2018 Publication 15 P15

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Department of the Treasury
Internal Revenue Service
Publication 15
Cat. No. 10000W
(Circular E),
Employer's
Tax Guide
For use in 2018
Get forms and other information faster and easier at:
IRS.gov (English)
IRS.gov/Spanish (Español)
IRS.gov/Chinese (中文)
IRS.gov/Korean (한국어)
IRS.gov/Russian (Pусский)
IRS.gov/Vietnamese (TiếngViệt)
Contents
What's New .............................. 1
Reminders ............................... 2
Calendar ................................. 8
Introduction .............................. 9
1. Employer Identification Number (EIN) ....... 11
2. Who Are Employees? .................... 11
3. Family Employees ...................... 13
4. Employee's Social Security Number (SSN) ... 14
5. Wages and Other Compensation ........... 15
6. Tips .................................. 18
7. Supplemental Wages .................... 19
8. Payroll Period .......................... 20
9. Withholding From Employees' Wages ....... 21
10. Required Notice to Employees About the
Earned Income Credit (EIC) .............. 26
11. Depositing Taxes ...................... 26
12. Filing Form 941 or Form 944 .............. 31
13. Reporting Adjustments to Form 941 or
Form 944 ............................ 33
14. Federal Unemployment (FUTA) Tax ........ 36
15. Special Rules for Various Types of
Services and Payments ................. 38
16. Third-Party Payer Arrangements .......... 43
17. How To Use the Income Tax Withholding
Tables .............................. 44
How To Get Tax Help ...................... 68
Index .................................. 70
Future Developments
For the latest information about developments related to
Pub. 15, such as legislation enacted after it was
published, go to IRS.gov/Pub15.
What's New
2018 federal income tax withholding. This publication
includes the 2018 Percentage Method Tables and Wage
Bracket Method Tables for Income Tax Withholding. The
2018 withholding tables incorporate changes to the indi-
vidual tax rates based on tax legislation enacted on De-
cember 22, 2017 (P.L. 115-97). Employers should
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implement the 2018 withholding tables as soon as possi-
ble, but not later than February 15, 2018. Continue to use
the 2017 withholding tables until you implement the 2018
withholding tables. The new withholding tables are de-
signed to work with the Forms W-4, Employee's Withhold-
ing Allowance Certificate, that your employees previously
gave you.
To help employees determine their withholding, the IRS
is revising the withholding tax calculator available at
IRS.gov/W4App. The IRS anticipates that this calculator
will be available by the end of February. Encourage your
employees to use the withholding calculator to determine
if they should give you a new Form W-4 for 2018. The IRS
is also working on revising Form W-4 for 2018. The calcu-
lator and revised Form W-4 can be used by employees
who wish to update their withholding in response to the
new law or changes in their personal circumstances in
2018, and by workers starting a new job. Until a new Form
W-4 is issued, employees and employers should continue
to use the 2017 Form W-4. For more information, go to
IRS.gov/NR1036.
An employee who experiences a change of status that
causes a reduction in the number of withholding allowan-
ces isn't required to give his or her employer a new Form
W-4 until 30 days after the 2018 Form W-4 is released. An
employee that has a reduction in the number of withhold-
ing allowances solely due to changes from P.L. 115-97
isn't required to give his or her employer a new Form W-4
during 2018 but may do so at any time. Employees may
use the 2017 Form W-4 to report changes to withholding
allowances until 30 days after the 2018 Form W-4 is re-
leased. New employees may continue to claim allowan-
ces on the 2017 Form W-4 until 30 days after the 2018
Form W-4 is released. Employees who submit new Forms
W-4 for 2018 using the 2017 Form W-4 don't need to re-
submit a 2018 Form W-4 when the 2018 Form W-4 is re-
leased.
Exempt Form W-4. Generally, an employee may claim
exemption from federal income tax withholding because
he or she had no federal income tax liability last year and
expects none this year. To continue to be exempt from
withholding in 2018, an employee must give you a new
Form W-4 by February 28, 2018. However, the 2018 Form
W-4 may not be available before February 28, 2018. Em-
ployees may claim exemption from withholding for 2018
using the 2017 Form W-4 until 30 days after the 2018
Form W-4 is released. The 2017 Form W-4 must be (1)
edited by striking "2017" in the text on line 7 and entering
"2018" in its place, (2) completed by entering "Exempt
2018" on line 7, or (3) not edited but signed in 2018 and
submitted under procedures established by the employer
for the employee to certify entitlement to exempt status for
2018 by using the 2017 Form W-4 to claim exemption
from withholding for 2018. In addition to 1–3 above, the
employee can use any substantially similar method to 1–3
that clearly conveys in writing the employee's intent to cer-
tify his or her exemption from withholding for 2018. Em-
ployers that have established electronic systems for fur-
nishing withholding allowance certificates may change
their electronic systems to substantially conform with the
options discussed above.
If the employee doesn't give you Form W-4 by February
28, 2018, follow the withholding rules discussed in section
9 under Exemption from federal income tax withholding.
Employees who claimed exemption from withholding for
2018 using the 2017 Form W-4, as discussed above,
don't need to resubmit a 2018 Form W-4 when the 2018
Form W-4 is released.
Withholding allowance. The 2018 amount for one with-
holding allowance on an annual basis is $4,150.
Withholding on supplemental wages. P.L. 115-97
lowered the withholding rates on supplemental wages.
See section 7 for the new rates.
Backup withholding. P.L. 115-97 lowered the backup
withholding rate to 24%. For more information on backup
withholding, see Backup withholding, later.
Moving expense reimbursement. P.L. 115-97 sus-
pends the exclusion for qualified moving expense reim-
bursements from your employee's income beginning after
December 31, 2017, and before January 1, 2026. How-
ever, the exclusion is still available in the case of a mem-
ber of the U.S. Armed Forces on active duty who moves
because of a permanent change of station. The exclusion
applies only to reimbursement of moving expenses that
the member could deduct if he or she had paid or incurred
them without reimbursement. See Moving Expenses in
Pub. 3, Armed Forces' Tax Guide, for the definition of
what constitutes a permanent change of station and to
learn which moving expenses are deductible.
Social security and Medicare tax for 2018. The social
security tax rate is 6.2% each for the employee and em-
ployer, unchanged from 2017. The social security wage
base limit is $128,400.
The Medicare tax rate is 1.45% each for the employee
and employer, unchanged from 2017. There is no wage
base limit for Medicare tax.
Social security and Medicare taxes apply to the wages
of household workers you pay $2,100 or more in cash wa-
ges for 2018. Social security and Medicare taxes apply to
election workers who are paid $1,800 or more in cash or
an equivalent form of compensation in 2018.
Disaster tax relief. Disaster tax relief was enacted for
those impacted by Hurricane Harvey, Irma, or Maria. Ad-
ditionally, the IRS has provided special relief designed to
support employer leave-based donation programs to aid
the victims of these hurricanes and to aid the victims of
the California wildfires that began October 8, 2017. For
more information about disaster relief, including the treat-
ment of amounts paid to qualified tax-exempt organiza-
tions under employer leave-based donation programs,
see Pub. 976.
Reminders
Qualified small business payroll tax credit for in-
creasing research activities. For tax years beginning
after December 31, 2015, a qualified small business may
elect to claim up to $250,000 of its credit for increasing re-
search activities as a payroll tax credit against the
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employer’s share of social security tax. The portion of the
credit used against the employer’s share of social security
tax is allowed in the first calendar quarter beginning after
the date that the qualified small business filed its income
tax return. The election and determination of the credit
amount that will be used against the employer's share of
social security tax are made on Form 6765, Credit for In-
creasing Research Activities. The amount from Form
6765, line 44, must then be reported on Form 8974, Quali-
fied Small Business Payroll Tax Credit for Increasing Re-
search Activities. Form 8974 is used to determine the
amount of the credit that can be used in the current quar-
ter. The amount from Form 8974, line 12, is reported on
Form 941 or 941-SS, line 11 (or Form 944, line 8). For
more information about the payroll tax credit, see Notice
2017-23, 2017-16 I.R.B. 1100, available at IRS.gov/irb/
2017-16_IRB/ar07.html. Also see the line 16 instructions
in the Instructions for Form 941 (line 13 instructions in the
Instructions for Form 944).
Certification program for professional employer or-
ganizations. The Tax Increase Prevention Act of 2014
required the IRS to establish a voluntary certification pro-
gram for professional employer organizations (PEOs).
PEOs handle various payroll administration and tax re-
porting responsibilities for their business clients and are
typically paid a fee based on payroll costs. To become
and remain certified under the certification program, certi-
fied professional employer organizations (CPEOs) must
meet various requirements described in sections 3511
and 7705 and related published guidance. Certification as
a CPEO may affect the employment tax liabilities of both
the CPEO and its customers. A CPEO is generally treated
as the employer of any individual who performs services
for a customer of the CPEO and is covered by a contract
described in section 7705(e)(2) between the CPEO and
the customer (CPEO contract), but only for wages and
other compensation paid to the individual by the CPEO.
For more information, go to IRS.gov/CPEO. Also see Rev-
enue Procedure 2017-14, 2017-3, I.R.B. 426, available at
IRS.gov/irb/2017-03_IRB/ar14.html.
Work opportunity tax credit for qualified tax-exempt
organizations hiring qualified veterans. The work op-
portunity tax credit is available for eligible unemployed
veterans who begin work on or after November 22, 2011,
and before January 1, 2020. Qualified tax-exempt organi-
zations that hire eligible unemployed veterans can claim
the work opportunity tax credit against their payroll tax lia-
bility using Form 5884-C. For more information, go to
IRS.gov/WOTC.
COBRA premium assistance credit. Effective for tax
periods beginning after December 31, 2013, the credit for
COBRA premium assistance payments can't be claimed
on Form 941, Employer's QUARTERLY Federal Tax Re-
turn (or Form 944, Employer's ANNUAL Federal Tax Re-
turn). Instead, after filing your Form 941 (or Form 944), file
Form 941-X, Adjusted Employer's QUARTERLY Federal
Tax Return or Claim for Refund (or Form 944-X, Adjusted
Employer's ANNUAL Federal Tax Return or Claim for Re-
fund), respectively, to claim the COBRA premium assis-
tance credit. Filing a Form 941-X (or Form 944-X) before
filing a Form 941 (or Form 944) for the return period may
result in errors or delays in processing your Form 941-X
(or Form 944-X). For more information, see the Instruc-
tions for Form 941 (or the Instructions for Form 944), or go
to IRS.gov/COBRACredit.
Medicaid waiver payments. Notice 2014-7 provides
that certain Medicaid waiver payments are excludable
from income for federal income tax purposes. See Notice
2014-7, 2014-4 I.R.B. 445, available at IRS.gov/irb/
2014-4_IRB/ar06.html. For more information, including
questions and answers related to Notice 2014-7, go to
IRS.gov/MedicaidWaiverPayments.
No federal income tax withholding on disability pay-
ments for injuries incurred as a direct result of a ter-
rorist attack directed against the United States. Disa-
bility payments for injuries incurred as a direct result of a
terrorist attack directed against the United States (or its al-
lies) aren't included in income. Because federal income
tax withholding is only required when a payment is includ-
able in income, no federal income tax should be withheld
from these payments.
Voluntary withholding on dividends and other distri-
butions by an Alaska Native Corporation (ANC). A
shareholder of an ANC may request voluntary income tax
withholding on dividends and other distributions paid by
an ANC. A shareholder may request voluntary withholding
by giving the ANC a completed Form W-4V. For more in-
formation see Notice 2013-77, 2013-50 I.R.B. 632, availa-
ble at IRS.gov/irb/2013-50_IRB/ar10.html.
Definition of marriage. A marriage of two individuals is
recognized for federal tax purposes if the marriage is rec-
ognized by the state, possession, or territory of the United
States in which the marriage is entered into, regardless of
legal residence. Two individuals who enter into a relation-
ship that is denominated as marriage under the laws of a
foreign jurisdiction are recognized as married for federal
tax purposes if the relationship would be recognized as
marriage under the laws of at least one state, possession,
or territory of the United States, regardless of legal resi-
dence. Individuals who have entered into a registered do-
mestic partnership, civil union, or other similar relationship
that isn't denominated as a marriage under the law of the
state, possession, or territory of the United States where
such relationship was entered into aren't lawfully married
for federal tax purposes, regardless of legal residence.
Outsourcing payroll duties. Generally, you’re responsi-
ble to ensure that tax returns are filed and deposits and
payments are made, even if you contract with a third party
to perform these acts. You remain responsible if the third
party fails to perform any required action. If you choose to
outsource any of your payroll and related tax duties (that
is, withholding, reporting, and paying over social security,
Medicare, FUTA, and income taxes) to a third-party payer,
such as a payroll service provider or reporting agent, go to
IRS.gov/OutsourcingPayrollDuties for helpful information
on this topic. If a CPEO pays wages and other compensa-
tion to an individual performing services for you, and the
services are covered by a contract described in section
7705(e)(2) between you and the CPEO (CPEO contract),
then the CPEO is generally treated as the employer, but
only for wages and other compensation paid to the
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individual by the CPEO. However, with respect to certain
employees covered by a CPEO contract, a customer may
also be treated as an employer of the employees and,
consequently, may also be liable for federal employment
taxes imposed on wages and other compensation paid by
the CPEO to such employees. For more information on
the different types of third-party payer arrangements, see
section 16.
Severance payments are subject to social security
and Medicare taxes, income tax withholding, and
FUTA tax. Severance payments are wages subject to
social security and Medicare taxes. As noted in section
15, severance payments are also subject to income tax
withholding and FUTA tax.
You must receive written notice from the IRS to file
Form 944. If you’ve been filing Forms 941 (or Forms
941-SS, Employer's QUARTERLY Federal Tax Re-
turn—American Samoa, Guam, the Commonwealth of the
Northern Mariana Islands, and the U.S. Virgin Islands, or
Formularios 941-PR, Planilla para la Declaración Federal
TRIMESTRAL del Patrono), and believe your employment
taxes for the calendar year will be $1,000 or less, and you
would like to file Form 944 instead of Forms 941, you must
contact the IRS during the first calendar quarter of the tax
year to request to file Form 944. You must receive written
notice from the IRS to file Form 944 instead of Forms 941
before you may file this form. For more information on re-
questing to file Form 944, including the methods and
deadlines for making a request, see the Instructions for
Form 944.
Employers can request to file Forms 941 instead of
Form 944. If you received notice from the IRS to file
Form 944 but would like to file Forms 941 instead, you
must contact the IRS during the first calendar quarter of
the tax year to request to file Forms 941. You must receive
written notice from the IRS to file Forms 941 instead of
Form 944 before you may file these forms. For more infor-
mation on requesting to file Forms 941, including the
methods and deadlines for making a request, see the In-
structions for Form 944.
