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           Department of the Treasury                    Contents
           Internal Revenue Service
                                                         What's New. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1
                                                         Reminders    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Publication 15-A
Cat. No. 21453T                                          Introduction  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3
                                                         1. Who Are Employees? . . . . . . . . . . . . . . . . . . . . .            4
                                                         2. Employee or Independent Contractor?                      . . . . . . .  6
Employer's 
                                                         3. Employees of Exempt Organizations                    . . . . . . . . .  9
Supplemental                                             4. Religious Exemptions and Special Rules for 
                                                         Ministers       . . . . . . . . . . . . . . . . . . . . . . . . . . . .    10
Tax Guide                                                5. Wages and Other Compensation                   . . . . . . . . . . .    11
                                                         6. Sick Pay Reporting . . . . . . . . . . . . . . . . . . . . . .          14
(Supplement to Pub. 15,                                  7. Special Rules for Paying Taxes . . . . . . . . . . . . .                21
Employer's Tax Guide)                                    8. Federal Income Tax Withholding on 
                                                         Retirement Payments and Annuities                         . . . . . . .    23
For use in 2024                                          How To Get Tax Help       . . . . . . . . . . . . . . . . . . . . . . .    25
                                                         Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  28

                                                         Future Developments
                                                         For  the  latest  information  about  developments  related  to 
                                                         Pub.  15-A,  such  as  legislation  enacted  after  it  was 
                                                         published, go to IRS.gov/Pub15A.

                                                         What's New
                                                         Social security and Medicare tax for 2024.                      The social 
                                                         security tax rate is 6.2% each for the employee and em-
                                                         ployer. The social security wage base limit is $168,600.
                                                         The Medicare tax rate is 1.45% each for the employee 
                                                         and  employer,  unchanged  from  2023.  There  is  no  wage 
                                                         base limit for Medicare tax.
                                                         Social security and Medicare taxes apply to the wages 
                                                         of household workers you pay $2,700 or more in cash wa-
                                                         ges in 2024. Social security and Medicare taxes apply to 
                                                         election workers who are paid $2,300 or more in cash or 
                                                         an equivalent form of compensation in 2024.

                                                         Reminders
                                                         Form  W-4P  and  Form  W-4R.              Form  W-4P,  Withholding 
                                                         Certificate for Periodic Pension or Annuity Payments, (pre-
                                                         viously titled Withholding Certificate for Pension or Annuity 
                                                         Payments)  was  redesigned  for  2022.  Form  W-4P  is  now 
                                                         used only to make withholding elections for periodic pen-
                                                         sion or annuity payments. Previously, Form W-4P was also 
Get forms and other information faster and easier at:    used  to  make  withholding  elections  for  nonperiodic  pay-
• IRS.gov (English)    • IRS.gov/Korean (한국어)            ments and eligible rollover distributions. Withholding elec-
• IRS.gov/Spanish (Español)  • IRS.gov/Russian (Pусский) 
• IRS.gov/Chinese (中文) • IRS.gov/Vietnamese (Tiếng Việt) tions  for  nonperiodic  payments  and  eligible  rollover 

Dec 5, 2023

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distributions are now made on Form W-4R, Withholding professional, financial institution, payroll service, or other
Certificate for Nonperiodic Payments and Eligible Rollover trusted third party to make electronic deposits on your be-
Distributions. Although the redesigned Form W-4P and half. Also, you may arrange for your financial institution to
new Form W-4R were available for use in 2022, the IRS initiate a same-day wire payment on your behalf. EFTPS is
postponed the requirement to begin using the new forms a free service provided by the Department of the Treasury.
until January 1, 2023. Payers should have updated their Services provided by your tax professional, financial insti-
system programming for these forms in 2022. See section tution, payroll service, or other third party may have a fee.
8 for more information about withholding on retirement For more information on making federal tax deposits,
payments and annuities. See Pub. 15-T to figure withhold- see How To Deposit in Pub. 15. To get more information
ing on periodic pension and annuity payments. about EFTPS or to enroll in EFTPS, go to EFTPS.gov or
2024 withholding tables. The discussion on the alterna- call 800-555-4477. To contact EFTPS using Telecommuni-
tive methods for figuring federal income tax withholding cations Relay Services (TRS) for people who are deaf,
and the Tables for Withholding on Distributions of Indian hard of hearing, or have a speech disability, dial 711 and
Gaming Profits to Tribal Members are no longer included then provide the TRS assistant the 800-555-4477 number
in Pub.15-A. This information is now included in Pub. 15-T above or 800-733-4829. Additional information about
with the Percentage Method and Wage Bracket Method EFTPS is also available in Pub. 966.
withholding tables. However, the IRS is no longer provid- Electronic filing and payment. Businesses can enjoy
ing the Formula Tables for Percentage Method Withhold- the benefits of filing and paying their federal taxes elec-
ing (for Automated Payroll Systems); Wage Bracket Per- tronically. Whether you rely on a tax professional or handle
centage Method Tables (for Automated Payroll Systems); your own taxes, the IRS offers you convenient and secure
or the Combined Federal Income Tax, Employee Social programs to make filing and payment easier.
Security Tax, and Employee Medicare Tax Withholding Ta- Spend less time worrying about taxes and more time
bles. running your business. Use e-file and EFTPS to your ben-
Form 1099-NEC. Use Form 1099-NEC, Nonemployee efit.
Compensation, to report nonemployee compensation paid
• For e-file, go to IRS.gov/EmploymentEfile for addi-
in 2023.
tional information. A fee may be charged to file elec-
Disaster tax relief. Disaster tax relief is available for tronically.
those impacted by disasters. For more information about
disaster relief, go to IRS.gov/DisasterTaxRelief. • For EFTPS, go to EFTPS.gov or call 800-555-4477. To
contact EFTPS using TRS for people who are deaf,
Moving expense reimbursements. Section 11048 of hard of hearing, or have a speech disability, dial 711
P.L. 115-97, Tax Cuts and Jobs Act, suspends the exclu- and then provide the TRS assistant the 800-555-4477
sion for qualified moving expense reimbursements from number above or 800-733-4829.
your employee’s income for tax years beginning after 2017
and before 2026. However, the exclusion is still available • For electronic filing of Forms W-2, Wage and Tax
in the case of a member of the U.S. Armed Forces on ac- Statement, go to SSA.gov/employer. You may be re-
tive duty who moves because of a permanent change of quired to file Forms W-2 electronically. For details, see
station due to a military order. The exclusion applies only the General Instructions for Forms W-2 and W-3.
to reimbursement of moving expenses that the member Electronic submission of Forms W-4 and W-4P. You
could deduct if they had paid or incurred them without re- may also set up a system to electronically receive Forms
imbursement. See Moving Expenses in Pub. 3, Armed W-4 and W-4P from an employee or payee. See Pub. 15-T
Forces’ Tax Guide, for the definition of what constitutes a for electronic submission requirements for Forms W-4 and
permanent change of station and to learn which moving W-4P.
expenses are deductible. Electronic submission of Forms W-4R, W-4S, and
No federal income tax withholding on disability pay- W-4V. You may also set up a system to electronically re-
ments for injuries incurred as a direct result of a ter- ceive any or all of the following forms (and their Spanish
rorist attack directed against the United States. Disa- versions, if available) from an employee or payee.
bility payments (including Social Security Disability
Insurance (SSDI) payments) for injuries incurred as a di- • Form W-4R, Withholding Certificate for Nonperiodic
Payments and Eligible Rollover Distributions.
rect result of a terrorist attack directed against the United
States (or its allies) aren't included in income. Because • Form W-4S, Request for Federal Income Tax With-
federal income tax withholding is only required when a holding From Sick Pay.
payment is includible in income, no federal income tax Form W-4V, Voluntary Withholding Request.
•
should be withheld from these payments. See Pub. 907,
Tax Highlights for Persons With Disabilities, and Pub. For each form that you establish an electronic submis-
3920, Tax Relief for Victims of Terrorist Attacks. sion system for, you must meet each of the following five
requirements.
Federal tax deposits must be made by electronic
funds transfer (EFT). You must use EFT to make all fed- 1. The electronic system must ensure that the informa-
eral tax deposits. Generally, an EFT is made using the tion received by you is the information sent by the em-
Electronic Federal Tax Payment System (EFTPS). If you ployee or payee. The system must document all
don't want to use EFTPS, you can arrange for your tax occasions of user access that result in a submission.

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In addition, the design and operation of the electronic • The employee must be informed of any procedure for
system, including access procedures, must make it obtaining a paper copy of their Form W-2 and whether
reasonably certain that the person accessing the sys- or not the request for a paper statement is treated as a
tem and submitting the form is the person identified withdrawal of their consent to receiving their Form W-2
on the form. electronically.
2. The electronic system must provide exactly the same • The employee must be notified about how to withdraw
information as the paper form. a consent and the effective date and manner by which
the employer will confirm the withdrawn consent. The
3. The electronic submission must be signed with an employee must also be notified that the withdrawn
electronic signature by the employee or payee whose consent doesn't apply to the previously issued Forms
name is on the form. The electronic signature must be W-2.
the final entry in the submission.
• The employee must be informed about any conditions
4. Upon request, you must furnish a hard copy of any under which electronic Forms W-2 will no longer be
completed electronic form to the IRS and a statement furnished (for example, termination of employment).
that, to the best of your knowledge, the electronic
form was submitted by the named employee or payee. • The employee must be informed of any procedures for
The hard copy of the electronic form must provide ex- updating their contact information that enables the
actly the same information as, but need not be a fac- employer to provide electronic Forms W-2.
simile of, the paper form. • The employer must notify the employee of any
5. You must also meet all recordkeeping requirements changes to the employer's contact information.
that apply to the paper forms. You must furnish electronic Forms W-2 by the same
due date as the paper Forms W-2. For more information
See Substitute Submissions of Form W-4R in section 8
on furnishing Form W-2 to employees electronically, see
for the specific requirements for Form W-4R.
Regulations section 31.6051-1(j).
More information on electronic submissions. For
more information on electronic submissions for Forms Pub. 5146 explains employment tax examinations
W-4S and W-4V, see Announcement 99-6. You can find and appeal rights. Pub. 5146 provides employers with
Announcement 99-6 on page 24 of Internal Revenue Bul- information on how the IRS selects employment tax re-
letin 1999-4 at IRS.gov/pub/irs-irbs/irb99-04.pdf. turns to be examined, what happens during an exam, and
what options an employer has in responding to the results
Additional employment tax information. Go to of an exam, including how to appeal the results. Pub. 5146
IRS.gov/EmploymentTaxes for additional employment tax also includes information on worker classification issues
information. and tip exams.
Telephone help. You can call the IRS Business and Spe- Photographs of missing children. The IRS is a proud
cialty Tax Line with your employment tax questions at partner with the National Center for Missing & Exploited
800-829-4933. Children® (NCMEC). Photographs of missing children se-
Help for people with disabilities. You may call lected by the Center may appear in this publication on pa-
800-829-4059 (TDD/TTY for persons who are deaf, hard ges that would otherwise be blank. You can help bring
of hearing, or have a speech disability) with any employ- these children home by looking at the photographs and
ment tax questions. You may also use this number for as- calling 1-800-THE-LOST (1-800-843-5678) if you recog-
sistance with unresolved tax problems. nize a child.
Furnishing Form W-2 to employees electronically.
You may set up a system to furnish Form W-2 electroni-
cally to employees. Each employee participating must Introduction
consent (either electronically or by paper document) to re-
ceive their Form W-2 electronically, and you must notify This publication supplements Pub.15. It contains special-
the employee of all hardware and software requirements ized and detailed employment tax information supple-
to receive the form. You may not send a Form W-2 elec- menting the basic information provided in Pub.15. Pub.
tronically to any employee who doesn't consent or who 15-B contains information about the employment tax treat-
has revoked consent previously provided. ment of various types of noncash compensation. Pub.
To furnish Forms W-2 electronically, you must meet the 15-T contains the Percentage Method and Wage Bracket
following disclosure requirements and provide a clear and Method withholding tables, including information on how
conspicuous statement of each requirement to your em- to withhold on periodic pension or annuity payments; Ta-
ployees. bles for Withholding on Distributions of Indian Gaming
Profits to Tribal Members; and a discussion on the alterna-
• The employee must be informed that they will receive tive methods for figuring federal income tax withholding.
a paper Form W-2 if consent isn't given to receive it
electronically. Comments and suggestions. We welcome your com-
• The employee must be informed of the scope and du- ments about this publication and your suggestions for fu-
ration of the consent. ture editions.

Publication 15-A (2024) Page 3

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You can send us comments through IRS.gov/ This discussion explains these four categories. A later
FormComments. discussion, Employee or Independent Contractor in sec-
Or, you can write to: tion 2, points out the differences between an independent
contractor and an employee and gives examples from var-
Internal Revenue Service ious types of occupations.
Tax Forms and Publications
1111 Constitution Ave. NW, IR-6526 If an individual who works for you isn't an employee un-
Washington, DC 20224 der the common-law rules (see section 2), you generally
don't have to withhold federal income tax from that individ-
Although we can’t respond individually to each com- ual's pay. However, in some cases you may be required to
ment received, we do appreciate your feedback and will withhold under the backup withholding requirements on
consider your comments as we revise our tax forms, in- these payments. See Pub. 15 for information on backup
structions, and publications. Don’t send tax questions, tax withholding.
returns, or payments to the above address.
Getting answers to your tax questions. If you have Independent Contractors
a tax question not answered by this publication, check
IRS.gov and How To Get Tax Help at the end of this publi- People such as doctors, veterinarians, and auctioneers
cation. who work in an independent trade, business, or profession
in which they offer their services to the public are gener-
Getting tax forms, instructions, and publications. ally not employees. However, whether such people are
Go to IRS.gov/Forms to download current and prior-year employees or independent contractors depends on the
forms, instructions, and publications. facts in each case. The general rule is that an individual is
Ordering tax forms, instructions, and publications. an independent contractor if you, the person for whom the
Go to IRS.gov/OrderForms to order current forms, instruc- services are performed, have the right to control or direct
tions, and publications; call 800-829-3676 to order only the result of the work and not the means and meth-
prior-year forms and instructions. The IRS will process ods of accomplishing the result.
your order for forms and publications as soon as possible.
Don’t resubmit requests you’ve already sent us. You can Common-Law Employees
get forms and publications faster online.
Under common-law rules, anyone who performs services
Useful Items for you is generally your employee if you have the right to
You may want to see: control what will be done and how it will be done. This is
so even when you give the employee freedom of action.
Publication What matters is that you have the right to control the de-
tails of how the services are performed. For a discussion
15-B 15-B Employer's Tax Guide to Fringe Benefits of facts that indicate whether an individual providing serv-
ices is an independent contractor or employee, see sec-
15-T 15-T Federal Income Tax Withholding Methods
tion 2.
505 505 Tax Withholding and Estimated Tax
If you have an employer-employee relationship, it
515 515 Withholding of Tax on Nonresident Aliens and makes no difference how it is labeled. The substance of
Foreign Entities the relationship, not the label, governs the worker's status.
It doesn't matter whether the individual is employed full
583 583 Starting a Business and Keeping Records time or part time.
1635 1635 Employer Identification Number: For employment tax purposes, no distinction is made
Understanding Your EIN between classes of employees. Superintendents, manag-
ers, and other supervisory personnel are all employees.
An officer of a corporation is generally an employee; how-
1. Who Are Employees? ever, an officer who performs no services or only minor
services, and neither receives nor is entitled to receive
Before you can know how to treat payments that you make any pay, isn't considered an employee. A director of a cor-
to workers for services, you must first know the business poration isn't an employee with respect to services per-
relationship that exists between you and the person per- formed as a director.
forming the services. The person performing the services
may be: You generally have to withhold and pay income, social
security, and Medicare taxes on wages that you pay to
• An independent contractor, common-law employees. However, the wages of certain
• A common-law employee, employees may be exempt from one or more of these
taxes. See Employees of Exempt Organizations (section
• A statutory employee, or 3) and Religious Exemptions and Special Rules for Minis-
• A statutory nonemployee. ters (section 4).

