Time for Filing Employment Tax Returns and Modifications to the Deposit Rules, 11-16 [05-24565]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 71, Number 1 (Tuesday, January 3, 2006)]
[Rules and Regulations]
[Pages 11-16]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-24565]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 31

[TD 9239]
RIN 1545-BE00


Time for Filing Employment Tax Returns and Modifications to the 
Deposit Rules

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains temporary regulations establishing the 
Employers' Annual Federal Tax Program (Form 944) (hereinafter referred 
to as the Form 944 Program). The temporary regulations relate to 
sections 6011 and 6302 of the Internal Revenue Code (Code) concerning 
reporting and paying income taxes withheld from wages and reporting and 
paying taxes under the Federal Insurance Contributions Act (FICA) 
(collectively, employment taxes). These temporary regulations provide 
requirements for filing returns under FICA and returns of income tax 
withheld under section 6011 and Sec. Sec.  31.6011(a)-1 and 31.6011(a)-
4 of the Employment Tax Regulations.
    These temporary regulations generally require employers who receive 
written notification from the Commissioner of their qualification for 
the Form 944 Program to file a Form 944, ``Employer's Annual Federal 
Tax Return,'' rather than Form 941, ``Employer's Quarterly Federal Tax 
Return.'' In addition, these temporary regulations provide requirements 
for employers to make deposits of employment taxes under section 6302 
and Sec.  31.6302-1. These temporary regulations permit employers in 
the Form 944 Program to deposit or remit their accumulated employment 
taxes annually with their Form 944 if they satisfy the provisions of 
the de minimis deposit rule, as modified. Also, these temporary 
regulations modify the lookback period used to determine an employer's 
status as a monthly or semi-weekly depositor.
    The portions of this document that are final regulations provide 
necessary cross-references to the temporary regulations as well as 
technical revisions. The technical revisions correct the table of 
contents in Sec.  31.6302-0 and a cross-reference in Sec.  31.6302-
1(e)(2) and remove all references to an IRS district director, as that 
position no longer exists within the IRS. In addition, a cross-
reference to the temporary regulations under section 6011 was added to 
the final regulations under section 6071, regarding the time for filing 
returns. The text of the temporary regulations also serves, in part, as 
the text of the proposed regulations set forth in the Proposed Rules 
section in this issue of the Federal Register. In addition to the 
provisions contained in these temporary regulations related to the Form 
944 Program, the proposed regulations provide a modification to the de 
minimis deposit rule applicable to quarterly return filers.

DATES: Effective Date: These regulations are effective as of January 1, 
2006.
    Applicability Date: These regulations apply with respect to taxable 
years beginning on or after January 1, 2006. The applicability of 
Sec. Sec.  31.6011-1T, 31.6011-4T, and 31.6302-1T will expire on or 
before December 30, 2008.

FOR FURTHER INFORMATION CONTACT: Raymond Bailey, (202) 622-4910 (filing 
requirements under section 6011), or Audra Dineen, (202) 622-4940 
(deposit requirements under section 6302) (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

    These temporary regulations amend the Regulations on Employment 
Taxes and Collection of Income Tax at Source (26 CFR part 31) under 
section 6011 relating to the Federal employment tax return filing 
requirements and section 6302 relating to the employment tax deposit 
requirements.
    Section 31.6011(a)-1 of the Employment Tax Regulations provides 
rules requiring employers to file returns quarterly to report FICA 
taxes. Section 31.6011(a)-4 of the Employment Tax Regulations requires 
that every person required to make a return of income tax withheld from 
wages pursuant to section 3402 shall make a return quarterly. Under 
these existing regulations, employers must file Form 941, ``Employer's 
Quarterly Federal Tax Return,'' each quarter reporting FICA taxes and 
income tax withheld. Certain employers, however, file returns reporting 
FICA and income tax withheld annually, such as agricultural employers 
who file Form 943, ``Employer's Annual Federal Tax Return for 
Agricultural Employees.'' Section 31.6011(a)-4(a)(3). Existing 
regulations also provide certain exceptions to the quarterly filing 
requirement for wages paid for domestic service.
    Section 31.6302-1 of the Employment Tax Regulations provides rules 
for employers to make deposits of employment taxes. Under these rules, 
deposits of employment taxes reported on Form 941 are generally made 
either monthly or semi-weekly. In order for an employer to determine 
its status as a monthly or semi-weekly depositor, an employer 
determines the aggregate amount of employment taxes reported in the 12-
month period ending the preceding June 30 (the lookback period). New 
employers are treated as having an employment tax liability of zero for 
any part of the lookback period before the date they started or 
acquired their business. All employers are subject to a ``One-Day 
rule'' requiring employment taxes to be deposited on the next banking 
day if the employer has accumulated $100,000 or more of employment 
taxes. If an employer fails to make timely deposits of employment