Federal tax deposits must be made by electronic
funds transfer (EFT). You must use EFT to make all
federal tax deposits. Generally, an EFT is made using the
Electronic Federal Tax Payment System (EFTPS). If you
don't want to use EFTPS, you can arrange for your tax
professional, financial institution, payroll service, or other
trusted third party to make electronic deposits on your be-
half. Also, you may arrange for your financial institution to
initiate a same-day wire payment on your behalf. EFTPS
is a free service provided by the Department of Treasury.
Services provided by your tax professional, financial insti-
tution, payroll service, or other third party may have a fee.
For more information on making federal tax deposits,
see How To Deposit in section 11. To get more informa-
tion about EFTPS or to enroll in EFTPS, go to EFTPS.gov,
or call 1-800-555-4477 or 1-800-733-4829 (TDD). Addi-
tional information about EFTPS is also available in Pub.
966.
Aggregate Form 941 filers. Agents and CPEOs must
complete Schedule R (Form 941), Allocation Schedule for
Aggregate Form 941 Filers, when filing an aggregate
Form 941. Aggregate Forms 941 are filed by agents ap-
proved by the IRS under section 3504 of the Internal Rev-
enue Code (IRC). To request approval to act as an agent
for an employer, the agent files Form 2678 with the IRS.
Aggregate Forms 941 are also filed by CPEOs approved
by the IRS under section 7705. CPEOs file Form 8973,
Certified Professional Employer Organization/Customer
Reporting Agreement, to notify the IRS that they’ve star-
ted or ended a service contract with a client or customer.
Aggregate Form 940 filers. Agents and CPEOs must
complete Schedule R (Form 940), Allocation Schedule for
Aggregate Form 940 Filers, when filing an aggregate
Form 940, Employer's Annual Federal Unemployment
(FUTA) Tax Return. Aggregate Forms 940 can be filed by
agents acting on behalf of home care service recipients
who receive home care services through a program ad-
ministered by a federal, state, or local government. To re-
quest approval to act as an agent on behalf of home care
service recipients, the agent files Form 2678 with the IRS.
Aggregate Forms 940 are also filed by CPEOs approved
by the IRS under section 7705. CPEOs file Form 8973 to
notify the IRS that they’ve started or ended a service con-
tract with a client or customer.
Pub. 5146 explains employment tax examinations
and appeal rights. Pub. 5146 provides employers with
information on how the IRS selects employment tax re-
turns to be examined, what happens during an exam, and
what options an employer has in responding to the results
of an exam, including how to appeal the results. Pub.
5146 also includes information on worker classification is-
sues and tip exams.
Electronic Filing and Payment
Now, more than ever before, businesses can enjoy the
benefits of filing and paying their federal taxes
electronically. Whether you rely on a tax professional or
handle your own taxes, the IRS offers you convenient
programs to make filing and payment easier.
Spend less time and worry on taxes and more time
running your business. Use e-file and EFTPS to your
benefit.
For e-file, go to IRS.gov/EmploymentEfile for
additional information. A fee may be charged to file
electronically.
For EFTPS, go to EFTPS.gov or call EFTPS Customer
Service at 1-800-555-4477 or 1-800-733-4829 (TDD).
For electronic filing of Forms W-2, Wage and Tax
Statement, go to SSA.gov/employer.
If you’re filing your tax return or paying your fed-
eral taxes electronically, a valid EIN is required at
the time the return is filed or the payment is made.
If a valid EIN isn't provided, the return or payment won't be
processed. This may result in penalties.
Electronic funds withdrawal (EFW). If you file your em-
ployment tax return electronically, you can e-file and use
CAUTION
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EFW to pay the balance due in a single step using tax
preparation software or through a tax professional. How-
ever, don't use EFW to make federal tax deposits. For
more information on paying your taxes using EFW, go to
IRS.gov/EFW.
Credit or debit card payments. You can pay the bal-
ance due shown on your employment tax return by credit
or debit card. Don't use a credit or debit card to make fed-
eral tax deposits. For more information on paying your
taxes with a credit or debit card, go to IRS.gov/
PayByCard. Your payment will be processed by a pay-
ment processor who will charge a processing fee.
Online payment agreement. You may be eligible to ap-
ply for an installment agreement online if you can’t pay the
full amount of tax you owe when you file your employment
tax return. For more information, see the instructions for
your employment tax return or go to IRS.gov/OPA.
Forms in Spanish
You can provide Formulario W-4(SP), Certificado de
Exención de Retenciones del Empleado, in place of Form
W-4, Employee's Withholding Allowance Certificate, to
your Spanish-speaking employees. For more information,
see Pub. 17(SP), El Impuesto Federal sobre los Ingresos
(Para Personas Físicas). For nonemployees, such as
independent contractors, Formulario W-9(SP), Solicitud y
Certificación del Número de Identificación del
Contribuyente, may be used in place of Form W-9,
Request for Taxpayer Identification Number and
Certification.
Hiring New Employees
Eligibility for employment. You must verify that each
new employee is legally eligible to work in the United
States. This includes completing the U.S. Citizenship and
Immigration Services (USCIS) Form I-9, Employment Eli-
gibility Verification. You can get Form I-9 at USCIS.gov/
Forms, USCIS offices, or by calling 1-800-870-3676. For
more information, visit the USCIS website at USCIS.gov/
I-9-Central or call 1-800-375-5283 or 1-800-767-1833
(TDD).
New hire reporting. You’re required to report any new
employee to a designated state new hire registry. A new
employee is an employee who hasn't previously been em-
ployed by you or was previously employed by you but has
been separated from such prior employment for at least
60 consecutive days.
Many states accept a copy of Form W-4 with employer
information added. Visit the Office of Child Support En-
forcement website at acf.hhs.gov/programs/css/
employers for more information.
W-4 request. Ask each new employee to complete the
2018 Form W-4. See section 9. New employees may con-
tinue to claim allowances on the 2017 Form W-4 until 30
days after the 2018 Form W-4 is released.
Name and social security number (SSN). Record
each new employee's name and SSN from his or her so-
cial security card. Any employee without a social security
card should apply for one. See section 4.
Paying Wages, Pensions, or
Annuities
Correcting Form 941 or Form 944. If you discover an
error on a previously filed Form 941 or Form 944, make
the correction using Form 941-X or Form 944-X. Forms
941-X and 944-X are stand-alone forms, meaning taxpay-
ers can file them when an error is discovered. Forms
941-X and 944-X are used by employers to claim refunds
or abatements of employment taxes, rather than Form
843. See section 13 for more information.
Income tax withholding. Withhold federal income tax
from each wage payment or supplemental unemployment
compensation plan benefit payment according to the em-
ployee's Form W-4 and the correct withholding table. If
you have nonresident alien employees, see Withholding
income taxes on the wages of nonresident alien employ-
ees in section 9.
In 2018, withhold from periodic pension and annuity
payments as if the recipient is married claiming three with-
holding allowances, unless he or she has provided Form
W-4P, Withholding Certificate for Pension or Annuity Pay-
ments, either electing no withholding or giving a different
number of allowances, marital status, or an additional
amount to be withheld. Don't withhold on direct rollovers
from qualified plans or governmental section 457(b) plans.
See section 9 and Pub. 15-A, Employer's Supplemental
Tax Guide. Pub. 15-A includes information about with-
holding on pensions and annuities.
Zero wage return. If you haven't filed a “final” Form 941
or Form 944, or aren't a “seasonal” employer, you must
continue to file a Form 941 or Form 944, even for periods
during which you paid no wages. The IRS encourages you
to file your “Zero Wage” Forms 941 or 944 electronically.
Go to IRS.gov/EmploymentEfile for more information on
electronic filing.
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Information Returns
You may be required to file information returns to report
certain types of payments made during the year. For
example, you must file Form 1099-MISC, Miscellaneous
Income, to report payments of $600 or more to persons
not treated as employees (for example, independent
contractors) for services performed for your trade or
business. For details about filing Forms 1099 and for
information about required electronic filing, see the
General Instructions for Certain Information Returns for
general information and the separate, specific instructions
for each information return you file (for example,
Instructions for Form 1099-MISC). Generally, don't use
Forms 1099 to report wages and other compensation you
paid to employees; report these on Form W-2. See the
General Instructions for Forms W-2 and W-3 for details
about filing Form W-2 and for information about required
electronic filing. If you file 250 or more Forms 1099-MISC,
you must file them electronically. If you file 250 or more
Forms W-2, you must file them electronically. Electronic
filing is the only form of magnetic media that the IRS and
SSA will accept.
Information reporting customer service site. The IRS
operates an information return customer service site to
answer questions about reporting on Forms W-2, W-3,
1099, and other information returns. If you have questions
related to reporting on information returns, call
1-866-455-7438 (toll free), 304-263-8700 (toll call), or
304-579-4827 (TDD/TTY for persons who are deaf, hard
of hearing, or have a speech disability). The center can
also be reached by email at mccirp@irs.gov. Don't include
tax identification numbers (TINs) or attachments in email
correspondence because electronic mail isn't secure.
Nonpayroll Income Tax
Withholding
Nonpayroll federal income tax withholding (reported on
Forms 1099 and Form W-2G, Certain Gambling
Winnings) must be reported on Form 945, Annual Return
of Withheld Federal Income Tax. Separate deposits are
required for payroll (Form 941 or Form 944) and
nonpayroll (Form 945) withholding. Nonpayroll items
include:
Pensions (including distributions from tax-favored
retirement plans, for example, section 401(k), section
403(b), and governmental section 457(b) plans),
annuities, and IRA distributions.
Military retirement.
Gambling winnings.
Indian gaming profits.
Employer Responsibilities
Employer Responsibilities: The following list provides a brief summary of your basic responsibilities. Because the individual
circumstances for each employer can vary greatly, responsibilities for withholding, depositing, and reporting employment taxes can
differ. Each item in this list has a page reference to a more detailed discussion in this publication.
New Employees: Page Annually (see Calendar for due dates): Page
Verify work eligibility of new employees ....... 5File Form 944 if required (pay tax with return if
Record employees' names and SSNs from not required to deposit) ..................... 31
social security cards .................... 5Remind employees to submit a new Form W-4
Ask employees for Form W-4 .............. 5if they need to change their withholding .......... 21
Each Payday: Ask for a new Form W-4 from employees
Withhold federal income tax based on each claiming exemption from income tax
employee's Form W-4 ................... 21 withholding .............................. 22
Withhold employee's share of social security Reconcile Forms 941 (or Form 944) with Forms
and Medicare taxes .................... 24 W-2 and W-3 ............................ 33
Deposit: Furnish each employee a Form W-2 ............ 9
• Withheld income tax File Copy A of Forms W-2 and the transmittal
• Withheld and employer social security taxes Form W-3 with the SSA ..................... 9
• Withheld and employer Medicare taxes ..... 26 Furnish each other payee a Form 1099 (for example,
Note: Due date of deposit generally depends Form 1099-MISC) ......................... 9
on your deposit schedule (monthly or File Forms 1099 and the transmittal Form
semiweekly) 1096 .................................. 9
Quarterly (By April 30, July 31, October 31, File Form 940 ............................ 9
and January 31): File Form 945 for any nonpayroll income tax
Deposit FUTA tax if undeposited amount withholding .............................. 9
is over $500 .......................... 37
File Form 941 (pay tax with return if not
required to deposit) ..................... 31
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Certain government payments on which the recipient
elected voluntary income tax withholding.
Dividends and other distributions by an ANC on which
the recipient elected voluntary income tax withholding.
Payments subject to backup withholding.
For details on depositing and reporting nonpayroll
income tax withholding, see the Instructions for Form 945.
Distributions from nonqualified pension plans and
deferred compensation plans. Because distributions to
participants from some nonqualified pension plans and
deferred compensation plans (including section 457(b)
plans of tax-exempt organizations) are treated as wages
and are reported on Form W-2, income tax withheld must
be reported on Form 941 or Form 944, not on Form 945.
However, distributions from such plans to a beneficiary or
estate of a deceased employee aren't wages and are re-
ported on Forms 1099-R, Distributions From Pensions,
Annuities, Retirement or Profit-Sharing Plans, IRAs, Insur-
ance Contracts, etc.; income tax withheld must be repor-
ted on Form 945.
Backup withholding. You generally must withhold 24%
of certain taxable payments if the payee fails to furnish
you with his or her correct taxpayer identification number
(TIN). This withholding is referred to as “backup withhold-
ing.”
Payments subject to backup withholding include inter-
est, dividends, patronage dividends, rents, royalties, com-
missions, nonemployee compensation, payments made in
settlement of payment card or third-party network transac-
tions, and certain other payments you make in the course
of your trade or business. In addition, transactions by
brokers and barter exchanges and certain payments
made by fishing boat operators are subject to backup
withholding.
Backup withholding doesn't apply to wages, pen-
sions, annuities, IRAs (including simplified em-
ployee pension (SEP) and SIMPLE retirement
plans), section 404(k) distributions from an employee
stock ownership plan (ESOP), medical savings accounts
(MSAs), health savings accounts (HSAs), long-term-care
benefits, or real estate transactions.
You can use Form W-9 or Formulario W-9(SP) to re-
quest payees to furnish a TIN. Form W-9 or Formulario
W-9 (SP) must be used when payees must certify that the
number furnished is correct, or when payees must certify
that they’re not subject to backup withholding or are ex-
empt from backup withholding. The Instructions for the
Requester of Form W-9 or Formulario W-9(SP) includes a
list of types of payees who are exempt from backup with-
holding. For more information, see Pub. 1281, Backup
Withholding for Missing and Incorrect Name/TIN(s).
CAUTION
!
Recordkeeping
Keep all records of employment taxes for at least 4 years.
These should be available for IRS review. Your records
should include the following information.
Your EIN.
Amounts and dates of all wage, annuity, and pension
payments.
Amounts of tips reported to you by your employees.
Records of allocated tips.
The fair market value of in-kind wages paid.
Names, addresses, SSNs, and occupations of
employees and recipients.
Any employee copies of Forms W-2 and W-2c
returned to you as undeliverable.
Dates of employment for each employee.
Periods for which employees and recipients were paid
while absent due to sickness or injury and the amount
and weekly rate of payments you or third-party payors
made to them.
Copies of employees' and recipients' income tax
withholding allowance certificates (Forms W-4, W-4P,
W-4(SP), W-4S, and W-4V).
Dates and amounts of tax deposits you made and
acknowledgment numbers for deposits made by
EFTPS.
Copies of returns filed and confirmation numbers.
Records of fringe benefits and expense
reimbursements provided to your employees,
including substantiation.
Change of Business Name
Notify the IRS immediately if you change your business
name. Write to the IRS office where you file your returns,
using the Without a payment address provided in the
instructions for your employment tax return, to notify the
IRS of any business name change. See Pub. 1635 to see
if you need to apply for a new EIN.
