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            Department of the Treasury                   Contents
            Internal Revenue Service
                                                         What's New    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1
                                                         Reminders    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
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 2023                                          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
                                                         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 Annu-
                                                         ity  Payments)  was  redesigned  for  2022.  The  new  Form 
                                                         W-4P is now used only to make withholding elections for 
                                                         periodic  pension  or  annuity  payments.  Previously,  Form 
                                                         W-4P  was  also  used  to  make  withholding  elections  for 
                                                         nonperiodic  payments  and  eligible  rollover  distributions. 
                                                         Withholding elections for nonperiodic payments and eligi-
                                                         ble  rollover  distributions  are  now  made  on  Form  W-4R, 
                                                         Withholding Certificate for Nonperiodic Payments and Eli-
                                                         gible  Rollover  Distributions.  Although  the  redesigned 
                                                         Form W-4P and new Form W-4R were available for use in 
                                                         2022, the IRS postponed the requirement to begin using 
                                                         the new forms until January 1, 2023. Payers should have 
                                                         updated  their  system  programming  for  these  forms  in 
                                                         2022. See    section 8 for more information about withhold-
                                                         ing on retirement payments and annuities. See Pub. 15-T 
                                                         to figure withholding on periodic pension and annuity pay-
                                                         ments.
                                                         Social security and Medicare tax for 2023.                    The rate of 
Get forms and other information faster and easier at:    social  security  tax  on  taxable  wages,  including  qualified 
• IRS.gov (English)    • IRS.gov/Korean (한국어)            sick leave wages and qualified family leave wages paid in 
• IRS.gov/Spanish (Español)  • IRS.gov/Russian (Pусский) 2023 for leave taken after March 31, 2021, and before Oc-
• IRS.gov/Chinese (中文) • IRS.gov/Vietnamese (Tiếng Việt) 
                                                         tober  1,  2021,  is  6.2%  each  for  the  employer  and 

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employee, or 12.4% for both. Qualified sick leave wages should be withheld from these payments. See Pub. 907,
and qualified family leave wages paid in 2023 for leave Tax Highlights for Persons With Disabilities, and Pub.
taken after March 31, 2020, and before April 1, 2021, 3920, Tax Relief for Victims of Terrorist Attacks.
aren't subject to the employer share of social security tax; Federal tax deposits must be made by electronic
therefore, the tax rate on these wages is 6.2%. The social funds transfer (EFT). You must use EFT to make all
security wage base limit is $160,200. federal tax deposits. Generally, an EFT is made using the
The Medicare tax rate is 1.45% each for the employee Electronic Federal Tax Payment System (EFTPS). If you
and employer, unchanged from 2022. There is no wage don't want to use EFTPS, you can arrange for your tax
base limit for Medicare tax. professional, financial institution, payroll service, or other
Social security and Medicare taxes apply to the wages trusted third party to make electronic deposits on your be-
of household workers you pay $2,600 or more in cash wa- half. Also, you may arrange for your financial institution to
ges in 2023. Social security and Medicare taxes apply to initiate a same-day wire payment on your behalf. EFTPS
election workers who are paid $2,200 or more in cash or is a free service provided by the Department of the Treas-
an equivalent form of compensation in 2023. ury. Services provided by your tax professional, financial
institution, payroll service, or other third party may have a
fee.
For more information on making federal tax deposits,
Reminders see How To Deposit in Pub. 15. To get more information
2023 withholding tables. The discussion on the alterna- about EFTPS or to enroll in EFTPS, go to EFTPS.gov or
tive methods for figuring federal income tax withholding call 800-555-4477. To contact EFTPS using Telecommu-
and the Tables for Withholding on Distributions of Indian nications Relay Services (TRS) for people who are deaf,
Gaming Profits to Tribal Members are no longer included hard of hearing, or have a speech disability, dial 711 and
in Pub.15-A. This information is now included in Pub. 15-T then provide the TRS assistant the 800-555-4477 number
with the Percentage Method and Wage Bracket Method above or 800-733-4829. Additional information about
withholding tables. However, the IRS is no longer provid- EFTPS is also available in Pub. 966.
ing the Formula Tables for Percentage Method Withhold- Electronic filing and payment. Businesses can enjoy
ing (for Automated Payroll Systems); Wage Bracket Per- the benefits of filing and paying their federal taxes elec-
centage Method Tables (for Automated Payroll Systems); tronically. Whether you rely on a tax professional or han-
or the Combined Federal Income Tax, Employee Social dle your own taxes, the IRS offers you convenient pro-
Security Tax, and Employee Medicare Tax Withholding grams to make filing and payment easier.
Tables. Spend less time worrying about taxes and more time
Form 1099-NEC. Use Form 1099-NEC, Nonemployee running your business. Use e-file and EFTPS to your ben-
Compensation, to report nonemployee compensation efit.
paid in 2022. For e-file, go to IRS.gov/EmploymentEfile for addi-
•
Disaster tax relief. Disaster tax relief is available for tional information. A fee may be charged to file elec-
those impacted by disasters. For more information about tronically.
disaster relief, go to IRS.gov/DisasterTaxRelief.
• For EFTPS, go to EFTPS.gov or call 800-555-4477.
Moving expense reimbursements. Section 11048 of To contact EFTPS using TRS for people who are
P.L. 115-97, Tax Cuts and Jobs Act, suspends the exclu- deaf, hard of hearing, or have a speech disability, dial
sion for qualified moving expense reimbursements from 711 and then provide the TRS assistant the
your employee’s income for tax years beginning after 800-555-4477 number above or 800-733-4829.
2017 and before 2026. However, the exclusion is still
available in the case of a member of the U.S. Armed • For electronic filing of Forms W-2, Wage and Tax
Forces on active duty who moves because of a perma- Statement, go to SSA.gov/employer. You may be re-
nent change of station due to a military order. The exclu- quired to file Forms W-2 electronically. For details,
sion applies only to reimbursement of moving expenses see the General Instructions for Forms W-2 and W-3.
that the member could deduct if they had paid or incurred Electronic submission of Forms W-4 and W-4P. You
them without reimbursement. See Moving Expenses in may also set up a system to electronically receive Forms
Pub. 3, Armed Forces’ Tax Guide, for the definition of W-4 and W-4P from an employee or payee. See Pub.
what constitutes a permanent change of station and to 15-T for electronic submission requirements for Forms
learn which moving expenses are deductible. W-4 and W-4P.
No federal income tax withholding on disability pay- Electronic submission of Forms W-4R, W-4S, and
ments for injuries incurred as a direct result of a ter- W-4V. You may also set up a system to electronically re-
rorist attack directed against the United States. Disa- ceive any or all of the following forms (and their Spanish
bility payments (including Social Security Disability versions, if available) from an employee or payee.
Insurance (SSDI) payments) for injuries incurred as a di-
rect result of a terrorist attack directed against the United • Form W-4R, Withholding Certificate for Nonperiodic
States (or its allies) aren't included in income. Because Payments and Eligible Rollover Distributions.
federal income tax withholding is only required when a • Form W-4S, Request for Federal Income Tax With-
payment is includible in income, no federal income tax holding From Sick Pay.

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• Form W-4V, Voluntary Withholding Request. conspicuous statement of each requirement to your em-
For each form that you establish an electronic submis- ployees.
sion system for, you must meet each of the following five • The employee must be informed that they will receive
requirements. a paper Form W-2 if consent isn't given to receive it
1. The electronic system must ensure that the informa- electronically.
tion received by you is the information sent by the em- • The employee must be informed of the scope and du-
ployee or payee. The system must document all oc- ration of the consent.
casions of user access that result in a submission. In
• The employee must be informed of any procedure for
addition, the design and operation of the electronic
obtaining a paper copy of their Form W-2 and whether
system, including access procedures, must make it
or not the request for a paper statement is treated as a
reasonably certain that the person accessing the sys-
withdrawal of their consent to receiving their Form
tem and submitting the form is the person identified
W-2 electronically.
on the form.
• The employee must be notified about how to withdraw
2. The electronic system must provide exactly the same a consent and the effective date and manner by which
information as the paper form. 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 • The employee must be informed of any procedures for
form was submitted by the named employee or updating their contact information that enables the
payee. The hard copy of the electronic form must pro- employer to provide electronic Forms W-2.
vide exactly the same information as, but need not be
a facsimile of, the paper form. • The employer must notify the employee of any
changes to the employer's contact information.
5. You must also meet all recordkeeping requirements
You must furnish electronic Forms W-2 by the same
that apply to the paper forms.
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 Pub. 5146 explains employment tax examinations
more information on electronic submissions for Forms and appeal rights. Pub. 5146 provides employers with
W-4S and W-4V, see Announcement 99-6. You can find information on how the IRS selects employment tax re-
Announcement 99-6 on page 24 of Internal Revenue Bul- turns to be examined, what happens during an exam, and
letin 1999-4 at IRS.gov/pub/irs-irbs/irb99-04.pdf. 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.
IRS.gov/EmploymentTaxes for additional employment tax 5146 also includes information on worker classification is-
information. sues and tip exams.
Telephone help. You can call the IRS Business and Photographs of missing children. The IRS is a proud
Specialty 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
consent (either electronically or by paper document) to re- Introduction
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

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to withhold on periodic pension or annuity payments, Ta- person performing the services. The person performing
bles for Withholding on Distributions of Indian Gaming the services may be:
Profits to Tribal Members, and a discussion on the alter-
• An independent contractor,
native methods for figuring federal income tax withhold-
ing. • A common-law employee,
Comments and suggestions. We welcome your com- • A statutory employee, or
ments about this publication and your suggestions for fu- • A statutory nonemployee.
ture editions.
This discussion explains these four categories. A later
You can send us comments through IRS.gov/
discussion, Employee or Independent Contractor in sec-
FormComments.
tion 2, points out the differences between an independent
Or, you can write to:
contractor and an employee and gives examples from var-
Internal Revenue Service ious types of occupations.
Tax Forms and Publications If an individual who works for you isn't an employee un-
1111 Constitution Ave. NW, IR-6526 der the common-law rules (see section 2), you generally
Washington, DC 20224 don't have to withhold federal income tax from that individ-
ual's pay. However, in some cases you may be required to
Although we can’t respond individually to each com- withhold under the backup withholding requirements on
ment received, we do appreciate your feedback and will these payments. See Pub. 15 for information on backup
consider your comments as we revise our tax forms, in- withholding.
structions, and publications. Don’t send tax questions, tax
returns, or payments to the above address.
Independent Contractors
Getting answers to your tax questions. If you have
a tax question not answered by this publication, check People such as doctors, veterinarians, and auctioneers
IRS.gov and How To Get Tax Help at the end of this publi- who work in an independent trade, business, or profes-
cation. sion in which they offer their services to the public, are
generally not employees. However, whether such people
Getting tax forms, instructions, and publications.
are employees or independent contractors depends on
Go to IRS.gov/Forms to download current and prior-year
the facts in each case. The general rule is that an individ-
forms, instructions, and publications.
ual is an independent contractor if you, the person for
Ordering tax forms, instructions, and publications. whom the services are performed, have the right to control
Go to IRS.gov/OrderForms to order current forms, instruc- or direct only the result of the work and not the means and
tions, and publications; call 800-829-3676 to order methods of accomplishing the result.
prior-year forms and instructions. The IRS will process
your order for forms and publications as soon as possible. Common-Law Employees
Don’t resubmit requests you’ve already sent us. You can
get forms and publications faster online. Under common-law rules, anyone who performs services
for you is generally your employee if you have the right to
Useful Items control what will be done and how it will be done. This is
You may want to see: so even when you give the employee freedom of action.
What matters is that you have the right to control the de-
Publication tails of how the services are performed. For a discussion
of facts that indicate whether an individual providing serv-
15-B 15-B Employer's Tax Guide to Fringe Benefits
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 any pay, isn't considered an employee. A director of a cor-
make to workers for services, you must first know the poration isn't an employee with respect to services per-
business relationship that exists between you and the formed as a director.

