Department of the Treasury Contents

Internal Revenue Service

What's New . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Reminders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Publication 15-A
Cat. No. 21453T Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Employer's
1. Who Are Employees? . . . . . . . . . . . . . . . . . . . . . 5
2. Employee or Independent Contractor? . . . . . . . 7

Supplemental 3. Employees of Exempt Organizations . . . . . . . . 10

4. Religious Exemptions and Special Rules for

Tax Guide
Ministers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5. Wages and Other Compensation . . . . . . . . . . . 11
6. Sick Pay Reporting . . . . . . . . . . . . . . . . . . . . . . 15
(Supplement to Pub. 15, 7. Special Rules for Paying Taxes . . . . . . . . . . . . 22
Employer's Tax Guide) 8. Pensions and Annuities . . . . . . . . . . . . . . . . . . 23

For use in 2020 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
2020 withholding tables. The discussion on the alterna-
tive methods for figuring federal income tax withholding
and the Tables for Withholding on Distributions of Indian
Gaming Profits to Tribal Members are no longer included
in Pub.15-A. This information is now included in Pub.
15-T, Federal Income Tax Withholding Methods, along
with the Percentage Method and Wage Bracket Method
withholding tables. However, the IRS is no longer provid-
ing the Formula Tables for Percentage Method Withhold-
ing (for Automated Payroll Systems); Wage Bracket Per-
centage Method Tables (for Automated Payroll Systems);
or the Combined Federal Income Tax, Employee Social
Security Tax, and Employee Medicare Tax Withholding
Tables.
New Form 1099-NEC. There is a new Form 1099-NEC
to report nonemployee compensation paid in 2020. The
2020 Form 1099-NEC will be due February 1, 2021. For
nonemployee compensation paid in 2019, continue to use
Form 1099-MISC, which is due January 31, 2020. This re-
vision of Pub. 15-A will continue to reference Form
1099-MISC because that is the form that is filed in 2020.
Social security and Medicare tax for 2020. The social
Get forms and other information faster and easier at:
• IRS.gov (English) • IRS.gov/Korean (한국어) security tax rate is 6.2% each for the employee and em-
• IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский) ployer, unchanged from 2019. The social security wage
• IRS.gov/Chinese (中文) • IRS.gov/Vietnamese (TiếngViệt) base limit is $137,700.

Dec 23, 2019

 The Medicare tax rate is 1.45% each for the employee Definition of marriage. A marriage of two individuals is
and employer, unchanged from 2019. There is no wage recognized for federal tax purposes if the marriage is rec-
base limit for Medicare tax. ognized by the state, possession, or territory of the United
Social security and Medicare taxes apply to the wages States in which the marriage is entered into, regardless of
of household workers you pay $2,200 or more in cash wa- legal residence. Two individuals who enter into a relation-
ges in 2020. Social security and Medicare taxes apply to ship that is denominated as marriage under the laws of a
election workers who are paid $1,900 or more in cash or foreign jurisdiction are recognized as married for federal
an equivalent form of compensation. tax purposes if the relationship would be recognized as
Disaster tax relief. Disaster tax relief is available for marriage under the laws of at least one state, possession,
those impacted by disasters. For more information about or territory of the United States, regardless of legal resi-
disaster relief, go to IRS.gov/DisasterTaxRelief. dence. Individuals who have entered into a registered do-
mestic partnership, civil union, or other similar relationship
that isn't denominated as a marriage under the law of the
state, possession, or territory of the United States where
Reminders such relationship was entered into aren't lawfully married
for federal tax purposes, regardless of legal residence.
Moving expense reimbursements. Section 11048 of
P.L. 115-97, Tax Cuts and Jobs Act, suspends the exclu- Certification program for professional employer or-
sion for qualified moving expense reimbursements from ganizations (PEOs). The Stephen Beck, Jr., Achieving
your employee’s income for tax years beginning after a Better Life Experience Act of 2014 required the IRS to
2017 and before 2026. However, the exclusion is still establish a voluntary certification program for PEOs.
available in the case of a member of the U.S. Armed PEOs handle various payroll administration and tax re-
Forces on active duty who moves because of a perma- porting responsibilities for their business clients and are
nent change of station due to a military order. The exclu- typically paid a fee based on payroll costs. To become
sion applies only to reimbursement of moving expenses and remain certified under the certification program, certi-
that the member could deduct if he or she had paid or in- fied professional employer organizations (CPEOs) must
curred them without reimbursement. See Moving Expen- meet various requirements described in sections 3511
ses in Pub. 3, Armed Forces’ Tax Guide, for the definition and 7705 and related published guidance. Certification as
of what constitutes a permanent change of station and to a CPEO may affect the employment tax liabilities of both
learn which moving expenses are deductible. the CPEO and its customers. A CPEO is generally treated
Work opportunity tax credit for qualified tax-exempt for employment tax purposes as the employer of any indi-
organizations hiring qualified veterans. Qualified vidual who performs services for a customer of the CPEO
tax-exempt organizations that hire eligible unemployed and is covered by a contract described in section 7705(e)
veterans may be able to claim the work opportunity tax (2) between the CPEO and the customer (CPEO con-
credit against their payroll tax liability using Form 5884-C. tract), but only for wages and other compensation paid to
For more information, go to IRS.gov/WOTC. the individual by the CPEO. To become a CPEO, the or-
COBRA premium assistance credit. Effective for tax ganization must apply through the IRS Online Registration
periods beginning after 2013, the credit for COBRA pre- System. For more information or to apply to become a
mium assistance payments can't be claimed on Form 941, CPEO, go to IRS.gov/CPEO. Also, see Revenue Proce-
Employer's QUARTERLY Federal Tax Return (or Form dure 2017-14, 2017-3 I.R.B. 426, available at IRS.gov/irb/
944, Employer's ANNUAL Federal Tax Return). Instead, 2017-03_IRB#RP-2017-14.
after filing your Form 941 (or Form 944), file Form 941-X, Outsourcing payroll tax duties. Generally, as an em-
Adjusted Employer's QUARTERLY Federal Tax Return or ployer, you’re responsible to ensure that tax returns are
Claim for Refund (or Form 944-X, Adjusted Employer's filed and deposits and payments are made, even if you
ANNUAL Federal Tax Return or Claim for Refund) to contract with a third party to perform these acts. You re-
claim the COBRA premium assistance credit. Filing a main responsible if the third party fails to perform any re-
Form 941-X (or Form 944-X) before filing a Form 941 (or quired action. Before you choose to outsource any of your
Form 944) for the return period may result in errors or de- payroll and related tax duties (that is, withholding, report-
lays in processing your Form 941-X (or Form 944-X). For ing, and paying over social security, Medicare, FUTA, and
more information, see the Instructions for Form 941 (or the income taxes) to a third-party payer, such as a payroll
Instructions for Form 944). service provider or reporting agent, go to IRS.gov/
No federal income tax withholding on disability pay- OutsourcingPayrollDuties for helpful information on this
ments for injuries incurred as a direct result of a ter- topic.
rorist attack directed against the United States. Disa- If a CPEO pays wages and other compensation to an
bility payments (including Social Security Disability individual performing services for you, and the services
Insurance (SSDI) payments) for injuries incurred as a di- are covered by a contract described in section 7705(e)(2)
rect result of a terrorist attack directed against the United between you and the CPEO (CPEO contract), then the
States (or its allies) aren't included in income. Because CPEO is generally treated as the employer, but only for
federal income tax withholding is only required when a wages and other compensation paid to the individual by
payment is includable in income, no federal income tax the CPEO. However, with respect to certain employees
should be withheld from these payments. See Pub. 907, covered by a CPEO contract, you may also be treated as
Tax Highlights for Persons With Disabilities. an employer of the employees and, consequently, may

Page 2 Publication 15-A (2020)

also be liable for federal employment taxes imposed or professional, financial institution, payroll service, or other
wages and other compensation paid by the CPEO to such trusted third party to make electronic deposits on your be-
employees. half. Also, you may arrange for your financial institution to
Aggregate Form 941 filers. Agents and CPEOs must initiate a same-day wire payment on your behalf. EFTPS
complete Schedule R (Form 941), Allocation Schedule for is a free service provided by the Department of the Treas-
Aggregate Form 941 Filers, when filing an aggregate ury. Services provided by your tax professional, financial
Form 941. Aggregate Forms 941 are filed by agents ap- institution, payroll service, or other third party may have a
proved by the IRS under section 3504 of the Internal Rev- fee.
enue Code. To request approval to act as an agent for an For more information on making federal tax deposits,
employer, the agent files Form 2678 with the IRS. Aggre- see How To Deposit in Pub. 15. To get more information
gate Forms 941 are also filed by CPEOs approved by the about EFTPS or to enroll in EFTPS, go to EFTPS.gov, or
IRS under section 7705. CPEOs file Form 8973, Certified call 800-555-4477 or 800-733-4829 (TDD). Additional in-
Professional Employer Organization/Customer Reporting formation about EFTPS is also available in Pub. 966.
Agreement, to notify the IRS that they’ve started or ended Electronic filing and payment. Businesses can enjoy
a service contract with a client or customer. the benefits of filing and paying their federal taxes elec-
Aggregate Form 940 filers. Agents and CPEOs must tronically. Whether you rely on a tax professional or han-
complete Schedule R (Form 940), Allocation Schedule for dle your own taxes, the IRS offers you convenient pro-
Aggregate Form 940 Filers, when filing an aggregate grams to make filing and payment easier.
Form 940, Employer's Annual Federal Unemployment Spend less time worrying about taxes and more time
(FUTA) Tax Return. Aggregate Forms 940 are filed by running your business. Use e-file and EFTPS to your ben-
agents acting on behalf of home care service recipients efit.
who receive home care services through a program ad- • For e-file, go to IRS.gov/EmploymentEfile for addi-
ministered by a federal, state, or local government. To re- tional information. A fee may be charged to file elec-
quest approval to act as an agent on behalf of home care tronically.
service recipients, the agent files Form 2678 with the IRS.
Aggregate Forms 940 are also filed by CPEOs approved • For EFTPS, go to EFTPS.gov or call EFTPS Customer
by the IRS under section 7705. CPEOs file Form 8973 to Service at 800-555-4477 or 800-733-4829 (TDD).
notify the IRS that they’ve started or ended a service con- Electronic submission of Forms W-4, W-4P, W-4S,
tract with a client or customer. and W-4V. You may set up a system to electronically re-
You must receive written notice from the IRS to file ceive any or all of the following forms (and their Spanish
Form 944. If you’ve been filing Forms 941 (or Forms versions, if available) from an employee or payee.
941-SS, Employer's QUARTERLY Federal Tax Re- • Form W-4, Employee's Withholding Certificate.
turn—American Samoa, Guam, the Commonwealth of the
Northern Mariana Islands, and the U.S. Virgin Islands, or
• Form W-4P, Withholding Certificate for Pension or An-
nuity Payments.
Formularios 941-PR, Planilla para la Declaración Federal
TRIMESTRAL del Patrono), and believe your employment • Form W-4S, Request for Federal Income Tax With-
taxes for the calendar year will be $1,000 or less, and you holding From Sick Pay.
would like to file Form 944 instead of Forms 941, you must • Form W-4V, Voluntary Withholding Request.
contact the IRS during the first calendar quarter of the tax
year to request to file Form 944. You must receive written For each form that you establish an electronic submis-
notice from the IRS to file Form 944 instead of Forms 941 sion system for, you must meet each of the following five
before you may file this form. For more information on re- requirements.
questing to file Form 944, including the methods and 1. The electronic system must ensure that the informa-
deadlines for making a request, see the Instructions for tion received by the payer is the information sent by
Form 944. the payee. The system must document all occasions
Employers can request to file Forms 941 instead of of user access that result in a submission. In addition,
Form 944. If you received notice from the IRS to file the design and operation of the electronic system, in-
Form 944 but would like to file Forms 941 instead, you cluding access procedures, must make it reasonably
must contact the IRS during the first calendar quarter of certain that the person accessing the system and
the tax year to request to file Forms 941. You must receive submitting the form is the person identified on the
written notice from the IRS to file Forms 941 instead of form.
Form 944 before you may file these forms. For more infor- 2. The electronic system must provide exactly the same
mation on requesting to file Forms 941, including the information as the paper form.
methods and deadlines for making a request, see the In-
structions for Form 944. 3. The electronic submission must be signed with an
electronic signature by the payee whose name is on
Federal tax deposits must be made by electronic
the form. The electronic signature must be the final
funds transfer (EFT). You must use EFT to make all
entry in the submission.
federal tax deposits. Generally, an EFT is made using the
Electronic Federal Tax Payment System (EFTPS). If you 4. Upon request, you must furnish a hard copy of any
don't want to use EFTPS, you can arrange for your tax completed electronic form to the IRS and a statement

Publication 15-A (2020) Page 3

 that, to the best of the payer's knowledge, the elec- • The employee must be informed of the scope and du-
tronic form was submitted by the named payee. The ration of the consent.
hard copy of the electronic form must provide exactly
• The employee must be informed of any procedure for
the same information as, but need not be a facsimile obtaining a paper copy of his or her Form W-2 and
of, the paper form. For Form W-4, the signature must whether or not the request for a paper statement is
be under penalty of perjury, and must contain the treated as a withdrawal of his or her consent to receiv-
same language that appears on the paper version of ing his or her Form W-2 electronically.
the form. The electronic system must inform the em-
ployee that he or she must make a declaration con- • The employee must be notified about how to withdraw
tained in the perjury statement and that the declara- a consent and the effective date and manner by which
tion is made by signing the Form W-4. the employer will confirm the withdrawn consent. The
employee must also be notified that the withdrawn
5. You must also meet all recordkeeping requirements consent doesn't apply to the previously issued Forms
that apply to the paper forms. W-2.
For more information, see: • The employee must be informed about any conditions
• Regulations sections 31.3402(f)(5)-1(c) (for Form under which electronic Forms W-2 will no longer be
W-4), and furnished (for example, termination of employment).

