Publication 505 - Tax Withholding And Estimated Tax (Page 12 of 49) in pdf

status

15,650*

by February 15 each year to continue your ex-

clude your tips on your tax return on the same

16,550*

emption.

line as your regular pay. However, tax is not

17,450*

withheld directly from tip income, as it is from

*Include both spouses’ income whether you will file separately

Supplemental Wages

your regular pay. Nevertheless, your employer

or jointly.

will take into account the tips you report when

Qualifying

$11,750

figuring how much to withhold from your regular

Supplemental wages include bonuses, commis-

widow(er)

12,650

sions, overtime pay, and certain sick pay. The

pay.

You cannot claim exemption from withholding if your total

payer can figure withholding on supplemental

income will be more than the amount shown for your filing

status.

Reporting tips to your employer. If you re-

wages using the same method used for your

ceive tips of $20 or more in a month while work-

regular wages. If these payments are identified

Worksheet 1.4

ing for any one employer, you must report to

separately from regular wages, your employer

Exemption From Withholding Worksheet

your employer the total amount of tips you re-

for Dependents Who Are 65 or Older or Blind

or other payer of supplemental wages can with-

ceive on the job during the month. The report is

hold income tax from these wages at a flat rate

Use this worksheet only if, for 2001, you had a right to a refund

due by the 10th day of the following month.

of 27%.

of all federal income tax withheld because you had no tax

If you have more than one job, make a sepa-

liability.

rate report to each employer. Report only the

Expense allowances. Reimbursements or

1. Enter your expected earned income plus

tips you received while working for that em-

$250 . . . . . . . . . . . . . . . . . . . . . . .

other expense allowances paid by your em-

2. Minimum amount . . . . . . . . . . . . . . .

$750

ployer, and only if they total $20 or more for the

ployer under a nonaccountable plan are treated

3. Compare lines 1 and 2. Enter the larger

month.

as supplemental wages. A nonaccountable plan

amount . . . . . . . . . . . . . . . . . . . . .

is a reimbursement arrangement that does not

4. Enter the appropriate amount from the

How employer figures amount to withhold.

following table . . . . . . . . . . . . . . . . .

require you to account for, or prove, your busi-

The tips you report to your employer are counted

ness expenses to your employer or does not

Filing Status Amount

as part of your income for the month you report

Single

$4,700

require you to return your employer’s payments

them. Your employer can figure your withholding

Married filing separately

3,925

that are more than your proven expenses.

in either of two ways.

5. Compare lines 3 and 4. Enter the smaller

Reimbursements or other expense al-

amount . . . . . . . . . . . . . . . . . . . . .

lowances paid under an accountable plan that

1) By withholding at the regular rate on the

6. Enter the appropriate amount from the

are more than your proven expenses are treated

sum of your pay plus your reported tips.

following table . . . . . . . . . . . . . . . . .

as paid under a nonaccountable plan if you do

Filing Status Amount

2) By withholding at the regular rate on your

not return the excess payments within a reason-

Single

pay plus an amount equal to 27% of your

able period of time.

Either 65 or older or blind

$1,150

reported tips.

Both 65 or older and blind

2,300

For more information about accountable and

Married filing separately

nonaccountable plans, see chapter 6 of Publica-

Either 65 or older or blind

900

tion 463, Travel, Entertainment, Gift, and Car

Not enough pay to cover taxes. If your regu-

Both 65 or older and blind

1,800

Expenses.

lar pay is too low for your employer to withhold

7. Add lines 5 and 6. Enter the result . . . .

all the tax (including social security tax, Medi-

8. Enter your total expected income . . . . .

Penalties

care tax, or railroad retirement tax) due on your

You can claim exemption from withholding if line 7 is

pay plus your tips, you can give your employer

equal to or more than line 8. If line 8 is more than line

You may have to pay a penalty of $500 if both of

money to cover the shortage.

7, you cannot claim exemption from withholding.

the following apply.

If you do not give your employer money to

cover the shortage, your employer will first with-

Itemizing deductions or claiming exemp-

1) You make statements or claim withholding

hold as much social security tax, Medicare tax,

tions or credits. If you had no tax liability for

allowances on your Form W – 4 that reduce

or railroad retirement tax as possible, up to the

2001, and you will either:

the amount of tax withheld.

proper amount, and then withhold income tax up

1) Itemize deductions,

to the full amount of your pay. If not enough tax

2) You have no reasonable basis for those

is withheld, you may have to make estimated tax

statements or allowances at the time you

2) Claim an exemption for a dependent, or

payments. When you file your return, you also

prepare your Form W – 4.

3) Claim a tax credit,

may have to pay any social security tax, Medi-

There is also a criminal penalty for willfully

care tax, or railroad retirement tax your em-

use the 2002 Estimated Tax Worksheet in Form

supplying false or fraudulent information on your

ployer could not withhold.

1040 – ES (also see chapter 2), to figure your

Form W – 4 or for willfully failing to supply infor-

2002 expected tax liability. You can claim ex-

mation that would increase the amount withheld.

Tips not reported to your employer. On your

emption from withholding only if your total ex-

The penalty upon conviction can be either a fine

tax return, you must report all the tips you re-

pected tax liability (line 13c of the worksheet) is

of up to $1,000 or imprisonment for up to one

ceive during the year, even tips you do not report

zero.

year, or both.

to your employer. Make sure you are having

These penalties will apply if you deliberately

enough tax withheld, or are paying estimated

Claiming exemption from withholding. To

and knowingly falsify your Form W – 4 in an

tax, to cover all your tip income.

claim exemption, you must give your employer a

attempt to reduce or eliminate the proper with-

Form W – 4. Print “Exempt” on line 7.

holding of taxes. A simple error — an honest

Your employer must send the IRS a copy of

Allocated tips. If you work in a large estab-

mistake — will not result in one of these penal-

your Form W – 4 if you claim exemption from

lishment that serves food or beverages to cus-

ties. For example, a person who has tried to

withholding and your pay is expected to usually

tomers, your employer may have to report an

be more than $200 a week. If it turns out that you

figure the number of withholding allowances cor-

allocated amount of tips on your Form W – 2.

do not qualify for exemption, the IRS will send

rectly, but claims seven when the proper num-

Your employer should not withhold income

both you and your employer a written notice.

ber is six, will not be charged a Form W – 4

tax, social security tax, Medicare tax, or railroad

If you claim exemption, but later your situa-

penalty. However, see chapter 4 for information

retirement tax on the allocated amount. With-

tion changes so that you will have to pay income

on the underpayment penalty.

holding is based only on your pay plus your

tax after all, you must file a new Form W – 4

reported tips. Your employer should refund to

within 10 days after the change. If you claim

you any incorrectly withheld tax.

exemption in 2002, but you expect to owe in-

Tips

come tax for 2003, you must file a new Form

More information. For more information on

W – 4 by December 1, 2002.

the withholding rules for tip income and on tip

The tips you receive while working on your job

An exemption is good for only one year.

allocation, get Publication 531, Reporting Tip

You must give your employer a new Form W – 4

are considered part of your pay. You must in-

Income.

Page 12

Chapter 1 Tax Withholding for 2002

Publication 505 - Tax Withholding And Estimated Tax Page 12

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