# What’s New . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

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URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3A7008e0b30668ba17

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

Contents
What’s New . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Publication 15-A

Reminders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Employer’s
Supplemental
Tax Guide

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

(Supplement to Pub. 15,
Employer’s Tax Guide)
For use in

2026

1. Who Are Employees? . . . . . . . . . . . . . . . . . . . . . 4
2. Employee or Independent Contractor? . . . . . . . 6
3. Employees of Exempt Organizations . . . . . . . . . 9
4. Religious Exemptions and Special Rules for
Ministers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5. Wages and Other Compensation . . . . . . . . . . . 11
6. Sick Pay Reporting . . . . . . . . . . . . . . . . . . . . . . 15
7. Special Rules for Paying Taxes . . . . . . . . . . . . . 21
8. Federal Income Tax Withholding on
Retirement Payments and Annuities . . . . . . . 23
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

Get forms and other information faster and easier at:

• IRS.gov (English)
• IRS.gov/Korean (한국어)
• IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский)
• IRS.gov/Chinese (中文)
• IRS.gov/Vietnamese (Tiếng Việt)

Dec 15, 2025

Social security and Medicare taxes for 2026. The social security tax rate is 6.2% each for the employee and
employer. The social security wage base limit is $184,500.
The Medicare tax rate is 1.45% each for the employee
and employer, unchanged from 2025. There is no wage
base limit for Medicare tax.
Social security and Medicare taxes apply to the wages
of household workers you pay $3,000 or more in cash wages in 2026. Social security and Medicare taxes apply to
election workers who are paid $2,500 or more in cash or
an equivalent form of compensation in 2026.
Moving expense reimbursement. P.L. 119-21, commonly known as the One Big Beautiful Bill Act, permanently eliminates the exclusion for qualified moving expense reimbursements from your employee’s income.
However, the exclusion is available in the case of a member of the U.S. Armed Forces on active duty who moves
because of a permanent change of station due to a military order. The exclusion applies only to reimbursement of
moving expenses that the member could deduct if they
had paid or incurred them without reimbursement. See
Moving Expenses in Pub. 3, Armed Forces’ Tax Guide, for
the definition of what constitutes a permanent change of
station and to learn which moving expenses are
deductible.

Publication 15-A (2026) Catalog Number 21453T
Department of the Treasury Internal Revenue Service www.irs.gov

P.L. 119-21 also makes the exclusion available to an
employee or new appointee of the intelligence community
(as defined in section 3 of the National Security Act of
1947 (50 U.S.C. 3003)) (other than a member of the
Armed Forces of the United States) who moves pursuant
to a change in assignment which requires relocation. The
exclusion applies only to reimbursement of moving expenses that an intelligence community employee or appointee
could deduct if they had paid or incurred them without reimbursement.
Employer contributions to Trump accounts. P.L.
119-21 allows for a new type of traditional individual retirement account to be established for a child who has not attained age 18 at the end of the year the account is established, known as a Trump account. This account has an
annual contribution limit of $5,000 (other than exempt contributions), which will be indexed for inflation after tax year
2027. Beginning July 4, 2026, employers may contribute
up to $2,500 a year, which will be indexed for inflation after
tax year 2027, toward the $5,000 contribution limit to the
Trump account of an employee or of a dependent of an
employee, and the amount will be excluded from the gross
income of the employee if paid pursuant to a Trump account contribution program. For more information, see
Employer Contributions to Trump Accounts in section 5.

Reminders
Form W-4P and Form W-4R. Form W-4P, Withholding
Certificate for Periodic Pension or Annuity Payments (previously titled Withholding Certificate for Pension or Annuity
Payments), was redesigned for 2022. Form W-4P is now
used only to make withholding elections for periodic pension or annuity payments. Previously, Form W-4P was also
used to make withholding elections for nonperiodic payments and eligible rollover distributions. Withholding elections for nonperiodic payments and eligible rollover distributions are now made on Form W-4R, Withholding
Certificate for Nonperiodic Payments and Eligible Rollover
Distributions. See section 8 for more information about
withholding on retirement payments and annuities. See
Pub. 15-T to figure withholding on periodic pension and
annuity payments.
2026 withholding tables. The discussion on the alternative 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
with the Percentage Method and Wage Bracket Method
withholding tables. However, the IRS is no longer providing the Formula Tables for Percentage Method Withholding (for Automated Payroll Systems); Wage Bracket Percentage Method Tables (for Automated Payroll Systems);
or the Combined Federal Income Tax, Employee Social
Security Tax, and Employee Medicare Tax Withholding Tables.
Form 1099-NEC. Use Form 1099-NEC to report nonemployee compensation paid in 2025.
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Disaster tax relief. Disaster tax relief is available for
those impacted by disasters. For more information about
disaster tax relief, go to IRS.gov/DisasterTaxRelief.
No federal income tax withholding on disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States. Disability payments (including Social Security Disability
Insurance (SSDI) payments) for injuries incurred as a direct result of a terrorist attack directed against the United
States (or its allies) aren’t included in income. Because
federal income tax withholding is only required when a
payment is includible in income, no federal income tax
should be withheld from these payments. See Pub. 907,
Tax Highlights for Persons With Disabilities; and Pub.
3920, Tax Relief for Victims of Terrorist Attacks.
Federal tax deposits must be made by electronic
funds transfer (EFT). You must use EFT to make all federal tax deposits. An EFT can be made using the Electronic Federal Tax Payment System (EFTPS), IRS Direct
Pay, or your business tax account. If you don’t want to use
one of these methods, you can arrange for your tax professional, financial institution, payroll service, or other
trusted third party to make electronic deposits on your behalf. Also, you may arrange for your financial institution to
initiate a same-day wire payment on your behalf. EFTPS is
a free service provided by the Department of the Treasury.
Payments made using IRS Direct Pay or through your IRS
business tax account are also free. Services provided by
your tax professional, financial institution, payroll service,
or other third party may have a fee.
For more information on depositing taxes, see How To
Deposit in Pub. 15. For more information about IRS Direct
Pay, go to IRS.gov/DirectPay. For more information about
making a payment through your IRS business tax account,
go to IRS.gov/BusinessAccount. To get more information
about EFTPS or to enroll in EFTPS, go to EFTPS.gov or
call 800-555-4477. To contact EFTPS using Telecommunications Relay Services (TRS) for people who are deaf,
hard of hearing, or have a speech disability, dial 711 and
then provide the TRS assistant the 800-555-4477 number
above or 800-733-4829. Additional information about
EFTPS is also available in Pub. 966.
Electronic filing and payment. Businesses can enjoy
the benefits of filing and paying their federal taxes electronically. Whether you rely on a tax professional or handle
your own taxes, the IRS offers you convenient and secure
programs to make filing and payment easier.
Spend less time worrying about taxes and more time
running your business. Use e-file and electronic payment
options to your benefit.

• For e-file, go to IRS.gov/EmploymentEfile for addi-

tional information. A fee may be charged to file electronically.

• For electronic payment options, go to IRS.gov/Pay.
• For electronic filing of Forms W-2, Wage and Tax

Statement, go to SSA.gov/employer. You may be required to file Forms W-2 electronically. For details, see
the General Instructions for Forms W-2 and W-3.
Publication 15-A (2026)

Electronic submission of Forms W-4 and W-4P. You
may also set up a system to electronically receive Forms
W-4 and W-4P from an employee or payee. See Pub. 15-T
for electronic submission requirements for Forms W-4 and
W-4P.
Electronic submission of Forms W-4R, W-4S, and
W-4V. You may also set up a system to electronically receive any or all of the following forms (and their Spanish
versions, if available) from an employee or payee.

• Form W-4R, Withholding Certificate for Nonperiodic
Payments and Eligible Rollover Distributions.

• Form W-4S, Request for Federal Income Tax Withholding From Sick Pay.

• Form W-4V, Voluntary Withholding Request.
For each form that you establish an electronic submission system for, you must meet each of the following five
requirements.
1. The electronic system must ensure that the information received by you is the information sent by the employee or payee. The system must document all occasions of user access that result in a submission. In
addition, the design and operation of the electronic
system, including access procedures, must make it
reasonably certain that the person accessing the system and submitting the form is the person identified
on the form.
2. The electronic system must provide exactly the same
information as the paper form.
3. The electronic submission must be signed with an
e-signature by the employee or payee whose name is
on the form. The e-signature must be the final entry in
the submission.
4. Upon request, you must furnish a hard copy of any
completed electronic form to the IRS and a statement
that, to the best of your knowledge, the electronic
form was submitted by the named employee or payee.
The hard copy of the electronic form must provide exactly the same information as, but need not be a facsimile of, the paper form.
5. You must also meet all recordkeeping requirements
that apply to the paper forms.
See Substitute Submissions of Form W-4R in section 8
for the specific requirements for Form W-4R.
More information on electronic submissions. For
more information on electronic submissions for Forms
W-4S and W-4V, see Announcement 99-6 on page 24 of
Internal Revenue Bulletin 1999-4 at IRS.gov/pub/irs-irbs/
irb99-04.pdf.
Additional employment tax information. Go to
IRS.gov/EmploymentTaxes for additional employment tax
information.
Telephone help. You can call the IRS Business and Specialty Tax Line with your employment tax questions at
800-829-4933.
Help for people with disabilities. You may call
800-829-4059 (TDD/TTY for persons who are deaf, hard
Publication 15-A (2026)

of hearing, or have a speech disability) with any employment tax questions. You may also use this number for assistance with unresolved tax problems.
Furnishing Form W-2 to employees electronically.
You may set up a system to furnish Form W-2 electronically to employees. Each employee participating must
consent (either electronically or by paper document) to receive their Form W-2 electronically, and you must notify
the employee of all hardware and software requirements
to receive the form. You may not send a Form W-2 electronically to any employee who doesn’t consent or who
has revoked consent previously provided.
To furnish Forms W-2 electronically, you must meet the
following disclosure requirements and provide a clear and
conspicuous statement of each requirement to your employees.

• The employee must be informed that they will receive
a paper Form W-2 if consent isn’t given to receive it
electronically.

• The employee must be informed of the scope and duration of the consent.

• The employee must be informed of any procedure for

obtaining a paper copy of their Form W-2 and whether
or not the request for a paper statement is treated as a
withdrawal of their consent to receiving their Form W-2
electronically.

• The employee must be notified about how to withdraw

a consent and the effective date and manner by which
the employer will confirm the withdrawn consent. The
employee must also be notified that the withdrawn
consent doesn’t apply to the previously issued Forms
W-2.

• The employee must be informed about any conditions
under which electronic Forms W-2 will no longer be
furnished (for example, termination of employment).

• The employee must be informed of any procedures for
updating their contact information that enable the employer to provide electronic Forms W-2.

• The employer must notify the employee of any

changes to the employer’s contact information.

You must furnish electronic Forms W-2 by the same
due date as the paper Forms W-2. For more information
on furnishing Form W-2 to employees electronically, see
Regulations section 31.6051-1(j).
Pub. 5146 explains employment tax examinations
and appeal rights. Pub. 5146 provides employers with
information on how the IRS selects employment tax returns to be examined, what happens during an exam, and
what options an employer has in responding to the results
of an exam, including how to appeal the results. Pub. 5146
also includes information on worker classification issues
and tip exams.
Photographs of missing children. The IRS is a proud
partner with the National Center for Missing & Exploited
Children® (NCMEC). Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring
3

these children home by looking at the photographs and
calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

Introduction
This publication supplements Pub.15. It contains specialized and detailed employment tax information supplementing the basic information provided in Pub.15. Pub.
15-B contains information about the employment tax treatment of various types of noncash compensation. Pub.
15-T contains the Percentage Method and Wage Bracket
Method withholding tables, including information on how
to withhold on periodic pension or annuity payments; Tables for Withholding on Distributions of Indian Gaming
Profits to Tribal Members; and a discussion on the alternative methods for figuring federal income tax withholding.
Comments and suggestions. We welcome your comments about this publication and suggestions for future
editions.
You can send us comments through IRS.gov/
FormComments.
Or, you can write to:
Internal Revenue Service
Tax Forms and Publications
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
Although we can’t respond individually to each comment received, we do appreciate your feedback and will
consider your comments and suggestions as we revise
our tax forms, instructions, and publications. Don’t send
tax questions, tax returns, or payments to the above address.
Getting answers to your tax questions. If you have
a tax question not answered by this publication, check
IRS.gov and How To Get Tax Help at the end of this publication.
Getting tax forms, instructions, and publications.
Go to IRS.gov/Forms to download current and prior-year
forms, instructions, and publications.
Ordering tax forms, instructions, and publications.
Go to IRS.gov/OrderForms to order current forms, instructions, and publications; call 800-829-3676 to order
prior-year forms and instructions. The IRS will process
your order for forms and publications as soon as possible.
Don’t resubmit requests you’ve already sent us. You can
get forms and publications faster online.