• Announcement 99-6 (for Forms W-4P, W-4S, and • The employee must be informed of any procedures for
W-4V). You can find Announcement 99-6 on page 24 updating his or her contact information that enables
of Internal Revenue Bulletin 1999-4 at IRS.gov/pub/ the employer to provide electronic Forms W-2.
irs-irbs/irb99-04.pdf. • The employer must notify the employee of any
If you maintain an electronic Form W-4 system, changes to the employer's contact information.
TIP you should provide a field for employees who are You must furnish electronic Forms W-2 by the same
eligible and want to claim an exemption from with- due date as the paper Forms W-2. For more information
holding to certify that they are exempt instead of writing on furnishing Form W-2 to employees electronically, see
“Exempt” below Step 4(c). You should also include the Regulations section 31.6051-1(j).
two conditions that taxpayers are certifying that they meet: Pub. 5146 explains employment tax examinations
“you had no federal income tax liability in 2019 and you and appeal rights. Pub. 5146 provides employers with
expect to have no federal income tax liability in 2020”. Ad- information on how the IRS selects employment tax re-
ditionally, you should provide a field for nonresident aliens turns to be examined, what happens during an exam, and
to enter nonresident alien status. what options an employer has in responding to the results
of an exam, including how to appeal the results. Pub.
Additional employment tax information. Go to 5146 also includes information on worker classification is-
IRS.gov/EmploymentTaxes for additional employment tax sues and tip exams.
information. Photographs of missing children. The IRS is a proud
Telephone help. You can call the IRS Business and partner with the National Center for Missing & Exploited
Specialty Tax Line with your employment tax questions at Children® (NCMEC). Photographs of missing children se-
800-829-4933. lected by the Center may appear in this publication on pa-
Help for people with disabilities. You may call ges that would otherwise be blank. You can help bring
800-829-4059 (TDD/TTY for persons who are deaf, hard these children home by looking at the photographs and
of hearing, or have a speech disability) with any employ- calling 1-800-THE-LOST (1-800-843-5678) if you recog-
ment tax questions. You may also use this number for as- nize a child.
sistance with unresolved tax problems.
Furnishing Form W-2 to employees electronically.
You may set up a system to furnish Form W-2 electroni- Introduction
cally to employees. Each employee participating must
consent (either electronically or by paper document) to re- This publication supplements Pub.15. It contains special-
ceive his or her Form W-2 electronically, and you must no- ized and detailed employment tax information supple-
tify the employee of all hardware and software require- menting the basic information provided in Pub.15. Pub.
ments to receive the form. You may not send a Form W-2 15-B contains information about the employment tax treat-
electronically to any employee who doesn't consent or ment of various types of noncash compensation. Pub.
who has revoked consent previously provided. 15-T contains the Percentage Method and Wage Bracket
To furnish Forms W-2 electronically, you must meet the Method withholding tables, Tables for Withholding on Dis-
following disclosure requirements and provide a clear and tributions of Indian Gaming Profits to Tribal Members, and
conspicuous statement of each requirement to your em- a discussion on the alternative methods for figuring fed-
ployees. eral income tax withholding.

• The employee must be informed that he or she will re- Comments and suggestions. We welcome your com-
ceive a paper Form W-2 if consent isn't given to re- ments about this publication and your suggestions for
ceive it electronically. future editions.

Page 4 Publication 15-A (2020)

 You can send us comments through IRS.gov/ don't have to withhold federal income tax from that individ-
FormComments. ual's pay. However, in some cases you may be required to
Or you can write to: withhold under the backup withholding requirements on
these payments. See Pub. 15 for information on backup
Internal Revenue Service withholding.
Tax Forms and Publications
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
Independent Contractors
People such as doctors, veterinarians, and auctioneers
Although we can’t respond individually to each com- who work in an independent trade, business, or profes-
ment received, we do appreciate your feedback and will sion in which they offer their services to the public, are
consider your comments as we revise our tax forms, in- generally not employees. However, whether such people
structions, and publications. We can’t answer tax ques- are employees or independent contractors depends on
tions sent to the above address. the facts in each case. The general rule is that an individ-
Ordering forms and publications. Visit IRS.gov/ ual is an independent contractor if you, the person for
FormsPubs to download forms, instructions, and publica- whom the services are performed, have the right to control
tions. Otherwise, you can go to IRS.gov/OrderForms to or- or direct only the result of the work and not the means and
der current and prior-year forms and instructions. Your or- methods of accomplishing the result.
der should arrive within 10 business days.
Tax questions. If you have a tax question not an-
Common-Law Employees
swered by this publication, check IRS.gov and How To Under common-law rules, anyone who performs services
Get Tax Help at the end of this publication. for you is generally your employee if you have the right to
control what will be done and how it will be done. This is
Useful Items so even when you give the employee freedom of action.
You may want to see: What matters is that you have the right to control the de-
tails of how the services are performed. For a discussion
Publication of facts that indicate whether an individual providing serv-
15-B Employer's Tax Guide to Fringe Benefits ices is an independent contractor or employee, see sec-
tion 2.
15-B

15-T Federal Income Tax Withholding Methods

If you have an employer-employee relationship, it
15-T

505 Tax Withholding and Estimated Tax

makes no difference how it is labeled. The substance of
505

515 Withholding of Tax on Nonresident Aliens and the relationship, not the label, governs the worker's status.
Foreign Entities
515

It doesn't matter whether the individual is employed full

583 Starting a Business and Keeping Records
583
time or part time.
1635 Employer Identification Number: For employment tax purposes, no distinction is made
Understanding Your EIN between classes of employees. Superintendents, manag-
1635

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
any pay, isn't considered an employee. A director of a cor-
Before you can know how to treat payments that you poration isn't an employee with respect to services per-
make to workers for services, you must first know the formed as a director.
business relationship that exists between you and the per-
son performing the services. The person performing the You generally have to withhold and pay income, social
services may be: security, and Medicare taxes on wages that you pay to
common-law employees. However, the wages of certain
• An independent contractor,
employees may be exempt from one or more of these
• A common-law employee, taxes. See Employees of Exempt Organizations (section
• A statutory employee, or 3) and Religious Exemptions and Special Rules for Minis-
ters (section 4).
• A statutory nonemployee.
Additional information. For more information about the
This discussion explains these four categories. A later
treatment of special types of employment, the treatment of
discussion, Employee or Independent Contractor in sec-
special types of payments, and similar subjects, see Pub.
tion 2, points out the differences between an independent
15 or Pub. 51, Agricultural Employer's Tax Guide.
contractor and an employee and gives examples from var-
ious types of occupations.
If an individual who works for you isn't an employee un-
der the common-law rules (see section 2), you generally

Publication 15-A (2020) Page 5

Statutory Employees ployee as “other compensation” in box 1. Also, show so-
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 his or
treated as employees by statute, (also known as “statu- her trade or business expenses from the payments shown
tory employees”) for certain employment tax purposes. on Form W-2. The statutory employee reports earnings on
This would happen if they fall within any one of the follow- line 1 of Schedule C (Form 1040 or 1040-SR), Profit or
ing four categories and meet the three conditions descri- Loss From Business, and also deducts business expen-
bed next under Social security and Medicare taxes. ses on Schedule C (Form 1040 or 1040-SR).
1. A driver who distributes beverages (other than milk) H-2A agricultural workers. On Form W-2, don't check
or meat, vegetable, 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 sell-
Tax Act), the term “employee” means the same as it does ers and who earn income based on the productivity of
for social security and Medicare taxes, except that it their direct sellers. Such activities include providing moti-
doesn't include statutory employees defined in categories vation and encouragement; imparting skills, knowledge, or
2 and 3 above. Any individual who is a statutory employee experience; and recruiting.
described under category 1 or 4 above is also an em-
ployee for FUTA tax purposes and subject to FUTA tax. Licensed real estate agents. This category includes in-
dividuals engaged in appraisal activities for real estate
Income tax. Don't withhold federal income tax from the sales if they earn income based on sales or other output.
wages of statutory employees.
Companion sitters. Companion sitters are individuals
Reporting payments to statutory employees. Furnish who furnish personal attendance, companionship, or
Form W-2 to a statutory employee, and check “Statutory household care services to children or to individuals who
employee” in box 13. Show your payments to the em- are elderly or disabled. A person engaged in the trade or

Page 6 Publication 15-A (2020)

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-
ment service are generally treated as self-employed for all
2. Employee or Independent
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, the rela-
Relief provision. If you have a reasonable basis for not tionship of the worker and the business must be exam-
treating a worker as an employee, you may be relieved ined. In any employee-independent contractor determina-
from having to pay employment taxes for that worker. To tion, all information that provides evidence of the degree
get this relief, you must file all required federal information of control and the degree of independence must be con-
returns on a basis consistent with your treatment of the sidered.
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:
in a similar line of work.
This limit on the application of the rule doesn't affect the Instructions that the business gives to the worker.
determination of whether such workers are employees un- An employee is generally subject to the business' instruc-
der the common-law rules. The common-law rules control tions about when, where, and how to work. All of the fol-
whether the specialist is treated as an employee or an in- lowing are examples of types of instructions about how to
dependent contractor. However, if you directly contract do work.
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
be entitled to the relief provision. • What tools or equipment to use.

Test proctors and room supervisors. The consis-

• What workers to hire or to assist with the work.
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 administra- individual.
tion of college entrance or placement examinations if the
individual: • What order or sequence to follow.
• Is performing the services for a section 501(c) organi- The amount of instruction needed varies among differ-
zation exempt from tax under section 501(a) of the ent jobs. Even if no instructions are given, sufficient be-
code, and havioral control may exist if the employer has the right to
control how the work results are achieved. A business
• Isn't otherwise treated as an employee of the organi- may lack the knowledge to instruct some highly special-
zation for employment taxes. ized professionals; in other cases, the task may require lit-
tle or no instruction. The key consideration is whether the
Voluntary Classification Settlement Program (VCSP).
business has retained the right to control the details of a
Employers who are currently treating their workers (or a
worker's performance or instead has given up that right.
class or group of workers) as independent contractors or
other nonemployees and want to voluntarily reclassify

Publication 15-A (2020) Page 7

 Training that the business gives to the worker. An more likely that you’ll have the right to direct and con-
employee may be trained to perform services in a particu- trol his or her activities. For example, if a law firm hires
lar manner. Independent contractors ordinarily use their an attorney, it is likely that it will present the attorney's
own methods. work as its own and would have the right to control or
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
job include: IRS help. If you want the IRS to determine whether or not
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
likely to have unreimbursed expenses than are employ- Industry Examples
ees. Fixed ongoing costs that are incurred regardless of
whether work is currently being performed are especially The following examples may help you properly classify
important. However, employees may also incur unreim- your workers.
bursed expenses in connection with the services that they
perform for their employer. Building and Construction Industry
The extent of the worker's investment. An inde- Example 1. Jerry Jones has an agreement with Wilma
pendent contractor often has a significant investment in White to supervise the remodeling of her house. She
the facilities or tools he or she uses in performing services didn't advance funds to help him carry on the work. She
for someone else. However, a significant investment isn't makes direct payments to the suppliers for all necessary
necessary for independent contractor status. materials. She carries liability and workers' compensation
insurance covering Jerry and others that he engaged to
The extent to which the worker makes his or her
assist him. She pays them an hourly rate and exercises al-
services available to the relevant market. An inde-
most constant supervision over the work. Jerry isn't free to
pendent contractor is generally free to seek out business
transfer his assistants to other jobs. He may not work on
opportunities. Independent contractors often advertise,
other jobs while working for Wilma. He assumes no re-
maintain a visible business location, and are available to
sponsibility to complete the work and will incur no contrac-
work in the relevant market.
tual liability if he fails to do so. He and his assistants per-
How the business pays the worker. An employee is form personal services for hourly wages. Jerry Jones and
generally guaranteed a regular wage amount for an his assistants 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. He uses his own tools and
terials basis for the job. However, it is common in some performs services in the order designated by the corpora-
professions, such as law, to pay independent contractors tion and according to its specifications. The corporation
hourly. supplies all materials, makes frequent inspections of his
work, pays him on a piecework basis, and carries workers'
The extent to which the worker can realize a profit compensation insurance on him. He doesn't have a place
or loss. An independent contractor can make a profit or of business or hold himself out to perform similar services
loss. for others. Either party can end the services at any time.
Milton Manning is an employee of the corporation.
Type of relationship. Facts that show the parties' type
of relationship include: Example 3. Wallace Black agreed with the Sawdust
• Written contracts describing the relationship the par- Co. to supply the construction labor for a group of houses.
ties intended to create. The company agreed to pay all construction costs. How-
ever, he supplies all the tools and equipment. He per-
• Whether or not the business provides the worker with forms personal services as a carpenter and mechanic for
employee-type benefits, such as insurance, a pension an hourly wage. He also acts as superintendent and fore-
plan, vacation pay, or sick pay. man and engages other individuals to assist him. The
• The permanency of the relationship. If you engage company has the right to select, approve, or discharge
a worker with the expectation that the relationship will any helper. A company representative makes frequent in-
continue indefinitely, rather than for a specific project spections of the construction site. When a house is fin-
or period, this is generally considered evidence that ished, Wallace is paid a certain percentage of its costs.
your intent was to create an employer-employee rela- He isn't responsible for faults, defects of construction, or
tionship. wasteful operation. At the end of each week, he presents
the company with a statement of the amount that he has
• The extent to which services performed by the spent, including the payroll. The company gives him a
worker are a key aspect of the regular business
check for that amount from which he pays the assistants,
of the company. If a worker provides services that
although he isn't personally liable for their wages. Wallace
are a key aspect of your regular business activity, it is

