Table of Contents
This chapter discusses income tax withholding on:
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Salaries and wages,
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Tips,
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Taxable fringe benefits,
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Sick pay,
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Pensions and annuities,
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Gambling winnings,
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Unemployment compensation, and
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Certain federal payments.
This chapter explains in detail the rules for withholding tax from each of these types of income. The discussion of salaries and wages includes an explanation of how to complete Form W-4.
This chapter also covers backup withholding on interest, dividends, and other payments.
Publication
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919 How Do I Adjust My Tax Withholding?
Form (and Instructions)
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W-4 Employee's Withholding Allowance Certificate
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W-4P Withholding Certificate for Pension or Annuity Payments
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W-4S Request for Federal Income Tax Withholding From Sick Pay
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W-4V Voluntary Withholding Request
See chapter 5 of this publication for information about getting these publications and forms.
Income tax is withheld from the pay of most employees. Your pay includes your regular pay, bonuses, commissions, and vacation allowances. It also includes reimbursements and other expense allowances paid under a nonaccountable plan. See Supplemental Wages on page 13 for definitions of accountable and nonaccountable plans.
If your income is low enough that you will not have to pay income tax for the year, you may be exempt from withholding. This is explained under Exemption From Withholding on page 13.
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Pays you cash wages of less than $150 during the year, and
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Has expenditures for agricultural labor totaling less than $2,500 during the year.
You can ask your employer to withhold income tax from noncash wages and other wages not subject to withholding. If your employer does not agree to withhold tax, or if not enough is withheld, you may have to pay estimated tax, as discussed in chapter 2.
The amount of income tax your employer withholds from your regular pay depends on two things.
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The amount you earn.
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The information you give your employer on Form W-4.
Form W-4 includes three types of information that your employer will use to figure your withholding.
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Whether to withhold at the single rate or at the lower married rate.
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How many withholding allowances you claim (each allowance reduces the amount withheld).
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Whether you want an additional amount withheld.
Note.
You must specify a filing status and a number of withholding allowances on Form W-4. You cannot specify only a dollar amount of withholding.
When you start a new job, you must fill out a Form W-4 and give it to your employer. Your employer should have copies of the form. If you need to change the information later, you must fill out a new form.
If you work only part of the year (for example, you start working after the beginning of the year), too much tax may be withheld. You may be able to avoid overwithholding if your employer agrees to use the part-year method, explained on page 12.
Events during the year may change your marital status or the exemptions, adjustments, deductions, or credits you expect to claim on your tax return. When this happens, you may need to give your employer a new Form W-4 to change your withholding status or number of allowances.
If the event changes your withholding status or the number of allowances you are claiming, you must give your employer a new Form W-4 within 10 days after either of the following.
Events that will decrease the number of withholding allowances you can claim include the following.
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You have been claiming an allowance for your spouse, but you get divorced or your spouse begins claiming his or her own allowance on a separate Form W-4.
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You have been claiming an allowance for a dependent who is a qualifying relative, but you no longer expect to provide more than half the dependent's support for the year.
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You have been claiming an allowance for your qualifying child, but you now find that he or she will provide more than half of his or her own support during the year.
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You have been claiming allowances for your expected deductions, but you now find they will be less than expected.
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You filed for bankruptcy under chapter 11 of the U.S. Bankruptcy Code and you may not be entitled to the same number of allowances or the bankruptcy estate may be taxed at a higher rate.
Generally, you can submit a new Form W-4 whenever you wish to change the number of your withholding allowances for any other reason.
If you change the number of your withholding allowances, you can request that your employer withhold using the cumulative wage method, explained on page 12.
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You claimed allowances for 2009 based on child care expenses, moving expenses, or large medical expenses, but you will not have these expenses in 2010.
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You have been claiming an allowance for your spouse, but he or she died in 2009.
Note.
Because you can file a joint return for 2009, your spouse's death will not affect the number of your withholding allowances until 2010. You will have to change from married to single status for 2010, unless you can file as a qualifying widow or widower because you have a dependent child, or you remarry.
You must file a new Form W-4 showing single status by December 1 of the last year you are eligible to file as qualifying widow or widower.
After you have given your employer a Form W-4, you can check to see whether the amount of tax withheld from your pay is too little or too much. See Publication 919 beginning on page 12. If too much or too little tax is being withheld, you should give your employer a new Form W-4 to change your withholding.
When reading the following discussion, you may find it helpful to refer to the filled-in Form W-4 on pages 10 and 11.
There is a lower withholding rate for people who qualify to check the “Married” box on line 3 of Form W-4. Everyone else must have tax withheld at the higher single rate.