Change of Business Address
or Responsible Party
Notify the IRS immediately if you change your business
address or responsible party. Complete and mail Form
8822-B to notify the IRS of a business address or
responsible party change. For a definition of “responsible
party,” see the Form 8822-B instructions.
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Private Delivery Services
You can use certain private delivery services (PDSs)
designated by the IRS to meet the “timely mailing as
timely filing” rule for tax returns. Go to IRS.gov/PDS for the
current list of PDSs.
The PDS can tell you how to get written proof of the
mailing date.
For the IRS mailing address to use if you're using a
PDS, go to IRS.gov/PDSstreetAdresses.
PDSs can't deliver items to P.O. boxes. You must
use the U.S. Postal Service to mail any item to an
IRS P.O. box address.
Telephone Help
Tax questions. You can call the IRS Business and Spe-
cialty Tax Line with your employment tax questions at
1-800-829-4933.
Help for people with disabilities. You may call
1-800-829-4059 (TDD/TTY for persons who are deaf,
hard of hearing, or have a speech disability) with any em-
ployment tax questions. You may also use this number for
assistance with unresolved tax problems.
Additional employment tax information. Go to
IRS.gov/EmploymentTaxes for additional employment tax
information.
Ordering Employer Tax Forms
and Publications
You can order employer tax forms and publications and
information returns online at IRS.gov/OrderForms.
Instead of ordering paper Forms W-2 and W-3,
consider filing them electronically using the SSA's free
e-file service. Visit the SSA's Employer W-2 Filing
Instructions & Information website at SSA.gov/employer to
register for Business Services Online. You’ll be able to
create Forms W-2 online and submit them to the SSA by
typing your wage information into easy-to-use fill-in fields.
In addition, you can print out completed copies of Forms
W-2 to file with state or local governments, distribute to
your employees, and keep for your records. Form W-3 will
be created for you based on your Forms W-2.
Filing Addresses
Generally, your filing address for Forms 940, 941, 943,
944, 945, and CT-1 depends on the location of your
residence or principal place of business and whether or
not you’re including a payment with your return. There are
separate filing addresses for these returns if you’re a
tax-exempt organization or government entity. See the
CAUTION
!
separate instructions for Forms 940, 941, 943, 944, 945,
or CT-1 for the filing addresses.
Dishonored Payments
Any form of payment that is dishonored and returned from
a financial institution is subject to a penalty. The penalty is
$25 or 2% of the payment, whichever is more. However,
the penalty on dishonored payments of $24.99 or less is
an amount equal to the payment. For example, a
dishonored payment of $18 is charged a penalty of $18.
Photographs of Missing
Children
The IRS is a proud partner with the National Center for
Missing & Exploited Children® (NCMEC). Photographs of
missing children selected by the Center may appear in
this publication on pages that would otherwise be blank.
You can help bring these children home by looking at the
photographs and calling 1-800-THE-LOST
(1-800-843-5678) if you recognize a child.
Calendar
The following is a list of important dates and
responsibilities. Also see Pub. 509, Tax Calendars.
If any date shown next for filing a return, furnish-
ing a form, or depositing taxes falls on a Saturday,
Sunday, or legal holiday, the due date is the next
business day. The term "legal holiday" means any legal
holiday in the District of Columbia. A statewide legal holi-
day delays a filing due date only if the IRS office where
you’re required to file is located in that state. However, a
statewide legal holiday doesn't delay the due date of fed-
eral tax deposits. See Deposits Due on Business Days
Only in section 11. For any filing due date, you’ll meet the
“file” or “furnish” requirement if the envelope containing
the return or form is properly addressed, contains suffi-
cient postage, and is postmarked by the U.S. Postal Serv-
ice on or before the due date, or sent by an IRS-designa-
ted PDS on or before the due date. See Private Delivery
Services under Reminders for more information.
By January 31
File Form 941 or Form 944. File Form 941 for the
fourth quarter of the previous calendar year and deposit
any undeposited income, social security, and Medicare
taxes. You may pay these taxes with Form 941 if your
total tax liability for the quarter is less than $2,500. File
Form 944 for the previous calendar year instead of Form
941 if the IRS has notified you in writing to file Form 944
and pay any undeposited income, social security, and
Medicare taxes. You may pay these taxes with Form
TIP
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944 if your total tax liability for the year is less than
$2,500. For additional rules on when you can pay your
taxes with your return, see Payment with return in sec-
tion 11. If you timely deposited all taxes when due, you
may file by February 10.
File Form 940. File Form 940 to report any FUTA tax.
However, if you deposited all of the FUTA tax when due,
you may file by February 10.
Furnish Forms 1099 and W-2. Furnish each em-
ployee a completed Form W-2. Furnish Form
1099-MISC to payees for nonemployee compensation.
Most Forms 1099 must be furnished to payees by Janu-
ary 31, but some can be furnished by February 15. For
more information, see the General Instructions for Cer-
tain Information Returns.
File Form W-2. File with the SSA Copy A of all 2017
paper and electronic Forms W-2 with Form W-3, Trans-
mittal of Wage and Tax Statements. For more informa-
tion on reporting Form W-2 information to the SSA elec-
tronically, visit the SSA’s Employer W-2 Filing
Instructions & Information webpage at SSA.gov/
employer. If filing electronically, via the SSA's Form W-2
Online service, the SSA will generate Form W-3 data
from the electronic submission of Form(s) W-2.
File Form 1099-MISC reporting nonemployee com-
pensation. File with the IRS Copy A of all 2017 pa-
per and electronic Forms 1099-MISC that report nonem-
ployee compensation, with Form 1096, Annual
Summary and Transmittal of U.S. Information Returns.
For information on filing information returns electroni-
cally with the IRS, see Pub. 1220, Specifications for
Electronic Filing of Forms 1097, 1098, 1099, 3921,
3922, 5498, and W-2G.
File Form 945. File Form 945 to report any nonpayroll
federal income tax withheld. If you deposited all taxes
when due, you may file by February 10. See Nonpayroll
Income Tax Withholding under Reminders for more in-
formation.
By February 28
Request a new Form W-4 from exempt employees.
Ask for a new Form W-4 from each employee who
claimed exemption from income tax withholding last
year.
File paper 2017 Forms 1099 and 1096. File Copy A
of all paper 2017 Forms 1099, except Forms
1099-MISC reporting nonemployee compensation, with
Form 1096 with the IRS. For electronically filed returns,
see By March 31 below.
File paper Form 8027. File paper Form 8027, Em-
ployer's Annual Information Return of Tip Income and
Allocated Tips, with the IRS. See section 6. For elec-
tronically filed returns, see By March 31 below.
On March 1
Forms W-4 claiming exemption from withholding ex-
pire. Any Form W-4 claiming exemption from with-
holding for the previous year has now expired. Begin
withholding for any employee who previously claimed
exemption from withholding but hasn't given you a new
Form W-4 for the current year. If the employee doesn't
give you a new Form W-4, withhold tax based on the
last valid Form W-4 you have for the employee that
doesn't claim exemption from withholding or, if one
doesn't exist, as if he or she is single with zero withhold-
ing allowances. See section 9 for more information. If
the employee gives you a new Form W-4 claiming ex-
emption from withholding after February 28, you may
apply the exemption to future wages, but don't refund
taxes withheld while the exempt status wasn't in place.
By March 31
File electronic 2017 Forms 1099 and 8027. File
electronic 2017 Forms 1099, except Forms 1099-MISC
reporting nonemployee compensation, and 8027 with
the IRS. For information on filing information returns
electronically with the IRS, see Pub. 1220 and Pub.
1239, Specifications for Electronic Filing of Form 8027,
Employer's Annual Information Return of Tip Income
and Allocated Tips.
By April 30, July 31, October 31, and
January 31
Deposit FUTA taxes. Deposit FUTA tax for the quar-
ter (including any amount carried over from other quar-
ters) if over $500. If $500 or less, carry it over to the next
quarter. See section 14 for more information.
File Form 941. File Form 941 and deposit any unde-
posited income, social security, and Medicare taxes.
You may pay these taxes with Form 941 if your total tax
liability for the quarter is less than $2,500. If you timely
deposited all taxes when due, you may file by May 10,
August 10, November 10, or February 10, respectively.
Don't file Form 941 for these quarters if you have been
notified to file Form 944 and you didn't request and re-
ceive written notice from the IRS to file quarterly Forms
941.
Before December 1
New Forms W-4. Remind employees to submit a new
Form W-4 if their marital status or withholding allowan-
ces have changed or will change for the next year.
Introduction
This publication explains your tax responsibilities as an
employer. It explains the requirements for withholding, de-
positing, reporting, paying, and correcting employment
taxes. It explains the forms you must give to your
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employees, those your employees must give to you, and
those you must send to the IRS and the SSA. This guide
also has tax tables you need to figure the taxes to with-
hold from each employee for 2018. References to “in-
come tax” in this guide apply only to “federal” income tax.
Contact your state or local tax department to determine if
their rules are different.
When you pay your employees, you don't pay them all
the money they earned. As their employer, you have the
added responsibility of withholding taxes from their pay-
checks. The federal income tax and employees' share of
social security and Medicare taxes that you withhold from
your employees' paychecks are part of their wages that
you pay to the United States Treasury instead of to your
employees. Your employees trust that you pay the with-
held taxes to the United States Treasury by making fed-
eral tax deposits. This is the reason that these withheld
taxes are called trust fund taxes. If federal income, social
security, or Medicare taxes that must be withheld aren't
withheld or aren't deposited or paid to the United States
Treasury, the trust fund recovery penalty may apply. See
section 11 for more information.
Additional employment tax information is available in
Pub. 15-A. Pub. 15-A includes specialized information
supplementing the basic employment tax information pro-
vided in this publication. Pub. 15-B, Employer's Tax Guide
to Fringe Benefits, contains information about the employ-
ment tax treatment and valuation of various types of non-
cash compensation.
Most employers must withhold (except FUTA), deposit,
report, and pay the following employment taxes.
Income tax.
Social security tax.
Medicare tax.
FUTA tax.
There are exceptions to these requirements. See sec-
tion 15 for guidance. Railroad retirement taxes are ex-
plained in the Instructions for Form CT-1.
Comments and suggestions. We welcome your com-
ments about this publication and your suggestions for fu-
ture editions.
You can send us comments from IRS.gov/
FormComments.
Or you can write to:
Internal Revenue Service
Tax Forms and Publications
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
Although we can’t respond individually to each com-
ment received, we do appreciate your feedback and will
consider your comments as we revise our tax forms, in-
structions, and publications. We can’t answer tax ques-
tions sent to the above address.
Federal government employers. The information in this
publication, including the rules for making federal tax de-
posits, applies to federal agencies.
State and local government employers. Payments to
employees for services in the employ of state and local
government employers are generally subject to federal in-
come tax withholding but not FUTA tax. Most elected and
appointed public officials of state or local governments are
employees under common law rules. See chapter 3 of
Pub. 963, Federal-State Reference Guide. In addition, wa-
ges, with certain exceptions, are subject to social security
and Medicare taxes. See section 15 for more information
on the exceptions.
If an election worker is employed in another capacity
with the same government entity, see Revenue Ruling
2000-6 on page 512 of Internal Revenue Bulletin 2000-6
at IRS.gov/pub/irs-irbs/irb00-06.pdf.
You can get information on reporting and social secur-
ity coverage from your local IRS office. If you have any
questions about coverage under a section 218 (Social Se-
curity Act) agreement, contact the appropriate state offi-
cial. To find your State Social Security Administrator, visit
the National Conference of State Social Security Adminis-
trators website at NCSSSA.org.
Disregarded entities and qualified subchapter S sub-
sidiaries (QSubs). Eligible single-owner disregarded en-
tities and QSubs are treated as separate entities for em-
ployment tax purposes. Eligible single-member entities
must report and pay employment taxes on wages paid to
their employees using the entities' own names and EINs.
See Regulations sections 1.1361-4(a)(7) and
301.7701-2(c)(2)(iv).
COBRA premium assistance credit. The Consolidated
Omnibus Budget Reconciliation Act of 1985 (COBRA)
provides certain former employees, retirees, spouses, for-
mer spouses, and dependent children the right to tempo-
rary continuation of health coverage at group rates. CO-
BRA generally covers multiemployer health plans and
health plans maintained by private-sector employers
(other than churches) with 20 or more full- and part-time
employees. Parallel requirements apply to these plans un-
der the Employee Retirement Income Security Act of 1974
(ERISA). Under the Public Health Service Act, COBRA re-
quirements apply also to health plans covering state or lo-
cal government employees. Similar requirements apply
under the Federal Employees Health Benefits Program
and under some state laws. For the premium assistance
(or subsidy) discussed below, these requirements are all
referred to as COBRA requirements.
Under the American Recovery and Reinvestment Act of
2009 (ARRA), employers are allowed a credit against
“payroll taxes” (referred to in this publication as “employ-
ment taxes”) for providing COBRA premium assistance to
assistance-eligible individuals. For periods of COBRA
continuation coverage beginning after February 16, 2009,
a group health plan must treat an assistance-eligible indi-
vidual as having paid the required COBRA continuation
coverage premium if the individual elects COBRA cover-
age and pays 35% of the amount of the premium.
An assistance-eligible individual is a qualified benefi-
ciary of an employer's group health plan who is eligible for
COBRA continuation coverage during the period begin-
ning September 1, 2008, and ending May 31, 2010, due
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to the involuntarily termination from employment of a cov-
ered employee during the period and elects continuation
COBRA coverage. The assistance for the coverage can
last up to 15 months.
The COBRA premium assistance credit was available
to an employer for premiums paid on behalf of employees
who were involuntarily terminated from employment be-
tween September 1, 2008, and May 31, 2010. The CO-
BRA premium assistance credit isn’t available for individu-
als who were involuntarily terminated after May 31, 2010.
Therefore, only in rare circumstances will the credit still be
available, such as instances where COBRA eligibility was
delayed as a result of employer-provided health insurance
coverage following termination. For more information
about the credit, see Notice 2009-27, 2009-16 I.R.B. 838,
available at IRS.gov/irb/2009-16_irb/ar09.html.
Administrators of the group health plans (or other enti-
ties) that provide or administer COBRA continuation cov-
erage must provide notice to assistance-eligible individu-
als of the COBRA premium assistance.
The 65% of the premium not paid by the assistance-eli-
gible individuals is reimbursed to the employer maintain-
ing the group health plan. The reimbursement is made
through a credit against the employer's employment tax li-
abilities. For information on how to claim the credit, see
the Instructions for Form 941-X or the Instructions for
Form 944-X. The credit is treated as a deposit made on
the first day of the return period (quarter or year). In the
case of a multiemployer plan, the credit is claimed by the
plan, rather than the employer. In the case of an insured
plan subject to state law continuation coverage require-
ments, the credit is claimed by the insurance company,
rather than the employer.