Page 8 Publication 15-A (2020)

Black and his assistants are employees of the Sawdust assigned days and times. She appraises trade-ins, but her
Co. appraisals are subject to the sales manager's approval.
Lists of prospective customers belong to the dealer. She
Example 4. Bill Plum contracted with Elm Corporation is required to develop leads and report results to the sales
to complete the roofing on a housing complex. A signed manager. Because of her experience, she requires only
contract established a flat amount for the services ren- minimal assistance in closing and financing sales and in
dered by Bill Plum. Bill is a licensed roofer and carries other phases of her work. She is paid a commission and is
workers' compensation and liability insurance under the eligible for prizes and bonuses offered by Bob. Bob also
business name, Plum Roofing. He hires his own roofers pays the cost of health insurance and group-term life in-
who are treated as employees for federal employment tax surance for Donna. Donna is an employee of Bob Blue.
purposes. If there is a problem with the roofing work, Plum
Roofing is responsible for paying for any repairs. Bill Example 2. Sam Sparks performs auto repair services
Plum, doing business as Plum Roofing, is an independent in the repair department of an auto sales company. He
contractor. works regular hours and is paid on a percentage basis. He
has no investment in the repair department. The sales
Example 5. Vera Elm, an electrician, submitted a job company supplies all facilities, repair parts, and supplies;
estimate to a housing complex for electrical work at $16 issues instructions on the amounts to be charged, parts to
per hour for 400 hours. She is to receive $1,280 every 2 be used, and the time for completion of each job; and
weeks for the next 10 weeks. This isn't considered pay- checks all estimates and repair orders. Sam is an em-
ment by the hour. Even if she works more or less than 400 ployee of the sales company.
hours to complete the work, Vera Elm will receive $6,400.
She also performs additional electrical installations under Example 3. An auto sales agency furnishes space for
contracts with other companies that she obtained through Helen Bach to perform auto repair services. She provides
advertisements. Vera is an independent contractor. her own tools, equipment, and supplies. She seeks out
business from insurance adjusters and other individuals
Trucking Industry and does all of the body and paint work that comes to the
agency. She hires and discharges her own helpers, deter-
Example. Rose Trucking contracts to deliver material mines her own and her helpers' working hours, quotes pri-
for Forest, Inc., at $140 per ton. Rose Trucking isn't paid ces for repair work, makes all necessary adjustments, as-
for any articles that aren't delivered. At times, Jan Rose, sumes all losses from uncollectible accounts, and
who operates as Rose Trucking, may also lease another receives, as compensation for her services, a large per-
truck and engage a driver to complete the contract. All op- centage of the gross collections from the auto repair shop.
erating expenses, including insurance coverage, are paid Helen is an independent contractor and the helpers are
by Jan Rose. All equipment is owned or rented by Jan and her employees.
she is responsible for all maintenance. None of the drivers
are provided by Forest, Inc. Jan Rose, operating as Rose Attorney
Trucking, is an independent contractor.
Example. Donna Yuma is a sole practitioner who rents
Computer Industry office space and pays for the following items: telephone,
computer, on-line legal research linkup, fax machine, and
Example. Steve Smith, a computer programmer, is photocopier. Donna buys office supplies and pays bar
laid off when Megabyte, Inc., downsizes. Megabyte dues and membership dues for three other professional
agrees to pay Steve a flat amount to complete a one-time organizations. Donna has a part-time receptionist who
project to create a certain product. It isn't clear how long also does the bookkeeping. She pays the receptionist,
that it will take to complete the project, and Steve isn't withholds and pays federal and state employment taxes,
guaranteed any minimum payment for the hours spent on and files a Form W-2 each year. For the past 2 years,
the program. Megabyte provides Steve with no instruc- Donna has had only three clients, corporations with which
tions beyond the specifications for the product itself. there have been long-standing relationships. Donna
Steve and Megabyte have a written contract, which pro- charges the corporations an hourly rate for her services,
vides that Steve is considered to be an independent con- sending monthly bills detailing the work performed for the
tractor, is required to pay federal and state taxes, and re- prior month. The bills include charges for long distance
ceives no benefits from Megabyte. Megabyte will file Form calls, on-line research time, fax charges, photocopies,
1099-MISC, Miscellaneous Income, to report the amount postage, and travel, costs for which the corporations have
paid to Steve. Steve works at home and isn't expected or agreed to reimburse her. Donna is an independent con-
allowed to attend meetings of the software development tractor.
group. Steve is an independent contractor.
Taxicab Driver
Automobile Industry
Example. Tom Spruce rents a cab from Taft Cab Co.
Example 1. Donna Lee is a salesperson employed on for $150 per day. He pays the costs of maintaining and
a full-time basis by Bob Blue, an auto dealer. She works 6 operating the cab. Tom Spruce keeps all fares that he re-
days a week and is on duty in Bob's showroom on certain ceives from customers. Although he receives the benefit

Publication 15-A (2020) Page 9

of Taft's two-way radio communication equipment, dis- ing national or international amateur sports competition, or
patcher, and advertising, these items benefit both Taft and for the prevention of cruelty to children or animals. These
Tom Spruce. Tom Spruce is an independent contractor. organizations are usually corporations and are exempt
from federal income tax under section 501(a).
Salesperson Social security and Medicare taxes. Wages paid to
To determine whether salespersons are employees under employees of section 501(c)(3) organizations are subject
the usual common-law rules, you must evaluate each indi- to social security and Medicare taxes unless one of the
vidual case. If a salesperson who works for you doesn't following situations applies.
meet the tests for a common-law employee, discussed • The organization pays an employee less than $100 in
earlier in this section, you don't have to withhold federal a calendar year.
income tax from his or her pay (see Statutory Employees
• The organization is a church or church-controlled or-
in section 1). However, even if a salesperson isn't an em- ganization opposed for religious reasons to the pay-
ployee under the usual common-law rules for income tax ment of social security and Medicare taxes and has
withholding, his or her pay may still be subject to social filed Form 8274 to elect exemption from social secur-
security, Medicare, and FUTA taxes as a statutory em- ity and Medicare taxes. The organization must have
ployee. filed for exemption before the first date on which a
To determine whether a salesperson is an employee quarterly employment tax return (Form 941) or annual
for social security, Medicare, and FUTA tax purposes, the employment tax return (Form 944) would otherwise be
salesperson must meet all eight elements of the statutory due.
employee test. A salesperson is a statutory employee for An employee of a church or church-controlled organi-
social security, Medicare, and FUTA tax purposes if he or zation that is exempt from social security and Medicare
she: taxes must pay self-employment tax if the employee is
paid $108.28 or more in a year. However, an employee
1. Works full time for one person or company except,
who is a member of a qualified religious sect can apply for
possibly, for sideline sales activities on behalf of
an exemption from the self-employment tax by filing Form
some other person;
4029. See Members of recognized religious sects op-
2. Sells on behalf of, and turns his or her orders over to, posed to insurance in section 4.
the person or company for which he or she works;
FUTA tax. An organization that is exempt from federal
3. Sells to wholesalers, retailers, contractors, or opera- income tax under section 501(c)(3) of the Internal Reve-
tors of hotels, restaurants, or similar establishments; nue Code is also exempt from FUTA tax. This exemption
4. Sells merchandise for resale, or supplies for use in can't be waived. Don't file Form 940 to report wages paid
the customer's business; by these organizations or pay the tax.
An organization wholly owned by a state or its po-
5. Agrees to do substantially all of this work personally;
TIP litical subdivision should contact the appropriate
6. Has no substantial investment in the facilities used to state official for information about reporting and
do the work, other than in facilities for transportation; getting social security and Medicare coverage for its em-
7. Maintains a continuing relationship with the person or ployees.
company for which he or she works; and
Other than section 501(c)(3) organizations. Nonprofit
8. Isn't an employee under common-law rules. organizations that aren't section 501(c)(3) organizations
may also be exempt from federal income tax under sec-
tion 501(a) or section 521. However, these organizations
3. Employees of Exempt aren't exempt from withholding federal income, social se-
curity, or Medicare tax from their employees' pay, or from
Organizations paying FUTA tax. Two special rules for social security,
Medicare, and FUTA taxes apply.
Many nonprofit organizations are exempt from federal in-
come tax. Although they don't have to pay federal income 1. If an employee is paid less than $100 during a calen-
tax themselves, they must still withhold federal income tax dar year, his or her wages aren't subject to social se-
from the pay of their employees. However, there are spe- curity and Medicare taxes.
cial social security, Medicare, and FUTA tax rules that ap- 2. If an employee is paid less than $50 in a calendar
ply to the wages that they pay their employees. quarter, his or her wages aren't subject to FUTA tax
for the quarter.
Section 501(c)(3) organizations. Nonprofit organiza-
tions that are exempt from federal income tax under sec- The above rules don't apply to employees who work for
tion 501(c)(3) of the Internal Revenue Code include any pension plans and other similar organizations described in
community chest, fund, or foundation organized and oper- section 401(a).
ated exclusively for religious, charitable, scientific, testing
for public safety, literary or educational purposes, foster-

Page 10 Publication 15-A (2020)

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-
4. Religious Exemptions and curity and Medicare benefits. The exemption applies only
to qualified services performed for the religious organiza-
Special Rules for Ministers tion. See Revenue Procedure 91-20, 1991-1 C.B. 524, for
guidelines to determine whether an organization is a reli-
Special rules apply to the treatment of ministers for social gious order or whether an individual is a member of a reli-
security and Medicare tax purposes. An exemption from gious order.
social security and Medicare taxes is available for minis- To apply for the exemption, the employee should file
ters and certain other religious workers and members of Form 4361. See Pub. 517 for more information about
certain recognized religious sects. For more information claiming an exemption from self-employment tax using
on getting an exemption, see Pub. 517. Form 4361.

Ministers. Ministers are individuals who are duly or- Members of recognized religious sects opposed to
dained, commissioned, or licensed by a religious body insurance. If you belong to a recognized religious sect or
constituting a church or church denomination. They are to a division of such sect that is opposed to insurance, you
given the authority to conduct religious worship, perform may qualify for an exemption from the self-employment
sacerdotal functions, and administer ordinances and sac- tax. To qualify, you must be conscientiously opposed to
raments according to the prescribed tenets and practices accepting the benefits of any public or private insurance
of that religious organization. that makes payments because of death, disability, old
Ministers are employees if they perform services in the age, or retirement, or makes payments toward the cost of,
exercise of ministry and are subject to your will and con- or provides services for, medical care (including social se-
trol. The common-law rules discussed in section 1 and curity and Medicare benefits). If you buy a retirement an-
section 2 should be applied to determine whether a minis- nuity from an insurance company, you won't be eligible for
ter is your employee or is self-employed. Whether the this exemption. Religious opposition based on the teach-
minister is an employee or self-employed, the earnings of ings of the sect is the only legal basis for the exemption. In
a minister aren't subject to federal income, social security, addition, your religious sect (or division) must have exis-
and Medicare tax withholding. However, even if the minis- ted since December 31, 1950.
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 can apply for exemption by filing Form 4029 to waive all
withhold these taxes from wages earned by a minister, but social security and Medicare benefits.
if the minister is your employee, you may agree with the
minister to voluntarily withhold tax to cover the minister's Employees. The social security and Medicare tax ex-
liability for self-employment tax and federal income tax. emption available to the self-employed who are members
For more information, see Pub. 517. of a recognized religious sect opposed to insurance is
also available to their employees who are members of
Form W-2. If your minister is an employee, report all such a sect. This applies to partnerships only if each part-
taxable compensation as wages in box 1 on Form W-2. In- ner is a member of the sect. This exemption for employ-
clude in this amount expense allowances or reimburse- ees applies only if both the employee and the employer
ments paid under a nonaccountable plan, discussed in are members of such a sect, and the employer has an ex-
section 5 of Pub. 15. Don't include a parsonage allowance emption. To get the exemption, the employee must file
(excludable housing allowance) in this amount. You may Form 4029.
report a designated parsonage or rental allowance (hous- An employee of a church or church-controlled organi-
ing allowance) and a utilities allowance, or the rental value zation that is exempt from social security and Medicare
of housing provided in a separate statement or in box 14 taxes can also apply for an exemption on Form 4029.
on Form W-2. Don't show on Form W-2, Form 941, or
Form 944 any amount as social security or Medicare wa-
ges, or any withholding for social security or Medicare
taxes. If you withheld federal income tax from the minister 5. Wages and Other
under a voluntary agreement, this amount should be
shown in box 2 on Form W-2 as federal income tax with-
Compensation
held. For more information on ministers, see Pub. 517.
Pub. 15 provides a general discussion of taxable wages.
Exemptions for ministers and others. Certain or- Pub. 15-B discusses fringe benefits. The following topics
dained ministers, Christian Science practitioners, and supplement those discussions.
members of religious orders who haven't taken a vow of
poverty may apply to exempt their earnings from self-em-

