Withholding Exemptions, 19694-19697 [05-6718]
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19694
Federal Register / Vol. 70, No. 71 / Thursday, April 14, 2005 / Rules and Regulations
License Requirements
Reason for Control: NP, CB, AT
Control(s)
Country chart
NP applies to entire entry .................................................................................................................................................................
CB applies to ‘‘technology’’ for valves controlled by 2A292 that meet or exceed the technical parameters in 2B350.g ...............
AT applies to entire entry .................................................................................................................................................................
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18. In Supplement No. 1 to Part 774
(the Commerce Control List), Category
2—Materials Processing, ECCN 2E301 is
amended by revising the heading of the
I
ECCN and the License Requirements
section to read as follows:
items controlled by 2B350, 2B351 and
2B352.
2E301 ‘‘Technology’’ according to the
‘‘General Technology Note’’ for the ‘‘use’’ of
License Requirements
Reason for Control: CB, AT
Control(s)
Country chart
CB applies to entire entry .................................................................................................................................................................
AT applies to entire entry .................................................................................................................................................................
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BILLING CODE 3510–33–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 31
[TD 9196]
RIN 1545–BE21
Withholding Exemptions
Internal Revenue Service (IRS),
Treasury.
ACTION: Final and temporary
regulations.
AGENCY:
SUMMARY: This document contains
regulations providing guidance under
section 3402(f) of the Internal Revenue
Code (Code) for employers and
employees relating to the Form W–4,
‘‘Employee’s Withholding Allowance
Certificate.’’ These regulations provide
rules for the submission of copies of
certain withholding exemption
certificates to the IRS, the notification
provided to the employer and the
employee of the maximum number of
withholding exemptions permitted, and
the use of substitute forms. The text of
the temporary regulations also serves as
the text of the proposed regulations set
forth in the notice of proposed
rulemaking on this subject in the
Proposed Rules section in this issue of
the Federal Register. The amendments
to the final regulations provide crossreferences to the temporary regulations.
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These regulations are effective
April 14, 2005.
FOR FURTHER INFORMATION CONTACT:
Margaret A. Owens, (202) 622–0047 (not
a toll-free call).
SUPPLEMENTARY INFORMATION:
DATES:
Dated: April 11, 2005.
Matthew S. Borman,
Deputy Assistant Secretary for Export
Administration.
[FR Doc. 05–7523 Filed 4–13–05; 8:45 am]
Jkt 205001
NP Column 2.
CB Column 2.
AT Column 1.
Paperwork Reduction Act
These regulations do not impose any
new information collection. The
Office of Management and Budget
(OMB) previously approved the
information collection requirements
concerning Form W–4 contained in the
regulation under section 6001
(§ 31.6001–5; OMB Control No. 1545–
0798) and in the regulation under
section 3402 (§ 31.3402(f)(2)–1; OMB
Control No.1545–0010) under the
provisions of the Paperwork Reduction
Act, 44 U.S.C. 3501 et seq. Books or
records relating to a collection of
information must be retained as long as
their contents may become material in
the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential,
as required by 26 U.S.C. 6103.
Background
Under section 3402(f)(2)(A), every
employee is required to furnish his or
her employer with a signed withholding
exemption certificate on or before
commencing employment. Regulations
prescribe the form of the certificate as
the Form W–4. The maximum number
of withholding exemptions to which an
employee is entitled depends upon the
employee’s marital status, the
employee’s filing status, the number of
the employee’s dependents, the number
of exemptions claimed by the
employee’s spouse (if any) on a Form
W–4, and the amount of the employee’s
estimated itemized deductions, tax
credits, and certain other deductions
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CB Column 2.
AT Column 1.
from income. A Form W–4 may be in
either paper or electronic form.
Section 31.3402(f)(2)–1(g) of the
existing regulations requires employers
to submit copies of certain questionable
Forms W–4 to the IRS. Employers must
submit a copy of each Form W–4 on
which an employee claims more than 10
withholding exemptions. Employers
must also submit a copy of each Form
W–4 on which the employee claims a
complete exemption from withholding
for the taxable year if the employer
reasonably expects, when the Form W–
4 is received, that the employee’s wages
from that employer will usually be $200
or more per week.
In addition, the existing regulations
provide that, upon written request from
the IRS, employers are required to
submit to the IRS copies of withholding
exemption certificates which are
received from employees or groups of
employees identified by the IRS in the
written request.
The existing regulations provide that
the IRS may notify an employer that a
named employee is not entitled to claim
a complete exemption from withholding
and is not entitled to claim a total
number of withholding exemptions
more than the maximum number
specified by the IRS in the notice. The
IRS will issue such notice if the IRS
finds that the withholding exemption
certificate contains a materially
incorrect statement or if the IRS finds,
after written request to the employee for
verification of the statements on the
certificate, that the IRS lacks sufficient
information to determine if the
certificate is correct. In these cases, the
employer must withhold tax based on
the maximum number of withholding
exemptions specified in the notice from
the IRS unless otherwise notified by the
IRS. However, if the employee furnishes
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Federal Register / Vol. 70, No. 71 / Thursday, April 14, 2005 / Rules and Regulations
a new certificate that claims a number
of withholding exemptions less than the
number specified in the written notice
to the employer, the employer must
withhold tax based on that certificate.
