Employer's Annual Federal Tax Return and Modifications to the Deposit Rules, 79354-79361 [E8-30582]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 73, Number 249 (Monday, December 29, 2008)]
[Rules and Regulations]
[Pages 79354-79361]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-30582]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 31

[TD 9440]
RIN 1545-BI39


Employer's Annual Federal Tax Return 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 relating to the 
annual filing of Federal employment tax returns and requirements for 
employment tax deposits. These 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 
generally allow certain employers to file a Form 944, ``Employer's 
ANNUAL Federal Tax Return,'' rather than Form 941, ``Employer's 
QUARTERLY Federal Tax Return.'' In addition to rules related to Form 
944, the temporary regulations provide an additional method for 
employers who file Form 941 to determine whether the amount of 
accumulated employment taxes is considered de minimis. The portions of 
this document that are final regulations

[[Page 79355]]

provide necessary cross-references to the temporary regulations. The 
text of these temporary regulations also serves as the text of the 
proposed regulations set forth in the Proposed Rules section in this 
issue of the Federal Register.

DATES: Effective Date: These regulations are effective on December 29, 
2008.
    Applicability Date: For dates of applicability, see Sec. Sec.  
31.6011(a)-1T(g), 31.6011(a)-4T(d), and 31.6302-1T(n).

FOR FURTHER INFORMATION CONTACT: Audra Dineen, (202) 622-4910 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    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. These temporary regulations are part of the IRS's effort 
to reduce taxpayer burden by permitting certain employers to file one 
return annually to report their employment tax liabilities instead of 
four quarterly returns. These temporary regulations affect taxpayers 
that file Form 941, ``Employer's QUARTERLY Federal Tax Return,'' Form 
944, ``Employer's ANNUAL Federal Tax Return,'' and any related Spanish-
language returns or returns for U.S. possessions.
    On January 3, 2006, a temporary regulation (TD 9239) relating to 
Form 944 (the 2006 temporary regulation) was published in the Federal 
Register (71 FR 11). A notice of proposed rulemaking (REG-148568-04) 
cross-referencing the temporary regulations was published in the 
Federal Register for the same day (71 FR 46) (the 2006 proposed 
regulation). A correction to the 2006 temporary regulation was 
published in the Federal Register on March 17, 2006 (71 FR 13766). No 
requests for a public hearing were received; therefore, no public 
hearing was held. Comments responding to the notice of proposed 
rulemaking were received.
    Those comments requested that use of Form 944 be changed from 
mandatory to voluntary and that the amount of the employment tax 
liability used to determine whether employers are eligible to file Form 
944 (the ``eligibility threshold'') be increased. The Treasury 
Department and the IRS agree with the suggestion to make Form 944 
voluntary. The Treasury Department and the IRS will continue to 
consider whether to increase the eligibility threshold. The final 
regulations allow the eligibility threshold to be increased through 
future guidance.
    These temporary regulations continue to permit most employers who 
file Form 944 to pay accumulated employment taxes annually when they 
file their returns and modify the lookback period and de minimis 
deposit rule for these employers. In addition to the rules related to 
Form 944, these temporary regulations provide an additional method for 
employers who file Forms 941 quarterly to determine whether the amount 
of accumulated employment taxes is considered de minimis. This safe 
harbor was originally proposed in the 2006 proposed regulation.