Publication 15-A (2020) Page 11

Relocating for Temporary Work the year is $400. A higher limit of $1,600 applies to quali-
fied plan awards. Qualified plan awards are employee
Assignments achievement awards under a written plan that doesn't dis-
If an employee is given a temporary work assignment criminate in favor of highly compensated employees. An
away from his or her regular place of work, certain travel award can't be treated as a qualified plan award if the
expenses reimbursed or paid directly by the employer in average cost per recipient of all awards under all of your
accordance with an accountable plan (see section 5 in qualified plans is more than $400.
Pub. 15) may be excludable from the employee’s wages. If during the year an employee receives awards not
Generally, a temporary work assignment in a single loca- made under a qualified plan and also receives awards un-
tion is one that is realistically expected to last (and does in der a qualified plan, the exclusion for the total cost of all
fact last) for 1 year or less. If the employee’s new work as- awards to that employee can't be more than $1,600. The
signment is indefinite, any living expenses reimbursed or $400 and $1,600 limits can't be added together to exclude
paid by the employer (other than qualified moving expen- more than $1,600 for the cost of awards to any one em-
ses paid to a member of the U.S. Armed Forces on active ployee during the year.
duty who moves because of a permanent change of sta-
tion due to a military order) must be included in the em- Scholarship and Fellowship
ployee’s wages as compensation. For the travel expenses Payments
to be excludable:
• The new work location must be outside of the city or Only amounts that you pay as a qualified scholarship to a
general area of the employee’s regular work place or candidate for a degree may be excluded from the recipi-
post of duty, ent's gross income. A qualified scholarship is any amount
granted as a scholarship or fellowship that is used for:
• The travel expenses must otherwise be allowed as a
deduction by the employee, and • Tuition and fees required to enroll in, or to attend, an
educational institution, or
• The expenses must be for the period during which the
employee is at the temporary work location. • Fees, books, supplies, and equipment that are re-
quired for courses at the educational institution.
If you reimburse or pay any personal expenses of an
employee during his or her temporary work assignment, The exclusion from income doesn't apply to the portion
such as expenses for home leave for family members or of any amount received that represents payment for
for vacations, these amounts must be included in the em- teaching, research, or other services required as a condi-
ployee's wages. See chapter 1 of Pub. 463, Travel, Enter- tion of receiving the scholarship or tuition reduction.
tainment, Gift, and Car Expenses, and section 5 of Pub. These amounts are reportable on Form W-2. However,
15 for more information. These rules generally apply to the exclusion will still apply for any amount, despite any
temporary work assignments both inside and outside of service condition attached to the amount, received under
the United States. the National Health Service Corps Scholarship Program;
the Armed Forces Health Professions Scholarship and Fi-
Employee Achievement Awards nancial Assistance Program; and a comprehensive stu-
dent work-learning-service program operated by a work
Don't withhold federal income, social security, or Medi- college, as defined in section 448(e) of the Higher Educa-
care taxes on the fair market value of an employee ach- tion Act of 1965.
ievement award if it is excludable from your employee's
Any amounts that you pay for room and board aren't
gross income. To be excludable from your employee's
excludable from the recipient's gross income. A qualified
gross income, the award must be tangible personal prop-
scholarship isn't subject to social security, Medicare, and
erty given to an employee for length of service or safety
FUTA taxes, or federal income tax withholding. For more
achievement, awarded as part of a meaningful presenta-
information, see Pub. 970, Tax Benefits for Education.
tion, and awarded under circumstances that don't indicate
that the payment is disguised compensation. Excludable
employee achievement awards also aren't subject to Outplacement Services
FUTA tax.
If you provide outplacement services to your employees to
The exclusion doesn’t apply to awards of cash, cash help them find new employment (such as career counsel-
equivalents, gift cards, gift coupons, or gift certificates ing, resume assistance, or skills assessment), the value of
(other than arrangements granting only the right to select these benefits may be income to them and subject to all
and receive tangible personal property from a limited as- withholding taxes. However, the value of these services
sortment of items preselected or preapproved by you). won't be subject to any employment taxes if:
The exclusion also doesn’t apply to vacations, meals,
lodging, tickets to theater or sporting events, stocks, • You derive a substantial business benefit from provid-
bonds, other securities, and other similar items. ing the services (such as improved employee morale
or business image) separate from the benefit that you
Limits. The most that you can exclude for the cost of all would receive from the mere payment of additional
employee achievement awards to the same employee for compensation, and

Page 12 Publication 15-A (2020)

 • The employee would be able to deduct the cost of the There are special rules that apply in determining
services as employee business expenses if he or she whether supplemental unemployment compensation ben-
had paid for them. efits are excluded from wages for social security, Medi-
care, and FUTA tax purposes. To be excluded from wa-
However, if you receive no additional benefit from pro-
ges for such purposes, the benefits must meet the
viding the services, or if the services aren't provided on
following requirements.
the basis of employee need, then the value of the services
is treated as wages and is subject to federal income tax • Benefits are paid only to unemployed former employ-
withholding and social security and Medicare taxes. Simi- ees who are laid off by the employer.
larly, if an employee receives the outplacement services • Eligibility for benefits depends on meeting prescribed
in exchange for reduced severance pay (or other taxable conditions after termination.
compensation), then the amount the severance pay is re-
duced is treated as wages for employment tax purposes. • The amount of weekly benefits payable is based upon
state unemployment benefits, other compensation al-
lowable under state law, and the amount of regular
Withholding for Idle Time weekly pay.
Payments made under a voluntary guarantee to employ- • The right to benefits doesn't accrue until a prescribed
ees for idle time (any time during which an employee per- period after termination.
forms no services) are wages for the purposes of social
security, Medicare, and FUTA taxes, and federal income
• Benefits aren't attributable to the performance of par-
ticular services.
tax withholding.
• No employee has any right to the benefits until quali-
Back Pay fied and eligible to receive benefits.
• Benefits may not be paid in a lump sum.
Treat back pay as wages in the year paid and withhold
and pay employment taxes as required. If back pay was Withholding on taxable supplemental unemployment
awarded by a court or government agency to enforce a compensation benefits must be based on the withholding
federal or state statute protecting an employee's right to certificate (Form W-4) that the employee gave to you.
employment or wages, special rules apply for reporting For more information, see Revenue Ruling 90-72,
those wages to the Social Security Administration. These 1990-36 I.R.B. 13.
rules also apply to litigation actions and settlement agree-
ments or agency directives that are resolved out of court
and not under a court decree or order. Examples of perti- Golden Parachute Payments
nent statutes include, but aren't limited to, the National La- A golden parachute payment, in general, is a payment
bor Relations Act, Fair Labor Standards Act, Equal Pay made under a contract entered into by a corporation and
Act, and Age Discrimination in Employment Act. See Pub. key personnel. Under the agreement, the corporation
957, Reporting Back Pay and Special Wage Payments to agrees to pay certain amounts to its key personnel in the
the Social Security Administration, and Form SSA-131, event of a change in ownership or control of the corpora-
Employer Report of Special Wage Payments, for details. tion. Payments to employees under golden parachute
contracts are subject to social security, Medicare, and
Supplemental Unemployment FUTA taxes, and federal income tax withholding. See
Compensation Benefits Regulations section 1.280G-1 for more information.
No deduction is allowed to the corporation for any ex-
If you pay, under a plan, supplemental unemployment
cess parachute payment. To determine the amount of the
compensation benefits to a former employee, all or part of
excess parachute payment, you must first determine if
the payments may be taxable and subject to federal in-
there is a parachute payment for purposes of section
come tax withholding, depending on how the plan is fun-
280G. A parachute payment for purposes of section 280G
ded. Amounts that represent a return to the employee of
is any payment that meets all of the following.
amounts previously subject to tax aren't taxable and aren't
subject to withholding. You should withhold federal in- 1. The payment is in the nature of compensation.
come tax on the taxable part of the payments made, un-
2. The payment is to, or for the benefit of, a disqualified
der a plan, to an employee who is involuntarily separated
individual. A disqualified individual is anyone who at
because of a reduction in force, discontinuance of a plant
any time during the 12-month period prior to and end-
or operation, or other similar condition. It doesn't matter
ing on the date of the change in ownership or control
whether the separation is temporary or permanent.
of the corporation (the disqualified individual determi-
nation period) was an employee or independent con-
tractor and was, in regard to that corporation, a share-
holder, an officer, or highly compensated individual.

Publication 15-A (2020) Page 13

 3. The payment is contingent on a change in ownership Leave Sharing Plans
of the corporation, the effective control of the corpora-
tion, or the ownership of a substantial portion of the If you establish a leave sharing plan for your employees
assets of the corporation. that allows them to transfer leave to other employees for
4. The payment has an aggregate present value of at medical emergencies, the amounts paid to the recipients
least three times the individual's base amount. The of the leave are considered wages. These amounts are in-
base amount is the average annual compensation for cludible in the gross income of the recipients and are sub-
service includible in the individual's gross income ject to social security, Medicare, and FUTA taxes, and
over the most recent 5 taxable years. federal income tax withholding. Don't include these
amounts in the wages of the transferors. These rules ap-
An excess parachute payment amount is the excess of ply only to leave sharing plans that permit employees to
any parachute payment over the base amount. For more transfer leave to other employees for medical emergen-
information, see Regulations section 1.280G-1. The recip- cies.
ient of an excess parachute payment is subject to a 20%
nondeductible excise tax. If the recipient is an employee, In addition, you may establish a leave-sharing plan that
the 20% excise tax is to be withheld by the corporation. allows your employees to deposit leave in an em-
ployer-sponsored leave bank for use by other employees
Example. An officer of a corporation receives a golden who have been adversely affected by a major disaster.
parachute payment of $400,000. This is more than three Under such programs, the IRS won’t assert that a leave
times greater than his or her average compensation of donor who deposits leave in the employer sponsored
$100,000 over the previous 5-year period. The excess leave bank under a major disaster leave-sharing program
parachute payment is $300,000 ($400,000 minus has income, wages, compensation or rail wages for the
$100,000). The corporation can't deduct the $300,000 deposited leave, if the plan treats the employer’s pay-
and must withhold the excise tax of $60,000 (20% of ments to the leave recipient as wages or compensation for
$300,000). purposes of the Federal Insurance Contributions Act
(FICA), the Federal Unemployment Tax Act (FUTA), the
Reporting golden parachute payments. Golden para- Railroad Retirement Act (RRTA), the Railroad Unemploy-
chute payments to employees must be reported on Form ment Repayment Tax (RURT), and the federal income tax
W-2. See the General Instructions for Forms W-2 and W-3 withholding, unless excluded by another provision of law.
for details. For nonemployee reporting of these payments, See Notice 2006-59, 2006-28 I.R.B. 60, available at
see Box 7. Nonemployee Compensation in the Instruc- IRS.gov/irb/2006-28_IRB#NOT-2006-59 for what consti-
tions for Form 1099-MISC. tutes a major disaster and other rules.
Exempt payments. Payments by most small business
corporations and payments under certain qualified plans Nonqualified Deferred Compensation
are exempt from the golden parachute rules. See section Plans
280G(b)(5) and (6) for more information.
Income Tax and Reporting
Interest-Free and
Below-Market-Interest-Rate Loans Section 409A provides that all amounts deferred under a
nonqualified deferred compensation (NQDC) plan for all
In general, if an employer lends an employee more than tax years are currently includible in gross income (to the
$10,000 at an interest rate less than the current applicable extent the amounts deferred are not subject to a substan-
federal rate (AFR), the difference between the interest tial risk of forfeiture and not previously included in gross
paid and the interest that would be paid under the AFR is income) and subject to additional taxes, unless certain re-
considered additional compensation to the employee. quirements are met pertaining to, among other things,
This rule applies to a loan of $10,000 or less if one of its elections to defer compensation and distributions under
principal purposes is the avoidance of federal tax. an NQDC plan. Section 409A also includes rules that ap-
ply to certain trusts or similar arrangements associated
This additional compensation to the employee is sub- with NQDC plans if the trusts or arrangements are located
ject to social security, Medicare, and FUTA taxes, but not outside of the United States, are restricted to the provision
to federal income tax withholding. Include it in compensa- of benefits in connection with a decline in the financial
tion on Form W-2 (or Form 1099-MISC for an independent health of the plan sponsor, or contributions are made to
contractor). The AFR is established monthly and pub- the trust during certain periods such as when a qualified
lished by the IRS each month in the Internal Revenue Bul- plan of the service recipient is underfunded. Employers
letin. You can get these rates by visiting IRS.gov and en- must withhold federal income tax (but not the additional
tering “AFR” in the search box. For more information, see Section 409A taxes) on any amount includible in gross in-
section 7872 and its related regulations. come under section 409A. Income included under section
409A from an NQDC plan must be reported on Form W-2
or on Form 1099-MISC, whichever applies. Amounts de-
ferred during the year under an NQDC plan subject to
section 409A may also be reported on the Form W-2 or

Page 14 Publication 15-A (2020)

Form 1099-MISC, but this is not required. For more infor- reduction agreement. However, they aren't included in
mation, see the Instructions for Forms W-2 and W-3 and box 1 on Form W-2 in the year the deferrals are made and
the Instructions for Form 1099-MISC. These reporting aren't subject to federal income tax withholding. See Reg-
rules don't affect the application or reporting of social se- ulations section 31.3121(a)(5)-2 for the definition of a sal-
curity, Medicare, or FUTA taxes. ary reduction agreement.