Anyone claiming the credit for COBRA premium assis-
tance payments must maintain the following information to
support their claim, including the following.
Information on the receipt of the assistance-eligible in-
dividuals' 35% share of the premium, including dates
and amounts.
In the case of an insurance plan, a copy of an invoice
or other supporting statement from the insurance car-
rier and proof of timely payment of the full premium to
the insurance carrier required under COBRA.
In the case of a self-insured plan, proof of the pre-
mium amount and proof of the coverage provided to
the assistance-eligible individuals.
Attestation of involuntary termination, including the
date of the involuntary termination for each covered
employee whose involuntary termination is the basis
for eligibility for the subsidy.
Proof of each assistance-eligible individual's eligibility
for COBRA coverage and the election of COBRA cov-
erage.
A record of the SSNs of all covered employees, the
amount of the subsidy reimbursed with respect to
each covered employee, and whether the subsidy
was for one individual or two or more individuals.
For more information, go to IRS.gov/COBRACredit.
1. Employer Identification
Number (EIN)
If you’re required to report employment taxes or give tax
statements to employees or annuitants, you need an EIN.
The EIN is a nine-digit number the IRS issues. The dig-
its are arranged as follows: 00-0000000. It is used to iden-
tify 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 the SSA. For more information, see
Pub. 1635.
If you don’t have an EIN, you may apply for one online
by visiting the IRS website at IRS.gov/EIN. You may also
apply for an EIN by faxing or mailing Form SS-4 to the
IRS. Employers outside of the United States may also ap-
ply for an EIN by calling 267-941-1099 (toll call). Don't use
an SSN in place of an EIN.
You should have only one EIN. If you have more than
one and aren't sure which one to use, call 1-800-829-4933
or 1-800-829-4059 (TDD/TTY for persons who are deaf,
hard of hearing, or have a speech disability). Give the
numbers you have, the name and address to which each
was assigned, and the address of your main place of busi-
ness. The IRS will tell you which number to use. For more
information, see Pub. 1635.
If you took over another employer's business (see Suc-
cessor employer in section 9), don't use that employer's
EIN. If you’ve applied for an EIN but don't 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 Pub. 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 Pub. 15-A for more information on how to determine
whether an individual providing services is an independ-
ent contractor or an employee.
Generally, people in business for themselves aren't
employees. For example, doctors, lawyers, veterinarians,
and others in an independent trade in which they offer
their services to the public are usually not employees.
However, if the business is incorporated, corporate offi-
cers who work in the business are employees of the cor-
poration.
If an employer-employee relationship exists, it doesn't
matter what it is called. The employee may be called an
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agent or independent contractor. It also doesn't matter
how payments are measured or paid, what they’re called,
or if the employee works full or part time.
Statutory employees. If someone who works for you
isn't an employee under the common law rules discussed
earlier, don't withhold federal income tax from his or her
pay, unless backup withholding applies. Although the fol-
lowing persons may not be common law employees,
they’re considered employees by statute for social secur-
ity, Medicare, and FUTA tax purposes under certain con-
ditions.
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 primar-
ily 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 per-
son 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 retail-
ers, 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’re generally treated as
self-employed for all federal tax purposes, including in-
come and employment taxes.
H-2A agricultural workers. On Form W-2, don't check
box 13 (Statutory employee), as H-2A workers aren't stat-
utory employees.
Treating employees as nonemployees. You’ll gener-
ally be liable for social security and Medicare taxes and
withheld income tax if you don't deduct and withhold these
taxes because you treated an employee as a nonem-
ployee. You may be able to calculate your liability using
special IRC 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 can't recover the em-
ployee share of social security tax, Medicare tax, or in-
come tax withholding from the employee if the tax is paid
under IRC section 3509. You’re liable for the income tax
withholding regardless of whether the employee paid in-
come tax on the wages. You continue to owe the full em-
ployer share of social security and Medicare taxes. The
employee remains liable for the employee share of social
security and Medicare taxes. See IRC section 3509 for
details. Also see the Instructions for Form 941-X.
IRC section 3509 rates aren't available if you intention-
ally disregard the requirement to withhold taxes from the
employee or if you withheld income taxes but not social
security or Medicare taxes. IRC section 3509 isn't availa-
ble for reclassifying statutory employees. See Statutory
employees above.
If the employer issued required information returns, the
IRC section 3509 rates are:
For social security taxes; employer rate of 6.2% plus
20% of the employee rate of 6.2% for a total rate of
7.44% of wages.
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; 0.18% (20% of the em-
ployee rate of 0.9%) of wages subject to Additional
Medicare Tax.
For income tax withholding, the rate is 1.5% of wages.
If the employer didn't issue required information re-
turns, the IRC section 3509 rates are:
For social security taxes; employer rate of 6.2% plus
40% of the employee rate of 6.2% for a total rate of
8.68% of wages.
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; 0.36% (40% of the em-
ployee rate of 0.9%) of wages subject to Additional
Medicare Tax.
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 re-
lieved 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 con-
sistent 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 peri-
ods beginning after 1977. See Pub. 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.
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. File Form 8952 to apply for the VCSP. For more
information, go to IRS.gov/VCSP.
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Business Owned and Operated by
Spouses
If you and your spouse jointly own and operate a business
and share in the profits and losses, you may be partners
in a partnership, whether or not you have a formal partner-
ship agreement. See Pub. 541 for more details. The part-
nership 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 be-
ginning 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 mem-
bers are spouses filing a joint income tax return, can elect
not to be treated as a partnership for federal tax purposes.
A qualified joint venture conducts a trade or business
where:
The only members of the joint venture are spouses
who file a joint income tax return,
Both spouses materially participate (see Material par-
ticipation in the Instructions for Schedule C (Form
1040), line G) in the trade or business (mere joint own-
ership of property isn't enough),
Both spouses elect to not be treated as a partnership,
and
The business is co-owned by both spouses and isn't
held in the name of a state law entity such as a part-
nership or limited liability company (LLC).
To make the election, all items of income, gain, loss,
deduction, and credit must be divided between the spou-
ses, in accordance with each spouse's interest in the ven-
ture, and reported on separate Schedules C or F as sole
proprietors. Each spouse must also file a separate Sched-
ule SE to pay self-employment taxes, as applicable.
Spouses using the qualified joint venture rules are trea-
ted as sole proprietors for federal tax purposes and gener-
ally don't need an EIN. If employment taxes are owed by
the qualified joint venture, either spouse may report and
pay the employment taxes due on the wages paid to the
employees using the EIN of that spouse's sole proprietor-
ship. Generally, filing as a qualified joint venture won't in-
crease the spouses' total tax owed on the joint income tax
return. However, it gives each spouse credit for social se-
curity earnings on which retirement benefits are based
and for Medicare coverage without filing a partnership re-
turn.
Note. If your spouse is your employee, not your part-
ner, see One spouse employed by another in section 3.
For more information on qualified joint ventures, go to
IRS.gov/QJV.
Exception—Community income. If you and your
spouse wholly own an unincorporated business as com-
munity 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 ven-
ture 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 aren't subject to social security and
Medicare taxes if the trade or business is a sole proprie-
torship 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’re not subject to social security and
Medicare taxes until the child reaches age 21. However,
see Covered services of a child or spouse, later. Pay-
ments for the services of a child under age 21 who works
for his or her parent, whether or not in a trade or business,
aren't subject to FUTA tax. Payments for the services of a
child of any age who works for his or her parent are gener-
ally subject to income tax withholding unless the pay-
ments are for domestic work in the parent's home, or un-
less the payments are for work other than in a trade or
business and are less than $50 in the quarter or the child
isn't 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 withhold-
ing 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 busi-
ness, such as domestic service in a private home, aren't
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 pa-
rent 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 part-
ner; or
An estate, even if it is the estate of a deceased parent.
Parent employed by son or daughter. When the em-
ployer 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 sub-
ject 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.
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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 wid-
ower, divorced, or living with a spouse who, because
of a mental or physical condition, can't care for the
child or stepchild for at least 4 continuous weeks in a
calendar quarter; and
The child or stepchild is either under age 18 or re-
quires the personal care of an adult for at least 4 con-
tinuous weeks in a calendar quarter due to a mental or
physical condition.
Payments made to a parent employed by his or her
child aren't subject to FUTA tax, regardless of the type of
services provided.
4. Employee's Social Security
Number (SSN)
You’re required to get each employee's name and SSN
and to enter them on Form W-2. This requirement also ap-
plies to resident and nonresident alien employees. You
should ask your employee to show you his or her social
security card. The employee may show the card if it is
available.
Don't accept a social security card that says “Not
valid for employment.” A social security number
issued with this legend doesn't permit employ-
ment.
You may, but aren't required to, photocopy the social
security card if the employee provides it. If you don't pro-
vide the correct employee name and SSN on Form W-2,
you may owe a penalty unless you have reasonable
cause. See Pub. 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
doesn't have a social security card can get one by com-
pleting Form SS-5, Application for a Social Security Card,
and submitting the necessary documentation. You can get
Form SS-5 from the SSA website at SSA.gov/forms/
ss-5.pdf, at SSA offices, or by calling 1-800-772-1213 or
1-800-325-0778 (TTY). The employee must complete and
sign Form SS-5; it can't be filed by the employer. You may
be asked to supply a letter to accompany Form SS-5 if the
employee has exceeded his or her yearly or lifetime limit
for the number of replacement cards allowed.
Applying for an SSN. If you file Form W-2 on paper and
your employee applied for an SSN but doesn't have one
CAUTION
!
CAUTION
!
when you must file Form W-2, enter “Applied For” on the
form. If you’re filing electronically, enter all zeros
(000-00-0000 if creating forms online or 000000000 if up-
loading a file) in the SSN field. When the employee re-
ceives the SSN, file Copy A of Form W-2c, Corrected
Wage and Tax Statement, with the SSA to show the em-
ployee'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 SSA.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. Re-
cord the name and SSN of each employee as they’re
shown on the employee's social security card. If the em-
ployee's name isn't correct as shown on the card (for ex-
ample, because of marriage or divorce), the employee
should request an updated card from the SSA. Continue
to report the employee's wages under the old name until
the employee shows you the updated social security card
with the corrected name.
If the SSA issues the employee an updated card after a
name change, or a new card with a different SSN 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 isn't necessary to correct other years if the previ-
ous name and number were used for years before the
most recent Form W-2.
IRS individual taxpayer identification numbers
(ITINs) for aliens. Don't 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
aren't eligible for U.S. employment and need identification
for other tax purposes. You can identify an ITIN because it
is a nine-digit number, formatted like an SSN, that starts
with the number "9" and has a range of numbers from “50–
65,” “70–88,” “90–92,” and “94–99” for the fourth and fifth
digits (for example, 9NN-7N-NNNN).
An individual with an ITIN who later becomes eli-
gible 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 an
SSN, earlier. Don't use an ITIN in place of an SSN on
Form W-2.
Verification of SSNs. Employers and authorized report-
ing agents can use the Social Security Number Verifica-
tion 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. Go to SSA.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 the SSA's website at SSA.gov/bso and
CAUTION
!
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click on the Register link under Business Services Online.
Follow the registration instructions to obtain a user identifi-
cation (ID) and password. You’ll need to provide the fol-
lowing 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 proc-
ess, the 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 in-
clude all pay you give to an employee for services per-
formed. The pay may be in cash or in other forms. It in-
cludes salaries, vacation allowances, bonuses,
commissions, and fringe benefits. It doesn't matter how
you measure or make the payments. Amounts an em-
ployer pays as a bonus for signing or ratifying a contract in
connection with the establishment of an employer-em-
ployee relationship and an amount paid to an employee
for cancellation of an employment contract and relinquish-
ment of contract rights are wages subject to social secur-
ity, Medicare, and FUTA taxes and income tax withhold-
ing. 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. Pub. 15-A provides additional information on wa-
ges, including nonqualified deferred compensation, and
other compensation. Pub. 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,
No-additional-cost services,
Retirement planning services,
Transportation (commuting) benefits,
Tuition reduction, and
Working condition benefits.
Employee business expense reimbursements. A re-
imbursement 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 ex-
pense reimbursement, you must specify the amount of the
reimbursement.
These rules apply to all ordinary and necessary em-
ployee 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 re-
imbursement or advance must be payment for the ex-
penses and must not be an amount that would have
otherwise been paid to the employee as wages.
2. They must substantiate these expenses to you within
a reasonable period of time.
3. They must return any amounts in excess of substanti-
ated expenses within a reasonable period of time.
Amounts paid under an accountable plan aren't wages
and aren't subject to income, social security, Medicare,
and FUTA taxes.
If the expenses covered by this arrangement aren't
substantiated (or amounts in excess of substantiated ex-
penses aren't returned within a reasonable period of time),
the amount paid under the arrangement in excess of the
substantiated expenses is treated as paid under a nonac-
countable plan. This amount is subject to income, social
security, Medicare, and FUTA taxes for the first payroll pe-
riod 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 expen-
ses within 120 days after the expenses were paid or incur-
red. Also, it is considered reasonable if you give your em-
ployees a periodic statement (at least quarterly) that asks
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them to either return or adequately account for outstand-
ing 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 income, social se-
curity, Medicare, and FUTA taxes. Your payments are
treated as paid under a nonaccountable plan if:
Your employee isn't required to or doesn't substanti-
ate timely those expenses to you with receipts or other
documentation,
You advance an amount to your employee for busi-
ness expenses and your employee isn't required to or
doesn't return timely any amount he or she doesn't
use for business expenses,
You advance or pay an amount to your employee re-
gardless of whether you reasonably expect the em-
ployee 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 reim-
burse your employees by travel days, miles, or some
other fixed allowance under the applicable revenue proce-
dure. In these cases, your employee is considered to have
accounted to you if your reimbursement doesn't exceed
rates established by the Federal Government. The 2017
standard mileage rate for auto expenses was 53.5 cents
per mile. The rate for 2018 is 54.5 cents per mile.
The government per diem rates for meals and lodging
in the continental United States can be found by visiting
the U.S. General Services Administration website at
GSA.gov and entering "per diem rates" in the search box.
Other than the amount of these expenses, your employ-
ees' business expenses must be substantiated (for exam-
ple, the business purpose of the travel or the number of
business miles driven). For information on substantiation
methods, see Pub. 463.
If the per diem or allowance paid exceeds the amounts
substantiated, you must report the excess amount as wa-
ges. This excess amount is subject to income tax with-
holding 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’re 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 pay-
ments at the time they’re provided is subject to federal in-
come tax withholding and social security, Medicare, and
FUTA taxes.
However, noncash payments for household work, agri-
cultural 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 com-
modity wages, are treated as cash payments subject to
employment taxes if the substance of the transaction is a
cash payment.