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Additional information. For more information about the Income tax. Don't withhold federal income tax from the
treatment of special types of employment, the treatment of wages of statutory employees.
special types of payments, and similar subjects, see Pub.
15. Reporting payments to statutory employees. Furnish
Form W-2 to a statutory employee, and check “Statutory
employee” in box 13. Show your payments to the em-
Statutory Employees ployee as “other compensation” in box 1. Also, show so-
If workers are independent contractors under the cial security wages in box 3, social security tax withheld in
common-law rules, such workers may nevertheless be box 4, Medicare wages in box 5, and Medicare tax with-
treated as employees by statute (also known as statutory held in box 6. The statutory employee can deduct their
employees) for certain employment tax purposes. This trade or business expenses from the payments shown on
would happen if they fall within any one of the following Form W-2. The statutory employee reports earnings on
four categories and meet the three conditions described line 1 of Schedule C (Form 1040), Profit or Loss From
next under Social security and Medicare taxes. Business, and also deducts business expenses on
Schedule C (Form 1040).
1. A driver who distributes beverages (other than milk) or
meat, vegetables, fruit, or bakery products; or who H-2A agricultural workers. On Form W-2, don't check
picks up and delivers laundry or dry cleaning, if the box 13 (Statutory employee), as H-2A workers aren't stat-
driver is your agent or is paid on commission. utory employees.
2. A full-time life insurance sales agent whose principal
business activity is selling life insurance or annuity Statutory Nonemployees
contracts, or both, primarily for one life insurance
There are three categories of statutory nonemployees: di-
company.
rect sellers, licensed real estate agents, and certain com-
3. An individual who works at home on materials or panion sitters. Direct sellers and licensed real estate
goods that you supply and that must be returned to agents are treated as self-employed for all federal tax pur-
you or to a person you name, if you also furnish speci- poses, including income and employment taxes, if:
fications for the work to be done.
• Substantially all payments for their services as direct
4. A full-time traveling or city salesperson who works on sellers or real estate agents are directly related to
your behalf and turns in orders to you from wholesal- sales or other output, rather than to the number of
ers; retailers; contractors; or operators of hotels, res- hours worked; and
taurants, or other similar establishments. The goods • Their services are performed under a written contract
sold must be merchandise for resale or supplies for providing that they won't be treated as employees for
use in the buyer's business operation. The work per- federal tax purposes.
formed for you must be the salesperson's principal
business activity. See Salesperson in section 2. Direct sellers. Direct sellers include persons falling
within any of the following three groups.
Social security and Medicare taxes. You must withhold
social security and Medicare taxes from the wages of stat- 1. Persons engaged in selling (or soliciting the sale of)
utory employees if all three of the following conditions ap- consumer products in the home or place of business
ply. other than in a permanent retail establishment.
• The service contract states or implies that substan- 2. Persons engaged in selling (or soliciting the sale of)
tially all the services are to be performed personally by consumer products to any buyer on a buy-sell basis, a
them. deposit-commission basis, or any similar basis pre-
scribed by regulations, for resale in the home or at a
• They don't have a substantial investment in the equip-
place of business other than in a permanent retail es-
ment and property used to perform the services (other
tablishment.
than an investment in facilities for transportation, such
as a car or truck). 3. Persons engaged in the trade or business of deliver-
• The services are performed on a continuing basis for ing or distributing newspapers or shopping news (in-
the same payer. cluding any services directly related to such delivery
or distribution).
Federal unemployment (FUTA) tax. For FUTA tax (the Direct selling includes activities of individuals who at-
unemployment tax paid under the Federal Unemployment tempt to increase direct sales activities of their direct sell-
Tax Act), the term “employee” means the same as it does ers and who earn income based on the productivity of
for social security and Medicare taxes, except that it their direct sellers. Such activities include providing moti-
doesn't include statutory employees defined in categories vation and encouragement; imparting skills, knowledge, or
2 and 3 above. Any individual who is a statutory employee experience; and recruiting.
described under category 1 or 4 above is also an em-
ployee for FUTA tax purposes and subject to FUTA tax.

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Licensed real estate agents. This category includes in- test proctor or room supervisor assisting in the administra-
dividuals engaged in appraisal activities for real estate tion of college entrance or placement examinations if the
sales if they earn income based on sales or other output. individual:
Companion sitters. Companion sitters are individuals • Is performing the services for a section 501(c) organi-
who furnish personal attendance, companionship, or zation exempt from tax under section 501(a) of the
household care services to children or to individuals who Code, and
are elderly or disabled. A person engaged in the trade or • Isn't otherwise treated as an employee of the organi-
business of putting the sitters in touch with individuals who zation for employment taxes.
wish to employ them (that is, a companion sitting place-
ment service) won't be treated as the employer of the sit- Voluntary Classification Settlement Program (VCSP).
ters if that person doesn't receive or pay the salary or wa- Employers who are currently treating their workers (or a
ges of the sitters and is compensated by the sitters or the class or group of workers) as independent contractors or
persons who employ them on a fee basis. Companion sit- other nonemployees and want to voluntarily reclassify
ters who aren't employees of a companion sitting place- their workers as employees for future tax periods may be
ment service are generally treated as self-employed for all eligible to participate in the VCSP if certain requirements
federal tax purposes. However, the companion sitter may are met. File Form 8952 to apply for the VCSP. For more
be an employee of the individual for whom the sitting serv- information, go to IRS.gov/VCSP.
ices are performed; see Pub. 926.

Misclassification of Employees 2. Employee or Independent

Consequences of treating an employee as an inde- Contractor?
pendent contractor. If you classify an employee as an
independent contractor and you have no reasonable basis An employer must generally withhold federal income
for doing so, you’re liable for employment taxes for that taxes, withhold and pay over social security and Medicare
worker, and the relief provision, discussed next, won't ap- taxes, and pay unemployment tax on wages paid to an
ply. See section 2 of Pub. 15 for more information. employee. An employer doesn't generally have to withhold
or pay over any federal taxes on payments to independent
Relief provision. If you have a reasonable basis for not contractors.
treating a worker as an employee, you may be relieved
from having to pay employment taxes for that worker. To
Common-Law Rules
get this relief, you must file all required federal information
returns on a basis consistent with your treatment of the
To determine whether an individual is an employee or an
worker. You (or your predecessor) must not have treated
independent contractor under the common-law rules, the
any worker holding a substantially similar position as an
relationship of the worker and the business must be exam-
employee for any periods beginning after 1977.
ined. In any employee-independent contractor determina-
Technical service specialists. This relief provision tion, all information that provides evidence of the degree
doesn't apply for a technical services specialist you pro- of control and the degree of independence must be con-
vide to another business under an arrangement between sidered.
you and the other business. A technical service specialist
is an engineer, designer, drafter, computer programmer, Facts that provide evidence of the degree of control
systems analyst, or other similarly skilled worker engaged and independence fall into three categories: behavioral
in a similar line of work. control, financial control, and the type of relationship of the
This limit on the application of the rule doesn't affect the parties. These facts are discussed next.
determination of whether such workers are employees un-
der the common-law rules. The common-law rules control Behavioral control. Facts that show whether the busi-
whether the specialist is treated as an employee or an in- ness has a right to direct and control how the worker does
dependent contractor. However, if you directly contract the task for which the worker is hired include the type and
with a technical service specialist to provide services for degree of the following.
your business and not for another business, you may still Instructions that the business gives to the worker.
be entitled to the relief provision. An employee is generally subject to the business' instruc-
Test proctors and room supervisors. The consis- tions about when, where, and how to work. All of the fol-
tent treatment requirement doesn't apply to services per- lowing are examples of types of instructions about how to
formed after December 31, 2006, by an individual as a do work.
• When and where to do the work.
• What tools or equipment to use.
• What workers to hire or to assist with the work.
• Where to purchase supplies and services.

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• What work must be performed by a specified • Whether or not the business provides the worker with
individual. employee-type benefits, such as insurance, a pension
plan, vacation pay, or sick pay.
• What order or sequence to follow.
The amount of instruction needed varies among differ- • The permanency of the relationship. If you engage
ent jobs. Even if no instructions are given, sufficient be- a worker with the expectation that the relationship will
havioral control may exist if the employer has the right to continue indefinitely, rather than for a specific project
control how the work results are achieved. A business or period, this is generally considered evidence that
may lack the knowledge to instruct some highly special- your intent was to create an employer-employee rela-
ized professionals; in other cases, the task may require lit- tionship.
tle or no instruction. The key consideration is whether the • The extent to which services performed by the
business has retained the right to control the details of a worker are a key aspect of the regular business
worker's performance or instead has given up that right. of the company. If a worker provides services that
are a key aspect of your regular business activity, it is
Training that the business gives to the worker. An
more likely that you’ll have the right to direct and con-
employee may be trained to perform services in a particu-
trol their activities. For example, if a law firm hires an
lar manner. Independent contractors ordinarily use their
attorney, it is likely that it will present the attorney's
own methods.
work as its own and would have the right to control or
Financial control. Facts that show whether the business direct that work. This would indicate an employer-em-
has a right to control the business aspects of the worker's ployee relationship.
job include the following.
IRS help. If you want the IRS to determine whether or not
The extent to which the worker has unreimbursed a worker is an employee, file Form SS-8 with the IRS.
business expenses. Independent contractors are more
likely to have unreimbursed expenses than are employ- Industry Examples
ees. Fixed ongoing costs that are incurred regardless of
whether work is currently being performed are especially
The following examples may help you properly classify
important. However, employees may also incur unreim-
your workers.
bursed expenses in connection with the services that they
perform for their employer.
Building and Construction Industry
The extent of the worker's investment. An inde-
pendent contractor often has a significant investment in Example 1. Jerry Jones has an agreement with Wilma
the facilities or tools they use in performing services for White to supervise the remodeling of a house. Wilma
someone else. However, a significant investment isn't nec- didn't advance funds to help Jerry carry on the work.
essary for independent contractor status. Wilma makes direct payments to the suppliers for all nec-
essary materials. Wilma carries liability and workers' com-
The extent to which the worker makes their serv- pensation insurance covering Jerry and others that Jerry
ices available to the relevant market. An independent engaged to assist on the remodel. Wilma pays them an
contractor is generally free to seek out business opportu- hourly rate and exercises almost constant supervision
nities. Independent contractors often advertise, maintain a over the work. Jerry isn't free to transfer the assistants to
visible business location, and are available to work in the other jobs. Jerry may not work on other jobs while working
relevant market. for Wilma. Jerry assumes no responsibility to complete
How the business pays the worker. An employee is the work and will incur no contractual liability if the work
generally guaranteed a regular wage amount for an hourly, isn't completed. Jerry and the assistants perform personal
weekly, or other period of time. This usually indicates that services for hourly wages. Jerry Jones and the assistants
a worker is an employee, even when the wage or salary is are employees of Wilma White.
supplemented by a commission. An independent contrac-
tor is often paid a flat fee or on a time and materials basis Example 2. Milton Manning, an experienced tile setter,
for the job. However, it is common in some professions, orally agreed with a corporation to perform full-time serv-
such as law, to pay independent contractors hourly. ices at construction sites. Milton uses personally owned
tools and performs services in the order designated by the
The extent to which the worker can realize a profit corporation and according to its specifications. The corpo-
or loss. An independent contractor can make a profit or ration supplies all materials, makes frequent inspections
loss. of Milton’s work, pays Milton on a piecework basis, and
carries workers' compensation insurance on Milton. Milton
Type of relationship. Facts that show the parties' type of doesn't have a place of business or seek to perform simi-
relationship include the following. lar services for others. Either party can end the services at
• Written contracts describing the relationship the par- any time. Milton Manning is an employee of the corpora-
ties intended to create. tion.