The provisions don't prevent the inclusion of amounts

in income or wages under other provisions of the Internal
Contributions to a Simplified
Revenue Code or common-law principles, such as when Employee Pension (SEP)
amounts are actually or constructively received or irrevo-
cably contributed to a separate fund. For more information An employer's SEP contributions to an employee's individ-
about nonqualified deferred compensation plans, see ual retirement arrangement (IRA) are excluded from the
Regulations sections 1.409A-1 through 1.409A-6. Notice employee's gross income. These excluded amounts aren't
2008-113 provides guidance on the correction of certain subject to social security, Medicare, or FUTA taxes, or
operation failures of an NQDC plan. Notice 2008-113, federal income tax withholding. However, any SEP contri-
2008-51 I.R.B. 1305, is available at IRS.gov/irb/ butions paid under a salary reduction agreement (SAR-
2008-51_IRB#NOT-2008-113. Also see Notice 2010-6, SEP) are included in wages for purposes of social secur-
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 nonqualified deferred compensation
(NQDC) plans, as defined in the applicable regulations,
are treated as wages subject to social security, Medicare, SIMPLE Retirement Plans
and FUTA taxes when the services are performed or the
employee no longer has a substantial risk of forfeiting the Employer and employee contributions to a savings incen-
right to the deferred compensation, whichever 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 are subject to social secur-
the future benefit and withhold and pay social security, ity, Medicare, and FUTA taxes. For more information
Medicare, and FUTA taxes on that amount. You’ll have to about SIMPLE retirement plans, see Pub. 560.
determine later, when the amount is reasonably ascertain-
able, whether any additional taxes are required. If taxes
aren't paid before the amounts become reasonably ascer- 6. Sick Pay Reporting
tainable, when the amounts become reasonably ascer-
tainable they are subject to social security, Medicare, and Special rules apply to the reporting of sick pay payments
FUTA taxes on the amounts deferred plus the income at- to employees. How these payments are reported depends
tributable to those amounts deferred. For more informa- on whether the payments are made by the employer or a
tion, see Regulations sections 31.3121(v)(2)-1 and third party, such as an insurance company.
31.3306(r)(2)-1.
Sick pay is usually subject to social security, Medicare,
Section 83(i) election to defer income on equity and FUTA taxes. For exceptions, see Social Security,
grants (qualified stock). An arrangement under which Medicare, and FUTA Taxes on Sick Pay, later in this sec-
an employee may receive qualified stock (as defined in tion. Sick pay may also be subject to either mandatory or
section 83(i)(2)) isn’t treated as an NQDC plan with re- voluntary federal income tax withholding, depending on
spect to such employee solely because of such employ- who pays it.
ee’s election, or ability to make an election, to defer recog-
nition of income under section 83(i). Sick Pay
Tax-Sheltered Annuities Sick pay generally means any amount paid under a plan
because of an employee's temporary absence from work
Employer payments made by a public educational institu- due to injury, sickness, or disability. It may be paid by ei-
tion or a tax-exempt organization to purchase a tax-shel- ther the employer or a third party, such as an insurance
tered annuity for an employee (annual deferrals) are inclu- company. Sick pay includes both short- and long-term
ded in the employee's social security and Medicare benefits. It is often expressed as a percentage of the em-
wages, if the payments are made because of a salary ployee's regular wages.

Publication 15-A (2020) Page 15

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 em-
workers' compensation law aren't sick pay and aren't ployee normally works, a term used in the following dis-
subject to employment taxes. But see Payments in cussion, is either the employer for whom the employee
the nature of workers' compensation—public employ- was working at the time that the employee became sick or
ees next. disabled or the last employer for whom the employee
3. Payments in the nature of workers' compensa- worked before becoming sick or disabled, if that employer
tion—public employees. State and local govern- made contributions to the sick pay plan on behalf of the
ment employees, such as police officers and firefight- sick or disabled employee.
ers, sometimes receive payments due to an injury in
the line of duty under a statute that isn't the general Note. Contributions to a sick pay plan through a cafe-
workers' compensation law of a state. If the statute teria plan (by direct employer contributions or salary re-
limits benefits to work-related injuries or sickness and duction) are employer contributions unless they are af-
doesn't base payments on the employee's age, length ter-tax employee contributions (that is, included in taxable
of service, or prior contributions, the statute is “in the wages).
nature of” a workers' compensation law. Payments
under a statute in the nature of a workers' compensa- Third-Party Payers of Sick Pay
tion law aren't sick pay and aren't subject to employ-
ment taxes. For more information, see Regulations Employer's agent. An employer's agent is a third party
section 31.3121(a)(2)-1. that bears no insurance risk and is reimbursed on a
cost-plus-fee basis for payment of sick pay and similar
4. Medical expense payments. Payments under a def- amounts. A third party may be your agent even if the third
inite plan or system for medical and hospitalization party is responsible for determining which employees are
expenses, or for insurance covering these expenses, eligible to receive payments. For example, if a third party
aren't sick pay and aren't subject to employment provides administrative services only, the third party is
taxes. your agent. If the third party is paid an insurance premium
5. Payments unrelated to absence from work. Acci- and isn't reimbursed on a cost-plus-fee basis, the third
dent or health insurance payments unrelated to ab- party isn't your agent. Whether an insurance company or
sence from work aren't sick pay and aren't subject to other third party is your agent depends on the terms of
employment taxes. These include payments for: their agreement with you.
A third party that makes payments of sick pay as your
a. Permanent loss of a member or function of the agent isn't considered the employer and generally has no
body, responsibility for employment taxes. This responsibility re-
b. Permanent loss of the use of a member or function mains with you. However, under an exception to this rule,
of the body, or the parties may enter into an agreement that makes the
third-party agent responsible for employment taxes. In this
c. Permanent disfigurement of the body. situation, the third-party agent should use its own name
Example. Donald was injured in a car accident and and EIN (rather than your name and EIN) for the responsi-
lost an eye. Under a policy paid for by Donald's em- bilities that it has assumed.
ployer, Delta Insurance Co. paid Donald $20,000 as
compensation for the loss of his eye. Because the Third party not employer's agent. A third party that
payment was determined by the type of injury and makes payments of sick pay other than as an agent of the
was unrelated to Donald's absence from work, it isn't employer is liable for federal income tax withholding (if re-
sick pay and isn't subject to federal employment quested by the employee) and the employee part of the
taxes. social security and Medicare taxes.
The third party is also liable for the employer part of
the social security and Medicare taxes, and the FUTA tax,
Sick Pay Plan unless the third party transfers this liability to the employer
for whom the employee normally works. This liability is
A sick pay plan is a plan or system established by an em-
transferred if the third party takes the following steps.
ployer under which sick pay is available to employees
generally or to a class or classes of employees. This 1. Withholds the employee part of social security and
doesn't include a situation in which benefits are provided Medicare taxes from the sick pay payments.

Page 16 Publication 15-A (2020)

 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
the employer or a third party, aren't subject to social se-
3. Notifies the employer for whom the employee nor-
curity, Medicare, or FUTA taxes (different rules apply to
mally works of the payments on which employee
federal income tax withholding).
taxes were withheld and deposited. The third party
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 employment relationship because of death or disabil-
made because that is the day by which the deposit is ity retirement. However, even if there is a definite plan
required to be made. The third party should notify the or system, amounts paid to a former employee are
employer as soon as information on payments is subject to social security, Medicare, and FUTA taxes if
available so that an employer can make electronic de- they would have been paid even if the employment re-
posits timely. For multi-employer plans, see the spe- lationship hadn't terminated because of death or disa-
cial rule discussed next. bility retirement. For example, a payment to a disabled
former employee for unused vacation time would have
Multi-employer plan timing rule. A special rule ap- been made whether or not the employee retired on
plies to sick pay payments made to employees by a disability. Therefore, the payment is wages and is
third-party insurer under an insurance contract with a subject to social security, Medicare, and FUTA taxes.
multi-employer plan established under a collectively bar-
gained agreement. If the third-party insurer making the • Payments after calendar year of employee's
payments complies with steps 1 and 2, earlier, and gives death. Sick pay paid to the employee's estate or sur-
the plan (rather than the employer) the required timely no- vivor after the calendar year of the employee's death
tice described in step 3, earlier, then the plan (not the isn't subject to social security, Medicare, or FUTA
third-party insurer) must pay the employer part of the so- taxes. Also, see Amounts not subject to federal in-
cial security and Medicare taxes and the FUTA tax. Simi- come tax withholding, later in this section.
larly, if within 6 business days of the plan's receipt of noti- Example. Sandra became entitled to sick pay on
fication, the plan gives notice to the employer for whom November 21, 2019, and died on December 31, 2019.
the employee normally works, the employer (not the plan) On January 10, 2020, Sandra's sick pay for the period
must pay the employer part of the social security and from December 24 through December 31, 2019, was
Medicare taxes and the FUTA tax. paid to her survivor. The payment isn't subject to so-
cial security, Medicare, or FUTA taxes.
Reliance on information supplied by the employer. A
third party that pays sick pay should request information
• Payments to an employee entitled to disability in-
surance benefits. Payments to an employee when
from the employer to determine amounts that aren't sub-
the employee is entitled to disability insurance bene-
ject to employment taxes. Unless the third party has rea-
fits under section 223(a) of the Social Security Act
son not to believe the information, it may rely on that infor-
aren't subject to social security and Medicare taxes.
mation for the following items.
This rule applies only if the employee became entitled
• The total wages paid to the employee during the cal- to the Social Security Act benefits before the calendar
endar year. year in which the payments are made, and the em-
• The last month in which the employee worked for the ployee performs no services for the employer during
employer. the period for which the payments are made. How-
ever, these payments are subject to FUTA tax.
• The employee contributions to the sick pay plan made
with after-tax dollars. • Payments that exceed the applicable wage base.
Social security and FUTA taxes don't apply to pay-
The third party shouldn't rely on statements regarding ments of sick pay that, when combined with the regu-
these items made by the employee. lar wages and sick pay previously paid to the em-
ployee during the year, exceed the applicable wage
Social Security, Medicare, and FUTA base. Because there is no Medicare tax wage base,
Taxes on Sick Pay this exception doesn't apply to Medicare tax. For
2020, the social security tax wage base is $137,700
Employer. If you pay sick pay to your employee, you and the FUTA tax wage base is $7,000.
must generally withhold employee social security and Example. If an employee receives $130,000 in wa-
Medicare taxes from the sick pay. You must timely deposit ges from an employer in 2020 and also receives
employee and employer social security and Medicare $10,000 of sick pay, only the first $7,700 ($137,700 –
taxes, and FUTA tax. There are no special deposit rules $130,000) of the sick pay is subject to social security
for sick pay. See section 11 of Pub. 15 for more informa- tax. All of the sick pay is subject to Medicare tax.
tion on the deposit rules. None of the sick pay is subject to FUTA tax. See