Useful Items

You may want to see:
Publication
15-B Employer’s Tax Guide to Fringe Benefits
15-B

15-T Federal Income Tax Withholding Methods
15-T

4

505 Tax Withholding and Estimated Tax
505

515 Withholding of Tax on Nonresident Aliens and
Foreign Entities
515

583 Starting a Business and Keeping Records
583

1635 Employer Identification Number:
Understanding Your EIN
1635

1. Who Are Employees?
Before you can know how to treat payments that you make
to workers for services, you must first know the business
relationship that exists between you and the person performing the services. The person performing the services
may be:

• An independent contractor,
• A common-law employee,
• A statutory employee, or
• A statutory nonemployee.
This discussion explains these four categories. A later
discussion, Employee or Independent Contractor in section 2, points out the differences between an independent
contractor and an employee and gives examples from various types of occupations.
If an individual who works for you isn’t an employee under the common-law rules (see section 2), you generally
don’t have to withhold federal income tax from that individual’s pay. However, in some cases, you may be required to
withhold under the backup withholding requirements on
these payments. See Pub. 15 for information on backup
withholding.

Independent Contractors
People such as doctors, veterinarians, and auctioneers
who work in an independent trade, business, or profession
in which they offer their services to the public are generally not employees. However, whether such people are
employees or independent contractors depends on the
facts in each case. The general rule is that an individual is
an independent contractor if you, the person for whom the
services are performed, have the right to control or direct
only the result of the work and not the means and methods of accomplishing the result.

Common-Law Employees
Under common-law rules, anyone who performs services
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
so even when you give the employee freedom of action.
What matters is that you have the right to control the details of how the services are performed. For a discussion
of facts that indicate whether an individual providing services is an independent contractor or employee, see section 2.
Publication 15-A (2026)

If you have an employer-employee relationship, it
makes no difference how it is labeled. The substance of
the relationship, not the label, governs the worker’s status.
It doesn’t matter whether the individual is employed full
time or part time.

utory employees if all three of the following conditions apply.

For employment tax purposes, no distinction is made
between classes of employees. Superintendents, managers, and other supervisory personnel are all employees.
An officer of a corporation is generally an employee; however, 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 corporation isn’t an employee with respect to services performed as a director.

• They don’t have a substantial investment in the equip-

You generally have to withhold and pay income, social
security, and Medicare taxes on wages that you pay to
common-law employees. However, the wages of certain
employees may be exempt from one or more of these
taxes. See Employees of Exempt Organizations (section
3) and Religious Exemptions and Special Rules for Ministers (section 4).
Additional information. For more information about the
treatment of special types of employment, the treatment of
special types of payments, and similar subjects, see Pub.
15.

Statutory Employees
If workers are independent contractors under the
common-law rules, such workers may nevertheless be
treated as employees by statute (also known as statutory
employees) for certain employment tax purposes. This
would happen if they fall within any one of the following
four categories and meet the three conditions described
next under Social security and Medicare taxes.
1. A driver who distributes beverages (other than milk) or
meat, vegetables, fruit, or bakery products; or who
picks up and delivers laundry or dry cleaning, if the
driver is your agent or is paid on commission.
2. A full-time life insurance sales agent whose principal
business activity is selling life insurance or annuity
contracts, or both, primarily for one life insurance
company.
3. An individual who works at home on materials or
goods that you supply and that must be returned to
you or to a person you name, if you also furnish specifications for the work to be done.
4. A full-time traveling or city salesperson who works on
your behalf and turns in orders to you from wholesalers; retailers; contractors; or operators of hotels, restaurants, or other similar establishments. The goods
sold must be merchandise for resale or supplies for
use in the buyer’s business operation. The work performed for you must be the salesperson’s principal
business activity. See Salesperson in section 2.

• The service contract states or implies that substan-

tially all the services are to be performed personally by
them.

ment and property used to perform the services (other
than an investment in facilities for transportation, such
as a car or truck).

• The services are performed on a continuing basis for
the same payer.

Federal unemployment (FUTA) tax. For FUTA tax (the
unemployment tax paid under the Federal Unemployment
Tax Act), the term “employee” means the same as it does
for social security and Medicare taxes, except that it
doesn’t include statutory employees defined in categories
2 and 3 above. Any individual who is a statutory employee
described under category 1 or 4 above is also an employee for FUTA tax purposes and subject to FUTA tax.
Income tax. Don’t withhold federal income tax from the
wages of statutory employees.
Reporting payments to statutory employees. Furnish
Form W-2 to a statutory employee, and check “Statutory
employee” in box 13. Show your payments to the employee as “other compensation” in box 1. Also, show social security wages in box 3, social security tax withheld in
box 4, Medicare wages in box 5, and Medicare tax withheld in box 6. The statutory employee can deduct their
trade or business expenses from the payments shown on
Form W-2. The statutory employee reports earnings on
line 1 of Schedule C (Form 1040), Profit or Loss From
Business, and also deducts business expenses on
Schedule C (Form 1040).
H-2A agricultural workers. On Form W-2, don’t check
box 13 (Statutory employee), as H-2A workers aren’t statutory employees.

Statutory Nonemployees
There are three categories of statutory nonemployees: direct sellers, licensed real estate agents, and certain companion sitters. Direct sellers and licensed real estate
agents are treated as self-employed for all federal tax purposes, including income and employment taxes, if:

• Substantially all payments for their services as direct
sellers or real estate agents are directly related to
sales or other output, rather than to the number of
hours worked; and

• Their services are performed under a written contract
providing that they won’t be treated as employees for
federal tax purposes.

Direct sellers. Direct sellers include persons falling
within any of the following three groups.

Social security and Medicare taxes. You must withhold
social security and Medicare taxes from the wages of statPublication 15-A (2026)

5

1. Persons engaged in selling (or soliciting the sale of)
consumer products in the home or place of business
other than in a permanent retail establishment.
2. Persons engaged in selling (or soliciting the sale of)
consumer products to any buyer on a buy-sell basis, a
deposit-commission basis, or any similar basis prescribed by regulations, for resale in the home or at a
place of business other than in a permanent retail establishment.
3. Persons engaged in the trade or business of delivering or distributing newspapers or shopping news (including any services directly related to such delivery
or distribution).
Direct selling includes activities of individuals who attempt to increase direct sales activities of their direct sellers and who earn income based on the productivity of
their direct sellers. Such activities include providing motivation and encouragement; imparting skills, knowledge, or
experience; and recruiting.
Licensed real estate agents. This category includes individuals engaged in appraisal activities for real estate
sales if they earn income based on sales or other output.
Companion sitters. Companion sitters are individuals
who furnish personal attendance, companionship, or
household care services to children or to individuals who
are elderly or disabled. A person engaged in the trade or
business of putting the sitters in touch with individuals who
wish to employ them (that is, a companion sitting placement service) won’t be treated as the employer of the sitters if that person doesn’t receive or pay the salary or wages of the sitters and is compensated by the sitters or the
persons who employ them on a fee basis. Companion sitters who aren’t employees of a companion sitting placement service are generally treated as self-employed for all
federal tax purposes. However, the companion sitter may
be an employee of the individual for whom the sitting services are performed; see Pub. 926, Household Employer’s
Tax Guide.

Misclassification of Employees
Consequences of treating an employee as an independent contractor. If you classify an employee as an
independent contractor and you have no reasonable basis
for doing so, you’re liable for employment taxes for that
worker, and the relief provision, discussed next, won’t apply. See section 2 of Pub. 15 for more information.
Relief provision. If you have a reasonable basis for not
treating a worker as an employee, you may be relieved
from having to pay employment taxes for that worker. To
get this relief, you must file all required federal information
returns on a basis consistent with your treatment of the
worker. You (or your predecessor) must not have treated
any worker holding a substantially similar position as an
employee for any periods beginning after 1977.
Technical service specialists. This relief provision
doesn’t apply to a technical service specialist you provide
6

to another business under an arrangement between you
and the other business. A technical service specialist is an
engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a
similar line of work.
This limit on the application of the rule doesn’t affect the
determination of whether such workers are employees under the common-law rules. The common-law rules control
whether the specialist is treated as an employee or an independent contractor. However, if you directly contract
with a technical service specialist to provide services for
your business and not for another business, you may still
be entitled to the relief provision.
Test proctors and room supervisors. The consistent treatment requirement doesn’t apply to services performed after 2006 by an individual as a test proctor or
room supervisor assisting in the administration of college
entrance or placement examinations if the individual:

• Is performing the services for a section 501(c) organization exempt from tax under section 501(a) of the
Code, and

• Isn’t otherwise treated as an employee of the organization for employment taxes.

Voluntary Classification Settlement Program (VCSP).
Employers who are currently treating their workers (or a
class or group of workers) as independent contractors or
other nonemployees and want to voluntarily reclassify
their workers as employees for future tax periods may be
eligible to participate in the VCSP if certain requirements
are met. File Form 8952 to apply for the VCSP. For more
information, go to IRS.gov/VCSP.

2. Employee or Independent
Contractor?
An employer must generally withhold federal income
taxes, withhold and pay over social security and Medicare
taxes, and pay unemployment tax on wages paid to an
employee. An employer doesn’t generally have to withhold
or pay over any federal taxes on payments to independent
contractors.

Common-Law Rules
To determine whether an individual is an employee or an
independent contractor under the common-law rules, the
relationship of the worker and the business must be examined. In any employee-independent contractor determination, all information that provides evidence of the degree
of control and the degree of independence must be considered.
Facts that provide evidence of the degree of control
and independence fall into three categories: behavioral
control, financial control, and the type of relationship of the
parties. These facts are discussed next.

Publication 15-A (2026)

Behavioral control. Facts that show whether the business has a right to direct and control how the worker does
the task for which the worker is hired include the type and
degree of the following.
Instructions that the business gives to the worker.
An employee is generally subject to the business’ instructions about when, where, and how to work. All of the following are examples of types of instructions about how to
do work.

• When and where to do the work.
• What tools or equipment to use.
• What workers to hire or to assist with the work.
• Where to purchase supplies and services.
• What work must be performed by a specified
individual.

• What order or sequence to follow.
The amount of instruction needed varies among different jobs. Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to
control how the work results are achieved. A business
may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. The key consideration is whether the
business has retained the right to control the details of a
worker’s performance or has instead given up that right.
Training that the business gives to the worker. An
employee may be trained to perform services in a particular manner. Independent contractors ordinarily use their
own methods.
Financial control. Facts that show whether the business
has a right to control the business aspects of the worker’s
job include the following.
The extent to which the worker has unreimbursed
business expenses. Independent contractors are more
likely to have unreimbursed expenses than are employees. Fixed ongoing costs that are incurred regardless of
whether work is currently being performed are especially
important. However, employees may also incur unreimbursed expenses in connection with the services that they
perform for their employer.
The extent of the worker’s investment. An independent contractor often has a significant investment in
the facilities or tools they use in performing services for
someone else. However, a significant investment isn’t necessary for independent contractor status.
The extent to which the worker makes their services available to the relevant market. An independent
contractor is generally free to seek out business opportunities. Independent contractors often advertise, maintain a
visible business location, and are available to work in the
relevant market.
How the business pays the worker. An employee is
generally guaranteed a regular wage amount for an hourly,
weekly, or other period of time. This usually indicates that
Publication 15-A (2026)

a worker is an employee, even when the wage or salary is
supplemented by a commission. An independent contractor is often paid a flat fee or on a time and materials basis
for the job. However, it is common in some professions,
such as law, to pay independent contractors hourly.
The extent to which the worker can realize a profit
or loss. An independent contractor can make a profit or
loss.
Type of relationship. Facts that show the parties’ type of
relationship include the following.

