[Title 26 CFR ]
[Code of Federal Regulations (annual edition) - April 1, 2022 Edition]
[From the U.S. Government Publishing Office]



[[Page i]]

          


          Title 26

Internal Revenue


________________________

Parts 30 to 39

                         Revised as of April 1, 2022

          Containing a codification of documents of general 
          applicability and future effect

          As of April 1, 2022
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

[[Page ii]]

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[[Page iii]]




                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 26:
          Chapter I--Internal Revenue Service, Department of 
          the Treasury (Continued)                                   3
  Finding Aids:
      Table of CFR Titles and Chapters........................     481
      Alphabetical List of Agencies Appearing in the CFR......     501
      Table of OMB control numbers............................     511
      List of CFR Sections Affected...........................     529

[[Page iv]]





                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 26 CFR 31.0-1 refers 
                       to title 26, part 31, 
                       section 0-1.

                     ----------------------------

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, April 1, 2022), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
dates and effective dates are usually not the same and care must be 
exercised by the user in determining the actual effective date. In 
instances where the effective date is beyond the cut-off date for the 
Code a note has been inserted to reflect the future effective date. In 
those instances where a regulation published in the Federal Register 
states a date certain for expiration, an appropriate note will be 
inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

PAST PROVISIONS OF THE CODE

    Provisions of the Code that are no longer in force and effect as of 
the revision date stated on the cover of each volume are not carried. 
Code users may find the text of provisions in effect on any given date 
in the past by using the appropriate List of CFR Sections Affected 
(LSA). For the convenience of the reader, a ``List of CFR Sections 
Affected'' is published at the end of each CFR volume. For changes to 
the Code prior to the LSA listings at the end of the volume, consult 
previous annual editions of the LSA. For changes to the Code prior to 
2001, consult the List of CFR Sections Affected compilations, published 
for 1949-1963, 1964-1972, 1973-1985, and 1986-2000.

``[RESERVED]'' TERMINOLOGY

    The term ``[Reserved]'' is used as a place holder within the Code of 
Federal Regulations. An agency may add regulatory information at a 
``[Reserved]'' location at any time. Occasionally ``[Reserved]'' is used 
editorially to indicate that a portion of the CFR was left vacant and 
not dropped in error.

INCORPORATION BY REFERENCE

    What is incorporation by reference? Incorporation by reference was 
established by statute and allows Federal agencies to meet the 
requirement to publish regulations in the Federal Register by referring 
to materials already published elsewhere. For an incorporation to be 
valid, the Director of the Federal Register must approve it. The legal 
effect of incorporation by reference is that the material is treated as 
if it were published in full in the Federal Register (5 U.S.C. 552(a)). 
This material, like any other properly issued regulation, has the force 
of law.
    What is a proper incorporation by reference? The Director of the 
Federal Register will approve an incorporation by reference only when 
the requirements of 1 CFR part 51 are met. Some of the elements on which 
approval is based are:
    (a) The incorporation will substantially reduce the volume of 
material published in the Federal Register.
    (b) The matter incorporated is in fact available to the extent 
necessary to afford fairness and uniformity in the administrative 
process.
    (c) The incorporating document is drafted and submitted for 
publication in accordance with 1 CFR part 51.
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CFR INDEXES AND TABULAR GUIDES

    A subject index to the Code of Federal Regulations is contained in a 
separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Authorities 
and Rules. A list of CFR titles, chapters, subchapters, and parts and an 
alphabetical list of agencies publishing in the CFR are also included in 
this volume.
    An index to the text of ``Title 3--The President'' is carried within 
that volume.

[[Page vii]]

    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

REPUBLICATION OF MATERIAL

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in the Code of Federal Regulations.

INQUIRIES

    For a legal interpretation or explanation of any regulation in this 
volume, contact the issuing agency. The issuing agency's name appears at 
the top of odd-numbered pages.
    For inquiries concerning CFR reference assistance, call 202-741-6000 
or write to the Director, Office of the Federal Register, National 
Archives and Records Administration, 8601 Adelphi Road, College Park, MD 
20740-6001 or e-mail [email protected].

SALES

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ELECTRONIC SERVICES

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free). E-mail, [email protected].
    The Office of the Federal Register also offers a free service on the 
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law numbers, Federal Register finding aids, and related information. 
Connect to NARA's website at www.archives.gov/federal-register.
    The eCFR is a regularly updated, unofficial editorial compilation of 
CFR material and Federal Register amendments, produced by the Office of 
the Federal Register and the Government Publishing Office. It is 
available at www.ecfr.gov.

    Oliver A. Potts,
    Director,
    Office of the Federal Register
    April 1, 2022.







[[Page ix]]



                               THIS TITLE

    Title 26--Internal Revenue is composed of twenty-two volumes. The 
contents of these volumes represent all current regulations codified 
under this title by the Internal Revenue Service, Department of the 
Treasury, as of April 1, 2022. The first fifteen volumes comprise part 1 
(Subchapter A--Income Tax) and are arranged by sections as follows: 
Sec. Sec.  1.0-1.60; Sec. Sec.  1.61-1.139; Sec. Sec.  1.140-1.169; 
Sec. Sec.  1.170-1.300; Sec. Sec.  1.301-1.400; Sec. Sec.  1.401-1.409; 
Sec. Sec.  1.410-1.440; Sec. Sec.  1.441-1.500; Sec. Sec.  1.501-1.640; 
Sec. Sec.  1.641-1.850; Sec. Sec.  1.851-1.907; Sec. Sec.  1.908-1.1000; 
Sec. Sec.  1.1001-1.1400; Sec. Sec.  1.1401-1.1550; and Sec.  1.1551 to 
end of part 1. The sixteenth volume containing parts 2-29, includes the 
remainder of subchapter A and all of Subchapter B--Estate and Gift 
Taxes. The last six volumes contain parts 30-39 (Subchapter C--
Employment Taxes and Collection of Income Tax at Source); parts 40-49; 
parts 50-299 (Subchapter D--Miscellaneous Excise Taxes); parts 300-499 
(Subchapter F--Procedure and Administration); parts 500-599 (Subchapter 
G--Regulations under Tax Conventions); and part 600 to end (Subchapter 
H--Internal Revenue Practice).

    The OMB control numbers for title 26 appear in Sec.  602.101 of this 
chapter. For the convenience of the user, Sec.  602.101 appears in the 
Finding Aids section of the volumes containing parts 1 to 599.

    For this volume, Susannah C. Hurley was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of John 
Hyrum Martinez, assisted by Stephen J. Frattini.

[[Page 1]]



                       TITLE 26--INTERNAL REVENUE




                   (This book contains parts 30 to 39)

  --------------------------------------------------------------------
                                                                    Part

chapter i--Internal Revenue Service, Department of the 
  Treasury (Continued)......................................          31

[[Page 3]]



    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)




  --------------------------------------------------------------------


  Editorial Note: IRS published a document at 45 FR 6088, Jan. 25, 1980, 
deleting statutory sections from their regulations. In Chapter I, cross 
references to the deleted material have been changed to the 
corresponding sections of the IRS Code of 1954 or to the appropriate 
regulations sections. When either such change produced a redundancy, the 
cross reference has been deleted. For further explanation, see 45 FR 
20795, Mar. 31, 1980.

  SUBCHAPTER C--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE
  
Part                                                                Page
30

[Reserved]

31              Employment taxes and collection of income 
                    tax at source...........................           5
32              Temporary employment tax regulations under 
                    the Act of December 29, 1981 (Pub. L. 
                    97-123).................................         425
34

[Reserved]

35              Employment tax and collection of income tax 
                    at source regulations under the Tax 
                    Equity and Fiscal Responsibility Act of 
                    1982....................................         432
35a             Temporary employment tax regulations under 
                    the Interest and Dividend Tax Compliance 
                    Act of 1983.............................         458
36              Contract coverage of employees of foreign 
                    subsidiaries............................         466
37-39

[Reserved]

[[Page 5]]



  SUBCHAPTER C_EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE



                           PART 30 [RESERVED]



PART 31_EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE-
-Table of Contents



                         Subpart A_Introduction

Sec.
31.0-1 Introduction.
31.0-2 General definitions and use of terms.
31.0-3 Scope of regulations.
31.0-4 Extent to which the regulations in this part supersede prior 
          regulations.

  Subpart B_Federal Insurance Contributions Act (Chapter 21, Internal 
                          Revenue Code of 1954)

                            Tax on Employees

31.3101-1 Measure of employee tax.
31.3101-2 Rates and computation of employee tax.
31.3101-3 When employee tax attaches.
31.3102-1 Collection of, and liability for, employee tax; in general.
31.3102-2 Manner and time of payment of employee tax.
31.3102-3 Collection of, and liability for, employee tax on tips.
31.3102-4 Special rules regarding additional medicare tax.

                            Tax on Employers

31.3111-1 Measure of employer tax.
31.3111-2 Rates and computation of employer tax.
31.3111-3 When employer tax attaches.
31.3111-4 Liability for employer tax.
31.3111-5 Manner and time of payment of employer tax.
31.3111-6T Recapture of credits under the Families First Coronavirus 
          Response Act and the Coronavirus Aid, Relief, and Economic 
          Security Act.
31.3112-1 Instrumentalities of the United States specifically exempted 
          from the employer tax.

                           General Provisions

31.3121(a)-1 Wages.
31.3121(a)-1T Question and answer relating to the definition of wages in 
          section 3121(a) (Temporary).
31.3121(a)-2 Wages; when paid and received.
31.3121(a)-3 Reimbursement and other expense allowance amounts.
31.3121(a)(1)-1 Annual wage limitation.
31.3121(a)(2)-1 Payments on account of sickness or accident disability, 
          medical or hospitalization expenses, or death.
31.3121(a)(3)-1 Retirement payments.
31.3121(a)(4)-1 Payments on account of sickness or accident disability, 
          or medical or hospitalization expenses.
31.3121(a)(5)-1 Payments from or to certain tax-exempt trusts, or under 
          or to certain annuity plans or bond purchase plans.
31.3121(a)(5)-2 Payments under or to an annuity contract described in 
          section 403(b).
31.3121(a)(6)-1 Payment by an employer of employee tax under section 
          3101 or employee contributions under a State law.
31.3121(a)(7)-1 Payments for services not in the course of employer's 
          trade or business or for domestic service.
31.3121(a)(8)-1 Payments for agricultural labor.
31.3121(a)(9)-1 [Reserved]
31.3121(a)(10)-1 Payments to certain home workers.
31.3121(a)(11)-1 Moving expenses.
31.3121(a)(12)-1 Tips.
31.3121(a)(13)-1 Payments under certain employers' plans after 
          retirement, disability, or death.
31.3121(a)(14)-1 Payments by employer to survivor or estate of former 
          employee.
31.3121(a)(15)-1 Payments by employer to disabled former employee.
31.3121(a)(18)-1 Payments or benefits under a qualified educational 
          assistance program.
31.3121(b)-1 Employment; services to which the regulations in this 
          subpart apply.
31.3121(b)-2 Employment; services performed before 1955.
31.3121(b)-3 Employment; services performed after 1954.
31.3121(b)-4 Employment; excepted services in general.
31.3121(b)(1)-1 Certain services performed by foreign agricultural 
          workers, or performed before 1959 in connection with 
          oleoresinous products.
31.3121(b)(2)-1 Domestic service performed by students for certain 
          college organizations.
31.3121(b)(3)-1 Family employment.
31.3121(b)(4)-1 Services performed on or in connection with a non-
          American vessel or aircraft.
31.3121(b)(5)-1 Services in employ of an instrumentality of the United 
          States specifically exempted from the employer tax.
31.3121(b)(6)-1 Services in employ of United States or instrumentality 
          thereof.

[[Page 6]]

31.3121(b)(7)-1 Services in employ of States or their political 
          subdivisions or instrumentalities.
31.3121(b)(7)-2 Service by employees who are not members of a public 
          retirement system.
31.3121(b)(8)-1 Services performed by a minister of a church or a member 
          of a religious order.
31.3121(b)(9)-1 Railroad industry; services performed by an employee or 
          an employee representative as defined in section 3231.
31.3121(b)(10)-1 Services for remuneration of less than $50 for calendar 
          quarter in the employ of certain organizations exempt from 
          income tax.
31.3121(b)(10)-2 Services performed by certain students in the employ of 
          a school, college, or university, or of a nonprofit 
          organization auxiliary to a school, college, or university.
31.3121(b)(11)-1 Services in the employ of a foreign government.
31.3121(b)(12)-1 Services in employ of wholly owned instrumentality of 
          foreign government.
31.3121(b)(13)-1 Services of student nurse or hospital intern.
31.3121(b)(14)-1 Services in delivery or distribution of newspapers, 
          shopping news, or magazines.
31.3121(b)(15)-1 Services in employ of international organization.
31.3121(b)(16)-1 Services performed under share-farming arrangement.
31.3121(b)(17)-1 Services in employ of Communist organization.
31.3121(b)(18)-1 Services performed by a resident of the Republic of the 
          Philippines while temporarily in Guam.
31.3121(b)(19)-1 Services of certain nonresident aliens.
31.3121(b)(20)-1 Service performed on a boat engaged in catching fish.
31.3121(c)-1 Included and excluded services.
31.3121(d)-1 Who are employees.
31.3121(d)-2 Who are employers.
31.3121(e)-1 State, United States, and citizen.
31.3121(f)-1 American vessel and aircraft.
31.3121(g)-1 Agricultural labor.
31.3121(h)-1 American employer.
31.3121(i)-1 Computation to nearest dollar of cash remuneration for 
          domestic service.
31.3121(i)-2 Computation of remuneration for service performed by an 
          individual as a member of a uniformed service.
31.3121(i)-3 Computation of remuneration for service performed by an 
          individual as a volunteer or volunteer leader within the 
          meaning of the Peace Corps Act.
31.3121(i)-4 Computation of remuneration for service performed by 
          certain members of religious orders.
31.3121(j)-1 Covered transportation service.
31.3121(l)-1 Agreements entered into by domestic corporations with 
          respect to foreign subsidiaries.
31.3121(o)-1 Crew leader.
31.3121(q)-1 Tips included for employee taxes.
31.3121(r)-1 Election of coverage by religious orders.
31.3121(s)-1 Concurrent employment by related corporations with common 
          paymaster.
31.3121(v)(2)-1 Treatment of amounts deferred under certain nonqualified 
          deferred compensation plans.
31.3121(v)(2)-2 Effective dates and transition rules.
31.3123-1 Deductions by an employer from remuneration of an employee.
31.3127-1 Exemption for employers and their employees if both are 
          members of religious faiths opposed to participation in Social 
          Security Act programs.
31.3131-1T Recapture of credits.
31.3132-1T Recapture of credits.
31.3134-1T Recapture of credits.