Publication 15-A (2020) Page 17

 Example of Figuring and Reporting Sick Pay, later in • An agent of the employer (defined earlier in this sec-
this 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 he be- withholding. An employer or agent paying sick pay gener-
came entitled to receive sick pay was December 11, ally determines the federal income tax to be withheld
2019. He was paid sick pay for 9 months before his based on the employee's Form W-4. The employee can't
return to work on September 16, 2020. Sick pay paid choose how much federal income tax will be withheld by
to Ralph after June 30, 2020, isn't subject to social se- giving you or your agent a Form W-4S. Sick pay paid by
curity, Medicare, or FUTA taxes. an agent is treated as supplemental wages. If the agent
Example 2. The facts are the same as in Exam- doesn't pay regular wages to the employee, the agent
ple 1, except that Ralph worked 1 day during the may choose to withhold federal income tax at a flat 22%
9-month period, on February 11, 2020. Because the rate, rather than at the wage withholding rate. See section
6-month period begins again in March, only the sick 7 in Pub. 15 for guidance on withholding employment
pay paid to Ralph after August 31, 2020, is exempt taxes from supplemental wages, including the rules for
from social security, Medicare, and FUTA taxes. withholding federal income tax when wages to an individ-
ual exceed $1 million during the year.
• Payments attributable to employee contributions.
Social security, Medicare, and FUTA taxes don't apply Third party not an agent. Sick pay paid by a third party
to payments, or parts of payments, attributable to em- that isn't your agent isn't subject to mandatory federal in-
ployee contributions to a sick pay plan made with af- come tax withholding. However, an employee may elect
ter-tax dollars. Contributions to a sick pay plan made to have federal income tax withheld by submitting Form
on behalf of employees with employees' pre-tax dol- W-4S to the third party.
lars under a cafeteria plan are employer contribu- If Form W-4S has been submitted, the third party
tions. should withhold federal income tax on all payments of sick
Group policy. If both the employer and the em- pay made 8 or more days after receiving the form. The
ployee contributed to the sick pay plan under a group third party may, at its option, withhold federal income tax
insurance policy, figure the taxable sick pay by multi- before 8 days have passed.
plying total sick pay by the percentage of the policy's The employee may request on Form W-4S to have a
cost that was contributed by the employer for the 3 specific whole dollar amount withheld. However, if the re-
policy years before the calendar year in which the sick quested withholding would reduce any net payment below
pay is paid. If the policy has been in effect fewer than $10, the third party shouldn't withhold any federal income
3 years, use the cost for the policy years in effect or, if tax from that payment. The minimum amount of withhold-
in effect less than 1 year, a reasonable estimate of the ing that the employee can specify is $4 per day, $20 per
cost for the first policy year. week, or $88 per month based on the payroll period.
Example. Alan is employed by Edgewood Corpo- Withhold from all payments at the same rate whether
ration. Because of an illness, he was absent from full or partial payments. For example, if $25 is withheld
work for 3 months during 2020. Key Insurance Com- from a regular full payment of $100, then $20 (25%)
pany paid Alan $2,000 sick pay for each month of his should be withheld from a partial payment of $80.
absence under a policy paid for by contributions from
both Edgewood and its employees. All of the employ- Amounts not subject to federal income tax withhold-
ees' contributions were paid with after-tax dollars. For ing. The following amounts, whether paid by you or a
the 3 policy years before 2020, Edgewood paid 70% third party, aren't wages and aren't subject to federal in-
of the policy's cost and its employees paid 30%. Be- come tax withholding.
cause 70% of the sick pay paid under the policy is due • Payments after the employee's death. Sick pay
to Edgewood's contributions, $1,400 ($2,000 × 70%) paid to the employee's estate or survivor at any time
of each payment made to Alan is taxable sick pay. after the employee's death isn't subject to federal in-
The remaining $600 of each payment that is due to come tax withholding, regardless of who pays it.
employee contributions isn't taxable sick pay and isn't
subject to employment taxes. Also, see Example of • Payments attributable to employee contributions.
Figuring and Reporting Sick Pay, later in this section. Payments, or parts of payments, attributable to em-
ployee contributions made to a sick pay plan with af-
ter-tax dollars aren't subject to federal income tax
Income Tax Withholding on Sick Pay withholding. For more information, see the corre-
The requirements for federal income tax withholding on sponding discussion under Amounts not subject to so-
sick pay and the methods for figuring it differ depending cial security, Medicare, or FUTA taxes, earlier in this
on whether the sick pay is paid by: section.

• The employer,

Page 18 Publication 15-A (2020)

Depositing and Reporting Sick Pay Paid by Third Party
This section discusses who is liable for depositing social The depositing and reporting rules for a third party that
security, Medicare, FUTA, and withheld federal income isn't your agent depend on whether liability has been
taxes on sick pay. These taxes must be deposited under transferred as discussed under Third party not employer's
the same rules that apply to deposits of taxes on regular agent, earlier in this section.
wage payments. See Pub. 15 for information on the de-
posit rules. To figure the due dates and amounts of its deposits of
employment taxes, a third party should combine:
This section also explains how sick pay should be re-
ported on Forms W-2, W-3, 940, and 941 (or Form 944).
• The liability for the wages paid to its own employees,
and
Sick Pay Paid by Employer or Agent • The liability for payments it made to all employees of
all its clients. This doesn't include any liability transfer-
If you or your agent (defined earlier in this section) make red to the employer.
sick pay payments, you deposit taxes and file Forms W-2,
W-3, 940, and 941 (or Form 944) under the same rules Liability not transferred to the employer. If the third
that apply to regular wage payments. party doesn't satisfy the requirements for transferring lia-
bility for FUTA tax and the employer part of the social se-
However, any agreement between the parties may re- curity and Medicare taxes, the third party reports the sick
quire your agent to carry out responsibilities that would pay on its own Form 940 and Form 941 or Form 944. In
otherwise have been borne by you. In this situation, your this situation, the employer has no tax responsibilities for
agent should use its own name and EIN (rather than sick pay.
yours) for the responsibilities that it has assumed. The third party must deposit social security, Medicare,
FUTA, and withheld federal income taxes using its own
Reporting sick pay on Form W-2. You may either com- name and EIN. The third party must give each employee
bine the sick pay with other wages and prepare a single to whom it paid sick pay a Form W-2 by January 31 of the
Form W-2 for each employee, or you may prepare sepa- following year. The Form W-2 must include the third par-
rate Forms W-2 for each employee, one reporting sick pay ty's name, address, and EIN instead of the employer infor-
and the other reporting regular wages. A Form W-2 must mation.
be prepared even if all of the sick pay is nontaxable (see
Box 12 below). All Forms W-2 must be given to the em- Liability transferred to the employer. Generally, if a
ployees by January 31. third party satisfies the requirements for transferring liabil-
The Form W-2 filed for the sick pay must include the ity for the employer part of the social security and Medi-
employer's name, address, and EIN; the employee's care taxes and for the FUTA tax, the following rules apply.
name, address, and SSN; and the following information.
Deposits. The third party must make deposits of with-
Box 1 – The amount of sick pay the employee must in- held employee social security and Medicare taxes and
clude in income. withheld federal income tax using its own name and EIN.
Box 2 – The amount of any federal income tax with- You must make deposits of the employer part of the so-
held from the sick pay. cial security and Medicare taxes and the FUTA tax using
your name and EIN. In applying the deposit rules, your lia-
Box 3 – The amount of sick pay subject to employee bility for these taxes begins when you receive the third
social security tax. party's notice of sick pay payments.
Box 4 – The amount of employee social security tax Form 941 or Form 944. The third party and you must
withheld from the sick pay. each file Form 941 or Form 944. The discussion that fol-
Box 5 – The amount of sick pay subject to employee lows only explains how to report sick pay on Form 941. If
Medicare tax. you file Form 944, use the lines on that form that corre-
spond to the lines on Form 941 that are discussed here.
Box 6 – The amount of employee Medicare tax (in- Form 941, line 8, must contain a special adjusting entry
cluding Additional Medicare Tax, if applicable) with- for social security and Medicare taxes. These entries are
held from the sick pay. required because the total tax liability for social security
Box 12 (Code J) – Show any sick pay that was paid by and Medicare taxes (employee and employer parts) is
a third-party and wasn't includible in income (and not split between you and the third party.
shown in boxes 1, 3, and 5) because the employee
• Employer. You must include third-party sick pay on
contributed to the sick pay plan. Don't include nontax- Form 941, lines 2, 5a, 5c, and 5d (if applicable). There
able disability payments made directly to a state. should be no sick pay entry on line 3 because the third
Box 13 – Check the “Third-party sick pay” box only if party withheld federal income tax, if any. After com-
the amounts were paid by a third party. pleting line 6, subtract on line 8 the employee part of
social security and Medicare taxes withheld and de-
posited by the third party.

Publication 15-A (2020) Page 19

 • Third party. The third party must include on Form 941 The agreement must require the employer to:
the employee part of the social security and Medicare
• Pay and report the employer part of social security
taxes (and federal income tax, if any) it withheld. The tax and Medicare tax on a Form 941 using the em-
third party doesn't include on line 2 any sick pay paid ployer's name and EIN and report the sick pay on
as a third party but does include on line 3 any federal Form W-2.
income tax withheld. On line 5a, column 1, the third
party enters the total amount it paid subject to social Optional rule for Form W-2. You and the third party
security taxes. This amount includes both wages paid may choose to enter into a legally binding agreement des-
to its own employees and sick pay paid as a third ignating the third party to be your agent for purposes of
party. The third party completes lines 5c and 5d (if ap- preparing Forms W-2 reporting sick pay. The agreement
plicable), column 1, in a similar manner. On line 8, the must specify what part, if any, of the payments under the
third party subtracts the employer part of the social sick pay plan is excludable from the employees' gross in-
security and Medicare taxes that you must pay. comes because it is attributable to their contributions to
the plan. If you enter into an agreement, the third party
Form 940. You, not the third party, must prepare Form prepares the actual Forms W-2, not Form 8922 as dis-
940 for sick pay. cussed above, for each employee who receives sick pay
Form 8922, Third-Party Sick Pay Recap. The third from the third party. If the optional rule is used:
party (or in certain cases, the employer) must file Form • The third party doesn't provide you with the sick pay
8922 to report sick pay paid by a third party for or on be- statement described next, and
half of employers for whom services are normally per-
formed. Form 8922 doesn't show the names of individuals • You (not the third party) files Form 8922. Form 8922 is
who received the third-party sick pay but the total needed to reconcile the sick pay shown on your
amounts paid in the calendar year to all employees whose Forms 941 or Form 944.
sick pay wages are required to be reported on Form 8922. Sick pay statement. The third party must furnish you
Third-party sick pay is reported on Form 8922 if the lia- with a sick pay statement by January 15 of the year follow-
bility for the employer part of social security tax and Med- ing the year in which the sick pay was paid. The statement
icare tax has been shifted by the third party or insurer pay- must show the following information about each employee
ing the sick pay to the employer for whom services are who was paid sick pay.
normally rendered. Whether the third party or employer re-
ports the sick pay on Form 8922 depends on which entity • The employee's name.
is filing Forms W-2 reporting the sick pay paid to individual • The employee's SSN (if social security, Medicare, or
employees receiving the sick pay. The third party reports income tax was withheld).
the sick pay on Form 8922 if the employer is filing Forms
W-2 reporting the third party sick pay under the name and
• The sick pay paid to the employee.
EIN of the employer. However, if the third party is filing • Any federal income tax withheld.
Forms W-2 with respect to the sick pay under the name • Any employee part of social security tax withheld.
and EIN of the third party, the employer files Form 8922
reporting the sick pay. • Any employee part of Medicare tax withheld.
If the third party is paying all employment taxes, includ-
ing the employer part of social security tax and Medicare Example of Figuring and Reporting
tax, with respect to the sick pay, the third party files Forms Sick Pay
W-2 using its name and EIN as employer with respect to
the sick pay for each employee receiving sick pay and re- Note. The following example is for wages paid in 2019.
ports social security and Medicare taxes and federal in-
come tax withholding on its Form 941. Neither the third Dave, an employee of Edgewood Corporation, was se-
party nor the employer reports the sick pay on Form 8922. riously injured in a car accident on January 1, 2019. Da-
Third parties that are agents with respect to the pay- ve's last day of work was December 31, 2018. The acci-
ment of sick pay (because they have no insurance risk) dent wasn't job related.
are required to report sick pay on Form 8922 only if the Key, an insurance company that wasn't an agent of the
agency agreement between the employer and the agent employer, paid Dave $2,000 sick pay each month for 10
imposes the following requirements. months, beginning in January 2019. Dave submitted a
The agreement must require the agent to: Form W-4S to Key, requesting $210 be withheld from
• Withhold and pay the employee part of social security each payment for federal income tax. Dave received no
tax and Medicare tax and income tax withholding on payments from Edgewood, his employer, from January
the sick pay, and 2019 through October 2019. Dave returned to work on
November 1, 2019.
• Report the withheld amounts on Form 941 using the
agent’s name and EIN. For the policy year in which the car accident occurred,
Dave paid a part of the premiums for his coverage, and
Edgewood paid the remaining part. The plan was, there-
fore, a “contributory plan.” During the 3 policy years before
the calendar year of the accident, Edgewood paid 70% of

Page 20 Publication 15-A (2020)

the total of the net premiums for its employees' insurance social security and Medicare taxes, timely depositing the
coverage, and its employees paid 30%. taxes, and notifying Edgewood of the payments.
If Key shifted liability for the employer part of the social
Social security and Medicare taxes. For social se-
security and Medicare taxes to Edgewood and provided
curity and Medicare tax purposes, taxable sick pay was
Edgewood with a sick pay statement, Key wouldn't pre-
$8,400 ($2,000 per month × 70% = $1,400 taxable portion
pare a Form W-2 for Dave. However, Key would file Form
per payment; $1,400 × 6 months = $8,400 total taxable
8922. Key and Edgewood must each prepare Forms 941.
sick pay). Only the six $2,000 checks received by Dave
Edgewood must also report the sick pay and withholding
from January through June are included in the calculation.
for Dave on Forms W-2, W-3, and 940.
The check received by Dave in July (the seventh check)
As an alternative, the parties could have followed the
was received more than 6 months after the month in which
optional rule described under Optional rule for Form W-2,
Dave last worked.
earlier in this section. Under this rule, Key would prepare
Of each $2,000 payment Dave received, 30% ($600)
Form W-2 even though liability for the employer part of
isn't subject to social security and Medicare taxes be-
the social security and Medicare taxes had been shifted to
cause the plan is contributory and Dave's after-tax contri-
Edgewood. Also, Key wouldn't prepare a sick pay state-
bution is considered to be 30% of the premiums during
ment, and Edgewood, not Key, would file Form 8922 re-
the 3 policy years before the calendar year of the acci-
flecting the sick pay shown on Edgewood's Forms 941.
dent.
Liability not transferred. If Key didn't shift liability for
FUTA tax. Of the $8,400 taxable sick pay (figured the
the employer part of the social security and Medicare
same as for social security and Medicare taxes), only
taxes to Edgewood, Key would prepare Forms W-2 and
$7,000 is subject to the FUTA tax because the FUTA tax
W-3 as well as Forms 941 and 940. In this situation, Edge-
contribution base is $7,000.
wood wouldn't report the sick pay.
Federal income tax withholding. Of each $2,000
Payments received after 6 months. The payments
payment, $1,400 ($2,000 × 70%) is subject to voluntary
received by Dave in July through October aren't subject to
federal income tax withholding. In accordance with Dave's
social security, Medicare, or FUTA taxes, because they
Form W-4S, $210 was withheld from each payment.
were received more than 6 months after the last month in
Liability transferred. For the first 6 months following which Dave worked (December 2018). However, Key
the last month in which Dave worked, Key was liable for must continue to withhold federal income tax from each
social security, Medicare, and FUTA taxes on any pay- payment because Dave furnished Key with a Form W-4S.
ments that constituted taxable wages. However, Key Also, Key must prepare Forms W-2 and W-3, unless it has
could have shifted the liability for the employer part of the furnished Edgewood with a sick pay statement. If the sick
social security and Medicare taxes (and for the FUTA tax) pay statement was furnished, then Edgewood must pre-
during the first 6 months by withholding Dave's part of the pare Forms W-2 and W-3.
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 Wage 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 Wage and Taxes on Form W-2*

Income Yes No — File Form 8922
Social Security Yes No — File Form 8922
Medicare Yes No — File Form 8922
*See the instructions earlier if operating under the Optional rule for Form W-2.