Example 3. Wallace Black agreed with Sawdust Co. to
supply the construction labor for a group of houses. The

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company agreed to pay all construction costs. However, beyond the specifications for the product itself. Steve and
Wallace supplies all the tools and equipment. Wallace Megabyte have a written contract, which provides that
performs personal services as a carpenter and mechanic Steve is considered to be an independent contractor, is re-
for an hourly wage. Wallace also acts as superintendent quired to pay federal and state taxes, and receives no
and foreman and engages other individuals to assist with benefits from Megabyte. Megabyte will file Form
construction. The company has the right to select, ap- 1099-NEC to report the amount paid to Steve. Steve
prove, or discharge any helper. A company representative works at home and isn't expected or allowed to attend
makes frequent inspections of the construction site. When meetings of the software development group. Steve is an
a house is finished, Wallace is paid a certain percentage independent contractor.
of its costs. Wallace isn't responsible for faults, defects of
construction, or wasteful operation. At the end of each Automobile Industry
week, Wallace presents the company with a statement of
the amount that was spent, including the payroll. The com- Example 1. Donna Lee is a salesperson employed on
pany gives Wallace a check for that amount from which a full-time basis by Bob Blue, an auto dealer. Donna works
Wallace pays the assistants, although Wallace isn't per- 6 days a week and is on duty in Bob's showroom on cer-
sonally liable for their wages. Wallace Black and the assis- tain assigned days and times. Donna appraises trade-ins,
tants are employees of Sawdust Co. but the appraisals are subject to the sales manager's ap-
proval. Lists of prospective customers belong to the
Example 4. Bill Plum contracted with Elm Corporation dealer. Donna is required to develop leads and report re-
to complete the roofing on a housing complex. A signed sults to the sales manager. Due to experience, Donna re-
contract established a flat amount for the services ren- quires only minimal assistance in closing and financing
dered by Bill Plum. Bill is a licensed roofer and carries sales and in other phases of work. Donna is paid a com-
workers' compensation and liability insurance under the mission and is eligible for prizes and bonuses offered by
business name, Plum Roofing. Bill hires roofers for Plum Bob. Bob also pays the cost of health insurance and
Roofing who are treated as employees for federal employ- group-term life insurance for Donna. Donna is an em-
ment tax purposes. If there is a problem with the roofing ployee of Bob Blue.
work, Plum Roofing is responsible for paying for any re-
pairs. Bill Plum, doing business as Plum Roofing, is an in- Example 2. Sam Sparks performs auto repair services
dependent contractor. in the repair department of an auto sales company. Sam
works regular hours and is paid on a percentage basis.
Example 5. Vera Elm, an electrician, submitted a job Sam has no investment in the repair department. The
estimate to a housing complex for electrical work at $16 sales company supplies all facilities, repair parts, and sup-
per hour for 400 hours. Vera is to receive $1,280 every 2 plies; issues instructions on the amounts to be charged,
weeks for the next 10 weeks. This isn't considered pay- parts to be used, and the time for completion of each job;
ment by the hour. Even if Vera works more or less than and checks all estimates and repair orders. Sam is an em-
400 hours to complete the work, Vera will receive $6,400. ployee of the sales company.
Vera also performs additional electrical installations under
contracts with other companies that are obtained through Example 3. An auto sales agency furnishes space for
advertisements. Vera is an independent contractor. Helen Bach to perform auto repair services. Helen pro-
vides personally owned tools, equipment, and supplies.
Trucking Industry Helen seeks out business from insurance adjusters and
other individuals and does all of the body and paint work
Example. Rose Trucking contracts to deliver material that comes to the agency. Helen hires and discharges
for Forest, Inc., at $140 per ton. Rose Trucking isn't paid helpers; determines working hours; quotes prices for re-
for any articles that aren't delivered. At times, Jan Rose, pair work; makes all necessary adjustments; assumes all
who operates as Rose Trucking, may also lease another losses from uncollectible accounts; and receives, as com-
truck and engage a driver to complete the contract. All op- pensation for services, a large percentage of the gross
erating expenses, including insurance coverage, are paid collections from the auto repair shop. Helen is an inde-
by Jan Rose. All equipment is owned or rented by Jan and pendent contractor and the helpers are Helen’s employ-
Jan is responsible for all maintenance. None of the drivers ees.
are provided by Forest, Inc. Jan Rose, operating as Rose
Trucking, is an independent contractor. Attorney

Computer Industry Example. Donna Yuma is a sole practitioner who rents
office space and pays for the following items: telephone,
Example. Steve Smith, a computer programmer, is computer, online legal research linkup, fax machine, and
laid off when Megabyte, Inc., downsizes. Megabyte photocopier. Donna buys office supplies and pays bar
agrees to pay Steve a flat amount to complete a one-time dues and membership dues for three other professional
project to create a certain product. It isn't clear how long it organizations. Donna has a part-time receptionist who
will take to complete the project, and Steve isn't guaran- also does the bookkeeping. Donna pays the receptionist,
teed any minimum payment for the hours spent on the withholds and pays federal and state employment taxes,
program. Megabyte provides Steve with no instructions and files a Form W-2 each year. For the past 2 years,

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Donna has had only three clients, corporations with which
there have been long-standing relationships. Donna
charges the corporations an hourly rate for services, send- 3. Employees of Exempt
ing monthly bills detailing the work performed for the prior
Organizations
month. The bills include charges for long-distance calls,
online research time, fax charges, photocopies, postage,
Many nonprofit organizations are exempt from federal in-
and travel, costs for which the corporations have agreed to
come tax. Although they don't have to pay federal income
reimburse Donna. Donna is an independent contractor.
tax themselves, they must still withhold federal income tax
from the pay of their employees. However, there are spe-
Taxicab Driver cial social security, Medicare, and FUTA tax rules that ap-
ply to the wages that they pay their employees.
Example. Tom Spruce rents a cab from Taft Cab Co.
for $150 per day. Tom pays the costs of maintaining and Section 501(c)(3) organizations. Nonprofit organiza-
operating the cab. Tom keeps all fares received from cus- tions that are exempt from federal income tax under sec-
tomers. Although Tom receives the benefit of Taft's tion 501(c)(3) of the Internal Revenue Code include any
two-way radio communication equipment, dispatcher, and community chest, fund, or foundation organized and oper-
advertising, these items benefit both Taft and Tom Spruce. ated exclusively for religious, charitable, scientific, testing
Tom is an independent contractor. for public safety, or literary or educational purposes; fos-
tering national or international amateur sports competi-
Salesperson tion; or the prevention of cruelty to children or animals.
These organizations are usually corporations and are ex-
To determine whether salespersons are employees under empt from federal income tax under section 501(a).
the usual common-law rules, you must evaluate each indi-
vidual case. If a salesperson who works for you doesn't Social security and Medicare taxes. Wages paid to
meet the tests for a common-law employee, discussed employees of section 501(c)(3) organizations are subject
earlier in this section, you don't have to withhold federal in- to social security and Medicare taxes unless one of the
come tax from their pay (see Statutory Employees in sec- following situations applies.
tion 1). However, even if a salesperson isn't an employee • The organization pays an employee less than $100 in
under the usual common-law rules for income tax with- a calendar year.
holding, their pay may still be subject to social security,
Medicare, and FUTA taxes as a statutory employee. • The organization is a church or church-controlled or-
ganization opposed for religious reasons to the pay-
To determine whether a salesperson is an employee for ment of social security and Medicare taxes and has
social security, Medicare, and FUTA tax purposes, the filed Form 8274 to elect exemption from social security
salesperson must meet all eight elements of the statutory and Medicare taxes. The organization must have filed
employee test. A salesperson is a statutory employee for for exemption before the first date on which a quarterly
social security, Medicare, and FUTA tax purposes if they: employment tax return (Form 941) or annual employ-
ment tax return (Form 944) would otherwise be due.
1. Work full time for one person or company except, pos-
sibly, for sideline sales activities on behalf of some An employee of a church or church-controlled organiza-
other person; tion that is exempt from social security and Medicare
taxes must pay self-employment tax if the employee is
2. Sell on behalf of, and turn their orders over to, the per- paid $108.28 or more in a year. However, an employee
son or company for which they work; who is a member of a qualified religious sect can apply for
3. Sell to wholesalers, retailers, contractors, or operators an exemption from the self-employment tax by filing Form
of hotels, restaurants, or similar establishments; 4029. See Members of recognized religious sects op-
posed to insurance in section 4.
4. Sell merchandise for resale, or supplies for use in the
customer's business; FUTA tax. An organization that is exempt from federal
income tax under section 501(c)(3) of the Internal Reve-
5. Agree to do substantially all of this work personally; nue Code is also exempt from FUTA tax. This exemption
6. Have no substantial investment in the facilities used to can't be waived. However, a section 501(c)(3) organiza-
do the work, other than in facilities for transportation; tion is subject to FUTA tax when paying wages to employ-
ees on behalf of a non-section 501(c)(3) organization (for
7. Maintain a continuing relationship with the person or example, a section 501(c)(3) organization paying wages to
company for which they work; and employees of a related non-section 501(c)(3) organiza-
8. Aren’t an employee under common-law rules. tion, a section 501(c)(3) organization that is a section
3504 agent paying wages on behalf of a non-section
501(c)(3) organization, a section 501(c)(3) organization
that is a common paymaster paying wages on behalf of a
non-section 501(c)(3) organization, etc.).

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An organization wholly owned by a state or its po- if the minister is your employee, you may agree with the
TIP litical subdivision should contact the appropriate minister to voluntarily withhold tax to cover the minister's
state official for information about reporting and liability for self-employment tax and federal income tax.
getting social security and Medicare coverage for its em- For more information, see Pub. 517.
ployees.
Form W-2. If your minister is an employee, report all
taxable compensation as wages in box 1 of Form W-2. In-
Other than section 501(c)(3) organizations. Nonprofit clude in this amount expense allowances or reimburse-
organizations that aren't section 501(c)(3) organizations ments paid under a nonaccountable plan, discussed in
may also be exempt from federal income tax under section section 5 of Pub. 15. Don't include a parsonage allowance
501(a) or section 521. However, these organizations aren't (excludable housing allowance) in this amount. You may
exempt from withholding federal income, social security, or report a designated parsonage or rental allowance (hous-
Medicare tax from their employees' pay, or from paying ing allowance) and a utilities allowance, or the rental value
FUTA tax. Two special rules for social security, Medicare, of housing provided in a separate statement or in box 14
and FUTA taxes apply. of Form W-2. Don't show on Form W-2, Form 941, or Form
1. If an employee is paid less than $100 during a calen- 944 any amount as social security or Medicare wages, or
dar year, their wages aren't subject to social security any withholding for social security or Medicare tax. If you
and Medicare taxes. withheld federal income tax from the minister under a vol-
untary agreement, this amount should be shown in box 2
2. If an employee is paid less than $50 in a calendar of Form W-2 as federal income tax withheld. For more in-
quarter, their wages aren't subject to FUTA tax for the formation on ministers, see Pub. 517.
quarter.
Exemptions for ministers and others. Certain or-
The above rules don't apply to employees who work for
dained ministers, Christian Science practitioners, and
pension plans and other similar organizations described in
members of religious orders who haven't taken a vow of
section 401(a).
poverty may apply to exempt their earnings from self-em-
Excise tax on excess executive compensation. Cer- ployment tax on religious grounds. The application must
tain tax-exempt organizations may be subject to an excise be based on conscientious opposition because of per-
tax on excess executive compensation. For more informa- sonal considerations to public insurance that makes pay-
tion, see the Instructions for Form 4720. ments in the event of death, disability, old age, or retire-
ment, or that makes payments toward the cost of, or
provides services for, medical care, including social secur-
ity and Medicare benefits. The exemption applies only to
4. Religious Exemptions and qualified services performed for the religious organization.
See Revenue Procedure 91-20, 1991-1 C.B. 524, for
Special Rules for Ministers guidelines to determine whether an organization is a reli-
gious order or whether an individual is a member of a reli-
Special rules apply to the treatment of ministers for social
gious order.
security and Medicare tax purposes. An exemption from
To apply for the exemption, the employee should file
social security and Medicare taxes is available for minis-
Form 4361. See Pub. 517 for more information about
ters and certain other religious workers and members of
claiming an exemption from self-employment tax using
certain recognized religious sects. For more information
Form 4361.
on getting an exemption, see Pub. 517.
Members of recognized religious sects opposed to
Ministers. Ministers are individuals who are duly or-
insurance. If you belong to a recognized religious sect or
dained, commissioned, or licensed by a religious body
to a division of such sect that is opposed to insurance, you
constituting a church or church denomination. They are
may qualify for an exemption from the self-employment
given the authority to conduct religious worship, perform
tax. To qualify, you must be conscientiously opposed to
sacerdotal functions, and administer ordinances and sac-
accepting the benefits of any public or private insurance
raments according to the prescribed tenets and practices
that makes payments because of death, disability, old
of that religious organization.
age, or retirement, or makes payments toward the cost of,
Ministers are employees if they perform services in the
or provides services for, medical care (including social se-
exercise of ministry and are subject to your will and con-
curity and Medicare benefits). If you buy a retirement an-
trol. The common-law rules discussed in section 1 and
nuity from an insurance company, you won't be eligible for
section 2 should be applied to determine whether a minis-
this exemption. Religious opposition based on the teach-
ter is your employee or is self-employed. Whether the min-
ings of the sect is the only legal basis for the exemption. In
ister is an employee or self-employed, the earnings of a
addition, your religious sect (or division) must have existed
minister aren't subject to federal income, social security,
since December 31, 1950.
and Medicare tax withholding. However, even if the minis-
ter is a common-law employee, the earnings as reported Self-employed. If you’re self-employed and a member
on the minister's Form 1040 or 1040-SR are subject to of a recognized religious sect opposed to insurance, you
self-employment tax and federal income tax. You don't
withhold these taxes from wages earned by a minister, but

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can apply for exemption by filing Form 4029 to waive all Employee Achievement Awards
social security and Medicare benefits.
Employees. The social security and Medicare tax ex- Don't withhold federal income, social security, or Medicare
emption available to the self-employed who are members tax on the fair market value of an employee achievement
of a recognized religious sect opposed to insurance is award if it is excludable from your employee's gross in-
also available to their employees who are members of come. To be excludable from your employee's gross in-
such a sect. This applies to partnerships only if each part- come, the award must be tangible personal property given
ner is a member of the sect. This exemption for employ- to an employee for length of service or safety achieve-
ees applies only if both the employee and the employer ment, awarded as part of a meaningful presentation, and
are members of such a sect, and the employer has an ex- awarded under circumstances that don't indicate that the
emption. To get the exemption, the employee must file payment is disguised compensation. Excludable em-
Form 4029. ployee achievement awards also aren't subject to FUTA
An employee of a church or church-controlled organiza- tax.
tion that is exempt from social security and Medicare The exclusion doesn’t apply to awards of cash, cash
taxes can also apply for an exemption on Form 4029. equivalents, gift cards, gift coupons, or gift certificates
(other than arrangements granting only the right to select
and receive tangible personal property from a limited as-
5. Wages and Other sortment of items preselected or preapproved by you).
The exclusion also doesn’t apply to vacations, meals,
Compensation lodging, tickets to theater or sporting events, stocks,
bonds, other securities, and other similar items.
Pub. 15 provides a general discussion of taxable wages.
Pub. 15-B discusses fringe benefits. The following topics Limits. The most that you can exclude for the cost of all
supplement those discussions. employee achievement awards to the same employee for
the year is $400. A higher limit of $1,600 applies to quali-
Relocating for Temporary Work fied plan awards. Qualified plan awards are employee
achievement awards under a written plan that doesn't dis-
Assignments criminate in favor of highly compensated employees. An
award can't be treated as a qualified plan award if the
If an employee is given a temporary work assignment average cost per recipient of all awards under all of your
away from their regular place of work, certain travel expen- qualified plans is more than $400.
ses reimbursed or paid directly by the employer in accord- If during the year an employee receives awards not
ance with an accountable plan (see section 5 of Pub. 15) made under a qualified plan and also receives awards un-
may be excludable from the employee’s wages. Generally, der a qualified plan, the exclusion for the total cost of all
a temporary work assignment in a single location is one awards to that employee can't be more than $1,600. The
that is realistically expected to last (and does in fact last) $400 and $1,600 limits can't be added together to exclude
for 1 year or less. If the employee’s new work assignment more than $1,600 for the cost of awards to any one em-
is indefinite, any living expenses reimbursed or paid by the ployee during the year.
employer (other than qualified moving expenses paid to a
member of the U.S. Armed Forces on active duty who
moves because of a permanent change of station due to a Scholarship and Fellowship Payments
military order) must be included in the employee’s wages
as compensation. For the travel expenses to be excluda- Only amounts that you pay as a qualified scholarship to a
ble: candidate for a degree may be excluded from the recipi-
ent's gross income. A qualified scholarship is any amount
• The new work location must be outside of the city or granted as a scholarship or fellowship that is used for:
general area of the employee’s regular workplace or
post of duty, • Tuition and fees required to enroll in, or to attend, an
educational institution; or
• The travel expenses must otherwise be allowed as a
deduction by the employee, and • Fees, books, supplies, and equipment that are re-
quired for courses at the educational institution.
• The expenses must be for the period during which the
employee is at the temporary work location. The exclusion from income doesn't apply to the portion
of any amount received that represents payment for teach-
If you reimburse or pay any personal expenses of an ing, research, or other services required as a condition of
employee during their temporary work assignment, such receiving the scholarship or tuition reduction. These
as expenses for home leave for family members or for va- amounts are reportable on Form W-2. However, the exclu-
cations, these amounts must be included in the employ- sion will still apply for any amount, despite any service
ee's wages. See chapter 1 of Pub. 463, Travel, Gift, and condition attached to the amount, received under the Na-
Car Expenses, and section 5 of Pub. 15 for more informa- tional Health Service Corps Scholarship Program; the
tion. These rules generally apply to temporary work as- Armed Forces Health Professions Scholarship and Finan-
signments both inside and outside the United States. cial Assistance Program; and a comprehensive student