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You are single. If you are divorced, or separated from your spouse under a court decree of separate maintenance, you are considered single.
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You are married, but neither you nor your spouse is a citizen or resident of the United States.
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You are married, either you or your spouse is a nonresident alien, and you have not chosen to have that person treated as a resident alien for tax purposes. For more information, see Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519.
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You are married and neither you nor your spouse is a nonresident alien. You are considered married for the whole year even if your spouse died during the year.
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You are married, either you or your spouse is a nonresident alien, and you have chosen to have that person treated as a resident alien for tax purposes. For more information, see Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519.
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You expect to be able to file your return as a qualifying widow or widower. You usually can use this filing status if your spouse died within the previous 2 years and you provide more than half the cost of keeping up a home for the entire year that was the main home for you and your child whom you can claim as a dependent. However, you must file a new Form W-4 showing your filing status as single by December 1 of the last year you are eligible to file as a qualifying widow or widower. For more information on this filing status, see Qualifying Widow(er) With Dependent Child under Filing Status in Publication 501, Exemptions, Standard Deduction, and Filing Information.
The more allowances you claim on Form W-4, the less income tax your employer will withhold. You will have the most tax withheld if you claim “0” allowances. The number of allowances you can claim depends on the following factors.
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How many exemptions you can take on your tax return.
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Whether you have income from more than one job.
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What deductions, adjustments to income, and credits you expect to have for the year.
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Whether you will file as head of household.
If you are married, it also depends on whether your spouse also works and claims any allowances on his or her own Form W-4.
Use the Personal Allowances Worksheet on page 1 of Form W-4 to figure your withholding allowances based on all of the following that apply.
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Exemptions.
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Only one job.
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Head of household filing status.
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Child and dependent care credit.
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Child tax credit.
Single | $166,800 |
Married filing jointly or qualifying widow(er) | $250,200 |
Married filing separately | $125,100 |
Head of household | $208,500 |
If you expect your AGI to be more than that amount, use Worksheet 1-1 below to figure your reduced number of personal allowances on lines A, C, and D of the Personal Allowances Worksheet.
Worksheet 1-1.Personal Allowances Worksheet (Form W-4) Reduction of Personal Allowances if AGI Above Phaseout Threshold
1. | Enter the total number of allowances on lines A, C, and D of the Personal Allowances Worksheet without regard to the phaseout rule | 1. | |||
2. | Enter your expected AGI | 2. | |||
3. | Enter: | ||||
$166,800 if single | |||||
$250,200 if married filing jointly or qualifying widow(er) | |||||
$125,100 if married filing separately | |||||
$208,500 if head of household | 3. | ||||
4. | Subtract line 3 from line 2 | 4. | |||
5. | Divide line 4 by $125,000 ($62,500 if married filing separately). Enter the result as a decimal | 5. | . | ||
6. | Multiply line 1 by line 5. If the result is not a whole number, increase it to the next higher whole number | 6. | |||
7. | Divide line 6 by 3.0 | 7. | |||
8. | Subtract line 7 from line 1. The total of the numbers you enter on lines A, C, and D of the Personal Allowances Worksheet cannot be more than this amount | 8. |
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You are single, and you have only one job at a time.
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You are married, you have only one job at a time, and your spouse does not work.
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Your wages from a second job or your spouse's wages (or the total of both) are $1,500 or less.
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Was the main home for all of 2009 of your parent whom you can claim as a dependent, or
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You lived in for more than half the year with your qualifying child or any other person you can claim as a dependent.
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Who is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (for example, your grandchild),
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Who will be under age 17 at the end of 2009,
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Who will not provide over half of his or her own support for 2009,
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Who will live with you for more than half of 2009,
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Who is a U.S. citizen, U.S. national, or a resident of the United States,
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For whom you will claim a personal exemption,
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Who will not file a joint return, unless the return is filed only as a claim for refund, and
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Who is younger than you.
Use the Deductions and Adjustments Worksheet on page 2 of Form W-4 in the following situations.
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You plan to itemize your deductions, claim certain credits, or claim adjustments to the income on your 2009 tax return and you want to reduce your withholding.
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You are increasing your standard deduction by certain items allowed for 2009 (see Adjustments to income beginning on this page).
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You have changes to any of the above items and need to see if you should change your withholding.
Use the amount of each item you reasonably can expect to show on your return. However, do not use more than:
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The amount shown for that item on your 2008 return (or your 2007 return if you have not yet filed your 2008 return), plus
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Any additional amount related to a transaction or occurrence (such as payments already made, the signing of an agreement, or the sale of property) that you can prove has happened or will happen during 2008 or 2009.