Explanation of Provisions

Form 944--Regulations Concerning Filing Requirements Under Section 6011

    These temporary regulations allow certain employers to file an 
annual employment tax return, Form 944, to report their social 
security, Medicare, and withheld Federal income taxes rather than the 
quarterly Form 941. For these employers, Form 944 will replace Form 941 
and reduce their burden by reducing the number of returns they are 
required to file each year. Form 944 will not replace Form 943, 
``Employer's Annual Tax Return for Agricultural Employees'' or Schedule 
H (Form 1040), ``Household Employment Taxes.'' However, if an employer 
files Form 944, the employer may choose to report wages with respect to 
household employees on Form 944, instead of reporting such wages on 
Schedule H (Form 1040). Form 944 is generally due January 31 of the 
year following the tax 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 tax year for which the return is 
filed, the employer will have 10 extra calendar days to file Form 944 
pursuant to Sec.  31.6071(a)-1(a).
    Under the 2006 proposed and temporary regulations, the IRS sent a 
notification letter to qualified employers with an estimated employment 
tax liability of $1,000 or less requiring them to participate in the 
Employers' Annual Federal Tax Program (Form 944) (hereinafter referred 
to as the Form 944 Program). Employers were eligible to opt out only if 
they estimated that their employment tax liability would exceed the 
$1,000 threshold or if they wanted to e-file Forms 941 quarterly 
instead. New employers who estimated that their employment tax 
liability would be $1,000 or less also were eligible to file Form 944. 
These employers were identified by their responses on Form SS-4, 
Application for Employer Identification Number, and notified that they 
were required to file Form 944 in the letter advising them of their 
employer identification number. Employers that were not identified by 
the IRS in either manner were able to contact the IRS if they thought 
they were qualified. If the IRS determined they were qualified, it 
would send confirmation to these employers. Once employers received 
this letter, they were required to file Form 944 instead of Forms 941.
    Commentators suggested that Form 944 should be voluntary instead of 
mandatory. This benefits taxpayers because it allows them to choose the 
filing requirement they prefer and to change from year to year more 
easily. In addition, commentators suggested that the threshold should 
be increased in order to allow more employers to take advantage of Form 
944 and to bring the threshold in line with the de minimis deposit rule 
amount, which is less than $2,500 as discussed more fully in this 
preamble. Sections 31.6011(a)-1T(a)(5) and 31.6011(a)-4T(a)(4) have 
been revised to incorporate the suggestion to make the program 
voluntary. Although these temporary regulations do not adopt the 
suggestion to increase the eligibility threshold, the Treasury 
Department and the IRS will continue to consider this suggestion and 
may increase the threshold in the future. To accommodate any potential 
increase to the threshold amount before final regulations are issued, 
these temporary regulations contain a provision that allows the IRS to 
increase the eligibility threshold by guidance published in the 
Internal Revenue Bulletin. See Sec.  601.601(d)(2)(ii)(b).
    Under Sec. Sec.  31.6011(a)-1T(a)(5) and 31.6011(a)-4T(a)(4) in 
effect for taxable years beginning on or after January 1, 2009, 
employers who estimate that their annual employment tax liability will 
be $1,000 or less can contact the IRS to express their desire to file 
Form 944 instead of Forms 941 for a taxable year. Only upon such a 
request will the IRS send a notification letter to qualified employers 
confirming that they may file Form 944 for that taxable year. Once 
employers receive this notice they must file Form 944 and cannot file 
Forms 941 instead for a taxable year until they contact the IRS to 
change their filing requirement to Form 941 for that taxable year and 
receive confirmation that their filing requirement has been changed.
    The IRS will issue guidance published in the Internal Revenue 
Bulletin informing employers how they can contact the IRS to 
participate in the Form 944 Program and how they can

[[Page 79356]]

elect out if they later decide that they want to file Forms 941 instead 
of Form 944. Under the 2006 regulations, employers were only eligible 
to opt out if they estimated that their employment tax liability would 
exceed the $1,000 threshold or if they wanted to e-file Forms 941 
quarterly instead. Because the program is being made voluntary, 
beginning in tax year 2010, employers will be able to opt out for any 
reason if they follow procedures to be provided in future guidance. 
Employers that have received notification of their qualification to 
file Form 944, even if the notification was received prior to the 
publication of these regulations, must continue to file Form 944 unless 
they properly opt out of the Form 944 program.
    In addition, a few clarifying revisions were made to the 
regulations under section 6011. First, Sec. Sec.  31.6011(a)-1T(a) and 
31.6011(a)-4T(a) were clarified by adding references to Sec. Sec.  
31.6011(a)-1T(a)(5) and 31.6011(a)-4T(a)(4) to account for Form 944 in 
Sec. Sec.  31.6011(a)-1T(a)(1) and 31.6011(a)-4T(a)(1). Second, 
Sec. Sec.  31.6011(a)-1(a)(5) and 31.6011(a)-4(a)(4) were revised to 
remove the details regarding the procedures to use for opting out of 
the Form 944 program and provide that the IRS will issue guidance 
published in the Internal Revenue Bulletin containing these procedures. 
The IRS will issue procedures in other forms of guidance published in 
the IRB regarding how to opt out of Form 944 for taxable year 2009 and 
how to elect to file Form 944 for taxable year 2010 and beyond. This 
will allow the IRS to administer the program more effectively, by 
having the flexibility to adjust the procedures as necessary due to 
changes in the program and taxpayer response.

