) taxes are:

    1. "Amounts paid to residents in training are scholarship grants for training. Such training grants are not payments for services within the meaning of IRC Section 117(c) or Section 3121(b)(10). Consequently, these training grants are not subject to FICA taxes."

    2. "Amounts paid to residents in training were originally included in the FICA (Social Security and Medicare) wages for periods included in this Form 941-X. We are adjusting the FICA (Social Security and Medicare) wages to exclude the amounts paid to residents in training since these amounts are not subject to FICA taxes."

  6. For medical/dental resident claims filed by employers, including those citing the Mayo Foundation decision and/or citing Section 218 agreements, follow handling procedures in IRM 21.7.2.5.10.1, Employer Claims (Medical/Dental Residents).

  7. For medical/dental resident claims filed by employees, including those citing the Mayo Foundation decision and/or citing Section 218 agreements, follow handling procedures in IRM 21.7.2.5.10.2, Employee Claims (Medical/Dental Residents).

21.7.2.5.10.1  (11-10-2011)
Employer Claims (Medical/Dental Residents)

  1. Follow the instructions in the table below for Medical/Dental Resident claims filed by employers, including those citing the Mayo Foundation decision and/or citing Section 218 agreements.

    If And Then
    A claim (Form 941-X) is filed for any tax period. There is no evidence of timely filing Disallow the claim on the basis of the expired refund statute expiration date (RSED) and send Letter 105C as per instructions in IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures, and IRM 25.6.1.10.2.5.3 , Notification to Taxpayer Upon Disallowance of a Claim.
    A claim (Form 941-X) is filed for a tax period before April 1, 2005. There is evidence of timely filing. Forward as CATA and notate case as 'CATAMEDDEN'.

    Exception:

    Do not send CAT-A until the claim is complete for processing, including all required certifications. Take the following actions on incomplete claims:
    1. Attempt to contact the taxpayer (employer) for the necessary information. (The information can be faxed as long as the original claim contains a signature.) Upon receipt, follow instructions above.
    2. If unable to contact the taxpayer (employer), return the claim using Letter 916C. Inform the taxpayer (employer) of the information needed and instruct them to resubmit the claim when the necessary information is obtained. If the claim is received within 180 days of RSED, follow procedures in IRM 21.5.3.4.3, Tax Decrease and Statute Consideration.

    A claim (Form 941-X) is filed for a tax period after March 31, 2005 The claim is timely filed Disallow the claim and send Letter 105C as per instructions in IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. The following language should be used in the disallowance letter open paragraph: "Your claim(s) is being denied because of the Supreme Court decision in Mayo Foundation for Medical Education and Research v. United States, 131 S. Ct. 704 (2011). In that case, the Court held that medical residents do not qualify for exemption from FICA taxes as “students” under Internal Revenue Code Section 3121(b)(10) for tax periods ending after March 31, 2005."

    Note:

    For tax period 200812 and earlier, employers could correct errors and make claims (including Medical/Dental claims) for prior tax periods as line adjustments on a current employment tax return. For Medical/Dental Resident claims taken as line adjustments on returns filed for tax periods ending December 31, 2008 and earlier, follow the table above. For Medical/Dental Resident claims taken as line adjustments on returns filed for tax periods ending after December 31, 2008, follow the appropriate section of IRM 21.7.2.4.6.7, Exception Processing — Incorrect Filing, Including Forms Routed to AM from SP.

21.7.2.5.10.2  (11-10-2011)
Employee Claims (Medical/Dental Residents)

  1. Follow the instructions in the table below for Medical/Dental Resident claims filed by employees, including those citing the Mayo Foundation decision and/or citing Section 218 agreements.

    If And Then
    A claim is filed for any tax period There is no evidence of timely filing Disallow the claim on the basis of the expired refund statute expiration date (RSED) and send Letter 105C as per instructions in IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures, IRM 25.6.1.10.2.5.3 , Notification to Taxpayer Upon Disallowance of a Claim, and the last two rows of the If/Then Table in IRM 21.7.2.4.6.4.2(3).
    A claim is filed for a tax period before January 1, 2006. There is evidence of timely filing. Forward as CATA and notate case as 'CATAMEDDEN'.

    Exception:

    Do not send CAT-A until the claim is complete for processing, including the employer statement (or equivalent employee statement) discussed in IRM 21.7.2.4.6.4.2, Excess FICA Tax Withheld — Employee Claims for Refund. Take the following actions on incomplete claims:
    1. Attempt to contact the taxpayer (employee) for the necessary information. (The information can be faxed as long as the original claim contains a signature.) Upon receipt, follow instructions above.
    2. If unable to contact the taxpayer (employee), return the claim using Letter 916C. Inform the taxpayer (employee) of the information needed and instruct them to resubmit the claim when the necessary information is obtained. If the claim is received within 180 days of RSED, follow procedures in IRM 21.5.3.4.3, Tax Decrease and Statute Consideration.

    A claim is filed for a tax period after December 31, 2005. The claim is timely filed Disallow the claim and send Letter 105C as per instructions in IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. The following language should be used in the disallowance letter open paragraph: "Your claim(s) is being denied because of the Supreme Court decision in Mayo Foundation for Medical Education and Research v. United States, 131 S. Ct. 704 (2011). In that case, the Court held that medical residents do not qualify for exemption from FICA taxes as “students” under Internal Revenue Code Section 3121(b)(10) for tax periods ending after March 31, 2005."