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You generally have to withhold and pay income, social Tax Act), the term “employee” means the same as it does
security, and Medicare taxes on wages that you pay to for social security and Medicare taxes, except that it
common-law employees. However, the wages of certain doesn't include statutory employees defined in categories
employees may be exempt from one or more of these 2 and 3 above. Any individual who is a statutory employee
taxes. See Employees of Exempt Organizations (section described under category 1 or 4 above is also an em-
3) and Religious Exemptions and Special Rules for Minis- ployee for FUTA tax purposes and subject to FUTA tax.
ters (section 4).
Income tax. Don't withhold federal income tax from the
Additional information. For more information about the wages of statutory employees.
treatment of special types of employment, the treatment of
special types of payments, and similar subjects, see Pub. Reporting payments to statutory employees. Furnish
15 or Pub. 51, Agricultural Employer's Tax Guide. Form W-2 to a statutory employee, and check “Statutory
employee” in box 13. Show your payments to the em-
ployee as “other compensation” in box 1. Also, show so-
Statutory Employees cial security wages in box 3, social security tax withheld in
If workers are independent contractors under the box 4, Medicare wages in box 5, and Medicare tax with-
common-law rules, such workers may nevertheless be held in box 6. The statutory employee can deduct their
treated as employees by statute (also known as statutory trade or business expenses from the payments shown on
employees) for certain employment tax purposes. This Form W-2. The statutory employee reports earnings on
would happen if they fall within any one of the following line 1 of Schedule C (Form 1040), Profit or Loss From
four categories and meet the three conditions described Business, and also deducts business expenses on
next under Social security and Medicare taxes. Schedule C (Form 1040).

1. A driver who distributes beverages (other than milk) H-2A agricultural workers. On Form W-2, don't check
or meat, vegetables, fruit, or bakery products; or who box 13 (Statutory employee), as H-2A workers aren't stat-
picks up and delivers laundry or dry cleaning, if the utory employees.
driver is your agent or is paid on commission.
2. A full-time life insurance sales agent whose principal Statutory Nonemployees
business activity is selling life insurance or annuity
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-
panion sitters. Direct sellers and licensed real estate
3. An individual who works at home on materials or agents are treated as self-employed for all federal tax pur-
goods that you supply and that must be returned to poses, including income and employment taxes, if:
you or to a person you name, if you also furnish speci-
fications for the work to be done. • Substantially all payments for their services as direct
sellers or real estate agents are directly related to
4. A full-time traveling or city salesperson who works on sales or other output, rather than to the number of
your behalf and turns in orders to you from wholesal- hours worked; and
ers, retailers, contractors, or operators of hotels, res-
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 with- 1. Persons engaged in selling (or soliciting the sale of)
hold social security and Medicare taxes from the wages of consumer products in the home or place of business
statutory employees if all three of the following conditions other than in a permanent retail establishment.
apply.
2. Persons engaged in selling (or soliciting the sale of)
• The service contract states or implies that substan-
consumer products to any buyer on a buy-sell basis, a
tially all the services are to be performed personally by
deposit-commission basis, or any similar basis pre-
them.
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-
ing or distributing newspapers or shopping news (in-
• The services are performed on a continuing basis for cluding any services directly related to such delivery
the same payer. 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

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sellers and who earn income based on the productivity of administration of college entrance or placement examina-
their direct sellers. Such activities include providing moti- tions if the individual:
vation and encouragement; imparting skills, knowledge, or Is performing the services for a section 501(c) organi-
•
experience; and recruiting. zation exempt from tax under section 501(a) of the
Licensed real estate agents. This category includes in- Code, and
dividuals engaged in appraisal activities for real estate • Isn't otherwise treated as an employee of the organi-
sales if they earn income based on sales or other output. zation for employment taxes.

Companion sitters. Companion sitters are individuals Voluntary Classification Settlement Program (VCSP).
who furnish personal attendance, companionship, or Employers who are currently treating their workers (or a
household care services to children or to individuals who class or group of workers) as independent contractors or
are elderly or disabled. A person engaged in the trade or other nonemployees and want to voluntarily reclassify
business of putting the sitters in touch with individuals who their workers as employees for future tax periods may be
wish to employ them (that is, a companion sitting place- eligible to participate in the VCSP if certain requirements
ment service) won't be treated as the employer of the sit- are met. File Form 8952 to apply for the VCSP. For more
ters if that person doesn't receive or pay the salary or wa- information, go to IRS.gov/VCSP.
ges of the sitters and is compensated by the sitters or the
persons who employ them on a fee basis. Companion sit-
ters who aren't employees of a companion sitting place-
2. Employee or Independent
ment service are generally treated as self-employed for all
federal tax purposes. However, the companion sitter may Contractor?
be an employee of the individual for whom the sitting serv-
ices are performed; see Pub. 926. An employer must generally withhold federal income
taxes, withhold and pay over social security and Medicare
Misclassification of Employees taxes, and pay unemployment tax on wages paid to an
employee. An employer doesn't generally have to with-
Consequences of treating an employee as an inde- hold or pay over any federal taxes on payments to inde-
pendent contractor. If you classify an employee as an pendent contractors.
independent contractor and you have no reasonable basis
for doing so, you’re liable for employment taxes for that
Common-Law Rules
worker, and the relief provision, discussed next, won't ap-
ply. See section 2 in Pub. 15 for more information. To determine whether an individual is an employee or an
independent contractor under the common-law rules, the
Relief provision. If you have a reasonable basis for not
relationship of the worker and the business must be ex-
treating a worker as an employee, you may be relieved
amined. In any employee-independent contractor determi-
from having to pay employment taxes for that worker. To
nation, all information that provides evidence of the de-
get this relief, you must file all required federal information
gree of control and the degree of independence must be
returns on a basis consistent with your treatment of the
considered.
worker. You (or your predecessor) must not have treated
any worker holding a substantially similar position as an Facts that provide evidence of the degree of control
employee for any periods beginning after 1977. and independence fall into three categories: behavioral
control, financial control, and the type of relationship of
Technical service specialists. This relief provision the parties. These facts are discussed next.
doesn't apply for a technical services specialist you pro-
vide to another business under an arrangement between Behavioral control. Facts that show whether the busi-
you and the other business. A technical service specialist ness has a right to direct and control how the worker does
is an engineer, designer, drafter, computer programmer, the task for which the worker is hired include the type and
systems analyst, or other similarly skilled worker engaged degree of the following.
in a similar line of work.
Instructions that the business gives to the worker.
This limit on the application of the rule doesn't affect the
An employee is generally subject to the business' instruc-
determination of whether such workers are employees un-
tions about when, where, and how to work. All of the fol-
der the common-law rules. The common-law rules control
lowing are examples of types of instructions about how to
whether the specialist is treated as an employee or an in-
do work.
dependent contractor. However, if you directly contract
with a technical service specialist to provide services for • When and where to do the work.
your business and not for another business, you may still What tools or equipment to use.
•
be entitled to the relief provision.
• What workers to hire or to assist with the work.
Test proctors and room supervisors. The consis-
tent treatment requirement doesn't apply to services per- • Where to purchase supplies and services.
formed after December 31, 2006, by an individual as a • What work must be performed by a specified
test proctor or room supervisor assisting in the individual.

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

• Written contracts describing the relationship the par- Example 3. Wallace Black agreed with the Sawdust
ties intended to create. Co. to supply the construction labor for a group of houses.
• Whether or not the business provides the worker with The company agreed to pay all construction costs. How-
employee-type benefits, such as insurance, a pension ever, Wallace supplies all the tools and equipment. Wal-
plan, vacation pay, or sick pay. lace performs personal services as a carpenter and

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mechanic for an hourly wage. Wallace also acts as super- Steve is considered to be an independent contractor, is
intendent and foreman and engages other individuals to required to pay federal and state taxes, and receives no
assist with construction. The company has the right to se- benefits from Megabyte. Megabyte will file Form
lect, approve, or discharge any helper. A company repre- 1099-NEC to report the amount paid to Steve. Steve
sentative makes frequent inspections of the construction works at home and isn't expected or allowed to attend
site. When a house is finished, Wallace is paid a certain meetings of the software development group. Steve is an
percentage of its costs. Wallace isn't responsible for independent contractor.
faults, defects of construction, or wasteful operation. At
the end of each week, Wallace presents the company with Automobile Industry
a statement of the amount that was spent, including the
payroll. The company gives Wallace a check for that Example 1. Donna Lee is a salesperson employed on
amount from which Wallace pays the assistants, although a full-time basis by Bob Blue, an auto dealer. Donna
Wallace isn't personally liable for their wages. Wallace works 6 days a week and is on duty in Bob's showroom on
Black and the assistants are employees of the Sawdust certain assigned days and times. Donna appraises
Co. trade-ins, but the appraisals are subject to the sales man-
ager's approval. Lists of prospective customers belong to
Example 4. Bill Plum contracted with Elm Corporation the dealer. Donna is required to develop leads and report
to complete the roofing on a housing complex. A signed results to the sales manager. Due to experience, Donna
contract established a flat amount for the services ren- requires 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,
beyond the specifications for the product itself. Steve and Donna has had only three clients, corporations with which
Megabyte have a written contract, which provides that there have been long-standing relationships. Donna