Form 944--Regulations Concerning Deposit Requirements Under Section 
6302

    These temporary regulations revise the 2006 temporary regulation 
concerning requirements for employers to make deposits of employment 
taxes under section 6302 and Sec.  31.6302-1 to make a few clarifying 
changes to Sec.  31.6302-1 related to Form 944. These temporary 
regulations continue to permit employers who file Form 944 to deposit 
or pay their accumulated employment taxes annually when they file their 
Form 944 if they satisfy the provisions of the de minimis deposit rule, 
as modified in Sec.  31.6302-1T(f)(4)(iii), rather than make monthly or 
semi-weekly deposits. These temporary regulations continue to contain 
the exception in Sec.  31.6302-1T(c)(6) for employers who filed Form 
944 in the preceding year but who no longer qualify because their 
annual employment tax liability exceeds the eligibility threshold.
    Also, these temporary regulations continue to provide a different 
lookback period for Form 944 filers to use to determine an employer's 
status as a monthly or semi-weekly depositor. The lookback period was 
changed in the 2006 temporary and proposed regulations because once an 
employer begins to file annual Form 944 returns, it may not be possible 
for the IRS 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) because the 
employer may not have filed any quarterly returns during that period. 
Under the 2006 temporary regulation, Sec.  31.6302-1T(b)(4)(i) provided 
that the lookback period for employers who filed Form 944 during the 
current, or preceding, calendar year is the second calendar year 
preceding the current calendar year. For example, the lookback period 
for calendar year 2009 is calendar year 2007.
    In these temporary regulations, Sec.  31.6302-1T(b)(4)(i) is 
clarified to reflect that the lookback period is the second preceding 
calendar year for employers who filed Form 944 for either of the two 
previous calendar years, not just the one previous calendar year. This 
clarification was needed because an employer would not have filed the 
requisite quarterly returns to use the other lookback period (12-month 
period ending June 30) if they filed Form 944 in either of the prior 
years. For example, if an employer filed Form 944 in 2006 but not in 
2007, the lookback period for 2008 would be 2006, because they would 
not have filed quarterly returns for July through December 2006 and, 
thus, it would be impossible to use July 2006-June 2007 as the lookback 
period.
    Section 31.6302-1T(b)(4)(i) also is revised to clarify that the 
amount of tax reported during the lookback period is determined without 
regard to the employer's filing requirement. In other words, in the 
preceding example, if an employer is required to file Forms 941 for 
2008 but filed Form 944 for the lookback period (2006), the amount of 
employment tax liability reported for the lookback period would be the 
amount of employment tax the employer reported on its Form 944 for 2006 
even though the employer will file Forms 941 to report its 2008 
liability. The reverse also is true. The employment tax liability 
reported for the lookback period (2006) of an employer required to file 
Form 944 for 2008 would be the sum of the liabilities it reported on 
its four Forms 941 for 2006.
    In addition, Sec.  31.6302-1T(b)(4)(ii) is revised by changing the 
term ``supplemental'' to ``adjusted'' and deleting the reference to 
Form 941c, ``Supporting Statement To Correct Information,'' due to the 
revisions to the process of adjusting employment tax liability. Final 
regulations (TD 9405) relating to employment tax adjustments were 
published in the Federal Register (73 FR 37371) on July 1, 2008. For 
periods ending on or before December 31, 2008, the employment tax 
liability reported on the original return includes any prior period 
adjustments reported on that return (for example, prior period 
adjustments supported by a Form 941c attached to the return for a 
subsequent period). For periods beginning on or after January 1, 2009, 
employers can no longer make prior period adjustments on a return. 
Instead, employers will use an adjusted return or claim for refund to 
make corrections to the amounts reported on their original returns. 
Last, Sec.  31.6302-1T is revised by adding references to Form 944 in 
paragraphs (e)(2) and (g)(1).

Form 941--New Deposit Rule Safe Harbor Under Section 6302

    In addition to revising the 2006 temporary regulation regarding 
Form 944, these temporary regulations incorporate the safe harbor for 
employers who file Forms 941 that was included in the 2006 proposed 
regulation. The safe harbor helps small employers who file Form 941 and 
have an unexpected increase in their deposit liability for a quarterly 
return period. These temporary regulations provide an alternate method 
for determining whether the employer's employment tax obligations are 
de minimis, which is based on the employment taxes due for the prior 
return period. This special rule applies only to employers filing 
quarterly tax returns and, therefore, does not apply to employers who 
file Form 944.
    Generally, deposits of taxes reported on Form 941, ``Employer's 
QUARTERLY Federal Tax Return,'' are due monthly or semi-weekly. If an 
employer failed to make timely deposits of employment taxes, the 
employer, absent reasonable cause, is subject to the penalty for 
failure to deposit under section 6656. Prior to these temporary 
regulations, Sec.  31.6302-1(f)(4) (the de minimis deposit rule) 
provided that, for quarterly and annual return periods, if the 
aggregate amount of employment taxes for the return period is less than 
$2,500 and that amount was deposited or paid