Publication 15-A (2020) Page 21

 Employee's Portion of Taxes Paid by
7. Special Rules for Paying Employer
Taxes The information provided in this section doesn't
take into account an employer that chooses to
!
CAUTION pay the Additional Medicare Tax on behalf of the

Common Paymaster employee.

If two or more related corporations employ the same indi-
vidual at the same time and pay this individual through a If you pay your employee's social security and Medicare
common paymaster that is one of the corporations, the taxes without deducting them from the employee's pay,
corporations are considered to be a single employer. you must include the amount of the payments in the em-
They have to pay, in total, no more in social security tax ployee's wages for federal income tax withholding and so-
than a single employer would pay. cial security, Medicare, and FUTA taxes. This increase in
the employee's wages for your payment of the employee's
Each corporation must pay its own part of the employ- social security and Medicare taxes is also subject to em-
ment taxes and may deduct only its own part of the wa- ployee social security and Medicare taxes. This again in-
ges. The deductions won't be allowed unless the corpora- creases the amount of the additional taxes you must pay.
tion reimburses the common paymaster for the wage and
tax payments. See Regulations section 31.3121(s)-1 for To figure the employee's increased wages in this situa-
more information. The common paymaster is responsible tion, divide the stated pay (the amount that you pay with-
for filing information and tax returns and issuing Forms out taking into account your payment of employee social
W-2 with respect to wages it is considered to have paid as security and Medicare taxes) by a factor for that year. This
a common paymaster. factor is determined by subtracting from 1 the combined
employee social security and Medicare tax rate for the
year that the wages are paid. For 2020, the factor is
Agent With an Approved Form 2678 0.9235 (1 − 0.0765). If the stated pay is more than
$127,165.95 (2020 wage base $137,700 × 0.9235), follow
Employers and payers must use Form 2678 to request ap-
the procedure described under Stated pay of more than
proval for an agent to file returns and make deposits or
$127,165.95 in 2020 below.
payments of their employment or other withholding taxes.
See Revenue Procedure 2013-39, 2013-52 I.R.B. 830, Stated pay of $127,165.95 or less in 2020. For an em-
available at IRS.gov/irb/2013-52_IRB#RP-2013-39; Reve- ployee with stated pay of $127,165.95 or less in 2020, fig-
nue Procedure 84-33, 1984-1 C.B. 502; and the General ure the correct wages (wages plus employer-paid em-
Instructions for Forms W-2 and W-3 for procedures and ployee taxes) to report by dividing the stated pay by
reporting requirements. Form 2678 doesn't apply to FUTA 0.9235. This will give you the wages to report in box 1 and
taxes reportable on Form 940 unless the employer is a the social security and Medicare wages to report in boxes
home care service recipient receiving home care services 3 and 5 of Form W-2.
through a program administered by a federal, state, or lo- On Form W-2, to figure the correct social security tax to
cal government agency. enter in box 4, multiply the amount in box 3 by the social
Agents filing an aggregate Form 940 must file Sched- security withholding rate of 6.2% and enter the result in
ule R (Form 940). Agents filing an aggregate Form 941 box 4. To figure the correct Medicare tax to enter in box 6,
must file Schedule R (Form 941). multiply the amount in box 5 by the Medicare withholding
rate of 1.45% and enter the result in box 6.
Reporting Agents Example. Donald Devon hires Lydia Lone for only 1
week during 2020. He pays her $500 for that week. Don-
Electronic filing of Forms 940, 941, and 944. Report-
ald agrees to pay Lydia's part of the social security and
ing agents may file Forms 940, 941, and 944 electroni-
Medicare taxes. To figure her reportable wages, he di-
cally. For details, see Pub. 3112, IRS e-file Application
vides $500 by 0.9235. The result, $541.42, is the amount
and Participation. For information on electronic filing of
that he reports as wages in boxes 1, 3, and 5 of Form
Forms 940, 941, and 944, see Revenue Procedure
W-2. To figure the amount to report as social security tax,
2007-40, 2007-26 I.R.B. 1488, available at IRS.gov/irb/
Donald multiplies $541.42 by the social security tax rate of
2007-26_IRB#RP-2007-40. For more information on elec-
6.2% (0.062). The result, $33.57, is entered in box 4 of
tronic filing, go to IRS.gov/EmploymentEfile or call
Form W-2. To figure the amount to report as Medicare tax,
866-255-0654.
Donald multiplies $541.42 by the Medicare tax rate of
For more information on third-party payer ar- 1.45% (0.0145). The result, $7.85, is entered in box 6 of
TIP rangements, including agents with an approved Form W-2. Although he didn't actually withhold the
Form 2678, reporting agents, and CPEOs, see amounts from Lydia, he will report these amounts as taxes
section 16 of Pub. 15. withheld on Form 941 or Form 944 and is responsible for
the employer share of these taxes.
For FUTA tax and federal income tax withholding, Ly-
dia's weekly wages are $541.42.

Page 22 Publication 15-A (2020)

Stated pay of more than $127,165.95 in 2020. For an coverage under two social security systems. Under these
employee with stated pay of more than $127,165.95 in agreements, sometimes known as totalization agree-
2020, the portion of stated wages subject to social secur- ments, employees generally must pay social security
ity tax is $127,165.95 (the first $137,700 of wages × taxes only to the country where they work. Employees and
0.9235). The stated pay in excess of $127,165.95 isn't employers who are subject to foreign social security taxes
subject to social security tax because the tax only applies under these agreements are potentially exempt from U.S.
to the first $137,700 of wages (stated pay plus em- social security taxes, including the Medicare portion. For
ployer-paid employee taxes). Enter $137,700 in box 3 of more information, go to SSA.gov/international, or see
Form W-2. The social security tax to enter in box 4 is Pub. 519, U.S. Tax Guide for Aliens.
$8,537.40 ($137,700 x 0.062).
To figure the correct Medicare wages to enter in box 5
of Form W-2, subtract $127,165.95 from the stated pay.
Divide the result by 0.9855 (1 − 0.0145) and add
8. Pensions and Annuities
$137,700. Generally, federal income tax withholding applies to the
For example, if stated pay is $130,000, the correct taxable part of payments made from pension, profit-shar-
Medicare wages are figured as follows. ing, stock bonus, annuity, certain deferred compensation
$130,000 – $127,165.95 = $2,834.05 plans, individual retirement arrangements (IRAs), and
commercial annuities. Don't withhold income taxes from
$2,834.05 ÷ 0.9855 = $2,875.75
amounts totally exempt from tax. If part of a distribution is
$2,875.75 + $137,700 = $140,575.75 taxable and part is nontaxable, withhold income taxes
The Medicare wages are $140,575.75. Enter this only on the part subject to tax when known. The method
amount in box 5 of Form W-2. The Medicare tax to enter and rate of withholding depends on (a) the kind of pay-
in box 6 is $2,038.35 ($140,575.75 × 0.0145). ment, (b) whether the payments are to be delivered out-
Although these employment tax amounts aren't actually side the United States and its possessions, and (c)
withheld from the employee's pay, report them as withheld whether the payee is a nonresident alien individual, a non-
on Forms 941, and pay this amount as the employer's resident alien beneficiary, or a foreign estate. Qualified
share of the social security and Medicare taxes. If the wa- distributions from Roth IRAs and Roth 401(k)s are nontax-
ges for federal income tax withholding purposes in the able and, therefore, not subject to withholding. See Pay-
preceding example are the same as for social security ments to Foreign Persons and Payments Outside the Uni-
and Medicare tax purposes, the correct wage amount for ted States, later in this section, for special withholding
federal income tax withholding is $140,575.75 ($130,000 rules that apply to payments outside the United States
+ $8,537.40 + $2,038.35), which is included in box 1 of and payments to foreign persons.
Form W-2. The recipient of certain pension or annuity payments
Whether or not the business provides the worker with can choose not to have federal income tax withheld from
employee-type benefits, such as insurance, a pension the payments by using line 1 of Form W-4P. For an estate,
plan, vacation pay, or sick pay. the election to have no federal income tax withheld can be
Household and agricultural employees. The discus- made by the executor or personal representative of the
sion above doesn't apply to household and agricultural decedent. The estate's EIN should be entered in the area
employers. If you pay a household or agricultural employ- reserved for “Your social security number” on Form W-4P.
ee's social security and Medicare taxes, these payments Federal income tax must be withheld from eligible roll-
must be included in the employee's wages. However, this over distributions. See Eligible Rollover Distribution—20%
wage increase due to the tax payments made for the em- Withholding, later in this section.
ployee isn't subject to social security or Medicare taxes as
discussed in this section. Federal Income Tax Withholding
Tax deposits and Form 941 or Form 944. If you pay
your employee's portion of his or her social security and Periodic Payments
Medicare taxes rather than deducting them from his or her
pay, you’re liable for timely depositing or paying the in- Periodic payments are those made in installments at regu-
creased taxes associated with the wage increase. Also, lar intervals over a period of more than 1 year. They may
report the increased wages on the appropriate lines of be paid annually, quarterly, monthly, etc. Withholding from
Form 941 for the quarter during which the wages were periodic payments of a pension or annuity is generally fig-
paid or on Form 944 for the year during which the wages ured in the same manner as withholding from wages.
were paid. However, it doesn’t matter if the Form W-4P is from before
2020 or is a 2020 Form W-4P. In either case, for the ap-
propriate computational method to figure federal income
International Social Security tax withholding on periodic payments, see section 5 of
Agreements Pub. 15-T.

The United States has bilateral social security agreements If the recipient wants income tax withheld, he or she
with many countries to eliminate dual taxation and must designate the number of withholding allowances on