Subpart C_Railroad Retirement Tax Act (Chapter 22, Internal Revenue Code 
                                of 1954)

                            Tax on Employees

31.3201-1 Measure of employee tax.
31.3201-2 Rates and computation of employee tax.
31.3202-1 Collection of, and liability for, employee tax.

                     Tax on Employee Representatives

31.3211-1 Measure of employee representative tax.
31.3211-2 Rates and computation of employee representative tax.
31.3211-3 Employee representative supplemental tax.
31.3212-1 Determination of compensation.

                            Tax on Employers

31.3221-1 Measure of employer tax.
31.3221-2 Rates and computation of employer tax.
31.3221-3 Supplemental tax.
31.3221-4 Exception from supplemental tax.
31.3221-5T Recapture of credits under the Families First Coronavirus 
          Response Act and the Coronavirus Aid, Relief, and Economic 
          Security Act.

                           General Provisions

31.3231(a)-1 Who are employers.
31.3231(b)-1 Who are employees.
31.3231(c)-1 Who are employee representatives.
31.3231(d)-1 Service.
31.3231(e)-1 Compensation.

[[Page 7]]

31.3231(e)-2 Contribution base.

  Subpart D_Federal Unemployment Tax Act (Chapter 23, Internal Revenue 
                              Code of 1954)

31.3301-1 Persons liable for tax.
31.3301-2 Measure of tax.
31.3301-3 Rate and computation of tax.
31.3301-4 When wages are paid.
31.3302(a)-1 Credit against tax for contributions paid.
31.3302(a)-2 Refund of State contributions.
31.3302(a)-3 Proof of credit under section 3302(a).
31.3302(b)-1 Additional credit against tax.
31.3302(b)-2 Proof of additional credit under section 3302(b).
31.3302(c)-1 Limit on total credits.
31.3302(d)-1 Definitions and special rules relating to limit on total 
          credits.
31.3302(e)-1 Successor employer.
31.3306(a)-1 Who are employers.
31.3306(b)-1 Wages.
31.3306(b)-1T Question and answer relating to the definition of wages in 
          section 3306(b) (Temporary).
31.3306(b)-2 Reimbursement and other expense allowance amounts.
31.3306(b)(1)-1 $3,000 limitation.
31.3306(b)(2)-1 Payments under employers' plans on account of 
          retirement, sickness or accident disability, medical or 
          hospitalization expenses, or death.
31.3306(b)(3)-1 Retirement payments.
31.3306(b)(4)-1 Payments on account of sickness or accident disability, 
          or medical or hospitalization expenses.
31.3306(b)(5)-1 Payments from or to certain tax-exempt trusts, or under 
          or to certain annuity plans or bond purchase plans.
31.3306(b)(6)-1 Payment by an employer of employee tax under section 
          3101 or employee contributions under a State law.
31.3306(b)(7)-1 Payments other than in cash for service not in the 
          course of employer's trade or business.
31.3306(b)(8)-1 Payments to employees for non-work periods.
31.3306(b)(9)-1 Moving expenses.
31.3306(b)(10)-1 Payments under certain employers' plans after 
          retirement, disability, or death.
31.3306(b)(13)-1 Payments or benefits under a qualified educational 
          assistance program.
31.3306(c)-1 Employment; services performed before 1955.
31.3306(c)-2 Employment; services performed after 1954.
31.3306(c)-3 Employment; excepted services in general.
31.3306(c)(1)-1 Agricultural labor.
31.3306(c)(2)-1 Domestic service.
31.3306(c)(3)-1 Services not in the course of employer's trade or 
          business.
31.3306(c)(4)-1 Services on or in connection with a non-American vessel 
          or aircraft.
31.3306(c)(5)-1 Family employment.
31.3306(c)(6)-1 Services in employ of United States or instrumentality 
          thereof.
31.3306(c)(7)-1 Services in employ of States or their political 
          subdivisions or instrumentalities.
31.3306(c)(8)-1 Services in employ of religious, charitable, 
          educational, or certain other organizations exempt from income 
          tax.
31.3306(c)(9)-1 Railroad industry; services performed by an employee or 
          an employee representative under the Railroad Unemployment 
          Insurance Act.
31.3306(c)(10)-1 Services in the employ of certain organizations exempt 
          from income tax.
31.3306(c)(10)-2 Services of student in employ of school, college, or 
          university.
31.3306(c)(10)-3 Services before 1962 in employ of certain employees' 
          beneficiary associations.
31.3306(c)(11)-1 Services in employ of foreign government.
31.3306(c)(12)-1 Services in employ of wholly owned instrumentality of 
          foreign government.
31.3306(c)(13)-1 Services of student nurse or hospital intern.
31.3306(c)(14)-1 Services of insurance agent or solicitor.
31.3306(c)(15)-1 Services in delivery or distribution of newspapers, 
          shopping news, or magazines.
31.3306(c)(16)-1 Services in employ of international organization.
31.3306(c)(17)-1 Fishing services.
31.3306(c)(18)-1 Services of certain nonresident aliens.
31.3306(d)-1 Included and excluded service.
31.3306(i)-1 Who are employees.
31.3306(j)-1 State, United States, and citizen.
31.3306(k)-1 Agricultural labor.
31.3306(m)-1 American vessel and aircraft.
31.3306(n)-1 Services on American vessel whose business is conducted by 
          general agent of Secretary of Commerce.
31.3306(p)-1 Employees or related corporations.
31.3306(r)(2)-1 Treatment of amounts deferred under certain nonqualified 
          deferred compensation plans.
31.3307-1 Deductions by an employer from remuneration of an employee.
31.3308-1 Instrumentalities of the United States specifically exempted 
          from tax imposed by section 3301.

              Subpart E_Collection of Income Tax at Source

31.3401(a)-1 Wages.

[[Page 8]]

31.3401(a)-1T Question and answer relating to the definition of wages in 
          section 3401(a) (Temporary).
31.3401(a)-2 Exclusions from wages.
31.3401(a)-3 Amounts deemed wages under voluntary withholding 
          agreements.
31.3401(a)-4 Reimbursements and other expense allowance amounts.
31.3401(a)(1)-1 Remuneration of members of the Armed Forces of the 
          United States for active service in combat zone or while 
          hospitalized as a result of such service.
31.3401(a)(2)-1 Agricultural labor.
31.3401(a)(3)-1 Remuneration for domestic service.
31.3401(a)(4)-1 Cash remuneration for service not in the course of 
          employer's trade or business.
31.3401(a)(5)-1 Remuneration for services for foreign government or 
          international organization.
31.3401(a)(6)-1 Remuneration for services of nonresident alien 
          individuals.
31.3401(a)(6)-1A Remuneration for services of certain nonresident alien 
          individuals paid before January 1, 1967.
31.3401(a)(7)-1 Remuneration paid before January 1, 1967, for services 
          performed by nonresident alien individuals who are residents 
          of a contiguous country and who enter and leave the United 
          States at frequent intervals.
31.3401(a)(8)(A)-1 Remuneration for services performed outside the 
          United States by citizens of the United States.
31.3401(a)(8)(B)-1 Remuneration for services performed in possession of 
          the United States (other than Puerto Rico) by citizen of the 
          United States.
31.3401(a)(8)(C)-1 Remuneration for services performed in Puerto Rico by 
          citizen of the United States.
31.3401(a)(9)-1 Remuneration for services performed by a minister of a 
          church or a member of a religious order.
31.3401(a)(10)-1 Remuneration for services in delivery or distribution 
          of newspapers, shopping news, or magazines.
31.3401(a)(11)-1 Remuneration other than in cash for service not in the 
          course of employer's trade or business.
31.3401(a)(12)-1 Payments from or to certain tax-exempt trusts, or under 
          or to certain annuity plans or bond purchase plans, or to 
          individual retirement plans.
31.3401(a)(13)-1 Remuneration for services performed by Peace Corps 
          volunteers.
31.3401(a)(14)-1 Group-term life insurance.
31.3401(a)(15)-1 Moving expenses.
31.3401(a)(16)-1 Tips.
31.3401(a)(17)-1 Remuneration for services performed on a boat engaged 
          in catching fish.
31.3401(a)(18)-1 Payments or benefits under a qualified educational 
          assistance program.
31.3401(a)(19)-1 Reimbursements under a self-insured medical 
          reimbursement plan.
31.3401(b)-1 Payroll period.
31.3401(c)-1 Employee.
31.3401(d)-1 Employer.
31.3401(f)-1 Tips.
31.3402(a)-1 Requirement of withholding.
31.3402(b)-1 Percentage method of withholding.
31.3402(c)-1 Wage bracket withholding.
31.3402(d)-1 Failure to withhold.
31.3402(e)-1 Included and excluded wages.
31.3402(f)(1)-1 Withholding allowance.
31.3402(f)(2)-1 Furnishing of withholding allowance certificates.
31.3402(f)(3)-1 When withholding allowance certificate takes effect.
31.3402(f)(4)-1 Effective period of a withholding allowance certificate.
31.3402(f)(5)-1 Form and contents of withholding allowance certificates.
31.3402(f)(6)-1 Withholding exemptions for nonresident alien 
          individuals.
31.3402(g)-1 Supplemental wage payments.
31.3402(g)-2 Wages paid for payroll period of more than one year.
31.3402(g)-3 Wages paid through an agent, fiduciary, or other person on 
          behalf of two or more employers.
31.3402(h)(1)-1 Withholding on basis of average wages.
31.3402(h)(2)-1 Withholding on basis of annualized wages.
31.3402(h)(3)-1 Withholding on basis of cumulative wages.
31.3402(h)(4)-1 Other methods.
31.3402(i)-1 Increases in withholding.
31.3402(j)-1 Remuneration other than in cash for service performed by 
          retail commission salesman.
31.3402(k)-1 Special rule for tips.
31.3402(l)-1 Determination and disclosure of marital or filing status.
31.3402(m)-1 Additional withholding allowance.
31.3402(n)-1 Employees incurring no income tax liability.
31.3402(o)-1 Extension of withholding to supplemental unemployment 
          compensation benefits.
31.3402(o)-2 Extension of withholding to annuity payments if requested 
          by payee.
31.3402(o)-3 Extension of withholding to sick pay.
31.3402(p)-1 Voluntary withholding agreements.
31.3402(q)-1 Extension of withholding to certain gambling winnings.
31.3402(r)-1 Withholding on distributions of Indian gaming profits to 
          tribal members.
31.3403-1 Liability for tax.
31.3404-1 Return and payment by governmental employer.
31.3405(a)-1 Questions and answers relating to Federal income tax 
          withholding on periodic retirement and annuity payments.

[[Page 9]]

31.3405(c)-1 Withholding on eligible rollover distributions; questions 
          and answers.
31.3406-0 Outline of the backup withholding regulations.
31.3406a-1 Backup withholding requirement on reportable payments.
31.3406a-2 Definition of payors obligated to backup withhold.
31.3406a-3 Scope and extent of accounts subject to backup withholding.
31.3406a-4 Time when payments are considered to be paid and subject to 
          backup withholding.
31.3406(b((2)-1 Reportable interest payment.
31.3406(b)(2)-2 Original issue discount.
31.3406(b)(2)-3 Window transactions.
31.3406(b)(2)-4 Reportable dividend payment.
31.3406(b)(2)-5 Reportable patronage dividend payment.
31.3406(b)(3)-1 Reportable payments of rents, commissions, nonemployee 
          compensation, etc.
31.3406(b)(3)-2 Reportable barter exchanges and gross proceeds of sales 
          of securities or commodities by brokers.
31.3406(b)(3)-3 Reportable payments by certain fishing boat operators.
31.3406(b)(3)-4 Reportable payments of royalties.
31.3406(b)(3)-5 Reportable payments of payment card and third party 
          network transactions.
31.3406(b)(4)-1 Exemption for certain minimal payments.
31.3406(c)-1 Notified payee underreporting of reportable interest or 
          dividend payments.
31.3406(d)-1 Manner required for furnishing a taxpayer identification 
          number.
31.3406(d)-2 Payee certification failure.
31.3406(d)-3 Special 30-day rules for certain reportable payments.
31.3406(d)-4 Special rules for readily tradable instruments acquired 
          through a broker.
31.3406(d)-5 Backup withholding when the Service or a broker notifies 
          the payor to withhold because the payee's taxpayer 
          identification number is incorrect.
31.3406(e)-1 Period during which backup withholding is required.
31.3406(f)-1 Confidentiality of information.
31.3406(g)-1 Exception for payments to certain payees and certain other 
          payments.
31.3406(g)-2 Exception for reportable payments for which withholding is 
          otherwise required.
31.3406(g)-3 Exemption while payee is waiting for a taxpayer 
          identification number.
31.3406(h)-1 Definitions.
31.3406(h)-2 Special rules.
31.3406(h)-3 Certificates.
31.3406(i)-1 Effective date.
31.3406(j)-1 Taxpayer Identification Number (TIN) matching program.