[[Page 79357]]

with a timely filed return for that return period, the amount was 
deemed to have been timely deposited and the employer was not subject 
to the penalty for failure to deposit. Accordingly, employers who paid 
their employment taxes when they timely filed their quarterly returns 
were deemed to have timely deposited their taxes if the amount of taxes 
due was less than $2,500 for that quarter. Similarly, employers who 
paid their employment taxes when they timely filed their annual returns 
were deemed to have timely deposited if the amount of taxes due was 
less than $2,500 for the entire year.
    Under these temporary regulations, pursuant to Sec.  31.6302-
1T(f)(4)(i) and (ii), employers may pay their employment taxes when 
they timely file their quarterly returns and be deemed to have timely 
deposited if the amount of the taxes due for the current quarter or for 
the prior quarter is less than $2,500.
    This special rule can be illustrated by the following example: An 
employer has less than $50,000 in employment taxes reported during the 
lookback period and is therefore a monthly depositor under Sec.  
31.6302-1(b)(2). The employer's employment tax liabilities for the 
first and second quarters of 2010 are $2,450 and $2,400, respectively. 
In the third quarter of 2010, however, the employer's employment tax 
liability is $2,550. Under the de minimis deposit rule in effect prior 
to these temporary regulations, if the employer pays the $2,550 with 
its return for the third quarter of 2010, the amount would not be 
considered timely deposited for that quarter and, therefore, the 
employer would be assessed the section 6656 penalty for failure to 
deposit.
    Modifying the de minimis deposit rule to allow employers to base 
the determination on the employment taxes due for the immediately 
preceding quarter provides a safe harbor for employers regarding their 
deposit obligations. Thus, in this example, when the employer had an 
increase in its employment tax liability for the third quarter of 2010, 
its remittance still would be deemed to have been timely deposited 
because the taxes for the immediately preceding return period were de 
minimis. These regulations have no application to the One-Day rule in 
Sec.  31.6302-1(c)(2), which requires employers to make a deposit on 
the next banking day if they accumulate $100,000 or more of employment 
taxes on any day during a deposit period. Therefore, if an employer 
accumulates $100,000 or more of employment taxes during a deposit 
period, the employer must make a deposit on the next banking day even 
if the employer's employment tax liability for the prior quarter was de 
minimis. Due to the programming changes necessary to implement this 
safe harbor, the safe harbor will be available for deposit periods 
beginning on or after January 1, 2010.

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 regulations are Raymond Bailey 
and Audra M. Dineen of the Office of the Associate Chief Counsel 
(Procedure and Administration).

List of Subjects 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 part 31 is amended as follows:

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

0
Paragraph. 1. The authority citation for part 31 continues to read in 
part as follows:

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


0
Par. 2. Section 31.6011(a)-1 is amended by revising paragraph (a)(1) 
and adding paragraph (g) to read as follows:


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

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

0
Par. 3. Section 31.6011(a)-1T is revised to read as follows:


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

    (a) Requirement--(1) In general. Except as otherwise provided in 
Sec.  31.6011(a)-5, every employer required to make a return under the 
Federal Insurance Contributions Act, as in effect prior to 1955, for 
the calendar quarter ended December 31, 1954, in respect of wages other 
than wages for agricultural labor, shall make a return for each 
subsequent calendar quarter (whether or not wages are paid in such 
quarter) until he has filed a final return in accordance with Sec.  
31.6011(a)-6. Except as otherwise provided in Sec.  31.6011(a)-5, every 
employer not required to make a return for the calendar quarter ended 
December 31, 1954, shall make a return for the first calendar quarter 
thereafter in which he pays wages, other than wages for agricultural 
labor, subject to the tax imposed by the Federal Insurance 
Contributions Act as in effect after 1954, and shall make a return for 
each subsequent calendar quarter (whether or not wages are paid 
therein) until he has filed a final return in accordance with Sec.  
31.6011(a)-6. Except as otherwise provided in Sec.  31.6011(a)-8 and in 
Sec.  31.6011(a)-1(a)(3), (a)(4), and (a)(5), Form 941, ``Employer's 
QUARTERLY Federal Tax Return,'' is the form prescribed for making the 
return required by this subparagraph. Such return shall not include 
wages for agricultural labor required to be reported on any return 
prescribed by Sec.  31.6011(a)-1(a)(2). The return shall include wages 
received by an employee in the form of tips only to the extent of the 
tips reported by the employee to the employer in a written statement 
furnished to the employer pursuant to section 6053(a).
    (a)(2) through (a)(4) [Reserved]. For further guidance, see Sec.  
31.6011(a)-1(a)(2) through (a)(4).
    (5) Employers in the Employers' Annual Federal Tax Program (Form 
944)--(i) In general. 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,'' instead of Form 941 
to make a return as required by paragraph (a)(1) of this section. Upon 
proper request by the employer, the Internal Revenue Service (IRS) will 
notify employers in writing of their qualification for the Employers' 
Annual Federal Tax Program (Form 944). Qualified employers are those 
with an estimated annual employment tax liability (that is, social 
security, Medicare, and withheld Federal income

[[Page 79358]]

taxes) of $1,000 or less for the entire calendar year, except employers 
required under Sec.  31.6011(a)-1(a)(2) to make a return on Form 943, 
``Employer's Annual Federal Tax Return For Agricultural Employees,'' or 
Sec.  31.6011(a)-1(a)(3) to make a return on Schedule H (Form 1040), 
``Household Employment Taxes.'' The IRS may increase the amount of the 
estimated annual employment tax liability that qualifies employers to 
file Form 944 through a revenue procedure, notice, or other IRS 
guidance published in the Internal Revenue Bulletin. The IRS will 
notify employers when they no longer qualify for the Employers' Annual 
Federal Tax Program (Form 944) and must file Forms 941 instead.
    (ii) Requests to participate and eligibility to opt out of the 
Employers' Annual Federal Tax Program (Form 944). The IRS will 
establish procedures in a revenue procedure, notice, or other guidance 
published in the Internal Revenue Bulletin for employers to follow to 
request to receive notification to participate in the Employers' Annual 
Federal Tax Program (Form 944) and to be removed from the Employers' 
Annual Federal Tax Program (Form 944) after becoming a participant in 
order to file Forms 941 instead.
    (b) through (f) [Reserved]. For further guidance, see Sec.  
31.6011(a)-1(b) through (f).
    (g) Effective/applicability dates--(1) In general. Paragraphs 
(a)(1) and (a)(5) of this section apply to taxable years beginning on 
or after December 30, 2008. The rules of paragraph (a)(1) of this 
section that apply to taxable years beginning before December 30, 2008, 
are contained in Sec.  31.6011(a)-1. The rules of paragraph (a)(5) of 
this section that apply to taxable years beginning before December 30, 
2008, are contained in Sec.  31.6011(a)-1T in effect prior to December 
30, 2008.
    (2) Expiration date. The applicability of this section will expire 
on or before December 23, 2011.

0
Par. 4. Section 31.6011(a)-4 is amended by revising paragraph (a)(1) 
and adding paragraph (d) to read as follows:


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

    (a) * * * (1) [Reserved]. For further guidance, see Sec.  
31.6011(a)-4T(a)(1).
* * * * *
    (d) [Reserved]. For further guidance, see Sec.  31.6011(a)-4T(d).

