Publication 15 - Main Content

Table of Contents

1. Employer Identification Number (EIN)

If you are required to report employment taxes or give tax statements to employees or annuitants, you need an employer identification number (EIN).

The EIN is a nine-digit number the IRS issues. The digits are arranged as follows: 00-0000000. It is used to identify the tax accounts of employers and certain others who have no employees. Use your EIN on all of the items you send to the IRS and SSA. For more information, see Publication 1635, Employer Identification Number: Understanding Your EIN.

If you do not have an EIN, you may apply for one online. Go to the IRS.gov and click on the Apply for an EIN Online link under Tools. You may also apply for an EIN by calling 1-800-829-4933, or you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. Do not use a social security number (SSN) in place of an EIN.

You should have only one EIN. If you have more than one and are not sure which one to use, call 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, heard of hearing, or have a speech disability). Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. The IRS will tell you which number to use.

If you took over another employer's business (see Successor employer in section 9), do not use that employer's EIN. If you have applied for an EIN but do not have your EIN by the time a return is due, file a paper return and write “Applied For” and the date you applied for it in the space shown for the number.

2. Who Are Employees?

Generally, employees are defined either under common law or under statutes for certain situations. See Publication 15-A for details on statutory employees and nonemployees.

Employee status under common law.   Generally, a worker who performs services for you is your employee if you have the right to control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed. See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee.

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

  If an employer-employee relationship exists, it does not matter what it is called. The employee may be called an agent or independent contractor. It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time.

Statutory employees.   If someone who works for you is not an employee under the common law rules discussed earlier, do not withhold federal income tax from his or her pay, unless backup withholding applies. Although the following persons may not be common law employees, they are considered employees by statute for social security, Medicare, and FUTA tax purposes under certain conditions.

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

  • A full-time life insurance salesperson who sells primarily for one company.

  • A homeworker who works by guidelines of the person for whom the work is done, with materials furnished by and returned to that person or to someone that person designates.

  • A traveling or city salesperson (other than an agent-driver or commission-driver) who works full time (except for sideline sales activities) for one firm or person getting orders from customers. The orders must be for merchandise for resale or supplies for use in the customer's business. The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging.

  

Statutory nonemployees.   Direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. They are generally treated as self-employed for all federal tax purposes, including income and employment taxes.

H-2A agricultural workers.   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees.

Treating employees as nonemployees.   You will generally be liable for social security and Medicare taxes and withheld income tax if you do not deduct and withhold these taxes because you treated an employee as a nonemployee. You may be able to calculate your liability using special section 3509 rates for the employee share of social security and Medicare taxes and the federal income tax withholding. The applicable rates depend on whether you filed required Forms 1099. You cannot recover the employee share of social security, or Medicare tax, or income tax withholding from the employee if the tax is paid under section 3509. You are liable for the income tax withholding regardless of whether the employee paid income tax on the wages. You continue to owe the full employer share of social security and Medicare taxes. The employee remains liable for the employee share of social security and Medicare taxes. See Internal Revenue Code section 3509 for details. Also see the Instructions for Form 941-X.

  Section 3509 rates are not available if you intentionally disregard the requirement to withhold taxes from the employee or if you withheld income taxes but not social security or Medicare taxes. Section 3509 is not available for reclassifying statutory employees. See Statutory employees , earlier in this section.

  If the employer issued required information returns, the section 3509 rates are:

  • For social security taxes; employer rate of 6.2% plus 20% of the employee rate (see the Instructions for Form 941-X).

  • For Medicare taxes; employer rate of 1.45% plus 20% of the employee rate of 1.45%, for a total rate of 1.74% of wages.

  • For Additional Medicare Tax; 20% of the employee rate of 0.9%.

  • For income tax withholding, the rate is 1.5% of wages.

  If the employer did not issue required information returns, the section 3509 rates are:

  • For social security taxes; employer rate of 6.2% plus 40% of the employee rate (see the Instructions for Form 941-X).

  • For Medicare taxes; employer rate of 1.45% plus 40% of the employee rate of 1.45%, for a total rate of 2.03% of wages.

  • For Additional Medicare Tax; 40% of the employee rate of 0.9%.

  • For income tax withholding, the rate is 3.0% of wages.

Relief provisions.   If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. To get this relief, you must file all required federal tax returns, including information returns, on a basis consistent with your treatment of the worker. You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. See Publication 1976, Do You Qualify for Relief Under Section 530.

IRS help.   If you want the IRS to determine whether a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

Voluntary Classification Settlement Program (VCSP).   Employers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to voluntarily reclassify their workers as employees for future tax periods may be eligible to participate in the VCSP if certain requirements are met. To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). For more information visit IRS.gov and enter “VCSP” in the search box.

Husband-Wife Business

If you and your spouse jointly own and operate a business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. See Publication 541, Partnerships, for more details. The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees.

Exception—Qualified joint venture.   For tax years beginning after December 31, 2006, the Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28) provides that a “qualified joint venture,” whose only members are a husband and a wife filing a joint income tax return, can elect not to be treated as a partnership for federal tax purposes. A qualified joint venture conducts a trade or business where:

  • The only members of the joint venture are a husband and wife who file a joint income tax return,

  • Both spouses materially participate (see Material participation in the Instructions for Schedule C (Form 1040), line G) in the trade or business (mere joint ownership of property is not enough),

  • Both spouses elect to not be treated as a partnership, and

  • The business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or limited liability company (LLC).

  To make the election, all items of income, gain, loss, deduction, and credit must be divided between the spouses, in accordance with each spouse's interest in the venture, and reported on separate Schedules C or F as sole proprietors. Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable.

  Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally do not need an EIN. If employment taxes are owed by the qualified joint venture, either spouse may report and pay the employment taxes due on the wages paid to the employees using the EIN of that spouse's sole proprietorship. Generally, filing as a qualified joint venture will not increase the spouses' total tax owed on the joint income tax return. However, it gives each spouse credit for social security earnings on which retirement benefits are based and for Medicare coverage without filing a partnership return.

   Note. If your spouse is your employee, not your partner, you must pay social security and Medicare taxes for him or her. For more information on qualified joint ventures, visit IRS.gov, enter “qualified joint venture” in the search box, and then select Election for Husband and Wife Unincorporated Businesses.

Exception—Community income.   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U.S. possession, you can treat the business either as a sole proprietorship (of the spouse who carried on the business) or a partnership. You may still make an election to be taxed as a qualified joint venture instead of a partnership. See Exception—Qualified joint venture above.

3. Family Employees

Child employed by parents.   Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. If these payments are for work other than in a trade or business, such as domestic work in the parent's private home, they are not subject to social security and Medicare taxes until the child reaches age 21. However, see Covered services of a child or spouse , later in this section. Payments for the services of a child under age 21 who works for his or her parent, whether or not in a trade or business, are not subject to FUTA tax. Payments for the services of a child of any age who works for his or her parent are generally subject to income tax withholding unless the payments are for domestic work in the parent's home, or unless the payments are for work other than in a trade or business and are less than $50 in the quarter or the child is not regularly employed to do such work.

One spouse employed by another.   The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and social security and Medicare taxes, but not to FUTA tax. However, the payments for services of one spouse employed by another in other than a trade or business, such as domestic service in a private home, are not subject to social security, Medicare, and FUTA taxes.

Covered services of a child or spouse.   The wages for the services of a child or spouse are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for:

  • A corporation, even if it is controlled by the child's parent or the individual's spouse;

  • A partnership, even if the child's parent is a partner, unless each partner is a parent of the child;

  • A partnership, even if the individual's spouse is a partner; or

  • An estate, even if it is the estate of a deceased parent.

Parent employed by son or daughter.   When the employer is a son or daughter employing his or her parent the following rules apply.

  • Payments for the services of a parent in the son’s or daughter’s (the employer’s) trade or business are subject to income tax withholding and social security and Medicare taxes.

  • Payments for the services of a parent not in the son’s or daughter’s (the employer’s) trade or business are generally not subject to social security and Medicare taxes.

  
Social security and Medicare taxes do apply to payments made to a parent for domestic services if all of the following apply:

  • The parent is employed by his or her son or daughter;

  • The son or daughter (the employer) has a child or stepchild living in the home;

  • The son or daughter (the employer) is a widow or widower, divorced, or living with a spouse who, because of a mental or physical condition, cannot care for the child or stepchild for at least 4 continuous weeks in a calendar quarter; and

  • The child or stepchild is either under age 18 or requires the personal care of an adult for at least 4 continuous weeks in a calendar quarter due to a mental or physical condition.

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

4. Employee's Social Security Number (SSN)

You are required to get each employee's name and SSN and to enter them on Form W-2. This requirement also applies to resident and nonresident alien employees. You should ask your employee to show you his or her social security card. The employee may show the card if it is available.

Do not accept a social security card that says “Not valid for employment.” A social security number issued with this legend does not permit employment.

You may, but are not required to, photocopy the social security card if the employee provides it. If you do not provide the correct employee name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause. See Publication 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs, for information on the requirement to solicit the employee's SSN.

Applying for a social security card.   Any employee who is legally eligible to work in the United States and does not have a social security card can get one by completing Form SS-5, Application for a Social Security Card, and submitting the necessary documentation. You can get this form at SSA offices, by calling 1-800-772-1213, or from the SSA website at www.socialsecurity.gov/online/ss-5.html. The employee must complete and sign Form SS-5; it cannot be filed by the employer.

Applying for a social security number.   If you file Form W-2 on paper and your employee applied for an SSN but does not have one when you must file Form W-2, enter “Applied For” on the form. If you are filing electronically, enter all zeros (000-00-000) in the social security number field. When the employee receives the SSN, file Copy A of Form W-2c, Corrected Wage and Tax Statement, with the SSA to show the employee's SSN. Furnish copies B, C, and 2 of Form W-2c to the employee. Up to 25 Forms W-2c for each Form W-3c, Transmittal of Corrected Wage and Tax Statements, may now be filed per session over the Internet, with no limit on the number of sessions. For more information, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www.socialsecurity.gov/employer. Advise your employee to correct the SSN on his or her original Form W-2.

Correctly record the employee's name and SSN.   Record the name and number of each employee as they are shown on the employee's social security card. If the employee's name is not correct as shown on the card (for example, because of marriage or divorce), the employee should request a corrected card from the SSA. Continue to report the employee's wages under the old name until the employee shows you an updated social security card with the new name.

If the SSA issues the employee a replacement card after a name change, or a new card with a different social security number after a change in alien work status, file a Form W-2c to correct the name/SSN reported for the most recently filed Form W-2. It is not necessary to correct other years if the previous name and number were used for years before the most recent Form W-2.

IRS individual taxpayer identification numbers (ITINs) for aliens.   Do not accept an ITIN in place of an SSN for employee identification or for work. An ITIN is only available to resident and nonresident aliens who are not eligible for U.S. employment and need identification for other tax purposes. You can identify an ITIN because it is a nine-digit number, beginning with the number “9” with either a “7” or “8” as the fourth digit and is formatted like an SSN (for example, 9NN-7N-NNNN).

  
An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN. If the individual is currently eligible to work in the United States, instruct the individual to apply for an SSN and follow the instructions under Applying for a social security number, earlier. Do not use an ITIN in place of an SSN on Form W-2.

Verification of social security numbers.   Employers and authorized reporting agents can use the Social Security Number Verification Service (SSNVS) to instantly verify up to 10 names and SSNs (per screen) at a time, or submit an electronic file of up to 250,000 names and SSNs and usually receive the results the next business day. Visit www.socialsecurity.gov/employer/ssnv.htm for more information.

Registering for SSNVS.   You must register online and receive authorization from your employer to use SSNVS. To register, visit SSA's website at www.ssa.gov/employer and click on the Business Services Online link. Follow the registration instructions to obtain a user identification (ID) and password. You will need to provide the following information about yourself and your company.

  • Name.

  • SSN.

  • Date of birth.

  • Type of employer.

  • EIN.

  • Company name, address, and telephone number.

  • Email address.

  When you have completed the online registration process, SSA will mail a one-time activation code to your employer. You must enter the activation code online to use SSNVS.

5. Wages and Other Compensation

Wages subject to federal employment taxes generally include all pay you give to an employee for services performed. The pay may be in cash or in other forms. It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. It does not matter how you measure or make the payments. Amounts an employer pays as a bonus for signing or ratifying a contract in connection with the establishment of an employer-employee relationship and an amount paid to an employee for cancellation of an employment contract and relinquishment of contract rights are wages subject to social security, Medicare, and FUTA taxes and income tax withholding. Also, compensation paid to a former employee for services performed while still employed is wages subject to employment taxes.

More information.   See section 6 for a discussion of tips and section 7 for a discussion of supplemental wages. Also, see section 15 for exceptions to the general rules for wages. Publication 15-A provides additional information on wages, including nonqualified deferred compensation, and other compensation. Publication 15-B provides information on other forms of compensation, including:

  • Accident and health benefits,

  • Achievement awards,

  • Adoption assistance,

  • Athletic facilities,

  • De minimis (minimal) benefits,

  • Dependent care assistance,

  • Educational assistance,

  • Employee discounts,

  • Employee stock options,

  • Employer-provided cell phones,

  • Group-term life insurance coverage,

  • Health Savings Accounts,

  • Lodging on your business premises,

  • Meals,

  • Moving expense reimbursements,

  • No-additional-cost services,

  • Retirement planning services,

  • Transportation (commuting) benefits,

  • Tuition reduction, and

  • Working condition benefits.

Employee business expense reimbursements.   A reimbursement or allowance arrangement is a system by which you pay the advances, reimbursements, and charges for your employees' business expenses. How you report a reimbursement or allowance amount depends on whether you have an accountable or a nonaccountable plan. If a single payment includes both wages and an expense reimbursement, you must specify the amount of the reimbursement.

  These rules apply to all ordinary and necessary employee business expenses that would otherwise qualify for a deduction by the employee.

Accountable plan.   To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules.

  1. They must have paid or incurred deductible expenses while performing services as your employees. The reimbursement or advance must be paid for the expense and must not be an amount that would have otherwise been paid by the employee.

  2. They must substantiate these expenses to you within a reasonable period of time.

  3. They must return any amounts in excess of substantiated expenses within a reasonable period of time.

  Amounts paid under an accountable plan are not wages and are not subject to the withholding and payment of income, social security, Medicare, and FUTA taxes.

  If the expenses covered by this arrangement are not substantiated (or amounts in excess of substantiated expenses are not returned within a reasonable period of time), the amount paid under the arrangement in excess of the substantiated expenses is treated as paid under a nonaccountable plan. This amount is subject to the withholding and payment of income, social security, Medicare, and FUTA taxes for the first payroll period following the end of the reasonable period of time.

  A reasonable period of time depends on the facts and circumstances. Generally, it is considered reasonable if your employees receive their advance within 30 days of the time they incur the expenses, adequately account for the expenses within 60 days after the expenses were paid or incurred, and return any amounts in excess of expenses within 120 days after the expenses were paid or incurred. Also, it is considered reasonable if you give your employees a periodic statement (at least quarterly) that asks them to either return or adequately account for outstanding amounts and they do so within 120 days.

Nonaccountable plan.   Payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wages and are treated as supplemental wages and subject to the withholding and payment of income, social security, Medicare, and FUTA taxes. Your payments are treated as paid under a nonaccountable plan if:

  • Your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation,

  • You advance an amount to your employee for business expenses and your employee is not required to or does not return timely any amount he or she does not use for business expenses,

  • You advance or pay an amount to your employee regardless of whether you reasonably expect the employee to have business expenses related to your business, or

  • You pay an amount as a reimbursement you would have otherwise paid as wages.

  See section 7 for more information on supplemental wages.

Per diem or other fixed allowance.   You may reimburse your employees by travel days, miles, or some other fixed allowance under the applicable revenue procedure. In these cases, your employee is considered to have accounted to you if your reimbursement does not exceed rates established by the Federal Government. The 2012 standard mileage rate for auto expenses was 55.5 cents per mile. The rate for 2013 is 56.5 cents per mile.