• Written contracts describing the relationship the parties intended to create.

• Whether or not the business provides the worker with

employee-type benefits, such as insurance, a pension
plan, vacation pay, or sick pay.

• The permanency of the relationship. If you engage
a worker with the expectation that the relationship will
continue indefinitely, rather than for a specific project
or period, this is generally considered evidence that
your intent was to create an employer-employee relationship.

• The extent to which services performed by the

worker are a key aspect of the regular business
of the company. If a worker provides services that
are a key aspect of your regular business activity, it is
more likely that you’ll have the right to direct and control their activities. For example, if a law firm hires an
attorney, it is likely that it will present the attorney’s
work as its own and would have the right to control or
direct that work. This would indicate an employer-employee relationship.

IRS help. If you want the IRS to determine whether or not
a worker is an employee, file Form SS-8 with the IRS.

Industry Examples
The following examples may help you properly classify
your workers.

Building and Construction Industry
Example 1. Jerry Jones has an agreement with Wilma
White to supervise the remodeling of a house. Wilma
didn’t advance funds to help Jerry carry on the work.
Wilma makes direct payments to the suppliers for all necessary materials. Wilma carries liability and workers’ compensation insurance covering Jerry and others that Jerry
engaged to assist on the remodel. Wilma pays them an
hourly rate and exercises almost constant supervision
over the work. Jerry isn’t free to transfer the assistants to
other jobs. Jerry may not work on other jobs while working
for Wilma. Jerry assumes no responsibility to complete
the work and will incur no contractual liability if the work
isn’t completed. Jerry and the assistants perform personal
services for hourly wages. Jerry Jones and the assistants
are employees of Wilma White.

7

Example 2. Milton Manning, an experienced tile setter,
orally agreed with a corporation to perform full-time services at construction sites. Milton uses personally owned
tools and performs services in the order designated by the
corporation and according to its specifications. The corporation supplies all materials, makes frequent inspections
of Milton’s work, pays Milton on a piecework basis, and
carries workers’ compensation insurance on Milton. Milton
doesn’t have a place of business or seek to perform similar services for others. Either party can end the services at
any time. Milton Manning is an employee of the corporation.
Example 3. Wallace Black agreed with Sawdust Co. to
supply the construction labor for a group of houses. The
company agreed to pay all construction costs. However,
Wallace supplies all the tools and equipment. Wallace
performs personal services as a carpenter and mechanic
for an hourly wage. Wallace also acts as superintendent
and foreman and engages other individuals to assist with
construction. The company has the right to select, approve, or discharge any helper. A company representative
makes frequent inspections of the construction site. When
a house is finished, Wallace is paid a certain percentage
of its costs. Wallace isn’t responsible for faults, defects of
construction, or wasteful operation. At the end of each
week, Wallace presents the company with a statement of
the amount that was spent, including the payroll. The company gives Wallace a check for that amount from which
Wallace pays the assistants, although Wallace isn’t personally liable for their wages. Wallace Black and the assistants are employees of Sawdust Co.
Example 4. Bill Plum contracted with Elm Corporation
to complete the roofing on a housing complex. A signed
contract established a flat amount for the services rendered by Bill Plum. Bill is a licensed roofer and carries
workers’ compensation and liability insurance under the
business name, Plum Roofing. Bill hires roofers for Plum
Roofing who are treated as employees for federal employment tax purposes. If there is a problem with the roofing
work, Plum Roofing is responsible for paying for any repairs. Bill Plum, doing business as Plum Roofing, is an independent contractor.
Example 5. Vera Elm, an electrician, submitted a job
estimate to a housing complex for electrical work at $16
per hour for 400 hours. Vera is to receive $1,280 every 2
weeks for the next 10 weeks. This isn’t considered payment by the hour. Even if Vera works more or less than
400 hours to complete the work, Vera will receive $6,400.
Vera also performs additional electrical installations under
contracts with other companies that are obtained through
advertisements. Vera is an independent contractor.

Trucking Industry
Example. Rose Trucking contracts to deliver material
for Forest, Inc., at $140 per ton. Rose Trucking isn’t paid
for any articles that aren’t delivered. At times, Jan Rose,
who operates as Rose Trucking, may also lease another
truck and engage a driver to complete the contract. All
8

operating expenses, including insurance coverage, are
paid by Jan Rose. All equipment is owned or rented by
Jan and Jan is responsible for all maintenance. None of
the drivers are provided by Forest, Inc. Jan Rose, operating as Rose Trucking, is an independent contractor.

Computer Industry
Example. Steve Smith, a computer programmer, is
laid off when Megabyte, Inc., downsizes. Megabyte
agrees to pay Steve a flat amount to complete a one-time
project to create a certain product. It isn’t clear how long it
will take to complete the project, and Steve isn’t guaranteed any minimum payment for the hours spent on the
program. Megabyte provides Steve with no instructions
beyond the specifications for the product itself. Steve and
Megabyte have a written contract, which provides that
Steve is considered to be an independent contractor, is required to pay federal and state taxes, and receives no
benefits from Megabyte. Megabyte will file Form
1099-NEC to report the amount paid to Steve. Steve
works at home and isn’t expected or allowed to attend
meetings of the software development group. Steve is an
independent contractor.

Automobile Industry
Example 1. Donna Lee is a salesperson employed on
a full-time basis by Bob Blue, an auto dealer. Donna works
6 days a week and is on duty in Bob’s showroom on certain assigned days and times. Donna appraises trade-ins,
but the appraisals are subject to the sales manager’s approval. Lists of prospective customers belong to the
dealer. Donna is required to develop leads and report results to the sales manager. Due to experience, Donna requires only minimal assistance in closing and financing
sales and in other phases of work. Donna is paid a commission and is eligible for prizes and bonuses offered by
Bob. Bob also pays the cost of health insurance and
group-term life insurance for Donna. Donna is an employee of Bob Blue.
Example 2. Sam Sparks performs auto repair services
in the repair department of an auto sales company. Sam
works regular hours and is paid on a percentage basis.
Sam has no investment in the repair department. The
sales company supplies all facilities, repair parts, and supplies; issues instructions on the amounts to be charged,
parts to be used, and the time for completion of each job;
and checks all estimates and repair orders. Sam is an employee of the sales company.
Example 3. An auto sales agency furnishes space for
Helen Bach to perform auto repair services. Helen provides personally owned tools, equipment, and supplies.
Helen seeks out business from insurance adjusters and
other individuals and does all of the body and paint work
that comes to the agency. Helen hires and discharges
helpers; determines working hours; quotes prices for repair work; makes all necessary adjustments; assumes all
losses from uncollectible accounts; and receives, as compensation for services, a large percentage of the gross
Publication 15-A (2026)

collections from the auto repair shop. Helen is an independent contractor and the helpers are Helen’s employees.

4. Sell merchandise for resale, or supplies for use in the
customer’s business;

Attorney

6. Have no substantial investment in the facilities used to
do the work, other than in facilities for transportation;

Example. Donna Yuma is a sole practitioner who rents
office space and pays for the following items: telephone,
computer, online legal research linkup, fax machine, and
photocopier. Donna buys office supplies and pays bar
dues and membership dues for three other professional
organizations. Donna has a part-time receptionist who
also does the bookkeeping. Donna pays the receptionist,
withholds and pays federal and state employment taxes,
and files a Form W-2 each year. For the past 2 years,
Donna has had only three clients, corporations with which
there have been long-standing relationships. Donna
charges the corporations an hourly rate for services, sending monthly bills detailing the work performed for the prior
month. The bills include charges for long-distance calls,
online research time, fax charges, photocopies, postage,
and travel, costs for which the corporations have agreed to
reimburse Donna. Donna is an independent contractor.

Taxicab Driver
Example. Tom Spruce rents a cab from Taft Cab Co.
for $150 per day. Tom pays the costs of maintaining and
operating the cab. Tom keeps all fares received from customers. Although Tom receives the benefit of Taft’s
two-way radio communication equipment, dispatcher, and
advertising, these items benefit both Taft and Tom Spruce.
Tom is an independent contractor.

Salesperson
To determine whether salespersons are employees under
the usual common-law rules, you must evaluate each individual case. If a salesperson who works for you doesn’t
meet the tests for a common-law employee, discussed
earlier in this section, you don’t have to withhold federal income tax from their pay (see Statutory Employees in section 1). However, even if a salesperson isn’t an employee
under the usual common-law rules for income tax withholding, their pay may still be subject to social security,
Medicare, and FUTA taxes as a statutory employee.
To determine whether a salesperson is an employee for
social security, Medicare, and FUTA tax purposes, the
salesperson must meet all eight elements of the statutory
employee test. A salesperson is a statutory employee for
social security, Medicare, and FUTA tax purposes if they:
1. Work full time for one person or company except, possibly, for sideline sales activities on behalf of some
other person;
2. Sell on behalf of, and turn their orders over to, the person or company for which they work;
3. Sell to wholesalers, retailers, contractors, or operators
of hotels, restaurants, or similar establishments;
Publication 15-A (2026)

5. Agree to do substantially all of this work personally;

7. Maintain a continuing relationship with the person or
company for which they work; and
8. Aren’t an employee under common-law rules.

3. Employees of Exempt
Organizations
Many nonprofit organizations are exempt from federal income tax. Although they don’t have to pay federal income
tax themselves, they must still withhold federal income tax
from the pay of their employees. However, there are special social security, Medicare, and FUTA tax rules that apply to the wages that they pay their employees.
Section 501(c)(3) organizations. Nonprofit organizations that are exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code include any
community chest, fund, or foundation organized and operated exclusively for religious, charitable, scientific, testing
for public safety, or literary or educational purposes; fostering national or international amateur sports competition; or the prevention of cruelty to children or animals.
These organizations are usually corporations and are exempt from federal income tax under section 501(a).
Social security and Medicare taxes. Wages paid to
employees of section 501(c)(3) organizations are subject
to social security and Medicare taxes unless one of the
following situations applies.

• The organization pays an employee less than $100 in
a calendar year.

• The organization is a church or church-controlled or-

ganization opposed for religious reasons to the payment of social security and Medicare taxes and has
filed Form 8274 to elect exemption from social security
and Medicare taxes. The organization must have filed
for exemption before the first date on which a quarterly
employment tax return (Form 941) or annual employment tax return (Form 944) would otherwise be due.

An employee of a church or church-controlled organization that is exempt from social security and Medicare
taxes must pay self-employment tax if the employee is
paid $108.28 or more in a year. However, an employee
who is a member of a qualified religious sect can apply for
an exemption from the self-employment tax by filing Form
4029. See Members of recognized religious sects opposed to insurance in section 4.
FUTA tax. An organization that is exempt from federal
income tax under section 501(c)(3) of the Internal Revenue Code is also exempt from FUTA tax. This exemption
can’t be waived. However, a section 501(c)(3)
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organization is subject to FUTA tax when paying wages to
employees on behalf of a non-section 501(c)(3) organization (for example, a section 501(c)(3) organization paying
wages to employees of a related non-section 501(c)(3) organization, a section 501(c)(3) organization that is a section 3504 agent paying wages on behalf of a non-section
501(c)(3) organization, a section 501(c)(3) organization
that is a common paymaster paying wages on behalf of a
non-section 501(c)(3) organization, etc.).
Tip: An organization wholly owned by a state or its political subdivision should contact the appropriate state official for information about reporting and getting social security and Medicare coverage for its employees.
Other than section 501(c)(3) organizations. Nonprofit
organizations that aren’t section 501(c)(3) organizations
may also be exempt from federal income tax under section
501(a) or section 521. However, these organizations aren’t
exempt from withholding federal income, social security, or
Medicare tax from their employees’ pay, or from paying
FUTA tax. Two special rules for social security, Medicare,
and FUTA taxes apply.
1. If an employee is paid less than $100 during a calendar year, their wages aren’t subject to social security
and Medicare taxes.
2. If an employee is paid less than $50 in a calendar
quarter, their wages aren’t subject to FUTA tax for the
quarter.
The above rules don’t apply to employees who work for
pension plans and other similar organizations described in
section 401(a).
Excise tax on excess executive compensation. Certain tax-exempt organizations may be subject to an excise
tax on excess executive compensation. For more information, see the Instructions for Form 4720, Return of Certain
Excise Taxes Under Chapters 41 and 42 of the Internal
Revenue Code.