Do not include any amount shown on your last tax return that has been disallowed by the IRS.
Example.
On June 30, 2008, you bought your first home. On your 2008 tax return, you claimed itemized deductions of $6,600, the total mortgage interest and real estate tax you paid during the 6 months you owned your home. Based on your mortgage payment schedule and your real estate tax assessment, you reasonably can expect to claim deductions of $13,200 for those items on your 2009 return. You can use $13,200 to figure the number of your withholding allowances for itemized deductions.
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Medical and dental expenses that are more than 7.5% of your 2009 AGI (defined under AGI on this page).
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State and local income or sales taxes and property taxes.
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Sales and excise taxes paid on the purchase of certain new cars, trucks, motorcycles, and motor homes.
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Deductible home mortgage interest.
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Investment interest up to net investment income.
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Charitable contributions.
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Casualty and theft losses that are more than $500 and 10% of your AGI. However, the 10%-of-AGI limitation does not apply to a casualty loss occuring in a federally declared disaster area. In addition, the $500 limit for each separate casualty and the 10%-of-AGI limitation do not apply to the following disasters.
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The storms and tornadoes in the Kansas disaster area that began May 4, 2007. See Publication 4492-A, Information for Taxpayers Affected by the May 4, 2007, Kansas Storms and Tornadoes.
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The storms, tornadoes, or flooding in the Midwestern disaster area. See Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas.
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Fully deductible miscellaneous itemized deductions, including:
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Impairment-related work expenses of persons with disabilities,
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Federal estate tax on income in respect of a decedent,
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Repayment of more than $3,000 of income held under a claim of right that you included in income in an earlier year because at the time you thought you had an unrestricted right to it,
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Unrecovered investments in an annuity contract under which payments have ceased because of the annuitant's death,
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Gambling losses up to the amount of gambling winnings reported on your return, and
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Casualty and theft losses from income-producing property.
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Other miscellaneous itemized deductions that are more than 2% of your AGI, including:
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Unreimbursed employee business expenses, such as education expenses, work clothes and uniforms, union dues and fees, and the cost of work-related small tools and supplies,
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Safe deposit box rental,
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Tax counsel and assistance, and
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Certain fees paid to an IRA trustee or custodian.
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Worksheet 1-2.Deductions and Adjustments Worksheet (Form W-4)—Line 1 Phaseout of Itemized Deductions
1. | Enter the estimated total of your itemized deductions | 1. | ||||
2. | Enter the amount included in line 1 for medical and dental expenses, investment interest, casualty or theft losses, and gambling losses. Also include in the total any amount included as a carryover of charitable contributions that you elected to treat as a qualified contribution for relief efforts in a Midwestern disaster area | 2. | ||||
3. | Is the amount on line 2 less than the amount on line 1? | |||||
□ No. Stop here. Your deduction is not limited. Enter the amount from line 1 above on line 1 of the Deductions and Adjustments Worksheet. | ||||||
□ Yes. Subtract line 2 from line 1 | 3. | |||||
4. | Multiply line 3 by 80% (.80) | 4. | ||||
5. | Enter your expected AGI | 5. | ||||
6. | Enter $166,800 ($83,400 if married filing separately) | 6. | ||||
7. | Is the amount on line 6 less than the amount on line 5? | |||||
□ No. Stop here. Your deduction is not limited. Enter the amount from line 1 above on line 1 of the Deductions and Adjustments Worksheet. | ||||||
□ Yes. Subtract line 6 from line 5 | 7. | |||||
8. | Multiply line 7 by 3% (.03) | 8. | ||||
9. | Enter the smaller of line 4 or line 8 | 9. | ||||
10. | Divide line 9 by 1.5 | 10. | ||||
11. | Subtract line 10 from line 9 | 11. | ||||
12. | Subtract line 11 from line 1. Enter the result here and on line 1 of the Deductions and Adjustments Worksheet | 12. |
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Net losses from Schedules C, D, E, and F of Form 1040 and from Part II of Form 4797, line 18b.
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Net operating loss carryovers.
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Educator expenses.
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Certain business expenses of reservists, performing artists, and fee-based government officials.
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Health savings account or medical savings account deduction.
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Certain moving expenses.
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Deduction for one-half of self-employment tax.
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Deduction for contributions to self-employed SEP, and qualified SIMPLE plans.
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Self-employed health insurance deduction.
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Penalty on early withdrawal of savings.
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Alimony paid.
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IRA deduction.
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Student loan interest deduction.