 Subpart F_General Provisions Relating to Employment Taxes (Chapter 25, 
                     Internal Revenue Code of 1954)

31.3501(a)-1T Question and answer relating to the time employers must 
          collect and pay the taxes on noncash fringe benefits 
          (Temporary).
31.3502-1 Nondeductibility of taxes in computing taxable income.
31.3503-1 Tax under chapter 21 or 22 paid under wrong chapter.
31.3504-1 Designation of agent by application.
31.3504-2 Designation of payor to perform acts of an employer.
31.3505-1 Liability of third parties paying or providing for wages.
31.3506-1 Companion sitting placement services.
31.3507-1 Advance payments of earned income credit.
31.3507-2 Earned income credit advance payment certificates.
31.3511-1 Certified professional employer organization.

Subpart G_Administrative Provisions of Special Application to Employment 
Taxes (Selected Provisions of Subtitle F, Internal Revenue Code of 1954)

31.6001-1 Records in general.
31.6001-2 Additional records under Federal Insurance Contributions Act.
31.6001-3 Additional records under Railroad Retirement Tax Act.
31.6001-4 Additional records under Federal Unemployment Tax Act.
31.6001-5 Additional records in connection with collection of income tax 
          at source on wages.
31.6001-6 Notice by district director requiring returns, statements, or 
          the keeping of records.
31.6011-4 Requirement of statement disclosing participation in certain 
          transactions by taxpayers.
31.6011(a)-1 Returns under Federal Insurance Contributions Act.
31.6011(a)-2 Returns under Railroad Retirement Tax Act.
31.6011(a)-3 Returns under Federal Unemployment Tax Act.
31.6011(a)-3A Returns of the railroad unemployment repayment tax.
31.6011(a)-4 Returns of income tax withheld.
31.6011(a)-5 Monthly returns.
31.6011(a)-6 Final returns.
31.6011(a)-7 Execution of returns.
31.6011(a)-8 Composite return in lieu of specified form.
31.6011(a)-9 Instructions to forms control as to which form is to be 
          used.

[[Page 10]]

31.6011(a)-10 Instructions to forms may waive filing requirement in case 
          of no liability tax returns.
31.6011(b)-1 Employers' identification numbers.
31.6011(b)-2 Employees' account numbers.
31.6051-1 Statements for employees.
31.6051-2 Information returns on Form W-3 and Social Security 
          Administration copies of Forms W-2.
31.6051-3 Statements required in case of sick pay paid by third parties.
31.6051-4 Statement required in case of backup withholding.
31.6053-1 Report of tips by employee to employer.
31.6053-2 Employer statement of uncollected employee tax.
31.6053-3 Reporting by certain large food or beverage establishments 
          with respect to tips.
31.6053-4 Substantiation requirements for tipped employees.
31.6060-1 Reporting requirements for tax return preparers.
31.6061-1 Signing of returns.
31.6065(a)-1 Verification of returns or other documents.
31.6071(a)-1 Time for filing returns and other documents.
31.6071(a)-1A Time for filing returns with respect to the railroad 
          unemployment repayment tax.
31.6081(a)-1 Extensions of time for filing returns and other documents.
31.6091-1 Place for filing returns.
31.6101-1 Period covered by returns.
31.6107-1 Tax return preparer must furnish copy of return to taxpayer 
          and must retain a copy or record.
31.6109-1 Supplying of identifying numbers.
31.6109-2 Tax return preparers furnishing identifying numbers for 
          returns or claims for refund.
31.6151-1 Time for paying tax.
31.6157-1 Cross reference.
31.6161(a)(1)-1 Extensions of time for paying tax.
31.6205-1 Adjustments of underpayments.
31.6205-2 Adjustments of underpayments of hospital insurance taxes that 
          accrue after March 31, 1986, and before January 1, 1987, with 
          respect to wages of State and local government employees.
31.6302-0 Table of Contents.
31.6302-1 Deposit rules for taxes under the Federal Insurance 
          Contributions Act (FICA) and withheld income taxes.
31.6302-2 Deposit rules for taxes under the Railroad Retirement Tax Act 
          (RRTA).
31.6302-3 Federal tax deposit rules for amounts withheld under the 
          backup withholding requirements of section 3406 for payments 
          made after December 31, 1992.
31.6302-4 Deposit rules for withheld income taxes attributable to 
          nonpayroll payments.
31.6302(b)-1 Method of collection.
31.6302(c)-1 Use of Government depositories in connection with taxes 
          under Federal Insurance Contributions Act and income tax 
          withheld for amounts attributable to payments made before 
          January 1, 1993.
31.6302(c)-2 Use of Government depositories in connection with employee 
          and employer taxes under Railroad Retirement Tax Act for 
          amounts attributable to payments made before January 1, 1993.
31.6302(c)-3 Deposit rules for taxes under the Federal Unemployment Tax 
          Act.
31.6302(c)-4 Cross references.
31.6361-1 Collection and administration of qualified State individual 
          income taxes.
31.6402(a)-1 Credits or refunds.
31.6402(a)-2 Credit or refund of tax under Federal Insurance 
          Contributions Act or Railroad Retirement Tax Act.
31.6402(a)-3 Refund of Federal unemployment tax.
31.6404(a)-1 Abatements.
31.6413(a)-1 Repayment or reimbursement by employer of tax erroneously 
          collected from employee.
31.6413(a)-2 Adjustments of overpayments.
31.6413(a)-3 Repayment by payor of tax erroneously collected from payee.
31.6413(b)-1 Overpayments of certain employment taxes.
31.6413(c)-1 Special refunds.
31.6414-1 Credit or refund of income tax withheld from wages.
31.6652(c)-1 Failure of employee to report tips for purposes of the 
          Federal Insurance Contributions Act.
31.6674-1 Penalties for fraudulent statement or failure to furnish 
          statement.
31.6682-1 False information with respect to withholding.
31.6694-1 Section 6694 penalties applicable to tax return preparer.
31.6694-2 Penalties for understatement due to an unreasonable position.
31.6694-3 Penalty for understatement due to willful, reckless, or 
          intentional conduct.
31.6694-4 Extension of period of collection when tax return preparer 
          pays 15 percent of a penalty for understatement of taxpayer's 
          liability and certain other procedural matters.
31.6695-1 Other assessable penalties with respect to the preparation of 
          tax returns for other persons.
31.6696-1 Claims for credit or refund by tax return preparers.
31.7701-1 Tax return preparer.
31.7701-2 Definitions; spouse, husband and wife, husband, wife, 
          marriage.
31.7805-1 Promulgation of regulations.

    Authority: 26 U.S.C. 7805.
    Section 31.3111-6T also issued under sec. 7001 and sec. 7003 of the 
Families First

[[Page 11]]

Coronavirus Response Act of 2020 and sec. 2301 of the Coronavirus Aid, 
Relief, and Economic Security Act of 2020.
    Sections 31.3121(a)-1, 31.3121(a)-3, 31.3231(e)-1, 31.3231(e)-3, 
31.3306(b)-1, 31.3306(b)-2, 31.3401(a)-1, and 31.3401(a)-4 also issued 
under 26 U.S.C. 62.
    Section 31.3121(b)(7)-2 also issued under 26 U.S.C. 3121(b)(7)(F).
    Section 31.3121(b)(19)-1 also issued under 26 U.S.C. 7701(b)(11).
    Section 31.3131-1T also issued under 26 U.S.C. 3131(g).
    Section 31.3132-1T also issued under 26 U.S.C. 3132(g).
    Section 31.3134-1T also issued under 26 U.S.C. 3134(m)(3).
    Section 31.3221-5T also issued under sec. 7001 and sec. 7003 of the 
Families First Coronavirus Response Act of 2020 and sec. 2301 of the 
Coronavirus Aid, Relief, and Economic Security Act of 2020.
    Section 31.3306(c)(18)-1 also issued under 26 U.S.C. 7701(b)(11).
    Section 31.3401(a)(6)-1 also issued under 26 U.S.C. 1441(c)(4) and 
26 U.S.C. 3401(a)(6).
    Section 31.3402 also issued under 26 U.S.C. 3402(i) and (m).
    Section 31.3402(f)(1)-1 also issued under 26 U.S.C. 3402(m).
    Section 31.3402(f)(5)-1 also issued under 26 U.S.C. 3402 (i) and 
(m).
    Section 31.3402(f)(5)-1T also issued under 26 U.S.C. 3402 (i) and 
(m).
    Section 31.3402(n)-1 also issued under 26 U.S.C. 6001, 6011 and 
6364.
    Section 31.3402(r)-1 also issued under 26 U.S.C. 3402(p) and (r).
    Section 31.3405(a)-1 also issued under 26 U.S.C. 3405(a)(4).
    Sections 31.3406(a)-1 through 31.3406(i)-1 also issued under 26 
U.S.C.3406(i).
    Section 31.3406(j)-1 also issued under 26 U.S.C. 3406(i).
    Section 31.3511-1 is also issued under 26 U.S.C. 3511(h).
    Section 31.6011(a)-3A is also issued under the authority of 26 
U.S.C. 6011.
    Section 31.6011(a)-4 also issued under 26 U.S.C. 6011.
    Section 31.6051-1 also issued under 26 U.S.C. 6051.
    Section 31.6051-2 also issued under 26 U.S.C. 6051.
    Section 31.6051-3 also issued under 26 U.S.C. 6051.
    Sections 31.6053-3 (b)(5), (h) and (j)(9) and 31.6053-4 are also 
issued under sec. 1072 of Pub. L. 98-369, 98 Stat. 1052; and 26 U.S.C. 
6001.
    Sections 31.6053-3T and 31.6053-4T are also issued under sec. 1072 
of Pub. L. 98-369, 98 Stat. 1052; and 26 U.S.C. 6001.
    Section 31.6060-1 also issued under 26 U.S.C. 6060(a).
    Section 31.6071(a)-1 also issued under 26 U.S.C.6071.
    Section 31.6071(a)-1A is also issued under the authority of 26 
U.S.C. 6071.
    Section 31.6081-1 also issued under 26 U.S.C. 6081.
    Section 31.6109-2 also issued under 26 U.S.C. 6109(a).
    Section 31.6205-2 is also issued under 26 U.S.C. 6205(a)(1).
    Section 31.6302-1 also issued under 26 U.S.C. 6302(a) and (h).
    Section 31.6302-2, 31.6302-3, and 31.6302-4 also issued under 26 
U.S.C. 6302(a) and (h).
    Section 31.6302(c)-2A also issued under 26 U.S.C. 6157(d) and 
6302(a) and (h).
    Section 31.6302(c)-3 also issued under 26 U.S.C. 6302(a) and (h).
    Section 31.6695-1 also issued under 26 U.S.C. 6695(b).

    Source: T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 
1960, unless otherwise noted.



                         Subpart A_Introduction



Sec.  31.0-1  Introduction.

    (a) In general. The regulations in this part relate to the 
employment taxes imposed by subtitle C (chapters 21 to 25, inclusive) of 
the Internal Revenue Code of 1954, as amended. References in the 
regulations to the ``Internal Revenue Code'' or the ``Code'' are 
references to the Internal Revenue Code of 1954, as amended, unless 
otherwise indicated. References to the Federal Insurance Contributions 
Act, the Railroad Retirement Tax Act, and the Federal Unemployment Tax 
Act are references to chapters 21, 22, and 23, respectively, of the 
Code. References to sections of law are references to sections of the 
Internal Revenue Code unless otherwise indicated. The regulations in 
this part also provide rules relating to the deposit of other taxes by 
electronic funds transfer.
    (b) Division of regulations. The regulations in this part are 
divided into 7 subparts. Subpart A contains provisions relating to 
general definitions and use of terms, the division and scope of the 
regulations in this part, and the extent to which the regulations in 
this part supersede prior regulations relating to employment taxes. 
Subpart B relates to the taxes under the Federal Insurance Contributions 
Act. Subpart C relates to the taxes under the Railroad Retirement Tax 
Act. Subpart D relates to the tax under the Federal Unemployment Tax 
Act.

[[Page 12]]

Subpart E relates to the collection of income tax at source on wages 
under chapter 24 of the Code. Subpart F relates to the provisions of 
chapter 25 of the Code which are applicable in respect of the taxes 
imposed by chapters 21 to 24, inclusive, of the Code. Subpart G relates 
to selected provisions of subtitle F of the Code, relating to procedure 
and administration, which have special application in respect of the 
taxes imposed by subtitle C of the Code. Inasmuch as these regulations 
constitute Part 31 of title 26 of the Code of Federal Regulations, each 
section of the regulations is preceded by a section symbol and 31 
followed by a decimal point (Sec.  31.). Sections of law or references 
thereto are preceded by ``Sec.'' or the word ``section''.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 8723, 62 FR 
37492, July 14, 1997]



Sec.  31.0-2  General definitions and use of terms.