Meals and lodging. The value of meals isn't taxable in-
come and isn't subject to income tax withholding and so-
cial security, Medicare, and FUTA taxes if the meals are
furnished for the employer's convenience and on the em-
ployer's premises. The value of lodging isn't subject to in-
come 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 condi-
tion 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 emer-
gencies during his or her lunch period are generally con-
sidered to be for your convenience.
However, whether meals or lodging are provided for
the convenience of the employer depends on all of the
facts and circumstances. A written statement that the
meals or lodging are for your convenience isn't sufficient.
50% test. If over 50% of the employees who are provi-
ded 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 isn't subject to federal income tax with-
holding or employment taxes. For more information, see
Pub. 15-B.
Health insurance plans. If you pay the cost of an acci-
dent or health insurance plan for your employees, includ-
ing an employee's spouse and dependents, your pay-
ments aren't wages and aren't subject to social security,
Medicare, and FUTA taxes, or federal income tax with-
holding. 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 employ-
ees 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 ac-
counts. Your contributions to an employee's health sav-
ings account (HSA) or Archer medical savings account
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(MSA) aren't 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’ll be excludable from the income of the employee. To
the extent it isn't reasonable to believe they’ll be excluda-
ble, your contributions are subject to these taxes. Em-
ployee 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 aren't wages and aren't subject to em-
ployment taxes or withholding. For more information, see
the Instructions for Form 8889.
Medical care reimbursements. Generally, medical care
reimbursements paid for an employee under an employ-
er's self-insured medical reimbursement plan aren't wa-
ges and aren't subject to social security, Medicare, and
FUTA taxes, or income tax withholding. See Pub. 15-B for
an exception for highly compensated employees.
Differential wage payments. Differential wage pay-
ments are any payments made by an employer to an indi-
vidual for a period during which the individual is perform-
ing 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 serv-
ices for the employer.
Differential wage payments are wages for income tax
withholding, but aren't subject to social security, Medi-
care, or FUTA taxes. Employers should report differential
wage payments in box 1 of Form W-2. For more informa-
tion 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 bene-
fits 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 in-
clude cars you provide, flights on aircraft you provide, free
or discounted commercial flights, vacations, discounts on
property or services, memberships in country clubs or
other social clubs, and tickets to entertainment or sporting
events. In general, the amount you must include is the
amount by which the fair market value of the benefit is
more than the sum of what the employee paid for it plus
any amount the law excludes. There are other special
rules you and your employees may use to value certain
fringe benefits. See Pub. 15-B for more information.
Nontaxable fringe benefits. Some fringe benefits
aren't taxable (or are minimally taxable) if certain condi-
tions are met. See Pub. 15-B for details. The following are
some examples of nontaxable fringe benefits.
Services provided to your employees at no additional
cost to you.
Qualified employee discounts.
Working condition fringes that are property or services
that would be allowable as a business expense or de-
preciation expense deduction to the employee if he or
she had paid for them. Examples include a company
car for business use and subscriptions to business
magazines.
Certain minimal value fringes (including an occasional
cab ride when an employee must work overtime and
meals you provide at eating places you run for your
employees if the meals aren't furnished at below cost).
Qualified transportation fringes subject to specified
conditions and dollar limitations (including transporta-
tion in a commuter highway vehicle, any transit pass,
and qualified parking).
The use of on-premises athletic facilities operated by
you, if substantially all of the use is by employees,
their spouses, and their dependent children.
Qualified tuition reduction an educational organization
provides to its employees for education. For more in-
formation, see Pub. 970.
Employer-provided cell phones provided primarily for
a noncompensatory business reason.
However, don't exclude the following fringe benefits
from the income of highly compensated employees unless
the benefit is available to other employees on a nondiscri-
minatory basis.
No-additional-cost services.
Qualified employee discounts.
Meals provided at an employer operated eating fa-
cility.
Reduced tuition for education.
For more information, including the definition of a highly
compensated employee, see Pub. 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 don't have to make a formal choice of
payment dates or notify the IRS of the dates you choose.
You don't have to make this choice for all employees. You
may change methods as often as you like, as long as you
treat all benefits provided in a calendar year as paid by
December 31 of the calendar year. See Pub. 15-B for
more information, including a discussion of the special ac-
counting rule for fringe benefits provided during Novem-
ber and December.
Valuation of fringe benefits. Generally, you must de-
termine the value of fringe benefits no later than January
31 of the next year. Before January 31, you may reasona-
bly 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 pe-
riod and figure withholding taxes on the total, or you may
withhold federal income tax on the value of the fringe
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benefits at the optional flat 22% supplemental wage rate.
However, see Withholding on supplemental wages when
an employee receives more than $1 million of supplemen-
tal 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 pro-
vide. You must, however, withhold social security and
Medicare taxes on the use of the vehicle. See Pub. 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 bene-
fits 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 de-
posited 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, earlier. If you underestimated
the value and deposited too little, you may be subject to a
failure-to-deposit (FTD) penalty. See section 11 for infor-
mation on deposit penalties.
If you deposited the required amount of taxes but with-
held a lesser amount from the employee, you can recover
from the employee the social security, Medicare, or in-
come taxes you deposited on his or her behalf, and inclu-
ded in the employee's Form W-2. However, you must re-
cover the income taxes before April 1 of the following
year.
Sick pay. In general, sick pay is any amount you pay un-
der 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 em-
ployees' trust. In either case, these payments are subject
to social security, Medicare, and FUTA taxes. These
taxes don't apply to sick pay paid more than 6 calendar
months after the last calendar month in which the em-
ployee worked for the employer. The payments are al-
ways subject to federal income tax. See Pub. 15-A for
more information.
Identity protection services. The value of identity pro-
tection services provided by an employer to an employee
isn't included in an employee's gross income and doesn't
need to be reported on an information return (such as
Form W-2) filed for employees. This includes identity pro-
tection services provided before a data breach occurs.
This exception doesn't apply to cash received instead of
identity protection services or to proceeds received under
an identity theft insurance policy. For more information,
see Announcement 2015-22, 2015-35 I.R.B. 288, availa-
ble at IRS.gov/irb/2015-35_IRB/ar12.html and Announce-
ment 2016-02, 2016-3 I.R.B. 283, available at IRS.gov/irb/
2016-03_IRB/ar11.html.
6. Tips
Tips your employee receives from customers are gener-
ally 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 re-
ceived from other employees under any tip-sharing ar-
rangement. 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 or on a similar statement. The state-
ment must be signed by the employee and must include:
The employee's name, address, and SSN,
Your name and address,
The month and year (or the beginning and ending
dates, if the statement is for a period of less than 1
calendar month) the report covers, and
The total of tips received during the month or period.
Both Forms 4070 and 4070-A, Employee's Daily Re-
cord of Tips, are included in Pub. 1244, Employee's Daily
Record of Tips and Report to Employer.
You’re permitted to establish a system for elec-
tronic tip reporting by employees. See Regula-
tions 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 withhold-
ing an employee's share of Medicare tax on tips also ap-
ply to withholding the Additional Medicare Tax once wa-
ges and tips exceed $200,000 in the calendar year.
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 infor-
mation. Stop collecting the employee social security tax
when his or her wages and tips for tax year 2018 reach
$128,400; collect the income and employee Medicare
taxes for the whole year on all wages and tips. You’re re-
sponsible for the employer social security tax on wages
and tips until the wages (including tips) reach the limit.
You’re 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 don't have enough employee funds available to
deduct the employee tax, you no longer have to collect it.
If there aren't enough funds available, withhold taxes in
the following order.
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 uncol-
lected social security and Medicare taxes on Form W-2
and on Form 941, lines 5b, 5c, and, if applicable, 5d
(Form 944, lines 4b, 4c, and, if applicable, 4d). Report an
adjustment on Form 941, line 9 (Form 944, line 6), for the
uncollected social security and Medicare taxes. Enter the
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amount of uncollected social security tax and Medicare
tax on Form W-2, box 12, with codes “A” and “B.” Don't in-
clude any uncollected Additional Medicare Tax in box 12
of Form W-2. For additional information on reporting tips,
see section 13 and the General Instructions for Forms
W-2 and W-3.
Revenue Ruling 2012-18 provides guidance for em-
ployers regarding social security and Medicare taxes im-
posed on tips, including information on the reporting of the
employer share of social security and Medicare taxes un-
der section 3121(q), the difference between tips and serv-
ice charges, and the section 45B credit. See Revenue
Ruling 2012-18, 2012-26 I.R.B. 1032, available at
IRS.gov/irb/2012-26_IRB/ar07.html.
FUTA tax on tips. If an employee reports to you in writ-
ing $20 or more of tips in a month, the tips are also subject
to FUTA tax.
Allocated tips. If you operate a large food or beverage
establishment, you must report allocated tips under cer-
tain circumstances. However, don't withhold income, so-
cial security, or Medicare taxes on allocated tips.
A large food or beverage establishment is one that pro-
vides food or beverages for consumption on the premises,
where tipping is customary, and where there were nor-
mally more than 10 employees on a typical business day
during the preceding year.
The tips may be allocated by one of three meth-
ods—hours worked, gross receipts, or good faith agree-
ment. For information about these allocation methods, in-
cluding 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 Pub. 1239.
Tip Rate Determination and Education Program. Em-
ployers 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 Agree-
ment (GITCA), is available for the gaming (casino) indus-
try. To get more information about TRDA and TRAC
agreements, see Pub. 3144. Additionally, visit IRS.gov
and enter “MSU tips” in the search box to get more infor-
mation about GITCA, TRDA, or TRAC agreements.
7. Supplemental Wages
Supplemental wages are wage payments to an employee
that aren't regular wages. They include, but aren't limited
to, bonuses, commissions, overtime pay, payments for
accumulated sick leave, severance pay, awards, prizes,
back pay, retroactive pay increases, and payments for
nondeductible moving expenses. Other payments subject
to the supplemental wage rules include taxable fringe
benefits and expense allowances paid under a nonac-
countable plan. How you withhold on supplemental wages
depends on whether the supplemental payment is identi-
fied as a separate payment from regular wages. See Reg-
ulations section 31.3402(g)-1 for additional guidance for
wages paid after January 1, 2007. Also see Revenue Rul-
ing 2008-29, 2008-24 I.R.B. 1149, available at IRS.gov/
irb/2008-24_IRB/ar08.html.
Withholding on supplemental wages when an em-
ployee receives more than $1 million of supplemen-
tal 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 sup-
plemental wage payments made to the employee during
the calendar year, exceeds $1 million, the excess is sub-
ject to withholding at 37% (or the highest rate of income
tax for the year). Withhold using the 37% rate without re-
gard to the employee's Form W-4. In determining supple-
mental wages paid to the employee during the year, in-
clude payments from all businesses under common
control. For more information, see Treasury Decision
9276, 2006-37 I.R.B. 423, available at IRS.gov/irb/
2006-37_IRB/ar09.html.
Withholding on supplemental wage payments to an
employee who doesn't receive $1 million of supple-
mental wages during the calendar year. If the supple-
mental 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
don't specify the amount of each, withhold federal income
tax as if the total were a single payment for a regular pay-
roll period.
Supplemental wages identified separately from regu-
lar 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 de-
pends 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 calen-
dar year, you can use one of the following methods
for the supplemental wages.
a. Withhold a flat 22% (no other percentage al-
lowed).
b. 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 sup-
plemental wages to, alternatively, either the regu-
lar 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
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as if the total of the regular wages and supplemen-
tal wages is a single payment. Subtract the tax al-
ready withheld or to be withheld from the regular
wages. Withhold the remaining tax from the sup-
plemental 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 supplemen-
tal wages paid during the payroll period with the
regular wages paid during the payroll period, cal-
culate 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 didn't withhold income tax from the employee's
regular wages in the current or immediately preceding
calendar year, use method 1-b. This would occur, for
example, when the value of the employee's withhold-
ing 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’re 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 withhold-
ing allowance. In January he is paid $1,000. Using the
wage bracket tables, you withhold $33 from this amount.
In February, he receives salary of $1,000 plus a commis-
sion of $2,000, which you combine with regular wages
and don't separately identify. You figure the withholding
based on the total of $3,000. The correct withholding from
the tables is $264.
Example 2. You pay Sharon Warren a base salary on
the 1st of each month. She is single and claims one allow-
ance. Her May 1 pay is $2,000. Using the wage bracket
tables, you withhold $144. On May 15 she receives a bo-
nus of $1,000. Electing to use supplemental wage with-
holding 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 com-
bined $3,000 amount to be $264 using the wage
bracket tables.
3. Subtract the amount withheld from wages on the most
recent base salary pay date (May 1) from the com-
bined withholding amount ($264 – $144 = $120).
4. Withhold $120 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 22% of $1,000, or $220, 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 29. 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 com-
bined $5,000 amount to be $614 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 ($614 – $144 –
$120 = $350).
4. Withhold $350 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
haven't withheld income tax from the regular wages, add
the tips to the regular wages. Then withhold income tax on
the total. If you withheld income tax from the regular wa-
ges, you can withhold on the tips by method 1-a or 1-b
discussed earlier in this section under Supplemental wa-
ges 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 pe-
riod, withhold income tax for that time period even if your
employee doesn't work the full period.
No regular payroll period. When you don't have a regu-
lar 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 calen-
dar year,
The date employment began, if during the same cal-
endar year, or
January 1 of the same year.
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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 isn't working for any other em-
ployer during the same week for wages subject to with-
holding, figure withholding based on a weekly payroll pe-
riod. 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 withhold-
ing based on the daily or miscellaneous period.
9. Withholding From
Employees' Wages
Income Tax Withholding
Changes made under P.L. 115-97 will affect your
employees' tax liability for 2018. Encourage your
employees to use the IRS withholding calculator
available at IRS.gov/W4App to determine if they should
give you a new Form W-4 for 2018.
Using Form W-4 to figure withholding. To know how
much federal income tax to withhold from employees' wa-
ges, you should have a Form W-4 on file for each em-
ployee. Encourage your employees to file an updated
Form W-4 for 2018, especially if they owed taxes or re-
ceived a large refund when filing their 2017 tax return. Ad-
vise your employees to use the IRS Withholding Calcula-
tor available at IRS.gov/W4App 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 doesn't 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) in place of Form W-4, to your Spanish-speaking
employees. For more information, see Pub. 17(SP). 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, don't adjust
withholding for pay periods before the effective date of the
new form. If an employee gives you a Form W-4 that re-
places 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 replace-
ment Form W-4. For exceptions, see Exemption from fed-
eral income tax withholding, IRS review of requested
Forms W-4, and Invalid Forms W-4, later in this section.
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A Form W-4 that makes a change for the next cal-
endar year won't take effect in the current calen-
dar year.
Successor employer. If you’re 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 Pro-
cedure 2004-53 applies. See Revenue Procedure
2004-53, 2004-34 I.R.B. 320, available at IRS.gov/irb/
2004-34_IRB/ar13.html.