Under the existing regulations, if the
employee furnishes a new withholding
exemption certificate that claims
complete exemption from withholding
or claims a number of withholding
exemptions more than the maximum
number specified by the IRS in the
notice, the employee must submit the
new withholding exemption certificate
and a written statement to support the
claims made by the employee on the
new certificate to the IRS or to the
employer, who must then submit them
to the IRS. The employer must disregard
this new certificate until the IRS notifies
the employer to withhold tax based on
the new certificate.
Explanation of Provisions
The temporary regulations change the
procedures for submitting copies of
Forms W–4 to the IRS and allow the IRS
to issue a notice specifying the
maximum number of withholding
exemptions permitted without first
obtaining a copy of the withholding
exemption certificate from the
employer.
The temporary regulations also clarify
that a substitute withholding exemption
certificate developed by the employer
may be used in lieu of the prescribed
Form W–4, if the employer also
provides the worksheets contained in
the Form W–4 in effect at that time. The
temporary regulations also provide that
employers may refuse to accept a
substitute form developed by an
employee and that the employee
submitting such form will be treated as
failing to furnish a withholding
exemption certificate.
As noted in the Background portion
of this preamble, § 31.3402(f)(2)–1(g) of
the existing regulations sets forth rules
for employers to submit copies of
certain questionable Forms W–4 to the
IRS. The Treasury Department and the
IRS want to relieve employers of the
burden of submitting copies of certain
questionable Forms W–4 and want to
more effectively address withholding
noncompliance by using information
already provided to the IRS. Under the
temporary regulations, employers are no
longer required to submit a copy of any
Form W–4 on which an employee
claims more than 10 withholding
exemptions. In addition, under the
temporary regulations, employers are no
longer required to submit a copy of any
Form W–4 on which an employee
claims complete exemption from
withholding for the taxable year if the
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employer reasonably expects, when the
Form W–4 is received, that the
employee’s wages from that employer
will usually be $200 or more per week.
Instead, an employer must submit a
copy of any currently effective
withholding exemption certificate only
if directed to do so in a written notice
to the employer from the IRS or if
directed to do so under any published
guidance. As under existing regulations,
the written notice may direct the
employer to submit copies of Forms W–
4 for certain employees. The temporary
regulations also authorize the IRS to
provide specific criteria for those Forms
W–4 that must be submitted either in a
written notice to an employer or by
published guidance.
The temporary regulations provide
that the IRS may issue a notice to an
employer specifying the maximum
number of withholding exemptions
permitted for a specific employee. The
IRS may issue such a notice after
determining that a copy of a
withholding exemption certificate
submitted to the IRS contains a
materially incorrect statement or after
the employee fails to respond
adequately to a request for verification
of the statements on the certificate.
The IRS may also issue such a notice
after it determines an employee is not
entitled to claim complete exemption
from withholding or more than a
specified number of withholding
exemptions based on IRS records
without first obtaining a copy of the
withholding exemption certificate from
the employer.
After the IRS issues a notice of the
maximum number of withholding
exemptions permitted, if the employee
wants to claim complete exemption
from withholding or claim a number of
withholding exemptions more than the
maximum number specified by the IRS
in the notice, the employee must submit
a new withholding exemption certificate
and a written statement to support the
claims made by the employee on the
new certificate to the IRS. To reduce
burdens on employers and to more
efficiently respond to the employee, the
temporary regulations provide that the
employee must send this new certificate
and written statement directly to the
IRS. The option under existing
regulations to send this information to
the employer for forwarding to the IRS
has been removed. The employer must
disregard this new certificate until the
IRS notifies the employer to withhold
tax based on the new certificate.
However, if, at any time, the employee
furnishes a certificate that claims a
number of withholding exemptions less
than the maximum number specified in
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19695
the written notice to the employer, the
employer must withhold tax based on
that certificate.
The temporary regulations provide a
period during which the employee can
address the pending withholding
adjustment by providing a new
certificate and written statement to the
IRS. The temporary regulations provide
that the earliest the notice of the
maximum number of withholding
exemptions permitted may be effective
is 45 calendar days after the date of the
notice. The notice may specify a later
effective date.
The Treasury Department and the IRS
are considering additional amendments
to the regulations under section 3402 to
address other issues including, but not
limited to, the criteria for identifying a
valid withholding exemption certificate.
The Treasury Department and the IRS
specifically welcome comments on this
issue in response to the related notice of
proposed rulemaking in the Proposed
Rules section in this issue of the Federal
Register.
Effective Date
These regulations are applicable on
April 14, 2005.
Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in
Executive Order 12866. Therefore, a
regulatory assessment is not required. It
also has been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply
to these regulations. For applicability of
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) refer to the Special Analyses
of the preamble to the cross-reference
notice of proposed rulemaking
published in the Proposed Rules section
in this issue of the Federal Register.
Pursuant to section 7805(f) of the Code,
these regulations will be submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for
comment on its impact on small
business.
Drafting Information
The principal author of these
regulations is Margaret A. Owens, Office
of the Division Counsel/Associate Chief
Counsel (Tax Exempt and Government
Entities), IRS. However, other personnel
from the IRS and the Treasury
Department participated in their
development.
List of Subjects in 26 CFR Part 31
Employment taxes, Income taxes,
Penalties, Pensions, Railroad retirement,
Reporting and recordkeeping
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requirements, Social Security,
Unemployment compensation.
Amendments to the Regulations
Accordingly, 26 CFR part 31 is
amended as follows:
I
PART 31—EMPLOYMENT TAXES
Paragraph 1. The authority citation for
part 31 continues to read in part as
follows:
I
Authority: 26 U.S.C. 7805 * * *
Section 31.3402(f)(5)–1T also issued under
26 U.S.C. 3402(i) and (m). * * *
Par. 2. Section 31.3402(f)(2)–1 is
amended by revising paragraph (g) to
read as follows:
I
§ 31.3402(f)(2)–1
certificates.
Withholding exemption
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(g) For further guidance, see
§ 31.3402(f)(2)–1T(g).
I Par. 3. Section 31.3402(f)(2)–1T is
added to read as follows:
§ 31.3402(f)(2)–1T Withholding exemption
certificates (temporary).
(a) through (f) [Reserved]. For further
guidance, see § 31.3402(f)(2)–1(a)
through (f).
(g) Submission of certain withholding
exemption certificates and notice of the
maximum number of withholding
exemptions permitted—(1) Submission
of certain withholding exemption
certificates. (i) An employer must
submit to the Internal Revenue Service
(IRS) a copy of any currently effective
withholding exemption certificate as
directed in a written notice to the
employer from the IRS or as directed in
published guidance. A notice to the
employer may relate either to one or
more named employees; to one or more
reasonably segregable units of the
employer; or to withholding exemption
certificates under certain specified
criteria. The notice will designate the
IRS office where the copies of the
withholding exemption certificates must
be submitted. Employers may also be
required to submit copies of
withholding exemption certificates
under certain specified criteria when
directed to do so by the IRS in
published guidance. For purposes of the
preceding sentence, the term published
guidance means a revenue procedure or
notice published in the Internal
Revenue Bulletin (see § 601.601(d)(2) of
this chapter). Alternatively, upon notice
from the IRS, the employer must make
withholding exemption certificates
received from one or more named
employees; from one or more reasonably
segregable units of the employer; or
from employees who have furnished
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withholding exemption certificates
under certain specified criteria,
available for inspection by an IRS
employee (e.g., a compliance check).
(ii) After a copy of a withholding
exemption certificate has been
submitted to the IRS under this
paragraph (g)(1), the employer must
withhold tax on the basis of the
withholding exemption certificate, if the
withholding exemption certificate meets
the requirements of § 31.3402(f)(5)–1,
unless that certificate must be
disregarded based on a notice of the
maximum number of withholding
exemptions permitted under the
provisions of paragraph (g)(2) of this
section.
(2) Notice of maximum number of
withholding exemptions permitted. (i)
The IRS may notify the employer in
writing that the employee is not entitled
to claim a complete exemption from
withholding and the employee is not
entitled to claim a total number of
withholding exemptions more than the
maximum number of withholding
exemptions specified by the IRS in the
written notice. The notice will specify
the IRS office to be contacted for further
information. The notice of maximum
number of withholding exemptions
permitted may be issued if—
(A) The IRS determines that a copy of
a withholding exemption certificate
submitted under paragraph (g)(1) of this
section contains a materially incorrect
statement or determines, after a request
to the employee for verification of the
statements on the certificate, that the
IRS lacks sufficient information to
determine if the certificate is correct; or
(B) The IRS otherwise determines that
the employee is not entitled to claim a
complete exemption from withholding
and is not entitled to claim more than
a specified number of withholding
exemptions.
(ii) If the IRS provides a written notice
to the employer under this paragraph
(g)(2), the IRS will also provide the
employer with a written notice for the
employee (employee notice) that
identifies the maximum number of
withholding exemptions permitted and
the process by which the employee can
provide additional information to the
IRS for purposes of determining the
appropriate number of withholding
exemptions. The IRS will also mail a
similar written notice to the employee’s
last known address. For further
guidance regarding the definition of last
known address, see § 301.6212–2 of this
chapter.
(iii) If the employee is still employed
by the employer, the employer must
furnish the employee notice to the
employee within 10 business days of
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receipt. If the employee is no longer
employed by the employer, the
employer is not required to furnish the
employee notice to the employee but the
employer must send a written response
to the IRS office designated in the notice
indicating that the employee is no
longer employed by the employer.