    (a) In general. As used in the regulations in this part, unless 
otherwise expressly indicated--
    (1) The terms defined in the provisions of law contained in the 
regulations in this part shall have the meanings so assigned to them.
    (2) The Internal Revenue Code of 1954 means the act approved August 
16, 1954 (26 U.S.C.), entitled ``An act to revise the internal revenue 
laws of the United States'', as amended.
    (3) The Internal Revenue Code of 1939 means the act approved 
February 10, 1939 (53 Stat., Part 1), as amended.
    (4) The Social Security Act means the act approved August 14, 1935 
(42 U.S.C. c. 7), as amended.
    (5) (i) The Social Security Amendments of 1954 means the act 
approved September 1, 1954 (68 Stat. 1052), as amended.
    (ii) The Social Security Amendments of 1956 means the act approved 
August 1, 1956 (70 Stat. 807), as amended.
    (iii) The Social Security Amendments of 1958 means the act approved 
August 28, 1958 (72 Stat. 1013), as amended.
    (iv) The Social Security Amendments of 1960 means the act approved 
September 13, 1960 (74 Stat. 924).
    (v) The Social Security Amendments of 1961 means the act approved 
June 30, 1961 (75 Stat. 131).
    (vi) The Social Security Amendments of 1965 means the act approved 
July 30, 1965 (79 Stat. 286).
    (vii) The Social Security Amendments of 1967 means the act approved 
January 2, 1968 (81 Stat. 821).
    (viii) The Social Security Amendments of 1972 means the act approved 
October 30, 1972 (86 Stat. 1329).
    (6) The Social Security Administration means the Social Security 
Administration of the Department of Health and Human Services. (See the 
Statement of Organization and delegations of Authority of the Department 
of Health and Human Services (20 CFR Part 1996).)
    (7) District director means district director of internal revenue. 
The term also includes the Director of International Operations in all 
cases where the authority to perform the functions which may be 
performed by a district director has been delegated to the Director of 
International Operations.
    (8) Person includes an individual, a corporation, a partnership, a 
trust or estate, a joint-stock company, an association, or a syndicate, 
group, pool, joint venture or other unincorporated organization or 
group, through or by means of which any business, financial operation, 
or venture is carried on. It includes a guardian, committee, trustee, 
executor, administrator, trustee in bankruptcy, receiver, assignee for 
the benefit of creditors, conservator, or any person acting in a 
fiduciary capacity.
    (9) Calendar quarter means a period of 3 calendar months ending on 
March 31, June 30, September 30, or December 31.
    (10) Account number means the identifying number of an employee 
assigned, as the case may be, under the Internal Revenue Code of 1954, 
under Subchapter A of Chapter 9 of the Internal Revenue Code of 1939, or 
under title VIII of the Social Security Act. See also Sec.  301.7701-11 
of this chapter (Regulations on Procedure and Administration).
    (11) Identification number means the identifying number of an 
employer assigned, as the case may be, under the

[[Page 13]]

Internal Revenue Code of 1954, under Subchapter A or D of Chapter 9 of 
the Internal Revenue Code of 1939, or under title VIII of the Social 
Security Act. See also Sec.  301.7701-12 of this chapter (Regulations on 
Procedure and Administration).
    (12) Regulations 90 means the regulations approved February 17, 1936 
(26 CFR (1939) Part 400), as amended, relating to the excise tax on 
employers under title IX of the Social Security Act, and such 
regulations as made applicable to Subchapter C of Chapter 9 and other 
provisions of the Internal Revenue Code of 1939 by Treasury Decision 
4885, approved February 11, 1939 (26 CFR (1939) 1943 Cum. Supp., p. 
5876), together with any amendments to such regulations as so made 
applicable to the Internal Revenue Code of 1939.
    (13) Regulations 91 means the regulations approved November 9, 1936 
(26 CFR (1939) Part 401), as amended, relating to the employees' tax and 
the employers' tax under title VIII of the Social Security Act, and such 
regulations as made applicable to Subchapter A of Chapter 9 and other 
provisions of the Internal Revenue Code of 1939 by Treasury Decision 
4885, approved February 11, 1939 (26 CFR (1939) 1943 Cum. Supp., p. 
5876), together with any amendments to such regulations as so made 
applicable to the Internal Revenue Code of 1939.
    (14) Regulations 106 means the regulations approved February 24, 
1940 (26 CFR (1939) Part 402), as amended, relating to the employees' 
tax and the employers' tax under the Federal Insurance Contributions Act 
(Subchapter A of Chapter 9 of the Internal Revenue Code of 1939) with 
respect to the period after 1939 and before 1951.
    (15) Regulations 107 means the regulations approved September 12, 
1940 (26 CFR (1939) Part 403), as amended, relating to the excise tax on 
employers under the Federal Unemployment Tax Act (Subchapter C of 
Chapter 9 of the Internal Revenue Code of 1939) with respect to the 
period after 1939 and before 1955.
    (16) Regulations 114 means the regulations approved December 30, 
1948 (26 CFR (1939) Part 411), as amended, relating to the employers' 
tax, employees' tax, and employee representatives' tax under the 
Railroad Retirement Tax Act (Subchapter B of Chapter 9 of the Internal 
Revenue Code of 1939) with respect to compensation paid after 1948 for 
services rendered after 1946 and before 1955.
    (17) Regulations 120 means the regulations approved December 22, 
1953 (26 CFR (1939) Part 406), as amended, relating to collection of 
income tax at source on wages under Subchapter D of Chapter 9 of the 
Internal Revenue Code of 1939 with respect to the period after 1953 and 
before 1955.
    (18) Regulations 128 means the regulations approved December 6, 1951 
(26 CFR (1939) Part 408), as amended, relating to the employee tax and 
the employer tax under the Federal Insurance Contributions Act 
(Subchapter A of Chapter 9 of the Internal Revenue Code of 1939) with 
respect to the period after 1950 and before 1955.
    (19) The cross references in the regulations in this part to other 
portions of the regulations, when the word ``see'' is used, are made 
only for convenience and shall be given no legal effect.
    (b) Subpart B. As used in Subpart B of this part, unless otherwise 
expressly indicated--
    (1) Act means the Federal Insurance Contributions Act.
    (2) Taxes means the employee tax and the employer tax, as 
respectively defined in this paragraph.
    (3) Employee tax means the tax (with respect to wages received by an 
employee after Dec. 31, 1965, the taxes) imposed by section 3101 of the 
Code.
    (4) Employer tax means the tax (with respect to wages paid by an 
employer after Dec. 31, 1965, the taxes) imposed by section 3111 of the 
Code.
    (c) Subpart C. As used in Subpart C of this part, unless otherwise 
expressly indicated--
    (1) Act means the Railroad Retirement Tax Act.
    (2) Railway Labor Act means the act approved May 20, 1926 (45 U.S.C. 
c. 8), as amended.
    (3) Railroad Retirement Act of 1937 means the act approved June 24, 
1937 (45 U.S.C. 228a and following), as amended.

[[Page 14]]

    (4) Railroad Retirement Board means the board established pursuant 
to section 10 of the Railroad Retirement Act of 1937 (45 U.S.C. 228j).
    (5) Tax means the employee tax, the employee representative tax, or 
the employer tax, as respectively defined in this paragraph.
    (6) Employee tax means the tax imposed by section 3201 of the Code.
    (7) Employee representative tax means the tax imposed by section 
3211 of the Code.
    (8) Employer tax means the tax imposed by section 3221 of the Code.
    (d) Subpart D. As used in Subpart D of this part, unless otherwise 
expressly indicated:
    (1) Act means the Federal Unemployment Tax Act.
    (2) Railroad Unemployment Insurance Act means the act approved June 
25, 1938 (45 U.S.C. c. 11), as amended.
    (3) Tax means the tax imposed by section 3301 of the Code.
    (e) Subpart E. As used in Subpart E of this part, unless otherwise 
expressly indicated, tax means the tax required to be deducted and 
withheld from wages under section 3402 of the Code.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6606, 27 FR 
8516, Aug. 25, 1962; T.D. 6658, 28 FR 6631, June 27, 1963; T.D. 6983, 33 
FR 18013, Dec. 4, 1968; T.D. 7280, 38 FR 18369, July 10, 1973]



Sec.  31.0-3  Scope of regulations.

    (a) Subpart B. The regulations in Subpart B of this part relate to 
the imposition of the employee tax and the employer tax under the 
Federal Insurance Contributions Act with respect to wages paid and 
received after 1954 for employment performed after 1936. In addition to 
employment in the case of remuneration therefor paid and received after 
1954, the regulations in Subpart B of this part relate also to 
employment performed after 1954 in the case of remuneration therefor 
paid and received before 1955. The regulations in Subpart B of this part 
include provisions relating to the definition of terms applicable in the 
determination of the taxes under the Federal Insurance Contributions 
Act, such as ``employee'', ``wages'', and ``employment''. The provisions 
of Subpart B of this part relating to ``employment'' are applicable 
also, to the extent provided in Sec.  31.3121(b)-2, to services 
performed before 1955 the remuneration for which is paid after 1954. 
(For prior regulations on similar subject matter, see 26 CFR (1939) Part 
408 (Regulations 128).)
    (b) Subpart C. The regulations in Subpart C of this part relate to 
the imposition of the employee tax, the employee representative tax, and 
the employer tax under the Railroad Retirement Tax Act with respect to 
compensation paid after 1954, for services rendered after such date. The 
regulations in Subpart C of this part include provisions relating to the 
definition of terms applicable in the determination of the taxes under 
the Railroad Retirement Tax Act, such as ``employee'', ``employee 
representative'', ``employer'', and ``compensation''. (For prior 
regulations on similar subject matter, see 26 CFR (1939) Part 411 
(Regulations 114).)
    (c) Subpart D. The regulations in Subpart D of this part relate to 
the imposition on employers of the excise tax under the Federal 
Unemployment Tax Act for the calendar year 1955 and subsequent calendar 
years with respect to wages paid after 1954 for employment performed 
after 1938. In addition to employment in the case of remuneration 
therefor paid after 1954, the regulations in Subpart D of this part 
relate also to employment performed after 1954 in the case of 
remuneration therefor paid before 1955. The regulations in Subpart D of 
this part include provisions relating to the definition of terms 
applicable in the determination of the tax under the Federal 
Unemployment Tax Act, such as ``employee'', ``employer'', 
``employment'', and ``wages''. The regulations in Subpart D of this part 
also include provisions relating to the credits against the Federal tax 
for State contributions. (For prior regulations on similar subject 
matter, see 26 CFR (1939) Part 403 (Regulations 107).)
    (d) Subpart E. The regulations in Subpart E of this part relate to 
the withholding under chapter 24 of the Code of income tax at source on 
wages paid after 1954, regardless of when such wages were earned. The 
regulations in Subpart E of this part include provisions relating to the 
definition of terms applicable in the determination of the tax under 
chapter 24 of the Code,

[[Page 15]]

such as ``employee'', ``employer'', and ``wages''. (For prior 
regulations on similar subject matter, see 26 CFR (1939) Part 406 
(Regulations 120).)
    (e) Subpart F. The regulations in Subpart F of this part deal with 
the general provisions contained in chapter 25 of the Code, which relate 
to the employment taxes imposed by chapters 21 to 24, inclusive, of the 
Code. (For prior regulations on the subject matter of section 3503, see 
26 CFR (1939) 411.802 and 408.803 (Regulations 114 and 128, 
respectively). For prior regulations on the subject matter of section 
3504, see 26 CFR (1939) 406.807 and 408.906 (Regulations 120 and 128, 
respectively).)
    (f) Subpart G. The regulations in Subpart G of this part, which are 
prescribed under selected provisions of subtitle F of the Code, relate 
to the procedural and administrative requirements in respect of records, 
returns, deposits, payments, and related matters applicable to the 
employment taxes imposed by subtitle C (chapters 21 to 25, inclusive) of 
the Code. In addition, the provisions of Subpart G of this part relate 
to adjustments and to claims for refund, credit, or abatement, made 
after 1954, in connection with the employment taxes imposed by subtitle 
C of the Internal Revenue Code of 1954, by chapter 9 of the Internal 
Revenue Code of 1939, or by the corresponding provisions of prior law, 
but not to any adjustment reported, or credit taken, in whole or in part 
on any return or supplemental return filed on or before July 31, 1960. 
The provisions of Subpart G of this part also relate to deposits of 
taxes imposed by subchapter B of chapter 9 of the 1939 Code or by 
corresponding provisions of prior law with respect to compensation paid 
after 1954 for services rendered before 1955. For other administrative 
provisions which have application to the employment taxes imposed by 
subtitle C of the Code, see Part 301 of this chapter (Regulations on 
Procedure and Administration). (The administrative and procedural 
regulations applicable with respect to a particular employment tax for a 
prior period were combined with the substantive regulations relating to 
such tax for such period. For the regulations applicable to the 
respective taxes for prior periods, see paragraphs (a), (b), (c), and 
(d) of this section.) Subpart G of this part also provides rules 
relating to the deposit of other taxes by electronic funds transfer.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 
8305, July 2, 1964; T.D. 8723, 62 FR 37493, July 14, 1997; T.D. 9849, 84 
FR 9238, Mar. 14, 2019]



Sec.  31.0-4  Extent to which the regulations in this part supersede prior
regulations.