[[Page 12]]

taxes, then, absent reasonable cause, the employer will be subject to a 
penalty for failure to deposit under section 6656.
    Section 31.6302-1(f)(4) (the de minimis deposit rule) provides that 
for quarterly and annual return periods, if the total amount of 
employment taxes for the return period is less than $2,500 and that 
amount is deposited or remitted with a timely filed return for that 
return period, the amount will be deemed to have been timely deposited. 
Under existing regulations, employers who file annual employment tax 
returns (such as Form 943 for agricultural workers) are required to 
deposit employment taxes at least monthly if their annual employment 
tax liability equals or exceeds the de minimis deposit rule amount of 
$2,500.
    The purpose of these temporary regulations is to generally require 
employers who receive written notification of their qualification for 
the Form 944 Program to file an annual employment tax return, Form 944, 
rather than the quarterly Form 941 return. For these employers, Form 
944 will replace Form 941. Form 944 will not replace Form 943 for 
agricultural employers or Schedule H, Form 1040, for employers with 
only household employees. Notwithstanding notification from the IRS of 
qualification for the Form 944 Program, employers who prefer to file 
Form 941 may be eligible to do so if they timely contact the IRS and 
satisfy one of the following two conditions: (1) The employer notifies 
the IRS of its preference to electronically file Forms 941 quarterly in 
lieu of filing Form 944 annually, or (2) the employer notifies the IRS 
that it anticipates its annual employment tax liability will exceed 
$1,000. Employers otherwise meeting the criteria of the Form 944 
Program will be permitted to file Form 941 only if they receive written 
notification from the IRS that their filing requirement has been 
changed to Form 941.
    Under these temporary regulations, most employers who file Form 944 
will be able to remit employment taxes annually with their returns 
rather than making monthly or semi-weekly deposits. Form 944 will 
generally be due January 31 of the year following the year for which 
the return is filed. If the employer timely deposits all accumulated 
employment taxes on or before January 31 of the year following the year 
for which the return is filed, then the employer will have 10 extra 
calendar days to file Form 944 pursuant to Sec.  31.6071(a)-1(a).
    The Form 944 Program is limited to employers meeting certain 
eligibility requirements described in the temporary regulations. 
Currently, the Form 944 Program will be limited to employers whose 
estimated annual employment tax liability is $1,000 or less. The IRS 
will send written notifications of qualification for the Form 944 
Program to the employers that the IRS has estimated will have an annual 
employment tax liability of $1,000 or less (based on the employers' 
prior Form 941 reporting history). As this estimate may not reflect 
recent or imminent changes in an employer's payroll, employers 
receiving notices may contact the IRS to discuss their qualification if 
they anticipate that their annual employment tax liability will exceed 
$1,000. In addition, employers who do not receive a notice may contact 
the IRS to request to be in the Form 944 Program if they anticipate 
that their annual employment tax liability will be $1,000 or less. New 
employers will receive notification of qualification for the Form 944 
Program if they notify the IRS that they anticipate their annual 
employment tax liability will be $1,000 or less. For example, new 
employers can indicate their estimated employment tax liability on 
their Form SS-4, Application for Employer Identification Number. The 
IRS and Treasury Department are considering expanding the Form 944 
Program in the future and seek comments on the eligibility requirements 
and how best to change them.
    If an employer is required to file Form 944 to report its 
employment tax liability for the current calendar year, the employer 
must file Form 944 even if the employer's actual employment tax 
liability for the current year exceeds the eligibility requirement 
threshold ($1,000 under these regulations). If the Form 944 shows that 
the employer's employment tax liability exceeds the eligibility 
threshold, then the employer will be required to file Form 941 to 
report its employment tax liability in the future. The IRS will send 
written notification to the employer that the employer's filing 
requirement has changed.
    For employers in the Form 944 Program during the current or 
previous calendar year, the temporary regulations also modify the 
lookback period for determining whether an employer is a monthly or 
semi-weekly depositor. This change is necessary because once an 
employer begins to file annual Form 944 returns, it may not be possible 
to determine the employer's aggregate amount of employment tax 
liability during the lookback period set forth in the existing 
regulations (12-month period ending the preceding June 30). In the 
event that an employer exceeds the de minimis deposit amount that 
employer will need to determine whether it is a monthly or semi-weekly 
depositor. Consequently, these temporary regulations change the 
lookback period for employers in the Form 944 Program during the 
current, or preceding, calendar year. With respect to those employers, 
the lookback period is the second calendar year preceding the current 
calendar year. For example, the lookback period for calendar year 2007 
is calendar year 2005.
    These temporary regulations also modify the de minimis deposit 
rules in certain situations to accommodate employers in the Form 944 
Program during the current, or preceding, calendar year. These 
modifications are designed to assist employers who qualified for the 
Form 944 Program because their annual employment tax liability 
satisfied the eligibility requirements ($1,000 or less), but ultimately 
had a total employment tax liability for the year exceeding the de 
minimis deposit amount ($2,500 under existing regulations). The deposit 
rules in Sec.  31.6302-1, including the de minimis deposit rule in 
Sec.  31.6302-1(f)(4), apply to employers who file Form 944. Therefore, 
these employers will not have to make deposits and can pay their 
employment tax liability when they timely file their Forms 944 on or 
before January 31 only if their total employment tax liability for the 
year is less than $2,500. Under the existing de minimis deposit rule, 
if an employer's employment tax liability equals or exceeds $2,500 for 
the year, the employer would be required to deposit employment taxes 
and, absent reasonable cause, would be subject to the penalty for 
failure to deposit if the employer did not make timely deposits. Any 
employer that accumulates $100,000 or more of employment taxes is 
subject the One-Day rule of Sec.  31.6302-1(c)(3), and is required to 
deposit those taxes on the next banking day.
    To assist employers whose tax liability exceeds the de minimis 
amount while in the Form 944 Program, these regulations modify the 
deposit rules in two ways. First, as employers who file Form 941 
quarterly would be allowed a quarterly $2,500 de minimis amount when 
they timely filed their quarterly returns instead of an annual de 
minimis amount, these regulations modify the de minimis deposit rule to 
mirror the treatment employers would have if they continued to file 
Form 941 quarterly instead of Form 944 annually. Thus, these 
regulations allow employers in the Form 944 Program to apply a 
quarterly de minimis deposit rule if they deposit