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charges the corporations an hourly rate for services,
sending monthly bills detailing the work performed for the
prior month. The bills include charges for long distance 3. Employees of Exempt
calls, online research time, fax charges, photocopies,
Organizations
postage, and travel, costs for which the corporations have
agreed to reimburse Donna. Donna is an independent
Many nonprofit organizations are exempt from federal in-
contractor.
come tax. Although they don't have to pay federal income
tax themselves, they must still withhold federal income tax
Taxicab Driver from the pay of their employees. However, there are spe-
cial social security, Medicare, and FUTA tax rules that ap-
Example. Tom Spruce rents a cab from Taft Cab Co.
ply to the wages that they pay their employees.
for $150 per day. Tom pays the costs of maintaining and
operating the cab. Tom keeps all fares received from cus- Section 501(c)(3) organizations. Nonprofit organiza-
tomers. Although Tom received the benefit of Taft's tions that are exempt from federal income tax under sec-
two-way radio communication equipment, dispatcher, and tion 501(c)(3) of the Internal Revenue Code include any
advertising, these items benefit both Taft and Tom community chest, fund, or foundation organized and oper-
Spruce. Tom is an independent contractor. ated exclusively for religious, charitable, scientific, testing
for public safety, literary or educational purposes, foster-
Salesperson ing national or international amateur sports competition, or
for the prevention of cruelty to children or animals. These
To determine whether salespersons are employees under organizations are usually corporations and are exempt
the usual common-law rules, you must evaluate each indi- from federal income tax under section 501(a).
vidual case. If a salesperson who works for you doesn't
meet the tests for a common-law employee, discussed Social security and Medicare taxes. Wages paid to
earlier in this section, you don't have to withhold federal employees of section 501(c)(3) organizations are subject
income tax from their pay (see Statutory Employees in to social security and Medicare taxes unless one of the
section 1). However, even if a salesperson isn't an em- following situations applies.
ployee under the usual common-law rules for income tax • The organization pays an employee less than $100 in
withholding, their pay may still be subject to social secur- a calendar year.
ity, Medicare, and FUTA taxes as a statutory employee.
• The organization is a church or church-controlled or-
To determine whether a salesperson is an employee ganization opposed for religious reasons to the pay-
for social security, Medicare, and FUTA tax purposes, the ment of social security and Medicare taxes and has
salesperson must meet all eight elements of the statutory filed Form 8274 to elect exemption from social secur-
employee test. A salesperson is a statutory employee for ity and Medicare taxes. The organization must have
social security, Medicare, and FUTA tax purposes if they: filed for exemption before the first date on which a
quarterly employment tax return (Form 941) or annual
1. Work full time for one person or company except, employment tax return (Form 944) would otherwise be
possibly, for sideline sales activities on behalf of due.
some other person;
An employee of a church or church-controlled organi-
2. Sell on behalf of, and turn their orders over to, the per- zation that is exempt from social security and Medicare
son or company for which they work; taxes must pay self-employment tax if the employee is
3. Sell to wholesalers, retailers, contractors, or operators paid $108.28 or more in a year. However, an employee
of hotels, restaurants, or similar establishments; who is a member of a qualified religious sect can apply for
an exemption from the self-employment tax by filing Form
4. Sell merchandise for resale, or supplies for use in the 4029. See Members of recognized religious sects op-
customer's business; posed to insurance in section 4.
5. Agree to do substantially all of this work personally; FUTA tax. An organization that is exempt from federal
6. Have no substantial investment in the facilities used income tax under section 501(c)(3) of the Internal Reve-
to do the work, other than in facilities for transporta- nue Code is also exempt from FUTA tax. This exemption
tion; can't be waived. However, a section 501(c)(3) organiza-
tion is subject to FUTA tax when paying wages to employ-
7. Maintain a continuing relationship with the person or ees on behalf of a non-section 501(c)(3) organization (for
company for which they work; and example, a section 501(c)(3) organization paying wages
8. Aren’t an employee under common-law rules. to employees of a related non-section 501(c)(3) organiza-
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 sec- section 5 of Pub. 15. Don't include a parsonage allowance
tion 501(a) or section 521. However, these organizations (excludable housing allowance) in this amount. You may
aren't exempt from withholding federal income, social se- report a designated parsonage or rental allowance (hous-
curity, or Medicare tax from their employees' pay, or from ing allowance) and a utilities allowance, or the rental value
paying FUTA tax. Two special rules for social security, of housing provided in a separate statement or in box 14
Medicare, and FUTA taxes apply. of Form W-2. Don't show on Form W-2, Form 941, or
1. If an employee is paid less than $100 during a calen- Form 944 any amount as social security or Medicare wa-
dar year, their wages aren't subject to social security ges, or any withholding for social security or Medicare
and Medicare taxes. taxes. If you withheld federal income tax from the minister
under a voluntary agreement, this amount should be
2. If an employee is paid less than $50 in a calendar shown in box 2 of Form W-2 as federal income tax with-
quarter, their wages aren't subject to FUTA tax for the held. For more information 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 se-
curity and Medicare benefits. The exemption applies only
4. Religious Exemptions and to qualified services performed for the religious organiza-
tion. 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
ings of the sect is the only legal basis for the exemption. In
minister is an employee or self-employed, the earnings of
addition, your religious sect (or division) must have exis-
a minister aren't subject to federal income, social security,
ted 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 Medi-
emption available to the self-employed who are members care taxes on the fair market value of an employee ach-
of a recognized religious sect opposed to insurance is ievement award if it is excludable from your employee's
also available to their employees who are members of gross income. To be excludable from your employee's
such a sect. This applies to partnerships only if each part- gross income, the award must be tangible personal prop-
ner is a member of the sect. This exemption for employ- erty given to an employee for length of service or safety
ees applies only if both the employee and the employer achievement, awarded as part of a meaningful presenta-
are members of such a sect, and the employer has an ex- tion, and awarded under circumstances that don't indicate
emption. To get the exemption, the employee must file that the payment is disguised compensation. Excludable
Form 4029. employee achievement awards also aren't subject to
An employee of a church or church-controlled organi- FUTA tax.
zation 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-
fied plan awards. Qualified plan awards are employee
Relocating for Temporary Work
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 ex- qualified plans is more than $400.
penses reimbursed or paid directly by the employer in ac- If during the year an employee receives awards not
cordance with an accountable plan (see section 5 in Pub. made under a qualified plan and also receives awards un-
15) may be excludable from the employee’s wages. Gen- der a qualified plan, the exclusion for the total cost of all
erally, a temporary work assignment in a single location is awards to that employee can't be more than $1,600. The
one that is realistically expected to last (and does in fact $400 and $1,600 limits can't be added together to exclude
last) for 1 year or less. If the employee’s new work assign- more than $1,600 for the cost of awards to any one em-
ment is indefinite, any living expenses reimbursed or paid ployee during the year.
by the employer (other than qualified moving expenses
paid to a member of the U.S. Armed Forces on active duty
Scholarship and Fellowship
who moves because of a permanent change of station
due to a military order) must be included in the employ- Payments
ee’s wages as compensation. For the travel expenses to
be excludable: Only amounts that you pay as a qualified scholarship to a
candidate for a degree may be excluded from the recipi-
• The new work location must be outside of the city or ent's gross income. A qualified scholarship is any amount
general area of the employee’s regular workplace or granted as a scholarship or fellowship that is used for:
post of duty,
• Tuition and fees required to enroll in, or to attend, an
• The travel expenses must otherwise be allowed as a educational institution; or
deduction by the employee, and
• Fees, books, supplies, and equipment that are re-
• The expenses must be for the period during which the quired for courses at the educational institution.
employee is at the temporary work location.
The exclusion from income doesn't apply to the portion
If you reimburse or pay any personal expenses of an of any amount received that represents payment for
employee during their temporary work assignment, such teaching, research, or other services required as a condi-
as expenses for home leave for family members or for va- tion of receiving the scholarship or tuition reduction.
cations, these amounts must be included in the employ- These amounts are reportable on Form W-2. However,
ee's wages. See chapter 1 of Pub. 463, Travel, Gift, and the exclusion will still apply for any amount, despite any
Car Expenses, and section 5 of Pub. 15 for more informa- service condition attached to the amount, received under
tion. These rules generally apply to temporary work as- the National Health Service Corps Scholarship Program;
signments both inside and outside the United States. the Armed Forces Health Professions Scholarship and

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Financial Assistance Program; and a comprehensive stu- the Social Security Administration, and Form SSA-131,
dent work-learning-service program operated by a work Employer Report of Special Wage Payments, for details.
college, as defined in section 448(e) of the Higher Educa-
tion Act of 1965. Supplemental Unemployment
Any amounts that you pay for room and board aren't Compensation Benefits
excludable from the recipient's gross income. A qualified
scholarship isn't subject to social security, Medicare, and If you pay, under a plan, supplemental unemployment
FUTA taxes, or federal income tax withholding. For more compensation benefits to a former employee, all or part of
information, see Pub. 970, Tax Benefits for Education. the payments may be taxable and subject to federal in-
come tax withholding, depending on how the plan is fun-
Outplacement Services ded. Amounts that represent a return to the employee of
amounts previously subject to tax aren't taxable and aren't
If you provide outplacement services to your employees to subject to withholding. You should withhold federal in-
help them find new employment (such as career counsel- come tax on the taxable part of the payments made, un-
ing, resume assistance, or skills assessment), the value of der a plan, to an employee who is involuntarily separated
these benefits may be income to them and subject to all because of a reduction in force, discontinuance of a plant
withholding taxes. However, the value of these services or operation, or other similar condition. It doesn't matter
won't be subject to any employment taxes if: whether the separation is temporary or permanent.
• You derive a substantial business benefit from provid- There are special rules that apply in determining
ing the services (such as improved employee morale whether supplemental unemployment compensation ben-
or business image) separate from the benefit that you efits are excluded from wages for social security, Medi-
would receive from the mere payment of additional care, and FUTA tax purposes. To be excluded from wa-
compensation, and ges for such purposes, the benefits must meet the
following requirements.
• The employee would be able to deduct the cost of the
services as employee business expenses if they had • Benefits are paid only to unemployed former employ-
paid for them. ees who are laid off by the employer.
However, if you receive no additional benefit from pro- • Eligibility for benefits depends on meeting prescribed
viding the services, or if the services aren't provided on conditions after termination.
the basis of employee need, then the value of the services • The amount of weekly benefits payable is based upon
is treated as wages and is subject to federal income tax state unemployment benefits, other compensation al-
withholding and social security and Medicare taxes. Simi- lowable under state law, and the amount of regular
larly, if an employee receives the outplacement services weekly pay.
in exchange for reduced severance pay (or other taxable
compensation), then the amount the severance pay is re- • The right to benefits doesn't accrue until a prescribed
duced is treated as wages for employment tax purposes. period after termination.
• Benefits aren't attributable to the performance of par-
Withholding for Idle Time ticular services.
• No employee has any right to the benefits until quali-
Payments made under a voluntary guarantee to employ- fied and eligible to receive benefits.
ees for idle time (any time during which an employee per-
forms no services) are wages for the purposes of social • Benefits may not be paid in a lump sum.
security, Medicare, and FUTA taxes, and federal income Withholding on taxable supplemental unemployment
tax withholding. compensation benefits must be based on the withholding
certificate (Form W-4) that the employee gave to you.
Back Pay
For more information, see Revenue Ruling 90-72,
Treat back pay as wages in the year paid and withhold 1990-36 I.R.B. 13.
and pay employment taxes as required. If back pay was
awarded by a court or government agency to enforce a Golden Parachute Payments
federal or state statute protecting an employee's right to
employment or wages, special rules apply for reporting A golden parachute payment, in general, is a payment
those wages to the Social Security Administration. These made under a contract entered into by a corporation and
rules also apply to litigation actions and settlement agree- key personnel. Under the agreement, the corporation
ments or agency directives that are resolved out of court agrees to pay certain amounts to its key personnel in the
and not under a court decree or order. Examples of perti- event of a change in ownership or control of the corpora-
nent statutes include, but aren't limited to, the National La- tion. Payments to employees under golden parachute
bor Relations Act, Fair Labor Standards Act, Equal Pay contracts are subject to social security, Medicare, and
Act, and Age Discrimination in Employment Act. See Pub. FUTA taxes, and federal income tax withholding. See
957, Reporting Back Pay and Special Wage Payments to Regulations section 1.280G-1 for more information.