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Tuition and fees deduction.
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Jury duty pay given to your employer.
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Reforestation amortization and expenses.
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Deductible expenses related to income reported on line 21 from the rental of personal property engaged in for profit.
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Repayment of certain supplemental unemployment benefits.
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Contributions to IRC 501(c)(18)(D) pension plans.
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Attorney fees and court costs for certain unlawful discrimination claims.
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Attorney fees and court costs for certain whistleblower awards.
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Estimated amount of decrease in tax attributable to income averaging using Schedule J (Form 1040).
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Certain state and local real estate taxes you paid.
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Net disaster loss attributable to a federally declared disaster.
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Sales and excise taxes you paid on the purchase of certain vehicles.
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Foreign tax credit, except any credit that applies to wages not subject to U.S. income tax withholding because they are subject to income tax withholding by a foreign country. See Publication 514, Foreign Tax Credit for Individuals.
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Credit for the elderly or the disabled. See Publication 524, Credit for the Elderly or the Disabled.
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Hope credit. See Publication 970, Tax Benefits for Education.
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Lifetime learning credit. See Publication 970.
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Retirement savings contributions credit (saver's credit). See Publication 590.
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Mortgage interest credit. See Publication 530, Tax Information for Homeowners.
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Adoption credit. See the Instructions for Form 8839.
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Credit for prior year minimum tax (both refundable and nonrefundable) if you paid alternative minimum tax in an earlier year. See the Instructions for Form 8801.
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General business credit. See the Instructions for Form 3800.
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Earned income credit, unless you requested advance payment of the credit. See Publication 596.
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Alternative motor vehicle credit (including the plug-in conversion credit). See Form 8910, Part III, and the instructions.
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Alternative fuel vehicle refueling property credit. See Form 8911, Part III, and the instructions.
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Plug-in electric drive motor vehicle credit. See Form 8834.
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Credit to holders of tax credit bonds. See Form 8912 and instructions.
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Health coverage tax credit. See Form 8885 and instructions.
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Residential energy credits. See Form 5695 and instructions.
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District of Columbia first-time homebuyer credit. See Form 8859 and instructions.
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First-time homebuyer credit. See Form 5405.
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Making work pay credit (including special credit for government retirees). See Worksheet 2-9 on page 43.
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Carryforward from prior years of a qualified electric vehicle passive activity credit. See Form 8834 and instructions.
Example.
You are married and expect to file a joint return for 2009. Your combined estimated wages are $68,000. Your estimated tax credits include a child and dependent care credit of $960 and a mortgage interest credit of $1,700 (total credits = $2,660).
In Table 1-1a, the number corresponding to your combined estimated wages ($38,001 – $90,000) is 6.7. Multiply your total estimated tax credits of $2,660 by 6.7. Add the result, $17,822, to the amount you otherwise would show on line 5 of the Deductions and Adjustments Worksheet and enter the total on line 5. Because you choose to account for your child and dependent care credit this way, do not make an entry on line F of the Personal Allowances Worksheet.
Table 1-1.Deductions and Adjustments Worksheet (Form W-4) —Line 5
a.Married Filing Jointly or Qualifying Widow(er) |
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If combined income from all sources is: | Multiply credits by: | ||||
$0 – 38,000 | 10.0 | ||||
$38,001 – 90,000 | 6.7 | ||||
$90,001 – 160,000 | 4.0 | ||||
$160,001 – 250,000 | 3.6 | ||||
$250,001 – 410,000 | 3.0 | ||||
$410,001 and over | 2.8 | ||||
b.Single | |||||
If combined income from all sources is: | Multiply credits by: | ||||
$0 – 18,000 | 10.0 | ||||
$18,001 – 43,000 | 6.7 | ||||
$43,001 – 95,000 | 4.0 | ||||
$95,001 – 190,000 | 3.6 | ||||
$190,001 – 410,000 | 3.0 | ||||
$410,001 and over | 2.8 | ||||
c.Head of Household | |||||
If combined income from all sources is: | Multiply credits by: | ||||
$0 – 27,000 | 10.0 | ||||
$27,001 – 61,000 | 6.7 | ||||
$61,001 – 135,000 | 4.0 | ||||
$135,001 – 220,000 | 3.6 | ||||
$220,001 – 410,000 | 3.0 | ||||
$410,001 and over | 2.8 | ||||
d.Married Filing Separately | |||||
If combined income from all sources is: | Multiply credits by: | ||||
$0 – 19,000 | 10.0 | ||||
$19,001 – 45,000 | 6.7 | ||||
$45,001 – 80,000 | 4.0 | ||||
$80,001 – 125,000 | 3.6 | ||||
$125,001 – 205,000 | 3.0 | ||||
$205,001 and over | 2.8 |
Complete the Two-Earners/Multiple Jobs Worksheet on page 2 of Form W-4 if you have more than one job or are married and you and your spouse both work and the combined earnings from all jobs are more than $40,000 ($25,000 if married).