4. Religious Exemptions and
Special Rules for Ministers
Special rules apply to the treatment of ministers for social
security and Medicare tax purposes. An exemption from
social security and Medicare taxes is available for ministers and certain other religious workers and members of
certain recognized religious sects. For more information
on getting an exemption, see Pub. 517.
Ministers. Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body
constituting a church or church denomination. They are
given the authority to conduct religious worship, perform
sacerdotal functions, and administer ordinances and sacraments according to the prescribed tenets and practices
of that religious organization.

10

Ministers are employees if they perform services in the
exercise of ministry and are subject to your will and control. The common-law rules discussed in section 1 and
section 2 should be applied to determine whether a minister is your employee or is self-employed. Whether the minister is an employee or self-employed, the earnings of a
minister aren’t subject to federal income, social security,
and Medicare tax withholding. However, even if the minister is a common-law employee, the earnings as reported
on the minister’s Form 1040 or 1040-SR are subject to
self-employment tax and federal income tax. You don’t
withhold these taxes from wages earned by a minister, but
if the minister is your employee, you may agree with the
minister to voluntarily withhold tax to cover the minister’s
liability for self-employment tax and federal income tax.
For more information, see Pub. 517.
Form W-2. If your minister is an employee, report all
taxable compensation as wages in box 1 of Form W-2. Include in this amount expense allowances or reimbursements paid under a nonaccountable plan, discussed in
section 5 of Pub. 15. Don’t include a parsonage allowance
(excludable housing allowance) in this amount. You may
report a designated parsonage or rental allowance (housing allowance) and a utilities allowance, or the rental value
of housing provided in a separate statement or in box 14
of Form W-2. Don’t show on Form W-2, Form 941, or Form
944 any amount as social security or Medicare wages, or
any withholding for social security or Medicare tax. If you
withheld federal income tax from the minister under a voluntary agreement, this amount should be shown in box 2
of Form W-2 as federal income tax withheld. For more information on ministers, see Pub. 517.
Exemptions for ministers and others. Certain ordained ministers, Christian Science practitioners, and
members of religious orders who haven’t taken a vow of
poverty may apply to exempt their earnings from self-employment tax on religious grounds. The application must
be based on conscientious opposition because of personal considerations to public insurance that makes payments in the event of death, disability, old age, or retirement, or that makes payments toward the cost of, or
provides services for, medical care, including social security and Medicare benefits. The exemption applies only to
qualified services performed for the religious organization.
See Revenue Procedure 91-20, 1991-1 C.B. 524, for
guidelines to determine whether an organization is a religious order or whether an individual is a member of a religious order.
To apply for the exemption, the employee should file
Form 4361. See Pub. 517 for more information about
claiming an exemption from self-employment tax using
Form 4361.
Members of recognized religious sects opposed to
insurance. If you belong to a recognized religious sect or
to a division of such sect that is opposed to insurance, you
may qualify for an exemption from the self-employment
tax. To qualify, you must be conscientiously opposed to
accepting the benefits of any public or private insurance
that makes payments because of death, disability, old
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age, or retirement, or makes payments toward the cost of,
or provides services for, medical care (including social security and Medicare benefits). If you buy a retirement annuity from an insurance company, you won’t be eligible for
this exemption. Religious opposition based on the teachings of the sect is the only legal basis for the exemption. In
addition, your religious sect (or division) must have existed
since December 31, 1950.
Self-employed. If you’re self-employed and a member
of a recognized religious sect opposed to insurance, you
can apply for exemption by filing Form 4029 to waive all
social security and Medicare benefits.
Employees. The social security and Medicare tax exemption available to the self-employed who are members
of a recognized religious sect opposed to insurance is
also available to their employees who are members of
such a sect. This applies to partnerships only if each partner is a member of the sect. This exemption for employees applies only if both the employee and the employer
are members of such a sect, and the employer has an exemption. To get the exemption, the employee must file
Form 4029.
An employee of a church or church-controlled organization that is exempt from social security and Medicare
taxes can also apply for an exemption on Form 4029.

5. Wages and Other
Compensation
Pub. 15 provides a general discussion of taxable wages.
Pub. 15-B discusses fringe benefits. The following topics
supplement those discussions.

Relocating for Temporary Work
Assignments
If an employee is given a temporary work assignment
away from their regular place of work, certain travel expenses reimbursed or paid directly by the employer in accordance with an accountable plan (see section 5 of Pub. 15)
may be excludable from the employee’s wages. Generally,
a temporary work assignment in a single location is one
that is realistically expected to last (and does in fact last)
for 1 year or less. If the employee’s new work assignment
is indefinite, any living expenses reimbursed or paid by the
employer (other than qualified moving expenses paid to a
member of the U.S. Armed Forces on active duty who
moves because of a permanent change of station due to a
military order, or an employee or new appointee of the intelligence community (as defined in section 3 of the National Security Act of 1947 (50 U.S.C. 3003) (other than a
member of the Armed Forces of the United States) who
moves pursuant to a change in assignment which requires

Publication 15-A (2026)

relocation) must be included in the employee’s wages as
compensation. For the travel expenses to be excludable:

• The new work location must be outside of the city or
general area of the employee’s regular workplace or
post of duty,

• The travel expenses must otherwise be allowed as a
deduction by the employee, and

• The expenses must be for the period during which the
employee is at the temporary work location.

If you reimburse or pay any personal expenses of an
employee during their temporary work assignment, such
as expenses for home leave for family members or for vacations, these amounts must be included in the employee’s wages. See chapter 1 of Pub. 463, Travel, Gift, and
Car Expenses, and section 5 of Pub. 15 for more information. These rules generally apply to temporary work assignments both inside and outside the United States.

Employee Achievement Awards
Don’t withhold federal income, social security, or Medicare
tax on the fair market value of an employee achievement
award if it is excludable from your employee’s gross income. To be excludable from your employee’s gross income, the award must be tangible personal property given
to an employee for length of service or safety achievement, awarded as part of a meaningful presentation, and
awarded under circumstances that don’t indicate that the
payment is disguised compensation. Excludable employee achievement awards also aren’t subject to FUTA
tax.
The exclusion doesn’t apply to awards of cash, cash
equivalents, gift cards, gift coupons, or gift certificates
(other than arrangements granting only the right to select
and receive tangible personal property from a limited assortment of items preselected or preapproved by you).
The exclusion also doesn’t apply to vacations, meals,
lodging, tickets to theater or sporting events, stocks,
bonds, other securities, and other similar items.
Limits. The most that you can exclude for the cost of all
employee achievement awards to the same employee for
the year is $400. A higher limit of $1,600 applies to qualified plan awards. Qualified plan awards are employee
achievement awards under a written plan that doesn’t discriminate in favor of highly compensated employees. An
award can’t be treated as a qualified plan award if the
average cost per recipient of all awards under all of your
qualified plans is more than $400.
If during the year an employee receives awards not
made under a qualified plan and also receives awards under a qualified plan, the exclusion for the total cost of all
awards to that employee can’t be more than $1,600. The
$400 and $1,600 limits can’t be added together to exclude
more than $1,600 for the cost of awards to any one employee during the year.

11

Scholarship and Fellowship Payments

Withholding for Idle Time

Only amounts that you pay as a qualified scholarship to a
candidate for a degree may be excluded from the recipient’s gross income. A qualified scholarship is any amount
granted as a scholarship or fellowship that is used for:

• Tuition and fees required to enroll in, or to attend, an

Payments made under a voluntary guarantee to employees for idle time (any time during which an employee performs no services) are wages for the purposes of social
security, Medicare, and FUTA taxes, and federal income
tax withholding.

• Fees, books, supplies, and equipment that are re-

Back Pay

educational institution; or

quired for courses at the educational institution.

The exclusion from income doesn’t apply to the portion
of any amount received that represents payment for teaching, research, or other services required as a condition of
receiving the scholarship or tuition reduction. These
amounts are reportable on Form W-2. However, the exclusion will still apply for any amount, despite any service
condition attached to the amount, received under the National Health Service Corps Scholarship Program; the
Armed Forces Health Professions Scholarship and Financial Assistance Program; and a comprehensive student
work-learning-service program operated by a work college, as defined in section 448(e) of the Higher Education
Act of 1965.
Any amounts that you pay for room and board aren’t excludable from the recipient’s gross income. A qualified
scholarship isn’t subject to social security, Medicare, and
FUTA taxes, or federal income tax withholding. For more
information, see Pub. 970, Tax Benefits for Education.

Outplacement Services
If you provide outplacement services to your employees to
help them find new employment (such as career counseling, resume assistance, or skills assessment), the value of
these benefits may be income to them and subject to all
withholding taxes. However, the value of these services
won’t be subject to any employment taxes if:

• You derive a substantial business benefit from providing the services (such as improved employee morale
or business image) separate from the benefit that you
would receive from the mere payment of additional
compensation, and

• The employee would be able to deduct the cost of the
services as employee business expenses if they had
paid for them.

However, if you receive no additional benefit from providing the services, or if the services aren’t provided on
the basis of employee need, then the value of the services
is treated as wages and is subject to federal income tax
withholding and social security and Medicare taxes. Similarly, if an employee receives the outplacement services in
exchange for reduced severance pay (or other taxable
compensation), then the amount the severance pay is reduced is treated as wages for employment tax purposes.

Treat back pay as wages in the year paid and withhold and
pay employment taxes as required. If back pay was awarded by a court or government agency to enforce a federal
or state statute protecting an employee’s right to employment or wages, special rules apply for reporting those wages to the Social Security Administration. These rules also
apply to litigation actions and settlement agreements or
agency directives that are resolved out of court and not
under a court decree or order. Examples of pertinent statutes include, but aren’t limited to, the National Labor Relations Act, Fair Labor Standards Act, Equal Pay Act, and
Age Discrimination in Employment Act. See Pub. 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration; and Form SSA-131, Employer Report of Special Wage Payments, for details.

Supplemental Unemployment
Compensation Benefits
If you pay, under a plan, supplemental unemployment
compensation benefits to a former employee, all or part of
the payments may be taxable and subject to federal income tax withholding, depending on how the plan is funded. Amounts that represent a return to the employee of
amounts previously subject to tax aren’t taxable and aren’t
subject to withholding. You should withhold federal income tax on the taxable part of the payments made, under
a plan, to an employee who is involuntarily separated because of a reduction in force, discontinuance of a plant or
operation, or other similar condition. It doesn’t matter
whether the separation is temporary or permanent.
There are special rules that apply in determining
whether supplemental unemployment compensation benefits are excluded from wages for social security, Medicare, and FUTA tax purposes. To be excluded from wages
for such purposes, the benefits must meet the following
requirements.

• Benefits are paid only to unemployed former employees who are laid off by the employer.

• Eligibility for benefits depends on meeting prescribed
conditions after termination.

• The amount of weekly benefits payable is based upon
state unemployment benefits, other compensation allowable under state law, and the amount of regular
weekly pay.

• The right to benefits doesn’t accrue until a prescribed
period after termination.

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Publication 15-A (2026)

• Benefits aren’t attributable to the performance of particular services.

• No employee has any right to the benefits until qualified and eligible to receive benefits.