  The government per diem rates for meals and lodging in the continental United States are listed in Publication 1542, Per Diem Rates. Other than the amount of these expenses, your employees' business expenses must be substantiated (for example, the business purpose of the travel or the number of business miles driven).

  If the per diem or allowance paid exceeds the amounts substantiated, you must report the excess amount as wages. This excess amount is subject to income tax withholding and payment of social security, Medicare, and FUTA taxes. Show the amount equal to the substantiated amount (for example, the nontaxable portion) in box 12 of Form W-2 using code “L.”

Wages not paid in money.   If in the course of your trade or business you pay your employees in a medium that is neither cash nor a readily negotiable instrument, such as a check, you are said to pay them “in kind.” Payments in kind may be in the form of goods, lodging, food, clothing, or services. Generally, the fair market value of such payments at the time they are provided is subject to federal income tax withholding and social security, Medicare, and FUTA taxes.

  However, noncash payments for household work, agricultural labor, and service not in the employer's trade or business are exempt from social security, Medicare, and FUTA taxes. Withhold income tax on these payments only if you and the employee agree to do so. Nonetheless, noncash payments for agricultural labor, such as commodity wages, are treated as cash payments subject to employment taxes if the substance of the transaction is a cash payment.

Moving expenses.   Reimbursed and employer-paid qualified moving expenses (those that would otherwise be deductible by the employee) paid under an accountable plan are not includible in an employee's income unless you have knowledge the employee deducted the expenses in a prior year. Reimbursed and employer-paid nonqualified moving expenses are includible in income and are subject to employment taxes and income tax withholding. For more information on moving expenses, see Publication 521, Moving Expenses.

Meals and lodging.   The value of meals is not taxable income and is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the meals are furnished for the employer's convenience and on the employer's premises. The value of lodging is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the lodging is furnished for the employer's convenience, on the employer's premises, and as a condition of employment.

   “For the convenience of the employer” means you have a substantial business reason for providing the meals and lodging other than to provide additional compensation to the employee. For example, meals you provide at the place of work so that an employee is available for emergencies during his or her lunch period are generally considered to be for your convenience.

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

50% test.   If over 50% of the employees who are provided meals on an employer's business premises receive these meals for the convenience of the employer, all meals provided on the premises are treated as furnished for the convenience of the employer. If this 50% test is met, the value of the meals is excludable from income for all employees and is not subject to federal income tax withholding or employment taxes. For more information, see Publication 15-B.

Health insurance plans.   If you pay the cost of an accident or health insurance plan for your employees, including an employee's spouse and dependents, your payments are not wages and are not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Generally, this exclusion also applies to qualified long-term care insurance contracts. However, for income tax withholding, the value of health insurance benefits must be included in the wages of S corporation employees who own more than 2% of the S corporation (2% shareholders). For social security, Medicare, and FUTA taxes, the health insurance benefits are excluded from the wages only for employees and their dependents or for a class or classes of employees and their dependents. See Announcement 92-16 for more information. You can find Announcement 92-16 on page 53 of Internal Revenue Bulletin 1992-5.

Health Savings Accounts and medical savings accounts.   Your contributions to an employee's Health Savings Account (HSA) or Archer medical savings account (MSA) are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding if it is reasonable to believe at the time of payment of the contributions they will be excludable from the income of the employee. To the extent it is not reasonable to believe they will be excludable, your contributions are subject to these taxes. Employee contributions to their HSAs or MSAs through a payroll deduction plan must be included in wages and are subject to social security, Medicare, and FUTA taxes and income tax withholding. However, HSA contributions made under a salary reduction arrangement in a section 125 cafeteria plan are not wages and are not subject to employment taxes or withholding. For more information, see the Instructions for Form 8889, Health Savings Accounts (HSAs).

Medical care reimbursements.   Generally, medical care reimbursements paid for an employee under an employer's self-insured medical reimbursement plan are not wages and are not subject to social security, Medicare, and FUTA taxes, or income tax withholding. See Publication 15-B for an exception for highly compensated employees.

Differential wage payments.   Differential wage payments are any payments made by an employer to an individual for a period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days and represent all or a portion of the wages the individual would have received from the employer if the individual were performing services for the employer.

  Differential wage payments are wages for income tax withholding, but are not subject to social security, Medicare, or FUTA taxes. Employers should report differential wage payments in box 1 of Form W-2. For more information about the tax treatment of differential wage payments, visit IRS.gov and enter “employees in a combat zone” in the search box.

Fringe benefits.   You generally must include fringe benefits in an employee's gross income (but see Nontaxable fringe benefits next). The benefits are subject to income tax withholding and employment taxes. Fringe benefits include cars you provide, flights on aircraft you provide, free or discounted commercial flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events. In general, the amount you must include is the amount by which the fair market value of the benefits is more than the sum of what the employee paid for it plus any amount the law excludes. There are other special rules you and your employees may use to value certain fringe benefits. See Publication 15-B for more information.

Nontaxable fringe benefits.   Some fringe benefits are not taxable (or are minimally taxable) if certain conditions are met. See Publication 15-B for details. The following are some examples of nontaxable fringe benefits.

  1. Services provided to your employees at no additional cost to you.

  2. Qualified employee discounts.

  3. Working condition fringes that are property or services the employee could deduct as a business expense if he or she had paid for it. Examples include a company car for business use and subscriptions to business magazines.

  4. Certain minimal value fringes (including an occasional cab ride when an employee must work overtime and meals you provide at eating places you run for your employees if the meals are not furnished at below cost).

  5. Qualified transportation fringes subject to specified conditions and dollar limitations (including transportation in a commuter highway vehicle, any transit pass, and qualified parking).

  6. Qualified moving expense reimbursement. See Moving expenses , earlier in this section, for details.

  7. The use of on-premises athletic facilities, if substantially all of the use is by employees, their spouses, and their dependent children.

  8. Qualified tuition reduction an educational organization provides to its employees for education. For more information, see Publication 970, Tax Benefits for Education.

  9. Employer-provided cell phones provided primarily for a noncompensatory business reason.

  However, do not exclude the following fringe benefits from the income of highly compensated employees unless the benefit is available to other employees on a nondiscriminatory basis.

  • No-additional-cost services.

  • Qualified employee discounts.

  • Meals provided at an employer operated eating facility.

  • Reduced tuition for education.

 
For more information, including the definition of a highly compensated employee, see Publication 15-B.

When fringe benefits are treated as paid.   You may choose to treat certain noncash fringe benefits as paid by the pay period, by the quarter, or on any other basis you choose as long as you treat the benefits as paid at least once a year. You do not have to make a formal choice of payment dates or notify the IRS of the dates you choose. You do not have to make this choice for all employees. You may change methods as often as you like, as long as you treat all benefits provided in a calendar year as paid by December 31 of the calendar year. See Publication 15-B for more information, including a discussion of the special accounting rule for fringe benefits provided during November and December.

Valuation of fringe benefits.   Generally, you must determine the value of fringe benefits no later than January 31 of the next year. Before January 31, you may reasonably estimate the value of the fringe benefits for purposes of withholding and depositing on time.

Withholding on fringe benefits.   You may add the value of fringe benefits to regular wages for a payroll period and figure withholding taxes on the total, or you may withhold federal income tax on the value of the fringe benefits at the optional flat 25% supplemental wage rate. However, see Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages during the calendar year in section 7.

  You may choose not to withhold income tax on the value of an employee's personal use of a vehicle you provide. You must, however, withhold social security and Medicare taxes on the use of the vehicle. See Publication 15-B for more information on this election.

Depositing taxes on fringe benefits.   Once you choose when fringe benefits are paid, you must deposit taxes in the same deposit period you treat the fringe benefits as paid. To avoid a penalty, deposit the taxes following the general deposit rules for that deposit period.

  If you determine by January 31 you overestimated the value of a fringe benefit at the time you withheld and deposited for it, you may claim a refund for the overpayment or have it applied to your next employment tax return. See Valuation of fringe benefits above. If you underestimated the value and deposited too little, you may be subject to a failure-to-deposit penalty. See section 11 for information on deposit penalties.

  If you deposited the required amount of taxes but withheld a lesser amount from the employee, you can recover from the employee the social security, Medicare, or income taxes you deposited on his or her behalf, and included in the employee's Form W-2. However, you must recover the income taxes before April 1 of the following year.

Sick pay.   In general, sick pay is any amount you pay under a plan to an employee who is unable to work because of sickness or injury. These amounts are sometimes paid by a third party, such as an insurance company or an employees' trust. In either case, these payments are subject to social security, Medicare, and FUTA taxes. Sick pay becomes exempt from these taxes after the end of 6 calendar months after the calendar month the employee last worked for the employer. The payments are always subject to federal income tax. See Publication 15-A for more information.

6. Tips

Tips your employee receives from customers are generally subject to withholding. Your employee must report cash tips to you by the 10th of the month after the month the tips are received. The report should include tips you paid over to the employee for charge customers, tips the employee received directly from customers, and tips received from other employees under any tip-sharing arrangement. Both directly and indirectly tipped employees must report tips to you. No report is required for months when tips are less than $20. Your employee reports the tips on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. The statement must be signed by the employee and must include:

  • The employee's name, address, and SSN,

  • Your name and address,

  • The month or period the report covers, and

  • The total of tips received during the month or period.

Both Forms 4070 and 4070-A, Employee's Daily Record of Tips, are included in Publication 1244, Employee's Daily Record of Tips and Report to Employer.

You are permitted to establish a system for electronic tip reporting by employees. See Regulations section 31.6053-1(d).

Collecting taxes on tips.   You must collect income tax, employee social security tax, and employee Medicare tax on the employee's tips. The withholding rules for withholding an employee's share of Medicare tax on tips also apply to withholding the Additional Medicare Tax once wages and tips exceed $200,000 in the calendar year. If an employee reports to you in writing $20 or more of tips in a month, the tips are also subject to FUTA tax.

  You can collect these taxes from the employee's wages or from other funds he or she makes available. See Tips treated as supplemental wages in section 7 for more information. Stop collecting the employee social security tax when his or her wages and tips for tax year 2013 reach $113,700; collect the income and employee Medicare taxes for the whole year on all wages and tips. You are responsible for the employer social security tax on wages and tips until the wages (including tips) reach the limit. You are responsible for the employer Medicare tax for the whole year on all wages and tips. File Form 941 or Form 944 to report withholding and employment taxes on tips.

Ordering rule.   If, by the 10th of the month after the month for which you received an employee's report on tips, you do not have enough employee funds available to deduct the employee tax, you no longer have to collect it. If there are not enough funds available, withhold taxes in the following order.

  1. Withhold on regular wages and other compensation.

  2. Withhold social security and Medicare taxes on tips.

  3. Withhold income tax on tips.

Reporting tips.   Report tips and any collected and uncollected social security and Medicare taxes on Form W-2 and on Form 941, lines 5b, 5c, and 5d (Form 944, lines 4b and 4c). Report an adjustment on Form 941, line 9 (Form 944, line 6), for the uncollected social security and Medicare taxes. Enter the amount of uncollected social security and Medicare taxes in box 12 of Form W-2 with codes “A” and “B.” See section 13 and the General Instructions for Forms W-2 and W-3.

  Revenue Ruling 2012-18 provides guidance for employers regarding social security and Medicare taxes imposed on tips, including information on the reporting of the employer share of social security and Medicare taxes under section 3121(q), the difference between tips and service charges, and the section 45B credit. See Revenue Ruling 2012-18, 2012-26 I.R.B. 1032, available at www.irs.gov/irb/2012-26_IRB/ar07.html.

Allocated tips.   If you operate a large food or beverage establishment, you must report allocated tips under certain circumstances. However, do not withhold income, social security, or Medicare taxes on allocated tips.

  A large food or beverage establishment is one that provides food or beverages for consumption on the premises, where tipping is customary, and where there were normally more than 10 employees on a typical business day during the preceding year.

  The tips may be allocated by one of three methods—hours worked, gross receipts, or good faith agreement. For information about these allocation methods, including the requirement to file Forms 8027 electronically if 250 or more forms are filed, see the Instructions for Form 8027. For information on filing Form 8027 electronically with the IRS, see Publication 1239.

Tip Rate Determination and Education Program.   Employers may participate in the Tip Rate Determination and Education Program. The program primarily consists of two voluntary agreements developed to improve tip income reporting by helping taxpayers to understand and meet their tip reporting responsibilities. The two agreements are the Tip Rate Determination Agreement (TRDA) and the Tip Reporting Alternative Commitment (TRAC). A tip agreement, the Gaming Industry Tip Compliance Agreement (GITCA), is available for the gaming (casino) industry. To get more information about TRDA and TRAC agreements, see Publication 3144, Tips on Tips. Additionally, visit IRS.gov and enter “MSU tips” in the search box to get more information about GITCA, TRDA, or TRAC agreements.

7. Supplemental Wages

Supplemental wages are wage payments to an employee that are not regular wages. They include, but are not limited to, bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for nondeductible moving expenses. Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. See Regulations section 31.3402(g)-1 for additional guidance for wages paid after January 1, 2007. Also see Revenue Ruling 2008-29, 2008-24 I.R.B. 1149, available at www.irs.gov/irb/2008-24_IRB/ar08.html.

Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages from you during the calendar year.   Special rules apply to the extent supplemental wages paid to any one employee during the calendar year exceed $1 million. If a supplemental wage payment, together with other supplemental wage payments made to the employee during the calendar year, exceeds $1 million, the excess is subject to withholding at 39.6% (or the highest rate of income tax for the year). Withhold using the 39.6% rate without regard to the employee's Form W-4. In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control. For more information, see Treasury Decision 9276, 2006-37 I.R.B. 423, available at www.irs.gov/irb/2006-37_IRB/ar09.html.

Withholding on supplemental wage payments to an employee who does not receive $1 million of supplemental wages during the calendar year.   If the supplemental wages paid to the employee during the calendar year are less than or equal to $1 million, the following rules apply in determining the amount of income tax to be withheld.

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

Supplemental wages identified separately from regular wages.   If you pay supplemental wages separately (or combine them in a single payment and specify the amount of each), the federal income tax withholding method depends partly on whether you withhold income tax from your employee's regular wages.

  1. If you withheld income tax from an employee's regular wages in the current or immediately preceding calendar year, you can use one of the following methods for the supplemental wages.

    1. Withhold a flat 25% (no other percentage allowed).

    2. If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. If there are no concurrently paid regular wages, add the supplemental wages to alternatively, either the regular wages paid or to be paid for the current payroll period or the regular wages paid for the preceding payroll period. Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Subtract the tax withheld from the regular wages. Withhold the remaining tax from the supplemental wages. If there were other payments of supplemental wages paid during the payroll period made before the current payment of supplemental wages, aggregate all the payments of supplemental wages paid during the payroll period with the regular wages paid during the payroll period, calculate the tax on the total, subtract the tax already withheld from the regular wages and the previous supplemental wage payments, and withhold the remaining tax.

  2. If you did not withhold income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1-b above. This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages.

Regardless of the method you use to withhold income tax on supplemental wages, they are subject to social security, Medicare, and FUTA taxes.

Example 1.

You pay John Peters a base salary on the 1st of each month. He is single and claims one withholding allowance. In January he is paid $1,000. Using the wage bracket tables, you withhold $51 from this amount. In February, he receives salary of $1,000 plus a commission of $2,000, which you combine with regular wages and do not separately identify. You figure the withholding based on the total of $3,000. The correct withholding from the tables is $340.

Example 2.

You pay Sharon Warren a base salary on the 1st of each month. She is single and claims one allowance. Her May 1 pay is $2,000. Using the wage bracket tables, you withhold $190. On May 14 she receives a bonus of $1,000. Electing to use supplemental wage withholding method 1-b, you:

  1. Add the bonus amount to the amount of wages from the most recent base salary pay date (May 1)  
    ($2,000 + $1,000 = $3,000).

  2. Determine the amount of withholding on the combined $3,000 amount to be $340 using the wage bracket tables.

  3. Subtract the amount withheld from wages on the most recent base salary pay date (May 1) from the combined withholding amount ($340 – $190 = $150).

  4. Withhold $150 from the bonus payment.

Example 3.