Joyce Green works in a bookstore and expects to earn about $13,300. Her husband, John, works full time at the Acme Corporation, where his expected pay is $48,500. They file a joint income tax return and claim exemptions for their two children. Because they file jointly, they use only one set of Form W-4 worksheets to figure the number of withholding allowances. The Greens' worksheets and John's Form W-4 are shown in Figure 1-A, beginning on page 10.
In most situations, the tax withheld from your pay will be close to the tax you figure on your return if you follow these two rules.
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You accurately complete all the Form W-4 worksheets that apply to you.
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You give your employer a new Form W-4 when changes occur.
But because the worksheets and withholding methods do not account for all possible situations, you may not be getting the right amount withheld. This is most likely to happen in the following situations.
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You are married and both you and your spouse work.
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You have more than one job at a time.
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You have nonwage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income.
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You will owe additional amounts with your return, such as self-employment tax.
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Your withholding is based on obsolete Form W-4 information for a substantial part of the year.
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Your earnings are more than $130,000 if you are single or $180,000 if you are married.
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You work only part of the year.
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You change the number of your withholding allowances during the year.
If you work only part of the year and your employer agrees to use the part-year withholding method, less tax will be withheld from each wage payment than would be withheld if you worked all year. To be eligible for the part-year method, you must meet both of the following requirements.
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You must use the calendar year (the 12 months from January 1 through December 31) as your tax year. You cannot use a fiscal year.
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You must not expect to be employed for more than 245 days during the year. To figure this limit, count all calendar days that you are employed (including weekends, vacations, and sick days) beginning with the first day you are on the job for pay and ending with your last day of work. If you are temporarily laid off for 30 days or less, count those days too. If you are laid off for more than 30 days, do not count those days. You will not meet this requirement if you begin working before May 1 and expect to work for the rest of the year.
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The date of your last day of work for any prior employer during the current calendar year.
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That you do not expect to be employed more than 245 days during the current calendar year.
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That you use the calendar year as your tax year.
If you change the number of your withholding allowances during the year, too much or too little tax may have been withheld for the period before you made the change. You may be able to compensate for this if your employer agrees to use the cumulative wage withholding method for the rest of the year. You must ask your employer in writing to use this method.
To be eligible, you must have been paid for the same kind of payroll period (weekly, biweekly, etc.) since the beginning of the year.
To make sure you are getting the right amount of tax withheld, get Publication 919. It will help you compare the total tax to be withheld during the year with the tax you can expect to figure on your return. It also will help you determine how much, if any, additional withholding is needed each payday to avoid owing tax when you file your return. If you do not have enough tax withheld, you may have to pay estimated tax. See chapter 2 for information about estimated tax.
It may be helpful for you to know some of the withholding rules your employer must follow. These rules can affect how to fill out your Form W-4 and how to handle problems that may arise.
If you claim exemption from withholding, your employer will not withhold federal income tax from your wages. The exemption applies only to income tax, not to social security or Medicare tax.
You can claim exemption from withholding for 2009 only if both of the following situations apply.
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For 2008 you had a right to a refund of all federal income tax withheld because you had no tax liability.
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For 2009 you expect a refund of all federal income tax withheld because you expect to have no tax liability.
Use Figure 1-B on page 12 to help you decide whether you can claim exemption from withholding. Do not use Figure 1-B if you:
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Are 65 or older,
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Are blind,
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Will itemize deductions on your 2009 return,
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Will claim an exemption for a dependent on your 2009 return, or
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Will claim any tax credits on your 2009 return.
These situations are discussed later.
Example 1.
You are a high school student and expect to earn $2,500 from a summer job. You do not expect to have any other income during the year, and your parents will be able to claim an exemption for you on their tax return. You worked last summer and had $375 federal income tax withheld from your pay. The entire $375 was refunded when you filed your 2008 return. Using Figure 1-B, you find that you can claim exemption from withholding.
Example 2.
The facts are the same as in Example 1, except that you also have a savings account and expect to have $350 interest income during the year. Using Figure 1-B, you find that you cannot claim exemption from withholding because your unearned income will be more than $300 and your total income will be more than $950.