(iv) Except as provided in paragraph
(g)(2)(v) and (vi) of this section, the
employer must withhold tax on the
basis of the maximum number of
withholding exemptions specified in the
written notice received from the IRS.
The employer must withhold tax in
accordance with the notice as of the
date specified in the notice, which shall
be no earlier than 45 calendar days after
the date of the notice.
(v) If a withholding exemption
certificate is in effect with respect to the
employee before the employer receives
a notice from the IRS of the maximum
number of withholding exemptions
permitted under this paragraph (g)(2),
the employer must continue to withhold
tax in accordance with the existing
withholding exemption certificate rather
than on the basis of the notice if the
existing withholding exemption
certificate does not claim complete
exemption from withholding and claims
a number of withholding exemptions
less than the maximum number
specified by the IRS in the written
notice to the employer.
(vi) If the employee furnishes a new
withholding exemption certificate after
the employer receives a notice from the
IRS of the maximum number of
withholding exemptions permitted
under this paragraph (g)(2), the
employer must withhold tax on the
basis of that new certificate as currently
effective only if the new certificate does
not claim complete exemption from
withholding and claims a number of
withholding exemptions less than the
number specified by the IRS in the
notice to the employer. If any new
certificate claims complete exemption
from withholding or claims a number of
withholding exemptions more than the
maximum number specified by the IRS
in the notice, then the employer must
disregard the new certificate and must
continue to withhold tax on the basis of
the maximum number specified in the
notice received from the IRS unless the
IRS by subsequent written notice
advises the employer to withhold tax on
the basis of that new certificate. If the
employee wants to put a new certificate
into effect to claim complete exemption
from withholding or to claim a number
of withholding exemptions more than
the maximum number specified by the
IRS in the notice to the employer, the
employee must submit to the IRS office
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designated in the employee notice
earlier furnished to the employee under
this paragraph (g)(2) that new certificate
and a written statement to support the
claims made by the employee on the
new certificate.
(3) Definition of employer. For
purposes of this paragraph (g), the term
employer includes any person
authorized by the employer to receive
withholding exemption certificates, to
make withholding computations, or to
make payroll distributions.
(4) Effective date. This paragraph (g)
applies on April 14, 2005. The
applicability of this paragraph (g)
expires on or before April 14, 2008.
I Par. 4. Section 31.3402(f)(5)–1 is
amended by revising paragraph (a) to
read as follows:
(2) Effective date. This paragraph (a)
applies on April 14, 2005. The
applicability of this paragraph (a)
expires on or before April 14, 2008.
(b) through (c) [Reserved]. For further
guidance, see § 31.3402(f)(5)–1(b)
through (c).
Mark E. Matthews,
Deputy Commissioner for Services and
Enforcement.
Approved: March 28, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary of the
Treasury.
[FR Doc. 05–6718 Filed 4–13–05; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF THE TREASURY
§ 31.3402(f)(5)–1 Form and contents of
withholding exemption certificates.
Internal Revenue Service
(a) For further guidance, see
§ 31.3402(f)(5)–1T(a).
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I Par. 5. Section 31.3402(f)(5)–1T is
added to read as follows:
26 CFR Part 301
[TD 9197]
RIN 1545–BD78
§ 31.3402(f)(5)–1T Form and contents of
withholding exemption certificates
(temporary).
(a)(1) Form W–4. Form W–4,
‘‘Employee’s Withholding Allowance
Certificate,’’ is the form prescribed for
the withholding exemption certificate
required to be furnished under section
3402(f)(2). A withholding exemption
certificate must be prepared in
accordance with the instructions and
regulations applicable thereto, and must
set forth fully and clearly the data
therein called for. Blank copies of paper
Forms W–4 will be supplied to
employers upon request to the Internal
Revenue Service (IRS). An employer
may also download and print Form W–
4 from the IRS Internet site at https://
www.irs.gov. In lieu of the prescribed
form, employers may prepare and use a
form the provisions of which are
identical with those of the prescribed
form, but only if employers also provide
employees with all the tables,
instructions, and worksheets contained
in the Form W–4 in effect at that time
and only if employers comply with all
revenue procedures relating to
substitute forms in effect at that time.
Employers may refuse to accept a
substitute form developed by an
employee and the employee submitting
such form will be treated as failing to
furnish a withholding exemption
certificate. For further guidance
regarding the employer’s obligations
when an employee is treated as failing
to furnish a withholding exemption
certificate, see § 31.3402(f)(2)–1.
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Classification of Certain Foreign
Entities
Internal Revenue Service (IRS),
Treasury.
ACTION: Final and temporary
regulations.
AGENCY:
SUMMARY: This document contains
temporary and final regulations relating
to certain business entities included on
the list of foreign business entities that
are always classified as corporations for
Federal tax purposes. The text of the
temporary regulations also serves as the
text of the proposed regulations set forth
in the notice of proposed rulemaking on
this subject in the Proposed Rules
section in this issue of the Federal
Register.