0
Par. 5. Section 31.6011(a)-4T is revised to read as follows:


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

    (a) Withheld from wages--(1) In general. Except as otherwise 
provided in Sec.  31.6011(a)-4(a)(2), (a)(3), (a)(4), and (b), and in 
Sec.  31.6011(a)-5, every person required to make a return of income 
tax withheld from wages pursuant to section 3402 shall make a return 
for the first calendar quarter in which the person is required to 
deduct and withhold such tax and for each subsequent calendar quarter, 
whether or not wages are paid therein, until the person has filed a 
final return in accordance with Sec.  31.6011(a)-6. Except as otherwise 
provided in Sec.  31.6011(a)-4(a)(2), (a)(3), (a)(4) and (b), and in 
Sec.  31.6011(a)-8, Form 941, ``Employer's QUARTERLY Federal Tax 
Return,'' is the form prescribed for making the return required under 
this paragraph (a)(1).
    (a)(2) through (a)(3) [Reserved]. For further guidance, see Sec.  
31.6011(a)-4(a)(2) through (a)(3).
    (4) Employers in the Employers' Annual Federal Tax Program (Form 
944)--(i) In general. 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,'' instead of Form 941 
to make a return of income tax withheld from wages pursuant to section 
3402. Upon proper request by the employer, the Internal Revenue Service 
(IRS) will notify employers in writing of their qualification for the 
Employers' Annual Federal Tax Program (Form 944). Qualified employers 
are those with an estimated annual employment tax liability (that is, 
social security, Medicare, and withheld federal income taxes) of $1,000 
or less for the entire calendar year, except employers required under 
Sec.  31.6011(a)-4(a)(2) to make a return on Schedule H (Form 1040), 
``Household Employment Taxes,'' or Sec.  31.6011(a)-4(a)(3) to make a 
return on Form 943, ``Employer's Annual Federal Tax Return For 
Agricultural Employees.'' The IRS may increase the amount of the 
estimated annual employment tax liability that qualifies employers to 
file Form 944 through a revenue procedure, notice or other IRS guidance 
published in the Internal Revenue Bulletin. The IRS will notify 
employers when they no longer qualify for the Employers' Annual Federal 
Tax Program (Form 944) and must file Forms 941 instead.
    (ii) Request to participate and eligibility to opt out of the 
Employers' Annual Federal Tax Program (Form 944). The IRS will 
establish procedures in a revenue procedure, notice, or other IRS 
guidance published in the Internal Revenue Bulletin for employers to 
follow to request to receive notification to participate in the 
Employers' Annual Federal Tax Program (Form 944) and to be removed from 
the Employers' Annual Federal Tax Program (Form 944) after becoming a 
participant in order to file Forms 941 instead.
    (b) through (c) [Reserved]. For further guidance, see Sec.  
31.6011(a)-4(b) through (c).
    (d) Effective/applicability dates--(1) In general. Paragraphs 
(a)(1) and (a)(4) of this section apply to taxable years beginning on 
or after December 30, 2008. The rules of paragraph (a)(1) of this 
section that apply to taxable years beginning before December 30, 2008, 
are contained in Sec.  31.6011(a)-4. The rules of paragraph (a)(4) of 
this section that apply to taxable years beginning before December 30, 
2008, are contained in Sec.  31.6011(a)-4T in effect prior to December 
30, 2008.
    (2) Expiration date. The applicability of this section will expire 
on or before December 23, 2011.

0
Par. 6. Section 31.6302-0 is amended by revising the entries for Sec.  
31.6302-1(f)(4)(i), (g)(1) and (n) to read as follows:


Sec.  31.6302-0  Table of contents.

* * * * *


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.

* * * * *
    (f) * * *
    (4) * * *
    (i) [Reserved]. For further guidance, see Sec.  31.6302-0T, the 
entry for Sec.  31.6302-1T(f)(4)(i).
* * * * *
    (g) * * *
    (1) [Reserved]. For further guidance, see Sec.  31.6302-0T, the 
entry for Sec.  31.6302-1T(g)(1).
* * * * *
    (n) [Reserved]. For further guidance, see Sec.  31.6302-0T, the 
entry for Sec.  31.6302-1T(n).

0
Par. 7. Section 31.6302-0T is added to read as follows:


Sec.  31.6302-0T  Table of contents (temporary).

    This section lists the captions that appear in Sec.  31.6302-1T.

[[Page 79359]]

Section 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.  
31.6302-0, the entries for Sec.  31.6302-1(a) through (b)(3).
    (4) Lookback period.
    (i) In general.
    (ii) Adjustments and claims for refund.
    (c)(1) through (c)(4) [Reserved]. For further guidance, see Sec.  
31.6302-0, the entries for Sec.  31.6302-1(c)(1) through (c)(4).
    (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 for employers in the Employers' 
Annual Federal Tax Program (Form 944) during the preceding year.
    (d) Examples 1 through 5 [Reserved]. For further guidance, see 
Sec.  31.6302-0, the entries for Sec.  31.6302-1(d) Examples 1 through 
5.
    Example 6. Extension of time to deposit for employers in the 
Employer's Annual Federal Tax Program (Form 944) during the preceding 
year satisfied.
    (e) through (f)(3) [Reserved]. For further guidance, see Sec.  
31.6302-0, the entries for Sec.  31.6302-1(e) through (f)(3).
    (4) De minimis rule.
    (i) De minimis deposit rules for quarterly and annual return 
periods beginning or after January 1, 2001.
    (ii) De minimis deposit rule for quarterly return periods beginning 
on or after January 1, 2010.
    (iii) De minimis deposit rule for employers who file Form 944.
    (f)(5) Examples 1 and 2 [Reserved]. For further guidance, see Sec.  
31.6302-0, the entries for Sec.  31.6302-1(f)(5) Examples 1 and 2.
    Example 3. De minimis deposit rule for employers who file Form 944 
satisfied.
    (g) [Reserved]. For further guidance, see Sec.  31.6302-0, the 
entry for Sec.  31.6302-1(g).
    (1) In general.
    (g)(2) through (m) [Reserved]. For further guidance, see Sec.  
31.6302-0, the entries for Sec.  31.6302-1(g)(2) through (m).
    (n) Effective/applicability dates.