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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-
nation period) was an employee or independent con- Leave-Sharing Plans
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
federal income tax withholding. Don't include these
4. The payment has an aggregate present value of at
amounts in the wages of the transferors. These rules ap-
least three times the individual's base amount. The
ply only to leave-sharing plans that permit employees to
base amount is the average annual compensation for
transfer leave to other employees for medical emergen-
service includible in the individual's gross income
cies.
over the most recent 5 tax years.
In addition, you may establish a leave-sharing plan that
An excess parachute payment amount is the excess of allows your employees to deposit leave in an em-
any parachute payment over the base amount. For more ployer-sponsored leave bank for use by other employees
information, see Regulations section 1.280G-1. The recip- who have been adversely affected by a major disaster.
ient of an excess parachute payment is subject to a 20% Under such programs, the IRS won’t assert that a leave
nondeductible excise tax. If the recipient is an employee, donor who deposits leave in the employer-sponsored
the 20% excise tax is to be withheld by the corporation. leave bank under a major disaster leave-sharing program
has income, wages, compensation, or rail wages for the
Example. An officer of a corporation receives a golden
deposited leave if the plan treats the employer’s payments
parachute payment of $400,000. This is more than three
to the leave recipient as wages or compensation for pur-
times greater than their average compensation of
poses of the Federal Insurance Contributions Act (FICA),
$100,000 over the previous 5-year period. The excess
the Federal Unemployment Tax Act (FUTA), the Railroad
parachute payment is $300,000 ($400,000 minus
Retirement Tax Act (RRTA), the Railroad Unemployment
$100,000). The corporation can't deduct the $300,000
Repayment Tax (RURT), and the federal income tax with-
and must withhold the excise tax of $60,000 (20% of
holding, unless excluded by another provision of law. See
$300,000).
Notice 2006-59, 2006-28 I.R.B. 60, available at
Reporting golden parachute payments. Golden para- IRS.gov/irb/2006-28_IRB#NOT-2006-59, for what consti-
chute payments to employees must be reported on Form tutes a major disaster and other rules.
W-2. See the General Instructions for Forms W-2 and W-3
for details. For nonemployee reporting of these payments, Nonqualified Deferred Compensation
see the Instructions for Forms 1099-MISC and 1099-NEC.
Plans
Exempt payments. Payments by most small business
corporations and payments under certain qualified plans Income Tax and Reporting
are exempt from the golden parachute rules. See section
280G(b)(5) and (6) for more information. Section 409A provides that all amounts deferred under a
nonqualified deferred compensation (NQDC) plan for all
tax years are currently includible in gross income (to the
Interest-Free and extent the amounts deferred are not subject to a substan-
Below-Market-Interest-Rate Loans tial risk of forfeiture and not previously included in gross
income) and subject to additional taxes, unless certain re-
In general, if an employer lends an employee more than quirements are met pertaining to, among other things,
$10,000 at an interest rate less than the current applicable elections to defer compensation and distributions under
federal rate (AFR), the difference between the interest an NQDC plan. Section 409A also includes rules that ap-
paid and the interest that would be paid under the AFR is ply to certain trusts or similar arrangements associated
considered additional compensation to the employee. with NQDC plans if the trusts or arrangements are located

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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 and 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
plan subject to section 409A may also be reported on the wages if the payments are made because of a salary re-
Form W-2 or Form 1099-MISC, but this isn’t required. For duction agreement. However, they aren't included in box 1
more information, see the General Instructions for Forms of Form W-2 in the year the deferrals are made and aren't
W-2 and W-3 and the Instructions for Forms 1099-MISC subject to federal income tax withholding. See Regula-
and 1099-NEC. These reporting rules don't affect the ap- tions section 31.3121(a)(5)-2 for the definition of a salary
plication or reporting of social security, Medicare, or FUTA reduction agreement.
taxes.
The provisions don't prevent the inclusion of amounts Contributions to a Simplified
in 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 taxes, or
the correction of certain operation failures of an NQDC federal income tax withholding. However, any SEP contri-
plan. Notice 2008-113, 2008-51 I.R.B. 1305, is available butions paid under a salary reduction agreement (SAR-
at IRS.gov/irb/2008-51_IRB#NOT-2008-113. Also, see SEP) are included in wages for purposes of social secur-
Notice 2010-6, 2010-3 I.R.B. 275, available at IRS.gov/irb/ ity, Medicare, and FUTA taxes. See Pub. 560 for more
2010-03_IRB#NOT-2010-6; and Notice 2010-80, 2010-51 information about SEPs.
I.R.B. 853, available at IRS.gov/irb/ Salary reduction simplified employee pensions
2010-51_IRB#NOT-2010-80. (SARSEP) 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 reduc-
ascertainable, you may choose to estimate the value of tion contributions to a SIMPLE retirement plan are subject
the future benefit and withhold and pay social security, to social security, Medicare, and FUTA taxes. For more in-
Medicare, and FUTA taxes on that amount. You’ll have to formation 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 For purposes of this publication, all references to
FUTA taxes on the amounts deferred plus the income at- TIP “sick pay” mean ordinary sick pay, not “qualified
tributable to those amounts deferred. For more informa- sick leave wages.” Qualified sick leave wages are
tion, see Regulations sections 31.3121(v)(2)-1 and wages for social security and Medicare tax purposes, de-
31.3306(r)(2)-1. termined without regard to the exclusions from the defini-
tion of employment under sections 3121(b)(1)–(22), that
Section 83(i) election to defer income on equity an employer pays, with respect to leave taken after March
grants (qualified stock). An arrangement under which 31, 2020, and before April 1, 2021, under the Emergency
an employee may receive qualified stock (as defined in Paid Sick Leave Act (EPSLA), as enacted under the

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Families First Coronavirus Response Act (FFCRA) and the nature of workers' compensation—public employ-
amended by the COVID-related Tax Relief Act of 2020, or, ees next.
with respect to leave taken after March 31, 2021, and be-
3. Payments in the nature of workers' compensa-
fore October 1, 2021, that would have satisfied the EP-
tion—public employees. State and local govern-
SLA, as amended for purposes of the American Rescue
ment employees, such as police officers and firefight-
Plan Act of 2021 (the ARP), and are paid in accordance
ers, sometimes receive payments due to an injury in
with section 3131, as enacted under the ARP. If a
the line of duty under a statute that isn't the general
third-party payer of sick pay is also paying qualified sick
workers' compensation law of a state. If the statute
leave wages on behalf of an employer, the third party
limits benefits to work-related injuries or sickness and
would be making the payments as an agent of the em-
doesn't base payments on the employee's age, length
ployer. The employer is required to do the reporting and
of service, or prior contributions, the statute is “in the
payment of employment taxes with respect to the qualified
nature of” a workers' compensation law. Payments
sick leave wages, unless the employer has an agency
under a statute in the nature of a workers' compensa-
agreement with the third-party payer that requires the
tion law aren't sick pay and aren't subject to employ-
third-party payer to do the collecting, reporting, and/or
ment taxes. For more information, see Regulations
paying or depositing employment taxes on the qualified
section 31.3121(a)(2)-1.
sick leave wages. If the employer has that type of agency
agreement with the third-party payer, the third-party payer 4. Medical expense payments. Payments under a def-
includes the qualified sick leave wages in box 3 of Form inite plan or system for medical and hospitalization
8922, Third-Party Sick Pay Recap. The third-party payer expenses, or for insurance covering these expenses,
must also attach a statement to Form 8922 that specifies aren't sick pay and aren't subject to employment
the amount of qualified sick leave wages included in taxes.
box 3. See the instructions for your employment tax return 5. Payments unrelated to absence from work. Acci-
and IRS.gov/PLC for more information about qualified sick dent or health insurance payments unrelated to ab-
leave wages. sence from work aren't sick pay and aren't subject to
employment taxes. These include payments for:
Special rules apply to the reporting of sick pay pay-
ments to employees. How these payments are reported a. Permanent loss of a member or function of the
depends on whether the payments are made by the em- body,
ployer or a third party, such as an insurance company. b. Permanent loss of the use of a member or function
of the body, or
Sick pay is usually subject to social security, Medicare,
and FUTA taxes. For exceptions, see Social Security, c. Permanent disfigurement of the body.
Medicare, and FUTA Taxes on Sick Pay, later in this sec-
Example. Donald was injured in a car accident and
tion. Sick pay may also be subject to either mandatory or
lost an eye. Under a policy paid for by Donald's em-
voluntary federal income tax withholding, depending on
ployer, Delta Insurance Co. paid Donald $20,000 as
who pays it.
compensation for the loss of the eye. Because the
payment was determined by the type of injury and
Sick Pay was unrelated to Donald's absence from work, it isn't
sick pay and isn't subject to federal employment
Sick pay generally means any amount paid under a plan taxes.
because of an employee's temporary absence from work
due to injury, sickness, or disability. It may be paid by ei-
Sick Pay Plan
ther the employer or a third party, such as an insurance
company. Sick pay includes both short- and long-term A sick pay plan is a plan or system established by an em-
benefits. It is often expressed as a percentage of the em- ployer under which sick pay is available to employees
ployee's regular wages. 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,
or segregated accounts for the payment of benefits.
2. Workers' compensation. Payments because of a
work-related injury or sickness that are made under a Definition of employer. The “employer” for whom the
workers' compensation law aren't sick pay and aren't employee normally works, a term used in the following
subject to employment taxes. But see Payments in discussion, is either the employer for whom the employee