Effective Date: These regulations
are effective on October 7, 2004.
Applicability Date: For the dates of
applicability of these regulations, see
§ 301.7701–2T(e).
FOR FURTHER INFORMATION CONTACT:
Ronald M. Gootzeit, (202) 622–3860 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
DATES:
Background
The IRS and Treasury Department
issued final regulations concerning the
classification of entities under section
7701 of the Internal Revenue Code
(Code) on December 18, 1996 (final
regulations). See generally TD 8697
(1997–1 C.B. 215) and §§ 301.7701–1
through 301.7701–3. Under the final
regulations, a business entity that is not
specifically classified as a corporation is
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19697
an eligible entity that can elect its
classification for Federal tax purposes
under certain circumstances. However,
§ 301.7701–2(b)(8) provides a list of
certain foreign business entities that are
always classified as corporations for
Federal tax purposes (the per se
corporation list). These foreign business
entities are generally referred to as per
se corporations.
On October 8, 2001, the Council of the
European Union adopted Council
Regulation 2157/2001 2001 O.J. (L 294)
(the EU Regulation) to provide for a new
business entity, the European public
limited liability company (Societas
Europaea or SE). The EU Regulation
entered into force on October 8, 2004,
and has effect in all the Member States
of the European Economic Area (which
includes all Member States of the
European Union plus Norway, Iceland,
and Liechtenstein). An SE must have a
registered office in one of the Member
States.
The SE is a public limited liability
company. The EU Regulation provides
general rules that govern the formation
and operation of an SE and supplements
those rules for specified issues and
issues it does not address by reference
to the laws with respect to public
limited liability companies for the
country in which the SE has its
registered office. Most of the countries
in which an SE can have its registered
office have a business entity that
constitutes a public limited liability
company and that currently is on the
per se corporation list. However, an SE
can have its registered office in the
following countries that have a business
entity that is a public limited liability
company but that is not yet on the per
se corporation list: Estonia, Latvia,
Lithuania, Slovenia, and Liechtenstein.
Explanation of Provisions
In Notice 2004–68 (2004–43 IRB 706),
the IRS and Treasury stated that the SE
is properly classified as a per se
corporation because it will function as
a public limited liability company. The
Notice also stated that the IRS and
Treasury will issue temporary and
proposed regulations that will modify
§ 301.7701–2(b)(8) to include the SE on
the per se corporation list. The Notice
further stated that the temporary and
proposed regulations will modify
§ 301.7701–2(b)(8) to include as per se
corporations the Estonian Aktsiaselts,
Latvian Akciju Sabiedriba, Lithuanian
Akcine Bendroves, Slovenian Delniska
Druzba, and Liechtenstein
Aktiengesellschaft. These entities are
the public limited liability companies in
their respective countries. The
temporary regulations in this document
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]]>Agencies
[Federal Register Volume 70, Number 71 (Thursday, April 14, 2005)]
[Rules and Regulations]
[Pages 19694-19697]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-6718]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 31
[TD 9196]
RIN 1545-BE21
Withholding Exemptions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains regulations providing guidance under
section 3402(f) of the Internal Revenue Code (Code) for employers and
employees relating to the Form W-4, ``Employee's Withholding Allowance
Certificate.'' These regulations provide rules for the submission of
copies of certain withholding exemption certificates to the IRS, the
notification provided to the employer and the employee of the maximum
number of withholding exemptions permitted, and the use of substitute
forms. The text of the temporary regulations also serves as the text of
the proposed regulations set forth in the notice of proposed rulemaking
on this subject in the Proposed Rules section in this issue of the
Federal Register. The amendments to the final regulations provide
cross-references to the temporary regulations.
DATES: These regulations are effective April 14, 2005.
FOR FURTHER INFORMATION CONTACT: Margaret A. Owens, (202) 622-0047 (not
a toll-free call).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
These regulations do not impose any new information collection. The
Office of Management and Budget (OMB) previously approved the
information collection requirements concerning Form W-4 contained in
the regulation under section 6001 (Sec. 31.6001-5; OMB Control No.
1545-0798) and in the regulation under section 3402 (Sec.
31.3402(f)(2)-1; OMB Control No.1545-0010) under the provisions of the
Paperwork Reduction Act, 44 U.S.C. 3501 et seq. Books or records
relating to a collection of information must be retained as long as
their contents may become material in the administration of any
internal revenue law. Generally, tax returns and tax return information
are confidential, as required by 26 U.S.C. 6103.
Background
Under section 3402(f)(2)(A), every employee is required to furnish
his or her employer with a signed withholding exemption certificate on
or before commencing employment. Regulations prescribe the form of the
certificate as the Form W-4. The maximum number of withholding
exemptions to which an employee is entitled depends upon the employee's
marital status, the employee's filing status, the number of the
employee's dependents, the number of exemptions claimed by the
employee's spouse (if any) on a Form W-4, and the amount of the
employee's estimated itemized deductions, tax credits, and certain
other deductions from income. A Form W-4 may be in either paper or
electronic form.