The facts are the same as in Example 2, except you elect to use the flat rate method of withholding on the bonus. You withhold 25% of $1,000, or $250, from Sharon's bonus payment.

Example 4.

The facts are the same as in Example 2, except you elect to pay Sharon a second bonus of $2,000 on May 28. Using supplemental wage withholding method 1-b, you:

  1. Add the first and second bonus amounts to the amount of wages from the most recent base salary pay date (May 1) 
    ($2,000 + $1,000 + $2,000 = $5,000).

  2. Determine the amount of withholding on the combined $5,000 amount to be $789 using the wage bracket tables.

  3. Subtract the amounts withheld from wages on the most recent base salary pay date (May 1) and the amounts withheld from the first bonus payment from the combined withholding amount 
    ($789 – $190 – $150 = $449).

  4. Withhold $449 from the second bonus payment.

Tips treated as supplemental wages.   Withhold income tax on tips from wages earned by the employee or from other funds the employee makes available. If an employee receives regular wages and reports tips, figure income tax withholding as if the tips were supplemental wages. If you have not withheld income tax from the regular wages, add the tips to the regular wages. Then withhold income tax on the total. If you withheld income tax from the regular wages, you can withhold on the tips by method 1-a or 1-b discussed earlier in this section under Supplemental wages identified separately from regular wages.

Vacation pay.   Vacation pay is subject to withholding as if it were a regular wage payment. When vacation pay is in addition to regular wages for the vacation period, treat it as a supplemental wage payment. If the vacation pay is for a time longer than your usual payroll period, spread it over the pay periods for which you pay it.

8. Payroll Period

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

No regular payroll period.   When you do not have a regular payroll period, withhold the tax as if you paid wages for a daily or miscellaneous payroll period. Figure the number of days (including Sundays and holidays) in the period covered by the wage payment. If the wages are unrelated to a specific length of time (for example, commissions paid on completion of a sale), count back the number of days from the payment period to the latest of:

  • The last wage payment made during the same calendar year,

  • The date employment began, if during the same calendar year, or

  • January 1 of the same year.

Employee paid for period less than 1 week.   When you pay an employee for a period of less than one week, and the employee signs a statement under penalties of perjury indicating he or she is not working for any other employer during the same week for wages subject to withholding, figure withholding based on a weekly payroll period. If the employee later begins to work for another employer for wages subject to withholding, the employee must notify you within 10 days. You then figure withholding based on the daily or miscellaneous period.

9. Withholding From Employees' Wages

Income Tax Withholding

Using Form W-4 to figure withholding.   To know how much federal income tax to withhold from employees' wages, you should have a Form W-4 on file for each employee. Encourage your employees to file an updated Form W-4 for 2013, especially if they owed taxes or received a large refund when filing their 2012 tax return. Advise your employees to use the IRS Withholding Calculator on the IRS website at www.irs.gov/individuals for help in determining how many withholding allowances to claim on their Forms W-4.

  Ask all new employees to give you a signed Form W-4 when they start work. Make the form effective with the first wage payment. If a new employee does not give you a completed Form W-4, withhold income tax as if he or she is single, with no withholding allowances.

Form in Spanish.   You can provide Formulario W-4(SP), Certificado de Exención de Retenciones del Empleado, in place of Form W-4, to your Spanish-speaking employees. For more information, see Publicación 17(SP), El Impuesto Federal sobre los Ingresos (Para Personas Físicas). The rules discussed in this section that apply to Form W-4 also apply to Formulario W-4(SP).

Electronic system to receive Form W-4.   You may establish a system to electronically receive Forms W-4 from your employees. See Regulations section 31.3402(f)(5)-1(c) for more information.

Effective date of Form W-4.   A Form W-4 remains in effect until the employee gives you a new one. When you receive a new Form W-4 from an employee, do not adjust withholding for pay periods before the effective date of the new form. If an employee gives you a Form W-4 that replaces an existing Form W-4, begin withholding no later than the start of the first payroll period ending on or after the 30th day from the date when you received the replacement Form W-4. For exceptions, see Exemption from federal income tax withholding , IRS review of requested Forms W-4 , and Invalid Forms W-4 , later in this section.

A Form W-4 that makes a change for the next calendar year will not take effect in the current calendar year.

Successor employer.   If you are a successor employer (see Successor employer , later in this section), secure new Forms W-4 from the transferred employees unless the “Alternative Procedure” in section 5 of Revenue Procedure 2004-53 applies. See Revenue Procedure 2004-53, 2004-34 I.R.B. 320, available at www.irs.gov/irb/2004-34_IRB/ar13.html.

Completing Form W-4.   The amount of any federal income tax withholding must be based on marital status and withholding allowances. Your employees may not base their withholding amounts on a fixed dollar amount or percentage. However, an employee may specify a dollar amount to be withheld in addition to the amount of withholding based on filing status and withholding allowances claimed on Form W-4.

Employees may claim fewer withholding allowances than they are entitled to claim. They may wish to claim fewer allowances to ensure they have enough withholding or to offset the tax on other sources of taxable income not subject to withholding.

See Publication 505, Tax Withholding and Estimated Tax, for more information about completing Form W-4. Along with Form W-4, you may wish to order Publication 505 for use by your employees.

Do not accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W-4. If they require additional withholding, they should submit a new Form W-4 and, if necessary, pay estimated tax by filing Form 1040-ES, Estimated Tax for Individuals, or by using the Electronic Federal Tax Payment System (EFTPS) to make estimated tax payments.

Exemption from federal income tax withholding.   Generally, an employee may claim exemption from federal income tax withholding because he or she had no income tax liability last year and expects none this year. See the Form W-4 instructions for more information. However, the wages are still subject to social security and Medicare taxes. See also Invalid Forms W-4 , later in this section.

  A Form W-4 claiming exemption from withholding is effective when it is filed with the employer and only for that calendar year. To continue to be exempt from withholding in the next calendar year, an employee must give you a new Form W-4 by February 15. If the employee does not give you a new Form W-4 by February 15, begin withholding based on the last Form W-4 for the employee that did not claim an exemption from withholding or, if one was not filed, then withhold tax as if he or she is single with zero withholding allowances. If the employee provides a new Form W-4 claiming exemption from withholding on February 16 or later, you may apply it to future wages but do not refund any taxes already withheld.

Withholding income taxes on the wages of nonresident alien employees.   In general, you must withhold federal income taxes on the wages of nonresident alien employees. However, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for exceptions to this general rule. Also see section 3 of Publication 51 (Circular A), Agricultural Employer's Tax Guide, for guidance on H-2A visa workers.

Withholding adjustment for nonresident alien employees.   For 2013, apply the procedure discussed below to figure the amount of income tax to withhold from the wages of nonresident alien employees performing services within the United States.

Nonresident alien students from India and business apprentices from India are not subject to this procedure.

Instructions.   To figure how much income tax to withhold from the wages paid to a nonresident alien employee performing services in the United States, use the following steps.

Step 1.   Add to the wages paid to the nonresident alien employee for the payroll period the amount shown in the chart below for the applicable payroll period.

  

Amount to Add to Nonresident Alien Employee's Wages for Calculating Income Tax Withholding Only

Payroll Period Add Additional  
Weekly $42.30  
Biweekly 84.60  
Semimonthly 91.70  
Monthly 183.30  
Quarterly 550.00  
Semiannually 1,100.00  
Annually 2,200.00  
Daily or Miscellaneous 
(each day of the payroll period) 		8.50  

Step 2.   Use the amount figured in Step 1 and the number of withholding allowances claimed (generally limited to one allowance) to figure income tax withholding. Determine the value of withholding allowances by multiplying the number of withholding allowances claimed by the appropriate amount from Table 5. Percentage Method—2013 Amount for One Withholding Allowance shown on page 42. If you are using the Percentage Method Tables for Income Tax Withholding , provided on pages 44–45, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure the income tax withholding. If you are using the Wage Bracket Method for Income Tax Withholding , provided on pages 46–65, use the amount figured in Step 1 and the number of withholding allowances to figure income tax withholding.

The amounts added under the chart above are added to wages solely for calculating income tax withholding on the wages of the nonresident alien employee. The amounts from the chart above should not be included in any box on the employee's Form W-2 and do not increase the income tax liability of the employee. Also, these chart amounts do not increase the social security, Medicare, or FUTA tax liability of the employer or the employee.

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

Example.

An employer using the percentage method of withholding pays wages of $500 for a biweekly payroll period to a married nonresident alien employee. The nonresident alien has properly completed Form W-4, entering marital status as “single” with one withholding allowance and indicating status as a nonresident alien on Form W-4, line 6 (see Nonresident alien employee's Form W-4 , later in this section). The employer determines the wages to be used in the withholding tables by adding to the $500 amount of wages paid the amount of $84.60 from the chart under Step 1 ($584.60 total). The employer then applies the applicable tables to determine the income tax withholding for nonresident aliens (see Step 2 ). Reminder: If you use the Percentage Method Tables for Income Tax Withholding, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure income tax withholding.

The $84.60 added to wages for calculating income tax withholding is not reported on Form W-2, and does not increase the income tax liability of the employee. The $84.60 added amount also does not affect the social security tax, Medicare tax, or FUTA tax liability of the employer or the employee.

Supplemental wage payment.   This procedure for determining the amount of income tax withholding does not apply to a supplemental wage payment (see section 7) if the 39.6% mandatory flat rate withholding applies or if the 25% optional flat rate withholding is being used to calculate income tax withholding on the supplemental wage payment.

Nonresident alien employee's Form W-4.   When completing Forms W-4, nonresident aliens are required to:

  • Not claim exemption from income tax withholding,

  • Request withholding as if they are single, regardless of their actual marital status,

  • Claim only one allowance (if the nonresident alien is a resident of Canada, Mexico, or South Korea, or a student or business apprentice from India, he or she may claim more than one allowance), and

  • Write “Nonresident Alien” or “NRA” above the dotted line on line 6 of Form W-4.

  If you maintain an electronic Form W-4 system, you should provide a field for nonresident aliens to enter nonresident alien status in lieu of writing “Nonresident Alien” or “NRA” above the dotted line on line 6.

A nonresident alien employee may request additional withholding at his or her option for other purposes, although such additions should not be necessary for withholding to cover federal income tax liability related to employment.

Form 8233.   If a nonresident alien employee claims a tax treaty exemption from withholding, the employee must submit Form 8233, Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, with respect to the income exempt under the treaty, instead of Form W-4. See Publication 515 for details.

IRS review of requested Forms W-4.   When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee. You may also be directed to send certain Forms W-4 to the IRS. You may receive a notice from the IRS requiring you to submit a copy of Form W-4 for one or more of your named employees. Send the requested copy or copies of Form W-4 to the IRS at the address provided and in the manner directed by the notice. The IRS may also require you to submit copies of Form W-4 to the IRS as directed by a revenue procedure or notice published in the Internal Revenue Bulletin. When we refer to Form W-4, the same rules apply to Formulario W-4(SP), its Spanish translation.

After submitting a copy of a requested Form W-4 to the IRS, continue to withhold federal income tax based on that Form W-4 if it is valid (see Invalid Forms W-4 , later in this section). However, if the IRS later notifies you in writing the employee is not entitled to claim exemption from withholding or a claimed number of withholding allowances, withhold federal income tax based on the effective date, marital status, and maximum number of withholding allowances specified in the notice (commonly referred to as a "lock-in letter").

Initial lock-in letter.   The IRS also uses information reported on Form W-2 to identify employees with withholding compliance problems. In some cases, if a serious under-withholding problem is found to exist for a particular employee, the IRS may issue a lock-in letter to the employer specifying the maximum number of withholding allowances and marital status permitted for a specific employee. You must furnish this notice to the employee within 10 business days of receipt if the employee is employed by you as of the date of the notice. Begin withholding based on the notice on the date specified in the notice.

Employee not performing services.   If you receive a notice for an employee who is not performing services for you, you must still furnish the notice to the employee and withhold based on the notice if any of the following apply.

  • You are paying wages for the employee's prior services and the wages are subject to income tax withholding on or after the date specified in the notice.

  • You reasonably expect the employee to resume services within 12 months of the date of the notice.

  • The employee is on a leave of absence that does not exceed 12 months or the employee has a right to reemployment after the leave of absence.

Termination and re-hire of employees.   If you must furnish and withhold based on the notice and the employment relationship is terminated after the date of the notice, you must continue to withhold based on the notice if you continue to pay any wages subject to income tax withholding. You must also withhold based on the notice or modification notice if the employee resumes the employment relationship with you within 12 months after the termination of the employment relationship.

Modification notice.   After issuing the notice specifying the maximum number of withholding allowances and marital status permitted, the IRS may issue a subsequent notice (modification notice) that modifies the original notice. The modification notice may change the marital status and/or the number of withholding allowances permitted. You must withhold federal income tax based on the effective date specified in the modification notice.

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

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

   For additional information about these rules, see Treasury Decision 9337, 2007-35 I.R.B. 455, available at www.irs.gov/irb/2007-35_IRB/ar10.html.

Substitute Forms W-4.   You are encouraged to have your employees use the official version of Form W-4 to claim withholding allowances or exemption from withholding. Call the IRS at 1-800-TAX-FORM (1-800-829-3676) or visit IRS.gov to obtain copies of Form W-4.

  You may use a substitute version of Form W-4 to meet your business needs. However, your substitute Form W-4 must contain language that is identical to the official Form W-4 and your form must meet all current IRS rules for substitute forms. At the time you provide your substitute form to the employee, you must provide him or her with all tables, instructions, and worksheets from the current Form W-4.

  You cannot accept substitute Forms W-4 developed by employees. An employee who submits an employee-developed substitute Form W-4 after October 10, 2007, will be treated as failing to furnish a Form W-4. However, continue to honor any valid employee-developed Forms W-4 you accepted before October 11, 2007.

Invalid Forms W-4.   Any unauthorized change or addition to Form W-4 makes it invalid. This includes taking out any language by which the employee certifies the form is correct. A Form W-4 is also invalid if, by the date an employee gives it to you, he or she indicates in any way it is false. An employee who submits a false Form W-4 may be subject to a $500 penalty. You may treat a Form W-4 as invalid if the employee wrote “exempt” on line 7 and also entered a number on line 5 or an amount on line 6.

  When you get an invalid Form W-4, do not use it to figure federal income tax withholding. Tell the employee it is invalid and ask for another one. If the employee does not give you a valid one, withhold taxes as if the employee was single and claiming no withholding allowances. However, if you have an earlier Form W-4 for this worker that is valid, withhold as you did before.

Amounts exempt from levy on wages, salary, and other income.   If you receive a Notice of Levy on Wages, Salary, and Other Income (Forms 668-W(ACS), 668-W(c)(DO), or 668-W(ICS)), you must withhold amounts as described in the instructions for these forms. Publication 1494, Tables for Figuring Amount Exempt From Levy on Wages, Salary, and Other Income–Forms 668-W(ACS), 668-W(c)(DO), and 668-W(ICS), shows the exempt amount. If a levy issued in a prior year is still in effect and the taxpayer submits a new Statement of Exemptions and Filing Status, use the current year Publication 1494 to compute the exempt amount.

Social Security and Medicare Taxes

The Federal Insurance Contributions Act (FICA) provides for a federal system of old-age, survivors, disability, and hospital insurance. The old-age, survivors, and disability insurance part is financed by the social security tax. The hospital insurance part is financed by the Medicare tax. Each of these taxes is reported separately.

Generally, you are required to withhold social security and Medicare taxes from your employees' wages and pay the employer's share of these taxes. Certain types of wages and compensation are not subject to social security and Medicare taxes. See section 5 and section 15 for details. Generally, employee wages are subject to social security and Medicare taxes regardless of the employee's age or whether he or she is receiving social security benefits. If the employee reported tips, see section 6.

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

  The employee tax rate for social security is 6.2% for 2013. The employer tax rate for social security remains unchanged at 6.2%. The social security wage base limit is $113,700. The 2013 employee tax rate for Medicare is 1.45% (amount withheld) each for the employee and employer (2.9% total). There is no wage base limit for Medicare tax; all covered wages are subject to Medicare tax.