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was working at the time that the employee became sick or made because that is the day by which the deposit is
disabled or the last employer for whom the employee required to be made. The third party should notify the
worked before becoming sick or disabled, if that employer employer as soon as information on payments is
made contributions to the sick pay plan on behalf of the available so that an employer can make electronic de-
sick or disabled employee. posits timely. For multiemployer plans, see the spe-
cial rule discussed next.
Note. Contributions to a sick pay plan through a cafe-
teria plan (by direct employer contributions or salary re- Multiemployer plan timing rule. A special rule ap-
duction) are employer contributions unless they are af- plies to sick pay payments made to employees by a
ter-tax employee contributions (that is, included in taxable third-party insurer under an insurance contract with a mul-
wages). tiemployer plan established under a collectively bargained
agreement. If the third-party insurer making the payments
complies with steps 1 and 2, earlier, and gives the plan
Third-Party Payers of Sick Pay (rather than the employer) the required timely notice de-
Employer's agent. An employer's agent is a third party scribed in step 3, earlier, then the plan (not the third-party
that bears no insurance risk and is reimbursed on a insurer) must pay the employer part of the social security
cost-plus-fee basis for payment of sick pay and similar and Medicare taxes and the FUTA tax. Similarly, if within 6
amounts. A third party may be your agent even if the third business days of the plan's receipt of notification, the plan
party is responsible for determining which employees are gives notice to the employer for whom the employee nor-
eligible to receive payments. For example, if a third party mally works, the employer (not the plan) must pay the em-
provides administrative services only, the third party is ployer part of the social security and Medicare taxes and
your agent. If the third party is paid an insurance premium the FUTA tax.

and isn't reimbursed on a cost-plus-fee basis, the third Reliance on information supplied by the employer. A
party isn't your agent. Whether an insurance company or third party that pays sick pay should request information
other third party is your agent depends on the terms of from the employer to determine amounts that aren't sub-
their agreement with you. ject to employment taxes. Unless the third party has rea-
A third party that makes payments of sick pay as your son not to believe the information, it may rely on that infor-
agent isn't considered the employer and generally has no mation for the following items.
responsibility for employment taxes. This responsibility re-
mains with you. However, under an exception to this rule, • The total wages paid to the employee during the cal-
the parties may enter into an agreement that makes the endar year.
third-party agent responsible for employment taxes. In this • The last month in which the employee worked for the
situation, the third-party agent should use its own name employer.
and employer identification number (EIN) (rather than your
name and EIN) for the responsibilities that it has as- • The employee contributions to the sick pay plan made
sumed. 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
Amounts not subject to social security, Medicare, or
security and Medicare taxes.
FUTA taxes. The following payments, whether made by
3. Notifies the employer for whom the employee nor- the employer or a third party, aren't subject to social se-
mally works of the payments on which employee curity, Medicare, or FUTA taxes (different rules apply to
taxes were withheld and deposited. The third party federal income tax withholding).
must notify the employer within the time required for • Payments after an employee's death or disability
the third party's deposit of the employee part of the retirement. Social security, Medicare, and FUTA
social security and Medicare taxes. For instance, if taxes don't apply to amounts paid under a definite
the third party is a monthly schedule depositor, it must plan or system, as defined under Sick Pay Plan, ear-
notify the employer by the 15th day of the month fol- lier in this section, on or after the termination of the
lowing the month in which the sick pay payment is

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employment relationship because of death or disabil- to Ralph after June 30, 2023, isn't subject to social se-
ity retirement. However, even if there is a definite plan curity, Medicare, or FUTA taxes.
or system, amounts paid to a former employee are Example 2. The facts are the same as in Exam-
subject to social security, Medicare, and FUTA taxes if ple 1, except that Ralph worked 1 day during the
they would have been paid even if the employment re- 9-month period on February 10, 2023. Because the
lationship hadn't terminated because of death or disa- 6-month period begins again in March, only the sick
bility retirement. For example, a payment to a disabled pay paid to Ralph after August 31, 2023, is exempt
former employee for unused vacation time would have from social security, Medicare, and FUTA taxes.
been made whether or not the employee retired on Payments attributable to employee contributions.
•
disability. Therefore, the payment is wages and is Social security, Medicare, and FUTA taxes don't apply
subject to social security, Medicare, and FUTA taxes. to payments, or parts of payments, attributable to em-
• Payments after calendar year of employee's ployee contributions to a sick pay plan made with af-
death. Sick pay paid to the employee's estate or sur- ter-tax dollars. Contributions to a sick pay plan made
vivor after the calendar year of the employee's death on behalf of employees with employees' pre-tax dol-
isn't subject to social security, Medicare, or FUTA lars under a cafeteria plan are employer contribu-
taxes. Also, see Amounts not subject to federal in- tions.
come tax withholding, later in this section. Group policy. If both the employer and the em-
Example. Sandra became entitled to sick pay on ployee contributed to the sick pay plan under a group
November 21, 2022, and died on December 31, 2022. insurance policy, figure the taxable sick pay by multi-
On January 6, 2023, Sandra's sick pay for the period plying total sick pay by the percentage of the policy's
from December 24 through December 31, 2022, was cost that was contributed by the employer for the 3
paid to Sandra's surviving spouse. The payment isn't policy years before the calendar year in which the sick
subject to social security, Medicare, or FUTA taxes. pay is paid. If the policy has been in effect fewer than
3 years, use the cost for the policy years in effect or, if
• Payments to an employee entitled to disability in-
in effect less than 1 year, a reasonable estimate of the
surance benefits. Payments to an employee when
cost for the first policy year.
the employee is entitled to disability insurance bene-
Example. Alan is employed by Edgewood Corpo-
fits under section 223(a) of the Social Security Act
ration. Because of an illness, Alan was absent from
aren't subject to social security and Medicare taxes.
work for 3 months during 2023. Key Insurance Com-
This rule applies only if the employee became entitled
pany paid Alan $2,000 sick pay for each month of ab-
to the Social Security Act benefits before the calendar
sence under a policy paid for by contributions from
year in which the payments are made, and the em-
both Edgewood and its employees. All of the employ-
ployee performs no services for the employer during
ees' contributions were paid with after-tax dollars. For
the period for which the payments are made. How-
the 3 policy years before 2023, Edgewood paid 70%
ever, these payments are subject to FUTA tax.
of the policy's cost and its employees paid 30%. Be-
• Payments that exceed the applicable wage base. cause 70% of the sick pay paid under the policy is due
Social security and FUTA taxes don't apply to pay- to Edgewood's contributions, $1,400 ($2,000 × 70%)
ments of sick pay that, when combined with the regu- of each payment made to Alan is taxable sick pay.
lar wages and sick pay previously paid to the em- The remaining $600 of each payment that is due to
ployee during the year, exceed the applicable wage employee contributions isn't taxable sick pay and isn't
base. Because there is no Medicare tax wage base, subject to employment taxes. Also, see Example of
this exception doesn't apply to Medicare tax. For Figuring and Reporting Sick Pay, later in this section.
2023, the social security tax wage base is $160,200
and the FUTA tax wage base is $7,000.
Income Tax Withholding on Sick Pay
Example. If an employee receives $153,200 in wa-
ges from an employer in 2023 and also receives The requirements for federal income tax withholding on
$10,000 of sick pay, only the first $7,000 ($160,200 – sick pay and the methods for figuring it differ depending
$153,200) of the sick pay is subject to social security on whether the sick pay is paid by:
tax. All of the sick pay is subject to Medicare tax.
None of the sick pay is subject to FUTA tax. See Ex- • The employer,
ample of Figuring and Reporting Sick Pay, later in this • An agent of the employer (defined earlier in this sec-
section. tion), or
• 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
sick pay paid more than 6 calendar months after the Employer or employer's agent. Sick pay paid by you or
last calendar month in which the employee worked. your agent is subject to mandatory federal income tax
Example 1. Ralph's last day of work before becom- withholding. An employer or agent paying sick pay gener-
ing entitled to receive sick pay was December 9, ally determines the federal income tax to be withheld
2022. Ralph was paid sick pay for 9 months before re- based on the employee's Form W-4. The employee can't
turning to work on September 15, 2023. Sick pay paid choose how much federal income tax will be withheld by
giving you or your agent a Form W-4S. Sick pay paid by

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an agent is treated as supplemental wages. If the agent Sick Pay Paid by Employer or Agent
doesn't pay regular wages to the employee, the agent
may choose to withhold federal income tax at a flat 22% If you or your agent (defined earlier in this section) makes
rate, rather than at the wage withholding rate. See section sick pay payments, you deposit taxes and file Forms W-2,
7 in Pub. 15 for guidance on withholding employment W-3, 940, and 941 (or Form 944) under the same rules
taxes from supplemental wages, including the rules for that apply to regular wage payments.
withholding federal income tax when wages to an individ-
ual exceed $1 million during the year. However, any agreement between the parties may re-
quire your agent to carry out responsibilities that would
Third party not an agent. Sick pay paid by a third party
otherwise have been borne by you. In this situation, your
that isn't your agent isn't subject to mandatory federal in-
agent should use its own name and EIN (rather than
come tax withholding. However, an employee may elect
yours) for the responsibilities that it has assumed.
to have federal income tax withheld by submitting Form
W-4S to the third party. Reporting sick pay on Form W-2. You may either com-
If Form W-4S has been submitted, the third party bine the sick pay with other wages and prepare a single
should withhold federal income tax on all payments of sick Form W-2 for each employee, or you may prepare sepa-
pay made 8 or more days after receiving the form. The rate Forms W-2 for each employee, one reporting sick pay
third party may, at its option, withhold federal income tax and the other reporting regular wages. A Form W-2 must
before 8 days have passed. be prepared even if all of the sick pay is nontaxable (see
The employee may request on Form W-4S to have a Box 12 below). All Forms W-2 must be given to the em-
specific whole dollar amount withheld. However, if the re- ployees by January 31.
quested withholding would reduce any net payment below The Form W-2 filed for the sick pay must include the
$10, the third party shouldn't withhold any federal income employer's name, address, and EIN; the employee's
tax from that payment. The minimum amount of withhold- name, address, and social security number (SSN); and
ing that the employee can specify is $4 per day, $20 per the following information.
week, or $88 per month based on the payroll period.
Withhold from all payments at the same rate whether Box 1—The amount of sick pay the employee must in-
full or partial payments. For example, if $25 is withheld clude in income.
from a regular full payment of $100, then $20 (25%) Box 2—The amount of any federal income tax with-
should be withheld from a partial payment of $80. held from the sick pay.
Amounts not subject to federal income tax withhold- Box 3—The amount of sick pay subject to employee
ing. The following amounts, whether paid by you or a social security tax.
third party, aren't wages and aren't subject to federal in- Box 4—The amount of employee social security tax
come tax withholding. withheld from the sick pay.
• Payments after the employee's death. Sick pay Box 5—The amount of sick pay subject to employee
paid to the employee's estate or survivor at any time Medicare tax.
after the employee's death isn't subject to federal in-
come tax withholding, regardless of who pays it. Box 6—The amount of employee Medicare tax (in-
cluding Additional Medicare Tax, if applicable) with-
• Payments attributable to employee contributions. held from the sick pay.
Payments, or parts of payments, attributable to em-
ployee contributions made to a sick pay plan with af- Box 12 (code J)—Show any sick pay that was paid by
ter-tax dollars aren't subject to federal income tax a third-party and wasn't includible in income (and not
withholding. For more information, see the corre- shown in boxes 1, 3, and 5) because the employee
sponding discussion under Amounts not subject to so- contributed to the sick pay plan. Don't include nontax-
cial security, Medicare, or FUTA taxes, earlier in this able disability payments made directly to a state.
section. Box 13—Check the “Third-party sick pay” box only if
the amounts were paid by a third party.
Depositing and Reporting
Sick Pay Paid by Third Party
This section discusses who is liable for depositing social
security, Medicare, FUTA, and withheld federal income The depositing and reporting rules for a third party that
taxes on sick pay. These taxes must be deposited under isn't your agent depend on whether liability has been
the same rules that apply to deposits of taxes on regular transferred as discussed under Third party not employer's
wage payments. See Pub. 15 for information on the de- agent, earlier in this section.
posit rules.
This section also explains how sick pay should be re- To figure the due dates and amounts of its deposits of
ported on Forms W-2, W-3, 940, and 941 (or Form 944). employment taxes, a third party should combine:
• The liability for the wages paid to its own employees,
and