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work-learning-service  program  operated  by  a  work  col-         Age Discrimination in Employment Act. See Pub. 957, Re-
lege, as defined in section 448(e) of the Higher Education          porting Back Pay and Special Wage Payments to the So-
Act of 1965.                                                        cial  Security  Administration,  and  Form  SSA-131,  Em-
                                                                    ployer Report of Special Wage Payments, for details.
Any amounts that you pay for room and board aren't ex-
cludable  from  the  recipient's  gross  income.  A  qualified 
scholarship isn't subject to social security, Medicare, and         Supplemental Unemployment 
FUTA taxes, or federal income tax withholding. For more             Compensation Benefits
information, see Pub. 970, Tax Benefits for Education.
                                                                    If  you  pay,  under  a  plan,  supplemental  unemployment 
Outplacement Services                                               compensation benefits to a former employee, all or part of 
                                                                    the  payments  may  be  taxable  and  subject  to  federal  in-
If you provide outplacement services to your employees to           come tax withholding, depending on how the plan is fun-
help them find new employment (such as career counsel-              ded. Amounts that represent a return to the employee of 
ing, resume assistance, or skills assessment), the value of         amounts previously subject to tax aren't taxable and aren't 
these benefits may be income to them and subject to all             subject  to  withholding.  You  should  withhold  federal  in-
withholding  taxes.  However,  the  value  of  these  services      come tax on the taxable part of the payments made, under 
won't be subject to any employment taxes if:                        a plan, to an employee who is involuntarily separated be-
                                                                    cause of a reduction in force, discontinuance of a plant or 
• You derive a substantial business benefit from provid-            operation,  or  other  similar  condition.  It  doesn't  matter 
  ing the services (such as improved employee morale                whether the separation is temporary or permanent.
  or business image) separate from the benefit that you 
  would receive from the mere payment of additional                  There  are  special  rules  that  apply  in  determining 
  compensation, and                                                 whether supplemental unemployment compensation ben-
• The employee would be able to deduct the cost of the              efits  are  excluded  from  wages  for  social  security,  Medi-
  services as employee business expenses if they had                care, and FUTA tax purposes. To be excluded from wages 
  paid for them.                                                    for  such  purposes,  the  benefits  must  meet  the  following 
                                                                    requirements.
However, if you receive no additional benefit from pro-
viding  the  services,  or  if  the  services  aren't  provided  on • Benefits are paid only to unemployed former employ-
                                                                      ees who are laid off by the employer.
the basis of employee need, then the value of the services 
is treated as wages and is subject to federal income tax            • Eligibility for benefits depends on meeting prescribed 
withholding and social security and Medicare taxes. Simi-             conditions after termination.
larly, if an employee receives the outplacement services in           The amount of weekly benefits payable is based upon 
                                                                    •
exchange  for  reduced  severance  pay  (or  other  taxable           state unemployment benefits, other compensation al-
compensation), then the amount the severance pay is re-               lowable under state law, and the amount of regular 
duced is treated as wages for employment tax purposes.                weekly pay.
                                                                    • The right to benefits doesn't accrue until a prescribed 
Withholding for Idle Time
                                                                      period after termination.
Payments made under a voluntary guarantee to employ-                • Benefits aren't attributable to the performance of par-
ees for idle time (any time during which an employee per-             ticular services.
forms  no  services)  are  wages  for  the  purposes  of  social 
security,  Medicare,  and  FUTA  taxes,  and  federal  income       • No employee has any right to the benefits until quali-
                                                                      fied and eligible to receive benefits.
tax withholding.
                                                                    • Benefits may not be paid in a lump sum.
Back Pay                                                             Withholding  on  taxable  supplemental  unemployment 
                                                                    compensation benefits must be based on the withholding 
Treat back pay as wages in the year paid and withhold and 
                                                                    certificate (Form W-4) that the employee gave to you.
pay employment taxes as required. If back pay was awar-
ded by a court or government agency to enforce a federal             For  more  information,  see  Revenue  Ruling  90-72, 
or state statute protecting an employee's right to employ-          1990-36 I.R.B. 13.
ment or wages, special rules apply for reporting those wa-
ges to the Social Security Administration. These rules also         Golden Parachute Payments
apply  to  litigation  actions  and  settlement  agreements  or 
agency  directives  that  are  resolved  out  of  court  and  not   A  golden  parachute  payment,  in  general,  is  a  payment 
under a court decree or order. Examples of pertinent stat-          made under a contract entered into by a corporation and 
utes include, but aren't limited to, the National Labor Rela-       key  personnel.  Under  the  agreement,  the  corporation 
tions  Act,  Fair  Labor  Standards  Act,  Equal  Pay  Act,  and    agrees to pay certain amounts to its key personnel in the 
                                                                    event of a change in ownership or control of the corpora-
                                                                    tion.  Payments  to  employees  under  golden  parachute 
                                                                    contracts  are  subject  to  social  security,  Medicare,  and 

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FUTA taxes, and federal income tax withholding. See Reg- paid and the interest that would be paid under the AFR is
ulations section 1.280G-1 for more information. considered additional compensation to the employee.
No deduction is allowed to the corporation for any ex- This rule applies to a loan of $10,000 or less if one of its
cess parachute payment. To determine the amount of the principal purposes is the avoidance of federal tax.
excess parachute payment, you must first determine if This additional compensation to the employee is sub-
there is a parachute payment for purposes of section ject to social security, Medicare, and FUTA taxes, but not
280G. A parachute payment for purposes of section 280G to federal income tax withholding. Include it in compensa-
is any payment that meets all of the following. tion on Form W-2 (or Form 1099-NEC for an independent
1. The payment is in the nature of compensation. contractor). The AFR is established monthly and pub-
lished by the IRS each month in the Internal Revenue Bul-
2. The payment is to, or for the benefit of, a disqualified letin. You can get these rates by going to IRS.gov and en-
individual. A disqualified individual is anyone who at tering “AFR” in the search box. For more information, see
any time during the 12-month period prior to, and end- section 7872 and its related regulations.
ing on, the date of the change in ownership or control
of the corporation (the disqualified individual determi-
Leave-Sharing Plans
nation period) was an employee or independent con-
tractor and was, in regard to that corporation, a share- If you establish a leave-sharing plan for your employees
holder, an officer, or a highly compensated individual. that allows them to transfer leave to other employees for
3. The payment is contingent on a change in ownership medical emergencies, the amounts paid to the recipients
of the corporation, the effective control of the corpora- of the leave are considered wages. These amounts are in-
tion, or the ownership of a substantial portion of the cludible in the gross income of the recipients and are sub-
assets of the corporation. ject to social security, Medicare, and FUTA taxes, and fed-
eral income tax withholding. Don't include these amounts
4. The payment has an aggregate present value of at in the wages of the transferors. These rules apply only to
least three times the individual's base amount. The leave-sharing plans that permit employees to transfer
base amount is the average annual compensation for leave to other employees for medical emergencies.
service includible in the individual's gross income over
the most recent 5 tax years. In addition, you may establish a leave-sharing plan that
allows your employees to deposit leave in an em-
An excess parachute payment amount is the excess of ployer-sponsored leave bank for use by other employees
any parachute payment over the base amount. For more who have been adversely affected by a major disaster.
information, see Regulations section 1.280G-1. The recip- Under such programs, the IRS won’t assert that a leave
ient of an excess parachute payment is subject to a 20% donor who deposits leave in the employer-sponsored
nondeductible excise tax. If the recipient is an employee, leave bank under a major disaster leave-sharing program
the 20% excise tax is to be withheld by the corporation. has income, wages, compensation, or rail wages for the
deposited leave if the plan treats the employer’s payments
Example. An officer of a corporation receives a golden to the leave recipient as wages or compensation for pur-
parachute payment of $400,000. This is more than three poses of the Federal Insurance Contributions Act (FICA),
times greater than their average compensation of the Federal Unemployment Tax Act (FUTA), the Railroad
$100,000 over the previous 5-year period. The excess Retirement Tax Act (RRTA), the Railroad Unemployment
parachute payment is $300,000 ($400,000 minus Repayment Tax (RURT), and federal income tax withhold-
$100,000). The corporation can't deduct the $300,000 ing, unless excluded by another provision of law. See No-
and must withhold the excise tax of $60,000 (20% of tice 2006-59, 2006-28 I.R.B. 60, available at IRS.gov/irb/
$300,000). 2006-28_IRB#NOT-2006-59, for what constitutes a major
Reporting golden parachute payments. Golden para- disaster and other rules.
chute payments to employees must be reported on Form
W-2. See the General Instructions for Forms W-2 and W-3 Nonqualified Deferred Compensation
for details. For nonemployee reporting of these payments, Plans
see the Instructions for Forms 1099-MISC and 1099-NEC.
Exempt payments. Payments by most small business Income Tax and Reporting
corporations and payments under certain qualified plans
Section 409A provides that all amounts deferred under a
are exempt from the golden parachute rules. See sections
nonqualified deferred compensation (NQDC) plan for all
280G(b)(5) and (6) for more information.
tax years are currently includible in gross income (to the
extent the amounts deferred are not subject to a substan-
Interest-Free and tial risk of forfeiture and not previously included in gross
Below-Market-Interest-Rate Loans income) and subject to additional taxes, unless certain re-
quirements are met pertaining to, among other things,
In general, if an employer lends an employee more than elections to defer compensation and distributions under
$10,000 at an interest rate less than the current applicable an NQDC plan. Section 409A also includes rules that
federal rate (AFR), the difference between the interest apply to certain trusts or similar arrangements associated

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with NQDC plans if the trusts or arrangements are located an employee may receive qualified stock (as defined in
outside the United States, are restricted to the provision of section 83(i)(2)) isn’t treated as an NQDC plan with re-
benefits in connection with a decline in the financial health spect to such employee solely because of such employ-
of the plan sponsor, or contributions are made to the trust ee’s election, or ability to make an election, to defer recog-
during certain periods such as when a qualified plan of the nition of income under section 83(i).
service recipient is underfunded. Employers must with-
hold federal income tax (but not the additional section Tax-Sheltered Annuities
409A taxes) on any amount includible in gross income un-
der section 409A. Income included under section 409A Employer payments made by a public educational institu-
from an NQDC plan must be reported on Form W-2 or on tion or a tax-exempt organization to purchase a tax-shel-
Form 1099-MISC or on Form 1099-NEC, whichever ap- tered annuity for an employee (annual deferrals) are inclu-
plies. Amounts deferred during the year under an NQDC ded in the employee's social security and Medicare wages
plan subject to section 409A may also be reported on the if the payments are made because of a salary reduction
Form W-2 or Form 1099-MISC, but this isn’t required. For agreement. However, they aren't included in box 1 of Form
more information, see the General Instructions for Forms W-2 in the year the deferrals are made and aren't subject
W-2 and W-3 and the Instructions for Forms 1099-MISC to federal income tax withholding. See Regulations sec-
and 1099-NEC. These reporting rules don't affect the ap- tion 31.3121(a)(5)-2 for the definition of a salary reduction
plication or reporting of social security, Medicare, or FUTA agreement.
tax.
The provisions don't prevent the inclusion of amounts in Contributions to a Simplified
income or wages under other provisions of the Internal Employee Pension (SEP)
Revenue Code or common-law principles, such as when
amounts are actually or constructively received or irrevo- An employer's SEP contributions to an employee's individ-
cably contributed to a separate fund. For more information ual retirement arrangement (IRA) are excluded from the
about NQDC plans, see Regulations sections 1.409A-1 employee's gross income. These excluded amounts aren't
through 1.409A-6. Notice 2008-113 provides guidance on subject to social security, Medicare, or FUTA tax, or fed-
the correction of certain operation failures of an NQDC eral income tax withholding. However, any SEP contribu-
plan. Notice 2008-113, 2008-51 I.R.B. 1305, is available tions paid under a salary reduction agreement (SARSEP)
at IRS.gov/irb/2008-51_IRB#NOT-2008-113. Also, see are included in wages for purposes of social security,
Notice 2010-6, 2010-3 I.R.B. 275, available at IRS.gov/irb/ Medicare, and FUTA taxes. See Pub. 560 for more infor-
2010-03_IRB#NOT-2010-6; and Notice 2010-80, 2010-51 mation about SEPs.
I.R.B. 853, available at IRS.gov/irb/ Salary reduction simplified employee pensions
2010-51_IRB#NOT-2010-80. (SARSEPs) repealed. You may not establish a SARSEP
after 1996. However, SARSEPs established before Janu-
Social security, Medicare, and FUTA taxes. Employer
ary 1, 1997, may continue to receive contributions.
contributions to NQDC plans, as defined in the applicable
regulations, are treated as wages subject to social secur-
ity, Medicare, and FUTA taxes when the services are per- SIMPLE Retirement Plans
formed or the employee no longer has a substantial risk of
forfeiting the right to the deferred compensation, which- Employer and employee contributions to a savings incen-
ever is later. tive match plan for employees (SIMPLE) retirement ac-
Amounts deferred are subject to social security, Medi- count (subject to limitations) are excludable from the em-
care, and FUTA taxes at that time unless the amount that ployee's income and are exempt from federal income tax
is deferred can't be reasonably ascertained, for example, withholding. An employer's nonelective (2%) or matching
if benefits are based on final pay. If the value of the future contributions are exempt from social security, Medicare,
benefit is based on any factors that aren't yet reasonably and FUTA taxes. However, an employee's salary reduction
ascertainable, you may choose to estimate the value of contributions to a SIMPLE retirement plan are subject to
the future benefit and withhold and pay social security, social security, Medicare, and FUTA taxes. For more infor-
Medicare, and FUTA taxes on that amount. You’ll have to mation about SIMPLE retirement plans, see Pub. 560.
determine later, when the amount is reasonably ascertain-
able, whether any additional taxes are required. If taxes
aren't paid before the amounts become reasonably ascer- 6. Sick Pay Reporting
tainable, when the amounts become reasonably ascer-
tainable they are subject to social security, Medicare, and Special rules apply to the reporting of sick pay payments
FUTA taxes on the amounts deferred plus the income at- to employees. How these payments are reported depends
tributable to those amounts deferred. For more informa- on whether the payments are made by the employer or a
tion, see Regulations sections 31.3121(v)(2)-1 and third party, such as an insurance company.
31.3306(r)(2)-1.
Sick pay is usually subject to social security, Medicare,
Section 83(i) election to defer income on equity and FUTA taxes. For exceptions, see Social Security,
grants (qualified stock). An arrangement under which Medicare, and FUTA Taxes on Sick Pay, later in this