Section 31.3402(f)(2)-1(g) of the existing regulations requires
employers to submit copies of certain questionable Forms W-4 to the
IRS. Employers must submit a copy of each Form W-4 on which an employee
claims more than 10 withholding exemptions. Employers must also submit
a copy of each Form W-4 on which the employee claims a complete
exemption from withholding for the taxable year if the employer
reasonably expects, when the Form W-4 is received, that the employee's
wages from that employer will usually be $200 or more per week.
In addition, the existing regulations provide that, upon written
request from the IRS, employers are required to submit to the IRS
copies of withholding exemption certificates which are received from
employees or groups of employees identified by the IRS in the written
request.
The existing regulations provide that the IRS may notify an
employer that a named employee is not entitled to claim a complete
exemption from withholding and is not entitled to claim a total number
of withholding exemptions more than the maximum number specified by the
IRS in the notice. The IRS will issue such notice if the IRS finds that
the withholding exemption certificate contains a materially incorrect
statement or if the IRS finds, after written request to the employee
for verification of the statements on the certificate, that the IRS
lacks sufficient information to determine if the certificate is
correct. In these cases, the employer must withhold tax based on the
maximum number of withholding exemptions specified in the notice from
the IRS unless otherwise notified by the IRS. However, if the employee
furnishes
[[Page 19695]]
a new certificate that claims a number of withholding exemptions less
than the number specified in the written notice to the employer, the
employer must withhold tax based on that certificate.
Under the existing regulations, if the employee furnishes a new
withholding exemption certificate that claims complete exemption from
withholding or claims a number of withholding exemptions more than the
maximum number specified by the IRS in the notice, the employee must
submit the new withholding exemption certificate and a written
statement to support the claims made by the employee on the new
certificate to the IRS or to the employer, who must then submit them to
the IRS. The employer must disregard this new certificate until the IRS
notifies the employer to withhold tax based on the new certificate.
Explanation of Provisions
The temporary regulations change the procedures for submitting
copies of Forms W-4 to the IRS and allow the IRS to issue a notice
specifying the maximum number of withholding exemptions permitted
without first obtaining a copy of the withholding exemption certificate
from the employer.
The temporary regulations also clarify that a substitute
withholding exemption certificate developed by the employer may be used
in lieu of the prescribed Form W-4, if the employer also provides the
worksheets contained in the Form W-4 in effect at that time. The
temporary regulations also provide that employers may refuse to accept
a substitute form developed by an employee and that the employee
submitting such form will be treated as failing to furnish a
withholding exemption certificate.
As noted in the Background portion of this preamble, Sec.
31.3402(f)(2)-1(g) of the existing regulations sets forth rules for
employers to submit copies of certain questionable Forms W-4 to the
IRS. The Treasury Department and the IRS want to relieve employers of
the burden of submitting copies of certain questionable Forms W-4 and
want to more effectively address withholding noncompliance by using
information already provided to the IRS. Under the temporary
regulations, employers are no longer required to submit a copy of any
Form W-4 on which an employee claims more than 10 withholding
exemptions. In addition, under the temporary regulations, employers are
no longer required to submit a copy of any Form W-4 on which an
employee claims complete exemption from withholding for the taxable
year if the employer reasonably expects, when the Form W-4 is received,
that the employee's wages from that employer will usually be $200 or
more per week. Instead, an employer must submit a copy of any currently
effective withholding exemption certificate only if directed to do so
in a written notice to the employer from the IRS or if directed to do
so under any published guidance. As under existing regulations, the
written notice may direct the employer to submit copies of Forms W-4
for certain employees. The temporary regulations also authorize the IRS
to provide specific criteria for those Forms W-4 that must be submitted
either in a written notice to an employer or by published guidance.
The temporary regulations provide that the IRS may issue a notice
to an employer specifying the maximum number of withholding exemptions
permitted for a specific employee. The IRS may issue such a notice
after determining that a copy of a withholding exemption certificate
submitted to the IRS contains a materially incorrect statement or after
the employee fails to respond adequately to a request for verification
of the statements on the certificate.
The IRS may also issue such a notice after it determines an
employee is not entitled to claim complete exemption from withholding
or more than a specified number of withholding exemptions based on IRS
records without first obtaining a copy of the withholding exemption
certificate from the employer.
After the IRS issues a notice of the maximum number of withholding
exemptions permitted, if the employee wants to claim complete exemption
from withholding or claim a number of withholding exemptions more than
the maximum number specified by the IRS in the notice, the employee
must submit a new withholding exemption certificate and a written
statement to support the claims made by the employee on the new
certificate to the IRS. To reduce burdens on employers and to more
efficiently respond to the employee, the temporary regulations provide
that the employee must send this new certificate and written statement
directly to the IRS. The option under existing regulations to send this
information to the employer for forwarding to the IRS has been removed.