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• The liability for payments it made to all employees of third party subtracts the employer part of the social
all its clients. This doesn't include any liability transfer- security and Medicare taxes that you must pay.
red to the employer.
Form 940. You, not the third party, must prepare Form
Liability not transferred to the employer. If the third 940 for sick pay.
party doesn't satisfy the requirements for transferring lia- Form 8922, Third-Party Sick Pay Recap. The third
bility for FUTA tax and the employer part of the social se- party (or in certain cases, the employer) must file Form
curity and Medicare taxes, the third party reports the sick 8922 to report sick pay paid by a third party for or on be-
pay on its own Form 940 and Form 941 (or Form 944). In half of employers for whom services are normally per-
this situation, the employer has no tax responsibilities for formed. Form 8922 doesn't show the names of individuals
sick pay. who received the third-party sick pay, but the total
The third party must deposit social security, Medicare, amounts paid in the calendar year to all employees whose
FUTA, and withheld federal income taxes using its own sick pay wages are required to be reported on Form 8922.
name and EIN. The third party must give each employee Third-party sick pay is reported on Form 8922 if the lia-
to whom it paid sick pay a Form W-2 by January 31 of the bility for the employer part of social security tax and Med-
following year. The Form W-2 must include the third par- icare tax has been shifted by the third party or insurer pay-
ty's name, address, and EIN instead of the employer infor- ing the sick pay to the employer for whom services are
mation. normally rendered. Whether the third party or employer re-
ports the sick pay on Form 8922 depends on which entity
Liability transferred to the employer. Generally, if a
is filing Forms W-2 reporting the sick pay paid to individual
third party satisfies the requirements for transferring liabil-
employees receiving the sick pay. The third party reports
ity for the employer part of the social security and Medi-
the sick pay on Form 8922 if the employer is filing Forms
care taxes and for the FUTA tax, the following rules apply.
W-2 reporting the third-party sick pay under the name and
Deposits. The third party must make deposits of with- EIN of the employer. However, if the third party is filing
held employee social security and Medicare taxes and Forms W-2 with respect to the sick pay under the name
withheld federal income tax using its own name and EIN. and EIN of the third party, the employer files Form 8922
You must make deposits of the employer part of the so- reporting the sick pay.
cial security and Medicare taxes and the FUTA tax using If the third party is paying all employment taxes, includ-
your name and EIN. In applying the deposit rules, your lia- ing the employer part of social security tax and Medicare
bility for these taxes begins when you receive the third tax, with respect to the sick pay, the third party files Forms
party's notice of sick pay payments. W-2 using its name and EIN as employer with respect to
the sick pay for each employee receiving sick pay and re-
Form 941 or Form 944. The third party and you must
ports social security and Medicare taxes and federal in-
each file Form 941 or Form 944. The discussion that fol-
come tax withholding on its Form 941. Neither the third
lows only explains how to report sick pay on Form 941. If
party nor the employer reports the sick pay on Form 8922.
you file Form 944, use the lines on that form that corre-
Third parties that are agents with respect to the pay-
spond to the lines on Form 941 that are discussed 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
party withheld federal income tax, if any. After com- • Report the withheld amounts on Form 941 using the
pleting line 6, subtract on line 8 the employee part of agent’s name and EIN.
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
as a third party but does include on line 3 any federal Optional rule for Form W-2. You and the third party
income tax withheld. On line 5a, column 1, the third may choose to enter into a legally binding agreement des-
party enters the total amount it paid subject to social ignating the third party to be your agent for purposes of
security taxes. This amount includes both wages paid preparing Forms W-2 reporting sick pay. The agreement
to its own employees and sick pay paid as a third must specify what part, if any, of the payments under the
party. The third party completes lines 5c and 5d (if ap- sick pay plan is excludable from the employees' gross in-
plicable), column 1, in a similar manner. On line 8, the comes because it is attributable to their contributions to
the plan. If you enter into an agreement, the third party

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prepares the actual Forms W-2, not Form 8922 as dis- Of each $2,000 payment Dave received, 30% ($600)
cussed above, for each employee who receives sick pay isn't subject to social security and Medicare taxes
from the third party. If the optional rule is used: because the plan is contributory and Dave's after-tax con-
• The third party doesn't provide you with the sick pay tribution is considered to be 30% of the premiums during
statement described next, and the 3 policy years before the calendar year of the acci-
dent.
• You (not the third party) files Form 8922. Form 8922 is
needed to reconcile the sick pay shown on your FUTA tax. Of the $8,400 taxable sick pay (figured the
Forms 941 or Form 944. same as for social security and Medicare taxes), only
$7,000 is subject to the FUTA tax because the FUTA tax
Sick pay statement. The third party must furnish you contribution base is $7,000.
with a sick pay statement by January 15 of the year follow-
ing the year in which the sick pay was paid. The statement Federal income tax withholding. Of each $2,000
must show the following information about each employee payment, $1,400 ($2,000 × 70%) is subject to voluntary
who was paid sick pay. federal income tax withholding. In accordance with Dave's
Form W-4S, $210 was withheld from each payment.
• The employee's name.
Liability transferred. For the first 6 months following
• The employee's SSN (if social security, Medicare, or
the last month in which Dave worked, Key was liable for
income tax was withheld).
social security, Medicare, and FUTA taxes on any pay-
• The sick pay paid to the employee. ments that constituted taxable wages. However, Key
• Any federal income tax withheld. could have shifted the liability for the employer part of the
social security and Medicare taxes (and for the FUTA tax)
• Any employee part of social security tax withheld. during the first 6 months by withholding Dave's part of the
• Any employee part of Medicare tax withheld. social security and Medicare taxes, timely depositing the
taxes, and notifying Edgewood of the payments.
If Key shifted liability for the employer part of the social
Example of Figuring and Reporting
security and Medicare taxes to Edgewood and provided
Sick Pay Edgewood with a sick pay statement, Key wouldn't pre-
pare a Form W-2 for Dave. However, Key would file Form
Note. The following example is for wages paid in 2022.
8922. Key and Edgewood must each prepare Forms 941.
Dave, an employee of Edgewood Corporation, was se- Edgewood must also report the sick pay and withholding
riously injured in a car accident on January 1, 2022. Da- for Dave on Forms W-2, W-3, and 940.
ve's last day of work was December 31, 2021. The acci- As an alternative, the parties could have followed the
dent wasn't job related. optional rule described under Optional rule for Form W-2,
Key, an insurance company that wasn't an agent of the earlier in this section. Under this rule, Key would prepare
employer, paid Dave $2,000 sick pay each month for 10 Form W-2 even though liability for the employer part of
months, beginning in January 2022. Dave submitted a the social security and Medicare taxes had been shifted to
Form W-4S to Key, requesting $210 be withheld from Edgewood. Also, Key wouldn't prepare a sick pay state-
each payment for federal income tax. Dave received no ment, and Edgewood, not Key, would file Form 8922 re-
payments from Edgewood from January 2022 through flecting the sick pay shown on Edgewood's Forms 941.
October 2022. Dave returned to work on November 1,
Liability not transferred. If Key didn't shift liability for
2022.
the employer part of the social security and Medicare
For the policy year in which the car accident occurred, taxes to Edgewood, Key would prepare Forms W-2 and
Dave paid a part of the premiums for coverage, and Edge- W-3 as well as Forms 941 and 940. In this situation, Edge-
wood paid the remaining part. The plan was, therefore, a wood wouldn't report the sick pay.
“contributory plan.” During the 3 policy years before the
calendar year of the accident, Edgewood paid 70% of the Payments received after 6 months. The payments
total of the net premiums for its employees' insurance cov- received by Dave in July through October aren't subject to
erage, and its employees paid 30%. social security, Medicare, or FUTA taxes because they
were received more than 6 months after the last month in
Social security and Medicare taxes. For social se- which Dave worked (December 2021). However, Key
curity and Medicare tax purposes, taxable sick pay was must continue to withhold federal income tax from each
$8,400 ($2,000 per month × 70% = $1,400 taxable portion payment because Dave furnished Key with a Form W-4S.
per payment; $1,400 × 6 months = $8,400 total taxable Also, Key must prepare Forms W-2 and W-3, unless it has
sick pay). Only the six $2,000 checks received by Dave furnished Edgewood with a sick pay statement. If the sick
from January through June are included in the calculation. pay statement was furnished, then Edgewood must pre-
The check received by Dave in July (the seventh check) pare Forms W-2 and W-3.
was received more than 6 months after the month in which
Dave last worked.

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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.