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section. Sick pay may also be subject to either mandatory Example. Donald was injured in a car accident and
or voluntary federal income tax withholding, depending on lost an eye. Under a policy paid for by Donald's em-
who pays it. ployer, Delta Insurance Co. paid Donald $20,000 as
compensation for the loss of the eye. Because the
Sick Pay payment was determined by the type of injury and
was unrelated to Donald's absence from work, it isn't
Sick pay generally means any amount paid under a plan sick pay and isn't subject to federal employment
because of an employee's temporary absence from work taxes.
due to injury, sickness, or disability. It may be paid by ei-
ther the employer or a third party, such as an insurance Sick Pay Plan
company. Sick pay includes both short- and long-term
benefits. It is often expressed as a percentage of the em- A sick pay plan is a plan or system established by an em-
ployee's regular wages. ployer under which sick pay is available to employees
generally or to a class or classes of employees. This
doesn't include a situation in which benefits are provided
Payments That Aren't Sick Pay
on a discretionary or occasional basis with merely an in-
tention to aid particular employees in time of need.
Sick pay doesn't include the following payments.
You have a sick pay plan or system if the plan is in writ-
1. Disability retirement payments. Disability retire-
ing or is otherwise made known to employees, such as by
ment payments aren't sick pay and aren't discussed in
a bulletin board notice or your long and established prac-
this section. Those payments are subject to the rules
tice. Some indications that you have a sick pay plan or
for federal income tax withholding from pensions and
system include references to the plan or system in the
annuities. See section 8.
contract of employment, employer contributions to a plan,
2. Workers' compensation. Payments because of a or segregated accounts for the payment of benefits.
work-related injury or sickness that are made under a
workers' compensation law aren't sick pay and aren't Definition of employer. The “employer” for whom the
subject to employment taxes. But see Payments in the employee normally works, a term used in the following dis-
nature of workers' compensation—public employees cussion, is either the employer for whom the employee
next. was working at the time that the employee became sick or
disabled or the last employer for whom the employee
3. Payments in the nature of workers' compensa- worked before becoming sick or disabled, if that employer
tion—public employees. State and local govern- made contributions to the sick pay plan on behalf of the
ment employees, such as police officers and firefight- sick or disabled employee.
ers, sometimes receive payments due to an injury in
the line of duty under a statute that isn't the general Note. Contributions to a sick pay plan through a cafe-
workers' compensation law of a state. If the statute teria plan (by direct employer contributions or salary re-
limits benefits to work-related injuries or sickness and duction) are employer contributions unless they are af-
doesn't base payments on the employee's age, length ter-tax employee contributions (that is, included in taxable
of service, or prior contributions, the statute is “in the wages).
nature of” a workers' compensation law. Payments un-
der a statute in the nature of a workers' compensation
Third-Party Payers of Sick Pay
law aren't sick pay and aren't subject to employment
taxes. For more information, see Regulations section Employer's agent. An employer's agent is a third party
31.3121(a)(2)-1. that bears no insurance risk and is reimbursed on a
4. Medical expense payments. Payments under a defi- cost-plus-fee basis for payment of sick pay and similar
nite plan or system for medical and hospitalization ex- amounts. A third party may be your agent even if the third
penses, or for insurance covering these expenses, party is responsible for determining which employees are
aren't sick pay and aren't subject to employment eligible to receive payments. For example, if a third party
taxes. provides administrative services only, the third party is
your agent. If the third party is paid an insurance premium
5. Payments unrelated to absence from work. Acci- and isn't reimbursed on a cost-plus-fee basis, the third
dent or health insurance payments unrelated to ab- party isn't your agent. Whether an insurance company or
sence from work aren't sick pay and aren't subject to other third party is your agent depends on the terms of
employment taxes. These include payments for: their agreement with you.
a. Permanent loss of a member or function of the A third party that makes payments of sick pay as your
body, agent isn't considered the employer and generally has no
responsibility for employment taxes. This responsibility re-
b. Permanent loss of the use of a member or function mains with you. However, under an exception to this rule,
of the body, or the parties may enter into an agreement that makes the
c. Permanent disfigurement of the body. third-party agent responsible for employment taxes. In this
situation, the third-party agent should use its own name

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and employer identification number (EIN) (rather than your • The employee contributions to the sick pay plan made
name and EIN) for the responsibilities that it has assumed. with after-tax dollars.
The third party shouldn't rely on statements regarding
Third party not employer's agent. A third party that
these items made by the employee.
makes payments of sick pay other than as an agent of the
employer is liable for federal income tax withholding (if re-
quested by the employee) and the employee part of the Social Security, Medicare, and FUTA
social security and Medicare taxes. Taxes on Sick Pay
The third party is also liable for the employer part of
the social security and Medicare taxes, and the FUTA tax, Employer. If you pay sick pay to your employee, you
unless the third party transfers this liability to the employer must generally withhold employee social security and
for whom the employee normally works. This liability is Medicare taxes from the sick pay. You must timely deposit
transferred if the third party takes the following steps. employee and employer social security and Medicare
taxes, and FUTA tax. There are no special deposit rules
1. Withholds the employee part of social security and
for sick pay. See section 11 of Pub. 15 for more informa-
Medicare taxes from the sick pay payments.
tion on the deposit rules.
2. Makes timely deposits of the employee part of social
security and Medicare taxes. Amounts not subject to social security, Medicare, or
FUTA tax. The following payments, whether made by the
3. Notifies the employer for whom the employee nor- employer or a third party, aren't subject to social security,
mally works of the payments on which employee Medicare, or FUTA tax (different rules apply to federal in-
taxes were withheld and deposited. The third party come tax withholding).
must notify the employer within the time required for
the third party's deposit of the employee part of the • Payments after an employee's death or disability
social security and Medicare taxes. For instance, if retirement. Social security, Medicare, and FUTA
the third party is a monthly schedule depositor, it must taxes don't apply to amounts paid under a definite
notify the employer by the 15th day of the month fol- plan or system, as defined under Sick Pay Plan, earlier
lowing the month in which the sick pay payment is in this section, on or after the termination of the em-
made because that is the day by which the deposit is ployment relationship because of death or disability
required to be made. The third party should notify the retirement. However, even if there is a definite plan or
employer as soon as information on payments is avail- system, amounts paid to a former employee are sub-
able so that an employer can make electronic depos- ject to social security, Medicare, and FUTA taxes if
its timely. For multiemployer plans, see the special they would have been paid even if the employment re-
rule discussed next. lationship hadn't terminated because of death or disa-
bility retirement. For example, a payment to a disabled
Multiemployer plan timing rule. A special rule ap- former employee for unused vacation time would have
plies to sick pay payments made to employees by a been made whether or not the employee retired on
third-party insurer under an insurance contract with a mul- disability. Therefore, the payment is wages and is sub-
tiemployer plan established under a collectively bargained ject to social security, Medicare, and FUTA taxes.
agreement. If the third-party insurer making the payments
complies with steps 1 and 2, earlier, and gives the plan • Payments after calendar year of employee's
death. Sick pay paid to the employee's estate or sur-
(rather than the employer) the required timely notice de-
vivor after the calendar year of the employee's death
scribed in step 3, earlier, then the plan (not the third-party
isn't subject to social security, Medicare, or FUTA tax.
insurer) must pay the employer part of the social security
Also, see Amounts not subject to federal income tax
and Medicare taxes, and the FUTA tax. Similarly, if within
withholding, later in this section.
6 business days of the plan's receipt of notification, the
Example. Sandra became entitled to sick pay on
plan gives notice to the employer for whom the employee
November 20, 2023, and died on December 31, 2023.
normally works, the employer (not the plan) must pay the
On January 5, 2024, Sandra's sick pay for the period
employer part of the social security and Medicare taxes,
from December 24 through December 31, 2023, was
and the FUTA tax.
paid to Sandra's surviving spouse. The payment isn't
Reliance on information supplied by the employer. A subject to social security, Medicare, or FUTA tax.
third party that pays sick pay should request information • Payments to an employee entitled to disability in-
from the employer to determine amounts that aren't sub- surance benefits. Payments to an employee when
ject to employment taxes. Unless the third party has rea- the employee is entitled to disability insurance benefits
son not to believe the information, it may rely on that infor- under section 223(a) of the Social Security Act aren't
mation for the following items. subject to social security and Medicare taxes. This
• The total wages paid to the employee during the cal- rule applies only if the employee became entitled to
endar year. the Social Security Act benefits before the calendar
year in which the payments are made, and the em-
• The last month in which the employee worked for the ployee performs no services for the employer during
employer.

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the period for which the payments are made. However, policy's cost and its employees paid 30%. Because
these payments are subject to FUTA tax. 70% of the sick pay paid under the policy is due to
Edgewood's contributions, $1,400 ($2,000 × 70%) of
• Payments that exceed the applicable wage base.
each payment made to Alan is taxable sick pay. The
Social security and FUTA taxes don't apply to pay-
remaining $600 of each payment that is due to em-
ments of sick pay that, when combined with the regu-
ployee contributions isn't taxable sick pay and isn't
lar wages and sick pay previously paid to the em-
subject to employment taxes. Also, see Example of
ployee during the year, exceed the applicable wage
Figuring and Reporting Sick Pay, later in this section.
base. Because there is no Medicare tax wage base,
this exception doesn't apply to Medicare tax. For
2024, the social security tax wage base is $168,600 Income Tax Withholding on Sick Pay
and the FUTA tax wage base is $7,000.
Example. If an employee receives $161,600 in wa- The requirements for federal income tax withholding on
ges from an employer in 2024 and also receives sick pay and the methods for figuring it differ depending
$10,000 of sick pay, only the first $7,000 ($168,600 – on whether the sick pay is paid by:
$161,600) of the sick pay is subject to social security • The employer,
tax. All of the sick pay is subject to Medicare tax. None
of the sick pay is subject to FUTA tax. See Example of • An agent of the employer (defined earlier in this sec-
tion), or
Figuring and Reporting Sick Pay, later in this section.
• Payments after 6 months absence from work. So- • A third party that isn't the employer's agent.

cial security, Medicare, and FUTA taxes don't apply to Employer or employer's agent. Sick pay paid by you or
sick pay paid more than 6 calendar months after the your agent is subject to mandatory federal income tax
last calendar month in which the employee worked. withholding. An employer or agent paying sick pay gener-
Example 1. Ralph's last day of work before becom- ally determines the federal income tax to be withheld
ing entitled to receive sick pay was December 8, 2023. based on the employee's Form W-4. The employee can't
Ralph was paid sick pay for 9 months before returning choose how much federal income tax will be withheld by
to work on September 13, 2024. Sick pay paid to giving you or your agent a Form W-4S. Sick pay paid by
Ralph after June 30, 2024, isn't subject to social se- an agent is treated as supplemental wages. If the agent
curity, Medicare, or FUTA tax. doesn't pay regular wages to the employee, the agent may
Example 2. The facts are the same as in Exam- choose to withhold federal income tax at a flat 22% rate,
ple 1, except that Ralph worked 1 day during the rather than at the wage withholding rate. See section 7 of
9-month period on February 9, 2024. Because the Pub. 15 for guidance on withholding employment taxes
6-month period begins again in March, only the sick from supplemental wages, including the rules for withhold-
pay paid to Ralph after August 31, 2024, is exempt ing federal income tax when wages to an individual ex-
from social security, Medicare, and FUTA taxes. ceed $1 million during the year.
• Payments attributable to employee contributions.
Social security, Medicare, and FUTA taxes don't apply Third party not an agent. Sick pay paid by a third party
to payments, or parts of payments, attributable to em- that isn't your agent isn't subject to mandatory federal in-
ployee contributions to a sick pay plan made with af- come tax withholding. However, an employee may elect to
ter-tax dollars. Contributions to a sick pay plan made have federal income tax withheld by submitting Form
on behalf of employees with employees' pre-tax dol- W-4S to the third party.
lars under a cafeteria plan are employer contribu- If Form W-4S has been submitted, the third party
tions. should withhold federal income tax on all payments of sick
Group policy. If both the employer and the em- pay made 8 or more days after receiving the form. The
ployee contributed to the sick pay plan under a group third party may, at its option, withhold federal income tax
insurance policy, figure the taxable sick pay by multi- before 8 days have passed.
plying total sick pay by the percentage of the policy's The employee may request on Form W-4S to have a
cost that was contributed by the employer for the 3 specific whole dollar amount withheld. However, if the re-
policy years before the calendar year in which the sick quested withholding would reduce any net payment below
pay is paid. If the policy has been in effect fewer than 3 $10, the third party shouldn't withhold any federal income
years, use the cost for the policy years in effect or, if in tax from that payment. The minimum amount of withhold-
effect less than 1 year, a reasonable estimate of the ing that the employee can specify is $4 per day, $20 per
cost for the first policy year. week, or $88 per month based on the payroll period.
Example. Alan is employed by Edgewood Corpora- Withhold from all payments at the same rate whether
tion. Because of an illness, Alan was absent from work full or partial payments. For example, if $25 is withheld
for 3 months during 2024. Key Insurance Company from a regular full payment of $100, then $20 (25%)
paid Alan $2,000 sick pay for each month of absence should be withheld from a partial payment of $80.
under a policy paid for by contributions from both
Amounts not subject to federal income tax withhold-
Edgewood and its employees. All of the employees'
ing. The following amounts, whether paid by you or a
contributions were paid with after-tax dollars. For the 3
policy years before 2024, Edgewood paid 70% of the

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third party, aren't wages and aren't subject to federal in- Box 5—The amount of sick pay subject to employee
come tax withholding. Medicare tax.
• Payments after the employee's death. Sick pay Box 6—The amount of employee Medicare tax (includ-
paid to the employee's estate or survivor at any time ing Additional Medicare Tax, if applicable) withheld
after the employee's death isn't subject to federal in- from the sick pay.
come tax withholding, regardless of who pays it.
Box 12 (code J)—Any sick pay that was paid by a
• Payments attributable to employee contributions. third-party and wasn't includible in income (and not
Payments, or parts of payments, attributable to em- shown in boxes 1, 3, and 5) because the employee
ployee contributions made to a sick pay plan with af- contributed to the sick pay plan. Don't include nontax-
ter-tax dollars aren't subject to federal income tax able disability payments made directly to a state.
withholding. For more information, see the corre-
Box 13—Check the “Third-party sick pay” box only if
sponding discussion under Amounts not subject to so-
the amounts were paid by a third party.
cial security, Medicare, or FUTA tax, earlier in this sec-
tion.
Sick Pay Paid by Third Party

Depositing and Reporting The depositing and reporting rules for a third party that
isn't your agent depend on whether liability has been
This section discusses who is liable for depositing social transferred as discussed under Third party not employer's
security, Medicare, FUTA, and withheld federal income agent, earlier in this section.
taxes on sick pay. These taxes must be deposited under
the same rules that apply to deposits of taxes on regular To figure the due dates and amounts of its deposits of
wage payments. See Pub. 15 for information on the de- employment taxes, a third party should combine:
posit rules.
• The liability for the wages paid to its own employees,
This section also explains how sick pay should be re- and
ported on Forms W-2, W-3, 940, and 941 (or Form 944).
• The liability for payments it made to all employees of
all its clients. This doesn't include any liability transfer-
Sick Pay Paid by Employer or Agent red to the employer.