    The regulations in this part, with respect to the subject matter 
within the scope thereof, supersede 25 CFR (1939) Parts 403, 406, 408, 
and 411 (Regulations 107, 120, 128, and 114, respectively). The 
Regulation on Monthly Returns and Payment of Employment Taxes (23 FR 
5006) are also superseded.



  Subpart B_Federal Insurance Contributions Act (Chapter 21, Internal 
                          Revenue Code of 1954)

                            Tax on Employees



Sec.  31.3101-1  Measure of employee tax.

    The employee tax is measured by the amount of wages received after 
1954 with respect to employment after 1936. See Sec.  31.3121(a)-1, 
relating to wages; and Sec. Sec.  31.3121(b)-1 to 31.3121(b)-4, 
inclusive, relating to employment. For provisions relating to the time 
of receipt of wages, see Sec.  31.3121(a)-2.

[T.D. 6744, 29 FR 8305, July 2, 1964]



Sec.  31.3101-2  Rates and computation of employee tax.

    (a) Old-Age, Survivors, and Disability Insurance. The rates of 
employee tax for Old-Age, Survivors, and Disability Insurance (OASDI) 
with respect to wages received in calendar years after 1983 are as 
follows (these regulations do not reflect off-Code revisions to the 
following rates):

------------------------------------------------------------------------
                      Calendar year                           Percent
------------------------------------------------------------------------
1984, 1985, 1986, or 1987...............................             5.7
1988 or 1989............................................            6.06
1990 and subsequent years...............................             6.2
------------------------------------------------------------------------

    (b)(1) Hospital Insurance. The rates of employee tax for Hospital 
Insurance (HI) with respect to wages received in calendar years after 
1973 are as follows:

[[Page 16]]



------------------------------------------------------------------------
                      Calendar year                           Percent
------------------------------------------------------------------------
1974, 1975, 1976, or 1977...............................            0.90
1978....................................................            1.00
1979 or 1980............................................            1.05
1981, 1982, 1983, or 1984...............................            1.30
1985....................................................            1.35
1986 and subsequent years...............................            1.45
------------------------------------------------------------------------

    (2) Additional Medicare Tax. (i) The rate of Additional Medicare Tax 
with respect to wages received in taxable years beginning after December 
31, 2012, is as follows:

------------------------------------------------------------------------
                      Taxable year                            Percent
------------------------------------------------------------------------
Beginning after December 31, 2012.......................             0.9
------------------------------------------------------------------------

    (ii) Individuals are liable for Additional Medicare Tax with respect 
to wages received in taxable years beginning after December 31, 2012, 
which are in excess of:

------------------------------------------------------------------------
                     Filling status                          Threshold
------------------------------------------------------------------------
Married individual filing a joint return................        $250,000
Married individual filing a separate return.............         125,000
Any other case..........................................         200,000
------------------------------------------------------------------------

    (c) Computation of employee tax. The employee tax is computed by 
applying to the wages received by the employee the rates in effect at 
the time such wages are received.

    Example. In 1989, A performed services for X which constituted 
employment (see Sec.  31.3121(b)-2). In 1990 A receives from X $1,000 as 
remuneration for such services. The tax is payable at the 6.2 percent 
OASDI rate and the 1.45 percent HI rate in effect for the calendar year 
1990 (the year in which the wages are received) and not at the 6.06 
percent OASDI rate and the 1.45 percent HI rate which were in effect for 
the calendar year 1989 (the year in which the services were performed).

    (d) Effective/applicability date. Paragraphs (a), (b), and (c) of 
this section apply to quarters beginning on or after November 29, 2013.

[T.D. 9645, 78 FR 71471, Nov. 29, 2013, as amended at 79 FR 4623, Jan. 
29, 2014]



Sec.  31.3101-3  When employee tax attaches.

    The employee tax attaches at the time that the wages are received by 
the employee. For provisions relating to the time of such receipt, see 
Sec.  31.3121(a)-2.



Sec.  31.3102-1  Collection of, and liability for, employee tax;
in general.

    (a) The employer shall collect from each of his employees the 
employee tax with respect to wages for employment performed for the 
employer by the employee. The employer shall make the collection by 
deducting or causing to be deducted the amount of the employee tax from 
such wages as and when paid. (For provisions relating to the time of 
such payment, see Sec.  31.3121(a)-2.) The employer is required to 
collect the tax, notwithstanding the wages are paid in something other 
than money, and to pay over the tax in moey. (As to the exclusion from 
wages of remuneration paid in any medium other than cash for certain 
types of services, see Sec.  31.3121(a)(7)-1, relating to such 
remuneration paid for service not in the course of the employer's trade 
or business or for domestic service in a private home of the employer; 
and Sec.  31.3121(a)(8)-1, relating to such remuneration paid for 
agricultural labor.) For provisions relating to the collection of, and 
liability for, employee tax in respect of tips, see Sec.  31.3102-3. For 
special rules relating to Additional Medicare Tax imposed under section 
3101(b)(2), see Sec.  31.3102-4.
    (b) The employer is permitted, but not required, to deduct amounts 
equivalent to employee tax from payments to an employee of cash 
remuneration to which the sections referred to in this paragraph (b) are 
applicable prior to the time that the sum of such payments equals--
    (1) $100 in the calendar year, for service not in the course of the 
employer's trade or business, to which Sec.  31.3121(a)(7)-1 is 
applicable;
    (2) The applicable dollar threshold (as defined in section 3121(x)) 
in the calendar year, for domestic service in a private home of the 
employer, to which Sec.  31.3121(a)(7)-1 is applicable;
    (3) $150 in the calendar year, for agricultural labor, to which 
Sec.  31.3121(a)(8)-1(c)(1)(i) is applicable; or
    (4) $100 in the calendar year, for service performed as a home 
worker, to which Sec.  31.3121(a)(10)-1 is applicable.
    (c) At such time as the sum of the cash payments in the calendar 
year for a type of service referred to in paragraph (b)(1), (b)(2), 
(b)(3) or (b)(4) of this

[[Page 17]]

section equals or exceeds the amount specified, the employer is required 
to collect from the employee any amount of employee tax not previously 
deducted. If an employer pays cash remuneration to an employee for two 
or more of the types of service referred to in paragraph (b)(1), (b)(2), 
(b)(3) or (b)(4) of this section, the provisions of paragraph (b) of 
this section and this paragraph (c) are to be applied separately to the 
amount of remuneration attributable to each type of service. For 
provisions relating to the repayment to an employee, or other 
disposition, of amounts deducted from an employee's remuneration in 
excess of the correct amount of employee tax, see Sec.  31.6413(a)-1.
    (d) In collecting employee tax, the employer shall disregard any 
fractional part of a cent of such tax unless it amounts to one-half cent 
or more, in which case it shall be increased to 1 cent. The employer is 
liable for the employee tax with respect to all wages paid by him to 
each of his employees whether or not it is collected from the employee. 
If, for example, the employer deducts less than the correct amount of 
tax, or if he fails to deduct any part of the tax, he is nevertheless 
liable for the correct amount of the tax. Until collected from him the 
employee also is liable for the employee tax with respect to all the 
wages received by him. Any employee tax collected by or on behalf of an 
employer is a special fund in trust for the United States. See section 
7501. The employer is indemnified against the claims and demands of any 
person for the amount of any payment of such tax made by the employer to 
the district director.
    (e)(1) The provisions of paragraphs (a) and (d) of this section 
apply to any payment made on or after January 1, 1955.
    (2) The provisions of paragraphs (b) and (c) of this section that 
apply to any payment made for service not in the course of the 
employer's trade or business or for service performed as a home worker 
within the meaning of section 3121(d)(3)(C) apply to any such payment 
made on or after January 1, 1978. The provisions of paragraphs (b) and 
(c) of this section that apply to any payment made for domestic service 
in a private home of the employer apply to any such payment made on or 
after January 1, 1994. The provisions of paragraphs (b) and (c) of this 
section that apply to any payment made for agricultural labor apply to 
any such payment made on or after January 1, 1988. For rules applicable 
to any payment for these services made prior to the dates set forth in 
this paragraph (e)(2), see Sec.  31.3102-1 in effect at such time (see 
26 CFR part 31 contained in the edition of 26 CFR Parts 30 to 39, 
revised as of April 1, 2006).
    (f) Effective/applicability date. Paragraph (a) of this section 
applies to quarters beginning on or after November 29, 2013.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 
8305, July 2, 1964; T.D. 7001, 34 FR 998, Jan. 23, 1969; T.D. 9266, 71 
FR 35154, June 19, 2006; T.D. 9645, 78 FR 71472, Nov. 29, 2013]



Sec.  31.3102-2  Manner and time of payment of employee tax.

    The employee tax is payable to the district director in the manner 
and at the time prescribed in Subpart G of the regulations in this part. 
For provisions relating to the payment by an employee of employee tax in 
respect of tips, see paragraph (d) of Sec.  31.3102-3.

[T.D. 7001, 34 FR 998, Jan. 23, 1969]



Sec.  31.3102-3  Collection of, and liability for, employee tax on tips.

    (a) Collection of tax from employee--(1) In general. Subject to the 
limitations set forth in subparagraph (2) of this paragraph, the 
employer shall collect from each of his employees the employee tax on 
those tips received by the employee which constitute wages for purposes 
of the tax imposed by section 3101. (For provisions relating to the 
treatment of tips as wages, see 3121(a)(12) and 3121(q).) The employer 
shall make the collection by deducting or causing to be deducted the 
amount of the employee tax from wages (exclusive of tips) which are 
under the control of the employer or other funds turned over by the 
employee to the employer (see subparagraph (3) of this paragraph). For 
purposes of this section the term ``wages (exclusive of tips)

[[Page 18]]

which are under the control of the employer'' means, with respect to a 
payment of wages, an amount equal to wages as defined in section 3121(a) 
except that tips and noncash remuneration which are wages are not 
included, less the sum of--
    (i) The tax under section 3101 required to be collected by the 
employer in respect of wages as defined in section 3121(a) (exclusive of 
tips);
    (ii) The tax under section 3402 required to be collected by the 
employer in respect of wages as defined in section 3401(a) (exclusive of 
tips); and
    (iii) The amount of taxes imposed on the remuneration of an employee 
withheld by the employer pursuant to State and local law (including 
amounts withheld under an agreement between the employer and the 
employee pursuant to such law) except that the amount of taxes taken 
into account in this subdivision shall not include any amount 
attributable to tips.
    (2) Limitations. An employer is required to collect employee tax on 
tips which constitute wages only in respect of those tips which are 
reported by the employee to the employer in a written statement 
furnished to the employer pursuant to section 6053(a). The employer is 
responsible for the collection of employee tax on tips reported to him 
only to the extent that the employer can--
    (i) During the period beginning at the time the written statement is 
submitted to him and ending at the close of the 10th day of the month 
following the month in which the statement was submitted, or
    (ii) In the case of an employer who elects to deduct the tax on an 
estimated basis (see paragraph (c) of this section), during the period 
beginning at the time the written statement is submitted to him and 
ending at the close of the 30th day following the quarter in which the 
statement was submitted,

collect the employee tax by deducting it or causing it to be deducted as 
provided in subparagraph (1).
    (3) Furnishing of funds to employer. If the amount of employee tax 
in respect of tips reported by the employee to the employer in a written 
statement (or statements) furnished pursuant to section 6053(a) exceeds 
the wages (exclusive of tips) which are under the control of the 
employer, the employee may furnish to the employer, within the period 
specified in subparagraph (2) (i) or (ii) of this paragraph (whichever 
is applicable), an amount of money equal to the amount of such excess.
    (b) Less than $20 of tips. Notwithstanding the provisions of 
paragraph (a) of this section, if an employee furnishes to his employer 
a written statement--
    (1) Covering a period of less than 1 month, and
    (2) The statement is furnished to the employer prior to the close of 
the 10th day of the month following the month in which the tips were 
actually received by the employee, and
    (3) The aggregate amount of tips reported in the statement and in 
all other statements previously furnished by the employee covering 
periods within the same month is less than $20, and the statements, 
collectively, do not cover the entire month,

the employer may deduct amounts equivalent to employee tax on such tips 
from wages (exclusive of tips) which are under the control of the 
employer or other funds turned over by the employee to the employer. For 
provisions relating to the repayment to an employee, or other 
disposition, of amounts deducted from an employee's remuneration in 
excess of the correct amount of employee tax, see Sec.  31.6413(a)-1. 
(As to the exclusion from wages of tips of less than $20, see Sec.  
31.3121(a)(12)-1.)
    (c) Collection of employee tax on estimated basis--(1) In general. 
Subject to certain limitations and conditions, an employer may, at his 
discretion, make collection of the employee tax in respect of tips 
reported by an employee to the employer on an estimated basis. An 
employer who elects to make collection of the employee tax on an 
estimated basis shall:
    (i) In respect of each employee, make an estimate of the amount of 
tips that will be reported, pursuant to section 6053(a), by the employee 
to the employer in a calendar quarter.
    (ii) Determine the amount which must be deducted upon each payment 
of wages (exclusive of tips) which are under the control of the employer 
to be