Additional Medicare Tax withholding.   In addition to withholding Medicare tax at 1.45%, you must withhold a 0.9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. Additional Medicare Tax is only imposed on the employee. There is no employer share of Additional Medicare Tax. All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Services and Payments , in section 15.

Successor employer.   When corporate acquisitions meet certain requirements, wages paid by the predecessor are treated as if paid by the successor for purposes of applying the social security wage base and for applying the Additional Medicare Tax withholding threshold (that is, $200,000 in a calendar year). You should determine whether or not you should file Schedule D (Form 941), Report of Discrepancies Caused by Acquisitions, Statutory Mergers, or Consolidations, by reviewing the Instructions for Schedule D (Form 941). See Regulations section 31.3121(a)(1)-1(b) for more information. Also see Revenue Procedure 2004-53, 2004-34 I.R.B. 320, available at www.irs.gov/irb/2004-34_IRB/ar13.html.

Example.

Early in 2013, you bought all of the assets of a plumbing business from Mr. Martin. Mr. Brown, who had been employed by Mr. Martin and received $2,000 in wages before the date of purchase, continued to work for you. The wages you paid to Mr. Brown are subject to social security taxes on the first $111,700 ($113,700 minus $2,000). Medicare tax is due on all of the wages you pay him during the calendar year. You should include the $2,000 Mr. Brown received while employed by Mr. Martin in determining whether Mr. Brown's wages exceed the $200,000 for Additional Medicare Tax withholding threshold.

Withholding of social security and Medicare taxes on nonresident aliens.   In general, if you pay wages to nonresident alien employees, you must withhold federal social security and Medicare taxes as you would for a U.S. citizen. However, see Publication 515 for exceptions to this general rule.

International social security agreements.   The United States has social security agreements, also known as totalization agreements, with many countries that eliminate dual taxation and dual coverage. Compensation subject to social security and Medicare taxes may be exempt under one of these agreements. You can get more information and a list of agreement countries from the SSA at www.socialsecurity.gov/international or see section 7 of Publication 15-A.

Religious exemption.   An exemption from social security and Medicare taxes is available to members of a recognized religious sect opposed to insurance. This exemption is available only if both the employee and the employer are members of the sect.

  For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers.

Foreign persons treated as American employers.   Under IRC section 3121(z), for services performed after July 31, 2008, a foreign person who meets both of the following conditions is generally treated as an American employer for purposes of paying FICA taxes on wages paid to an employee who is a United States citizen or resident.

  1. The foreign person is a member of a domestically controlled group of entities.

  2. The employee of the foreign person performs services in connection with a contract between the U.S. Government (or an instrumentality of the U.S. Government) and any member of the domestically controlled group of entities. Ownership of more than 50% constitutes control.

Part-Time Workers

For federal income tax withholding and social security, Medicare, and FUTA tax purposes, there are no differences among full-time employees, part-time employees, and employees hired for short periods. It does not matter whether the worker has another job or has the maximum amount of social security tax withheld by another employer. Income tax withholding may be figured the same way as for full-time workers. Or it may be figured by the part-year employment method explained in section 9 of Publication 15-A.

10. Required Notice to Employees About the Earned Income Credit (EIC)

You must notify employees who have no federal income tax withheld that they may be able to claim a tax refund because of the EIC. Although you do not have to notify employees who claim exemption from withholding on Form W-4 about the EIC, you are encouraged to notify any employees whose wages for 2012 were less than $45,060 ($50,270 if married filing jointly) that they may be eligible to claim the credit for 2012. This is because eligible employees may get a refund of the amount of EIC that is more than the tax they owe.

You will meet this notification requirement if you issue the employee Form W-2 with the EIC notice on the back of Copy B, or a substitute Form W-2 with the same statement. You will also meet the requirement by providing Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC), or your own statement that contains the same wording.

If a substitute for Form W-2 is given to the employee on time but does not have the required statement, you must notify the employee within 1 week of the date the substitute for Form W-2 is given. If Form W-2 is required but is not given on time, you must give the employee Notice 797 or your written statement by the date Form W-2 is required to be given. If Form W-2 is not required, you must notify the employee by February 7, 2013.

11. Depositing Taxes

In general, you must deposit federal income tax withheld and both the employer and employee social security and Medicare taxes. You must use electronic funds transfer to make all federal tax deposits. See How To Deposit , later in this section, for information on electronic deposit requirements.

The credit against employment taxes for COBRA assistance payments you take on Form 941, line 12a, or Form 944, line 9a, is treated as a deposit of taxes on the first day of your return period. See  
COBRA premium assistance credit under Introduction for more information.

Payment with return.   You may make a payment with Form 941 or Form 944 instead of depositing, without incurring a penalty, if one of the following applies.

  • Your Form 941 total tax liability for either the current quarter or the preceding quarter is less than $2,500, and you did not incur a $100,000 next-day deposit obligation during the current quarter. If you are not sure your total tax liability for the current quarter will be less than $2,500, (and your liability for the preceding quarter was not less than $2,500), make deposits using the semi-weekly or monthly rules so you won't be subject to failure-to-deposit penalties.

  • You are a monthly schedule depositor (defined later) and make a payment in accordance with the Accuracy of Deposits Rule discussed later in this section. This payment may be $2,500 or more.

Employers who have been notified to file Form 944 can pay their fourth quarter tax liability with Form 944 if the fourth quarter tax liability is less than $2,500. Employers must have deposited any tax liability due for the first, second, and third quarters according to the deposit rules to avoid failure-to-deposit penalties for deposits during those quarters.

Separate deposit requirements for nonpayroll (Form 945) tax liabilities.   Separate deposits are required for nonpayroll and payroll income tax withholding. Do not combine deposits for Forms 941 (or Form 944) and Form 945 tax liabilities. Generally, the deposit rules for nonpayroll liabilities are the same as discussed below, except the rules apply to an annual rather than a quarterly return period. Thus, the $2,500 threshold for the deposit requirement discussed earlier applies to Form 945 on an annual basis. See the separate Instructions for Form 945 for more information.

When To Deposit

There are two deposit schedules—monthly and semiweekly—for determining when you deposit social security, Medicare, and withheld income taxes. These schedules tell you when a deposit is due after a tax liability arises (for example, when you have a payday). Before the beginning of each calendar year, you must determine which of the two deposit schedules you are required to use. The deposit schedule you must use is based on the total tax liability you reported on Form 941 during a lookback period discussed next. Your deposit schedule is not determined by how often you pay your employees or make deposits. See special rules for Forms 944 and 945, later in this section. Also see Application of Monthly and Semiweekly Schedules , later in this section.

These rules do not apply to FUTA tax. See section 14 for information on depositing FUTA tax.

Lookback period.   If you are a Form 941 filer, your deposit schedule for a calendar year is determined from the total taxes reported on Forms 941, line 10, in a 4-quarter lookback period. The lookback period begins July 1 and ends June 30 as shown next in Table 1. If you reported $50,000 or less of taxes for the lookback period, you are a monthly schedule depositor; if you reported more than $50,000, you are a semiweekly schedule depositor.

  

Table 1. Lookback Period for Calendar Year 2013

Lookback Period
July 1, 2011 Oct. 1, 2011 Jan. 1, 2012 Apr.1, 2012
through through through through
Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 June 30, 2012

  
The lookback period for a 2013 Form 941 filer who filed Form 944 in either 2011 or 2012 is calendar year 2011.

  If you are a Form 944 filer for the current year or either of the preceding 2 years, your deposit schedule for a calendar year is determined from the total taxes reported during the second preceding calendar year (either on your Form 941 for all 4 quarters of that year or your Form 944 for that year). The lookback period for 2013 for a Form 944 filer is calendar year 2011. If you reported $50,000 or less of taxes for the lookback period, you are a monthly schedule depositor; if you reported more than $50,000, you are a semiweekly schedule depositor.

  If you are a Form 945 filer, your deposit schedule for a calendar year is determined from the total taxes reported on line 3 of your Form 945 for the second preceding calendar year. The lookback period for 2013 for a Form 945 filer is calendar year 2011.

Adjustments and the lookback rule.   Adjustments made on Form 941-X, Form 944-X, and Form 945-X do not affect the amount of tax liability for previous periods for purposes of the lookback rule.

Example.

An employer originally reported a tax liability of $45,000 for the lookback period. The employer discovered, during January 2013, that the tax reported for one of the lookback period quarters was understated by $10,000 and corrected this error by filing Form 941-X. This employer is a monthly schedule depositor for 2013 because the lookback period tax liabilities are based on the amounts originally reported, and they were $50,000 or less.

Deposit period.   The term deposit period refers to the period during which tax liabilities are accumulated for each required deposit due date. For monthly schedule depositors, the deposit period is a calendar month. The deposit periods for semiweekly schedule depositors are Wednesday through Friday and Saturday through Tuesday.

Monthly Deposit Schedule

You are a monthly schedule depositor for a calendar year if the total taxes on Form 941, line 10, for the 4 quarters in your lookback period were $50,000 or less. Under the monthly deposit schedule, deposit employment taxes on payments made during a month by the 15th day of the following month. See also Deposits on Business Days Only and the $100,000 Next-Day Deposit Rule , later in this section. Monthly schedule depositors should not file Form 941 or Form 944 on a monthly basis.

New employers.   Your tax liability for any quarter in the lookback period before you started or acquired your business is considered to be zero. Therefore, you are a monthly schedule depositor for the first calendar year of your business. However, see the $100,000 Next-Day Deposit Rule , later in this section.

Semiweekly Deposit Schedule

You are a semiweekly schedule depositor for a calendar year if the total taxes on Form 941, line 10, during your lookback period were more than $50,000. Under the semiweekly deposit schedule, deposit employment taxes for payments made on Wednesday, Thursday, and/or Friday by the following Wednesday. Deposit taxes for payments made on Saturday, Sunday, Monday, and/or Tuesday by the following Friday. See also Deposits on Business Days Only , later in this section.

Note.

Semiweekly schedule depositors must complete Schedule B (Form 941), Report of Tax Liability for Semiweekly Schedule Depositors, and submit it with Form 941. If you file Form 944 and are a semiweekly schedule depositor, complete Form 945-A, Annual Record of Federal Tax Liability, and submit it with your return (instead of  
Schedule B).

Table 2. Semiweekly Deposit Schedule

IF the payday falls 
on a . . . 		THEN deposit taxes by 
the following . . .
Wednesday, Thursday, 
and/or Friday 		Wednesday
Saturday, Sunday,  
Monday, and/or Tuesday 		Friday

Semiweekly deposit period spanning 2 quarters.   If you have more than one pay date during a semiweekly period and the pay dates fall in different calendar quarters, you will need to make separate deposits for the separate liabilities.

Example.   If you have a pay date on Saturday, March 30, 2013 (first quarter), and another pay date on Tuesday, April 2, 2013 (second quarter), two separate deposits would be required even though the pay dates fall within the same semiweekly period. Both deposits would be due Friday, April 5, 2013.

Summary of Steps to Determine 
Your Deposit Schedule
  1. Identify your lookback period (see Lookback period , earlier in this section).  
  2. Add the total taxes you reported on Form 941, line 10, during the lookback period.  
  3. Determine if you are a monthly or semiweekly schedule depositor:  
    If the total taxes you reported in the lookback period were Then you are a  
    $50,000 or less Monthly Schedule Depositor  
    More than $50,000 Semiweekly Schedule Depositor  
 

Example of Monthly and Semiweekly Schedules

Rose Co. reported Form 941 taxes as follows:

2012 Lookback Period 2013 Lookback Period
3rd Quarter 2010 $12,000 3rd Quarter2011 $12,000
4th Quarter 2010 12,000 4th Quarter2011 12,000
1st Quarter 2011 12,000 1st Quarter2012 12,000
2nd Quarter 2011 12,000 2nd Quarter2012 15,000
  $48,000   $51,000

Rose Co. is a monthly schedule depositor for 2012 because its tax liability for the 4 quarters in its lookback period (third quarter 2010 through second quarter 2011) was not more than $50,000. However, for 2013, Rose Co. is a semiweekly schedule depositor because the total taxes exceeded $50,000 for the 4 quarters in its lookback period (third quarter 2011 through second quarter 2012).

Deposits on Business Days Only

If a deposit is required to be made on a day that is not a business day, the deposit is considered timely if it is made by the close of the next business day. A business day is any day other than a Saturday, Sunday, or legal holiday. For example, if a deposit is required to be made on a Friday and Friday is a legal holiday, the deposit will be considered timely if it is made by the following Monday (if that Monday is a business day).

Semiweekly schedule depositors have at least 3 business days to make a deposit. If any of the 3 weekdays after the end of a semiweekly period is a legal holiday, you will have an additional day for each day that is a legal holiday to make the required deposit. For example, if a semiweekly schedule depositor accumulated taxes for payments made on Friday and the following Monday is a legal holiday, the deposit normally due on Wednesday may be made on Thursday (this allows 3 business days to make the deposit).

Legal holiday.   The term “legal holiday” means any legal holiday in the District of Columbia. Legal holidays for 2013 are listed below.

  • January 1— New Year's Day

  • January 21— Birthday of Martin Luther King, Jr.

  • February 18— Washington's Birthday

  • April 16— District of Columbia Emancipation Day

  • May 27— Memorial Day

  • July 4— Independence Day

  • September 2— Labor Day

  • October 14— Columbus Day

  • November 11— Veterans' Day

  • November 28— Thanksgiving Day

  • December 25— Christmas Day

Application of Monthly and Semiweekly Schedules

The terms “monthly schedule depositor” and “semiweekly schedule depositor” do not refer to how often your business pays its employees or even how often you are required to make deposits. The terms identify which set of deposit rules you must follow when an employment tax liability arises. The deposit rules are based on the dates when wages are paid (for example, cash basis); not on when tax liabilities are accrued for accounting purposes.

Monthly schedule example.   Spruce Co. is a monthly schedule depositor with seasonal employees. It paid wages each Friday during January but did not pay any wages during February. Under the monthly deposit schedule, Spruce Co. must deposit the combined tax liabilities for the four January paydays by February 15. Spruce Co. does not have a deposit requirement for February (due by March 15) because no wages were paid and, therefore, it did not have a tax liability for February.

Semiweekly schedule example.   Green, Inc. is a semiweekly schedule depositor and pays wages once each month on the last Friday of the month. Although Green, Inc., has a semiweekly deposit schedule, it will deposit just once a month because it pays wages only once a month. The deposit, however, will be made under the semiweekly deposit schedule as follows: Green, Inc.'s tax liability for the April 26, 2013 (Friday), payday must be deposited by May 1, 2013 (Wednesday). Under the semiweekly deposit schedule, liabilities for wages paid on Wednesday through Friday must be deposited by the following Wednesday.

$100,000 Next-Day Deposit Rule

If you accumulate $100,000 or more in taxes on any day during a monthly or semiweekly deposit period (see Deposit period , earlier in this section), you must deposit the tax by the next business day, whether you are a monthly or semiweekly schedule depositor.

For purposes of the $100,000 rule, do not continue accumulating a tax liability after the end of a deposit period. For example, if a semiweekly schedule depositor has accumulated a liability of $95,000 on a Tuesday (of a Saturday-through-Tuesday deposit period) and accumulated a $10,000 liability on Wednesday, the $100,000 next-day deposit rule does not apply. Thus, $95,000 must be deposited by Friday and $10,000 must be deposited by the following Wednesday.

However, once you accumulate at least $100,000 in a deposit period, stop accumulating at the end of that day and begin to accumulate anew on the next day. For example, Fir Co. is a semiweekly schedule depositor. On Monday, Fir Co. accumulates taxes of $110,000 and must deposit this amount on Tuesday, the next business day. On Tuesday, Fir Co. accumulates additional taxes of $30,000. Because the $30,000 is not added to the previous $110,000 and is less than $100,000, Fir Co. must deposit the $30,000 by Friday (following the semiweekly deposit schedule).

If you are a monthly schedule depositor and accumulate a $100,000 tax liability on any day, you become a semiweekly schedule depositor on the next day and remain so for at least the rest of the calendar year and for the following calendar year.

Example.