If you or your agent (defined earlier in this section) makes Liability not transferred to the employer. If the third
sick pay payments, you deposit taxes and file Forms W-2, party doesn't satisfy the requirements for transferring lia-
W-3, 940, and 941 (or Form 944) under the same rules bility for FUTA tax and the employer part of the social se-
that apply to regular wage payments. curity and Medicare taxes, the third party reports the sick
However, any agreement between the parties may re- pay on its own Form 940 and Form 941 (or Form 944). In
quire your agent to carry out responsibilities that would this situation, the employer has no tax responsibilities for
otherwise have been borne by you. In this situation, your sick pay.
agent should use its own name and EIN (rather than The third party must deposit social security, Medicare,
yours) for the responsibilities that it has assumed. FUTA, and withheld federal income taxes using its own
name and EIN. The third party must give each employee
Reporting sick pay on Form W-2. You may either com- to whom it paid sick pay a Form W-2 by January 31 of the
bine the sick pay with other wages and prepare a single following year. The Form W-2 must include the third par-
Form W-2 for each employee, or you may prepare sepa- ty's name, address, and EIN instead of the employer infor-
rate Forms W-2 for each employee, one reporting sick pay mation.
and the other reporting regular wages. A Form W-2 must
be prepared even if all of the sick pay is nontaxable (see Liability transferred to the employer. Generally, if a
Box 12 below). All Forms W-2 must be given to the em- third party satisfies the requirements for transferring liabil-
ployees by January 31. ity for the employer part of the social security and Medi-
The Form W-2 filed for the sick pay must include the care taxes and for the FUTA tax, the following rules apply.
employer's name, address, and EIN; the employee's Deposits. The third party must make deposits of with-
name, address, and social security number (SSN); and held employee social security and Medicare taxes and
the following information. withheld federal income tax using its own name and EIN.
Box 1—The amount of sick pay the employee must in- You must make deposits of the employer part of the so-
clude in income. cial security and Medicare taxes and the FUTA tax using
your name and EIN. In applying the deposit rules, your lia-
Box 2—The amount of any federal income tax withheld bility for these taxes begins when you receive the third
from the sick pay. party's notice of sick pay payments.
Box 3—The amount of sick pay subject to employee Form 941 or Form 944. The third party and you must
social security tax. each file Form 941 or Form 944. The discussion that fol-
Box 4—The amount of employee social security tax lows only explains how to report sick pay on Form 941. If
withheld from the sick pay. you file Form 944, use the lines on that form that

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correspond to the lines on Form 941 that are discussed Third parties that are agents with respect to the pay-
here. ment of sick pay (because they have no insurance risk)
Form 941, line 8, must contain a special adjusting entry are required to report sick pay on Form 8922 only if the
for social security and Medicare taxes. These entries are agency agreement between the employer and the agent
required because the total tax liability for social security imposes the following requirements.
and Medicare taxes (employee and employer parts) is The agreement must require the agent to:
split between you and the third party.
• Withhold and pay the employee part of social security
• Employer. You must include third-party sick pay on tax and Medicare tax and income tax withholding on
Form 941, lines 2, 5a, 5c, and 5d (if applicable). There the sick pay, and
should be no sick pay entry on line 3 because the third
• Report the withheld amounts on Form 941 using the
party withheld federal income tax, if any. After com-
agent’s name and EIN.
pleting line 6, subtract on line 8 the employee part of
social security and Medicare taxes withheld and de- The agreement must require the employer to:
posited by the third party. • Pay and report the employer part of social security
• Third party. The third party must include on Form 941 tax and Medicare tax on a Form 941 using the em-
the employee part of the social security and Medicare ployer's name and EIN and report the sick pay on
taxes (and federal income tax, if any) it withheld. The Form W-2.
third party doesn't include on line 2 any sick pay paid Optional rule for Form W-2. You and the third party
as a third party but does include on line 3 any federal may choose to enter into a legally binding agreement des-
income tax withheld. On line 5a, column 1, the third ignating the third party to be your agent for purposes of
party enters the total amount it paid subject to social preparing Forms W-2 reporting sick pay. The agreement
security taxes. This amount includes both wages paid must specify what part, if any, of the payments under the
to its own employees and sick pay paid as a third sick pay plan is excludable from the employees' gross in-
party. The third party completes lines 5c and 5d (if ap- comes because it is attributable to their contributions to
plicable), column 1, in a similar manner. On line 8, the the plan. If you enter into an agreement, the third party
third party subtracts the employer part of the social prepares the actual Forms W-2, not Form 8922 as dis-
security and Medicare taxes that you must pay. cussed above, for each employee who receives sick pay
Form 940. You, not the third party, must prepare Form from the third party. If the optional rule is used:
940 for sick pay. • The third party doesn't provide you with the sick pay
Form 8922, Third-Party Sick Pay Recap. The third statement described next, and
party (or in certain cases, the employer) must file Form • You (not the third party) files Form 8922. Form 8922 is
8922 to report sick pay paid by a third party for or on be- needed to reconcile the sick pay shown on your Forms
half of employers for whom services are normally per- 941 or Form 944.
formed. Form 8922 doesn't show the names of individuals
who received the third-party sick pay, but the total Sick pay statement. The third party must furnish you
amounts paid in the calendar year to all employees whose with a sick pay statement by January 15 of the year follow-
sick pay wages are required to be reported on Form 8922. ing the year in which the sick pay was paid. The statement
Third-party sick pay is reported on Form 8922 if the lia- must show the following information about each employee
bility for the employer part of social security tax and Med- who was paid sick pay.
icare tax has been shifted by the third party or insurer pay- • The employee's name.
ing the sick pay to the employer for whom services are
normally rendered. Whether the third party or employer re- • The employee's SSN (if social security, Medicare, or
income tax was withheld).
ports the sick pay on Form 8922 depends on which entity
is filing Forms W-2 reporting the sick pay paid to individual • The sick pay paid to the employee.
employees receiving the sick pay. The third party reports Any federal income tax withheld.
•
the sick pay on Form 8922 if the employer is filing Forms
W-2 reporting the third-party sick pay under the name and • Any employee part of social security tax withheld.
EIN of the employer. However, if the third party is filing • Any employee part of Medicare tax withheld.
Forms W-2 with respect to the sick pay under the name
and EIN of the third party, the employer files Form 8922 re-
porting the sick pay. Example of Figuring and Reporting
If the third party is paying all employment taxes, includ- Sick Pay
ing the employer part of social security tax and Medicare
tax, with respect to the sick pay, the third party files Forms Note. The following example is for wages paid in 2023.
W-2 using its name and EIN as employer with respect to Dave, an employee of Edgewood Corporation, was se-
the sick pay for each employee receiving sick pay and re- riously injured in a car accident on January 1, 2023. Da-
ports social security and Medicare taxes and federal in- ve's last day of work was December 31, 2022. The acci-
come tax withholding on its Form 941. Neither the third dent wasn't job related.
party nor the employer reports the sick pay on Form 8922.

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Key, an insurance company that wasn't an agent of the social security, Medicare, and FUTA taxes on any pay-
employer, paid Dave $2,000 sick pay each month for 10 ments that constituted taxable wages. However, Key could
months, beginning in January 2023. Dave submitted a have shifted the liability for the employer part of the social
Form W-4S to Key, requesting $210 be withheld from each security and Medicare taxes (and for the FUTA tax) during
payment for federal income tax. Dave received no pay- the first 6 months by withholding Dave's part of the social
ments from Edgewood from January 2023 through Octo- security and Medicare taxes, timely depositing the taxes,
ber 2023. Dave returned to work on November 1, 2023. and notifying Edgewood of the payments.
For the policy year in which the car accident occurred, If Key shifted liability for the employer part of the social
Dave paid a part of the premiums for coverage, and Edge- security and Medicare taxes to Edgewood and provided
wood paid the remaining part. The plan was, therefore, a Edgewood with a sick pay statement, Key wouldn't pre-
“contributory plan.” During the 3 policy years before the pare a Form W-2 for Dave. However, Key would file Form
calendar year of the accident, Edgewood paid 70% of the 8922. Key and Edgewood must each prepare Forms 941.
total of the net premiums for its employees' insurance cov- Edgewood must also report the sick pay and withholding
erage, and its employees paid 30%. for Dave on Forms W-2, W-3, and 940.
As an alternative, the parties could have followed the
Social security and Medicare taxes. For social se- optional rule described under Optional rule for Form W-2,
curity and Medicare tax purposes, taxable sick pay was earlier in this section. Under this rule, Key would prepare
$8,400 ($2,000 per month × 70% (0.70) = $1,400 taxable Form W-2 even though liability for the employer part of
portion per payment; $1,400 × 6 months = $8,400 total the social security and Medicare taxes had been shifted to
taxable sick pay). Only the six $2,000 checks received by Edgewood. Also, Key wouldn't prepare a sick pay state-
Dave from January through June are included in the cal- ment, and Edgewood, not Key, would file Form 8922 re-
culation. The check received by Dave in July (the seventh flecting the sick pay shown on Edgewood's Forms 941.
check) was received more than 6 months after the month
in which Dave last worked. Liability not transferred. If Key didn't shift liability for
Of each $2,000 payment Dave received, 30% ($600) the employer part of the social security and Medicare
isn't subject to social security and Medicare taxes be- taxes to Edgewood, Key would prepare Forms W-2 and
cause the plan is contributory and Dave's after-tax contri- W-3 as well as Forms 941 and 940. In this situation, Edge-
bution is considered to be 30% of the premiums during the wood wouldn't report the sick pay.
3 policy years before the calendar year of the accident. Payments received after 6 months. The payments
FUTA tax. Of the $8,400 taxable sick pay (figured the received by Dave in July through October aren't subject to
same as for social security and Medicare taxes), only social security, Medicare, or FUTA tax because they were
$7,000 is subject to the FUTA tax because the FUTA tax received more than 6 months after the last month in which
contribution base is $7,000. Dave worked (December 2022). However, Key must con-
tinue to withhold federal income tax from each payment
Federal income tax withholding. Of each $2,000 because Dave furnished Key with a Form W-4S. Also, Key
payment, $1,400 ($2,000 × 70% (0.70)) is subject to vol- must prepare Forms W-2 and W-3, unless it has furnished
untary federal income tax withholding. In accordance with Edgewood with a sick pay statement. If the sick pay state-
Dave's Form W-4S, $210 was withheld from each pay- ment was furnished, then Edgewood must prepare Forms
ment. W-2 and W-3.
Liability transferred. For the first 6 months following
the last month in which Dave worked, Key was liable for

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             THIRD-PARTY SICK PAY—NOT AS AN AGENT AND LIABILITY TRANSFERRED TO EMPLOYER
                                                          Employer Responsibilities                                          Third-Party Responsibilities
Withhold Employee Taxes
 Income                                               No                                                                  Yes, if Form W-4S is submitted
 Social Security                                      No                                                                  Yes
 Medicare                                             No                                                                  Yes
Deposit Employee Taxes
 Income                                               No                                                                  Yes — Using Third Party EIN
 Social Security                                      No                                                                  Yes — Using Third Party EIN
 Medicare                                             No                                                                  Yes — Using Third Party EIN
Deposit Employer Taxes
 Social Security                                      Yes — Using Employer EIN                                            No
 Medicare                                             Yes — Using Employer EIN                                            No
 FUTA                                                 Yes — Using Employer EIN                                            No
Report Employee Wages and Taxes on Form 941
 Income                                               Report Taxable Wages                                                Report Tax Withheld
 Social Security                                      Report Taxable Wages*                                               Report Taxable Wages*
 Medicare                                             Report Taxable Wages*                                               Report Taxable Wages*
                                                      * Adjustment on line 8 for employee taxes deposited by third party. * Adjustment on line 8 for employer taxes deposited by employer.
Report Employee Wages and Taxes on Form W-21
 Income                                               Yes                                                                 No — File Form 8922
 Social Security                                      Yes                                                                 No — File Form 8922
 Medicare                                             Yes                                                                 No — File Form 8922
1 See the instructions earlier if operating under the optional rule for form W-2.

                                                                                 tax reportable on Form 940 unless the employer is a home 
                                                                                 care  service  recipient  receiving  home  care  services 
7. Special Rules for Paying                                                      through a program administered by a federal, state, or lo-
                                                                                 cal government agency.
Taxes
                                                                                 Agents filing an aggregate Form 940 must file Sched-
                                                                                 ule  R  (Form  940).  Agents  filing  an  aggregate  Form  941 
Common Paymaster
                                                                                 must file Schedule R (Form 941).
If two or more related corporations employ the same indi-
vidual at the same time and pay this individual through a                        Reporting Agents
common  paymaster  that  is  one  of  the  corporations,  the 
corporations are considered to be a single employer. They                        Electronic filing of Forms 940, 941, and 944.                          Report-
have to pay, in total, no more in social security tax than a                     ing  agents  may  file  Forms  940,  941,  and  944  electroni-
single employer would pay.                                                       cally. For details, see Pub. 3112, IRS                      e-file Application & 
                                                                                 Participation. For information on electronic filing of Forms 
 Each corporation must pay its own part of the employ-                           940,  941,  and  944,  see  Revenue  Procedure  2007-40, 
ment taxes and may deduct only its own part of the wa-                           2007-26  I.R.B.                          1488, available      at       IRS.gov/irb/
ges. The deductions won't be allowed unless the corpora-                         2007-26_IRB#RP-2007-40. For more information on elec-
tion reimburses the common paymaster for the wage and                            tronic  filing,  go  to                     IRS.gov/EmploymentEfile  or  call 
tax  payments.  See  Regulations  section  31.3121(s)-1  for                     866-255-0654.
more information. The common paymaster is responsible 
for  filing  information  and  tax  returns  and  issuing  Forms                         For more information on third-party payer arrange-
W-2 with respect to wages it is considered to have paid as                       TIP     ments,  including  agents  with  an  approved  Form 
a common paymaster.                                                                      2678, reporting agents, and certified professional 
                                                                                 employer organizations, see section 16 of Pub. 15.
Agent With an Approved Form 2678
                                                                                 Employee's Portion of Taxes Paid by 
Employers and payers must use Form 2678 to request ap-
                                                                                 Employer
proval  for  an  agent  to  file  returns  and  make  deposits  or 
payments of their employment or other withholding taxes.                                 The  information  provided  in  this  section  doesn't 
See  Revenue  Procedure  2013-39,  2013-52  I.R.B.  830,                         !       take  into  account  an  employer  that  chooses  to 
available at IRS.gov/irb/2013-52_IRB#RP-2013-39; Reve-                           CAUTION pay the Additional Medicare Tax on behalf of the 
nue Procedure 84-33, 1984-1 C.B. 502; and the General                            employee.
Instructions  for  Forms  W-2  and  W-3  for  procedures  and 
reporting requirements. Form 2678 doesn't apply to FUTA 