• Benefits may not be paid in a lump sum.
Withholding on taxable supplemental unemployment
compensation benefits must be based on the withholding
certificate (Form W-4) that the employee gave to you.
For more information, see Revenue Ruling 90-72,
1990-36 I.R.B. 13.

Golden Parachute Payments
A golden parachute payment, in general, is a payment
made under a contract entered into by a corporation and
key personnel. Under the agreement, the corporation
agrees to pay certain amounts to its key personnel in the
event of a change in ownership or control of the corporation. Payments to employees under golden parachute
contracts are subject to social security, Medicare, and
FUTA taxes, and federal income tax withholding. See Regulations section 1.280G-1 for more information.
No deduction is allowed to the corporation for any excess parachute payment. To determine the amount of the
excess parachute payment, you must first determine if
there is a parachute payment for purposes of section
280G. A parachute payment for purposes of section 280G
is any payment that meets all of the following.
1. The payment is in the nature of compensation.
2. The payment is to, or for the benefit of, a disqualified
individual. A disqualified individual is anyone who at
any time during the 12-month period prior to, and ending on, the date of the change in ownership or control
of the corporation (the disqualified individual determination period) was an employee or independent contractor and was, in regard to that corporation, a shareholder, an officer, or a highly compensated individual.
3. The payment is contingent on a change in ownership
of the corporation, the effective control of the corporation, or the ownership of a substantial portion of the
assets of the corporation.
4. The payment has an aggregate present value of at
least three times the individual’s base amount. The
base amount is the average annual compensation for
service includible in the individual’s gross income over
the most recent 5 tax years.
An excess parachute payment amount is the excess of
any parachute payment over the base amount. For more
information, see Regulations section 1.280G-1. The recipient of an excess parachute payment is subject to a 20%
nondeductible excise tax. If the recipient is an employee,
the 20% excise tax is to be withheld by the corporation.
Example. An officer of a corporation receives a golden
parachute payment of $400,000. This is more than three
times greater than their average compensation of
$100,000 over the previous 5-year period. The excess
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parachute payment is $300,000 ($400,000 minus
$100,000). The corporation can’t deduct the $300,000
and must withhold the excise tax of $60,000 (20% of
$300,000).
Reporting golden parachute payments. Golden parachute payments to employees must be reported on Form
W-2. See the General Instructions for Forms W-2 and W-3
for details. For nonemployee reporting of these payments,
see the Instructions for Forms 1099-MISC and 1099-NEC.
Exempt payments. Payments by most small business
corporations and payments under certain qualified plans
are exempt from the golden parachute rules. See sections
280G(b)(5) and (6) for more information.

Interest-Free and
Below-Market-Interest-Rate Loans
In general, if an employer lends an employee more than
$10,000 at an interest rate less than the current applicable
federal rate (AFR), the difference between the interest
paid and the interest that would be paid under the AFR is
considered additional compensation to the employee.
This rule applies to a loan of $10,000 or less if one of its
principal purposes is the avoidance of federal tax.
This additional compensation to the employee is subject to social security, Medicare, and FUTA taxes, but not
to federal income tax withholding. Include it in compensation on Form W-2 (or Form 1099-NEC for an independent
contractor). The AFR is established monthly and published by the IRS each month in the Internal Revenue Bulletin. You can get these rates by going to IRS.gov/AFR.
For more information, see section 7872 and its related
regulations.

Leave-Sharing Plans
If you establish a leave-sharing plan for your employees
that allows them to transfer leave to other employees for
medical emergencies, the amounts paid to the recipients
of the leave are considered wages. These amounts are includible in the gross income of the recipients and are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. Don’t include these amounts
in the wages of the transferors. These rules apply only to
leave-sharing plans that permit employees to transfer
leave to other employees for medical emergencies.
In addition, you may establish a leave-sharing plan that
allows your employees to deposit leave in an employer-sponsored leave bank for use by other employees
who have been adversely affected by a major disaster.
Under such programs, the IRS won’t assert that a leave
donor who deposits leave in the employer-sponsored
leave bank under a major disaster leave-sharing program
has income, wages, compensation, or rail wages for the
deposited leave if the plan treats the employer’s payments
to the leave recipient as wages or compensation for purposes of the Federal Insurance Contributions Act (FICA),
the Federal Unemployment Tax Act (FUTA), the Railroad
13

Retirement Tax Act (RRTA), the Railroad Unemployment
Repayment Tax (RURT), and federal income tax withholding, unless excluded by another provision of law. See Notice 2006-59, 2006-28 I.R.B. 60, available at IRS.gov/irb/
2006-28_IRB#NOT-2006-59, for what constitutes a major
disaster and other rules.

Nonqualified Deferred Compensation
Plans
Income Tax and Reporting
Section 409A provides that all amounts deferred under a
nonqualified deferred compensation (NQDC) plan for all
tax years are currently includible in gross income (to the
extent the amounts deferred are not subject to a substantial risk of forfeiture and not previously included in gross
income) and subject to additional taxes, unless certain requirements are met pertaining to, among other things,
elections to defer compensation and distributions under
an NQDC plan. Section 409A also includes rules that apply to certain trusts or similar arrangements associated
with NQDC plans if the trusts or arrangements are located
outside the United States or are restricted to the provision
of benefits in connection with a decline in the financial
health of the plan sponsor, or contributions are made to
the trust during certain periods such as when a qualified
plan of the service recipient is underfunded. Employers
must withhold federal income tax (but not the additional
section 409A taxes) on any amount includible in gross income under section 409A. Income included under section
409A from an NQDC plan must be reported on Form W-2
or Form 1099-MISC, whichever applies. Amounts deferred
during the year under an NQDC plan subject to section
409A may also be reported on the Form W-2 or Form
1099-MISC, but this isn’t required. For more information,
see the General Instructions for Forms W-2 and W-3 and
the Instructions for Forms 1099-MISC and 1099-NEC.
These reporting rules don’t affect the application or reporting of social security, Medicare, or FUTA tax.
The provisions don’t prevent the inclusion of amounts in
income or wages under other provisions of the Internal
Revenue Code or common-law principles, such as when
amounts are actually or constructively received or irrevocably contributed to a separate fund. For more information
about NQDC plans, see Regulations sections 1.409A-1
through 1.409A-6. Notice 2008-113 provides guidance on
the correction of certain operation failures of an NQDC
plan. Notice 2008-113, 2008-51 I.R.B. 1305, is available
at IRS.gov/irb/2008-51_IRB#NOT-2008-113. Also, see
Notice 2010-6, 2010-3 I.R.B. 275, available at IRS.gov/irb/
2010-03_IRB#NOT-2010-6; and Notice 2010-80, 2010-51
I.R.B.
853,
available
at
IRS.gov/irb/
2010-51_IRB#NOT-2010-80.
Social security, Medicare, and FUTA taxes. Employer
contributions to NQDC plans, as defined in the applicable
regulations, are treated as wages subject to social security, Medicare, and FUTA taxes when the services are performed or the employee no longer has a substantial risk of
14

forfeiting the right to the deferred compensation, whichever is later.
Amounts deferred are subject to social security, Medicare, and FUTA taxes at that time unless the amount that
is deferred can’t be reasonably ascertained, for example,
if benefits are based on final pay. If the value of the future
benefit is based on any factors that aren’t yet reasonably
ascertainable, you may choose to estimate the value of
the future benefit and withhold and pay social security,
Medicare, and FUTA taxes on that amount. You’ll have to
determine later, when the amount is reasonably ascertainable, whether any additional taxes are required. If taxes
aren’t paid before the amounts become reasonably ascertainable, when the amounts become reasonably ascertainable, they are subject to social security, Medicare, and
FUTA taxes on the amounts deferred plus the income attributable to those amounts deferred. For more information, see Regulations sections 31.3121(v)(2)-1 and
31.3306(r)(2)-1.
Section 83(i) election to defer income on equity
grants (qualified stock). An arrangement under which
an employee may receive qualified stock (as defined in
section 83(i)(2)) isn’t treated as an NQDC plan with respect to such employee solely because of such employee’s election, or ability to make an election, to defer recognition of income under section 83(i).

Tax-Sheltered Annuities
Employer payments made by a public educational institution or a tax-exempt organization to purchase a tax-sheltered annuity for an employee (annual deferrals) are included in the employee’s social security and Medicare wages
if the payments are made because of a salary reduction
agreement. However, they aren’t included in box 1 of Form
W-2 in the year the deferrals are made and aren’t subject
to federal income tax withholding. See Regulations section 31.3121(a)(5)-2 for the definition of a salary reduction
agreement.

Contributions to a Simplified
Employee Pension (SEP)
An employer’s SEP contributions to an employee’s individual retirement arrangement (IRA) are excluded from the
employee’s gross income. These excluded amounts aren’t
subject to social security, Medicare, or FUTA tax, or federal income tax withholding. However, any SEP contributions paid under a salary reduction agreement (SARSEP)
are included in wages for purposes of social security,
Medicare, and FUTA taxes. See Pub. 560 for more information about SEPs.
Salary reduction simplified employee pensions
(SARSEPs) repealed. You may not establish a SARSEP
after 1996. However, SARSEPs established before January 1, 1997, may continue to receive contributions.

Publication 15-A (2026)

SIMPLE Retirement Plans

Payments That Aren’t Sick Pay

Employer and employee contributions to a savings incentive match plan for employees (SIMPLE) retirement account (subject to limitations) are excludable from the employee’s income and are exempt from federal income tax
withholding. An employer’s nonelective (2%) or matching
contributions are exempt from social security, Medicare,
and FUTA taxes. However, an employee’s salary reduction
contributions to a SIMPLE retirement plan are subject to
social security, Medicare, and FUTA taxes. For more information about SIMPLE retirement plans, see Pub. 560.

Sick pay doesn’t include the following payments.

Employer Contributions to Trump
Accounts
P.L. 119-21 allows for a new type of traditional individual
retirement account to be established for a child who has
not attained age 18 at the end of the year the account is
established, known as a Trump account. This account has
an annual contribution limit of $5,000 (other than exempt
contributions), which will be indexed for inflation after tax
year 2027. Beginning July 4, 2026, employers may contribute up to $2,500 a year, which will be indexed for inflation after tax year 2027, toward the $5,000 contribution
limit.
The employer contribution must be made through a
separate written plan of the employer for the exclusive
benefit of its employees to provide contributions to the
Trump accounts of such employees or dependents of
such employees which meets requirements similar to the
requirements of paragraphs (2), (3), (6), (7), and (8) of
section 129(d) of the Internal Revenue Code.
Monitor IRS.gov for more information about employer
contributions to Trump accounts.

6. Sick Pay Reporting
Special rules apply to the reporting of sick pay payments
to employees. How these payments are reported depends
on whether the payments are made by the employer or a
third party, such as an insurance company.
Sick pay is usually subject to social security, Medicare,
and FUTA taxes. For exceptions, see Social Security,
Medicare, and FUTA Taxes on Sick Pay, later in this section. Sick pay may also be subject to either mandatory or
voluntary federal income tax withholding, depending on
who pays it.

Sick Pay
Sick pay generally means any amount paid under a plan
because of an employee’s temporary absence from work
due to injury, sickness, or disability. It may be paid by either the employer or a third party, such as an insurance
company. Sick pay includes both short- and long-term
benefits. It is often expressed as a percentage of the
employee’s regular wages.
Publication 15-A (2026)

1. Disability retirement payments. Disability retirement payments aren’t sick pay and aren’t discussed in
this section. Those payments are subject to the rules
for federal income tax withholding from pensions and
annuities. See section 8.
2. Workers’ compensation. Payments because of a
work-related injury or sickness that are made under a
workers’ compensation law aren’t sick pay and aren’t
subject to employment taxes. But see Payments in the
nature of workers’ compensation—public employees
next.
3. Payments in the nature of workers’ compensation—public employees. State and local government employees, such as police officers and firefighters, sometimes receive payments due to an injury in
the line of duty under a statute that isn’t the general
workers’ compensation law of a state. If the statute
limits benefits to work-related injuries or sickness and
doesn’t base payments on the employee’s age, length
of service, or prior contributions, the statute is “in the
nature of” a workers’ compensation law. Payments
under a statute in the nature of a workers’ compensation law aren’t sick pay and aren’t subject to employment taxes. For more information, see Regulations
section 31.3121(a)(2)-1.
4. Medical expense payments. Payments under a definite plan or system for medical and hospitalization expenses, or for insurance covering these expenses,
aren’t sick pay and aren’t subject to employment
taxes.
5. Payments unrelated to absence from work. Accident or health insurance payments unrelated to absence from work aren’t sick pay and aren’t subject to
employment taxes. These include payments for:
a. Permanent loss of a member or function of the
body,
b. Permanent loss of the use of a member or function
of the body, or
c. Permanent disfigurement of the body.
Example. Donald was injured in a car accident and
lost an eye. Under a policy paid for by Donald’s employer, Delta Insurance Co. paid Donald $20,000 as
compensation for the loss of the eye. Because the
payment was determined by the type of injury and
was unrelated to Donald’s absence from work, it isn’t
sick pay and isn’t subject to federal employment
taxes.