Elm, Inc., started its business on May 1, 2013. On May 8, it paid wages for the first time and accumulated a tax liability of $40,000. On Friday, May 10, 2013, Elm, Inc., paid wages and accumulated a liability of $60,000, bringing its total accumulated tax liability to $100,000. Because this was the first year of its business, the tax liability for its lookback period is considered to be zero, and it would be a monthly schedule depositor based on the lookback rules. However, since Elm, Inc., accumulated a $100,000 liability on May 10, it became a semiweekly schedule depositor on May 11. It will be a semiweekly schedule depositor for the remainder of 2013 and for 2014. Elm, Inc., is required to deposit the $100,000 by Monday, May 13, the next business day.

Accuracy of Deposits Rule

You are required to deposit 100% of your tax liability on or before the deposit due date. However, penalties will not be applied for depositing less than 100% if both of the following conditions are met.

  • Any deposit shortfall does not exceed the greater of $100 or 2% of the amount of taxes otherwise required to be deposited.

  • The deposit shortfall is paid or deposited by the shortfall makeup date as described below.

Makeup Date for Deposit Shortfall:   

  1. Monthly schedule depositor. Deposit the shortfall or pay it with your return by the due date of your return for the return period in which the shortfall occurred. You may pay the shortfall with your return even if the amount is $2,500 or more.

  2. Semiweekly schedule depositor. Deposit by the earlier of:

    1. The first Wednesday or Friday (whichever comes first) that falls on or after the 15th of the month following the month in which the shortfall occurred, or

    2. The due date of your return (for the return period of the tax liability).

For example, if a semiweekly schedule depositor has a deposit shortfall during July 2013, the shortfall makeup date is August 16, 2013 (Friday). However, if the shortfall occurred on the required April 3, 2013 (Wednesday) deposit due date for a March 29, 2013 (Friday) pay date, the return due date for the March 29, 2013 pay date (April 30, 2013) would come before the May 15, 2013 (Wednesday) shortfall makeup date. In this case, the shortfall must be deposited by April 30, 2013.

How To Deposit

You must deposit employment taxes, including Form 945 taxes, by electronic funds transfer. See Payment with return , earlier in this section, for exceptions explaining when taxes may be paid with the tax return instead of being deposited.

Electronic deposit requirement.   You must use electronic funds transfer to make all federal tax deposits (such as deposits of employment tax, excise tax, and corporate income tax). Generally, electronic fund transfers are made using the Electronic Federal Tax Payment System (EFTPS). If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. EFTPS is a free service provided by the Department of Treasury. To get more information or to enroll in EFTPS, call 1-800-555-4477. You can also visit the EFTPS website at www.eftps.gov. Additional information about EFTPS is also available in Publication 966.

When you receive your EIN.   If you are a new employer that indicated a federal tax obligation when requesting an EIN, you will be pre-enrolled in EFTPS. You will receive information about Express Enrollment in your Employer Identification Number (EIN) Package and an additional mailing containing your EFTPS personal identification number (PIN) and instructions for activating your PIN. Call the toll-free number located in your “How to Activate Your Enrollment” brochure to activate your enrollment and begin making your payroll tax deposits. Be sure to tell your payroll provider about your EFTPS enrollment.

Deposit record.   For your records, an Electronic Funds Transfer (EFT) Trace Number will be provided with each successful payment. The number can be used as a receipt or to trace the payment.

Depositing on time.   For deposits made by EFTPS to be on time, you must initiate the deposit by 8 p.m. Eastern time the day before the date the deposit is due. If you use a third party to make a deposit on your behalf, they may have different cutoff times.

Same-day payment option.   If you fail to initiate a deposit transaction on EFTPS by 8 p.m. Eastern time the day before the date a deposit is due, you can still make your deposit on time by using the Federal Tax Application (FTA). To use the same-day payment method, you will need to make arrangements with your financial institution ahead of time. Please check with your financial institution regarding availability, deadlines, and costs. Your financial institution may charge you a fee for payments made this way. To learn more about the information you will need to provide to your financial institution to make a same-day wire payment, visit www.eftps.gov to download the Same-Day Payment Worksheet.

How to claim credit for overpayments.   If you deposited more than the right amount of taxes for a quarter, you can choose on Form 941 for that quarter (or on Form 944 for that year) to have the overpayment refunded or applied as a credit to your next return. Do not ask EFTPS to request a refund from the IRS for you.

Deposit Penalties

Although the deposit penalties information provided below refers specifically to Form 941, these rules also apply to Form 945 and Form 944 (if the employer required to file Form 944 does not qualify for the exception to the deposit requirements discussed under Payment with return, earlier in this section).

Penalties may apply if you do not make required deposits on time or if you make deposits for less than the required amount. The penalties do not apply if any failure to make a proper and timely deposit was due to reasonable cause and not to willful neglect. The IRS may also waive penalties if you inadvertently fail to deposit in the first quarter you were required to deposit any employment tax, or in the first quarter during which your frequency of deposits changed, if you timely filed your employment tax return.

For amounts not properly or timely deposited, the penalty rates are as follows.

2% - Deposits made 1 to 5 days late.
5% - Deposits made 6 to 15 days late.
10% - Deposits made 16 or more days late. Also applies to amounts paid within 10 days of the date of the first notice the IRS sent asking for the tax due.
10% - Amounts (that should have been deposited) paid directly to the IRS, or paid with your tax return. But see Payment with return , earlier in this section, for an exception.
15% - Amounts still unpaid more than 10 days after the date of the first notice the IRS sent asking for the tax due or the day on which you received notice and demand for immediate payment, whichever is earlier.

Late deposit penalty amounts are determined using calendar days, starting from the due date of the liability.

Special rule for former Form 944 filers.    If you filed Form 944 for the prior year and file Forms 941 for the current year, the failure-to-deposit penalty will not apply to a late deposit of employment taxes for January of the current year if the taxes are deposited in full by March 15 of the current year.

Order in which deposits are applied.   Deposits generally are applied to the most recent tax liability within the quarter. If you receive a failure-to-deposit penalty notice, you may designate how your deposits are to be applied in order to minimize the amount of the penalty if you do so within 90 days of the date of the notice. Follow the instructions on the penalty notice you received. For more information on designating deposits, see Revenue Procedure 2001-58. You can find Revenue Procedure 2001-58 on page 579 of Internal Revenue Bulletin 2001-50 at www.irs.gov/pub/irs-irbs/irb01-50.pdf.

Example.

Cedar, Inc. is required to make a deposit of $1,000 on June 15 and $1,500 on July 15. It does not make the deposit on June 15. On July 15, Cedar, Inc. deposits $2,000. Under the deposits rule, which applies deposits to the most recent tax liability, $1,500 of the deposit is applied to the July 15 deposit and the remaining $500 is applied to the June deposit. Accordingly, $500 of the June 15 liability remains undeposited. The penalty on this underdeposit will apply as explained earlier.

Trust fund recovery penalty.   If federal income, social security, or Medicare taxes that must be withheld are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. The penalty is the full amount of the unpaid trust fund tax. This penalty may apply to you if these unpaid taxes cannot be immediately collected from the employer or business.

  The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so.

  A responsible person can be an officer or employee of a corporation, a partner or employee of a partnership, an accountant, a volunteer director/trustee, or an employee of a sole proprietorship, or any other person or entity that is responsible for collecting, accounting for, and paying over trust fund taxes. A responsible person also may include one who signs checks for the business or otherwise has authority to cause the spending of business funds.

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

Separate accounting when deposits are not made or withheld taxes are not paid.   Separate accounting may be required if you do not pay over withheld employee social security, Medicare, or income taxes; deposit required taxes; make required payments; or file tax returns. In this case, you would receive written notice from the IRS requiring you to deposit taxes into a special trust account for the U.S. Government.

  
You may be charged with criminal penalties if you do not comply with the special bank deposit requirements for the special trust account for the U.S. Government.

“Averaged” failure-to-deposit penalty.   IRS may assess an "averaged" failure-to-deposit (FTD) penalty of 2% to 10% if you are a monthly schedule depositor and did not properly complete Form 941, line 16, when your tax liability shown on Form 941, line 10, equaled or exceeded $2,500.

  The IRS may also assess an "averaged" FTD penalty of 2% to 10% if you are a semiweekly schedule depositor and your tax liability shown on Form 941, line 10, equaled or exceeded $2,500 and you:

  • Completed Form 941, line 16, instead of Schedule B (Form 941),

  • Failed to attach a properly completed Schedule B (Form 941), or

  • Improperly completed Schedule B (Form 941) by, for example, entering tax deposits instead of tax liabilities in the numbered spaces.

  The FTD penalty is figured by distributing your total tax liability shown on Form 941, line 10, equally throughout the tax period. As a result, your deposits and payments may not be counted as timely because the actual dates of your tax liabilities cannot be accurately determined.

  You can avoid an "averaged" FTD penalty by reviewing your return before you file it. Follow these steps before submitting your Form 941.

  • If you are a monthly schedule depositor, report your tax liabilities (not your deposits) in the monthly entry spaces on Form 941, line 16.

  • If you are a semiweekly schedule depositor, report your tax liabilities (not your deposits) on Schedule B (Form 941) in the lines that represent the dates your employees were paid.

  • Verify your total liability shown on Form 941, line 16, or the bottom of Schedule B (Form 941) equals your tax liability shown on Form 941, line 10.

  • Do not show negative amounts on Form 941, line 16, or Schedule B (Form 941).

  • For prior period errors do not adjust your tax liabilities reported on Form 941, line 16, or on Schedule B (Form 941). Instead, file an adjusted return (Form 941-X, 944-X, or 945-X) if you are also adjusting your tax liability. If you are only adjusting your deposits in response to a failure-to-deposit penalty notice, see the Instructions for Schedule B (Form 941) or the Instructions for Form 945-X (for Forms 944  
    and 945).

12. Filing Form 941 or Form 944

Form 941.   Each quarter, all employers who pay wages subject to income tax withholding (including withholding on sick pay and supplemental unemployment benefits) or social security and Medicare taxes must file Form 941 unless the employer is required to file Form 944 or the following exceptions apply. Form 941 must be filed by the last day of the month that follows the end of the quarter. See the Calendar , earlier.

Form 944.   If you receive written notification you qualify for the Form 944 program, you must file Form 944 instead of Form 941. If you received this notification, but prefer to file Form 941, you can request to have your filing requirement changed to Form 941 if you satisfy certain requirements. See the Instructions for Form 944 for details. Employers who must file Form 944 have until the last day of the month that follows the end of the year to file Form 944.

Exceptions.   The following exceptions apply to the filing requirements for Forms 941 and 944.

  • Seasonal employers who no longer file for quarters when they regularly have no tax liability because they have paid no wages. To alert the IRS you will not have to file a return for one or more quarters during the year, check the “Seasonal employer” box on Form 941, line 18. When you fill out Form 941, be sure to check the box on the top of the form that corresponds to the quarter reported. Generally, the IRS will not inquire about unfiled returns if at least one taxable return is filed each year. However, you must check the “Seasonal employer” box on every Form 941 you file. Otherwise, the IRS will expect a return to be filed for each quarter.

  • Household employers reporting social security and Medicare taxes and/or withheld income tax. If you are a sole proprietor and file Form 941 or Form 944 for business employees, you may include taxes for household employees on your Form 941 or Form 944. Otherwise, report social security and Medicare taxes and income tax withholding for household employees on Schedule H (Form 1040), Household Employment Taxes. See Publication 926, Household Employer's Tax Guide, for more information.

  • Employers reporting wages for employees in American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, the U.S. Virgin Islands, or Puerto Rico. If your employees are not subject to U.S. income tax withholding, use Forms 941-SS, 944, or Formulario 944(SP). Employers in Puerto Rico use Formularios 941-PR, 944-SP, or Form 944. If you have both employees who are subject to U.S. income tax withholding and employees who are not subject to U.S. income tax withholding, you must file only Form 941 (or Form 944 or Formulario 944-SP) and include all your employees' wages on that form. For more information, see Publication 80 (Circular SS), Federal Tax Guide for Employers in US Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands, or Publicación 179 (Circular PR), Guía Contributiva Federal para Patronos Puertorriqueños.

  • Agricultural employers reporting social security, Medicare, and withheld income taxes. Report these taxes on Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. For more information, see Publication 51 (Circular A).

Form 941 e-file.   The Form 941 e-file program allows a taxpayer to electronically file Form 941 or Form 944 using a computer with an internet connection and commercial tax preparation software. For more information, visit the IRS website at www.irs.gov/efile, or call 1-866-255-0654.

Electronic filing by reporting agents.   Reporting agents filing Forms 941 or Form 944 for groups of taxpayers can file them electronically. See Reporting Agents in section 7 of Publication 15-A.

Penalties.   For each whole or part month a return is not filed when required (disregarding any extensions of the filing deadline), there is a failure-to-file penalty of 5% of the unpaid tax due with that return. The maximum penalty is generally 25% of the tax due. Also, for each whole or part month the tax is paid late (disregarding any extensions of the payment deadline), there is a failure-to-pay penalty of 0.5% per month of the amount of tax. For individual filers only, the failure-to-pay penalty is reduced from 0.5% per month to 0.25% per month if an installment agreement is in effect. You must have filed your return on or before the due date of the return to qualify for the reduced penalty. The maximum amount of the failure-to-pay penalty is also 25% of the tax due. If both penalties apply in any month, the failure-to-file penalty is reduced by the amount of the failure-to-pay penalty. The penalties will not be charged if you have a reasonable cause for failing to file or pay. If you receive a penalty notice, you can provide an explanation of why you believe reasonable cause exists.

Note.

In addition to any penalties, interest accrues from the due date of the tax on any unpaid balance.

  If income, social security, or Medicare taxes that must be withheld are not withheld or are not paid, you may be personally liable for the trust fund recovery penalty. See Trust fund recovery penalty in section 11.

  Use of a reporting agent or other third-party payroll service provider does not relieve an employer of the responsibility to ensure tax returns are filed and all taxes are paid or deposited correctly and on time.

Do not file more than one Form 941 per quarter or more than one Form 944 per year.   Employers with multiple locations or divisions must file only one Form 941 per quarter or one Form 944 per year. Filing more than one return may result in processing delays and may require correspondence between you and the IRS. For information on making adjustments to previously filed returns, see section 13.

Reminders about filing.   

  • Do not report more than 1 calendar quarter on a Form 941.

  • If you need Form 941 or Form 944, get one from the IRS in time to file the return when due. See Ordering Employer Tax Products , earlier.

  • Enter your name and EIN on Form 941 or Form 944. Be sure they are exactly as they appeared on earlier returns.

  • See the Instructions for Form 941 or the Instructions for Form 944 for information on preparing the form.

Final return.   If you go out of business, you must file a final return for the last quarter (last year for Form 944) in which wages are paid. If you continue to pay wages or other compensation for periods following termination of your business, you must file returns for those periods. See the Instructions for Form 941 or the Instructions for Form 944 for details on how to file a final return.

  If you are required to file a final return, you are also required to furnish Forms W-2 to your employees by the due date of your final return. File Forms W-2 and W-3 with the SSA by the last day of the month that follows the due date of your final return. Do not send an original or copy of your Form 941 or Form 944 to the SSA. See the General Instructions for Forms W-2 and W-3 for more information.

Filing late returns for previous years.   If possible, get a copy of Form 941 or Form 944 (and separate instructions) with a revision date showing the year for which your delinquent return is being filed. See Quick and Easy Access to IRS Tax Help and Tax Products , located at the end of this publication, for various ways to secure any necessary forms and instructions. Contact the IRS at 1-800-829-4933 if you have any questions.

  

Table 3. Social Security and Medicare Tax Rates (for 3 prior years)

Calendar Year Wage Base Limit (each employee) Tax Rate on Taxable Wages and Tips
2012–Social Security $110,100 10.4%
2012–Medicare All Wages 2.9%
2011–Social Security $106,800 10.4%
2011–Medicare All Wages 2.9%
2010–Social Security $106,800 12.4%
2010–Medicare All Wages 2.9%

Reconciling Forms W-2, W-3, and 941 or 944.   When there are discrepancies between Forms 941 or Form 944 filed with the IRS and Forms W-2 and W-3 filed with the SSA, the IRS must contact you to resolve the discrepancies.