[[Page 19]]

made during the quarter by the employer to the employee in order to 
collect from the employee during the quarter an amount equal to the 
amount obtained by multiplying the estimated quarterly tips by the sum 
of the rates of tax under subsections (a) and (b) of section 3101.
    (iii) Deduct from any payment of such employee's wages (exclusive of 
tips) which are under the control of the employer, or from funds 
referred to in paragraph (a)(3) of this section, such amount as may be 
necessary to adjust the amount of tax withheld on the estimated basis to 
conform to the amount of employee tax imposed upon, and required to be 
deducted in respect of, tips reported by the employee to the employer 
during the calendar quarter in written statements furnished to the 
employer pursuant to section 6053(a). If an adjustment is required, the 
additional employee tax required to be collected may be deducted upon 
any payment of the employee's wages (exclusive of tips) which are under 
the control of the employer during the quarter and within the first 30 
days following the quarter or from funds turned over by the employee to 
the employer for such purposes within such period. For provisions 
relating to the repayment to an employee, or other disposition, of 
amounts deducted from an employee's remuneration in excess of the 
correct amount of employee tax, see Sec.  31.6413(a)-1.
    (2) Estimating tips employee will report--(i) Initial estimate. The 
initial estimate of the amount of tips that will be reported by a 
particular employee in a calendar quarter shall be made on the basis of 
the facts and circumstances surrounding the employment of that employee. 
However, if a number of employees are employed under substantially the 
same circumstances and working conditions, the initial estimate 
established for one such employee may be used as the initial estimate 
for other employees in that group.
    (ii) Adjusting estimate. If the quarterly estimate of tips in 
respect of a particular employee continues to differ substantially from 
the amount of tips reported by the employee and there are no unusual 
factors involved (for example, an extended absence from work due to 
illness) the employer shall make an appropriate adjustment of his 
estimate of the amount of tips that will be reported by the employee.
    (iii) Reasonableness of estimate. The employer must be prepared, 
upon request of the district director, to disclose the factors upon 
which he relied in making the estimate, and his reasons for believing 
that the estimate is reasonable.
    (d) Employee tax not collected by employer. If--
    (1) The amount of the employee tax imposed by section 3101 in 
respect of those tips received by an employee which constitute wages 
exceeds
    (2) The amount of employee tax imposed by section 3101 (in respect 
of tips reported by the employee to the employer) which can be collected 
by the employer from such employee's wages (exclusive of tips) which are 
under the control of the employer or from funds referred to in paragraph 
(a)(3) of this section,

the employee shall be liable for the payment of tax in an amount equal 
to such excess. For provisions relating to the manner and time of 
payment of employee tax by an employee, see paragraph (d) of Sec.  
31.6011(a)-1 and paragraph (a)(4) of Sec.  31.6071(a)-1. For provisions 
relating to statements required to be furnished by employers to 
employees in respect of uncollected employee tax on tips reported to the 
employer, see Sec.  31.6053-2.

[T.D. 7001, 34 FR 998, Jan. 23, 1969; 34 FR 1554, Jan. 31, 1969]



Sec.  31.3102-4  Special rules regarding Additional Medicare Tax.

    (a) Collection of tax from employee. An employer is required to 
collect from each of its employees the tax imposed by section 3101(b)(2) 
(Additional Medicare Tax) with respect to wages for employment performed 
for the employer by the employee only to the extent the employer pays 
wages to the employee in excess of $200,000 in a calendar year. This 
rule applies regardless of the employee's filing status or other income. 
Thus, the employer disregards any amount of wages or Railroad Retirement 
Tax Act (RRTA) compensation

[[Page 20]]

paid to the employee's spouse. The employer also disregards any RRTA 
compensation paid by the employer to the employee or any wages or RRTA 
compensation paid to the employee by another employer.

    Example. H, who is married and files a joint return, receives 
$100,000 in wages from his employer for the calendar year. I, H's 
spouse, receives $300,000 in wages from her employer for the same 
calendar year. H's wages are not in excess of $200,000, so H's employer 
does not withhold Additional Medicare Tax. I's employer is required to 
collect Additional Medicare Tax only with respect to wages it pays which 
are in excess of the $200,000 threshold (that is, $100,000) for the 
calendar year.

    (b) Collection of amounts not withheld. To the extent the employer 
does not collect Additional Medicare Tax imposed on the employee by 
section 3101(b)(2), the employee is liable to pay the tax.

    Example. J, who is married and files a joint return, receives 
$190,000 in wages from his employer for the calendar year. K, J's 
spouse, receives $150,000 in wages from her employer for the same 
calendar year. Neither J's nor K's wages are in excess of $200,000, so 
neither J's nor K's employers are required to withhold Additional 
Medicare Tax. J and K are liable to pay Additional Medicare Tax on 
$90,000 ($340,000 minus the $250,000 threshold for a joint return).

    (c) Employer's liability for tax. If the employer deducts less than 
the correct amount of Additional Medicare Tax, or if it fails to deduct 
any part of Additional Medicare Tax, it is nevertheless liable for the 
correct amount of tax that it was required to withhold, unless and until 
the employee pays the tax. If an employee subsequently pays the tax that 
the employer failed to deduct, the tax will not be collected from the 
employer. The employer will not be relieved of its liability for payment 
of the tax required to be withheld unless it can show that the tax under 
section 3101(b)(2) has been paid. The employer, however, will remain 
subject to any applicable penalties or additions to tax resulting from 
the failure to withhold as required.
    (d) Effective/applicability date. This section applies to quarters 
beginning on or after November 29, 2013.

[T.D. 9645, 78 FR 71472, Nov. 29, 2013]

                            Tax on Employers



Sec.  31.3111-1  Measure of employer tax.

    The employer tax is measured by the amount of wages paid after 1954 
with respect to employment after 1936. See Sec.  31.3121(a)-1, relating 
to wages, and Sec. Sec.  31.3121(b)-1 to 31.3121(b)-4, inclusive, 
relating to employment. For provisions relating to time of payment of 
wages, see Sec.  31.3121(a)-2.

[T.D. 6744, 29 FR 8306, July 2, 1964]



Sec.  31.3111-2  Rates and computation of employer tax.

    (a) Old-age, survivors, and disability insurance. The rates of 
employer tax for old-age, survivors, and disability insurance with 
respect to wages paid in calendar years after 1954 are as follows:

 
                        Calendar year                           Percent
 
1955 and 1956................................................          2
1957 and 1958................................................       2.25
1959.........................................................        2.5
1960 and 1961................................................          3
1962.........................................................      3.125
1963 to 1965, both inclusive.................................      3.625
1966.........................................................       3.85
1967.........................................................        3.9
1968.........................................................        3.8
1969 and 1970................................................        4.2
1971 and 1972................................................        4.6
1973.........................................................       4.85
1974 to 2010, both inclusive.................................       4.95
2011 and subsequent calendar years...........................       5.95
 

    (b) Hospital insurance. The rates of employer tax for hospital 
insurance with respect to wages paid in calendar years after 1965 are as 
follows:

 
                        Calendar year                           Percent
 
1966.........................................................       0.35
1967.........................................................        .50
1968 to 1972, both inclusive.................................        .60
1973.........................................................        1.0
1974 to 1977, both inclusive.................................       0.90
1978 to 1980, both inclusive.................................       1.10
1981 to 1985, both inclusive.................................       1.35
1986 and subsequent calendar years...........................       1.50
 

    (c) Computation of employer tax. The employer tax is computed by 
applying to the wages paid by the employer the rate in effect at the 
time such wages are paid.

[T.D. 6983, 33 FR 18014, Dec. 4, 1968, as amended by T.D. 7374, 40 FR 
30948, July 24, 1975]



Sec.  31.3111-3  When employer tax attaches.

    The employer tax attaches at the time that the wages are paid by the

[[Page 21]]

employer. For provisions relating to the time of such payment, see Sec.  
31.3121(a)-2.



Sec.  31.3111-4  Liability for employer tax.

    The employer is liable for the employer tax with respect to the 
wages paid to his employees for employment performed for him.



Sec.  31.3111-5  Manner and time of payment of employer tax.

    The employer tax is payable to the district director in the manner 
and at the time prescribed in Subpart G of the regulations in this part.



Sec.  31.3111-6T  Recapture of credits under the Families First Coronavirus
Response Act and the Coronavirus Aid, Relief, and Economic Security Act.

    (a) Recapture of erroneously refunded credits under the Families 
First Coronavirus Response Act. Any amount of credits for qualified sick 
leave wages or qualified family leave wages under sections 7001 and 
7003, respectively, of the Families First Coronavirus Response Act 
(Families First Act), Public Law 116-127, 134 Stat. 178 (2020), as 
modified by section 3606 of the Coronavirus Aid, Relief, and Economic 
Security Act (CARES Act), Public Law 116-136, 134 Stat. 281 (2020), plus 
any amount of credits for qualified health plan expenses under sections 
7001 and 7003, and including any increases in those credits under 
section 7005 of the Families First Act, that are treated as overpayments 
and refunded or credited to an employer under section 6402(a) or section 
6413(b) of the Internal Revenue Code (Code) and to which the employer is 
not entitled, resulting in an erroneous refund to the employer, shall be 
treated as an underpayment of the taxes imposed by section 3111(a) of 
the Code and may be assessed and collected by the Secretary in the same 
manner as the taxes.
    (b) Recapture of erroneously refunded credits under the Coronavirus 
Aid, Relief, and Economic Security Act. Any amount of credits for 
qualified wages under section 2301 of the CARES Act that is treated as 
an overpayment and refunded or credited to an employer under section 
6402(a) or section 6413(b) of the Code and to which the employer is not 
entitled, resulting in an erroneous refund to the employer, shall be 
treated as an underpayment of the taxes imposed by section 3111(a) of 
the Code and may be assessed and collected by the Secretary in the same 
manner as the taxes.
    (c) Advance credit amounts erroneously refunded. The determination 
of any amount of credits erroneously refunded as described in paragraphs 
(a) and (b) of this section must take into account any amount of credits 
advanced to an employer under the process established by the Internal 
Revenue Service in accordance with sections 7001(b)(4)(A)(ii) and 
7003(b)(3)(B) of the Families First Act, as modified by section 3606 of 
the CARES Act, and section 2301(l)(1) of the CARES Act.
    (d) Third party payors. For purposes of this section, employers 
against whom an erroneous refund of the credits under sections 7001 and 
7003 of the Families First Act (including any increases in those credits 
under section 7005 of the Families First Act), as modified by section 
3606 of the CARES Act, and the credits under section 2301 of the CARES 
Act can be assessed as an underpayment of the taxes imposed by section 
3111(a) include persons treated as the employer under sections 3401(d), 
3504, and 3511 of the Code, consistent with their liability for the 
section 3111(a) taxes against which the credit applied.
    (e) Applicability date. This regulation applies to all credit 
refunds under sections 7001 and 7003 of the Families First Act 
(including any increases in those credits under section 7005 of the 
Families First Act), as modified by section 3606 of the CARES Act, 
advanced or paid on or after April 1, 2020 and all credit refunds under 
section 2301 of the CARES Act advanced or paid on or after March 13, 
2020.

[T.D. 9904, 85 FR 45518, July 29, 2020]



Sec.  31.3112-1  Instrumentalities of the United States specifically 
exempted from the employer tax.

    Section 3112 makes ineffectual as to the employer tax imposed by 
section 3111 those provisions of law which grant to an instrumentality 
of the

[[Page 22]]

United States an exemption from taxation, unless such provisions grant a 
specific exemption from the tax imposed by section 3111 by an express 
reference to such section or the corresponding section of prior law 
(section 1410 of the Internal Revenue Code of 1939). Thus, the general 
exemptions from Federal taxation granted by various statutes to certain 
instrumentalities of the United States without specific reference to the 
tax imposed by section 3111 or by section 1410 of the 1939 Code are 
rendered inoperative insofar as such exemptions relate to the tax 
imposed by section 3111. For provisions relating to the exception from 
employment of services performed in the employ of an instrumentality of 
the United States specifically exempted from the employer tax, see Sec.  
31.3121(b)(5)-1. For provisions relating to services performed for an 
instrumentality exempt on December 31, 1950, from the employer tax, see 
paragraph (c) of Sec.  31.3121 (b) (6)-1.

                           General Provisions



Sec.  31.3121(a)-1  Wages.