Sick Pay Plan
A sick pay plan is a plan or system established by an employer under which sick pay is available to employees
generally or to a class or classes of employees. This
doesn’t include a situation in which benefits are provided
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on a discretionary or occasional basis with merely an intention to aid particular employees in time of need.

2. Makes timely deposits of the employee part of social
security and Medicare taxes.

You have a sick pay plan or system if the plan is in writing or is otherwise made known to employees, such as by
a bulletin board notice or your long and established practice. Some indications that you have a sick pay plan or
system include references to the plan or system in the
contract of employment, employer contributions to a plan,
or segregated accounts for the payment of benefits. Contributions to a sick pay plan through a cafeteria plan (by direct employer contributions or salary reduction) are employer contributions unless they are after-tax employee
contributions (that is, included in taxable wages).

3. Notifies the employer for whom the employee normally works of the payments on which employee
taxes were withheld and deposited. The third party
must notify the employer within the time required for
the third party’s deposit of the employee part of the
social security and Medicare taxes. For instance, if
the third party is a monthly schedule depositor, it must
notify the employer by the 15th day of the month following the month in which the sick pay payment is
made because that is the day by which the deposit is
required to be made. The third party should notify the
employer as soon as information on payments is available so that an employer can make electronic deposits timely. For multiemployer plans, see the special
rule discussed next.

Definition of “employer.” The “employer” for whom the
employee normally works, a term used in the following discussion, is either the employer for whom the employee
was working at the time that the employee became sick or
disabled or the last employer for whom the employee
worked before becoming sick or disabled, if that employer
made contributions to the sick pay plan on behalf of the
sick or disabled employee.

Third-Party Payers of Sick Pay
Employer’s agent. An employer’s agent is a third party
that bears no insurance risk and is reimbursed on a
cost-plus-fee basis for payment of sick pay and similar
amounts. A third party may be your agent even if the third
party is responsible for determining which employees are
eligible to receive payments. For example, if a third party
provides administrative services only, the third party is
your agent. If the third party is paid an insurance premium
and isn’t reimbursed on a cost-plus-fee basis, the third
party isn’t your agent. Whether an insurance company or
other third party is your agent depends on the terms of
their agreement with you.
A third party that makes payments of sick pay as your
agent isn’t considered the employer and generally has no
responsibility for employment taxes. This responsibility remains with you. However, under an exception to this rule,
the parties may enter into an agreement that makes the
third-party agent responsible for employment taxes. In this
situation, the third-party agent should use its own name
and employer identification number (EIN) (rather than your
name and EIN) for the responsibilities that it has assumed.
Third party not employer’s agent. A third party that
makes payments of sick pay other than as an agent of the
employer is liable for federal income tax withholding (if requested by the employee) and the employee part of the
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,
unless the third party transfers this liability to the employer
for whom the employee normally works. This liability is
transferred if the third party takes the following steps.
1. Withholds the employee part of social security and
Medicare taxes from the sick pay payments.

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Multiemployer plan timing rule. A special rule applies to sick pay payments made to employees by a
third-party insurer under an insurance contract with a multiemployer plan established under a collectively bargained
agreement. If the third-party insurer making the payments
complies with steps 1 and 2, earlier, and gives the plan
(rather than the employer) the required timely notice described in step 3, earlier, then the plan (not the third-party
insurer) must pay the employer part of the social security
and Medicare taxes, and the FUTA tax. Similarly, if within
6 business days of the plan’s receipt of notification, the
plan gives notice to the employer for whom the employee
normally works, the employer (not the plan) must pay the
employer part of the social security and Medicare taxes,
and the FUTA tax.
Reliance on information supplied by the employer. A
third party that pays sick pay should request information
from the employer to determine amounts that aren’t subject to employment taxes. Unless the third party has reason not to believe the information, it may rely on that information for the following items.

• The total wages paid to the employee during the calendar year.

• The last month in which the employee worked for the
employer.

• The employee contributions to the sick pay plan made
with after-tax dollars.

The third party shouldn’t rely on statements regarding
these items made by the employee.

Social Security, Medicare, and FUTA
Taxes on Sick Pay
Employer. If you pay sick pay to your employee, you
must generally withhold employee social security and
Medicare taxes from the sick pay. You must timely deposit
employee and employer social security and Medicare
taxes, and FUTA tax. There are no special deposit rules
for sick pay. See section 11 of Pub. 15 for more information on the deposit rules.
Publication 15-A (2026)

Amounts not subject to social security, Medicare, or
FUTA tax. The following payments, whether made by the
employer or a third party, aren’t subject to social security,
Medicare, or FUTA tax (different rules apply to federal income tax withholding).

• Payments after an employee’s death or disability

retirement. Social security, Medicare, and FUTA
taxes don’t apply to amounts paid under a definite
plan or system, as defined under Sick Pay Plan, earlier
in this section, on or after the termination of the employment relationship because of death or disability
retirement. However, even if there is a definite plan or
system, amounts paid to a former employee are subject to social security, Medicare, and FUTA taxes if
they would have been paid even if the employment relationship hadn’t terminated because of death or disability retirement. For example, a payment to a disabled
former employee for unused vacation time would have
been made whether or not the employee retired on
disability. Therefore, the payment is wages and is subject to social security, Medicare, and FUTA taxes.

• Payments after calendar year of employee’s

death. Sick pay paid to the employee’s estate or survivor after the calendar year of the employee’s death
isn’t subject to social security, Medicare, or FUTA tax.
Also, see Amounts not subject to federal income tax
withholding, later in this section.
Example. Sandra became entitled to sick pay on
November 17, 2025, and died on December 31, 2025.
On January 2, 2026, Sandra’s sick pay for the period
from December 24 through December 31, 2025, was
paid to Sandra’s surviving spouse. The payment isn’t
subject to social security, Medicare, or FUTA tax.

• Payments to an employee entitled to disability in-

surance benefits. Payments to an employee when
the employee is entitled to disability insurance benefits
under section 223(a) of the Social Security Act aren’t
subject to social security and Medicare taxes. This
rule applies only if the employee became entitled to
the Social Security Act benefits before the calendar
year in which the payments are made and the employee performs no services for the employer during
the period for which the payments are made. However,
these payments are subject to FUTA tax.

• Payments that exceed the applicable wage base

limits. Social security and FUTA taxes don’t apply to
payments of sick pay that, when combined with the
regular wages and sick pay previously paid to the employee during the year, exceed the applicable wage
base limits. Because there is no Medicare tax wage
base limit, this exception doesn’t apply to Medicare
tax. For 2026, the social security tax wage base limit is
$184,500 and the FUTA tax wage base limit is $7,000.
Example. If an employee receives $177,500 in wages from an employer in 2026 and also receives
$10,000 of sick pay, only the first $7,000 ($184,500 –
$177,500) of the sick pay is subject to social security
tax. All of the sick pay is subject to Medicare tax. None
of the sick pay is subject to FUTA tax. See Example of
Figuring and Reporting Sick Pay, later in this section.

Publication 15-A (2026)

• Payments after 6 months absence from work. So-

cial security, Medicare, and FUTA taxes don’t apply to
sick pay paid more than 6 calendar months after the
last calendar month in which the employee worked.
Example 1. Ralph’s last day of work before becoming entitled to receive sick pay was December 5, 2025.
Ralph was paid sick pay for 9 months before returning
to work on September 11, 2026. Sick pay paid to
Ralph after June 30, 2026, isn’t subject to social security, Medicare, or FUTA tax.
Example 2. The facts are the same as in Example 1, except that Ralph worked 1 day during the
9-month period on February 6, 2026. Because the
6-month period begins again in March, only the sick
pay paid to Ralph after August 31, 2026, is exempt
from social security, Medicare, and FUTA taxes.

• Payments attributable to employee contributions.

Social security, Medicare, and FUTA taxes don’t apply
to payments, or parts of payments, attributable to employee contributions to a sick pay plan made with after-tax dollars. Contributions to a sick pay plan made
on behalf of employees with employees’ pre-tax dollars under a cafeteria plan are employer contributions.
Group policy. If both the employer and the employee contributed to the sick pay plan under a group
insurance policy, figure the taxable sick pay by multiplying total sick pay by the percentage of the policy’s
cost that was contributed by the employer for the 3
policy years before the calendar year in which the sick
pay is paid. If the policy has been in effect fewer than 3
years, use the cost for the policy years in effect or, if in
effect less than 1 year, a reasonable estimate of the
cost for the first policy year.
Example. Alan is employed by Edgewood Corporation. Because of an illness, Alan was absent from work
for 3 months during 2026. Key Insurance Company
paid Alan $2,000 sick pay for each month of absence
under a policy paid for by contributions from both
Edgewood and its employees. All of the employees’
contributions were paid with after-tax dollars. For the 3
policy years before 2026, Edgewood paid 70% of the
policy’s cost and its employees paid 30%. Because
70% of the sick pay paid under the policy is due to
Edgewood’s contributions, $1,400 ($2,000 × 70%) of
each payment made to Alan is taxable sick pay. The
remaining $600 of each payment that is due to employee contributions isn’t taxable sick pay and isn’t
subject to employment taxes. Also, see Example of
Figuring and Reporting Sick Pay, later in this section.

Income Tax Withholding on Sick Pay
The requirements for federal income tax withholding on
sick pay and the methods for figuring it differ depending
on whether the sick pay is paid by:

• The employer,
• An agent of the employer (defined earlier in this section), or

17

• A third party that isn’t the employer’s agent.
Employer or employer’s agent. Sick pay paid by you or
your agent is subject to mandatory federal income tax
withholding. An employer or agent paying sick pay generally determines the federal income tax to be withheld
based on the employee’s Form W-4. The employee can’t
choose how much federal income tax will be withheld by
giving you or your agent a Form W-4S, Request for Federal Income Tax Withholding From Sick Pay. Sick pay paid
by an agent is treated as supplemental wages. If the agent
doesn’t pay regular wages to the employee, the agent may
choose to withhold federal income tax at a flat 22% rate,
rather than at the wage withholding rate. See section 7 of
Pub. 15 for guidance on withholding employment taxes
from supplemental wages, including the rules for withholding federal income tax when wages to an individual exceed $1 million during the year.
Third party not an agent. Sick pay paid by a third party
that isn’t your agent isn’t subject to mandatory federal income tax withholding. However, an employee may elect to
have federal income tax withheld by submitting Form
W-4S to the third party.
If Form W-4S has been submitted, the third party
should withhold federal income tax on all payments of sick
pay made 8 or more days after receiving the form. The
third party may, at its option, withhold federal income tax
before 8 days have passed.
The employee may request on Form W-4S to have a
specific whole dollar amount withheld. However, if the requested withholding would reduce any net payment below
$10, the third party shouldn’t withhold any federal income
tax from that payment. The minimum amount of withholding that the employee can specify is $4 per day, $20 per
week, or $88 per month based on the payroll period.
Withhold from all payments at the same rate whether
full or partial payments. For example, if $25 is withheld
from a regular full payment of $100, then $20 (25%)
should be withheld from a partial payment of $80.