[[Page 13]]

the employment taxes that accumulated during a quarter by the last day 
of the month following the close of the quarter (the day their 
quarterly Forms 941 would have been due). If an employer's employment 
tax liability for a quarter will not be de minimis, then the employer 
should make deposits either monthly or semi-weekly, depending on their 
deposit schedule, to avoid being subject to the failure-to-deposit 
penalty.
    Second, because employers may not realize their prior year's 
employment tax liability exceeded the eligibility requirement 
(currently, $1,000 or less) until they file Form 944 on January 31 of 
the year following the year for which the return is filed, these 
employers might not realize that they will be required to file Form 941 
in the current year until after the date on which to timely make their 
January deposit obligation(s) for the current year. Therefore, these 
regulations allow employers who were in the Form 944 Program in the 
prior year to avoid a failure-to-deposit penalty during the first month 
they fail to deposit any required deposit(s), if they fully pay their 
January employment taxes by March 15 of the current year. For example, 
an employer who was in the Form 944 Program during 2006 and had an 
employment tax liability for 2006 of $4,000 would not qualify for the 
Form 944 Program for 2007. Under these regulations, if the employer was 
a monthly depositor for 2007, it would be required to deposit the 
employment taxes it accumulated in January 2007 by February 15, 2007. 
If the employer does not deposit these accumulated taxes by February 
15, 2007, then it will be deemed to have timely deposited if it 
deposits them by March 15, 2007.
    Lastly, these regulations contain final regulations that provide 
cross-references to the temporary regulations, correct and amend the 
table of contents in Sec.  31.6302-0, correct a cross-reference in 
Sec.  31.6302-1(e)(2), and revise the regulations under section 6302 to 
remove all references to an IRS district director, a position that no 
longer exists in the IRS.
    These temporary regulations are part of the IRS's effort to reduce 
taxpayer burden by requiring certain employers to file employment tax 
returns annually rather than quarterly and allowing them, in most 
circumstances, to remit employment taxes annually with their return. By 
reducing the number of returns employers are required to file per year, 
the IRS will reduce each eligible employer's burden.

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, please refer to the 
Special Analyses section of the preamble to the cross-referenced notice 
of proposed rulemaking published in the Proposed Rules section in this 
issue of the Federal Register. Pursuant to section 7805(f) of the 
Internal Revenue Code, these regulations will be submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on their impact on small business.