Use this worksheet only if, for 2008 you had a right to a refund of all federal income tax withheld because you had no tax liability. |
Caution.This worksheet does not apply if you can be claimed as a dependent. See Worksheet 1-4 instead. |
1. | Check the boxes below that apply to you. | ||
65 or older □ | Blind □ | ||
2. | Check the boxes below that apply to your spouse if you will claim your spouse's exemption on your 2009 return. | ||
65 or older □ | Blind □ | ||
3. | Add the number of boxes you checked in 1 and 2 above. Enter the result |
||
You can claim exemption from withholding if: | |||
Your filing status is: | and the number on line 3 above is: |
and your 2009 total income will be no more than: |
|
Single | 1 | $10,750 | |
2 | 12,150 | ||
Head of | 1 | $13,400 | |
household | 2 | 14,800 | |
Married filing | 1 | $10,450 | |
separately for | 2 | 11,550 | |
both 2008 and | 3 | 12,650 | |
2009 | 4 | 13,750 | |
Other married | 1 | $19,800* | |
status | 2 | 20,900* | |
3 | 22,000* | ||
4 | 23,100* | ||
* Include both spouses' income whether you will file separately or jointly. | |||
Qualifying | 1 | $16,150 | |
widow(er) | 2 | 17,250 | |
You cannot claim exemption from withholding if your total income will be more than the amount shown for your filing status. |
Use this worksheet only if, for 2009, you are a dependent and if, for 2008, you had a right to a refund of all federal income tax withheld because you had no tax liability. |
1. | Enter your expected earned income plus $300 | 1. | ||
2. | Minimum amount | 2. | $ 950 | |
3. | Compare lines 1 and 2. Enter the larger amount | 3. | ||
4. | Limit | 4. | 5,700 | |
5. | Compare lines 3 and 4. Enter the smaller amount | 5. | ||
6. | Enter the appropriate amount from the following table | 6. | ||
Single | ||||
Either 65 or older or blind | $1,400 | |||
Both 65 or older and blind | 2,800 | |||
Married filing separately | ||||
Either 65 or older or blind | 1,100 | |||
Both 65 or older and blind | 2,200 | |||
7. | Add lines 5 and 6. Enter the result | 7. | ||
8. | Enter your total expected income | 8. | ||
You can claim exemption from withholding if line 7 is equal to or more than line 8. You cannot claim exemption from withholding if line 8 is more than line 7. |
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Itemize deductions,
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Claim an exemption for a dependent, or
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Claim a tax credit,
Supplemental wages include bonuses, commissions, overtime pay, vacation allowances, certain sick pay, and expense allowances under certain plans. The payer can figure withholding on supplemental wages using the same method used for your regular wages. However, if these payments are identified separately from regular wages, your employer or other payer of supplemental wages can withhold income tax from these wages at a flat rate.
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Your expenses must have a business connection. That is, you must have paid or incurred deductible expenses while performing services as an employee of your employer.
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You must adequately account to your employer for these expenses within a reasonable period of time.
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You must return any excess reimbursement or allowance within a reasonable period of time.
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You receive an advance within 30 days of the time you have an expense.
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You adequately account for your expenses within 60 days after they were paid or incurred.
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You return any excess reimbursement within 120 days after the expense was paid or incurred.
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You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement.
For more information about accountable and nonaccountable plans, see chapter 6 of Publication 463, Travel, Entertainment, Gift, and Car Expenses.
You may have to pay a penalty of $500 if both of the following apply.
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You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax withheld.
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You have no reasonable basis for those statements or allowances at the time you prepare your Form W-4.
There is also a criminal penalty for willfully supplying false or fraudulent information on your Form W-4 or for willfully failing to supply information that would increase the amount withheld. The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both.
These penalties will apply if you deliberately and knowingly falsify your Form W-4 in an attempt to reduce or eliminate the proper withholding of taxes. A simple error or an honest mistake will not result in one of these penalties. For example, a person who has tried to figure the number of withholding allowances correctly, but claims seven when the proper number is six, will not be charged a Form W-4 penalty. However, see chapter 4 for information on the penalty for underpaying your tax.
The tips you receive while working on your job are considered part of your pay. You must include your tips on your tax return on the same line as your regular pay. However, tax is not withheld directly from tip income, as it is from your regular pay. Nevertheless, your employer will take into account the tips you report when figuring how much to withhold from your regular pay.
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By withholding at the regular rate on the sum of your pay plus your reported tips.
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By withholding at the regular rate on your pay plus a percentage of your reported tips.
The value of certain noncash fringe benefits you receive from your employer is considered part of your pay. Your employer generally must withhold income tax on these benefits from your regular pay.