The employer must disregard this new certificate until the IRS notifies
the employer to withhold tax based on the new certificate. However, if,
at any time, the employee furnishes a certificate that claims a number
of withholding exemptions less than the maximum number specified in the
written notice to the employer, the employer must withhold tax based on
that certificate.
The temporary regulations provide a period during which the
employee can address the pending withholding adjustment by providing a
new certificate and written statement to the IRS. The temporary
regulations provide that the earliest the notice of the maximum number
of withholding exemptions permitted may be effective is 45 calendar
days after the date of the notice. The notice may specify a later
effective date.
The Treasury Department and the IRS are considering additional
amendments to the regulations under section 3402 to address other
issues including, but not limited to, the criteria for identifying a
valid withholding exemption certificate. The Treasury Department and
the IRS specifically welcome comments on this issue in response to the
related notice of proposed rulemaking in the Proposed Rules section in
this issue of the Federal Register.
Effective Date
These regulations are applicable on April 14, 2005.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It also has been
determined that section 553(b) of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these regulations. For
applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6)
refer to the Special Analyses of the preamble to the cross-reference
notice of proposed rulemaking published in the Proposed Rules section
in this issue of the Federal Register. Pursuant to section 7805(f) of
the Code, these regulations will be submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its impact
on small business.
Drafting Information
The principal author of these regulations is Margaret A. Owens,
Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and
Government Entities), IRS. However, other personnel from the IRS and
the Treasury Department participated in their development.
List of Subjects in 26 CFR Part 31
Employment taxes, Income taxes, Penalties, Pensions, Railroad
retirement, Reporting and recordkeeping
[[Page 19696]]
requirements, Social Security, Unemployment compensation.
Amendments to the Regulations
0
Accordingly, 26 CFR part 31 is amended as follows:
PART 31--EMPLOYMENT TAXES
0
Paragraph 1. The authority citation for part 31 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 31.3402(f)(5)-1T also issued under 26 U.S.C. 3402(i) and
(m). * * *
0
Par. 2. Section 31.3402(f)(2)-1 is amended by revising paragraph (g) to
read as follows:
Sec. 31.3402(f)(2)-1 Withholding exemption certificates.
* * * * *
(g) For further guidance, see Sec. 31.3402(f)(2)-1T(g).
0
Par. 3. Section 31.3402(f)(2)-1T is added to read as follows:
Sec. 31.3402(f)(2)-1T Withholding exemption certificates (temporary).
(a) through (f) [Reserved]. For further guidance, see Sec.
31.3402(f)(2)-1(a) through (f).
(g) Submission of certain withholding exemption certificates and
notice of the maximum number of withholding exemptions permitted--(1)
Submission of certain withholding exemption certificates. (i) An
employer must submit to the Internal Revenue Service (IRS) a copy of
any currently effective withholding exemption certificate as directed
in a written notice to the employer from the IRS or as directed in
published guidance. A notice to the employer may relate either to one
or more named employees; to one or more reasonably segregable units of
the employer; or to withholding exemption certificates under certain
specified criteria. The notice will designate the IRS office where the
copies of the withholding exemption certificates must be submitted.
Employers may also be required to submit copies of withholding
exemption certificates under certain specified criteria when directed
to do so by the IRS in published guidance. For purposes of the
preceding sentence, the term published guidance means a revenue
procedure or notice published in the Internal Revenue Bulletin (see
Sec. 601.601(d)(2) of this chapter). Alternatively, upon notice from
the IRS, the employer must make withholding exemption certificates
received from one or more named employees; from one or more reasonably
segregable units of the employer; or from employees who have furnished
withholding exemption certificates under certain specified criteria,
available for inspection by an IRS employee (e.g., a compliance check).
(ii) After a copy of a withholding exemption certificate has been
submitted to the IRS under this paragraph (g)(1), the employer must
withhold tax on the basis of the withholding exemption certificate, if
the withholding exemption certificate meets the requirements of Sec.
31.3402(f)(5)-1, unless that certificate must be disregarded based on a
notice of the maximum number of withholding exemptions permitted under
the provisions of paragraph (g)(2) of this section.
(2) Notice of maximum number of withholding exemptions permitted.
(i) The IRS may notify the employer in writing that the employee is not
entitled to claim a complete exemption from withholding and the
employee is not entitled to claim a total number of withholding
exemptions more than the maximum number of withholding exemptions
specified by the IRS in the written notice. The notice will specify the
IRS office to be contacted for further information. The notice of
maximum number of withholding exemptions permitted may be issued if--
(A) The IRS determines that a copy of a withholding exemption
certificate submitted under paragraph (g)(1) of this section contains a
materially incorrect statement or determines, after a request to the
employee for verification of the statements on the certificate, that
the IRS lacks sufficient information to determine if the certificate is
correct; or
(B) The IRS otherwise determines that the employee is not entitled
to claim a complete exemption from withholding and is not entitled to
claim more than a specified number of withholding exemptions.