Depositing and Reporting
This section discusses who is liable for depositing social
security, Medicare, FUTA, and withheld federal income
taxes on sick pay. These taxes must be deposited under
the same rules that apply to deposits of taxes on regular
wage payments. See Pub. 15 for information on the deposit rules.
This section also explains how sick pay should be reported on Forms W-2, W-3, 940, and 941 (or Form 944).

Sick Pay Paid by Employer or Agent
If you or your agent (defined earlier in this section) makes
sick pay payments, you deposit taxes and file Forms W-2,
W-3, 940, and 941 (or Form 944) under the same rules
that apply to regular wage payments.
However, any agreement between the parties may require your agent to carry out responsibilities that would
have otherwise been borne by you. In this situation, your
agent should use its own name and EIN (rather than
yours) for the responsibilities that it has assumed.
Reporting sick pay on Form W-2. You may either combine the sick pay with other wages and prepare a single
Form W-2 for each employee, or you may prepare separate Forms W-2 for each employee, one reporting sick pay
and the other reporting regular wages. A Form W-2 must
be prepared even if all of the sick pay is nontaxable (see
Box 12 below). All Forms W-2 must be given to the employees by January 31.
The Form W-2 filed for the sick pay must include the
employer’s name, address, and EIN; the employee’s
name, address, and social security number (SSN); and
the following information.
Box 1—The amount of sick pay the employee must include in income.

Amounts not subject to federal income tax withholding. The following amounts, whether paid by you or a
third party, aren’t wages and aren’t subject to federal income tax withholding.

Box 2—The amount of any federal income tax withheld
from the sick pay.

• Payments after the employee’s death. Sick pay

Box 4—The amount of employee social security tax
withheld from the sick pay.

paid to the employee’s estate or survivor at any time
after the employee’s death isn’t subject to federal income tax withholding, regardless of who pays it.

• Payments attributable to employee contributions.

Payments, or parts of payments, attributable to employee contributions made to a sick pay plan with after-tax dollars aren’t subject to federal income tax
withholding. For more information, see the corresponding discussion under Amounts not subject to social security, Medicare, or FUTA tax, earlier in this section.

Box 3—The amount of sick pay subject to employee
social security tax.

Box 5—The amount of sick pay subject to employee
Medicare tax.
Box 6—The amount of employee Medicare tax (including Additional Medicare Tax, if applicable) withheld
from the sick pay.
Box 12 (code J)—Any sick pay that was paid by a third
party and wasn’t includible in income (and not shown
in boxes 1, 3, and 5) because the employee contributed to the sick pay plan. Don’t include nontaxable disability payments made directly to a state.
Box 13—Check the “Third-party sick pay” box only if
the amounts were paid by a third party.

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Publication 15-A (2026)

Sick Pay Paid by Third Party
The depositing and reporting rules for a third party that
isn’t your agent depend on whether liability has been
transferred as discussed under Third party not employer’s
agent, earlier in this section.
To figure the due dates and amounts of its deposits of
employment taxes, a third party should combine:

• The liability for the wages paid to its own employees,
and

• The liability for payments it made to all employees of

• Third party. The third party must include on Form 941

the employee part of the social security and Medicare
taxes (and federal income tax, if any) it withheld. The
third party doesn’t include on line 2 any sick pay paid
as a third party but does include on line 3 any federal
income tax withheld. In column 1 of line 5a, the third
party enters the total amount it paid subject to social
security taxes. This amount includes both wages paid
to its own employees and sick pay paid as a third
party. The third party completes column 1 of lines 5c
and 5d (if applicable) in a similar manner. On line 8,
the third party subtracts the employer part of the social security and Medicare taxes that you must pay.

all its clients. This doesn’t include any liability transferred to the employer.

Form 940. You, not the third party, must prepare Form
940 for sick pay.

Liability not transferred to the employer. If the third
party doesn’t satisfy the requirements for transferring liability for FUTA tax and the employer part of the social security and Medicare taxes, the third party reports the sick
pay on its own Form 940 and Form 941 (or Form 944). In
this situation, the employer has no tax responsibilities for
sick pay.
The third party must deposit social security, Medicare,
FUTA, and withheld federal income taxes using its own
name and EIN. The third party must give each employee
to whom it paid sick pay a Form W-2 by January 31 of the
following year. The Form W-2 must include the third party’s name, address, and EIN instead of the employer information.

Form 8922, Third-Party Sick Pay Recap. The third
party (or in certain cases, the employer) must file Form
8922 to report sick pay paid by a third party for or on behalf of employers for whom services are normally performed. Form 8922 doesn’t show the names of individuals
who received the third-party sick pay but the total amounts
paid in the calendar year to all employees whose sick pay
wages are required to be reported on Form 8922.
Third-party sick pay is reported on Form 8922 if the liability for the employer part of social security tax and Medicare tax has been shifted by the third party or insurer paying the sick pay to the employer for whom services are
normally rendered. Whether the third party or employer reports the sick pay on Form 8922 depends on which entity
is filing Forms W-2 reporting the sick pay paid to individual
employees receiving the sick pay. The third party reports
the sick pay on Form 8922 if the employer is filing Forms
W-2 reporting the third-party sick pay under the name and
EIN of the employer. However, if the third party is filing
Forms W-2 with respect to the sick pay under the name
and EIN of the third party, the employer files Form 8922 reporting the sick pay.
If the third party is paying all employment taxes, including the employer part of social security tax and Medicare
tax, with respect to the sick pay, the third party files Forms
W-2 using its name and EIN as employer with respect to
the sick pay for each employee receiving sick pay and reports social security and Medicare taxes and federal income tax withholding on its Form 941. Neither the third
party nor the employer reports the sick pay on Form 8922.
Third parties that are agents with respect to the payment of sick pay (because they have no insurance risk)
are required to report sick pay on Form 8922 only if the
agency agreement between the employer and the agent
imposes the following requirements.
The agreement must require the agent to:

Liability transferred to the employer. Generally, if a
third party satisfies the requirements for transferring liability for the employer part of the social security and Medicare taxes and for the FUTA tax, the following rules apply.
Deposits. The third party must make deposits of withheld employee social security and Medicare taxes and
withheld federal income tax using its own name and EIN.
You must make deposits of the employer part of the social security and Medicare taxes and the FUTA tax using
your name and EIN. In applying the deposit rules, your liability for these taxes begins when you receive the third
party’s notice of sick pay payments.
Form 941 or Form 944. The third party and you must
each file Form 941 or Form 944. The discussion that follows only explains how to report sick pay on Form 941. If
you file Form 944, use the lines on that form that correspond to the lines on Form 941 that are discussed here.
Form 941, line 8, must contain a special adjusting entry
for social security and Medicare taxes. These entries are
required because the total tax liability for social security
and Medicare taxes (employee and employer parts) is
split between you and the third party.

• Employer. You must include third-party sick pay on

Form 941, lines 2, 5a, 5c, and 5d (if applicable). There
should be no sick pay entry on line 3 because the third
party withheld federal income tax, if any. After completing line 6, subtract on line 8 the employee part of
social security and Medicare taxes withheld and deposited by the third party.

Publication 15-A (2026)

• Withhold and pay the employee part of social security
tax and Medicare tax and income tax withholding on
the sick pay, and

• Report the withheld amounts on Form 941 using the
agent’s name and EIN.

19

The agreement must require the employer to:

• Pay and report the employer part of social security
tax and Medicare tax on a Form 941 using the employer’s name and EIN and report the sick pay on
Form W-2.

Optional rule for Form W-2. You and the third party
may choose to enter into a legally binding agreement designating the third party to be your agent for purposes of
preparing Forms W-2 reporting sick pay. The agreement
must specify what part, if any, of the payments under the
sick pay plan is excludable from the employees’ gross incomes because it is attributable to their contributions to
the plan. If you enter into an agreement, the third party
prepares the actual Forms W-2, not Form 8922 as discussed above, for each employee who receives sick pay
from the third party. If the optional rule is used:

• The third party doesn’t provide you with the sick pay
statement described next, and

• You (not the third party) file Form 8922. Form 8922 is

needed to reconcile the sick pay shown on your Forms
941 or Form 944.

Sick pay statement. The third party must furnish you
with a sick pay statement by January 15 of the year following the year in which the sick pay was paid. The statement
must show the following information about each employee
who was paid sick pay.

• The employee’s name.
• The employee’s SSN (if social security, Medicare, or
income tax was withheld).

• The sick pay paid to the employee.
• Any federal income tax withheld.
• Any employee part of social security tax withheld.
• Any employee part of Medicare tax withheld.

Example of Figuring and Reporting
Sick Pay
Note: The following example is for wages paid in 2025.
Dave, an employee of Edgewood Corporation, was seriously injured in a car accident on January 1, 2025. Dave’s last day of work was December 31, 2024. The accident wasn’t job related.
Key, an insurance company that wasn’t an agent of the
employer, paid Dave $2,000 sick pay each month for 10
months, beginning in January 2025. Dave submitted a
Form W-4S to Key, requesting $210 be withheld from each
payment for federal income tax. Dave received no payments from Edgewood from January 2025 through October 2025. Dave returned to work on November 1, 2025.
For the policy year in which the car accident occurred,
Dave paid a part of the premiums for coverage, and Edgewood paid the remaining part. The plan was, therefore, a
“contributory plan.” During the 3 policy years before the
calendar year of the accident, Edgewood paid 70% of the
20

total of the net premiums for its employees’ insurance coverage, and its employees paid 30%.
Social security and Medicare taxes. For social security and Medicare tax purposes, taxable sick pay was
$8,400 ($2,000 per month × 70% (0.70) = $1,400 taxable
portion per payment; $1,400 × 6 months = $8,400 total
taxable sick pay). Only the six $2,000 checks received by
Dave from January through June are included in the calculation. The check received by Dave in July (the seventh
check) was received more than 6 months after the month
in which Dave last worked.
Of each $2,000 payment Dave received, 30% ($600)
isn’t subject to social security and Medicare taxes because the plan is contributory and Dave’s after-tax contribution is considered to be 30% of the premiums during the
3 policy years before the calendar year of the accident.
FUTA tax. Of the $8,400 taxable sick pay (figured the
same as for social security and Medicare taxes), only
$7,000 is subject to the FUTA tax because the FUTA tax
contribution base limit is $7,000.
Federal income tax withholding. Of each $2,000
payment, $1,400 ($2,000 × 70% (0.70)) is subject to voluntary federal income tax withholding. In accordance with
Dave’s Form W-4S, $210 was withheld from each payment.
Liability transferred. For the first 6 months following
the last month in which Dave worked, Key was liable for
social security, Medicare, and FUTA taxes on any payments that constituted taxable wages. However, Key could
have shifted the liability for the employer part of the social
security and Medicare taxes (and for the FUTA tax) during
the first 6 months by withholding Dave’s part of the social
security and Medicare taxes, timely depositing the taxes,
and notifying Edgewood of the payments.
If Key shifted liability for the employer part of the social
security and Medicare taxes to Edgewood and provided
Edgewood with a sick pay statement, Key wouldn’t prepare a Form W-2 for Dave. However, Key would file Form
8922. Key and Edgewood must each prepare Forms 941.
Edgewood must also report the sick pay and withholding
for Dave on Forms W-2, W-3, and 940.
As an alternative, the parties could have followed the
optional rule described under Optional rule for Form W-2,
earlier in this section. Under this rule, Key would prepare
Form W-2 even though liability for the employer part of
the social security and Medicare taxes had been shifted to
Edgewood. Also, Key wouldn’t prepare a sick pay statement, and Edgewood, not Key, would file Form 8922 reflecting the sick pay shown on Edgewood’s Forms 941.
Liability not transferred. If Key didn’t shift liability for
the employer part of the social security and Medicare
taxes to Edgewood, Key would prepare Forms W-2 and
W-3 as well as Forms 941 and 940. In this situation, Edgewood wouldn’t report the sick pay.
Payments received after 6 months. The payments
received by Dave in July through October aren’t subject to
social security, Medicare, or FUTA tax because they were
received more than 6 months after the last month in which
Publication 15-A (2026)

Dave worked (December 2024). However, Key must continue to withhold federal income tax from each payment
because Dave furnished Key with a Form W-4S. Also, Key
must prepare Forms W-2 and W-3, unless it has furnished

Edgewood with a sick pay statement. If the sick pay statement was furnished, then Edgewood must prepare 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
Social security
Medicare

No
No
No

Yes, if Form W-4S is submitted
Yes
Yes

Deposit employee taxes
Income
Social security
Medicare

No
No
No

Yes—using third party EIN
Yes—using third party EIN
Yes—using third party EIN

Deposit employer taxes
Social security
Medicare
FUTA

Yes—using employer EIN
Yes—using employer EIN
Yes—using employer EIN

No
No
No

Report employee wages and taxes on Form 941
Income
Social security
Medicare

Report taxable wages
Report taxable wages*
Report taxable wages*

Report tax withheld
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.