Completing Form W-4. The amount of any federal in-
come 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 per-
centage. However, an employee may specify a dollar
amount to be withheld in addition to the amount of with-
holding based on filing status and withholding allowances
claimed on Form W-4.
Employees may claim fewer withholding allowances than
they’re entitled to claim. They may wish to claim fewer al-
lowances to ensure they have enough withholding or to
offset the tax on other sources of taxable income not sub-
ject to withholding.
See Pub. 505 for more information about completing
Form W-4. Along with Form W-4, you may wish to order
Pub. 505 for use by your employees. Pub. 505 is being
updated to incorporate changes made by P.L. 115–97.
The IRS anticipates that Pub. 505 will be available by the
end of February.
Don't accept any withholding or estimated tax pay-
ments from your employees in addition to withholding
based on their Form W-4. If they require additional with-
holding, they should submit a new Form W-4 and, if nec-
essary, pay estimated tax by filing Form 1040-ES or by
using EFTPS to make estimated tax payments.
The 2018 Form W-4 may not be available before
February 28, 2018. Employees may claim exemp-
tion from withholding for 2018 using the 2017
Form W-4 until 30 days after the 2018 Form W-4 is re-
leased. The 2017 Form W-4 must be (1) edited by striking
"2017" in the text on line 7 and entering "2018" in its place,
(2) completed by entering "Exempt 2018" on line 7, or (3)
not edited but signed in 2018 and submitted under proce-
dures established by the employer for the employee to
certify entitlement to exempt status for 2018 by using the
2017 Form W-4 to claim exemption from withholding for
2018. In addition to 1–3 above, the employee can use any
substantially similar method to 1–3 that clearly conveys in
writing the employee's intent to certify his or her exemp-
tion from withholding for 2018. Employers that have estab-
lished electronic systems for furnishing withholding allow-
ance certificates may change their electronic systems to
substantially conform with the options discussed above.
The employee still must give you Form W-4 claiming ex-
emption from federal income tax withholding by February
28, 2018. If the employee doesn't give you Form W-4 by
February 28, 2018, follow the withholding rules discussed
under Exemption from federal income tax withholding.
CAUTION
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Employees who claimed exemption from withholding for
2018 using the 2017 Form W-4, as discussed earlier,
don't need to resubmit a 2018 Form W-4 when the 2018
Form W-4 is released.
Exemption from federal income tax withholding.
Generally, an employee may claim exemption from fed-
eral income tax withholding because he or she had no in-
come tax liability last year and expects none this year.
See the Form W-4 instructions for more information. How-
ever, 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 ef-
fective when it is given to the employer and only for that
calendar year. To continue to be exempt from withholding
for 2018, an employee must give you a new Form W-4 by
February 28. If the employee doesn't give you a new Form
W-4 by February 28, begin withholding based on the last
Form W-4 for the employee that didn't claim an exemption
from withholding or, if one wasn't furnished, then withhold
tax as if he or she is single with zero withholding allowan-
ces. If the employee provides a new Form W-4 claiming
exemption from withholding on March 1 or later, you may
apply it to future wages but don't refund any taxes with-
held while the exempt status wasn’t in place.
Withholding income taxes on the wages of nonresi-
dent alien employees. In general, you must withhold
federal income taxes on the wages of nonresident alien
employees. However, see Pub. 515 for exceptions to this
general rule. Also see section 3 of Pub. 51 for guidance
on H-2A visa workers.
Withholding adjustment for nonresident alien em-
ployees. Apply the procedure discussed next to figure
the amount of income tax to withhold from the wages of
nonresident alien employees performing services within
the United States.
Nonresident alien students from India and busi-
ness apprentices from India aren't subject to this
procedure.
Instructions. To figure how much income tax to with-
hold 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 next for the applicable payroll period.
TIP
Amount to Add to Nonresident Alien
Employee's Wages for Calculating Income
Tax Withholding Only
Payroll Period Add Additional
Weekly $ 151.00
Biweekly 301.90
Semimonthly 327.10
Monthly 654.20
Quarterly 1,962.50
Semiannually 3,925.00
Annually 7,850.00
Daily or Miscellaneous (each
day of the payroll period)
30.20
Step 2. Use the amount figured in Step 1 and the num-
ber of withholding allowances claimed (generally limited to
one allowance) to figure income tax withholding. Deter-
mine the value of withholding allowances by multiplying
the number of withholding allowances claimed by the ap-
propriate amount from Table 5 shown on page 45. If
you’re using the Percentage Method Tables for Income
Tax Withholding, provided on pages 46–47, reduce the
amount figured in Step 1 by the value of withholding allow-
ances and use that reduced amount to figure the income
tax withholding. If you’re using the Wage Bracket Method
Tables for Income Tax Withholding, provided on pages
48–67, use the amount figured in Step 1 and the number
of withholding allowances to figure income tax withhold-
ing.
The amounts from the chart above are added to wages
solely for calculating income tax withholding on the wages
of the nonresident alien employee. The amounts from the
chart shouldn't be included in any box on the employee's
Form W-2 and don't increase the income tax liability of the
employee. Also, the amounts from the chart don't increase
the social security tax or Medicare tax liability of the em-
ployer or the employee, or the FUTA tax liability of the em-
ployer.
This procedure only applies to nonresident alien em-
ployees who have wages subject to income tax withhold-
ing.
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 non-
resident 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 $301.90 from the
chart under Step 1 ($801.90 total). The employer then ap-
plies the applicable tables to determine the income tax
withholding for nonresident aliens (see Step 2).
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If you use the Percentage Method Tables for In-
come Tax Withholding, reduce the amount figured
in Step 1 by the value of withholding allowances
and use that reduced amount to figure income tax with-
holding.
The $301.90 added to wages for calculating income tax
withholding isn't reported on Form W-2, and doesn't in-
crease the income tax liability of the employee. Also, the
$301.90 added to wages doesn't affect the social security
tax or Medicare tax liability of the employer or the em-
ployee, or the FUTA tax liability of the employer.
Supplemental wage payment. This procedure for
determining the amount of income tax withholding doesn't
apply to a supplemental wage payment (see section 7) if
the 37% mandatory flat rate withholding applies or if the
22% optional flat rate withholding is being used to calcu-
late income tax withholding on the supplemental wage
payment.
Nonresident alien employee's Form W-4. When com-
pleting Forms W-4, nonresident aliens are required to:
Not claim exemption from income tax withholding;
Request withholding as if they’re 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 stu-
dent 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 non-
resident alien status instead of writing “Nonresident Alien”
or “NRA” above the dotted line on line 6.
A nonresident alien employee may request addi-
tional withholding at his or her option for other
purposes, although such additions shouldn't be
necessary for withholding to cover federal income tax lia-
bility related to employment.
Form 8233. If a nonresident alien employee claims a
tax treaty exemption from withholding, the employee must
submit Form 8233 with respect to the income exempt un-
der the treaty, instead of Form W-4. For more information,
see Pay for Personal Services Performed in the Withhold-
ing on Specific Income section of Pub. 515 and the In-
structions for Form 8233.
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 di-
rected to send certain Forms W-4 to the IRS. You may re-
ceive 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 Treasury
CAUTION
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Decision 9337, 2007-35 I.R.B. 455, which is available at
IRS.gov/irb/2007-35_IRB/ar10.html. 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 writ-
ing the employee isn't entitled to claim exemption from
withholding or a claimed number of withholding allowan-
ces, withhold federal income tax based on the effective
date, marital status, and maximum number of withholding
allowances specified in the IRS notice (commonly referred
to as a "lock-in letter").
Initial lock-in letter. The IRS uses information repor-
ted 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 em-
ployee, the IRS may issue a lock-in letter to the employer
specifying the maximum number of withholding allowan-
ces and marital status permitted for a specific employee.
You’ll also receive a copy for the employee that identifies
the maximum number of withholding allowances and mari-
tal status permitted and the process by which the em-
ployee can provide additional information to the IRS for
purposes of determining the appropriate number of with-
holding allowances and/or modifying the specified marital
status. You must furnish the employee copy to the em-
ployee 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.
Implementation of lock-in letter. When you receive
the notice specifying the maximum number of withholding
allowances and marital status permitted, you may not
withhold immediately on the basis of the notice. You must
begin withholding tax on the basis of the notice for any
wages paid after the date specified in the notice. The de-
lay between your receipt of the notice and the date to be-
gin the withholding on the basis of the notice permits the
employee time to contact the IRS.
Employee not performing services. If you receive a
notice for an employee who isn't performing services for
you, you must still furnish the employee copy to the em-
ployee and withhold based on the notice if any of the fol-
lowing apply.
You’re 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 serv-
ices within 12 months of the date of the notice.
The employee is on a leave of absence that doesn't
exceed 12 months or the employee has a right to re-
employment after the leave of absence.
Termination and re-hire of employees. If you must
furnish and withhold based on the notice and the employ-
ment relationship is terminated after the date of the notice,
you must continue to withhold based on the notice if you
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continue to pay any wages subject to income tax withhold-
ing. You must also withhold based on the notice or modifi-
cation notice (explained next) if the employee resumes
the employment relationship with you within 12 months af-
ter the termination of the employment relationship.
Modification notice. After issuing the notice specify-
ing the maximum number of withholding allowances and
marital status permitted, the IRS may issue a subsequent
notice (modification notice) that modifies the original no-
tice. The modification notice may change the marital sta-
tus and/or the number of withholding allowances permit-
ted. You must withhold federal income tax based on the
effective date specified in the modification notice.
New Form W-4 after IRS 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 modifica-
tion 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 no-
tice, your employee gives you a new Form W-4 that
doesn't claim exemption from federal income tax withhold-
ing 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 Treas-
ury Decision 9337, 2007-35 I.R.B. 455, available at
IRS.gov/irb/2007-35_IRB/ar10.html.
Substitute Forms W-4. You’re encouraged to have your
employees use the official version of Form W-4 to claim
withholding allowances or exemption from withholding.
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 sub-
stitute forms. At the time you provide your substitute form
to the employee, you must provide him or her with all ta-
bles, instructions, and worksheets from the current Form
W-4.
You can't accept substitute Forms W-4 developed by
employees. An employee who submits an employee-de-
veloped substitute Form W-4 after October 10, 2007, will
be treated as failing to furnish a Form W-4. However, con-
tinue to honor any valid employee-developed Forms W-4
you accepted before October 11, 2007.
If an employee changes the 2017 Form W-4 to
claim exemption from federal income tax with-
holding in 2018, as described earlier, it isn't con-
sidered an invalid Form W-4.
Invalid Forms W-4. Any unauthorized change or addi-
tion 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 em-
ployee gives it to you, he or she clearly indicates it is false.
An employee who submits a false Form W-4 may be sub-
ject to a $500 penalty. You may treat a Form W-4 as inva-
lid if the employee wrote “exempt” on line 7 and also en-
tered a number on line 5 or an amount on line 6.
When you get an invalid Form W-4, don't use it to figure
federal income tax withholding. Tell the employee it is in-
valid and ask for another one. If the employee doesn't give
you a valid one, withhold tax as if the employee is single
with zero withholding allowances. However, if you have an
earlier Form W-4 for this worker that is valid, withhold as
you did before.
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 de-
scribed in the instructions for these forms. Pub. 1494 has
tables to figure the amount exempt from levy. If a levy is-
sued in a prior year is still in effect and the taxpayer sub-
mits a new Statement of Exemptions and Filing Status,
use the current year Pub. 1494 to figure 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’re required to withhold social security
and Medicare taxes from your employees' wages and pay
the employer's share of these taxes. Certain types of wa-
ges and compensation aren't subject to social security
and Medicare taxes. See section 5 and section 15 for de-
tails. Generally, employee wages are subject to social se-
curity and Medicare taxes regardless of the employee's
age or whether he or she is receiving social security bene-
fits. 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 so-
cial security and Medicare taxes by multiplying each pay-
ment by the employee tax rate. There are no withholding
allowances for social security and Medicare taxes.
For 2018, the social security tax rate is 6.2% (amount
withheld) each for the employer and employee (12.4%
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total). The social security wage base limit is $128,400.
The 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’re 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 section 15. For more information on Ad-
ditional Medicare Tax, go to IRS.gov/ADMT.
Successor employer. When corporate acquisitions
meet certain requirements, wages paid by the predeces-
sor 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), Re-
port 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 Reve-
nue Procedure 2004-53, 2004-34 I.R.B. 320, available at
IRS.gov/irb/2004-34_IRB/ar13.html.
Example. Early in 2018, 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 wa-
ges before the date of purchase, continued to work for
you. The wages you paid to Mr. Brown are subject to so-
cial security taxes on the first $126,400 ($128,400 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 thresh-
old.
Motion picture project employers. All wages paid by a
motion picture project employer to a motion picture project
worker during a calendar year are subject to a single so-
cial security tax wage base ($128,400 for 2018) and a sin-
gle FUTA tax wage base ($7,000 for 2018) regardless of
the worker's status as a common law employee of multiple
clients of the motion picture project employer. For more
information, including the definition of a motion picture
project employer and motion picture project worker, see
Internal Revenue Code section 3512.
Withholding social security and Medicare taxes on
nonresident alien employees. In general, if you pay
wages to nonresident alien employees, you must withhold
social security and Medicare taxes as you would for a
U.S. citizen or resident alien. However, see Pub. 515 for
exceptions to this general rule.
International social security agreements. The United
States has social security agreements, also known as to-
talization 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
SSA.gov/international or see section 7 of Pub. 15-A.
Religious exemption. An exemption from social security
and Medicare taxes is available to members of a recog-
nized 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 Pub.
517.
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 fol-
lowing conditions is generally treated as an American em-
ployer 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 serv-
ices in connection with a contract between the U.S.
Government (or an instrumentality of the U.S. Govern-
ment) and any member of the domestically controlled
group of entities. Ownership of more than 50% consti-
tutes control.
Part-Time Workers
Part-time workers and workers hired for short periods of
time are treated the same as full-time employees, for fed-
eral income tax withholding and social security, Medicare,
and FUTA tax purposes.
Generally, it doesn't matter whether the part-time
worker or worker hired for a short period of time has an-
other job or has the maximum amount of social security
tax withheld by another employer. See Successor em-
ployer above for an exception to this rule.
Income tax withholding may be figured the same way
as for full-time workers or it may be figured by the
part-year employment method explained in section 9 of
Pub. 15-A.
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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 don't have to notify em-
ployees who claim exemption from withholding on Form
W-4 about the EIC, you’re encouraged to notify any em-
ployees whose wages for 2017 were less than $48,340
($53,930 if married filing jointly) that they may be eligible
to claim the credit for 2017. This is because eligible em-
ployees may get a refund of the amount of EIC that is
more than the tax they owe.