Publication 15-A (2020) Page 23

Form W-4P, line 2, and can designate an additional Eligible Rollover Distribution—20%
amount to be withheld on line 3. If the recipient doesn't Withholding
want any federal income tax withheld from his or her peri-
odic payments, he or she can check the box on Form Distributions from eligible retirement plans (other than
W-4P, line 1, and submit the form to you. If the recipient IRAs), such as qualified plans, 401(k) plans, section
doesn't submit Form W-4P, you must withhold on periodic 457(b) plans maintained by a governmental employer,
payments as if the recipient were married claiming three section 403(a) annuity plans or section 403(b) tax-shel-
withholding allowances. Generally, this means that tax will tered annuities that are eligible to be rolled over tax free to
be withheld if the pension or annuity is at least $2,095 a an IRA or another eligible retirement plan, are subject to a
month. flat 20% withholding rate. The 20% withholding rate is re-
quired and a recipient can't choose to have less federal in-
If you receive a Form W-4P that doesn't contain the re- come tax withheld from eligible rollover distributions. How-
cipient's correct taxpayer identification number (TIN), you ever, you shouldn't withhold federal income tax if the
must withhold as if the recipient were single claiming zero entire distribution is transferred in a direct rollover to a tra-
withholding allowances even if the recipient attempts to ditional IRA or another eligible retirement plan.
choose not to have income tax withheld.
Exceptions. Distributions that are (a) required minimum
See section 5 of Pub. 15-T for the appropriate compu- distributions, (b) one of a specified series of equal pay-
tational method to figure federal income tax withholding ments, or (c) qualifying “hardship” distributions aren't “eli-
on periodic payments if the recipient doesn’t submit Form gible rollover distributions” and aren't subject to the man-
W-4P or you receive a Form W-4P that doesn’t contain the datory 20% federal income tax withholding. See Pub. 505
recipient’s correct TIN. for details. Also, see Nonperiodic Payments—10% With-
holding above.
There are some kinds of periodic payments for which
the recipient can't use Form W-4P because they are al-
ready defined as wages subject to federal income tax Payments to Foreign Persons and
withholding. These include retirement pay for service in Payments Outside the United States
the U.S. Armed Forces and payments from certain non-
Unless the recipient is a nonresident alien, withholding in
qualified deferred compensation plans and deferred com-
the manner described earlier is required on any periodic
pensation plans of exempt organizations described in sec-
or nonperiodic payments that are delivered outside the
tion 457.
United States and its possessions. A recipient can't
The recipient's Form W-4P stays in effect until he or choose not to have federal income tax withheld.
she changes or revokes it. You must notify recipients each
In the absence of a treaty exemption, nonresident ali-
year of their right to choose not to have federal income tax
ens, nonresident alien beneficiaries, and foreign estates
withheld or to change their previous choice.
generally are subject to a 30% withholding tax under sec-
tion 1441 on the taxable portion of a periodic or nonperi-
Nonperiodic Payments—10% Withholding odic pension or annuity payment that is from U.S. sour-
You must withhold at a flat 10% rate from nonperiodic ces. However, many tax treaties provide that private
payments (but see Eligible Rollover Distribution—20% pensions and annuities are exempt from withholding and
Withholding next) unless the recipient chooses not to tax. Also, payments from certain pension plans are ex-
have income tax withheld (if permitted). Distributions from empt from withholding even if no tax treaty applies. See
an IRA that are payable on demand are treated as non- Pub. 515 and Pub. 519. A foreign person should submit
periodic payments. A recipient can choose not to have in- Form W-8BEN, Certificate of Foreign Status of Beneficial
come tax withheld from a nonperiodic payment by submit- Owner for United States Tax Withholding and Reporting
ting Form W-4P (containing his or her correct TIN) and (Individuals), to you before receiving any payments. The
checking the box on line 1. Generally, the choice not to Form W-8BEN must contain the foreign person's TIN to
have federal income tax withheld will apply to any later support a withholding exemption. A TIN for this purpose
payment from the same plan. A recipient can't use line 2 means a U.S. TIN (SSN or individual taxpayer identifica-
for nonperiodic payments, but he or she may use line 3 to tion number (ITIN)). However, for a claim based on a tax
specify an additional amount that he or she wants with- treaty, a foreign TIN may be substituted for a U.S. TIN.
held. Special rules may apply to nonresident aliens who re-
If a recipient submits a Form W-4P that doesn't contain linquished U.S. citizenship or ceased to be long-term resi-
his or her correct TIN, you can't honor his or her request dents of the United States after June 16, 2008. For more
not to have income tax withheld and you must withhold information, see section 5 of Notice 2009-85, 2009-45
10% of the payment for federal income tax. I.R.B. 598, available at IRS.gov/irb/
2009-45_IRB#NOT-2009-85. Also see Form W-8CE, No-
tice of Expatriation and Waiver of Treaty Benefits.

Page 24 Publication 15-A (2020)

Statement of Income Tax Withheld ucts, and services. At the IRS, privacy and security are
paramount. We use these tools to share public informa-
By January 31 of the next year, you must furnish a state- tion with you. Don’t post your social security number or
ment on Form 1099-R, Distributions From Pensions, An- other confidential information on social media sites. Al-
nuities, Retirement or Profit-Sharing Plans, IRAs, Insur- ways protect your identity when using any social network-
ance Contracts, etc., showing the total amount of the ing site.
recipient's pension or annuity payments and the total fed- The following IRS YouTube channels provide short, in-
eral income tax you withheld during the prior year. Report formative videos on various tax-related topics in English,
income tax withheld on Form 945, Annual Return of With- Spanish, and ASL.
held Federal Income Tax, not on Forms 941 or Form 944.
• Youtube.com/irsvideos.
If the recipient is a foreign person who has provided • Youtube.com/irsvideosmultilingua
you with Form W-8BEN, you instead must furnish a state-
ment to the recipient on Form 1042-S, Foreign Person's • Youtube.com/irsvideosASL.
U.S. Source Income Subject to Withholding, by March 15 Watching IRS videos. The IRS Video portal
for the prior year. Report federal income tax withheld on (IRSVideos.gov) contains video and audio presentations
Form 1042, Annual Withholding Tax Return for U.S. for individuals, small businesses, and tax professionals.
Source Income of Foreign Persons.
Getting tax information in other languages. For tax-
payers whose native language isn’t English, we have the
How To Get Tax Help following resources available. Taxpayers can find informa-
tion on IRS.gov in the following languages.
If you have questions about a tax issue, need help prepar- • Spanish (IRS.gov/Spanish).
ing your tax return, or want to download free publications,
forms, or instructions, go to IRS.gov and find resources • Chinese (IRS.gov/Chinese).
that can help you right away. • Korean (IRS.gov/Korean).

Preparing and filing your tax return. Go to IRS.gov/ • Russian (IRS.gov/Russian).

EmploymentEfile for more information on filing your em- • Vietnamese (IRS.gov/Vietnamese).
ployment tax returns electronically. The IRS Taxpayer Assistance Centers (TACs) provide
over-the-phone interpreter service in over 170 languages,
Employers can register to use Business Services On-
and the service is available free to taxpayers.
line. The SSA offers online service for fast, free, and se-
cure online Form W-2 filing options to CPAs, accountants, Getting tax forms and publications. Go to IRS.gov/
enrolled agents, and individuals who process Forms W-2, Forms to view, download, or print most of the forms, in-
Wage and Tax Statement, and Forms W-2c, Corrected structions, and publications you may need. You can also
Wage and Tax Statement. Employers can go to SSA.gov/ download and view popular tax publications and instruc-
employer for more information. tions (including Pub. 15-A) on mobile devices as an
Getting answers to your tax questions. On eBook at no charge at IRS.gov/eBooks. Or you can go to
IRS.gov, get answers to your tax questions any- IRS.gov/OrderForms to place an order and have them
time, anywhere. mailed to you within 10 business days.
• Go to IRS.gov/Help for a variety of tools that will help Getting a transcript or copy of a return. You can get a
you get answers to some of the most common tax copy of your tax transcript or a copy of your return by call-
questions. ing 800-829-4933 or by mailing Form 4506-T (transcript
• Go to IRS.gov/Forms to search for our forms, instruc- request) or Form 4506 (copy of return) to the IRS.
tions, and publications. You will find details on 2019
tax changes and hundreds of interactive links to help Resolving tax-related identity theft issues.
you find answers to your questions. • The IRS doesn’t initiate contact with taxpayers by
email or telephone to request personal or financial in-
• You may also be able to access tax law information in
your electronic filing software. formation. This includes any type of electronic com-
munication, such as text messages and social media
channels.
Tax reform. Tax reform legislation affects individuals,
• Go to IRS.gov/IDProtection for information.
businesses, and tax-exempt and government entities. Go
to IRS.gov/TaxReform for information and updates on • If your EIN has been lost or stolen or you suspect
how this legislation affects your taxes. you’re a victim of tax-related identity theft, visit
IRS.gov/IdentityTheft to learn what steps you should
IRS social media. Go to IRS.gov/SocialMedia to see the take.
various social media tools the IRS uses to share the latest
information on tax changes, scam alerts, initiatives, prod- Making a tax payment. The IRS uses the latest encryp-
tion technology to ensure your electronic payments are

Publication 15-A (2020) Page 25

safe and secure. You can make electronic payments on- The Taxpayer Advocate Service (TAS)
line, by phone, and from a mobile device using the
IRS2Go app. Paying electronically is quick, easy, and
Is Here To Help You
faster than mailing in a check or money order. Go to What Is TAS?
IRS.gov/Payments to make a payment using any of the
following options. TAS is an independent organization within the IRS that
helps taxpayers and protects taxpayer rights. Their job is
• Debit or Credit Card: Choose an approved payment to ensure that every taxpayer is treated fairly and that you
processor to pay online, by phone, and by mobile de-
know and understand your rights under the Taxpayer Bill
vice.
of Rights.
• Electronic Funds Withdrawal: Offered only when filing
your federal taxes using tax return preparation soft- How Can You Learn About Your Taxpayer
ware or through a tax professional. Rights?
• Electronic Federal Tax Payment System: Best option
for businesses. Enrollment is required. The Taxpayer Bill of Rights describes 10 basic rights that
all taxpayers have when dealing with the IRS. Go to
• Check or Money Order: Mail your payment to the ad- TaxpayerAdvocate.IRS.gov to help you understand what
dress listed on the notice or instructions. these rights mean to you and how they apply. These are
• Cash: You may be able to pay your taxes with cash at your rights. Know them. Use them.
a participating retail store.
• Same-Day Wire: You may be able to do same-day What Can TAS Do For You?
wire from your financial institution. Contact your finan- TAS can help you resolve problems that you can’t resolve
cial institution for availability, cost, and cut-off times. with the IRS. And their service is free. If you qualify for
What if I can’t pay now? Go to IRS.gov/Payments for their assistance, you will be assigned to one advocate
more information about your options. who will work with you throughout the process and will do
everything possible to resolve your issue. TAS can help
• Apply for an online payment agreement (IRS.gov/ you if:
OPA) to meet your tax obligation in monthly install-
ments if you can’t pay your taxes in full today. Once • Your problem is causing financial difficulty for you,
you complete the online process, you will receive im- your family, or your business;
mediate notification of whether your agreement has • You face (or your business is facing) an immediate
been approved. threat of adverse action; or
• Use the Offer in Compromise Pre-Qualifier to see if • You’ve tried repeatedly to contact the IRS but no one
you can settle your tax debt for less than the full has responded, or the IRS hasn’t responded by the
amount you owe. For more information on the Offer in date promised.
Compromise program, go to IRS.gov/OIC.
How Can You Reach TAS?
Understanding an IRS notice or letter. Go to IRS.gov/
Notices to find additional information about responding to TAS has offices in every state, the District of Columbia,
an IRS notice or letter. and Puerto Rico. Your local advocate’s number is in your
local directory and at TaxpayerAdvocate.IRS.gov/
Contacting your local IRS office. Keep in mind, many
Contact-Us. You can also call them at 877-777-4778.
questions can be answered on IRS.gov without visiting an
IRS Tax Assistance Center (TAC). Go to IRS.gov/
LetUsHelp for the topics people ask about most. If you still How Else Does TAS Help Taxpayers?
need help, IRS TACs provide tax help when a tax issue TAS works to resolve large-scale problems that affect
can’t be handled online or by phone. All TACs now pro- many taxpayers. If you know of one of these broad issues,
vide service by appointment so you’ll know in advance please report it to them at IRS.gov/SAMS.
that you can get the service you need without long wait
times. Before you visit, go to IRS.gov/TACLocator to find TAS also has a website, Tax Reform Changes, which
the nearest TAC, check hours, available services, and ap- shows you how the new tax law may change your future
pointment options. Or, on the IRS2Go app, under the Stay tax filings and helps you plan for these changes. The in-
Connected tab, choose the Contact Us option and click on formation is categorized by tax topic in the order of the
“Local Offices.” IRS Form 1040 or 1040-SR. Go to TaxChanges.us for
more information.

Page 26 Publication 15-A (2020)

TAS for Tax Professionals
TAS can provide a variety of information for tax professio-
nals, including tax law updates and guidance, TAS pro-
grams, and ways to let TAS know about systemic prob-
lems you’ve seen in your practice.

Publication 15-A (2020) Page 27

 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.

Industry examples 8 Outplacement services 12

Statutory 6
A Employees defined 5
Additional Medicare Tax 19 Employees misclassification 7
Agents, reporting 22 Excessive termination payments (golden P
Agricultural workers 6 parachute) 13 Pension payments 23
Annuity payments 23 Exempt organizations 10 Publications (See Tax help)
Assistance (See Tax help)
Awards, employee achievement 12
F R
Fellowship payments 12 Real estate agents 6
B Form W-2, electronic filing 4 Religious exemptions 11
Back pay 13 Reporting agents 22
Below-market rate loans 14
G
Golden parachute 13 S
C Scholarship payments 12
Common-law employees 5 Sick pay 15
Common-law rules 7 SIMPLE retirement plans 15
Common paymaster 22 I Simplified employee pension 15
Corporate officers 5 Identity theft 25 Statutory employees 6
Idle time 13 Statutory nonemployees 6
Independent contractors 5 Supplemental unemployment benefits 13
Interest-free loans 14
D International social security
Deferred compensation plans, agreements 23
nonqualified 14 T
Director of corporation 5 Tax-exempt organizations 10
Direct sellers 6 Tax help 25
L Tax-sheltered annuities 15
Leave sharing plans 14 Technical service specialists 7
Loans, interest-free or below-market Third-party sick pay 19
E rate 14 Third-party sick pay recap 20
Electronic Form W-2 4
Employee's taxes paid by employer 22
Employee achievement awards 12
Employee or contractor: M W
Attorney 9 Ministers 11 Withholding:
Automobile industry 9 Misclassification of employees 7 Idle time payments 13
Building industry 8 Pensions and annuities 23
Computer industry 9 Sick pay 18
Salesperson 10
Taxicab driver 9
N
Trucking industry 9 Nonqualified plans 14
Employees:
Common-law rules 7
O
Officer of corporation 5

Page 28 Publication 15-A (2020)