  Take the following steps to help reduce discrepancies.

  1. Report bonuses as wages and as social security and Medicare wages on Forms W-2 and on Form 941 or Form 944.

  2. Report both social security and Medicare wages and taxes separately on Forms W-2, W-3, 941, and 944.

  3. Report employee share of social security taxes on Form W-2 in the box for social security tax withheld (box 4), not as social security wages.

  4. Report employee share of Medicare taxes on Form W-2 in the box for Medicare tax withheld (box 6), not as Medicare wages.

  5. Make sure the social security wage amount for each employee does not exceed the annual social security wage base limit (for example, $113,700 for 2013).

  6. Do not report noncash wages that are not subject to social security or Medicare taxes as social security or Medicare wages.

  7. If you used an EIN on any Form 941 or Form 944 for the year that is different from the EIN reported on Form W-3, enter the other EIN on Form W-3 in the box for “Other EIN used this year.”

  8. Be sure the amounts on Form W-3 are the total of amounts from Forms W-2.

  9. Reconcile Form W-3 with your four quarterly Forms 941 or annual Form 944 by comparing amounts reported for:

    1. Income tax withholding;

    2. Social security wages, social security tips, and Medicare wages and tips. Form W-3 should include Forms 941 or Form 944 adjustments only for the current year (that is, if the Form 941 or Form 944 adjustments include amounts for a prior year, do not report those prior year adjustments on the current-year Forms W-2 and W-3); and

    3. Social security and Medicare taxes. Generally, the amounts shown on the four quarterly Forms 941 or the annual Form 944 , including current-year adjustments, should be approximately twice the amounts shown on Form W-3. This is because Form 941 and Form 944 include both the employer and employee shares of social security and Medicare taxes.

  Do not report on Form 941 or Form 944 backup withholding or income tax withholding on nonpayroll payments such as pensions, annuities, and gambling winnings. Nonpayroll withholding must be reported on Form 945. See the Instructions for Form 945 for details. Income tax withholding required to be reported on Forms 1099 or W-2G must be reported on Form 945. Only taxes and withholding properly reported on Form W-2 should be reported on Form 941 or Form 944.

  Amounts reported on Forms W-2, W-3, and Forms 941 or Form 944 may not match for valid reasons. If they do not match, you should determine the reasons they are valid. Keep your reconciliation so you will have a record of why amounts did not match in case there are inquiries from the IRS or the SSA. See the Instructions for Schedule D (Form 941) if you need to explain any discrepancies that were caused by an acquisition, statutory merger, or consolidation.

13. Reporting Adjustments to Form 941 or Form 944

Current Period Adjustments

In certain cases, amounts reported as social security and Medicare taxes on Form 941, lines 5a–5d, column 2 (Form 944, lines 4a–4c, column 2), must be adjusted to arrive at your correct tax liability (for example, excluding amounts withheld by a third-party payor or amounts you were not required to withhold). Current period adjustments are reported on Form 941, lines 7–9, or Form 944, line 6, and include the following types of adjustments.

Fractions-of-cents adjustment.   If there is a small difference between total taxes after adjustments (Form 941, line 10; Form 944, line 7) and total deposits (Form 941, line 13; Form 944, line 10), it may have been caused, all or in part, by rounding to the nearest cent each time you computed payroll. This rounding occurs when you figure the amount of social security and Medicare tax to be withheld and deposited from each employee's wages. The IRS refers to rounding differences relating to employee withholding of social security and Medicare taxes as “fractions-of-cents” adjustments. If you pay your taxes with Form 941 (or Form 944) instead of making deposits because your total taxes for the quarter (year for Form 944) are less than $2,500, you also may report a fractions-of-cents adjustment.

  To determine if you have a fractions-of-cents adjustment for 2013, multiply the total wages and tips for the quarter subject to:

  • Social security tax reported on Form 941 or Form 944 by the employee's tax rate for social security,

  • Medicare tax reported on Form 941 or Form 944 by 1.45% (.0145), and

  • Additional Medicare Tax reported on Form 941 or 944 by 0.9% (.009).

Compare these amounts (the employee share of social security and Medicare taxes) with the total social security and Medicare taxes actually withheld from employees for the quarter (from your payroll records). The difference, positive or negative, is your fractions-of-cents adjustment to be reported on Form 941, line 7, or Form 944, line 6. If the actual amount withheld is less, report a negative adjustment using a minus sign (if possible, otherwise use parentheses) in the entry space. If the actual amount is more, report a positive adjustment.

  
For the above adjustments, prepare and retain a brief supporting statement explaining the nature and amount of each. Do not attach the statement to Form 941 or Form 944.

Example.

Cedar, Inc. was entitled to the following current period adjustments.

  • Fractions of cents. Cedar, Inc. determined the amounts withheld and deposited for social security and Medicare taxes during the quarter were a net $1.44 more than the employee share of the amount figured on Form 941, lines 5a–5d, column 2 (social security and Medicare taxes). This difference was caused by adding or dropping fractions of cents when figuring social security and Medicare taxes for each wage payment. Cedar, Inc. must report a positive $1.44 fractions-of-cents adjustment on Form 941, line 7.

  • Third-party sick pay. Cedar, Inc. included taxes of $2,000 for sick pay on Form 941, lines 5a and 5c, column 2, for social security and Medicare taxes. However, the third-party payor of the sick pay withheld and paid the employee share ($1,000) of these taxes. Cedar, Inc. is entitled to a $1,000 sick pay adjustment (negative) on Form 941, line 8.

  • Life insurance premiums. Cedar, Inc. paid group-term life insurance premiums for policies in excess of $50,000 for former employees. The former employees must pay the employee share of the social security and Medicare taxes ($200) on the policies. However, Cedar, Inc. must include the employee share of these taxes with the social security and Medicare taxes reported on Form 941, lines 5a and 5c, column 2. Therefore, Cedar, Inc. is entitled to a negative $200 adjustment on Form 941, line 9.

Adjustment of tax on third-party sick pay.   Report both the employer and employee shares of social security and Medicare taxes for sick pay on Form 941, lines 5a and 5c (Form 944, lines 4a and 4c). If the aggregate wages paid for an employee by the employer and third-party payor exceed $200,000 for the calendar year, report the Additional Medicare Tax on Form 941, line 5d. Show as a negative adjustment on Form 941, line 8 (Form 944, line 6), the social security and Medicare taxes withheld on sick pay by a third-party payor. See section 6 of Publication 15-A for more information.

Adjustment of tax on tips.   If, by the 10th of the month after the month you received an employee's report on tips, you do not have enough employee funds available to withhold the employee's share of social security and Medicare taxes, you no longer have to collect it. However, report the entire amount of these tips on Form 941, lines 5b and 5c (Form 944, lines 4b and 4c). If the aggregate wages and tips paid for an employee exceed $200,000 for the calendar year, report the Additional Medicare Tax on Form 941, line 5d. Include as a negative adjustment on Form 941, line 9 (Form 944, line 6), the total uncollected employee share of the social security and Medicare taxes.

Adjustment of tax on group-term life insurance premiums paid for former employees.   The employee share of social security and Medicare taxes for premiums on group-term life insurance over $50,000 for a former employee is paid by the former employee with his or her tax return and is not collected by the employer. However, include all social security and Medicare taxes for such coverage on Form 941, lines 5a and 5c (Form 944, lines 4a and 4c). If the amount paid for an employee for premiums on group-term life insurance combined with other wages exceeds $200,000 for the calendar year, report the Additional Medicare Tax on Form 941, line 5d. Back out the amount of the employee share of these taxes as a negative adjustment on Form 941, line 9 (Form 944, line 6). See Publication 15-B for more information on group-term life insurance.

No change to record of federal tax liability.   Do not make any changes to your record of federal tax liability reported on Form 941, line 16, or Schedule B (Form 941) (Form 945-A for Form 944 filers) for current period adjustments. The amounts reported on the record reflect the actual amounts you withheld from employees' wages for social security and Medicare taxes. Because the current period adjustments make the amounts reported on Form 941, lines 5a–5d, column 2 (Form 944, lines 4a–4c, column 2), equal the actual amounts you withheld (the amounts reported on the record), no additional changes to the record of federal tax liability are necessary for these adjustments.

Prior Period Adjustments

Forms for prior period adjustments.   The Internal Revenue Service has developed Form 941-X and Form 944-X to replace Form 941c, Supporting Statement to Correct Information. There are also Forms 943-X, 945-X, and CT-1X to report corrections on the corresponding returns.

  Form 941-X and Form 944-X also replace Form 843, Claim for Refund or Request for Abatement, for employers to request a refund or abatement of overreported employment taxes. Continue to use Form 843 when requesting a refund or abatement of assessed interest or penalties.

See Revenue Ruling 2009-39, 2009-52 I.R.B. 951, for examples of how the interest-free adjustment and claim for refund rules apply in 10 different situations. You can find Revenue Ruling 2009-39, at www.irs.gov/irb/2009-52_IRB/ar14.html.

Background.   Treasury Decision 9405 changed the process for making interest-free adjustments to employment taxes reported on Form 941 and Form 944 and for filing a claim for refund of employment taxes. Treasury Decision 9405, 2008-32 I.R.B. 293, is available at www.irs.gov/irb/2008-32_irb/ar13.html. You will use the adjustment process if you underreported employment taxes and are making a payment, or if you overreported employment taxes and will be applying the credit to the Form 941 or Form 944 period during which you file Form 941-X or Form 944-X. You will use the claim process if you overreported employment taxes and are requesting a refund or abatement of the overreported amount. We use the terms “correct” and “corrections” to include interest-free adjustments under sections 6205 and 6413, and claims for refund and abatement under sections 6402, 6414, and 6404 of the Internal Revenue Code.

Correcting employment taxes.   When you discover an error on a previously filed Form 941 or Form 944, you must:

  • Correct that error using Form 941-X or Form 944-X,

  • File a separate Form 941-X or Form 944-X for each Form 941 or Form 944 you are correcting, and

  • File Form 941-X or Form 944-X separately. Do not file with Form 941 or Form 944.

  Continue to report current quarter adjustments for fractions of cents, third-party sick pay, tips, and group-term life insurance on Form 941 using lines 7–9, and on Form 944 using line 6.

  Report the correction of underreported and overreported amounts for the same tax period on a single Form 941-X or Form 944-X unless you are requesting a refund. If you are requesting a refund and are correcting both underreported and overreported amounts, file one Form 941-X or Form 944-X correcting the underreported amounts only and a second Form 941-X or Form 944-X correcting the overreported amounts.

  See the chart on the back of Form 941-X or Form 944-X for help in choosing whether to use the adjustment process or the claim process. See the Instructions for Form 941-X or the Instructions for Form 944-X for details on how to make the adjustment or claim for refund or abatement.

Income tax withholding adjustments.   In a current calendar year, correct prior quarter income tax withholding errors by making the correction on Form 941-X when you discover the error.

  You may make an adjustment only to correct income tax withholding errors discovered during the same calendar year in which you paid the wages. This is because the employee uses the amount shown on Form W-2 as a credit when filing his or her income tax return (Form 1040, etc.).

  You cannot adjust amounts reported as income tax withheld in a prior calendar year unless it is to correct an administrative error or section 3509 applies. An administrative error occurs if the amount you entered on Form 941 or Form 944 is not the amount you actually withheld. For example, if the total income tax actually withheld was incorrectly reported on Form 941 or Form 944 due to a mathematical or transposition error, this would be an administrative error. The administrative error adjustment corrects the amount reported on Form 941 or Form 944 to agree with the amount actually withheld from employees and reported on their Forms W-2.

Additional Medicare Tax withholding adjustments.   Generally, the rules discussed above under Income tax withholding adjustments apply to Additional Medicare Tax withholding adjustments. That is, you may make an adjustment only to correct Additional Medicare Tax withholding errors discovered during the same calendar year in which you paid wages. You should not adjust amounts reported in a prior calendar year unless it is to correct an administrative error or section 3509 applies. If you have overpaid Additional Medicare Tax, you should not file a claim for refund for the amount of the overpayment unless the amount was not actually withheld from the employee's wages.

Collecting underwithheld taxes from employees.   If you withheld no income, social security, or Medicare taxes or less than the correct amount from an employee's wages, you can make it up from later pay to that employee. But you are the one who owes the underpayment. Reimbursement is a matter for settlement between you and the employee. Underwithheld income tax must be recovered from the employee on or before the last day of the calendar year. There are special rules for tax on tips (see section 6) and fringe benefits (see section 5).

Refunding amounts incorrectly withheld from employees.   If you withheld more than the correct amount of income, social security, or Medicare taxes from wages paid, repay or reimburse the employee the excess. Any excess income tax or Additional Medicare Tax withholding should be repaid or reimbursed to the employee before the end of the calendar year in which it was withheld. Keep in your records the employee's written receipt showing the date and amount of the repayment or record of reimbursement. If you did not repay or reimburse the employee, you must report and pay each excess amount when you file Form 941 for the quarter (or Form 944 for the year) in which you withheld too much tax.

Correcting filed Forms W-2 and W-3.   When adjustments are made to correct wages and social security and Medicare taxes because of a change in the wage totals reported for a previous year, you also need to file Form W-2c and Form W-3c with the SSA. Up to five Forms W-2c per Form W-3c may now be filed per session over the Internet, with no limit on the number of sessions. For more information, visit the Social Security Administration's Employer W-2 Filing Instructions & Information webpage at www.socialsecurity.gov/employer.

Exceptions to interest-free corrections of employment taxes.   A correction will not be eligible for interest-free treatment if:

  • The failure to report relates to an issue raised in an IRS examination of a prior return, or

  • The employer knowingly underreported its employment tax liability.

  A correction will not be eligible for interest-free treatment after the earlier of the following:

  • Receipt of an IRS notice and demand for payment after assessment or

  • Receipt of an IRS Notice of Determination of Worker Classification (Letter 3523).

Wage Repayments

If an employee repays you for wages received in error, do not offset the repayments against current-year wages unless the repayments are for amounts received in error in the current year.

Repayment of current year wages.   If you receive repayments for wages paid during a prior quarter in the current year, report adjustments on Form 941-X to recover income tax withholding and social security and Medicare taxes for the repaid wages.

Repayment of prior year wages.   If you receive repayments for wages paid during a prior year, report an adjustment on Form 941-X or Form 944-X to recover the social security and Medicare taxes. You should not make an adjustment for income tax or Additional Medicare Tax withholding because the wages were wages and income to the employee for the prior year.

  You also must file Forms W-2c and W-3c with the SSA to correct social security and Medicare wages and taxes. Do not correct wages (box 1) on Form W-2c for the amount paid in error. Give a copy of Form W-2c to the employee.

Employee reporting of repayment.   The wages paid in error in the prior year remain taxable to the employee for that year. This is because the employee received and had use of those funds during that year. The employee is not entitled to file an amended return (Form 1040X) to recover the income tax on these wages. Instead, the employee is entitled to a deduction (or credit in some cases) for the repaid wages on his or her income tax return for the year of repayment.

14. Federal Unemployment (FUTA) Tax

The Federal Unemployment Tax Act, with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax. For a list of state unemployment agencies, visit the U.S. Department of Labor’s website at www.workforcesecurity.doleta.gov/unemploy/agencies.asp. Only the employer pays FUTA tax; it is not withheld from the employee's wages. For more information, see the Instructions for Form 940.

Services rendered to a federally recognized Indian tribal government (or any subdivision, subsidiary, or business wholly owned by such an Indian tribe) are exempt from FUTA tax, subject to the tribe's compliance with state law. For more information, see Internal Revenue Code section 3309(d).

Who must pay?   Use the following three tests to determine whether you must pay FUTA tax. Each test applies to a different category of employee, and each is independent of the others. If a test describes your situation, you are subject to FUTA tax on the wages you pay to employees in that category during the current calendar year.