Drafting Information

    The principal authors of these final and temporary regulations are 
Raymond Bailey, Audra M. Dineen, and Emly B. Berndt of the Office of 
the Associate Chief Counsel (Procedure and Administration), 
Administrative Provisions and Judicial Practice Division.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 31

    Employment taxes, Income taxes, Penalties, Pensions, Railroad 
retirement, Reporting and recordkeeping requirements, Social security, 
Unemployment compensation.

Amendments to the Regulations

0
Accordingly, 26 CFR parts 1 and 31 are to be amended as follows:

PART 1--INCOME TAXES

0
Paragraph. 1. The authority citation for part 1 continues to read, in 
part, as follows:

    Authority: 26 U.S.C. 7805 * * *.


Sec. Sec.  1.6302-1 and 1.6302-2  [Amended]

0
Par. 2. Sections 1.6302-1 and 1.6302-2 are amended as follows:

------------------------------------------------------------------------
            Section                     Remove                 Add
------------------------------------------------------------------------
1.6302-1(c) third sentence....  to the district
                                 director (or director
                                 of a service center).
1.6302-1(c) fourth sentence...  the district director
                                 or director of a
                                 service center with.
1.6302-2(b)(6) last sentence..  to the district
                                 director or director
                                 of a service center.
------------------------------------------------------------------------

PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE

0
Par. 3. The authority citation for part 31 continues to read, in part, 
as follows:

    Authority: 26 U.S.C. 7805 * * *.


Sec. Sec.  31.6302-1, 31.6302(c)-1, 31.6302(c)-2 and 31.6302(c)-
3  [Amended]

0
Par. 4. In the list below, for each section indicated in the left 
column, remove the language in the middle column and add the language 
in the right column:

------------------------------------------------------------------------
            Section                     Remove                 Add
------------------------------------------------------------------------
31.6302-1(e)(2) first sentence  Sec.   31.6011(a)(4)    Sec.
                                 or (5).                 31.6011(a)-4 or
                                                         31.6011(a)-5.
31.6302-1(k)(1) first sentence  District Director       Notice.
                                 notice.
31.6302-1(k)(1) first sentence  from the district
                                 director.
31.6302-1(k)(1) first           district director.....  Commissioner.
 sentence, second
 parenthetical.
31.6302(c)-1(a)(3) last         to the district
 sentence.                       director or director
                                 of a service center.
31.6302(c)-1(b)(1) first        from the district
 sentence.                       director.
31.6302(c)-1(b)(1) first        by the district
 sentence, third parenthetical.  director.
31.6302(c)-2(c) last sentence.  to the district
                                 director or director
                                 of a service center.
31.6302(c)-3(b)(4) last         to the district
 sentence.                       director or director
                                 of a service center.
------------------------------------------------------------------------


[[Page 14]]


0
Par. 5. Section 31.6011(a)-1 is amended by adding paragraph (a)(5) to 
read as follows:


Sec.  31.6011(a)-1  Returns under Federal Insurance Contributions Act.

    (a) * * *
    (5) [Reserved]. For further guidance, see Sec.  31.6011(a)-
1T(a)(5).
* * * * *

0
Par. 6. Section 31.6011(a)-1T is added to read as follows:


Sec.  31.6011(a)-1T  Returns under Federal Insurance Contributions Act 
(temporary).

