Introduction
Hey there, readers! Welcome to our in-depth guide on revenue code 0905. We know that payroll can be a bit daunting, especially when you’re dealing with unfamiliar codes. That’s why we’ve created this article to help you understand everything you need to know about revenue code 0905.
Let’s dive right in!
Section 1: What is Revenue Code 0905?
Revenue code 0905 is a specific tax code used by the Internal Revenue Service (IRS) to identify other employer payments. This code is used to report payments made to employees that are not considered wages, such as bonuses, awards, and nonqualified deferred compensation plans.
Unlike wages, which are subject to both income tax and Social Security tax, payments reported under revenue code 0905 are only subject to income tax. This means that employers are not required to withhold Social Security tax or Medicare tax from these payments.
Section 2: Common Payments Reported Under Revenue Code 0905
As mentioned above, revenue code 0905 is used to report a variety of payments made to employees. Here are some of the most common types of payments that fall under this code:
Bonuses
Bonuses are one-time lump sum payments made to employees for exceptional performance, reaching certain goals, or other special circumstances. These payments are typically not considered wages and are therefore reported under revenue code 0905.
Awards
Awards, such as employee of the month awards or safety awards, are also reported under revenue code 0905. These awards may be in the form of cash, gift cards, or other items of value.
Nonqualified Deferred Compensation Plans
Nonqualified deferred compensation plans are retirement plans that do not meet the IRS’s requirements for qualified plans. These plans allow employees to defer a portion of their income into an account that is taxed at a later date. Payments made to employees from nonqualified deferred compensation plans are reported under revenue code 0905.
Section 3: Tax Implications of Revenue Code 0905
Payments reported under revenue code 0905 are subject to income tax, but not Social Security tax or Medicare tax. This can result in significant tax savings for both employers and employees.
Employers
Employers are not required to withhold Social Security tax or Medicare tax from payments reported under revenue code 0905. This can reduce the employer’s overall payroll tax liability and save money on payroll processing costs.
Employees
Employees who receive payments under revenue code 0905 will pay income tax on these payments at their ordinary income tax rate. However, they will not be subject to Social Security tax or Medicare tax on these payments. This can result in a lower overall tax liability for the employee.
Section 4: Reporting Revenue Code 0905 on Form W-2
Employers are required to report all payments made to employees on Form W-2. When reporting payments under revenue code 0905, employers should use Box 14 and enter the appropriate code, which is "0905" in this case.
Section 5: Table Breakdown of Revenue Code 0905
| Payment Type | Revenue Code | Tax Treatment |
|---|---|---|
| Bonuses | 0905 | Subject to income tax only |
| Awards | 0905 | Subject to income tax only |
| Nonqualified Deferred Compensation Plans | 0905 | Subject to income tax only |
Conclusion
We hope this article has helped you understand revenue code 0905 and its implications for both employers and employees. If you have any further questions, we encourage you to consult with a tax professional or visit the IRS website for more detailed information.
Be sure to check out our other articles on payroll and tax-related topics to stay informed and make sure you’re compliant with all applicable laws and regulations!
FAQ about Revenue Code 0905
What is revenue code 0905?
Revenue code 0905 is used to report income from self-employment.
Who should use revenue code 0905?
Individuals who earn income from self-employment, such as freelancers, contractors, and small business owners.
What information do I need to provide with revenue code 0905?
You will need to provide the following information:
- Your name and Social Security number
- The amount of income you earned from self-employment
- Any expenses you incurred related to your self-employment
Where do I report revenue code 0905?
Report revenue code 0905 on Schedule SE (Form 1040), Self-Employment Tax.
Do I have to pay taxes on income from self-employment?
Yes, you will need to pay both income tax and self-employment tax on income earned from self-employment.
What is the self-employment tax rate?
The self-employment tax rate is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare.
Can I deduct expenses from my self-employment income?
Yes, you can deduct ordinary and necessary expenses related to your self-employment, such as the cost of materials, supplies, and rent.
How do I calculate my net self-employment income?
To calculate your net self-employment income, subtract your eligible expenses from your total self-employment income.
Do I need to file a separate return for my self-employment income?
No, you can report your self-employment income on the same tax return you use for your other income.
What are the deadlines for filing tax returns with revenue code 0905?
The deadlines for filing tax returns with revenue code 0905 are the same as for other tax returns: April 15 for most taxpayers and October 15 if you file an extension.