Yes
Yes
Yes

No—file Form 8922
No—file Form 8922
No—file Form 8922

Report employee wages and taxes on Form W-21
Income
Social security
Medicare
1

See the instructions earlier if operating under the optional rule for form W-2.

7. Special Rules for Paying
Taxes
Common Paymaster
If two or more related corporations employ the same individual at the same time and pay this individual through a
common paymaster that is one of the corporations, the
corporations are considered to be a single employer. They
have to pay, in total, no more in social security tax than a
single employer would pay.

available at IRS.gov/irb/2013-52_IRB#RP-2013-39; Revenue Procedure 84-33, 1984-1 C.B. 502; and the General
Instructions for Forms W-2 and W-3 for procedures and
reporting requirements. Form 2678 doesn’t apply to FUTA
tax reportable on Form 940 unless the employer is a home
care service recipient receiving home care services
through a program administered by a federal, state, or local government agency.
Agents filing an aggregate Form 940 must file Schedule R (Form 940). Agents filing an aggregate Form 941
must file Schedule R (Form 941).

Reporting Agents

Each corporation must pay its own part of the employment taxes and may deduct only its own part of the wages. The deductions won’t be allowed unless the corporation reimburses the common paymaster for the wage and
tax payments. See Regulations section 31.3121(s)-1 for
more information. The common paymaster is responsible
for filing information and tax returns and issuing Forms
W-2 with respect to wages it is considered to have paid as
a common paymaster.

Electronic filing of Forms 940, 941, and 944. Reporting agents may file Forms 940, 941, and 944 electronically. For details, see Pub. 3112, IRS e-file Application &
Participation. For information on electronic filing of Forms
940, 941, and 944, see Revenue Procedure 2007-40,
2007-26 I.R.B. 1488, available at IRS.gov/irb/
2007-26_IRB#RP-2007-40. For more information on electronic filing, go to IRS.gov/EmploymentEfile or call
866-255-0654.

Agent With an Approved Form 2678

For more information on third-party payer arrangements, including agents with an approved Form 2678, reporting agents, and certified professional employer organizations, see section 16 of Pub. 15.

Employers and payers must use Form 2678 to request approval for an agent to file returns and make deposits or
payments of their employment or other withholding taxes.
See Revenue Procedure 2013-39, 2013-52 I.R.B. 830,
Publication 15-A (2026)

21

Employee’s Portion of Taxes Paid by
Employer
Caution: The information provided in this section
doesn’t take into account an employer that chooses to pay
the Additional Medicare Tax on behalf of the employee.
If you pay your employee’s social security and Medicare taxes without deducting them from the employee’s
pay, you must include the amount of the payments in the
employee’s wages for federal income tax withholding and
social security, Medicare, and FUTA taxes. This increase
in the employee’s wages for your payment of the employee’s social security and Medicare taxes is also subject to
employee social security and Medicare taxes. This again
increases the amount of the additional taxes you must
pay.
To figure the employee’s increased wages in this situation, divide the stated pay (the amount that you pay without taking into account your payment of employee social
security and Medicare taxes) by a factor for that year. This
factor is determined by subtracting from 1.0 the combined
employee social security and Medicare tax rate for the
year that the wages are paid. For 2026, the factor is
0.9235 (1.0 − 0.0765). If the stated pay is more than
$170,385.75 (2026 social security wage base limit
$184,500 × 0.9235), follow the procedure described under
Stated pay of more than $170,385.75 in 2026, later.
Stated pay of $170,385.75 or less in 2026. For an employee with stated pay of $170,385.75 or less in 2026, figure the correct wages (wages plus employer-paid employee taxes) to report by dividing the stated pay by
0.9235. This will give you the wages to report in box 1 and
the social security and Medicare wages to report in boxes
3 and 5 of Form W-2.
On Form W-2, to figure the correct social security tax to
enter in box 4, multiply the amount in box 3 by the social
security withholding rate of 6.2% and enter the result in
box 4. To figure the correct Medicare tax to enter in box 6,
multiply the amount in box 5 by the Medicare withholding
rate of 1.45% and enter the result in box 6.
Example. Donald Devon hires Lydia Lone for only 1
week during 2026. Donald pays Lydia $500 for that week.
Donald agrees to pay Lydia’s part of the social security
and Medicare taxes. To figure Lydia’s reportable wages,
Donald divides $500 by 0.9235. The result, $541.42, is
the amount that is reported as wages in boxes 1, 3, and 5
of Form W-2. To figure the amount to report as social security tax, Donald multiplies $541.42 by the social security
tax rate of 6.2% (0.062). The result, $33.57, is entered in
box 4 of Form W-2. To figure the amount to report as Medicare tax, Donald multiplies $541.42 by the Medicare tax
rate of 1.45% (0.0145). The result, $7.85, is entered in
box 6 of Form W-2. Although Donald didn’t actually withhold the amounts from Lydia, Donald will report these
amounts as taxes 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, Lydia’s weekly wages are $541.42.
22

Stated pay of more than $170,385.75 in 2026. For an
employee with stated pay of more than $170,385.75 in
2026, the portion of stated wages subject to social security tax is $170,385.75 (the first $184,500 of wages ×
0.9235). The stated pay in excess of $170,385.75 isn’t
subject to social security tax because the tax only applies
to the first $184,500 of wages (stated pay plus employer-paid employee taxes). Enter $184,500 in box 3 of
Form W-2. The social security tax to enter in box 4 is
$11,439.00 ($184,500 x 0.062).
To figure the correct Medicare wages to enter in box 5
of Form W-2, subtract $170,385.75 from the stated pay.
Divide the result by 0.9855 (1.0 − 0.0145) and add
$184,500.
For example, if stated pay is $180,000, the correct
Medicare wages are figured as follows.
$180,000 – $170,385.75 = $9,614.25
$9,614.25 ÷ 0.9855 = $9,755.71
$9,755.71 + $184,500 = $194,255.71
The Medicare wages are $194,255.71. Enter this
amount in box 5 of Form W-2. The Medicare tax to enter in
box 6 is $2,816.71 ($194,255.71 × 0.0145).
Although these employment tax amounts aren’t actually
withheld from the employee’s pay, report them as withheld
on Forms 941, and pay this amount as the employer’s
share of the social security and Medicare taxes. If the wages for federal income tax withholding purposes in the
preceding example are the same as for social security and
Medicare tax purposes, the correct wage amount for federal income tax withholding is $194,255.71 ($180,000 +
$11,439.00 + $2,816.71), which is included in box 1 of
Form W-2.
Household and agricultural employees. The discussion above doesn’t apply to household and agricultural
employers. If you pay a household or agricultural employee’s social security and Medicare taxes, these payments
must be included in the employee’s wages. However, this
wage increase due to the tax payments made for the employee isn’t subject to social security or Medicare tax as
discussed in this section.
Tax deposits and Form 941 or Form 944. If you pay
your employee’s portion of their social security and Medicare taxes rather than deducting them from their pay,
you’re liable for timely depositing or paying the increased
taxes associated with the wage increase. Also, report the
increased wages on the appropriate lines of Form 941 for
the quarter during which the wages were paid or on Form
944 for the year during which the wages were paid.

International Social Security
Agreements
The United States has social security agreements, also
known as totalization agreements, with many countries
that eliminate dual social security coverage and taxation.
Under these agreements, employees must generally pay
social security taxes only to the country where they work.
Employees and employers who are subject to foreign
Publication 15-A (2026)

social security taxes under these agreements are potentially exempt from U.S. social security taxes, including the
Medicare portion. For more information, go to SSA.gov/
international or see Pub. 519, U.S. Tax Guide for Aliens.

8. Federal Income Tax
Withholding on Retirement
Payments and Annuities
Generally, federal income tax withholding applies to the
taxable part of payments made from pension plans,
profit-sharing plans, stock bonus plans, annuity plans, certain deferred compensation plans, IRAs, and commercial
annuities. Don’t withhold income taxes from amounts totally exempt from tax. If part of a distribution is taxable and
part is nontaxable, withhold income taxes only on the part
subject to tax when known. The method and rate of withholding depends on (a) the kind of payment; (b) whether
the payments are to be delivered outside the United
States and its territories; and (c) whether the payee is a
nonresident alien individual, a nonresident alien beneficiary, or a foreign estate. Qualified distributions from Roth
IRAs and Roth 401(k) plans are nontaxable and, therefore,
not subject to withholding. See Payments Outside the United States and Payments to Foreign Persons, later in this
section, for special withholding rules that apply to payments outside the United States and payments to foreign
persons.
Federal income tax must be withheld from eligible rollover distributions. See Eligible Rollover Distribution—20%
Default Withholding Rate, later in this section.

Periodic Payments
Periodic payments are those made in installments at regular intervals over a period of more than 1 year. They may
be paid annually, quarterly, monthly, etc. Withholding from
periodic payments of a pension or annuity is generally figured in the same manner as withholding from wages.
Form W-4P is used to request withholding on periodic
payments. See Pub. 15-T for more information on how to
withhold on periodic payments.
Tip: Consider advising payees to use the IRS Tax
Withholding Estimator, available at IRS.gov/W4App, when
completing Form W-4P if they have social security, dividend, capital gain, or business income; are subject to Additional Medicare Tax or Net Investment Income Tax; or receive these payments or pension and annuity payments
for only part of the year.
There are some kinds of periodic payments for which
the payee can’t use Form W-4P because they are already
defined as wages subject to federal income tax withholding. These include retirement pay for service in the U.S.
Armed Forces and payments from certain NQDC plans
and deferred compensation plans of exempt organizations
described in section 457.
Publication 15-A (2026)

The payee’s Form W-4P stays in effect until they
change or revoke it. You must notify payees each year of
their right to choose not to have federal income tax withheld or to change their previous choice.

Nonperiodic Payments—10% Default
Withholding Rate
Form W-4R is used to request withholding on nonperiodic
payments. Distributions from an IRA that are payable on
demand are treated as nonperiodic payments.
Withholding on nonperiodic payments using a 2021
or earlier Form W-4P. You must withhold at a flat 10%
rate from nonperiodic payments (but see Eligible Rollover
Distribution—20% Default Withholding Rate, later) unless
the payee chose not to have income tax withheld (if permitted). A payee could’ve chosen not to have income tax
withheld from a nonperiodic payment by submitting a
2021 or earlier Form W-4P (containing their correct SSN)
and checking the box on line 1. Generally, the choice not
to have federal income tax withheld applies to any later
payment from the same plan. A payee couldn’t use line 2
for nonperiodic payments; they may have used line 3 to
specify an additional amount that they wanted withheld.
If a payee submitted a Form W-4P that didn’t contain
their correct SSN, you can’t honor their request not to
have income tax withheld and you must withhold 10% of
the payment for federal income tax
Withholding on nonperiodic payments using a 2022
or later Form W-4R. The default withholding rate is 10%,
but Form W-4R allows a payee to choose a different rate
of withholding by entering a rate between 0% and 100%
on Form W-4R, line 2. However, the payee can’t choose a
rate of less than 10% for payments to be delivered outside
the United States and its territories. If a

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A7008e0b30668ba17. Public record. Not legal advice.