Although the value of your personal use of an employer-provided car, truck, or other highway motor vehicle is taxable, your employer can choose not to withhold income tax on that amount. Your employer must notify you if this choice is made.
Example.
Your employer considers the value of benefits paid from November 1, 2007, through October 31, 2008, as paid to you in 2008. To determine the total value of benefits paid to you in 2009, your employer will add the value of any benefits paid in November and December of 2008 to the value of any benefits paid in January through October of 2009.
Sick pay is a payment to you to replace your regular wages while you are temporarily absent from work due to sickness or personal injury. To qualify as sick pay, it must be paid under a plan to which your employer is a party.
If you receive sick pay from your employer or an agent of your employer, income tax must be withheld. An agent who does not pay regular wages to you may choose to withhold income tax at a flat rate.
However, if you receive sick pay from a third party who is not acting as an agent of your employer, income tax will be withheld only if you choose to have it withheld. See Form W-4S below.
If you receive payments under a plan in which your employer does not participate (such as an accident or health plan where you paid all the premiums), the payments are not sick pay and usually are not taxable.
Income tax usually will be withheld from your pension or annuity distributions unless you choose not to have it withheld. This rule applies to distributions from:
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A traditional individual retirement arrangement (IRA);
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A life insurance company under an endowment, annuity, or life insurance contract;
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A pension, annuity, or profit-sharing plan;
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A stock bonus plan; and
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Any other plan that defers the time you receive compensation.
The amount withheld depends on whether you receive payments spread out over more than 1 year (periodic payments), within 1 year (nonperiodic payments), or as an eligible rollover distribution (ERD). You cannot choose not to have income tax withheld from an ERD. ERDs are discussed on this page under Eligible Rollover Distributions.
Withholding from periodic payments of a pension or annuity is figured in the same way as withholding from salaries and wages. To tell the payer of your pension or annuity how much you want withheld, fill out Form W-4P or a similar form provided by the payer. Follow the rules discussed under Salaries and Wages, starting on page 4, to fill out your Form W-4P.
Note.
Use Form W-4, not Form W-4P, if you receive any of the following.
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Military retirement pay.
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Payments from certain nonqualified deferred compensation plans. These are employer plans that pay part of your compensation at a later time, but are not tax-qualified deferred compensation plans. See Nonqualified Deferred Compensation and Section 457 Plans in Publication 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration.
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Payments from a state or local deferred compensation plan (section 457 plan).
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If you do not fill out a withholding certificate, tax will be withheld as if you were married and claiming three withholding allowances. This means that tax will be withheld only if your pension or annuity is at least $1,600 a month (or $19,200 a year).
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You can choose not to have tax withheld, regardless of how much tax you owed last year or expect to owe this year. You do not have to qualify for exemption. See Choosing Not To Have Income Tax Withheld on this page.
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If you do not give the payer your social security number (in the required manner) or the IRS notifies the payer before any payment or distribution is made that you gave an incorrect social security number, tax will be withheld as if you were single and were claiming no withholding allowances. This means that tax will be withheld if your pension or annuity is at least $230 a month (or $2,760 a year).
Tax will be withheld at a flat 10% rate on any nonperiodic payments you receive, unless you tell the payer not to withhold.
Because withholding on nonperiodic payments does not depend on withholding allowances or whether you are married or single, you cannot use Form W-4P to tell the payer how much to withhold. But you can use Form W-4P to specify that an additional amount be withheld. You also can use Form W-4P to choose not to have tax withheld or to revoke a choice not to have tax withheld.
You may need to use Form W-4P to ask for additional withholding. If you do not have enough tax withheld, you may need to pay estimated tax, as explained in chapter 2.A distribution you receive that is eligible to be rolled over tax free into a qualified retirement or annuity plan is called an eligible rollover distribution (ERD). This is the taxable part of any distribution from a qualified pension plan or tax-sheltered annuity that is not any of the following.
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A required minimum distribution.
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One of a series of substantially equal periodic pension or annuity payments made over:
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Your life (or your life expectancy) or the joint lives of you and your beneficiary (or your life expectancies), or
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A specified period of 10 or more years.
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A hardship distribution.
The payer of a distribution must withhold at a flat 20% rate on any part of an ERD that is distributed rather than rolled over directly to another qualified plan. You cannot elect not to have withholding on these distributions. No withholding is required on any part rolled over directly to another plan.
For payments other than ERDs, you can choose not to have income tax withheld. The payer will tell you how to make this choice. If you use Form W-4P, check the box on line 1 to make this choice. This choice will remain in effect until you decide you want withholding.