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If you pay your employee's social security and Medi- to the first $168,600 of wages (stated pay plus em-
care taxes without deducting them from the employee's ployer-paid employee taxes). Enter $168,600 in box 3 of
pay, you must include the amount of the payments in the Form W-2. The social security tax to enter in box 4 is
employee's wages for federal income tax withholding and $10,453.20 ($168,600 x 0.062).
social security, Medicare, and FUTA taxes. This increase To figure the correct Medicare wages to enter in box 5
in the employee's wages for your payment of the employ- of Form W-2, subtract $155,702.10 from the stated pay.
ee's social security and Medicare taxes is also subject to Divide the result by 0.9855 (1.0 − 0.0145) and add
employee social security and Medicare taxes. This again $168,600.
increases the amount of the additional taxes you must For example, if stated pay is $160,000, the correct
pay. Medicare wages are figured as follows.
To figure the employee's increased wages in this situa- $160,000 – $155,702.10 = $4,297.90
tion, divide the stated pay (the amount that you pay with- $4,297.90 ÷ 0.9855 = $4,361.14
out taking into account your payment of employee social
security and Medicare taxes) by a factor for that year. This $4,361.14 + $168,600 = $172,961.14
factor is determined by subtracting from 1.0 the combined The Medicare wages are $172,961.14. Enter this
employee social security and Medicare tax rate for the amount in box 5 of Form W-2. The Medicare tax to enter in
year that the wages are paid. For 2024, the factor is box 6 is $2,507.94 ($172,961.14 × 0.0145).
0.9235 (1.0 − 0.0765). If the stated pay is more than Although these employment tax amounts aren't actually
$155,702.10 (2024 wage base $168,600 × 0.9235), follow withheld from the employee's pay, report them as withheld
the procedure described under Stated pay of more than on Forms 941, and pay this amount as the employer's
$155,702.10 in 2024 below. share of the social security and Medicare taxes. If the wa-
ges for federal income tax withholding purposes in the
Stated pay of $155,702.10 or less in 2024. For an em- preceding example are the same as for social security and
ployee with stated pay of $155,702.10 or less in 2024, fig- Medicare tax purposes, the correct wage amount for fed-
ure the correct wages (wages plus employer-paid em- eral income tax withholding is $172,961.14 ($160,000 +
ployee taxes) to report by dividing the stated pay by $10,453.20 + $2,507.94), which is included in box 1 of
0.9235. This will give you the wages to report in box 1 and Form W-2.
the social security and Medicare wages to report in boxes
3 and 5 of Form W-2. Household and agricultural employees. The discus-
On Form W-2, to figure the correct social security tax to sion above doesn't apply to household and agricultural
enter in box 4, multiply the amount in box 3 by the social employers. If you pay a household or agricultural employ-
security withholding rate of 6.2% and enter the result in ee's social security and Medicare taxes, these payments
box 4. To figure the correct Medicare tax to enter in box 6, must be included in the employee's wages. However, this
multiply the amount in box 5 by the Medicare withholding wage increase due to the tax payments made for the em-
rate of 1.45% and enter the result in box 6. ployee isn't subject to social security or Medicare tax as
discussed in this section.
Example. Donald Devon hires Lydia Lone for only 1
week during 2024. Donald pays Lydia $500 for that week. Tax deposits and Form 941 or Form 944. If you pay
Donald agrees to pay Lydia's part of the social security your employee's portion of their social security and Medi-
and Medicare taxes. To figure Lydia’s reportable wages, care taxes rather than deducting them from their pay,
Donald divides $500 by 0.9235. The result, $541.42, is you’re liable for timely depositing or paying the increased
the amount that is reported as wages in boxes 1, 3, and 5 taxes associated with the wage increase. Also, report the
of Form W-2. To figure the amount to report as social se- increased wages on the appropriate lines of Form 941 for
curity tax, Donald multiplies $541.42 by the social security the quarter during which the wages were paid or on Form
tax rate of 6.2% (0.062). The result, $33.57, is entered in 944 for the year during which the wages were paid.
box 4 of Form W-2. To figure the amount to report as Med-
icare tax, Donald multiplies $541.42 by the Medicare tax International Social Security
rate of 1.45% (0.0145). The result, $7.85, is entered in
box 6 of Form W-2. Although Donald didn't actually with- Agreements
hold the amounts from Lydia, Donald will report these
The United States has social security agreements, also
amounts as taxes withheld on Form 941 or Form 944 and
known as totalization agreements, with many countries
is responsible for the employer share of these taxes.
that eliminate dual social security coverage and taxation.
For FUTA tax and federal income tax withholding, Ly-
Under these agreements, employees must generally pay
dia's weekly wages are $541.42.
social security taxes only to the country where they work.
Stated pay of more than $155,702.10 in 2024. For an Employees and employers who are subject to foreign so-
employee with stated pay of more than $155,702.10 in cial security taxes under these agreements are potentially
2024, the portion of stated wages subject to social secur- exempt from U.S. social security taxes, including the Medi-
ity tax is $155,702.10 (the first $168,600 of wages × care portion. For more information, go to SSA.gov/
0.9235). The stated pay in excess of $155,702.10 isn't international, or see Pub. 519, U.S. Tax Guide for Aliens.
subject to social security tax because the tax only applies

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The payee’s Form W-4P stays in effect until they
change or revoke it. You must notify payees each year of
8. Federal Income Tax their right to choose not to have federal income tax with-
held or to change their previous choice.
Withholding on Retirement

Payments and Annuities Nonperiodic Payments—10% Default
Withholding Rate
Generally, federal income tax withholding applies to the
taxable part of payments made from pension, profit-shar- Form W-4R is used to request withholding on nonperiodic
ing, stock bonus, annuity, certain deferred compensation payments. Distributions from an IRA that are payable on
plans, IRAs, and commercial annuities. Don't withhold in- demand are treated as nonperiodic payments. Although
come taxes from amounts totally exempt from tax. If part Form W-4R was available for use in 2022, the IRS post-
of a distribution is taxable and part is nontaxable, withhold poned the requirement to begin using the new form until
income taxes only on the part subject to tax when known. January 1, 2023. Payers should have updated their sys-
The method and rate of withholding depends on (a) the tem programming for this form in 2022.
kind of payment; (b) whether the payments are to be deliv-
ered outside the United States and its territories; and (c) Withholding on nonperiodic payments using a 2021
whether the payee is a nonresident alien individual, a non- or earlier Form W-4P. You must withhold at a flat 10%
resident alien beneficiary, or a foreign estate. Qualified rate from nonperiodic payments (but see Eligible Rollover
distributions from Roth IRAs and Roth 401(k) plans are Distribution—20% Default Withholding Rate, later) unless
nontaxable and, therefore, not subject to withholding. See the payee chose not to have income tax withheld (if per-
Payments Outside the United States and Payments to For- mitted). A payee could've chosen not to have income tax
eign Persons, later in this section, for special withholding withheld from a nonperiodic payment by submitting a
rules that apply to payments outside the United States 2021 or earlier Form W-4P (containing their correct SSN)
and payments to foreign persons. and checking the box on line 1. Generally, the choice not
to have federal income tax withheld applies to any later
Federal income tax must be withheld from eligible roll- payment from the same plan. A payee couldn't use line 2
over distributions. See Eligible Rollover Distribution—20% for nonperiodic payments; they may have used line 3 to
Default Withholding Rate, later in this section. specify an additional amount that they wanted withheld.
If a payee submitted a Form W-4P that didn't contain
Periodic Payments their correct SSN, you can’t honor their request not to
have income tax withheld and you must withhold 10% of
Periodic payments are those made in installments at regu- the payment for federal income tax
lar intervals over a period of more than 1 year. They may
be paid annually, quarterly, monthly, etc. Withholding from Withholding on nonperiodic payments using a 2022
periodic payments of a pension or annuity is generally fig- or later Form W-4R. The default withholding rate is 10%,
ured in the same manner as withholding from wages. but Form W-4R allows a payee to choose a different rate
Form W-4P is used to request withholding on periodic of withholding by entering a rate between 0% and 100%
payments. Form W-4P was redesigned for 2022. Although on Form W-4R, line 2. However, the payee can't choose a
the final redesigned Form W-4P was available for use in rate of less than 10% for payments to be delivered outside
2022, the IRS postponed the requirement to begin using the United States and its territories. If a payee submits a
the redesigned form until January 1, 2023. Payers should Form W-4R that doesn't contain their correct SSN, you
have updated their system programming for this form in can't honor their request to have income tax withheld at a
2022. See Pub. 15-T for more information on how to with- rate of less than 10% and you must withhold 10% of the
hold on periodic payments. payment for federal income tax.

Consider advising payees to use the IRS Tax
Eligible Rollover Distribution—20%
TIP Withholding Estimator, available at IRS.gov/
W4App, when completing Form W-4P if they have Default Withholding Rate
social security, dividend, capital gain, or business income;
are subject to the Additional Medicare Tax or Net Invest- Form W-4R is used to request withholding on eligible roll-
ment Income Tax; or receive these payments or pension over distributions. Eligible rollover distributions include
and annuity payments for only part of the year. distributions from eligible retirement plans (other than
IRAs), such as qualified plans, section 401(k) plans, sec-
tion 457(b) plans maintained by a governmental employer,
There are some kinds of periodic payments for which
section 403(a) annuity plans, or section 403(b) tax-shel-
the payee can't use Form W-4P because they are already
tered annuities that are eligible to be rolled over tax free to
defined as wages subject to federal income tax withhold-
an IRA or another eligible retirement plan. Although the
ing. These include retirement pay for service in the U.S.
Form W-4R was available for use in 2022, the IRS post-
Armed Forces and payments from certain NQDC plans
poned the requirement to begin using the new form until
and deferred compensation plans of exempt organizations
January 1, 2023. Payers should have updated their sys-
described in section 457.
tem programming for this form in 2022.

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Withholding on eligible rollover distributions using a Statement of Income Tax Withheld
2021 or earlier Form W-4P. Eligible rollover distributions
are subject to a flat 20% withholding rate. The 20% with- By January 31 of the next year, you must furnish a state-
holding rate is required and a payee can't choose to have ment on Form 1099-R, Distributions From Pensions, An-
less federal income tax withheld from eligible rollover dis- nuities, Retirement or Profit-Sharing Plans, IRAs, Insur-
tributions. A payee that wanted an additional amount with- ance Contracts, etc., showing the total amount of the
held would've requested the additional amount on line 3 of payee's pension or annuity payments and the total federal
a 2021 or earlier Form W-4P. income tax you withheld during the prior year. Report in-
come tax withheld on Form 945, Annual Return of With-
Withholding on eligible rollover distributions using a
held Federal Income Tax, not on Forms 941 or Form 944.
2022 or later Form W-4R. The default withholding rate is
20%, but Form W-4R allows a payee to choose a rate of If the payee is a foreign person who has provided you
withholding that is greater than 20% on Form W-4R, line 2. with Form W-8BEN, you must instead furnish a statement
However, the payee can’t choose a rate of less than 20%. to the payee on Form 1042-S, Foreign Person's U.S.
Source Income Subject to Withholding, by March 15 for
Exceptions. Distributions that are (a) qualifying “hard- the prior year. Report federal income tax withheld on Form
ship” distributions; and (b) distributions required by federal 1042, Annual Withholding Tax Return for U.S. Source In-
law, such as required minimum distributions, aren't subject come of Foreign Persons.
to the mandatory 20% federal income tax withholding.
See Pub. 505 for details. Also, see Nonperiodic Pay-
ments—10% Default Withholding Rate, earlier. You Substitute Submissions of Form
shouldn’t withhold federal income tax if the entire distribu- W-4R
tion is transferred in a direct rollover to a traditional IRA or
another eligible retirement plan. General requirements for any system set up to electroni-
cally receive a Form W-4R are discussed earlier under
Electronic submission of Forms W-4R, W-4S, and W-4V.
Payments Outside the United States
This section provides specific requirements for substitute
and Payments to Foreign Persons submissions of Form W-4R. For payers using electronic or
paper substitutes for Form W-4R, substitute forms for the
Generally, if a payee is a U.S. citizen or a resident alien,
2024 Form W-4R incorporating all changes made to the
the payee can't choose not to have federal income tax
2024 Form W-4R and complying with the guidelines provi-
withheld on periodic payments (or choose a rate of less
ded here must be in use by the later of January 1, 2024, or
than 10% for nonperiodic payments) to be delivered out-
30 days after the IRS releases the final version of the 2024
side the United States and its territories.
Form W-4R.
Don't use Form W-4P or Form W-4R for payments to
nonresident aliens, nonresident alien beneficiaries, or for- Electronic Substitute to Form W-4R
eign estates. In the absence of a treaty exemption, non-
resident aliens, nonresident alien beneficiaries, and for- There are several specific requirements for electronic sys-
eign estates are generally subject to a 30% withholding tems set up as a substitute to paper Forms W-4R that are
tax under section 1441 on the taxable portion of a periodic in addition to those described earlier under Electronic
or nonperiodic pension or annuity payment that is from submission of Forms W-4R, W-4S, and W-4V. Electronic
U.S. sources. However, many tax treaties provide that pri- systems must exactly replicate the text from the face of the
vate pensions and annuities are exempt from withholding paper Form W-4R between lines 1 and 2, with the excep-
and tax. Also, payments from certain pension plans are tion that electronic systems that are being used exclu-
exempt from withholding even if no tax treaty applies. See sively for nonperiodic payments may omit the second bul-
Pub. 515 and Pub. 519. A foreign person should submit let, and systems that are being used exclusively for
Form W-8BEN, Certificate of Foreign Status of Beneficial eligible rollover distributions may omit the first bullet. Elec-
Owner for United States Tax Withholding and Reporting tronic systems must also exactly replicate the text on line 2
(Individuals), to you before receiving any payments. The and the 2024 Marginal Rate Tables (inclusive of all related
Form W-8BEN must contain the foreign person's taxpayer text above and within the tables) as they appear after the
identification number (TIN) to support a withholding ex- paper Form W-4R. An electronic substitute to Form W-4R
emption. A TIN for this purpose means a U.S. TIN (SSN or can provide a link to a web page with the 2024 Marginal
individual taxpayer identification number (ITIN)). However, Rate Tables, inclusive of all related text on the first page of
for a claim based on a tax treaty, a foreign TIN may be the W-4R starting with the text “2024 Marginal Rate Ta-
substituted for a U.S. TIN. bles,” as well as the applicable Specific Instructions, start-
Special rules may apply to nonresident aliens who relin- ing with “Suggestion for determining withholding,” rather
quished U.S. citizenship or ceased to be long-term resi- than providing the tables (and related first page text)
dents of the United States after June 16, 2008. For more themselves, but the link must be immediately below line 2
information, see section 5 of Notice 2009-85, 2009-45 on the electronic substitute form and be preceded by the
I.R.B. 598, available at IRS.gov/irb/ following text: “The link below will take you to the 2024
2009-45_IRB#NOT-2009-85. Also, see Form W-8CE, Marginal Rate Tables. You may use these tables to help
Notice of Expatriation and Waiver of Treaty Benefits. you select the appropriate withholding rate for this