0
Par. 8. Section 31.6302-1 is amended by revising paragraphs (e)(2), 
(f)(4)(i), (g)(1) and (n) and adding paragraph (f)(4)(ii) to read as 
follows:
* * * * *
    (e) * * *
    (2) [Reserved]. For further guidance, see Sec.  31.6302-1T(e)(2).
    (f) * * *
    (4) * * * (i) and (ii) [Reserved]. For further guidance, see Sec.  
31.6302-1T(f)(4)(i) and (ii).
* * * * *
    (g) * * * (1) [Reserved]. For further guidance, see Sec.  31.6302-
1T(g)(1).
* * * * *
    (n) [Reserved]. For further guidance, see Sec.  31.6302-1T(n).

0
Par. 9. Section 31.6302-1T is revised 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, ``Employer's QUARTERLY Federal Tax Return,'' 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 file Form 944, ``Employer's ANNUAL Federal Tax Return,'' 
or filed Form 944 either of the two previous calendar years, 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. The amount of employment tax liabilities reported for 
the lookback period is the amount the employer reported on either Form 
941 or Form 944 even if the employer is required to file the other 
form(s) for the current calendar year. 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 and claims for refund. The employment tax 
liability reported on the original return for the return period is the 
amount taken into account in determining whether the aggregate amount 
of employment taxes reported for the lookback period exceeds $50,000. 
Any amounts reported on adjusted returns or claims for refund pursuant 
to sections 6205, 6402, 6413 and 6414 filed after the due date of the 
original return are not taken into account when determining the 
aggregate amount of employment taxes reported for the lookback period. 
However, prior period adjustments reported on Forms 941 or 944 for 2008 
and earlier years are taken into account in determining the employment 
tax liability for the return period in which the adjustments are 
reported.
    (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 who files Form 944 for a taxable year may remit 
its accumulated employment taxes with its timely filed return for that 
taxable year and is not required to deposit under either the monthly or 
semi-weekly rules set forth in Sec.  31.6302-1(c)(1) and (2) during 
that taxable year. An employer who files Form 944 whose actual 
employment tax liability exceeds the eligibility threshold, as set 
forth in Sec. Sec.  31.6011(a)-1T(a)(5) and 31.6011(a)-4T(a)(4), 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 filed Form 944 for the preceding year but will file Forms 
941 instead for the current year will be deemed to have timely 
deposited its current year's January deposit obligation(s) under Sec.  
31.6302-1(c)(1) through (4) 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 who filed 
Form 944 for 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 applicable eligibility threshold 
for that taxable year), the Internal Revenue Service (IRS) notified 
F to file Forms 941 for calendar year 2007 and thereafter. Based on 
F's liability during the lookback period (calendar year 2005, 
pursuant to paragraph (b)(4)(i) of this section), 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

[[Page 79360]]