    (a)(1) Whether remuneration paid after 1954 for employment performed 
after 1936 constitutes wages is determined under section 3121(a). This 
section and Sec. Sec.  31.3121(a)(1)-1 to 31.3121(a)(15)-1, inclusive 
(relating to the statutory exclusions from wages), apply with respect 
only to remuneration paid after 1954 for employment performed after 
1936. Whether remuneration paid after 1936 and before 1940 for 
employment performed after 1936 constitutes wages shall be determined in 
accordance with the applicable provisions of law and of 26 CFR (1939) 
Part 401 (Regulations 91). Whether remuneration paid after 1939 and 
before 1951 for employment performed after 1936 constitutes wages shall 
be determined in accordance with the applicable provisions of law and of 
26 CFR (1939) Part 402 (Regulations 106). Whether remuneration paid 
after 1950 and before 1955 for employment performed after 1936 
constitutes wages shall be determined in accordance with the applicable 
provisions of law and of 26 CFR (1939) Part 408 (Regulations 128).
    (2) The term compensation as used in section 3231(e) of the Internal 
Revenue Code has the same meaning as the term wages as used in this 
section, determined without regard to section 3121(b)(9), except as 
specifically limited by the Railroad Retirement Tax Act (chapter 22 of 
the Internal Revenue Code) or regulation. The Commissioner may provide 
any additional guidance that may be necessary or appropriate in applying 
the definitions of sections 3121(a) and 3231(e).
    (b) The term ``wages'' means all remuneration for employment unless 
specifically excepted under section 3121(a) (see Sec. Sec.  
31.3121(a)(1)-1 to 31.3121(a)(15)-1, inclusive) or paragraph (j) of this 
section.
    (c) The name by which the remuneration for employment is designated 
is immaterial. Thus, salaries, fees, bonuses, and commissions on sales 
or on insurance premiums, are wages if paid as compensation for 
employment.
    (d) Generally the basis upon which the remuneration is paid is 
immaterial in determining whether the remuneration constitutes wages. 
Thus, it may be paid on the basis of piecework, or a percentage of 
profits; and it may be paid hourly, daily, weekly, monthly, or annually. 
See, however, Sec.  31.3121(a)(8)-1 which relates to the treatment of 
cash remuneration computed on a time basis for agricultural labor.
    (e) Generally the medium in which the remuneration is paid is also 
immaterial. It may be paid in cash or in something other than cash, as 
for example, goods, lodging, food, or clothing. Remuneration paid in 
items other than cash shall be computed on the basis of the fair value 
of such items at the time of payment. See, however, Sec. Sec.  31.3121 
(a)(7)-1, 31.3121(a)(8)-1, 31.3121(a)(10)-1, and 31.3121(a)(12)-1, 
relating to the treatment of remuneration paid in any medium other than 
cash for services not in the course of the employer's trade or business 
and for domestic service in a private home of the employer, for 
agricultural labor, for services performed by certain homeworkers, and 
as tips, respectively.
    (f) Ordinarily, facilities or privileges (such as entertainment, 
medical services, or so-called ``courtesy'' discounts on purchases), 
furnished or offered by

[[Page 23]]

an employer to his employees generally, are not considered as 
remuneration for employment if such facilities or privileges are of 
relatively small value and are offered or furnished by the employer 
merely as a means of promoting the health, good will, contentment, or 
efficiency of his employees. The term ``facilities or privileges'', 
however, does not ordinarily include the value of meals or lodging 
furnished, for example, to restaurant or hotel employees, or to seamen 
or other employees aboard vessels, since generally these items 
constitute an appreciable part of the total remuneration of such 
employees.
    (g) Amounts of so-called ``vacation allowances'' paid to an employee 
constitute wages. Thus, the salary of an employee on vacation, paid 
notwithstanding his absence from work, constitutes wages.
    (h) Amounts paid specifically--either as advances or 
reimbursements--for traveling or other bona fide ordinary and necessary 
expenses incurred or reasonably expected to be incurred in the business 
of the employer are not wages. Traveling and other reimbursed expenses 
must be identified either by making a separate payment or by 
specifically indicating the separate amounts where both wages and 
expense allowances are combined in a single payment. For amounts that 
are received by an employee on or after July 1, 1990, with respect to 
expenses paid or incurred on or after July 1, 1990, see Sec.  
31.3121(a)-3.
    (i) Remuneration for employment, unless such remuneration is 
specifically excepted under section 3121(a) or paragraph (j) of this 
section, constitutes wages even though at the time paid the relationship 
of employer and employee no longer exists between the person in whose 
employ the services were performed and the individual who performed 
them.

    Example. A is employed by B during the month of January 1955 in 
employment and is entitled to receive remuneration of $100 for the 
services performed for B, the employer, during the month. A leaves the 
employ of B at the close of business on January 31, 1955. On February 
15, 1955 (when A is no longer an employee of B), B pays A the 
remuneration of $100 which was earned for the services performed in 
January. The $100 is wages and the taxes are payable with respect 
thereto.

    (j) In addition to the exclusions specified in Sec. Sec.  
31.3121(a)(1)-1 to 31.3121(a)(15)-1, inclusive, the following types of 
payments are excluded from wages:
    (1) Remuneration for services which do not constitute employment 
under section 3121(b) and which are not deemed to be employment under 
section 3121(c) (see Sec.  31.3121(c)-1).
    (2) Remuneration for services which are deemed not to be employment 
under section 3121(c) (see Sec.  31.3121(c)-1).
    (3) Tips or gratuities paid, prior to January 1, 1966, directly to 
an employee by a customer of an employer, and not accounted for by the 
employee to the employer. For provisions relating to the treatment of 
tips received by an employee after December 31, 1965, as wages, see 
Sec. Sec.  31.3121(a)(12) and 31.3121(q).
    (k) Split-dollar life insurance arrangements. Except as otherwise 
provided under section 3121(v), see Sec. Sec.  1.61-22 and 1.7872-15 of 
this chapter for rules relating to the treatment of split-dollar life 
insurance arrangements.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 7001, 34 FR 
999, Jan. 23, 1969; T.D. 7374, 40 FR 30948, July 24, 1975; T.D. 8276, 54 
FR 51027, Dec. 12, 1989; T.D. 8324, 55 FR 51696, Dec. 17, 1990; T.D. 
8582, 59 FR 66189, Dec. 23, 1994; T.D. 9092, 68 FR 45361, Sept. 17, 
2003]



Sec.  31.3121(a)-1T  Question and answer relating to the definition of 
wages in section 3121(a) (Temporary).

    The following question and answer relates to the definition of wages 
in section 3121(a) of the Internal Revenue Code of 1954, as amended by 
section 531(d)(1)(A) of the Tax Reform Act of 1984 (98 Stat. 885):
    Q-1: Are fringe benefits included in the definition of ``wages'' 
under section 3121(a)?
    A-1: Yes, unless specifically excluded from the definition of 
``wages'' pursuant to section 3121(a)(1) through (20). For example, a 
fringe benefit provided to or on behalf of an employee is excluded from 
the definition of ``wages'' if at the time such benefit is provided

[[Page 24]]

it is reasonable to believe that the employee will be able to exclude 
such benefit from income under section 117 or 132.

[T.D. 8004, 50 FR 755, Jan. 7, 1985]



Sec.  31.3121(a)-2  Wages; when paid and received.

    (a) In general, wages are received by an employee at the time that 
they are paid by the employer to the employee. Wages are paid by an 
employer at the time that they are actually or constructively paid 
unless under paragraph (c) of this section they are deemed to be 
subsequently paid. For provisions relating to the time when tips 
received by an employee are deemed paid to the employee, see Sec.  
31.3121(q)-1.
    (b) Wages are constructively paid when they are credited to the 
account of or set apart for an employee so that they may be drawn upon 
by him at any time although not then actually reduced to possession. To 
constitute payment in such a case the wages must be credited to or set 
apart for the employee without any substantial limitation or restriction 
as to the time or manner of payment or condition upon which payment is 
to be made, and must be made available to him so that they may be drawn 
upon at any time, and their payment brought within his own control and 
disposition. For provisions relating to the treatment of deductions from 
remuneration as payments of remuneration, see Sec.  31.3123-1.
    (c)(1) The first $100 of cash remuneration paid, either actually or 
constructively, by an employer in any calendar year to an employee for--
    (i) Service not in the course of the employer's trade or business, 
to which Sec.  31.3121(a)(7)-1 is applicable, shall be deemed to be paid 
by the employer to the employee at the first moment of time in such 
calendar year that the sum of such cash payments made within such year 
is at least $100; or
    (ii) Service performed as a home worker within the meaning of 
section 3121(d)(3)(C), to which Sec.  31.3121(a)(10)-1 is applicable, 
shall be deemed to be paid by the employer to the employee at the first 
moment of time in such calendar year that the sum of such cash payments 
made within such year is at least $100.
    (2) Cash remuneration paid, either actually or constructively, by an 
employer in any calendar year to an employee for domestic service in a 
private home of the employer to which Sec.  31.3121(a)(7)-1 is 
applicable, and before the sum of the payments of such cash remuneration 
equals or exceeds the applicable dollar threshold (as defined in section 
3121(x)) for such year, shall be deemed to be paid by the employer to 
the employee at the first moment of time in such calendar year that the 
sum of such cash payments made within such year equals or exceeds the 
applicable dollar threshold (as defined in section 3121(x)) for such 
year.
    (3) Cash remuneration paid, either actually or constructively, by an 
employer in any calendar year to an employee for agricultural labor to 
which Sec.  31.3121(a)(8)-1 is applicable, and before either of the 
events described in paragraphs (c)(3)(i) and (c)(3)(ii) of this section 
has occurred, shall be deemed to be paid by the employer to the employee 
at the first moment of time in such calendar year that--
    (i) The sum of the payments of such remuneration is $150 or more; or
    (ii) The employer's expenditures for agricultural labor in such 
calendar year equals or exceeds $2,500, except that this paragraph 
(c)(3)(ii) shall not apply in determining when such remuneration is 
deemed to be paid under this paragraph if such employee--
    (A) Is employed as a hand-harvest laborer and is paid on a piece 
rate basis in an operation which has been, and is customarily and 
generally recognized as having been, paid on a piece rate basis in the 
region of employment;
    (B) Commutes daily from his permanent residence to the farm on which 
he is so employed; and
    (C) Has been employed in agriculture less than 13 weeks during the 
preceding calendar year.
    (4) If an employer pays cash remuneration to an employee for two or 
more of the types of service referred to in this paragraph, the 
provisions of this paragraph are to be applied separately to the amount 
of remuneration attributable to each type of service.

[[Page 25]]

    (d)(1) The provisions of paragraphs (a) and (b) of this section 
apply to any payment of wages made on or after January 1, 1955.
    (2) The provisions of paragraph (c) of this section that apply to 
any payment of wages made for service not in the course of the 
employer's trade or business or for service performed as a home worker 
within the meaning of section 3121(d)(3)(C) apply to any such payment 
made on or after January 1, 1978. The provisions of paragraph (c) of 
this section that apply to any payment of wages made for domestic 
service in a private home of the employer apply to any such payment made 
on or after January 1, 1994. The provisions of paragraph (c) of this 
section that apply to any payment of wages made for agricultural labor 
apply to any such payment made on or after January 1, 1988. For rules 
applicable to any payment of wages for these services made prior to the 
dates set forth in this paragraph (d)(2), see Sec.  31.3121(a)-2 in 
effect at such time (see 26 CFR part 31 contained in the edition of 26 
CFR Parts 30 to 39, revised as of April 1, 2006).

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 
8306, July 2, 1964; T.D. 7001, 34 FR 999, Jan. 23, 1969; T.D. 9266, 71 
FR 35154, June 19, 2006]



Sec.  31.3121(a)-3  Reimbursement and other expense allowance amounts.

    (a) When excluded from wages. If a reimbursement or other expense 
allowance arrangement meets the requirements of section 62(c) of the 
Code and Sec.  1.62-2 and the expenses are substantiated within a 
reasonable period of time, payments made under the arrangement that do 
not exceed the substantiated expenses are treated as paid under an 
accountable plan and are not wages. In addition, if both wages and the 
reimbursement or other expense allowance are combined in a single 
payment, the reimbursement or other expense allowance must be identified 
either by making a separate payment or by specifically identifying the 
amount of the reimbursement or other expense allowance.
    (b) When included in wages--(1) Accountable plans--(i) General rule. 
Except as provided in paragraph (b)(1)(ii) of this section, if a 
reimbursement or other expense allowance arrangement satisfies the 
requirements of section 62(c) and Sec.  1.62-2, but the expenses are not 
substantiated within a reasonable period of time or amounts in excess of 
the substantiated expenses are not returned within a reasonable period 
of time, the amount paid under the arrangement in excess of the 
substantiated expenses is treated as paid under a nonaccountable plan, 
is included in wages, and is subject to withholding and payment of 
employment taxes no later than the first payroll period following the 
end of the reasonable period.
    (ii) Per diem or mileage allowances. If a reimbursement or other 
expense allowance arrangement providing a per diem or mileage allowance 
satisfies the requirements of section 62(c) and Sec.  1.62-2, but the 
allowance is paid at a rate for each day or mile of travel that exceeds 
the amount of the employee's expenses deemed substantiated for a day or 
mile of travel, the excess portion is treated as paid under a 
nonaccountable plan and is included in wages. In the case of a per diem 
or mileage allowance paid as a reimbursement, the excess portion is 
subject to withholding and payment of employment taxes when paid. In the 
case of a per diem or mileage allowance paid as an advance, the excess 
portion is subject to withholding and payment of employment taxes no 
later than the first payroll period following the payroll period in 
which the expenses with respect to which the advance was paid (i.e., the 
days or miles of travel) are substantiated. The Commissioner may, in his 
discretion, prescribe special rules in pronouncements of general 
applicability regarding the timing of withholding and payment of 
employment taxes on per diem and mileage allowances.
    (2) Nonaccountable plans. If a reimbursement or other expense 
allowance arrangement does not satisfy the requirements of section 62(c) 
and Sec.  1.62-2 (e.g., the arrangement does not require expenses to be 
substantiated or require amounts in excess of the substantiated expenses 
to be returned), all amounts paid under the arrangement are treated as 
paid under a nonaccountable plan, are included in wages, and are subject

[[Page 26]]

to withholding and payment of employment taxes when paid.
    (c) Effective dates. This section generally applies to payments made 
under reimbursement or other expense allowance arrangements received by 
an employee on or after July 1, 1990, with respect to expenses paid or 
incurred on or after July 1, 1990. Paragraph (b)(1)(ii) of this section 
applies to payments made under reimbursement or other expense allowance 
arrangements received by an employee on or after January 1, 1991, with 
respect to expenses paid or incurred on or after January 1, 1991.