  

  1. General test.

    You are subject to FUTA tax in 2013 on the wages you pay employees who are not farmworkers or household workers if:

    1. You paid wages of $1,500 or more in any calendar quarter in 2012 or 2013, or

    2. You had one or more employees for at least some part of a day in any 20 or more different weeks in 2012 or 20 or more different weeks in 2013.

  2. Household employees test.

    You are subject to FUTA tax if you paid total cash wages of $1,000 or more to household employees in any calendar quarter in 2012 or 2013. A household employee is an employee who performs household work in a private home, local college club, or local fraternity or sorority chapter.

  3. Farmworkers test.

    You are subject to FUTA tax on the wages you pay to farmworkers if:

    1. You paid cash wages of $20,000 or more to farmworkers during any calendar quarter in 2012 or 2013, or

    2. You employed 10 or more farmworkers during at least some part of a day (whether or not at the same time) during any 20 or more different weeks in 2012 or 20 or more different weeks in 2013.

Computing FUTA tax.   For 2013, the FUTA tax rate is 6.0%. The tax applies to the first $7,000 you pay to each employee as wages during the year. The $7,000 is the federal wage base. Your state wage base may be different.

  Generally, you can take a credit against your FUTA tax for amounts you paid into state unemployment funds. The credit may be as much as 5.4% of FUTA taxable wages. If you are entitled to the maximum 5.4% credit, the FUTA tax rate after credit is 0.6%. You are entitled to the maximum credit if you paid your state unemployment taxes in full, on time, and on all the same wages as are subject to FUTA tax, and as long as the state is not determined to be a credit reduction state. See the Instructions for Form 940 to determine the credit.

  In some states, the wages subject to state unemployment tax are the same as the wages subject to FUTA tax. However, certain states exclude some types of wages from state unemployment tax, even though they are subject to FUTA tax (for example, wages paid to corporate officers, certain payments of sick pay by unions, and certain fringe benefits). In such a case, you may be required to deposit more than 0.6% FUTA tax on those wages. See the Instructions for Form 940 for further guidance.

  
In years when there are credit reduction states, you must include liabilities owed for credit reduction with your fourth quarter deposit. You may deposit the anticipated extra liability throughout the year, but it is not due until the due date for the deposit for the fourth quarter, and the associated liability should be recorded as being incurred in the fourth quarter. See the Instructions for Form 940 for more information.

Successor employer.   If you acquired a business from an employer who was liable for FUTA tax, you may be able to count the wages that employer paid to the employees who continue to work for you when you figure the $7,000 FUTA tax wage base. See the Instructions for Form 940.

Depositing FUTA tax.   For deposit purposes, figure FUTA tax quarterly. Determine your FUTA tax liability by multiplying the amount of taxable wages paid during the quarter by 0.6%. Stop depositing FUTA tax on an employee's wages when he or she reaches $7,000 in taxable wages for the calendar year.

  If your FUTA tax liability for any calendar quarter is $500 or less, you do not have to deposit the tax. Instead, you may carry it forward and add it to the liability figured in the next quarter to see if you must make a deposit. If your FUTA tax liability for any calendar quarter is over $500 (including any FUTA tax carried forward from an earlier quarter), you must deposit the tax by electronic funds transfer. See section 11 for more information on electronic funds transfer.

Household employees.   You are not required to deposit FUTA taxes for household employees unless you report their wages on Form 941, 943, or 944. See Publication 926 for more information.

When to deposit.   Deposit the FUTA tax by the last day of the first month that follows the end of the quarter. If the due date for making your deposit falls on a Saturday, Sunday, or legal holiday, you may make your deposit on the next business day.

  If your liability for the fourth quarter (plus any undeposited amount from any earlier quarter) is over $500, deposit the entire amount by the due date of Form 940 (January 31). If it is $500 or less, you can make a deposit, pay the tax with a credit or debit card, or pay the tax with your 2012 Form 940 by January 31. For information on paying your taxes with a credit or debit card, visit the IRS website at www.irs.gov/e-pay.

  

Table 4. When to Deposit FUTA Taxes

Quarter Ending Due Date
Jan.–Feb.–Mar. Mar. 31 Apr. 30
Apr.–May–June June 30 July 31
July–Aug.–Sept. Sept. 30 Oct. 31
Oct.–Nov.–Dec. Dec. 31 Jan. 31

Reporting FUTA tax.   Use Form 940 to report FUTA tax. File your 2012 Form 940 by January 31, 2013. However, if you deposited all FUTA tax when due, you may file on or before February 11, 2013. If you do not receive Form 940, you can get a form by calling 1-800-TAX-FORM (1-800-829-3676).

Household employees.   If you did not report employment taxes for household employees on Forms 941, 943, or 944, report FUTA tax for these employees on Schedule H (Form 1040). See Publication 926 for more information. You must have an EIN to file Schedule H (Form 1040).

Electronic filing by reporting agents.   Reporting agents filing Forms 940 for groups of taxpayers can file them electronically. See the Reporting Agent discussion in section 7 of Publication 15-A.

15. Special Rules for Various Types of Services and Payments

Section references are to the Internal Revenue Code unless otherwise noted.
Special Classes of Employment and Special Types of Payments Treatment Under Employment Taxes
  Income Tax Withholding Social Security and Medicare (including Additional Medicare Tax when wages are paid in excess of $200,000) FUTA
Aliens, nonresident. See Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, and Publication 519, U.S. Tax Guide for Aliens.
Aliens, resident:      
1. Service performed in the U.S. Same as U.S. citizen. Same as U.S. citizen. (Exempt if any part of service as crew member of foreign vessel or aircraft is performed outside U.S.) Same as U.S. citizen.
2. Service performed outside U.S. Withhold Taxable if (1) working for an American employer or (2) an American employer by agreement covers U.S. citizens and residents employed by its foreign affiliates. Exempt unless on or in connection with an American vessel or aircraft and either performed under contract made in U.S., or alien is employed on such vessel or aircraft when it touches U.S. port.
Cafeteria plan benefits under section 125. If employee chooses cash, subject to all employment taxes. If employee chooses another benefit, the treatment is the same as if the benefit was provided outside the plan. See Publication 15-B for more information.
Deceased worker:      
1. Wages paid to beneficiary or estate in same calendar year as worker's death. See the Instructions for Forms W-2 and W-3 for details. Exempt Taxable Taxable
2. Wages paid to beneficiary or estate after calendar year of worker's death. Exempt Exempt Exempt
Dependent care assistance programs. Exempt to the extent it is reasonable to believe amounts are excludable from gross income under section 129.
Disabled worker's wages paid after year in which worker became entitled to disability insurance benefits under the Social Security Act. Withhold Exempt, if worker did not perform any service for employer during period for which payment is made. Taxable
Employee business expense reimbursement:      
1. Accountable plan.      
  a. Amounts not exceeding specified government rate for per diem or standard mileage. Exempt Exempt Exempt
  b. Amounts in excess of specified government rate for per diem or standard mileage. Withhold Taxable Taxable
2. Nonaccountable plan. See section 5 for details. Withhold Taxable Taxable
Family employees:      
1. Child employed by parent (or partnership in which each partner is a parent of the child). Withhold Exempt until age 18; age 21 for domestic service. Exempt until age 21
2. Parent employed by child. Withhold Taxable if in course of the son's or daughter's business. For domestic services, see section 3. Exempt
3. Spouse employed by spouse. Withhold Taxable if in course of spouse's business. Exempt
  See section 3 for more information.      
Fishing and related activities. See Publication 334, Tax Guide for Small Business.
Foreign governments and international organizations. Exempt Exempt Exempt
Foreign service by U.S. citizens:      
1. As U.S. government employees. Withhold Same as within U.S. Exempt
2. For foreign affiliates of American employers and other private employers. Exempt if at time of payment (1) it is reasonable to believe employee is entitled to exclusion from income under section 911 or (2) the employer is required by law of the foreign country to withhold income tax on such payment. Exempt unless (1) an American employer by agreement covers U.S. citizens employed by its foreign affiliates or (2) U.S. citizen works for American employer. Exempt unless (1) on American vessel or aircraft and work is performed under contract made in U.S. or worker is employed on vessel when it touches U.S. port or (2) U.S. citizen works for American employer (except in a contiguous country with which the U.S. has an agreement for unemployment compensation) or in the U.S. Virgin Islands.
       
         
           
           
         
           
           
           
Fringe benefits. Taxable on excess of fair market value of the benefit over the sum of an amount paid for it by the employee and any amount excludable by law. However, special valuation rules may apply. Benefits provided under cafeteria plans may qualify for exclusion from wages for social security, Medicare, and FUTA taxes. See Publication 15-B for details.
Government employment:      
State/local governments and political subdivisions, employees of:      
1. Salaries and wages (includes payments to most elected and appointed officials.) See chapter 3 of Publication 963, Federal-State Reference Guide. Withhold Generally, taxable for (1) services performed by employees who are either (a) covered under a section 218 agreement or (b) not covered under a section 218 agreement and not a member of a public retirement system (mandatory social security and Medicare coverage), and (2) (for Medicare tax only) for services performed by employees hired or rehired after 3/31/86 who are not covered under a section 218 agreement or the mandatory social security provisions, unless specifically excluded by law. See Publication 963. Exempt
2. Election workers. Election individuals are workers who are employed to perform services for state or local governments at election booths in connection with national, state, or local elections. Exempt Taxable if paid $1,600 or more in 2013 (lesser amount if specified by a section 218 social security agreement). See Revenue Ruling 2000-6. Exempt
  Note. File Form W-2 for payments of $600 or more even if no social security, or Medicare taxes were withheld.      
3. Emergency workers. Emergency workers who were hired on a temporary basis in response to a specific unforeseen emergency and are not intended to become permanent employees. Withhold Exempt if serving on a temporary basis in case of fire, storm, snow, earthquake, flood, or similar emergency. Exempt
U.S. federal government employees. Withhold Taxable for Medicare. Taxable for social security unless hired before 1984. See section 3121(b)(5). Exempt
Homeworkers (industrial, cottage industry):      
1. Common law employees. Withhold Taxable Taxable
2. Statutory employees. 
 
 
See section 2 for details. 		Exempt Taxable if paid $100 or more in cash in a year. Exempt
Hospital employees:      
1. Interns Withhold Taxable Exempt
2. Patients Withhold Taxable (Exempt for state or local government hospitals.) Exempt
Household employees:      
1. Domestic service in private homes. Farmers, see Publication 51 
(Circular A). 		Exempt (withhold if both employer and employee agree). Taxable if paid $1,800 or more in cash in 2013. Exempt if performed by an individual under age 18 during any portion of the calendar year and is not the principal occupation of the employee. Taxable if employer paid total cash wages of $1,000 or more in any quarter in the current or preceding calendar year.
2. Domestic service in college clubs, fraternities, and sororities. Exempt (withhold if both employer and employee agree). Exempt if paid to regular student; also exempt if employee is paid less than $100 in a year by an income-tax-exempt employer. Taxable if employer paid total cash wages of $1,000 or more in any quarter in the current or preceding calendar year.
Insurance for employees:      
1. Accident and health insurance premiums under a plan or system for employees and their dependents generally or for a class or classes of employees and their dependents. Exempt (except 2% shareholder-employees of S corporations). Exempt Exempt
2. Group-term life insurance costs. 
See Publication 15-B for details 		Exempt Exempt, except for the cost of group-term life insurance includible in the employee's gross income. Special rules apply for former employees. Exempt
Insurance agents or solicitors:      
1. Full-time life insurance salesperson. Withhold only if employee under common law. See section 2. Taxable Taxable if (1) employee under common law and (2) not paid solely by commissions.
2. Other salesperson of life, casualty, etc., insurance. Withhold only if employee under common law. Taxable only if employee under common law. Taxable if (1) employee under common law and (2) not paid solely by commissions.
Interest on loans with below-market interest rates (foregone interest and deemed original issue discount). See Publication 15-A.
Leave-sharing plans: Amounts paid to an employee under a leave-sharing plan. Withhold Taxable Taxable
Newspaper carriers and vendors: Newspaper carriers under age 18; newspaper and magazine vendors buying at fixed prices and retaining receipts from sales to customers. See Publication 15-A for information on statutory nonemployee status. Exempt (withhold if both employer and employee voluntarily agree). Exempt Exempt
Noncash payments:      
1. For household work, agricultural labor, and service not in the course of the employer's trade or business. Exempt (withhold if both employer and employee voluntarily agree). Exempt Exempt
2. To certain retail commission salespersons ordinarily paid solely on a cash commission basis. Optional with employer, except to the extent employee's supplemental wages during the year exceed $1 million. Taxable Taxable
Nonprofit organizations. See Publication 15-A.
Officers or shareholders of an S Corporation. Distributions and other payments by an S corporation to a corporate officer or shareholder must be treated as wages to the extent the amounts are reasonable compensation for services to the corporation by an employee. See the Instructions for Form 1120S. Withhold Taxable Taxable
Partners: Payments to general or limited partners of a partnership. See Publication 541, Partnerships, for partner reporting rules. Exempt Exempt Exempt
Railroads: Payments subject to the Railroad Retirement Act. See Publication 915, Social Security and Equivalent Railroad Retirement Benefits, for more details. Withhold Exempt Exempt
Religious exemptions. See Publication 15-A and Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers.
Retirement and pension plans:      
1. Employer contributions to a qualified plan. Exempt Exempt Exempt
2. Elective employee contributions and deferrals to a plan containing a qualified cash or deferred compensation arrangement (for example, 401(k)). Generally exempt, but see section 402(g) for limitation. Taxable Taxable
3. Employer contributions to individual retirement accounts under simplified employee pension plan (SEP). Generally exempt, but seesection 402(g) for salary reduction SEP limitation. Exempt, except for amounts contributed under a salary reduction SEP agreement.
4. Employer contributions to section 403(b) annuities. Generally exempt, but see section 402(g) for limitation. Taxable if paid through a salary reduction agreement (written or otherwise).
5. Employee salary reduction contributions to a SIMPLE retirement account. Exempt Taxable Taxable
6. Distributions from qualified retirement and pension plans and section 403(b) annuities. 
 
 
See Publication 15-A for information on pensions, annuities, and employer contributions to nonqualified deferred compensation arrangements. 		Withhold, but recipient may elect exemption on Form W-4P in certain cases; mandatory 20% withholding applies to an eligible rollover distribution that is not a direct rollover; exempt for direct rollover. See Publication 15-A. Exempt Exempt
Salespersons:      
1. Common law employees. Withhold Taxable Taxable
2. Statutory employees. Exempt Taxable Taxable, except for full-time life insurance sales agents.
3. Statutory nonemployees (qualified real estate agents, direct sellers, and certain companion sitters). See Publication 15-A for details. Exempt Exempt Exempt
Scholarships and fellowship grants (includible in income under section 117(c)): Withhold Taxability depends on the nature of the employment and the status of the organization. See Students, scholars, trainees, teachers, etc. on the next page.
Severance or dismissal pay. Withhold Taxable Taxable
Service not in the course of the employer's trade or business (other than on a farm operated for profit or for household employment in private homes). Withhold only if employee earns $50 or more in cash in a quarter and works on 24 or more different days in that quarter or in the preceding quarter. Taxable if employee receives $100 or more in cash in a calendar year. Taxable only if employee earns $50 or more in cash in a quarter and works on 24 or more different days in that quarter or in the preceding quarter.
Sick pay. 
See Publication 15-A for more information. 		Withhold Exempt after end of 6 calendar months after the calendar month employee last worked for employer.
Students, scholars, trainees, teachers, etc.:      
1. Student enrolled and regularly attending classes, performing services for:      
  a. Private school, college, or university. Withhold Exempt Exempt
  b. Auxiliary nonprofit organization operated for and controlled by school, college, or university. Withhold Exempt unless services are covered by a section 218 (Social Security Act) agreement. Exempt
  c. Public school, college, or university. Withhold Exempt unless services are covered by a section 218 (Social Security Act) agreement. Exempt
2. Full-time student performing service for academic credit, combining instruction with work experience as an integral part of the program. Withhold Taxable Exempt unless program was established for or on behalf of an employer or group of employers.
3. Student nurse performing part-time services for nominal earnings at hospital as incidental part of training. Withhold Exempt Exempt
4. Student employed by organized camps. Withhold Taxable Exempt
5. Student, scholar, trainee, teacher, etc., as nonimmigrant alien under section 101(a)(15)(F), (J), (M), or (Q) of Immigration and Nationality Act (that is, aliens holding F-1, J-1, M-1, or Q-1 visas). Withhold unless excepted by regulations. Exempt if service is performed for purpose specified in section 101(a)(15)(F), (J), (M), or (Q) of Immigration and Nationality Act. However, these taxes may apply if the employee becomes a resident alien. See the special residency tests for exempt individuals in chapter 1 of Publication 519.
Supplemental unemployment compensation plan benefits. Withhold Exempt under certain conditions. See Publication 15-A.
Tips:      
1. If $20 or more in a month. Withhold Taxable Taxable for all tips reported in writing to employer.
2. If less than $20 in a month. See  
section 6 for more information. 		Exempt Exempt Exempt
Worker's compensation. Exempt Exempt Exempt

16. How To Use the Income Tax Withholding Tables

There are several ways to figure income tax withholding. The following methods of withholding are based on the information you get from your employees on Form W-4. See section 9 for more information on Form W-4.