                                                                                 taxes  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.                      Electronic filing of Forms 940, 941, and 944.                          Report-
They have to pay, in total, no more in social security tax                       ing  agents  may  file  Forms  940,  941,  and  944  electroni-
than a 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  ar-
W-2 with respect to wages it is considered to have paid as                       TIP     rangements,  including  agents  with  an  approved 
a common paymaster.                                                                      Form 2678, reporting agents, and certified profes-
                                                                                 sional 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 $160,200 of wages (stated pay plus em-
care taxes without deducting them from the employee's ployer-paid employee taxes). Enter $160,200 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 $9,932.40 ($160,200 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 $147,944.70 from the stated pay.
ee's social security and Medicare taxes is also subject to Divide the result by 0.9855 (1 − 0.0145) and add
employee social security and Medicare taxes. This again $160,200.
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 – $147,944.70 = $12,055.30
tion, divide the stated pay (the amount that you pay with- $12,055.30 ÷ 0.9855 = $12,232.67
out taking into account your payment of employee social
security and Medicare taxes) by a factor for that year. This $12,232.67 + $160,200 = $172,432.67
factor is determined by subtracting from 1 the combined The Medicare wages are $172,432.67. Enter this
employee social security and Medicare tax rate for the amount in box 5 of Form W-2. The Medicare tax to enter
year that the wages are paid. For 2023, the factor is in box 6 is $2,500.27 ($172,432.67 × 0.0145).
0.9235 (1 − 0.0765). If the stated pay is more than Although these employment tax amounts aren't actually
$147,944.70 (2023 wage base $160,200 × 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
$147,944.70 in 2023 below. share of the social security and Medicare taxes. If the wa-
ges for federal income tax withholding purposes in the
Stated pay of $147,944.70 or less in 2023. For an em- preceding example are the same as for social security
ployee with stated pay of $147,944.70 or less in 2023, fig- and Medicare tax purposes, the correct wage amount for
ure the correct wages (wages plus employer-paid em- federal income tax withholding is $172,432.67 ($160,000
ployee taxes) to report by dividing the stated pay by + $9,932.40 + $2,500.27), 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 taxes as
discussed in this section.
Example. Donald Devon hires Lydia Lone for only 1
week during 2023. 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
Medicare tax, Donald multiplies $541.42 by the Medicare International Social Security
tax 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 $147,944.70 in 2023. For an Employees and employers who are subject to foreign so-
employee with stated pay of more than $147,944.70 in cial security taxes under these agreements are potentially
2023, the portion of stated wages subject to social secur- exempt from U.S. social security taxes, including the Med-
ity tax is $147,944.70 (the first $160,200 of wages × icare portion. For more information, go to SSA.gov/
0.9235). The stated pay in excess of $147,944.70 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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Nonperiodic Payments—10% Default
8. Federal Income Tax Withholding Rate

Withholding on Retirement Form W-4R is used to request withholding on nonperiodic
payments. Distributions from an IRA that are payable on
Payments and Annuities demand are treated as nonperiodic payments. Although
Form W-4R was available for use in 2022, the IRS post-
Generally, federal income tax withholding applies to the poned the requirement to begin using the new form until
taxable part of payments made from pension, profit-shar- January 1, 2023. Payers should have updated their sys-
ing, stock bonus, annuity, certain deferred compensation tem programming for this form in 2022.
plans, IRAs, and commercial annuities. Don't withhold in-
come taxes from amounts totally exempt from tax. If part Withholding on nonperiodic payments using a 2021
of a distribution is taxable and part is nontaxable, withhold or earlier Form W-4P. You must withhold at a flat 10%
income taxes only on the part subject to tax when known. rate from nonperiodic payments (but see Eligible Rollover
The method and rate of withholding depends on (a) the Distribution—20% Default Withholding Rate, later) unless
kind of payment; (b) whether the payments are to be deliv- the payee chose not to have income tax withheld (if per-
ered outside the United States and its possessions; and mitted). A payee could've chosen not to have income tax
(c) whether the payee is a nonresident alien individual, a withheld from a nonperiodic payment by submitting a
nonresident alien beneficiary, or a foreign estate. Quali- 2021 or earlier Form W-4P (containing their correct SSN)
fied distributions from Roth IRAs and Roth 401(k) plans and checking the box on line 1. Generally, the choice not
are nontaxable and, therefore, not subject to withholding. to have federal income tax withheld applies to any later
See Payments Outside the United States and Payments payment from the same plan. A payee couldn't use line 2
to Foreign Persons, later in this section, for special with- for nonperiodic payments; they may have used line 3 to
holding rules that apply to payments outside the United specify an additional amount that they wanted withheld.
States and payments to foreign persons. If a payee submitted a Form W-4P that didn't contain
Federal income tax must be withheld from eligible roll- their correct SSN, you can’t honor their request not to
over distributions. See Eligible Rollover Distribution—20% have income tax withheld and you must withhold 10% of
Default Withholding Rate, later in this section. the payment for federal income tax

Withholding on nonperiodic payments using a 2022
Periodic Payments or later Form W-4R. The default withholding rate is 10%,
but the new Form W-4R allows a payee to choose a differ-
Periodic payments are those made in installments at regu- ent rate of withholding by entering a rate between 0% and
lar intervals over a period of more than 1 year. They may 100% on Form W-4R, line 2. However, the payee can't
be paid annually, quarterly, monthly, etc. Withholding from choose a rate of less than 10% for payments to be deliv-
periodic payments of a pension or annuity is generally fig- ered outside the United States and its possessions. If a
ured in the same manner as withholding from wages. payee submits a Form W-4R that doesn't contain their
Form W-4P is used to request withholding on periodic correct SSN, you can't honor their request to have income
payments. Form W-4P was redesigned for 2022. Although tax withheld at a rate of less than 10% and you must with-
the final redesigned Form W-4P was available for use in hold 10% of the payment for federal income tax.
2022, the IRS postponed the requirement to begin using
the redesigned form until January 1, 2023. Payers should
have updated their system programming for this form in Eligible Rollover Distribution—20%
2022. See Pub. 15-T for more information on how to with- Default Withholding Rate
hold on periodic payments.
Form W-4R is used to request withholding on eligible roll-
There are some kinds of periodic payments for which over distributions. Eligible rollover distributions include
the payee can't use Form W-4P because they are already distributions from eligible retirement plans (other than
defined as wages subject to federal income tax withhold- IRAs), such as qualified plans, section 401(k) plans, sec-
ing. These include retirement pay for service in the U.S. tion 457(b) plans maintained by a governmental employer,
Armed Forces and payments from certain NQDC plans section 403(a) annuity plans, or section 403(b) tax-shel-
and deferred compensation plans of exempt organiza- tered annuities that are eligible to be rolled over tax free to
tions described in section 457. an IRA or another eligible retirement plan. Although the
The payee’s Form W-4P stays in effect until they Form W-4R was available for use in 2022, the IRS post-
change or revoke it. You must notify payees each year of poned the requirement to begin using the new form until
their right to choose not to have federal income tax with- January 1, 2023. Payers should have updated their sys-
held or to change their previous choice. tem programming for this form in 2022.

Withholding on eligible rollover distributions using a
2021 or earlier Form W-4P. Eligible rollover distribu-
tions are subject to a flat 20% withholding rate. The 20%
withholding rate is required and a payee can't choose to

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have less federal income tax withheld from eligible roll- Statement of Income Tax Withheld
over distributions. A payee that wanted an additional
amount withheld would've requested the additional By January 31 of the next year, you must furnish a state-
amount on line 3 of a 2021 or earlier Form W-4P. ment on Form 1099-R, Distributions From Pensions, An-
nuities, Retirement or Profit-Sharing Plans, IRAs, Insur-
Withholding on eligible rollover distributions using a
ance Contracts, etc., showing the total amount of the
2022 or later Form W-4R. The default withholding rate
payee's pension or annuity payments and the total federal
is 20%, but Form W-4R allows a payee to choose a rate of
income tax you withheld during the prior year. Report in-
withholding that is greater than 20% on Form W-4R,
come tax withheld on Form 945, Annual Return of With-
line 2. However, the payee can’t choose a rate of less
held Federal Income Tax, not on Forms 941 or Form 944.
than 20%.
If the payee is a foreign person who has provided you
Exceptions. Distributions that are (a) qualifying “hard- with Form W-8BEN, you must instead furnish a statement
ship” distributions, and (b) distributions required by federal to the payee on Form 1042-S, Foreign Person's U.S.
law, such as required minimum distributions, aren't sub- Source Income Subject to Withholding, by March 15 for
ject to the mandatory 20% federal income tax withholding. the prior year. Report federal income tax withheld on Form
See Pub. 505 for details. Also, see Nonperiodic Pay- 1042, Annual Withholding Tax Return for U.S. Source In-
ments—10% Default Withholding Rate, earlier. You come of Foreign Persons.
shouldn’t withhold federal income tax if the entire distribu-
tion is transferred in a direct rollover to a traditional IRA or
another eligible retirement plan. Substitute Submissions of Form
W-4R
Payments Outside the United States
General requirements for any system set up to electroni-
and Payments to Foreign Persons cally receive a Form W-4R are discussed earlier under
Electronic submission of Forms W-4R, W-4S, and W-4V.
Generally, if a payee is a U.S. citizen or a resident alien,
This section provides specific requirements for substitute
the payee can't choose not to have federal income tax
submissions of Form W-4R. For payers using electronic or
withheld on periodic payments (or choose a rate of less
paper substitutes for Form W-4R, substitute forms for the
than 10% for nonperiodic payments) to be delivered out-
2023 Form W-4R incorporating all changes made to the
side the United States and its possessions.
2023 Form W-4R and complying with the guidelines provi-
Don't use Form W-4P or Form W-4R for payments to ded here must be in use by the later of January 1, 2023, or
nonresident aliens, nonresident alien beneficiaries, or for- 30 days after the IRS releases the final version of the
eign estates. In the absence of a treaty exemption, non- 2023 Form W-4R.
resident aliens, nonresident alien beneficiaries, and for-
eign estates are generally subject to a 30% withholding Electronic Substitute to Form W-4R
tax under section 1441 on the taxable portion of a periodic
or nonperiodic pension or annuity payment that is from There are several specific requirements for electronic sys-
U.S. sources. However, many tax treaties provide that pri- tems set up as a substitute to paper Forms W-4R that are
vate pensions and annuities are exempt from withholding in addition to those described earlier under Electronic
and tax. Also, payments from certain pension plans are submission of Forms W-4R, W-4S, and W-4V. Electronic
exempt from withholding even if no tax treaty applies. See systems must exactly replicate the text from the face of
Pub. 515 and Pub. 519. A foreign person should submit the paper Form W-4R between lines 1 and 2, with the ex-
Form W-8BEN, Certificate of Foreign Status of Beneficial ception that electronic systems that are being used exclu-
Owner for United States Tax Withholding and Reporting sively for nonperiodic payments may omit the second bul-
(Individuals), to you before receiving any payments. The let, and systems that are being used exclusively for
Form W-8BEN must contain the foreign person's TIN to eligible rollover distributions may omit the first bullet. Elec-
support a withholding exemption. A TIN for this purpose tronic systems must also exactly replicate the text on
means a U.S. TIN (SSN or individual taxpayer identifica- line 2 and the 2023 Marginal Rate Tables (inclusive of all
tion number (ITIN)). However, for a claim based on a tax related text above and within the tables) as they appear
treaty, a foreign TIN may be substituted for a U.S. TIN. after the paper Form W-4R. An electronic substitute to
Form W-4R can provide a link to a web page with the
Special rules may apply to nonresident aliens who re-
2023 Marginal Rate Tables, inclusive of all related text on
linquished U.S. citizenship or ceased to be long-term resi-
the first page of the W-4R starting with the text “2023 Mar-
dents of the United States after June 16, 2008. For more
ginal Rate Tables,” as well as the applicable Specific In-
information, see section 5 of Notice 2009-85, 2009-45
structions, starting with “Suggestion for determining with-
I.R.B. 598, available at IRS.gov/irb/
holding,” rather than providing the tables (and related first
2009-45_IRB#NOT-2009-85. Also, see Form W-8CE, No-
page text) themselves, but the link must be immediately
tice of Expatriation and Waiver of Treaty Benefits.
below line 2 on the electronic substitute form and be pre-
ceded by the following text: “The link below will take you
to the 2023 Marginal Rate Tables. You may use these ta-
bles to help you select the appropriate withholding rate for