February on March 15, 2007. Pursuant to Sec.  31.6302-1(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)(1) [Reserved]. For further guidance, see Sec.  31.6302-1(e)(1).
    (2) The term employment taxes does not include taxes with respect 
to wages for domestic service in a private home of the employer, unless 
the employer is otherwise required to file a Form 941 or Form 944 under 
Sec.  31.6011(a)-4, Sec.  31.6011(a)-4T, or Sec.  31.6011(a)-5. In the 
case of employers paying advance earned income credit amounts, the 
amount of taxes required to be deposited shall be reduced by advance 
amounts paid to employees. Also, see Sec.  31.6302-3 concerning a 
taxpayer's option with respect to payments made before January 1, 1994, 
to treat backup withholding amounts under section 3406 separately.
    (f)(1) through (f)(3) [Reserved]. For further guidance, see Sec.  
31.6302-1(f)(1) through (f)(3).
    (4) De minimis rule--(i) De minimis deposit rules 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 
de minimis 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. The total amount of 
accumulated employment taxes is de minimis if it is less than $2,500 
for the return period or if it is de minimis pursuant to paragraph 
(f)(4)(ii) of this section.
    (ii) De minimis deposit rule for quarterly return periods beginning 
on or after January 1, 2010. For purposes of paragraph (f)(4)(i) of 
this section, if the total amount of accumulated employment taxes for 
the immediately preceding quarter was less than $2,500, unless Sec.  
31.6302-1(c)(3) applies to require a deposit at the close of the next 
banking day, then the employer will be deemed to have timely deposited 
the employer's employment taxes for the current quarter if the employer 
complies with the time and method payment requirements contained in 
paragraph (f)(4)(i) of this section.
    (iii) De minimis deposit rule for employers who file Form 944. An 
employer who files 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 paragraph (f)(4)(i) of 
this section 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 who file 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 paragraph 
(f)(4)(iii) of this section. 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 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) Agricultural employers--special rules--(1) In general. An 
agricultural employer reports wages paid to farm workers annually on 
Form 943 (Employer's Annual Tax Return for Agricultural Employees) and 
reports wages paid to nonfarm workers quarterly on Form 941 or annually 
on Form 944. Accordingly, an agricultural employer must treat 
employment taxes reportable on Form 943 (``Form 943 taxes'') separately 
from employment taxes reportable on Form 941 or Form 944 (``Form 941 or 
Form 944 taxes''). Form 943 taxes and Form 941 or Form 944 taxes are 
not combined for purposes of determining whether a deposit of either is 
due, whether the One-Day rule of Sec.  31.6302-1(c)(3) applies, or 
whether any safe harbor is applicable. In addition, separate Federal 
tax deposit coupons must be used to deposit Form 943 taxes and Form 941 
or Form 944 taxes. (See Sec.  31.6302-1(b) for rules for determining an 
agricultural employer's deposit status for Form 941 taxes.) The 
determination of whether an agricultural employer is a monthly or semi-
weekly depositor of Form 943 taxes is made according to the rules of 
this paragraph (g).
    (g)(2) through (m) [Reserved]. For further guidance, see Sec.  
31.6302-1(g)(2) through (m).
    (n) Effective/applicability dates--(1) In general. Sections 
31.6302-1 through 31.6302-3 apply with respect to the deposit of 
employment taxes attributable to payments made after December 31, 1992. 
To the extent that the provisions of Sec. Sec.  31.6302-1 through 
31.6302-3 are inconsistent with the provisions of Sec. Sec.  
31.6302(c)-1 and 31.6302(c)-2, a taxpayer will be considered to be in 
compliance with Sec. Sec.  31.6301-1 through 31.6302-3 if the taxpayer 
makes timely deposits during 1993 in accordance with Sec. Sec.  
31.6302(c)-1 and 31.6302(c)-2. Paragraphs (b)(4), (c)(5), (c)(6), (d) 
Example 6, (e)(2), (f)(4)(i), (f)(4)(iii), (f)(5) Example 3, and (g)(1) 
of this section apply to taxable years beginning on or after December 
30, 2008. Paragraph (f)(4)(ii) of this section applies to taxable years 
beginning on or after January 1, 2010. The rules of paragraphs (e)(2) 
and (g)(1) of this section that apply to taxable years beginning before 
December 30, 2008, are contained in Sec.  31.6302-1 in effect prior to 
December 30, 2008. The rules of paragraphs (b)(4), (c)(5), (c)(6), (d) 
Example 6, (f)(4)(i), (f)(4)(iii), and (f)(5) Example 3 of this section 
that apply to taxable years beginning on or after January 1, 2006 and 
before December 30, 2008, are contained in Sec.  31.6302-1T in effect 
prior to December 30, 2008. The rules of paragraphs (b)(4) and (f)(4) 
of this section that apply to taxable years beginning before January 1, 
2006, are contained in Sec.  31.6302-1 in effect prior to January 1, 
2006.

[[Page 79361]]

    (2) Expiration date. The applicability of this section will expire 
on or before December 23, 2011.

Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
    Approved: December 18, 2008.
Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E8-30582 Filed 12-24-08; 8:45 am]
BILLING CODE 4830-01-P