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payment or distribution. Instructions on how to best use to electronic substitutes to Form W-4R, except where
them are included.” those guidelines apply only in the context of electronic
substitutes (for example, instructions concerning pop-ups
No pop-ups or hoverboxes are permitted, and if the and hoverboxes). Paper substitute forms must include the
electronic system has toggles for those steps that limit the instructions for Form W-4R and the 2024 Marginal Rate
amount of text that is viewable, the toggles must be off as Tables rather than providing a web address to the instruc-
the default. If the electronic system places steps on differ- tions on IRS.gov.
ent pages, users must be required to go to each page be-
fore they may electronically sign the form. The electronic
system must also include a hyperlink to Form W-4R on
How To Get Tax Help
IRS.gov or include the General and Specific instructions in
their entirety in the electronic system interface itself (that If you have questions about a tax issue; need help prepar-
is, inclusion of only some of this information requires a link ing your tax return; or want to download free publications,
to the form). Specific references on Form W-4R to forms, or instructions, go to IRS.gov to find resources that
“page 2” of Form W-4R should be linked to where the in- can help you right away.
formation is located.
Preparing and filing your tax return. Go to IRS.gov/
Requiring an SSN and other personal information al- EmploymentEfile for more information on filing your em-
ready stored in payer's electronic system. If you elec- ployment tax returns electronically.
tronically store payee personal information, including
name, address, and SSN, and accept withholding elec- Getting answers to your tax questions. On
tions through an account specifically tied to the payee, you IRS.gov, you can get up-to-date information on
need not require the payee to submit this personal infor- current events and changes in tax law.
mation again when completing an electronic substitute, as • IRS.gov/Help: A variety of tools to help you get an-
long as the account where the election is being made is swers to some of the most common tax questions.
directly or indirectly linked to the electronically stored per-
sonal information. • IRS.gov/Forms: Find forms, instructions, and publica-
tions. You will find details on the most recent tax
Telephonic submissions of Form W-4R. Payers may changes and interactive links to help you find answers
provide for telephonic submissions of Form W-4R. Use to your questions.
one of the following three scripts below depending on the • You may also be able to access tax information in your
situation of the payee. e-filing software.
Nonperiodic distributions to be made to payees
within the United States and its territories. "The de- Need someone to prepare your tax return? There are
fault withholding rate is 10%. You can choose to have a various types of tax return preparers, including enrolled
different rate—including any rate from zero to 100%. You agents, certified public accountants (CPAs), accountants,
can also go to Form W-4R, found online at IRS.gov/ and many others who don’t have professional credentials.
FormW4R, for further instructions and a rate table that If you choose to have someone prepare your tax return,
helps you choose a rate that is appropriate for your tax sit- choose that preparer wisely. A paid tax preparer is:
uation."
• Primarily responsible for the overall substantive accu-
Nonperiodic distributions to be made to payees racy of your return,
outside the United States and its territories. "The de-
fault withholding rate is 10%. You can choose to have a • Required to sign the return, and
different rate, but you generally can't choose a rate of less • Required to include their preparer tax identification
than 10% for payments to be delivered outside the United number (PTIN).
States and its territories. You can also go to Form W-4R,
Although the tax preparer always signs the return,
found online at IRS.gov/FormW4R, for further instructions
you're ultimately responsible for providing all the
and a rate table that helps you choose a rate that is appro- CAUTION!
information required for the preparer to accurately
priate for your tax situation."
prepare your return and for the accuracy of every item re-
Eligible rollover distrubtions. "The default withhold- ported on the return. Anyone paid to prepare tax returns
ing rate is 20%. You can choose a rate greater than 20%, for others should have a thorough understanding of tax
but you may not choose a lower rate. You can also go to matters. For more information on how to choose a tax pre-
Form W-4R, found online at IRS.gov/FormW4R, for further parer, go to Tips for Choosing a Tax Preparer on IRS.gov.
instructions and a rate table that helps you choose a rate
that is appropriate for your tax situation."
Employers can register to use Business Services On-
Paper Substitute to Form W-4R line. The Social Security Administration (SSA) offers on-
line service at SSA.gov/employer for fast, free, and secure
W-2 filing options to CPAs, accountants, enrolled agents,
When providing paper substitute forms for Form W-4R,
you should generally follow the same guidelines that apply

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and individuals who process Form W-2 and Form W-2c, Get a transcript of your return. You can get a copy of
Corrected Wage and Tax Statement. your tax transcript or a copy of your return by calling
800-829-4933 or by mailing Form 4506-T (transcript re-
IRS social media. Go to IRS.gov/SocialMedia to see the quest) or Form 4506 (copy of return) to the IRS.
various social media tools the IRS uses to share the latest
information on tax changes, scam alerts, initiatives, prod- Reporting and resolving your tax-related identity
ucts, and services. At the IRS, privacy and security are our theft issues.
highest priority. We use these tools to share public infor-
• Tax-related identity theft happens when someone
mation with you. Don’t post your social security number
steals your personal information to commit tax fraud.
(SSN) or other confidential information on social media
Your taxes can be affected if your EIN is used to file a
sites. Always protect your identity when using any social
fraudulent return or to claim a refund or credit.
networking site.
The following IRS YouTube channels provide short, in- • The IRS doesn’t initiate contact with taxpayers by
formative videos on various tax-related topics in English, email, text messages (including shortened links), tele-
Spanish, and ASL. phone calls, or social media channels to request or
verify personal or financial information. This includes
• Youtube.com/irsvideos.
requests for personal identification numbers (PINs),
• Youtube.com/irsvideosmultilingua. passwords, or similar information for credit cards,
banks, or other financial accounts.
• Youtube.com/irsvideosASL.
• Go to IRS.gov/IdentityTheft, the IRS Identity Theft
Watching IRS videos. The IRS Video portal Central webpage, for information on identity theft and
(IRSVideos.gov) contains video and audio presentations data security protection for taxpayers, tax professio-
for individuals, small businesses, and tax professionals. nals, and businesses. If your EIN has been lost or sto-
len or you suspect you’re a victim of tax-related iden-
Online tax information in other languages. You can
tity theft, you can learn what steps you should take.
find information on IRS.gov/MyLanguage if English isn’t
your native language. Making a tax payment. Payments of U.S. tax must be
remitted to the IRS in U.S. dollars. Digital assets are not
Free Over-the-Phone Interpreter (OPI) Service. The
accepted. Go to IRS.gov/Payments for information on how
IRS is committed to serving taxpayers with limited-English
to make a payment using any of the following options.
proficiency (LEP) by offering OPI services. The OPI Serv-
ice is a federally funded program and is available at Tax- • Debit Card, Credit Card, or Digital Wallet: Choose an
payer Assistance Centers (TACs), most IRS offices, and approved payment processor to pay online or by
every VITA/TCE tax return site. The OPI Service is acces- phone.
sible in more than 350 languages. • Electronic Funds Withdrawal: Schedule a payment
when filing your federal taxes using tax return prepara-
Accessibility Helpline available for taxpayers with
tion software or through a tax professional.
disabilities. Taxpayers who need information about ac-
cessibility services can call 833-690-0598. The Accessi- • Electronic Federal Tax Payment System: Best option
bility Helpline can answer questions related to current and for businesses. Enrollment is required.
future accessibility products and services available in al- Check or Money Order: Mail your payment to the ad-
•
ternative media formats (for example, braille, large print, dress listed on the notice or instructions.
audio, etc.). The Accessibility Helpline doesn’t have ac-
cess to your IRS account. For help with tax law, refunds, or • Cash: You may be able to pay your taxes with cash at
account-related issues, go to IRS.gov/LetUsHelp. a participating retail store.
• Same-Day Wire: You may be able to do same-day
Disasters. Go to IRS.gov/DisasterRelief to review the
wire from your financial institution. Contact your finan-
available disaster tax relief.
cial institution for availability, cost, and time frames.
Getting tax forms and publications. Go to IRS.gov/
Note. The IRS uses the latest encryption technology to
Forms to view, download, or print most of the forms, in-
ensure that the electronic payments you make online, by
structions, and publications you may need. Or, you can go
phone, or from a mobile device using the IRS2Go app are
to IRS.gov/OrderForms to place an order.
safe and secure. Paying electronically is quick, easy, and
Getting tax publications and instructions in eBook faster than mailing in a check or money order.
format. Download and view most tax publications and in-
What if I can’t pay now? Go to IRS.gov/Payments for
structions (including Pub. 15-A) on mobile devices as
more information about your options.
eBooks at IRS.gov/eBooks.
IRS eBooks have been tested using Apple's iBooks for • Apply for an online payment agreement IRS.gov/ (
iPad. Our eBooks haven’t been tested on other dedicated OPA) to meet your tax obligation in monthly install-
eBook readers, and eBook functionality may not operate ments if you can’t pay your taxes in full today. Once
as intended.

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you complete the online process, you will receive im- TaxpayerAdvocate.IRS.gov to help you understand what
mediate notification of whether your agreement has these rights mean to you and how they apply. These are
been approved. your rights. Know them. Use them.
• Use the Offer in Compromise Pre-Qualifier to see if
you can settle your tax debt for less than the full What Can TAS Do for You?
amount you owe. For more information on the Offer in
TAS can help you resolve problems that you can’t resolve
Compromise program, go to IRS.gov/OIC.
with the IRS. And their service is free. If you qualify for
Understanding an IRS notice or letter you’ve re- their assistance, you will be assigned to one advocate
ceived. Go to IRS.gov/Notices to find additional informa- who will work with you throughout the process and will do
tion about responding to an IRS notice or letter. everything possible to resolve your issue. TAS can help
you if:
Responding to an IRS notice or letter. You can now
• Your problem is causing financial difficulty for you,
upload responses to all notices and letters using the
your family, or your business;
Document Upload Tool. For notices that require additional
action, taxpayers will be redirected appropriately on • You face (or your business is facing) an immediate
IRS.gov to take further action. To learn more about the threat of adverse action; or
tool, go to IRS.gov/Upload. • You’ve tried repeatedly to contact the IRS but no one
has responded, or the IRS hasn’t responded by the
Contacting your local TAC. Keep in mind, many ques-
date promised.
tions can be answered on IRS.gov without visiting a TAC.
Go to IRS.gov/LetUsHelp for the topics people ask about
most. If you still need help, TACs provide tax help when a How Can You Reach TAS?
tax issue can’t be handled online or by phone. All TACs
TAS has offices in every state, the District of Columbia,
now provide service by appointment, so you’ll know in ad-
and Puerto Rico. To find your advocate’s number:
vance that you can get the service you need without long
wait times. Before you visit, go to IRS.gov/TACLocator to • Go to TaxpayerAdvocate.IRS.gov/Contact-Us;
find the nearest TAC and to check hours, available serv- • Download Pub. 1546, The Taxpayer Advocate Service
ices, and appointment options. Or, on the IRS2Go app, Is Your Voice at the IRS, available at IRS.gov/pub/irs-
under the Stay Connected tab, choose the Contact Us op- pdf/p1546.pdf;
tion and click on “Local Offices.”
• Call the IRS toll free at 800-TAX-FORM
(800-829-3676) to order a copy of Pub. 1546;
The Taxpayer Advocate Service (TAS)
Is Here To Help You • Check your local directory; or
• Call TAS toll free at 877-777-4778.
What Is TAS?
TAS is an independent organization within the IRS that How Else Does TAS Help Taxpayers?
helps taxpayers and protects taxpayer rights. TAS strives
to ensure that every taxpayer is treated fairly and that you TAS works to resolve large-scale problems that affect
know and understand your rights under the Taxpayer Bill many taxpayers. If you know of one of these broad issues,
of Rights. report it to TAS at IRS.gov/SAMS. Be sure to not include
any personal taxpayer information.
How Can You Learn About Your Taxpayer
Rights?

The Taxpayer Bill of Rights describes 10 basic rights that
all taxpayers have when dealing with the IRS. Go to

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                      To help us develop a more useful index, please let us know if you have ideas for index entries.
Index                 See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.
 
                                   Employee's taxes paid by employer   21 Nonqualified plans 13
A                                  Employees:
Additional Medicare Tax  18          Common-law rules  6                  O
Agents, reporting  21                Industry examples 7                  Officer of corporation 4
Agricultural workers  5              Statutory 5                          Outplacement services   12
Annuity payments    23             Employees defined   4
Assistance (See Tax help)          Employees misclassification   6        P
Awards, employee achievement    11 Excessive termination payments (golden 
                                     parachute)  12                       Pension payments   23
                                   Exempt organizations   9               Periodic payments  23
B                                                                         Publications (See Tax help)
Back pay 12                        F
Below-market rate loans  13                                               R
                                   Fellowship payments    11
                                   Form 8922 19                           Real estate agents 6
C                                  Form W-2, electronic filing 3          Religious exemptions   10
Common paymaster      21           Form W-4P   1 23,                      Reporting agents  21
Common-law employees     4         Form W-4R   1 23, 
Common-law rules    6                                                     S
Corporate officers  4              G                                      Scholarship payments   11
                                   Golden parachute    12                 Sick pay 14
D                                                                         SIMPLE retirement plans        14
Deferred compensation plans,       I                                      Simplified employee pension      14
  nonqualified   13                                                       Statutory employees  5
Direct sellers 5                   Idle time 12
                                                                          Statutory nonemployees   5
Director of corporation 4          Independent contractors  4
                                                                          Substitute Form W-4R   24
                                   Interest-free loans 13
                                                                          Supplemental unemployment benefits             12
E                                  International social security 
                                     agreements  22
Electronic Form W-2   3                                                   T
Electronic Forms W-4 and W-4P   2  L                                      Tax help 25
Electronic Forms W-4R, W-4S, and                                          Tax-exempt organizations       9
  W-4V 2                           Leave sharing plans 13
Eligible rollover distributions 23 Loans, interest-free or below-market   Tax-sheltered annuities 14
                                     rate 13                              Technical service specialists    6
Employee achievement awards     11                                        Third-party sick pay 18
Employee or contractor:                                                   Third-party sick pay recap     19
  Attorney 8                       M
  Automobile industry 8            Ministers 10
  Building industry 7              Misclassification of employees  6      W
  Computer industry  8                                                    Withholding:
  Salesperson  9                   N                                       Idle time payments  12
                                                                           Sick pay 17
  Taxicab driver 9                 Nonperiodic payments   23
  Trucking industry 8

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