    (a)(1) through (a)(4) [Reserved]. For further guidance, see Sec.  
31.6011(a)-1(a)(1) through (a)(4).
    (5) Employers in the Employers' Annual Federal Tax Program (Form 
944)--(i) In general. For taxable years beginning on or after January 
1, 2006, employers notified of their qualification for the Employers' 
Annual Federal Tax Program (Form 944) are required to file Form 944, 
``Employer's Annual Federal Tax Return.'' The Internal Revenue Service 
(IRS) will notify employers in writing of their qualification for the 
Employers' Annual Federal Tax Program (Form 944). For provisions 
relating to the time and place for filing returns, see Sec. Sec.  
31.6071(a)-1 and 31.6091-1, respectively.
    (ii) Qualification for the Employers' Annual Federal Tax Program 
(Form 944). The IRS will send notifications of qualification for the 
Employers' Annual Federal Tax Program (Form 944) to employers with an 
estimated annual employment tax liability of $1,000 or less. New 
employers who timely notify the IRS that they anticipate their 
estimated annual employment tax liability to be $1,000 or less will be 
notified of their qualification for the Employers' Annual Federal Tax 
Program (Form 944). If an employer in the Employers' Annual Federal Tax 
Program (Form 944) reports an annual employment tax liability of more 
than $1,000, the IRS will notify the employer that the employer's 
filing status has changed and the employer will be required to file the 
quarterly Form 941 for succeeding tax years.
    (iii) Exception to qualification for the Employers' Annual Federal 
Tax Program (Form 944). Notwithstanding notification by the IRS of 
qualification for the Employers' Annual Federal Tax Program (Form 944), 
an employer may file Form 941 if--
    (A) One of the following conditions applies--
    (1) The employer anticipates that its annual employment tax 
liability will exceed $1,000, or
    (2) The employer prefers to electronically file Forms 941 quarterly 
in lieu of filing Form 944 annually;
    (B) The employer contacts the IRS, pursuant to the instructions in 
the IRS' written notification, to request to file Form 941; and
    (C) The IRS sends the employer a written notification that the 
employer's filing requirement has been changed to Form 941.
    (b) through (f) [Reserved]. For further guidance, see Sec.  
31.6011(a)-1(b) through (f).

0
Par. 7. Section 31.6011(a)-4 is amended by adding paragraph (a)(4) to 
read as follows:


Sec.  31.6011(a)-4  Returns of income tax withheld.

    (a) * * *
    (4) [Reserved]. For further guidance, see Sec.  31.6011(a)-
4T(a)(4).
* * * * *

0
Par. 8. Section 31.6011(a)-4T is added to read as follows:


Sec.  31.6011(a)-4T  Returns of income tax withheld (temporary).

    (a)(1) through (a)(3) [Reserved]. For further guidance, see Sec.  
31.6011(a)-4(a)(1) through (a)(3).
    (4) Employers in the Employers' Annual Federal Tax Program (Form 
944)--(i) In general. For taxable years beginning on or after January 
1, 2006, employers notified of their qualification for the Employers' 
Annual Federal Tax Program (Form 944) are required to file a Form 944, 
``Employer's Annual Federal Tax Return.'' The Internal Revenue Service 
(IRS) will notify employers in writing of their qualification for the 
Employers' Annual Federal Tax Program (Form 944). For provisions 
relating to the time and place for filing returns, see Sec. Sec.  
31.6071(a)-1 and 31.6091-1, respectively.
    (ii) Qualification for the Employers' Annual Federal Tax Program 
(Form 944). The IRS will send notifications of qualification for the 
Employers' Annual Federal Tax Program (Form 944) to employers with an 
estimated annual employment tax liability of $1,000 or less. New 
employers who timely notify the IRS that they anticipate their 
estimated annual employment tax liability to be $1,000 or less will be 
notified of their qualification for the Employers' Annual Federal Tax 
Program (Form 944). If an employer in the Employers' Annual Federal Tax 
Program (Form 944) reports an annual employment tax liability of more 
than $1,000, the IRS will notify the employer that the employer's 
filing status has changed and that the employer will be required to 
file the quarterly Form 941 for succeeding tax years.
    (iii) Exception to qualification for the Employers' Annual Federal 
Tax Program (Form 944). Notwithstanding notification by the IRS of 
qualification for the Employers' Annual Federal Tax Program (Form 944), 
an employer may file Form 941 if--
    (A) One of the following conditions applies--
    (1) The employer anticipates that its annual employment tax 
liability will exceed $1,000, or
    (2) The employer prefers to electronically file Forms 941 quarterly 
in lieu of filing Form 944 annually;
    (B) The employer contacts the IRS, pursuant to the instructions in 
the IRS' written notification, to request to file Form 941; and
    (C) The IRS sends the employer a written notification that the 
employer's filing requirement has been changed to Form 941.
    (b) through (c) [Reserved]. For further guidance, see Sec.  
31.6011(a)-4(b) through (c).

0
Par. 9. In Sec.  31.6071(a)-1, the first sentence in paragraph (a)(1) 
is revised to read as follows:


Sec.  31.6071(a)-1  Time for filing returns and other documents.