You’ll 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 state-
ment. You’ll also meet the requirement by providing No-
tice 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 doesn't have the required statement, you must
notify the employee within 1 week of the date the substi-
tute for Form W-2 is given. If Form W-2 is required but isn't
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 isn't required, you must notify the
employee by February 7, 2018.
11. Depositing Taxes
Generally, you must deposit federal income tax withheld
and both the employer and employee social security and
Medicare taxes. You must use EFT to make all federal tax
deposits. See How To Deposit, later in this section, for in-
formation on electronic deposit requirements.
The credit against employment taxes for COBRA
assistance payments is treated as a deposit of
taxes on the first day of your return period. 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 in-
curring a penalty, if one of the following applies.
Your Form 941 total tax liability for either the current
quarter or the prior quarter is less than $2,500, and
you didn't incur a $100,000 next-day deposit obliga-
tion during the current quarter. If you aren't sure your
total tax liability for the current quarter will be less than
$2,500, (and your liability for the prior quarter wasn't
less than $2,500), make deposits using the semi-
weekly or monthly rules so you won't be subject to an
FTD penalty.
TIP
You’re 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, sec-
ond, and third quarters according to the deposit rules to
avoid an FTD penalty 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. Don't com-
bine deposits for Forms 941 (or Form 944) and Form 945
tax liabilities. Generally, the deposit rules for nonpayroll li-
abilities are the same as discussed next, except the rules
apply to an annual rather than a quarterly return period.
Thus, the $2,500 threshold for the deposit requirement
discussed above applies to Form 945 on an annual basis.
See the separate Instructions for Form 945 for more infor-
mation.
When To Deposit
There are two deposit schedules—monthly and semi-
weekly—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’re 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, dis-
cussed next. Your deposit schedule isn't determined by
how often you pay your employees or make deposits. See
special rules for Forms 944 and 945, later. Also see Appli-
cation of Monthly and Semiweekly Schedules, later in this
section.
These rules don't apply to FUTA tax. See section
14 for information on depositing FUTA tax.
Lookback period. If you’re a Form 941 filer, your deposit
schedule for a calendar year is determined from the total
taxes reported on Forms 941, line 10 (line 12 for quarters
beginning after December 31, 2016), in a 4-quarter look-
back 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’re a monthly
schedule depositor; if you reported more than $50,000,
you’re a semiweekly schedule depositor.
Table 1. Lookback Period for Calendar Year
2018
July 1, 2016 Oct. 1, 2016 Jan. 1, 2017 Apr.1, 2017
through through through through
Sep. 30, 2016 Dec. 31, 2016 Mar. 31, 2017 June 30, 2017
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The lookback period for a 2018 Form 941 filer
who filed Form 944 in either 2016 or 2017 is cal-
endar year 2016.
If you’re a Form 944 filer for the current year or either of
the preceding 2 years, your deposit schedule for a calen-
dar 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 2018 for a Form 944 filer is
calendar year 2016. If you reported $50,000 or less of
taxes for the lookback period, you’re a monthly schedule
depositor; if you reported more than $50,000, you’re a
semiweekly schedule depositor.
If you’re 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 cal-
endar year. The lookback period for 2018 for a Form 945
filer is calendar year 2016.
Adjustments and the lookback rule. Adjustments
made on Form 941-X, Form 944-X, and Form 945-X don't
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 discov-
ered, during January 2018, 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 em-
ployer is a monthly schedule depositor for 2018 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 de-
positors, the deposit period is a calendar month. The de-
posit periods for semiweekly schedule depositors are
Wednesday through Friday and Saturday through Tues-
day.
If you're an agent with an approved Form 2678,
the deposit rules apply to you based on the total
employment taxes accumulated by you for your
own employees and on behalf of all employers for whom
you're authorized to act. For more information on an agent
with an approved Form 2678, see Revenue Procedure
2013-39, 2013-52 I.R.B. 830, available at IRS.gov/irb/
2013-52_IRB/ar15.html.
Monthly Deposit Schedule
You’re a monthly schedule depositor for a calendar year if
the total taxes on Form 941, line 10 (line 12 for quarters
beginning after December 31, 2016), 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 fol-
lowing month. See also Deposits Due on Business Days
Only and the $100,000 Next-Day Deposit Rule, later in
CAUTION
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TIP
this section. Monthly schedule depositors shouldn't 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 busi-
ness is considered to be zero. Therefore, you’re a monthly
schedule depositor for the first calendar year of your busi-
ness. However, see the $100,000 Next-Day Deposit Rule,
later in this section.
Semiweekly Deposit Schedule
You’re a semiweekly schedule depositor for a calendar
year if the total taxes on Form 941, line 10 (line 12 for
quarters beginning after December 31, 2016), during your
lookback period were more than $50,000. Under the semi-
weekly 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 Due on Business
Days Only, later in this section.
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 Re-
cord 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 two quarters
(Form 941 filers). If you have more than one pay date
during a semiweekly period and the pay dates fall in differ-
ent calendar quarters, you’ll need to make separate de-
posits for the separate liabilities.
Example. If you have a pay date on Sunday, September
30, 2018 (third quarter), and another pay date on Monday,
October 1, 2018 (fourth quarter), two separate deposits
would be required even though the pay dates fall within
the same semiweekly period. Both deposits would be due
Friday, October 5, 2018.
Semiweekly deposit period spanning two return peri-
ods (Form 944 or Form 945 filers). If you have more
than one pay date during a semiweekly period and the
pay dates fall in different return periods, you'll need to
make separate deposits for the separate liabilities. For ex-
ample, if you have a pay date on Saturday, December 30,
2017, and another pay date on Tuesday, January 2, 2018,
two separate deposits will be required even though the
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pay dates fall within the same semiweekly period. Both
deposits will be due Friday, January 5, 2018 (3 business
days from the end of the semiweekly deposit period).
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 (line 12
for quarters beginning after December 31, 2016), during the
lookback period.
3. Determine if you’re a monthly or semiweekly schedule
depositor:
If the total taxes you
reported in the lookback
period were ...........
Then you’re 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:
2017 Lookback Period 2018 Lookback Period
3rd Quarter 2015 $12,000 3rd Quarter 2016 $12,000
4th Quarter 2015 12,000 4th Quarter 2016 12,000
1st Quarter 2016 12,000 1st Quarter 2017 12,000
2nd Quarter 2016 12,000 2nd Quarter 2017 15,000
$48,000 $51,000
Rose Co. is a monthly schedule depositor for 2017 be-
cause its tax liability for the 4 quarters in its lookback pe-
riod (third quarter 2015 through second quarter 2016)
wasn't more than $50,000. However, for 2018, Rose Co.
is a semiweekly schedule depositor because the total
taxes exceeded $50,000 for the 4 quarters in its lookback
period (third quarter 2016 through second quarter 2017).
Deposits Due on Business Days Only
If a deposit is required to be made on a day that isn't a
business day, the deposit is considered timely if it is made
by the close of the next business day. A business day is
any day other than a Saturday, Sunday, or legal holiday.
For example, if a deposit is required to be made on a Fri-
day and Friday is a legal holiday, the deposit will be con-
sidered timely if it is made by the following Monday (if that
Monday is a business day).
Semiweekly schedule depositors have at least 3
business days following the close of the semiweekly pe-
riod to make a deposit. If any of the 3 weekdays after the
end of a semiweekly period is a legal holiday, you’ll 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 holi-
day, 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. For purposes of the de-
posit rules, the term “legal holiday” doesn't include other
statewide legal holidays. Legal holidays for 2018 are listed
next.
January 1— New Year's Day
January 15— Birthday of Martin Luther King, Jr.
February 19— Washington's Birthday
April 16— District of Columbia Emancipation Day
May 28— Memorial Day
July 4— Independence Day
September 3— Labor Day
October 8— Columbus Day
November 12— Veterans' Day (observed)
November 22— Thanksgiving Day
December 25— Christmas Day
Application of Monthly and Semiweekly
Schedules
The terms “monthly schedule depositor” and “semiweekly
schedule depositor” don't refer to how often your business
pays its employees or even how often you’re required to
make deposits. The terms identify which set of deposit
rules you must follow when an employment tax liability ari-
ses. The deposit rules are based on the dates when wa-
ges are paid (for example, cash basis); not on when tax li-
abilities are accrued for accounting purposes.
Monthly schedule example. Spruce Co. is a monthly
schedule depositor with seasonal employees. It paid wa-
ges each Friday during April but didn't pay any wages dur-
ing May. Under the monthly deposit schedule, Spruce Co.
must deposit the combined tax liabilities for the April pay-
days by May 15. Spruce Co. doesn't have a deposit re-
quirement for May (due by June 15) because no wages
were paid and, therefore, it didn't have a tax liability for
May.
Semiweekly schedule example. Green, Inc. is a semi-
weekly 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 27, 2018 (Friday), payday must be de-
posited by May 2, 2018 (Wednesday). Under the semi-
weekly deposit schedule, liabilities for wages paid on
Wednesday through Friday must be deposited by the fol-
lowing Wednesday.
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$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 De-
posit period, earlier in this section), you must deposit the
tax by the next business day, whether you’re a monthly or
semiweekly schedule depositor.
For purposes of the $100,000 rule, don't continue accu-
mulating a tax liability after the end of a deposit period.
For example, if a semiweekly schedule depositor has ac-
cumulated a liability of $95,000 on a Tuesday (of a Satur-
day-through-Tuesday deposit period) and accumulated a
$10,000 liability on Wednesday, the $100,000 next-day
deposit rule doesn't apply. Thus, $95,000 must be depos-
ited by Friday and $10,000 must be deposited by the fol-
lowing 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 exam-
ple, Fir Co. is a semiweekly schedule depositor. On Mon-
day, Fir Co. accumulates taxes of $110,000 and must de-
posit this amount on Tuesday, the next business day. On
Tuesday, Fir Co. accumulates additional taxes of
$30,000. Because the $30,000 isn't 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’re a monthly schedule depositor and accu-
mulate a $100,000 tax liability on any day, you be-
come 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 7,
2018. On Wednesday, May 9, it paid wages for the first
time and accumulated a tax liability of $40,000. On Friday,
May 11, 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., accumu-
lated a $100,000 liability on May 11, it became a semi-
weekly schedule depositor on May 12. It will be a semi-
weekly schedule depositor for the remainder of 2018 and
for 2019. Elm, Inc., is required to deposit the $100,000 by
Monday, May 14, the next business day.
Accuracy of Deposits Rule
You’re required to deposit 100% of your tax liability on or
before the deposit due date. However, penalties won't be
applied for depositing less than 100% if both of the follow-
ing conditions are met.
Any deposit shortfall doesn't exceed the greater of
$100 or 2% of the amount of taxes otherwise required
to be deposited.
CAUTION
!
The deposit shortfall is paid or deposited by the short-
fall makeup date as described next.
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:
a. The first Wednesday or Friday (whichever comes
first) that falls on or after the 15th day of the month
following the month in which the shortfall occur-
red, or
b. 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 June 2018, the shortfall makeup
date is July 18, 2018 (Wednesday). However, if the short-
fall occurred on the required April 4, 2018 (Wednesday),
deposit due date for a March 30, 2018 (Friday), pay date,
the return due date for the March 30, 2018, pay date (April
30, 2018) would come before the May 16, 2018 (Wednes-
day), shortfall makeup date. In this case, the shortfall must
be deposited by April 30, 2018.
How To Deposit
You must deposit employment taxes, including Form 945
taxes, by EFT. See Payment with return, earlier in this
section, for exceptions explaining when taxes may be
paid with the tax return instead of being deposited.
Electronic deposit requirement. You must use EFT to
make all federal tax deposits. Generally, an EFT is made
using EFTPS. If you don't want to use EFTPS, you can ar-
range for your tax professional, financial institution, payroll
service, or other trusted third party to make electronic de-
posits on your behalf. EFTPS is a free service provided by
the Department of Treasury. To get more information
about EFTPS or to enroll in EFTPS, visit EFTPS.gov, or
call 1-800-555-4477 or 1-800-733-4829 (TDD). Additional
information about EFTPS is also available in Pub. 966.
When you receive your EIN. If you’re a new em-
ployer that indicated a federal tax obligation when re-
questing an EIN, you’ll be pre-enrolled in EFTPS. You’ll
receive information about Express Enrollment in your Em-
ployer Identification Number (EIN) Package and an addi-
tional mailing containing your EFTPS personal identifica-
tion 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. If you outsource
any of your payroll and related tax duties to a third party
payer, such as a PSP or reporting agent, be sure to tell
them about your EFTPS enrollment.
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Deposit record. For your records, an EFT Trace
Number will be provided with each successful payment.
The number can be used as a receipt or to trace the pay-
ment.
Depositing on time. For deposits made by EFTPS to
be on time, you must submit 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 wire payment option. If you fail to submit
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 Col-
lection Service (FTCS). To use the same-day wire pay-
ment method, you’ll 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 infor-
mation you’ll need to give to your financial institution to
make a same-day wire payment, go to IRS.gov/
SameDayWire.
How to claim credit for overpayments. If you depos-
ited 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. Don't ask EFTPS to request
a refund from the IRS for you.
Deposit Penalties
Although the deposit penalties information provi-
ded next refers specifically to Form 941, these
rules also apply to Form 945 and Form 944 (if the
employer required to file Form 944 doesn't qualify for the
exception to the deposit requirements discussed under
Payment with return, earlier in this section).
Penalties may apply if you don't make required deposits
on time or if you make deposits for less than the required
amount. The penalties don't apply if any failure to make a
proper and timely deposit was due to reasonable cause
and not to willful neglect. If you receive a penalty notice,
you can provide an explanation of why you believe rea-
sonable cause exists.
If you timely filed your employment tax return, the IRS
may also waive deposit penalties if you inadvertently
failed to deposit and it was the first quarter that you were
required to deposit any employment tax, or if you inadver-
tently failed to deposit the first time after your deposit fre-
quency changed. You must also meet the net worth and
size limitations applicable to awards of administrative and
litigation costs under section 7430; for individuals, this
means that your net worth can't exceed $2 million, and for
businesses, your net worth can't exceed $7 million and
you also can't have more than 500 employees.
For amounts not properly or timely deposited, the pen-
alty rates are as follows.
TIP
2% - Deposits made 1 to 5 days late.
5% - Deposits made 6 to 15 days late.
10% - Deposits made 16 or more days late, but before 10 days
from the date of the first notice the IRS sent asking for the
tax due.
10% - Amounts that should have been deposited, but instead
were 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 cur-
rent year, the FTD penalty won't apply to a late deposit of
employment taxes for January of the current year if the
taxes are deposited in full by March 15 of the current year.
Order in which deposits are applied. Deposits gener-
ally are applied to the most recent tax liability within the
quarter. If you receive an FTD penalty notice, you may
designate how your deposits are to be applied in order to
minimize the amount of the penalty if you do so within 90
days of the date of the notice. Follow the instructions on
the penalty notice you received. For more information on
designating deposits, see Revenue Procedure 2001-58.