The payer must withhold if either of the following applies:
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You do not give the payer your social security number (in the required manner), or
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The IRS notifies the payer, before any payment or distribution is made, that you gave it an incorrect social security number.
If you do not have any income tax withheld from your pension or annuity, or if you do not have enough withheld, you may have to pay estimated tax. See chapter 2.
If you do not pay enough tax, either through estimated tax or withholding, or a combination of both, you may have to pay a penalty. See chapter 4.
Income tax is withheld at a flat 25% rate from certain kinds of gambling winnings.
Gambling winnings of more than $5,000 from the following sources are subject to income tax withholding.
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Any sweepstakes; wagering pool, including payments made to winners of poker tournaments; or lottery.
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Any other wager if the proceeds are at least 300 times the amount of the bet.
It does not matter whether your winnings are paid in cash, in property, or as an annuity. Winnings not paid in cash are taken into account at their fair market value.
If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. See chapter 4.
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Your name, address, and social security number.
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Whether you made identical wagers (explained below).
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Whether someone else is entitled to any part of the winnings subject to withholding. If so, you must complete Form 5754, Statement by Person(s) Receiving Gambling Winnings, and return it to the payer. The payer will use it to prepare a Form W-2G for each of the winners.
You can choose to have income tax withheld from unemployment compensation. To make this choice, you will have to fill out Form W-4V (or a similar form provided by the payer) and give it to the payer.
The first $2,400 of unemployment compensation is excluded from income. All other unemployment compensation is taxable. So, if you do not have income tax withheld, you may have to pay estimated tax. See chapter 2.
If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. See chapter 4.
You can choose to have income tax withheld from certain federal payments you receive. These payments are:
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Social security benefits,
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Tier 1 railroad retirement benefits,
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Commodity credit loans you choose to include in your gross income, and
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Payments under the Agricultural Act of 1949 (7 U.S.C. 1421 et seq.), as amended, or title II of the Disaster Assistance Act of 1988 that are treated as insurance proceeds and that you received because:
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Your crops were destroyed or damaged by drought, flood, or any other natural disaster, or
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You were unable to plant crops because of a natural disaster described in (a).
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To make this choice, fill out Form W-4V (or a similar form provided by the payer) and give it to the payer.
If you do not choose to have income tax withheld, you may have to pay estimated tax. See chapter 2.
If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. See chapter 4.
Banks or other businesses that pay you certain kinds of income must file an information return (Form 1099) with the IRS. The information return shows how much you were paid during the year. It also includes your name and taxpayer identification number (TIN). TINs are explained later in this discussion.
These payments generally are not subject to withholding. However, “backup” withholding is required in certain situations.
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Interest payments (Form 1099-INT),
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Dividends (Form 1099-DIV),
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Patronage dividends, but only if at least half the payment is in money (Form 1099-PATR),
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Rents, profits, or other gains (Form 1099-MISC),
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Commissions, fees, or other payments for work you do as an independent contractor (Form 1099-MISC),
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Payments by brokers (Form 1099-B),
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Payments by fishing boat operators, but only the part that is in money and that represents a share of the proceeds of the catch (Form 1099-MISC), and
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Royalty payments (Form 1099-MISC).
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The amount you receive from any one payer is $600 or more.
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The payer had to give you a Form 1099 last year.
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The payer made payments to you last year that were subject to backup withholding.
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You do not give the payer your TIN in the required manner.
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The IRS notifies the payer that the TIN you gave is incorrect.
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You are required, but fail, to certify that you are not subject to backup withholding.
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The IRS notifies the payer to start withholding on interest or dividends because you have underreported interest or dividends on your income tax return. The IRS will do this only after it has mailed you four notices over at least a 210-day period.
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A social security number (SSN).
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An employer identification number (EIN).
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An IRS individual taxpayer identification number (ITIN). Aliens who do not have an SSN and are not eligible to get one should get an ITIN. Use Form W-7, Application for IRS Individual Taxpayer Identification Number, to apply for an ITIN.
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The IRS notifies the payer twice within 3 calendar years that a TIN you gave for the same account is incorrect.
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The incorrect TIN is still being used on the account when the payer receives the second notice.
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No underreporting occurred.
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You have a bona fide dispute with the IRS about whether an underreporting occurred.
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Backup withholding will cause or is causing an undue hardship and it is unlikely that you will underreport interest and dividends in the future.
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You have corrected the underreporting by filing an original return if you did not previously file one, or by filing an amended return, and by paying all taxes, penalties, and interest due for any underreported interest or dividend payments.
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