    (a) * * *
    (1) Quarterly or annual returns. Except as provided in subparagraph 
(4) of this paragraph, each return required to be made under Sec. Sec.  
31.6011(a)-1 and 31.6011(a)-1T, in respect of the taxes imposed by the 
Federal Insurance Contributions Act (26 U.S.C. 3101-3128), or required 
to be made under Sec. Sec.  31.6011(a)-4 and 31.6011(a)-4T, in respect 
of income tax withheld, shall be filed on or before the last day of the 
first calendar month following the period for which it is made. * * *
* * * * *

0
Par. 10. Section 31.6302-0 is amended by:
0
1. Adding new entries for Sec.  31.6302-1(b)(4), (c)(5) and (6), (d), 
(f)(4), and (f)(5).
0
2. Removing the entries for Sec.  31.6302-1(b)(5) and (i).
0
3. Redesignating the entries for Sec.  31.6302-1(h), (j), (k), and (m) 
as (i), (k), (m), and (n), respectively.
0
4. Adding new entries for Sec.  31.6302-1(h) and (j).
0
5. Revising the entry for newly designated Sec.  31.6302-1(k)(1).
0
6. Adding entries for Sec.  31.6302-1T.
    The revision and additions read as follows:


Sec.  31.6302-0  Table of contents.

* * * * *

[[Page 15]]

Sec.  31.6302-1  Federal tax deposit rules for withheld income taxes 
and taxes under the Federal Insurance Contributions Act (FICA) 
attributable to payments made after December 31, 1992.

* * * * *
    (b) * * *
    (4) Lookback period.
    (i) [Reserved].
    (ii) [Reserved].
    (c) * * *
    (5) [Reserved].
    (6) [Reserved].
    (d) * * *
    Example 6 [Reserved].
* * * * *
    (f) * * *
    (4) De minimis rule.
    (i) De minimis deposit rule for quarterly and annual return 
periods beginning on or after January 1, 2001.
    (ii) [Reserved].
    (iii) [Reserved].
    (5) * * *
    Example 3. [Reserved].
* * * * *
    (h) Time and manner of deposit--deposits required to be made by 
electronic funds transfer.
    (1) In general.
    (2) Applicability of requirement.
    (i) Deposits for return periods beginning before January 1, 
2000.
    (ii) Deposits for return periods beginning after December 31, 
1999.
    (iii) Voluntary deposits.
    (3) Taxes required to be deposited by electronic funds transfer.
    (4) Definitions.
    (i) Electronic funds transfer.
    (ii) Taxpayer.
    (5) Exemptions.
    (6) Separation of deposits.
    (7) Payment of balance due.
    (8) Time deemed deposited.
    (9) Time deemed paid.
* * * * *
    (j) Voluntary payments by electronic funds transfer.
    (k) * * *
    (1) Notice exception.
* * * * *


Sec.  31.6302-1T  Federal tax deposit rules for withheld income taxes 
and taxes under the Federal Insurance Contributions Act (FICA) 
attributable to payments made after December 31, 1992 (temporary).

    (a) through (b)(4)(ii) [Reserved].
    (b)(4)(i) In general.
    (ii) Adjustments.
    (c)(1) through (c)(4) [Reserved].
    (c)(5) Exception to the monthly and semi-weekly deposit rules 
for employers in the Employers' Annual Federal Tax Program (Form 
944).
    (c)(6) Extension of time to deposit rule for employers in the 
Employers' Annual Federal Tax Program (Form 944) during the 
preceding year.
    (d) Examples 1 through 5 [Reserved].
    Example 6. Extension of time to deposit rule for employers in 
the Employer's Annual Federal Tax Program (Form 944) during the 
preceding year satisfied.
    (e) through (f)(4)(ii) [Reserved].
    (f)(4)(iii) De minimis deposit rule for employers currently in 
the Employers' Annual Federal Tax Program (Form 944).
    (f)(5) Examples 1 and 2 [Reserved].
    Example 3. De minimis deposit rule for employers currently in 
the Employer's Annual Federal Tax Program (Form 944) satisfied.
    (g) through (n) [Reserved].

0
Par. 11. Section 31.6302-1 is amended by:
0
1. Revising paragraph (b)(4).
0
2. Adding paragraphs (c)(5) and (6), (d) Example 6, and (f)(5) Example 
3.
0
3. Removing paragraph (b)(5).
0
4. Revising paragraph (f)(4).
    The revisions and additions read as follows:


Sec.  31.6302-1  Federal tax deposit rules for withheld income taxes 
and taxes under the Federal Insurance Contributions Act (FICA) 
attributable to payments made after December 31, 1992.