You can find Revenue Procedure 2001-58 on page 579 of
Internal Revenue Bulletin 2001-50 at IRS.gov/pub/irs-irbs/
irb01-50.pdf.
Example. Cedar, Inc. is required to make a deposit of
$1,000 on May 15 and $1,500 on June 15. It doesn't make
the deposit on May 15. On June 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 ap-
plied to the June 15 deposit and the remaining $500 is ap-
plied to the May deposit. Accordingly, $500 of the May 15
liability remains undeposited. The penalty on this under-
deposit will apply as explained above.
Trust fund recovery penalty. If federal income, social
security, or Medicare taxes that must be withheld (that is,
trust fund taxes) aren't withheld or aren't deposited or paid
to the United States Treasury, the trust fund recovery pen-
alty may apply. The penalty is 100% of the unpaid trust
fund tax. If these unpaid taxes can't be immediately col-
lected from the employer or business, the trust fund re-
covery penalty may be imposed on all persons who are
determined by the IRS to be responsible for collecting, ac-
counting for, or 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 em-
ployee of a sole proprietorship, or any other person or en-
tity that is responsible for collecting, accounting for, or
paying over trust fund taxes. A responsible person also
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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 intention-
ally. A responsible person acts willfully if the person
knows the required actions of collecting, accounting for, or
paying over trust fund taxes aren't taking place, or reck-
lessly disregards obvious and known risks to the govern-
ment's right to receive trust fund taxes.
Separate accounting when deposits aren't made or
withheld taxes aren't paid. Separate accounting may
be required if you don't pay over withheld employee social
security, Medicare, or income taxes; deposit required
taxes; make required payments; or file tax returns. In this
case, you would receive written notice from the IRS re-
quiring you to deposit taxes into a special trust account for
the U.S. Government.
You may be charged with criminal penalties if you
don't comply with the special bank deposit re-
quirements for the special trust account for the
U.S. Government.
“Averaged” FTD penalty. The IRS may assess an
"averaged" FTD penalty of 2% to 10% if you’re a monthly
schedule depositor and didn't properly complete Form
941, line 16, when your tax liability shown on Form 941,
line 12, equaled or exceeded $2,500.
The IRS may also assess an "averaged" FTD penalty of
2% to 10% if you’re a semiweekly schedule depositor and
your tax liability shown on Form 941, line 12, 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 12, equally throughout
the tax period. Then we apply your deposits and pay-
ments to the averaged liabilities in the date order we re-
ceived your deposits. We figure the penalty on any tax not
deposited, deposited late, or not deposited in the correct
amounts. Your deposits and payments may not be coun-
ted as timely because the actual dates of your tax liabili-
ties can't be accurately determined.
You can avoid an "averaged" FTD penalty by reviewing
your return before you file it. Follow these steps before
submitting your Form 941.
If you’re a monthly schedule depositor, report your tax
liabilities (not your deposits) in the monthly entry
spaces on Form 941, line 16.
If you’re a semiweekly schedule depositor, report your
tax liabilities (not your deposits) on Schedule B (Form
941) in the lines that represent the dates your employ-
ees were paid.
CAUTION
!
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 12.
Don't show negative amounts on Form 941, line 16, or
Schedule B (Form 941).
For prior period errors don't 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’re also adjusting your
tax liability. If you’re only adjusting your deposits in re-
sponse to an FTD 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, if you pay wages subject to in-
come tax withholding (including withholding on sick pay
and supplemental unemployment benefits) or social se-
curity and Medicare taxes, you must file Form 941 unless
you receive an IRS notification that you’re eligible to file
Form 944 or the following exceptions apply. Also, if you’re
required to file Forms 941 but believe your employment
taxes for the calendar year will be $1,000 or less, and you
would like to file Form 944 instead of Forms 941, you must
contact the IRS during the first calendar quarter of the tax
year to request to file Form 944. You must receive written
notice from the IRS to file Form 944 instead of Forms 941
before you may file this form. For more information on re-
questing to file Form 944, including the methods and
deadlines for making a request, see the Instructions for
Form 944. Form 941 must be filed by the last day of the
month that follows the end of the quarter. See the Calen-
dar, earlier.
Form 944. If you receive written notification that 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 during the first calen-
dar quarter of the tax year. For more information on re-
questing to file Forms 941, including the methods and
deadlines for making a request, see the Instructions for
Form 944. Form 944 must be filed by January 31. How-
ever, if you timely deposited all taxes when due, you may
file by February 10.
Exceptions. The following exceptions apply to the filing
requirements for Forms 941 and 944.
Seasonal employers who no longer file for quar-
ters when they regularly have no tax liability be-
cause they have paid no wages. To alert the IRS
you won't have to file a return for one or more quarters
during the year, check the “Seasonal employer” box
on Form 941, line 18. When you fill out Form 941, be
sure to check the box on the top of the form that corre-
sponds to the quarter reported. Generally, the IRS
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won't inquire about unfiled returns if at least one taxa-
ble 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’re 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). See Pub. 926 for more
information.
Employers reporting wages for employees in
American Samoa, Guam, the Commonwealth of
the Northern Mariana Islands, the U.S. Virgin Is-
lands, or Puerto Rico. If your employees aren't sub-
ject to U.S. income tax withholding, use Forms
941-SS, 944, or Formulario 944(SP). Employers in Pu-
erto 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
aren't subject to U.S. income tax withholding, you
must file only Form 941 (or Form 944 or Formulario
944(SP)) and include all of your employees' wages on
that form. For more information, see Pub. 80, Federal
Tax Guide for Employers in U.S. Virgin Islands, Guam,
American Samoa, and the Commonwealth of the
Northern Mariana Islands, or Pub. 179, Guía Contribu-
tiva Federal para Patronos Puertorriqueños.
Agricultural employers reporting social security,
Medicare, and withheld income taxes. Report
these taxes on Form 943. For more information, see
Pub. 51.
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, go to
IRS.gov/EmploymentEfile, or call 1-866-255-0654.
Electronic filing by reporting agents. Reporting
agents filing Forms 941 or Form 944 for groups of taxpay-
ers can file them electronically. See Reporting Agents in
section 7 of Pub. 15-A.
Electronic filing by CPEOs. With the exception of the
first quarter for which a CPEO is certified, CPEOs are re-
quired to electronically file Form 941. Under certain cir-
cumstances, the IRS may waive the electronic filing re-
quirement. To request a waiver, the CPEO must file a
written request using the IRS Online Registration System
for Professional Employer Organizations at least 45 days
before the due date of the return for which the CPEO is
unable to electronically file. For more information on filing
a waiver request electronically, go to IRS.gov/CPEO.
Penalties. For each whole or part month a return isn't
filed when required (disregarding any extensions of the fil-
ing deadline), there is a failure-to-file (FTF) penalty of 5%
of the unpaid tax due with that return. The maximum pen-
alty is generally 25% of the tax due. Also, for each whole
or part month the tax is paid late (disregarding any exten-
sions of the payment deadline), there is a failure-to-pay
(FTP) penalty of 0.5% per month of the amount of tax. For
individual filers only, the FTP 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 re-
duced penalty. The maximum amount of the FTP penalty
is also 25% of the tax due. If both penalties apply in any
month, the FTF penalty is reduced by the amount of the
FTP penalty. The penalties won't 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 aren't withheld or aren't paid, you may be per-
sonally liable for the trust fund recovery penalty. See Trust
fund recovery penalty in section 11.
Generally, the use of a third-party payer, such as a PSP
or reporting agent, doesn't relieve an employer of the re-
sponsibility to ensure tax returns are filed and all taxes are
paid or deposited correctly and on time. However, see
Certified professional employer organization (CPEO),
later, for an exception.
Don't 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 re-
quire correspondence between you and the IRS. For infor-
mation on making adjustments to previously filed returns,
see section 13.
Reminders about filing.
Don't 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 Forms and Publications, earlier.
Enter your name and EIN on Form 941 or Form 944.
Be sure they’re exactly as they appeared on earlier re-
turns.
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 fi-
nal 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’re required to file a final return, you’re also re-
quired to furnish Forms W-2 to your employees and file
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Forms W-2 and W-3 with the SSA by the due date of your
final return. Don't 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 delin-
quent return is being filed. See Ordering Employer Tax
Forms and Publications, earlier. Contact the IRS at
1-800-829-4933 if you have any questions about filing late
returns.
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
2017–Social Security $127,200 12.4%
2017–Medicare All Wages 2.9%
2016–Social Security $118,500 12.4%
2016–Medicare All Wages 2.9%
2015–Social Security $118,500 12.4%
2015–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 discrepan-
cies.
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 doesn't exceed the annual social security
wage base limit (for example, $128,400 for 2018).
6. Don't report noncash wages that aren't subject to so-
cial 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” (box h).
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 re-
ported for the following items.
a. Federal income tax withheld.
b. Social security and Medicare wages.
c. Social security and Medicare taxes. Generally, the
amounts shown on Forms 941 or annual Form
944, including current year adjustments, should
be approximately twice the amounts shown on
Form W-3.
Don't report backup withholding or withholding on non-
payroll payments, such as pensions, annuities, and gam-
bling winnings, on Form 941 or Form 944. Withholding on
nonpayroll payments is reported on Forms 1099 or W-2G
and must be reported on Form 945. Only taxes and with-
holding 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. For exam-
ple, if you withheld any Additional Medicare Tax from your
employee’s wages, the amount of Medicare tax that is re-
ported on Forms 941, line 5c, or Form 944, line 4c, won’t
be twice the amount of the Medicare tax withheld that is
reported in box 6 of Form W-3. Make sure there are valid
reasons for any mismatch. Keep your reconciliation so
you’ll have a record of why amounts didn't match in case
there are inquiries from the IRS or the SSA. See the In-
structions for Schedule D (Form 941) if you need to ex-
plain any discrepancies that were caused by an acquisi-
tion, 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–4d, column 2), must be adjusted to
arrive at your correct tax liability (for example, excluding
amounts withheld by a third party payor or amounts you
weren't required to withhold). Current period adjustments
are reported on Form 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 differ-
ence between total taxes after adjustments and credits
(Form 941, line 12; Form 944, line 9) 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 wa-
ges. The IRS refers to rounding differences relating to em-
ployee 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
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because your total taxes for the quarter (year for Form
944) are less than $2,500, you also may report a frac-
tions-of-cents adjustment.
To determine if you have a fractions-of-cents adjust-
ment for 2018, multiply the total wages and tips for the
quarter subject to:
Social security tax reported on Form 941 or Form 944
by 6.2% (0.062),
Medicare tax reported on Form 941 or Form 944 by
1.45% (0.0145), and
Additional Medicare Tax reported on Form 941 or 944
by 0.9% (0.009).
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 ad-
justment using a minus sign (if possible, otherwise use pa-
rentheses) in the entry space. If the actual amount is
more, report a positive adjustment.
For the above adjustments, prepare and retain a
brief supporting statement explaining the nature
and amount of each. Don't attach the statement to
Form 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 se-
curity 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, col-
umn 2, for social security and Medicare taxes. How-
ever, the third-party payor of the sick pay withheld and
paid the employee share ($1,000) of these taxes. Ce-
dar, 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 ex-
cess 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 Medi-
care taxes reported on Form 941, lines 5a and 5c, col-
umn 2. Therefore, Cedar, Inc., is entitled to a negative
$200 adjustment on Form 941, line 9.
TIP
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 ex-
ceed $200,000 for the calendar year, report the Additional
Medicare Tax on Form 941, line 5d (Form 944, line 4d).
Show as a negative adjustment on Form 941, line 8 (Form
944, line 6), the social security and Medicare taxes with-
held on sick pay by a third-party payor. See section 6 of
Pub. 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 don't have enough employee funds available to with-
hold 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 calen-
dar year, report the Additional Medicare Tax on Form 941,
line 5d (Form 944, line 4d). Include as a negative adjust-
ment on Form 941, line 9 (Form 944, line 6), the total un-
collected employee share of the social security and Medi-
care taxes.
Adjustment of tax on group-term life insurance pre-
miums 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 isn't 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 premi-
ums on group-term life insurance combined with other wa-
ges exceeds $200,000 for the calendar year, report the
Additional Medicare Tax on Form 941, line 5d (Form 944,
line 4d). 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 Pub. 15-B for more information on
group-term life insurance.
No change to record of federal tax liability. Don't
make any changes to your record of federal tax liability re-
ported on Form 941, line 16, or Schedule B (Form 941)
(Form 945-A for Form 944 filers) for current period adjust-
ments. The amounts reported on the record reflect the ac-
tual amounts you withheld from employees' wages for so-
cial 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–4d, col-
umn 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. Use Form 941-X
or Form 944-X to make a correction after you discover an
error on a previously filed Form 941 or Form 944. There
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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
are also Forms 943-X, 945-X, and CT-1 X to report cor-
rections on the corresponding returns. Use Form 843
when requesting a refund or abatement of assessed inter-
est or penalties.
See Revenue Ruling 2009-39, 2009-52 I.R.B.
951, for examples of how the interest-free adjust-
ment and claim for refund rules apply in 10 differ-
ent situations. You can find Revenue Ruling 2009-39, at
IRS.gov/irb/2009-52_IRB/ar14.html.
Background. Treasury Decision 9405 changed the proc-
ess 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 IRS.gov/irb/
2008-32_irb/ar13.html. You’ll 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’ll use the claim process if you overreported employ-
ment 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 abate-
ment 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’re correcting, and
File Form 941-X or Form 944-X separately. Don't file
with Form 941 or Form 944.
Continue to report current quarter adjustments for frac-
tions 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 overrepor-
ted amounts for the same tax period on a single Form
941-X or Form 944-X unless you’re requesting a refund. If
you’re requesting a refund and are correcting both under-
reported 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 cal-
endar year, correct prior quarter income tax withholding
errors by making the correction on Form 941-X when you
discover the error.
TIP
You may make an adjustment only to correct income
tax withholding errors discovered during the same calen-
dar year in which you paid the wages. This is because the
employee uses the amount shown on Form W-2 or, if ap-
plicable, Form W-2C, as a credit when filing his or her in-
come tax return (Form 1040, etc.).
You can't adjust amounts reported as income tax with-
held in a prior calendar year unless it is to correct an ad-
ministrative error or IRC section 3509 applies. An adminis-
trative error occurs if the amount you entered on Form 941
or Form 944 isn't the amount you actually withheld. For
example, if the total income tax actually withheld was in-
correctly reported on Form 941 or Form 944 due to a
mathematical or transposition error, this would be an ad-
ministrative error. The administrative error adjustment cor-
rects 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 ad-
justment to correct Additional Medicare Tax withholding
errors discovered during the same calendar ye