    Note:

    Although Form 1040X is not the proper form to file for refund or credit of these excess FICA claims, we will accept it for processing purposes if it contains the necessary information. However, if the claim is filed on a Form 1040X and you are rejecting the claim back to the employee, you must advise the employee that Form 843 (rather than Form 1040X) must be used when/if the claim is resubmitted with the necessary information.

21.7.2.5.11  (10-01-2013)
Foreign Students — FICA Tax Erroneously Withheld

  1. Per IRC 3121(b)(19), certain foreign students and other non-resident aliens are exempt from FICA for services performed as specified in Section 101(a)(15)(F), (J), (M), or (Q) of the Immigration and Nationality Act.

  2. It is generally the employer's responsibility to determine the tax status of foreign students and other non-resident employees for employment tax purposes. However, employers sometimes erroneously treat an exempt employee's wages as taxable for FICA. In that situation, claims for refund or credit may be filed by either the employer or the employee:

    • See IRM 21.7.2.5.11.1, Procedures for Inquiries Received From Foreign Students, for handling guidance on inquiries and claims filed by employees for this issue.

    • See IRM 21.7.2.5.11.2, Employer Claims Involving Foreign Students, for handling guidance on inquiries and claims filed by employers for this issue.

21.7.2.5.11.1  (10-01-2013)
Procedures for Inquiries Received From Foreign Students

  1. Employers may in some instances erroneously withhold FICA taxes from exempt foreign students and other non-resident aliens holding F, J, M, or Q visas. Employees for whom FICA taxes are erroneously withheld should seek reimbursement from their employer. However, If the employee is unable to obtain reimbursement from their employer, they may file a claim for refund of the erroneously withheld FICA taxes.

  2. In order to substantiate exemption from FICA taxes, the individual holding the F, J, M, or Q visa must supply:

    1. Completed and signed Form 843 claim for each employer. If the claim is for more than one employer, but otherwise complete with all required documentation, the claim may be processed.

    2. Form W-2 (If a Form W-2 is not provided, the FICA withholding amount can be verified using CC IRPTR, if available.) If the visa status changed, a copy of the pay stub is needed to verify the FICA amount claimed.

    3. A copy of the entry and current visa.

    4. Form I-94, Arrival/Departure Record, or other documentation showing the dates of arrival and departure.

      Note:

      Overseas filers no longer have the Form I-94 since the USCIS (US Citizenship and Immigration Service) keeps this document when the student/visitor leaves the United States.

    5. Form I-20 (for F-1/M-1 visa(s) only) or IAP-66/DS-2019 (for J-1 visa only).

    6. Form 8316, Information Regarding Request for Refund of Social Security Tax Erroneously Withheld on Wages Received by a Nonresident Alien on an F, J, or M Type Visa , or signed claim/statement verifying that unsuccessful attempts have been made to obtain a refund from the employer. Statements in lieu of the Form 8316 must include all the information requested on the Form 8316.

      Note:

      For I-766 or I-688B (Employment Authorization Document) is issued by USCIS and is needed only if the student is engaged in optional practical training. See IRM 21.8.2.7.1.1, Optional Practical Training.

    Caution:

    Any excess Additional Medicare Tax (AdMT) withheld by an employer must be claimed on an income tax return.

  3. Foreign student claims filed by employees are processed at the Ogden campus as per procedures in IRM 21.8.2.7.3, Processing Employee Claims.

  4. Process foreign student claims received at any campus other than at Ogden as follows:

    If Then
    The employee's claim is complete for processing (verify items discussed in (2) above are attached). Route these claims to the following address and advise the taxpayer of the transfer via Letter 86C:
    Ogden Campus
    1973 N Rulon White Blvd
    Ogden, Utah 84404
    M/S 6552
    The employee's claim is not complete for processing (verify items discussed in (2) above are attached). Follow procedures in IRM 21.8.2.7.3(4) and advise the employee in the required Letter 513C to file a complete claim at the Ogden campus address as above if they are unable to obtain reimbursement from their employer.

    Note:

    Employer claims involving foreign students must be filed on the appropriate Form 94XX and are processed at the Cincinnati or Ogden Campuses. See IRM 21.7.2.5.11.2, Employer Claims Involving Foreign Students.

21.7.2.5.11.2  (10-01-2013)
Employer Claims Involving Foreign Students

  1. Employer claims must be filed on the appropriate Form 94XX and are processed at the Cincinnati or Ogden Campuses.

  2. There are no special procedures (see Exception in (3) below) for Forms 94XX filed by employers seeking refunds or credits of FICA taxes erroneously withheld from employees who are foreign students and other exempt non-resident aliens holding F, J, M, or Q visas or for the associated employer's share of FICA taxes.

  3. Forms 94XX filed by employers for this issue are to be processed as per the general Form 94XX processing instructions in IRM 21.7.2.4.6 and the procedures for the specific type of Form 94XX and filing situation (e.g., if the 941-X received is a tax decrease - claim for refund, follow IRM 21.7.2.4.7.6.2).

    Exception:

    If the employee has already filed a Form 843 claim and received a refund of erroneously withheld FICA taxes, then the employer may only obtain a refund or credit for the employer's share of associated FICA taxes. In that instance, the account will reflect a reduction in wages and a reduction in tax equal to the employee's share of FICA taxes. The Form 94XX filed by the employer may reflect an identical reduction in wages as was posted with the employee claim adjustment. If so, adjust IRN 112 (or IRN 007 as appropriate) but do not reduce wages a second time.

    Note:

    Employee claims involving foreign students are filed on Form 843 and are processed at the Ogden Campus. See IRM 21.7.2.5.11.2, Procedures for Inquiries Received From Foreign Students, for handling and routing information if an employee claim is received at a site other than Ogden.


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