* * * * *
    (b) * * *
* * * * *
    (4) Lookback period--(i) [Reserved]. For further guidance, see 
Sec.  31.6302-1T(b)(4)(i).
    (ii) [Reserved]. For further guidance, see Sec.  31.6302-
1T(b)(4)(ii).
    (c) * * *
* * * * *
    (5) [Reserved]. For further guidance, see Sec.  31.6302-1T(c)(5).
    (6) [Reserved]. For further guidance, see Sec.  31.6302-1T(c)(6).
    (d) * * *
* * * * *
    Example 6. For further guidance, see Sec.  31.6302-1T(d) Example 
6.
* * * * *
    (f) * * *
* * * * *
    (4) De minimis rule--(i) De minimis deposit rule for quarterly and 
annual return periods beginning on or after January 1, 2001. If the 
total amount of accumulated employment taxes for the return period is 
less than $2,500 and the amount is fully deposited or remitted with a 
timely filed return for the return period, the amount deposited or 
remitted will be deemed to have been timely deposited.
    (ii) [Reserved].
    (iii) [Reserved]. For further guidance, see Sec.  31.6302-
1T(f)(4)(iii).
    (5) * * *
* * * * *
    Example 3. For further guidance, see Sec.  31.6302-1T(f)(5) 
Example 3.

    Par. 12. Section 31.6302-1T is added to read as follows:


Sec.  31.6302-1T  Federal tax deposit rules for withheld income taxes 
and taxes under the Federal Insurance Contributions Act (FICA) 
attributable to payments made after December 31, 1992 (temporary).

    (a) through (b)(3) [Reserved]. For further guidance, see Sec.  
31.6302-1(a) through (b)(3).
    (4) Lookback period--(i) In general. For employers who file Form 
941, the lookback period for each calendar year is the twelve month 
period ended the preceding June 30. For example, the lookback period 
for calendar year 2006 is the period July 1, 2004 to June 30, 2005. The 
lookback period for employers who are in the Employers' Annual Federal 
Tax Program (Form 944), or were in it during the previous calendar 
year, is the second calendar year preceding the current calendar year. 
For example, the lookback period for calendar year 2006 is calendar 
year 2004. In determining status as either a monthly or semi-weekly 
depositor, an employer should determine the aggregate amount of 
employment tax liabilities reported on its return(s) (Form 941 or Form 
944) for the lookback period. New employers shall be treated as having 
employment tax liabilities of zero for any part of the lookback period 
before the date the employer started or acquired its business.
    (ii) Adjustments. The tax liability shown on an original return for 
the return period shall be the amount taken into account in determining 
whether more than $50,000 has been reported during the lookback period. 
In determining the aggregate employment taxes for each return period in 
a lookback period, an employer does not take into account any 
adjustments for the return period made on a supplemental return filed 
after the due date of the return. However, adjustments made on a Form 
941c, Statement to Correct Information, attached to a Form 941 or Form 
944 filed for a subsequent return period are taken into account in 
determining the employment tax liability for the subsequent return 
period.
    (c)(1) through (c)(4) [Reserved]. For further guidance, see Sec.  
31.6302-1(c)(1) through (c)(4).
    (5) Exception to the monthly and semi-weekly deposit rules for 
employers in the Employers' Annual Federal Tax Program (Form 944). 
Generally, an employer in the Employers' Annual Federal Tax Program 
(Form 944) may remit its accumulated employment taxes with its timely 
filed return and is not required to deposit under either the monthly or 
semi-weekly rules set forth in paragraphs (c)(1) and (2) of this 
section. An employer in the Employers'

[[Page 16]]

Annual Federal Tax Program (Form 944) whose actual employment tax 
liability exceeds the eligibility threshold, as set forth in Sec.  
31.6011(a)-1T(a)(5)(ii) and Sec.  31.6011(a)-4T(a)(4)(ii) will not 
qualify for this exception and should follow the deposit rules set 
forth in this section.
    (6) Extension of time to deposit for employers in the Employers' 
Annual Federal Tax Program (Form 944) during the preceding year. An 
employer who was in the Employers' Annual Federal Tax Program (Form 
944) in the preceding year, but who is no longer qualified because its 
annual employment tax liability exceeded the eligibility threshold set 
forth in Sec.  31.6011(a)-1T(a)(5)(ii) and Sec.  31.6011(a)-
4T(a)(4)(ii) in that preceding year, is required to deposit pursuant to 
Sec.  31.6302-1. The employer will be deemed to have timely deposited 
its January deposit obligation(s) under Sec.  31.6302-1(c)(1) through 
(4) for the first quarter of the year in which it must file quarterly 
using Form 941 if the employer deposits the amount of such deposit 
obligation(s) by March 15 of that year.
    (d) Examples 1 through 5 [Reserved]. For further guidance, see 
Sec.  31.6302-1(d) Examples 1 through 5.