Adjustments are not required when there will be more than the usual number of pay periods, for example, 27 biweekly pay dates instead of 26.

Wage Bracket Method

Under the wage bracket method, find the proper table (on pages 46–65) for your payroll period and the employee's marital status as shown on his or her Form W-4. Then, based on the number of withholding allowances claimed on the Form W-4 and the amount of wages, find the amount of income tax to withhold. If your employee is claiming more than 10 withholding allowances, see below.

If you cannot use the wage bracket tables because wages exceed the amount shown in the last bracket of the table, use the percentage method of withholding described below. Be sure to reduce wages by the amount of total withholding allowances in Table 5 before using the percentage method tables (pages 44–45).

Adjusting wage bracket withholding for employees claiming more than 10 withholding allowances.   The wage bracket tables can be used if an employee claims up to 10 allowances. More than 10 allowances may be claimed because of the special withholding allowance, additional allowances for deductions and credits, and the system itself.

  Adapt the tables to more than 10 allowances as follows:

  1. Multiply the number of withholding allowances over 10 by the allowance value for the payroll period. The allowance values are in Table 5 below.

  2. Subtract the result from the employee's wages.

  3. On this amount, find and withhold the tax in the column for 10 allowances.

  This is a voluntary method. If you use the wage bracket tables, you may continue to withhold the amount in the “10” column when your employee has more than 10 allowances, using the method above. You can also use any other method described below.

Percentage Method

If you do not want to use the wage bracket tables on pages 46–65 to figure how much income tax to withhold, you can use a percentage computation based on Table 5 below and the appropriate rate table. This method works for any number of withholding allowances the employee claims and any amount of wages.

Use these steps to figure the income tax to withhold under the percentage method.

  1. Multiply one withholding allowance for your payroll period (see Table 5 below) by the number of allowances the employee claims.

  2. Subtract that amount from the employee's wages.

  3. Determine the amount to withhold from the appropriate table on pages 44–45.

Table 5. Percentage Method—2013 Amount for One Withholding Allowance

Payroll Period One Withholding Allowance
Weekly $75.00
Biweekly 150.00
Semimonthly 162.50
Monthly 325.00
Quarterly 975.00
Semiannually 1,950.00
Annually 3,900.00
Daily or miscellaneous (each day of the payroll period) 15.00

Example.   An unmarried employee is paid $600 weekly. This employee has in effect a Form W-4 claiming two withholding allowances. Using the percentage method, figure the income tax to withhold as follows:
1. Total wage payment   $600.00
2. One allowance $75.00  
3. Allowances claimed on Form W-4 2  
4. Multiply line 2 by line 3   $150.00
5 Amount subject to withholding (subtract line 4 from line 1)    
$450.00
6. Tax to be withheld on $450.00 from Table 1—single person, page 44    
$52.60

  

  To figure the income tax to withhold, you may reduce the last digit of the wages to zero, or figure the wages to the nearest dollar.

Annual income tax withholding.   Figure the income tax to withhold on annual wages under the Percentage Method for an annual payroll period. Then prorate the tax back to the payroll period.

Example.

A married person claims four withholding allowances. She is paid $1,000 a week. Multiply the weekly wages by 52 weeks to figure the annual wage of $52,000. Subtract $15,600 (the value of four withholding allowances for 2013) for a balance of $36,400. Using the table for the annual payroll period on page 45, $3,322.50 is withheld. Divide the annual tax by 52. The weekly income tax to withhold is $63.89.

Alternative Methods of Income Tax Withholding

Rather than the Wage Bracket Method or Percentage Method described above, you can use an alternative method to withhold income tax. Publication 15-A describes these alternative methods and contains:

  • Formula tables for percentage method withholding (for automated payroll systems),

  • Wage bracket percentage method tables (for automated payroll systems), and

  • Combined income, social security, and Medicare tax withholding tables.

Some of the alternative methods explained in Publication 15-A are annualized wages, average estimated wages, cumulative wages, and part-year employment.

Percentage Method Tables for Income Tax Withholding

(For Wages Paid in 2013)
TABLE 1—WEEKLY Payroll Period
 
(a) SINGLE person (including head of household)— (b) MARRIED person—
If the amount of wages (after subtracting withholding allowances) is: The amount of income tax 
to withhold is: 		If the amount of wages (after subtracting withholding allowances) is: The amount of income tax 
to withhold is:
Not over $42 $0   Not over $160 $0  
Over— But not over— of excess over— Over— But not over— of excess over—
$42 —$214   $0.00 plus 10% —$42 $160 —$503   $0.00 plus 10% —$160
$214 —$739   $17.20 plus 15% —$214 $503 —$1,554   $34.30 plus 15% —$503
$739 —$1,732   $95.95 plus 25% —$739 $1,554 —$2,975   $191.95 plus 25% —$1,554
$1,732 —$3,566   $344.20 plus 28% —$1,732 $2,975 —$4,449   $547.20 plus 28% —$2,975
$3,566 —$7,703   $857.72 plus 33% —$3,566 $4,449 —$7,820   $959.92 plus 33% —$4,449
$7,703 —$7,735   $2,222.93 plus 35% —$7,703 $7,820 —$8,813   $2,072.35 plus 35% —$7,820
$7,735   $2,234.13 plus 39.6% —$7,735 $8,813   $2,419.90 plus 39.6% —$8,813
TABLE 2—BIWEEKLY Payroll Period
     
(a) SINGLE person (including head of household)—   (b) MARRIED person—
If the amount of wages (after subtracting withholding allowances) is: The amount of income tax 
to withhold is: 		If the amount of wages (after subtracting withholding allowances) is: The amount of income tax 
to withhold is:
Not over $85 $0   Not over $319 $0  
Over— But not over— of excess over— Over— But not over— of excess over—
$85 —$428   $0.00 plus 10% —$85 $319 —$1,006   $0.00 plus 10% —$319
$428 —$1,479   $34.30 plus 15% —$428 $1,006 —$3,108   $68.70 plus 15% —$1,006
$1,479 —$3,463   $191.95 plus 25% —$1,479 $3,108 —$5,950   $384.00 plus 25% —$3,108
$3,463 —$7,133   $687.95 plus 28% —$3,463 $5,950 —$8,898   $1,094.50 plus 28% —$5,950
$7,133 —$15,406   $1,715.55 plus 33% —$7,133 $8,898 —$15,640   $1,919.94 plus 33% —$8,898
$15,406 —$15,469   $4,445.64 plus 35% —$15,406 $15,640 —$17,627   $4,144.80 plus 35% —$15,640
$15,469   $4,467.69 plus 39.6% —$15,469 $17,627   $4,840.25 plus 39.6% —$17,627
TABLE 3—SEMIMONTHLY Payroll Period
     
(a) SINGLE person (including head of household)— (b) MARRIED person—
If the amount of wages (after subtracting withholding allowances) is: The amount of income tax 
to withhold is: 		If the amount of wages (after subtracting withholding allowances) is: The amount of income tax 
to withhold is:
Not over $92 $0   Not over $346 $0  
Over— But not over— of excess over— Over— But not over— of excess over—
$92 —$464   $0.00 plus 10% —$92 $346 —$1,090   $0.00 plus 10% —$346
$464 —$1,602   $37.20 plus 15% —$464 $1,090 —$3,367   $74.40 plus 15% —$1,090
$1,602 —$3,752   $207.90 plus 25% —$1,602 $3,367 —$6,446   $415.95 plus 25% —$3,367
$3,752 —$7,727   $745.40 plus 28% —$3,752 $6,446 —$9,640   $1,185.70 plus 28% —$6,446
$7,727 —$16,690   $1,858.40 plus 33% —$7,727 $9,640 —$16,944   $2,080.02 plus 33% —$9,640
$16,690 —$16,758   $4,816.19 plus 35% —$16,690 $16,944 —$19,096   $4,490.34 plus 35% —$16,944
$16,758   $4,839.99 plus 39.6% —$16,758 $19,096   $5,243.54 plus 39.6% —$19,096
TABLE 4—MONTHLY Payroll Period
 
(a) SINGLE person (including head of household)— (b) MARRIED person—
If the amount of wages (after subtracting withholding allowances) is: The amount of income tax 
to withhold is: 		If the amount of wages (after subtracting withholding allowances) is: The amount of income tax 
to withhold is:
Not over $183 $0   Not over $692 $0  
Over— But not over— of excess over— Over— But not over— of excess over—
$183 —$927   $0.00 plus 10% —$183 $692 —$2,179   $0.00 plus 10% —$692
$927 —$3,204   $74.40 plus 15% —$927 $2,179 —$6,733   $148.70 plus 15% —$2,179
$3,204 —$7,504   $415.95 plus 25% —$3,204 $6,733 —$12,892   $831.80 plus 25% —$6,733
$7,504 —$15,454   $1,490.95 plus 28% —$7,504 $12,892 —$19,279   $2,371.55 plus 28% —$12,892
$15,454 —$33,379   $3,716.95 plus 33% —$15,454 $19,279 —$33,888   $4,159.91 plus 33% —$19,279
$33,379 —$33,517   $9,632.20 plus 35% —$33,379 $33,888 —$38,192   $8,980.88 plus 35% —$33,888
$33,517   $9,680.50 plus 39.6% —$33,517 $38,192   $10,487.28 plus 39.6% —$38,192

Percentage Method Tables for Income Tax Withholding (continued)

(For Wages Paid in 2013)
TABLE 5—QUARTERLY Payroll Period
 
(a) SINGLE person (including head of household)— (b) MARRIED person—
If the amount of wages (after subtracting withholding allowances) is: The amount of income tax 
to withhold is: 		If the amount of wages (after subtracting withholding allowances) is: The amount of income tax 
to withhold is:
Not over $550 $0   Not over $2,075 $0  
Over— But not over— of excess over— Over— But not over— of excess over—
$550 —$2,781   $0.00 plus 10% —$550 $2,075 —$6,538   $0.00 plus 10% —$2,075
$2,781 —$9,613   $223.10 plus 15% —$2,781 $6,538 —$20,200   $446.30 plus 15% —$6,538
$9,613 —$22,513   $1,247.90 plus 25% —$9,613 $20,200 —$38,675   $2,495.60 plus 25% —$20,200
$22,513 —$46,363   $4,472.90 plus 28% —$22,513 $38,675 —$57,838   $7,114.35 plus 28% —$38,675
$46,363 —$100,138   $11,150.90 plus 33% —$46,363 $57,838 —$101,663   $12,479.99 plus 33% —$57,838
$100,138 —$100,550   $28,896.65 plus 35% —$100,138 $101,663 —$114,575   $26,942.24 plus 35% —$101,663
$100,550   $29,040.85 plus 39.6% —$100,550 $114,575   $31,461.44 plus 39.6% —$114,575
TABLE 6—SEMIANNUAL Payroll Period
 
(a) SINGLE person (including head of household)— (b) MARRIED person—
If the amount of wages (after subtracting withholding allowances) is: The amount of income tax 
to withhold is: 		If the amount of wages (after subtracting withholding allowances) is: The amount of income tax 
to withhold is:
Not over $1,100 $0   Not over $4,150 $0  
Over— But not over— of excess over— Over— But not over— of excess over—
$1,100 —$5,563   $0.00 plus 10% —$1,100 $4,150 —$13,075   $0.00 plus 10% —$4,150
$5,563 —$19,225   $446.30 plus 15% —$5,563 $13,075 —$40,400   $892.50 plus 15% —$13,075
$19,225 —$45,025   $2,495.60 plus 25% —$19,225 $40,400 —$77,350   $4,991.25 plus 25% —$40,400
$45,025 —$92,725   $8,945.60 plus 28% —$45,025 $77,350 —$115,675   $14,228.75 plus 28% —$77,350
$92,725 —$200,275   $22,301.60 plus 33% —$92,725 $115,675 —$203,325   $24,959.75 plus 33% —$115,675
$200,275 —$201,100   $57,793.10 plus 35% —$200,275 $203,325 —$229,150   $53,884.25 plus 35% —$203,325
$201,100   $58,081.85 plus 39.6% —$201,100 $229,150   $62,923.00 plus 39.6% —$229,150
TABLE 7—ANNUAL Payroll Period
 
(a) SINGLE person (including head of household)— (b) MARRIED person—
If the amount of wages (after subtracting withholding allowances) is: The amount of income tax 
to withhold is: 		If the amount of wages (after subtracting withholding allowances) is: The amount of income tax 
to withhold is:
Not over $2,200 $0   Not over $8,300 $0  
Over— But not over— of excess over— Over— But not over— of excess over—
$2,200 —$11,125   $0.00 plus 10% —$2,200 $8,300 —$26,150   $0.00 plus 10% —$8,300
$11,125 —$38,450   $892.50 plus 15% —$11,125 $26,150 —$80,800   $1,785.00 plus 15% —$26,150
$38,450 —$90,050   $4,991.25 plus 25% —$38,450 $80,800 —$154,700   $9,982.50 plus 25% —$80,800
$90,050 —$185,450   $17,891.25 plus 28% —$90,050 $154,700 —$231,350   $28,457.50 plus 28% —$154,700
$185,450 —$400,550   $44,603.25 plus 33% —$185,450 $231,350 —$406,650   $49,919.50 plus 33% —$231,350
$400,550 —$402,200   $115,586.25 plus 35% —$400,550 $406,650 —$458,300   $107,768.50 plus 35% —$406,650
$402,200   $116,163.75 plus 39.6% —$402,200 $458,300   $125,846.00 plus 39.6% —$458,300
TABLE 8—DAILY or MISCELLANEOUS Payroll Period
 
(a) SINGLE person (including head of household)— (b) MARRIED person—
If the amount of wages (after subtracting withholding allowances) divided by the number of days in the payroll period is: The amount of income tax 
to withhold per day is: 		If the amount of wages (after subtracting withholding allowances) divided by the number of days in the payroll period is: The amount of income tax 
to withhold per day is:
Not over $8.50 $0   Not over $31.90 $0  
Over— But not over— of excess over— Over— But not over— of excess over—
$8.50 —$42.80   $0.00 plus 10% —$8.50 $31.90 —$100.60   $0.00 plus 10% —$31.90
$42.80 —$147.90   $3.43 plus 15% —$42.80 $100.60 —$310.80   $6.87 plus 15% —$100.60
$147.90 —$346.30   $19.20 plus 25% —$147.90 $310.80 —$595.00   $38.40 plus 25% —$310.80
$346.30 —$713.30   $68.80 plus 28% —$346.30 $595.00 —$889.80   $109.45 plus 28% —$595.00
$713.30 —$1,540.60   $171.56 plus 33% —$713.30 $889.80 —$1,564.00   $191.99 plus 33% —$889.80
$1,540.60 —$1,546.90   $444.57 plus 35% —$1,540.60 $1,564.00 —$1,762.70   $414.48 plus 35% —$1,564.00
$1,546.90   $446.78 plus 39.6% —$1,546.90 $1,762.70   $484.03 plus 39.6% —$1,762.70

Prev  Up  Next
  Home  

More Online Publications