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this payment or distribution. Instructions on how to best to electronic substitutes to Form W-4R, except where
use 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 2023 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 and find resources
“page 2” of Form W-4R should be linked to where the in- that 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, IRS.gov, you can get up-to-date information on
you need not require the payee to submit this personal in- current events and changes in tax law.
formation again when completing an electronic substitute, • IRS.gov/Help: A variety of tools to help you get an-
as long as the account where the election is being made swers to some of the most common tax questions.
is directly or indirectly linked to the electronically stored
personal 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 law information in
situation of the payee. your electronic filing software.
Nonperiodic distributions to be made to payees
within the United States and its possessions. "The Need someone to prepare your tax return? There are
default 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), attorneys,
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 possessions. "The
default 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 possessions. You can also go to Form Although the tax preparer always signs the return,
W-4R, found online at IRS.gov/FormW4R, for further in- you're ultimately responsible for providing all the informa-
structions and a rate table that helps you choose a rate tion required for the preparer to accurately prepare your
that is appropriate for your tax situation." return. Anyone paid to prepare tax returns for others
Eligible rollover distrubtions. "The default withhold- should have a thorough understanding of tax matters. For
ing rate is 20%. You can choose a rate greater than 20%, more information on how to choose a tax preparer, go to
but you may not choose a lower rate. You can also go to Tips for Choosing a Tax Preparer on IRS.gov.
Form W-4R, found online at IRS.gov/FormW4R, for further
instructions and a rate table that helps you choose a rate Coronavirus. Go to IRS.gov/Coronavirus for links to in-
that is appropriate for your tax situation." formation on the impact of the coronavirus, as well as tax
relief available for individuals and families, small and large
businesses, and tax-exempt organizations.
Paper Substitute to Form W-4R
Employers can register to use Business Services On-
When providing paper substitute forms for Form W-4R, line. The SSA offers online service at SSA.gov/employer
you should generally follow the same guidelines that apply for fast, free, and secure online W-2 filing options to

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CPAs, accountants, enrolled agents, and individuals who dedicated eBook readers, and eBook functionality may
process Form W-2 and Form W-2c, Corrected Wage and not operate as intended.
Tax Statement.
Getting a transcript of your return. You can get a copy
IRS social media. Go to IRS.gov/SocialMedia to see the of your tax transcript or a copy of your return by calling
various social media tools the IRS uses to share the latest 800-829-4933 or by mailing Form 4506-T (transcript re-
information on tax changes, scam alerts, initiatives, prod- quest) or Form 4506 (copy of return) to the IRS.
ucts, and services. At the IRS, privacy and security are
paramount. We use these tools to share public informa- Reporting and resolving your tax-related identity
tion with you. Don’t post your SSN or other confidential in- theft issues.
formation on social media sites. Always protect your iden- • Tax-related identity theft happens when someone
tity when using any social networking site. steals your personal information to commit tax fraud.
The following IRS YouTube channels provide short, in- Your taxes can be affected if your EIN is used to file a
formative videos on various tax-related topics in English, fraudulent return or to claim a refund or credit.
Spanish, and ASL.
• The IRS doesn’t initiate contact with taxpayers by
• Youtube.com/irsvideos. email, text messages, telephone calls, or social media
• Youtube.com/irsvideosmultilingua. channels to request personal or financial information.
This includes requests for personal identification num-
• Youtube.com/irsvideosASL. bers (PINs), passwords, or similar information for
credit cards, banks, or other financial accounts.
Watching IRS videos. The IRS Video portal
(IRSVideos.gov) contains video and audio presentations • Go to IRS.gov/IdentityTheft, the IRS Identity Theft
for individuals, small businesses, and tax professionals. Central webpage, for information on identity theft and
data security protection for taxpayers, tax professio-
Online tax information in other languages. You can nals, and businesses. If your EIN has been lost or sto-
find information on IRS.gov/MyLanguage if English isn’t len or you suspect you’re a victim of tax-related iden-
your native language. tity theft, you can learn what steps you should take.

Free Over-the-Phone Interpreter (OPI) Service. The Making a tax payment. Go to IRS.gov/Payments for in-
IRS is committed to serving our multilingual customers by formation on how to make a payment using any of the fol-
offering OPI services. The OPI Service is a federally fun- lowing options.
ded program and is available at Taxpayer Assistance
Centers (TACs), other IRS offices, and every VITA/TCE • Debit or Credit Card: Choose an approved payment
return site. The OPI Service is accessible in more than processor to pay online or by phone.
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, • Cash: You may be able to pay your taxes with cash at
or 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 Disaster Assistance and Emergency wire from your financial institution. Contact your finan-
Relief for Individuals and Businesses to review the availa- cial institution for availability, cost, and cutoff times.
ble disaster tax relief.
Note. The IRS uses the latest encryption technology to
Getting tax forms and publications. Go to IRS.gov/ ensure that the electronic payments you make online, by
Forms to view, download, or print most of the forms, in- phone, or from a mobile device using the IRS2Go app are
structions, and publications you may need. Or, you can go safe and secure. Paying electronically is quick, easy, and
to IRS.gov/OrderForms to place an order. faster than mailing in a check or money order.

Getting tax publications and instructions in eBook What if I can’t pay now? Go to IRS.gov/Payments for
format. You can also download and view popular tax more information about your options.
publications and instructions (including Pub. 15-A) on mo-
bile devices as eBooks at IRS.gov/eBooks. • Apply for an online payment agreement IRS.gov/ (
OPA) to meet your tax obligation in monthly install-
Note. IRS eBooks have been tested using Apple's ments if you can’t pay your taxes in full today. Once
iBooks for iPad. Our eBooks haven’t been tested on other

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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
Compromise program, go to IRS.gov/OIC. TAS can help you resolve problems that you can’t resolve
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:
Contacting your local IRS office. Keep in mind, many
questions can be answered on IRS.gov without visiting an • Your problem is causing financial difficulty for you,
IRS TAC. Go to IRS.gov/LetUsHelp for the topics people your family, or your business;
ask about most. If you still need help, IRS TACs provide • You face (or your business is facing) an immediate
tax help when a tax issue can’t be handled online or by threat of adverse action; or
phone. All TACs now provide service by appointment, so
you’ll know in advance that you can get the service you • You’ve tried repeatedly to contact the IRS but no one
has responded, or the IRS hasn’t responded by the
need without long wait times. Before you visit, go to
date promised.
IRS.gov/TACLocator to find the nearest TAC and to check
hours, available services, and appointment options. Or,
on the IRS2Go app, under the Stay Connected tab, How Can You Reach TAS?
choose the Contact Us option and click on “Local Offices.”
TAS has offices in every state, the District of Columbia,
and Puerto Rico. Your local advocate’s number is in your
The Taxpayer Advocate Service (TAS) local directory and at TaxpayerAdvocate.IRS.gov/
Is Here To Help You Contact-Us. You can also call them at 877-777-4778.
What Is TAS?
How Else Does TAS Help Taxpayers?
TAS is an independent organization within the IRS that
helps taxpayers and protects taxpayer rights. Their job is TAS works to resolve large-scale problems that affect
to ensure that every taxpayer is treated fairly and that you many taxpayers. If you know of one of these broad issues,
know and understand your rights under the Taxpayer Bill please report it to them at IRS.gov/SAMS.
of Rights.
TAS for Tax Professionals
How Can You Learn About Your Taxpayer
Rights? TAS can provide a variety of information for tax professio-
nals, including tax law updates and guidance, TAS pro-
The Taxpayer Bill of Rights describes 10 basic rights that grams, and ways to let TAS know about systemic prob-
all taxpayers have when dealing with the IRS. Go to lems you’ve seen in your practice.

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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
A                               Employees:                               O
Additional Medicare Tax  18       Common-law rules  6                    Officer of corporation 4
Agents, reporting 21              Industry examples 7                    Outplacement services   12
Agricultural workers  5           Statutory 5
Annuity payments    23          Employees defined   4                    P
Assistance (See Tax help)       Employees misclassification   6
Awards, employee achievement 11 Excessive termination payments (golden   Pension payments   23
                                  parachute) 12                          Publications (See Tax help)
                                Exempt organizations  9
B                                                                        R
Back pay 12                     F                                        Real estate agents 6
Below-market rate loans  13                                              Religious exemptions   10
                                Fellowship payments   11
                                Form W-2, electronic filing 3            Reporting agents  21
C
Common paymaster      21        G                                        S
Common-law employees     4                                               Scholarship payments   11
                                Golden parachute    12
Common-law rules    6                                                    Sick pay 14
Corporate officers  4                                                    SIMPLE retirement plans  14
                                I
                                                                         Simplified employee pension       14
D                               Idle time 12
                                                                         Statutory employees  5
                                Independent contractors 4
Deferred compensation plans,                                             Statutory nonemployees   5
  nonqualified   13             Interest-free loans 13
                                                                         Supplemental unemployment benefits              12
Direct sellers 5                International social security 
                                  agreements 22
Director of corporation 4                                                T
                                L                                        Tax help 25
E                                                                        Tax-exempt organizations        9
                                Leave sharing plans 13
Electronic Form W-2   3                                                  Tax-sheltered annuities 14
                                Loans, interest-free or below-market 
Employee achievement awards  11   rate 13                                Technical service specialists     6
Employee or contractor:                                                  Third-party sick pay 18
  Attorney 8                    M                                        Third-party sick pay recap      19
  Automobile industry 8
  Building industry 7           Ministers 10
  Computer industry 8           Misclassification of employees 6         W
                                                                         Withholding:
  Salesperson  9
  Taxicab driver 9              N                                         Idle time payments  12
                                                                          Sick pay 17
  Trucking industry 8           Nonqualified plans  13

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