    Example 6. Extension of time to deposit for employers in the 
Employers' Annual Federal Tax Program (Form 944) during the 
preceding year satisfied. F (a monthly depositor) was notified to 
file Form 944 to report its employment tax liabilities for the 2006 
calendar year. F filed Form 944 on January 31, 2007, reporting a 
total employment tax liability for 2006 of $3,000. Because F's 
annual employment tax liability for the 2006 taxable year exceeded 
$1,000 (the eligibility requirement threshold), F may not file Form 
944 for calendar year 2007. Based on F's liability during the 
lookback period (calendar year 2005, pursuant to Sec.  31.6302-
1T(b)(4)(i)), F is a monthly depositor for 2007. F accumulates 
$1,000 in employment taxes during January 2007. Because F is a 
monthly depositor, F's January deposit obligation is due February 
15, 2007. F does not deposit these accumulated employment taxes on 
February 15, 2007. F accumulates $1,500 in employment taxes during 
February 2007. F's February deposit is due March 15, 2007. F 
deposits the $2,500 of employment taxes accumulated during January 
and February on March 15, 2007. Pursuant to Sec.  31.6302-1T(c)(6), 
F will be deemed to have timely deposited the employment taxes due 
for January 2007, and, thus, the IRS will not impose a failure-to-
deposit penalty under section 6656 for that month.

    (e) through (f)(4)(ii) [Reserved]. For further guidance, see Sec.  
31.6302-1(e) through (f)(4)(ii).
    (iii) De minimis deposit rule for employers currently in the 
Employers' Annual Federal Tax Program (Form 944). An employer in the 
Employers' Annual Federal Tax Program (Form 944) whose employment tax 
liability for the year equals or exceeds $2,500 but whose employment 
tax liability for a quarter of the year is de minimis pursuant to Sec.  
31.6302-1(f)(4)(i) will be deemed to have timely deposited the 
employment taxes due for that quarter if the employer fully deposits 
the employment taxes accumulated during the quarter by the last day of 
the month following the close of that quarter. Employment taxes 
accumulated during the fourth quarter can be either deposited by 
January 31 or remitted with a timely filed return for the return 
period.
    (5) Examples 1 and 2 [Reserved]. For further guidance, see Sec.  
31.6302-1(f)(5) Examples 1 and 2.

    Example 3. De minimis deposit rule for employers currently in 
the Employers' Annual Federal Tax Program (Form 944) satisfied. K (a 
monthly depositor) was notified to file Form 944 to report its 
employment tax liabilities for the 2006 calendar year. In the first 
quarter of 2006, K accumulates employment taxes in the amount of 
$1,000. On April 28, 2006, K deposits the $1,000 of employment taxes 
accumulated in the 1st quarter. K accumulates another $1,000 of 
employment taxes during the second quarter of 2006. On July 31, 
2006, K deposits the $1,000 of employment taxes accumulated in the 
2nd quarter. K's business grows and accumulates $1,500 in employment 
taxes during the third quarter of 2006. On October 31, 2006, K 
deposits the $1,500 of employment taxes accumulated in the 3rd 
quarter. K accumulates another $2,000 in employment taxes during the 
fourth quarter. K files Form 944 on January 31, 2007, reporting a 
total employment tax liability for 2006 of $5,500 and submits a 
check for the remaining $2,000 of employment taxes with the return. 
K will be deemed to have timely deposited the employment taxes due 
for all of 2006, because K complied with the de minimis deposit rule 
provided in Sec.  31.6302-1T(f)(4)(iii). Therefore, the IRS will not 
impose a failure-to-deposit penalty under section 6656 for any month 
of the year. Under this de minimis deposit rule, as K was required 
to file Form 944 for calendar year 2006, if K's employment tax 
liability for a quarter is de minimis, then K may deposit that 
quarter's liability by the last day of the month following the close 
of the quarter. This new de minimis rule allows K to have the 
benefit of the same quarterly de minimis amount K would have 
received if K filed Form 941 each quarter instead of Form 944 
annually. Thus, as K's employment tax liability for each quarter was 
de minimis, K could deposit quarterly.

    (g) through (n) [Reserved]. For further guidance, see Sec.  
31.6302-1(g) through (n).

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: December 8, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary for Tax Policy.
[FR Doc. 05-24565 Filed 12-30-05; 8:45 am]
BILLING CODE 4830-01-P