(ii) If the IRS provides a written notice to the employer under
this paragraph (g)(2), the IRS will also provide the employer with a
written notice for the employee (employee notice) that identifies the
maximum number of withholding exemptions permitted and the process by
which the employee can provide additional information to the IRS for
purposes of determining the appropriate number of withholding
exemptions. The IRS will also mail a similar written notice to the
employee's last known address. For further guidance regarding the
definition of last known address, see Sec. 301.6212-2 of this chapter.
(iii) If the employee is still employed by the employer, the
employer must furnish the employee notice to the employee within 10
business days of receipt. If the employee is no longer employed by the
employer, the employer is not required to furnish the employee notice
to the employee but the employer must send a written response to the
IRS office designated in the notice indicating that the employee is no
longer employed by the employer.
(iv) Except as provided in paragraph (g)(2)(v) and (vi) of this
section, the employer must withhold tax on the basis of the maximum
number of withholding exemptions specified in the written notice
received from the IRS. The employer must withhold tax in accordance
with the notice as of the date specified in the notice, which shall be
no earlier than 45 calendar days after the date of the notice.
(v) If a withholding exemption certificate is in effect with
respect to the employee before the employer receives a notice from the
IRS of the maximum number of withholding exemptions permitted under
this paragraph (g)(2), the employer must continue to withhold tax in
accordance with the existing withholding exemption certificate rather
than on the basis of the notice if the existing withholding exemption
certificate does not claim complete exemption from withholding and
claims a number of withholding exemptions less than the maximum number
specified by the IRS in the written notice to the employer.
(vi) If the employee furnishes a new withholding exemption
certificate after the employer receives a notice from the IRS of the
maximum number of withholding exemptions permitted under this paragraph
(g)(2), the employer must withhold tax on the basis of that new
certificate as currently effective only if the new certificate does not
claim complete exemption from withholding and claims a number of
withholding exemptions less than the number specified by the IRS in the
notice to the employer. If any new certificate claims complete
exemption from withholding or claims a number of withholding exemptions
more than the maximum number specified by the IRS in the notice, then
the employer must disregard the new certificate and must continue to
withhold tax on the basis of the maximum number specified in the notice
received from the IRS unless the IRS by subsequent written notice
advises the employer to withhold tax on the basis of that new
certificate. If the employee wants to put a new certificate into effect
to claim complete exemption from withholding or to claim a number of
withholding exemptions more than the maximum number specified by the
IRS in the notice to the employer, the employee must submit to the IRS
office
[[Page 19697]]
designated in the employee notice earlier furnished to the employee
under this paragraph (g)(2) that new certificate and a written
statement to support the claims made by the employee on the new
certificate.
(3) Definition of employer. For purposes of this paragraph (g), the
term employer includes any person authorized by the employer to receive
withholding exemption certificates, to make withholding computations,
or to make payroll distributions.
(4) Effective date. This paragraph (g) applies on April 14, 2005.
The applicability of this paragraph (g) expires on or before April 14,
2008.
0
Par. 4. Section 31.3402(f)(5)-1 is amended by revising paragraph (a) to
read as follows:
Sec. 31.3402(f)(5)-1 Form and contents of withholding exemption
certificates.
(a) For further guidance, see Sec. 31.3402(f)(5)-1T(a).
* * * * *
0
Par. 5. Section 31.3402(f)(5)-1T is added to read as follows:
Sec. 31.3402(f)(5)-1T Form and contents of withholding exemption
certificates (temporary).
(a)(1) Form W-4. Form W-4, ``Employee's Withholding Allowance
Certificate,'' is the form prescribed for the withholding exemption
certificate required to be furnished under section 3402(f)(2). A
withholding exemption certificate must be prepared in accordance with
the instructions and regulations applicable thereto, and must set forth
fully and clearly the data therein called for. Blank copies of paper
Forms W-4 will be supplied to employers upon request to the Internal
Revenue Service (IRS). An employer may also download and print Form W-4
from the IRS Internet site at https://www.irs.gov. In lieu of the
prescribed form, employers may prepare and use a form the provisions of
which are identical with those of the prescribed form, but only if
employers also provide employees with all the tables, instructions, and
worksheets contained in the Form W-4 in effect at that time and only if
employers comply with all revenue procedures relating to substitute
forms in effect at that time. Employers may refuse to accept a
substitute form developed by an employee and the employee submitting
such form will be treated as failing to furnish a withholding exemption
certificate. For further guidance regarding the employer's obligations
when an employee is treated as failing to furnish a withholding
exemption certificate, see Sec. 31.3402(f)(2)-1.
(2) Effective date. This paragraph (a) applies on April 14, 2005.
The applicability of this paragraph (a) expires on or before April 14,
2008.
(b) through (c) [Reserved]. For further guidance, see Sec.
31.3402(f)(5)-1(b) through (c).
Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
Approved: March 28, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary of the Treasury.
[FR Doc. 05-6718 Filed 4-13-05; 8:45 am]
BILLING CODE 4830-01-P