[T.D. 8324, 55 FR 51696, Dec. 17, 1990]



Sec.  31.3121(a)(1)-1  Annual wage limitation.

    (a) In general. (1) The term ``wages'' does not include that part of 
the remuneration paid by an employer to an employee within any calendar 
year--
    (i) After 1954 and before 1959 which exceeds the first $4,200 of 
remuneration,
    (ii) After 1958 and before 1966 which exceeds the first $4,800 of 
remuneration,
    (iii) After 1965 and before 1968 which exceeds the first $6,600 of 
remuneration,
    (iv) After 1967 and before 1972 which exceeds the first $7,800 of 
remuneration,
    (v) After 1971 and before 1973 which exceeds the first $9,000 of 
remuneration,
    (vi) After 1972 and before 1974 which exceeds the first $10,800 of 
remuneration,
    (vii) After 1973 and before 1975 which exceeds the first $13,200 of 
remuneration, or
    (viii) After 1974 which exceeds the amount equal to the contribution 
and benefit base (as determined under section 230 of the Social Security 
Act) which is effective for such calendar year

(exclusive of remuneration excepted from wages in accordance with 
paragraph (j) of Sec.  31.3121(a)-1 or Sec. Sec.  31.3121(a)(2)-1 to 
31.3121(a)(15)-1, inclusive) paid within the calendar year by an 
employer to the employee for employment performed for him at any time 
after 1936. For provisions relating to the treatment of tips for 
purposes of the annual wage limitation see Sec.  31.3121(q)-1.
    (2) The annual wage limitation applies only if the remuneration 
received during any 1 calendar year by an employee from the same 
employer for employment performed after 1936 exceeds the amount of such 
limitation. The limitation in such case relates to the amount of 
remuneration received during any 1 calendar year for employment after 
1936 and not to the amount of remuneration for employment performed in 
any 1 calendar year.

    Example. Employee A, in 1967 receives $7,000 from employer B in part 
payment of $8,000 due him from employment performed in 1967. In 1968 A 
receives from employer B the balance of $1,000 due him for employment 
performed in 1967, and thereafter in 1968 also receives $7,000 for 
employment performed in 1968 for employer B. The first $6,600 of the 
$7,000 received during 1967 is subject to the taxes in 1967. The 
remaining $400 received in 1967 is not included as wages and is not 
subject to the taxes. The balance of $1,000 received in 1968 for 
employment during 1967 is subject to the taxes during 1968 as is also 
the first $6,800 of the $7,000 thereafter received in 1968 ($1,000 plus 
$6,800 totaling $7,800, which is the annual wage limitation applicable 
to remuneration received in 1968 by an employee from any one employer). 
The remaining $200 received in 1968 is not included as wages and is not 
subject to the taxes.

    (3) If during a calendar year the employee receives remuneration 
from more than one employer, the annual wage limitation does not apply 
to the aggregate remuneration received from all of such employers, but 
instead applies to the remuneration received during such calendar year 
from each employer with respect to employment after 1936. In such case 
the first remuneration received in any calendar year after 1974 up to 
the amount equal to the contribution and benefit base (as determined 
under section 230 of the Social Security Act) (the first $13,200 
received in 1974, the first $10,800 received in 1973, the first $9,000 
received in 1972, the first $7,800 received in any calendar year after 
1967 and before 1972, the first $6,600 received in any calendar year 
after 1965 and before 1968, the first $4,800 received in any calendar 
year after 1958 and before 1966, or the first $4,200 received in any 
calendar year after 1954 and before 1959) from each

[[Page 27]]

employer constitutes wages and is subject to the taxes, even though, 
under section 6413(c), the employee may be entitled to a special credit 
or refund of a portion of the employee tax deducted from his wages 
received during the calendar year. In this connection and in connection 
with the two examples immediately following, see Sec.  31.6413(c)-1, 
relating to special credits or refunds of employee tax. In connection 
with the annual wage limitation in the case of remuneration paid for 
services performed in the employ of the United States or a wholly owned 
instrumentality thereof, see Sec.  31.3122. In connection with the 
annual wage limitation in the case of remuneration paid for services 
performed in the employ of the Government of Guam, the Government of 
American Samoa, the District of Columbia, a political subdivision of the 
Government of Guam, or the Government of American Samoa, or any 
instrumentality of any of the foregoing which is wholly owned thereby, 
see Sec.  31.3125. In connection with the application of the annual wage 
limitation, see also paragraph (b) of this section, relating to the 
circumstances under which wages paid by a predecessor employer are 
deemed to be paid by his successor. In connection with the annual wage 
limitation in the case of remuneration paid after December 31, 1978, 
from two or more related corporations that compensate an employee 
through a common paymaster, see Sec.  31.3121(s)-1.

    Example 1. During 1968 employee C receives from employer D a salary 
of $1,300 a month for employment performed for D during the first 7 
months of 1968, or total remuneration of $9,100. At the end of the 6th 
month C has received $7,800 from employer D, and only that part of his 
total remuneration from D constitutes wages subject to the taxes. The 
$1,300 received by employee C from employer D in the 7th month is not 
included as wages and is not subject to the taxes. At the end of the 7th 
month C leaves the employ of D and enters the employ of E. C receives 
remuneration of $1,560 a month from employer E in each of the remaining 
5 months of 1968, or total remuneration of $7,800 from employer E. The 
entire $7,800 received by C from employer E constitutes wages and is 
subject to the taxes. Thus, the first $7,800 received from employer D 
and the entire $7,800 received from employer E constitute wages.
    Example 2. During the calendar year 1968 F is simultaneously an 
officer (an employee) of the X Corporation, the Y Corporation, and the Z 
Corporation and during such year receives a salary of $7,800 from each 
corporation. Each $7,800 received by F from each of the Corporations X, 
Y, and Z (whether or not such corporations are related) constitutes 
wages and is subject to the taxes.

    (b) Wages paid by predecessor attributed to successor. (1) If an 
employer (hereinafter referred to as a successor) during any calendar 
year acquires substantially all the property used in a trade or business 
of another employer (hereinafter referred to as a predecessor), or used 
in a separate unit of a trade or business of a predecessor, and if 
immediately after the acquisition the successor employs in his trade or 
business an individual who immediately prior to the acquisition was 
employed in the trade or business of such predecessor, then, for 
purposes of the application of the annual wage limitation set forth in 
paragraph (a) of this section, any remuneration (exclusive of 
remuneration excepted from wages in accordance with paragraph (j) of 
Sec.  31.3121(a)-1 or Sec. Sec.  31.3121(a)(2)-1 to 31.3121(a)(15)-1, 
inclusive) with respect to employment paid (or considered under this 
paragraph as having been paid) to such individual by the predecessor 
during such calendar year and prior to the acquisition shall be 
considered as having been paid by the successor.
    (2) The wages paid, or considered as having been paid, by a 
predecessor to an employee shall, for purposes of the annual wage 
limitation, be treated as having been paid to such employee by a 
successor if:
    (i) The successor during a calendar year acquired substantially all 
the property used in a trade or business, or used in a separate unit of 
a trade or business, of the predecessor;
    (ii) Such employee was employed in the trade or business of the 
predecessor immediately prior to the acquisition and is employed by the 
successor in his trade or business immediately after the acquisition; 
and
    (iii) Such wages were paid during the calendar year in which the 
acquisition occurred and prior to such acquisition.
    (3) The method of acquisition by an employer of the property of 
another

[[Page 28]]

employer is immaterial. The acquisition may occur as a consequence of 
the incorporation of a business by a sole proprietor or a partnership, 
the continuance without interruption of the business of a previously 
existing partnership by a new partnership or by a sole proprietor, or a 
purchase or any other transaction whereby substantially all the property 
used in a trade or business, or used in a separate unit of a trade or 
business, of one employer is acquired by another employer.
    (4) Substantially all the property used in a separate unit of a 
trade or business may consist of substantially all the property used in 
the performance of an essential operation of the trade or business, or 
it may consist of substantially all the property used in a relatively 
self-sustaining entity which forms a part of the trade or business.

    Example 1. The M Corporation which is engaged in the manufacture of 
automobiles, including the manufacture of automobile engines, 
discontinues the manufacture of the engines and transfers all the 
property used in such manufacturing operation to the N Company. The N 
Company is considered to have acquired a separate unit of the trade or 
business of the M Corporation, namely, its engine manufacturing unit.
    Example 2. The R Corporation which is engaged in the operation of a 
chain of grocery stores transfers one of such stores to the S Company. 
The S Company is considered to have acquired a separate unit of the 
trade or business of the R Corporation.

    (5) A successor may receive credit for wages paid to an employee by 
a predecessor only if immediately prior to the acquisition the employee 
was employed by the predecessor in his trade or business which was 
acquired by the successor and if immediately after the acquisition such 
employee is employed by the successor in his trade or business (whether 
or not in the same trade or business in which the acquired property is 
used). If the acquisition involves only a separate unit of a trade or 
business of the predecessor, the employee need not have been employed by 
the predecessor in that unit provided he was employed in the trade or 
business of which the acquired unit was a part.

    Example. The Y Corporation in 1968 acquires by purchase all the 
property of the X Company and immediately after the acquisition employs 
in its trade or business employee A, who, immediately prior to the 
acquisition, was employed by the X Company. The X Company has in 1968 
(the calendar year in which the acquisition occurs) and prior to the 
acquisition paid $5,000 of wages to A. The Y Corporation in 1968 pays to 
A remuneration of $5,000 with respect to employment. Only $2,800 of the 
remuneration paid by the Y Corporation is considered to be wages. For 
purposes of the $7,800 limitation, the Y Corporation is credited with 
the $5,000 paid to A by the X Company. If in the same calendar year, the 
Z Company acquires the property by purchase from the Y Corporation and A 
immediately after the acquistion is employed by the Z Company in its 
trade or business, no part of the remuneration paid to A by the Z 
Company in the year of the acquisition will be considered to be wages. 
The Z Company will be credited with the remuneration paid to A by the Y 
Corporation and also with the wages paid to A by the X Company 
(considered for purposes of the application of the $7,800 limitation as 
having also been paid by the Y Corporation).

    (6) Where a corporation described in section 501(c)(3) which is 
exempt from income tax under section 501(a) has in effect a certificate 
filed pursuant to section 3121(k), or pursuant to section 1426(1) of the 
Internal Revenue Code of 1939, waiving its exemption from the taxes 
imposed by the Act, the activity in which such corporation is engaged is 
considered to be its trade or business for the purpose of determining 
whether the transferred property was used in the trade or business of 
the predecessor and for the purpose of determining whether the 
employment by the predecessor and the successor of an individual whose 
services were retained by the successor constitute employment in a trade 
or business. Thus, if a charitable or religious organization, subject to 
the taxes by virtue of its certificate, acquires all the property of 
another such organization likewise subject to the taxes and retains the 
services of employees of the predecessor, wages paid to such employees 
by the predecessor in the year of the acquisition (and prior to such 
acquisition) will be attributed to the successor for purposes of the 
annual wage limitation.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 
8307, July 2, 1964; T.D. 6983, 33 FR 18015, Dec. 4, 1968; T.D. 7374, 40 
FR 30948, July 24, 1975; T.D. 7660, 44 FR 75139, Dec. 19, 1979]

[[Page 29]]



Sec.  31.3121(a)(2)-1  Payments on account of sickness or accident
disability, medical or hospitalization expenses, or death.

    (a) The term ``wages'' does not include the amount of any payment 
(including any amount paid by an employer for insurance or annuities, or 
into a fund, to provide for any such payment) made to, or on behalf of, 
an employee or any of his dependents under a plan or system established 
by an employer which makes provision for his employees generally (or for 
his employees generally and their dependents) or for a class or classes 
of his employees (or for a class or classes of his employees and their 
dependents), on account of--
    (1) Sickness or accident disability of an employee or any of his 
dependents, only if payment is received under a workers' compensation 
law;
    (2) Medical or hospitalization expenses in connection with sickness 
or accident disability of an employee or any of his dependents, or
    (3) Death of an employee or any of his dependents.
    (b) The plan or system established by an employer need not provide 
for payments on account of all of the specified items, but such plan or 
system may provide for any one or more of such items. Payments for any 
one or more of such items under a plan or system established by an 
employer solely for the dependents of his employees are not within this 
exclusion from wages.
    (c) Dependents of an employee include the employee's husband or 
wife, children, and any other members of the employee's immediate 
family.
    (d) Workers' compensation law. (1) For purposes of paragraph (a)(1) 
of this section, a payment made under a workers' compensation law 
includes a payment made pursuant to a statute in the nature of a 
workers' compensation act.
    (2) For purposes of paragraph (a)(1) of this section, a payment made 
under a workers' compensation law does not include a payment made 
pursuant to a State temporary disability insurance law.
    (3) If an employee receives a payment on account of sickness or 
accident disability that is not made under a workers' compensation law 
or a statute in the nature of a workers' compensation act, the payment 
is not excluded from wages as defined by section 3121(a)(2)(A) even if 
the payment must be repaid if the employee receives a workers' 
compensation award or an award under a statute in the nature of a 
workers' compensation act with respect to the same period of absence 
from work.
    (4) If an employee receives a payment on account of non-occupational 
injury sickness or accident disability such payment is not excluded from 
wages, as defined by section 3121(a)(2)(A).
    (e) Examples. The following examples illustrate the principles of 
paragraph (d) of this section:

    Example 1. A local government employee is injured while performing 
work-related activities. The employee is not covered by the State 
workers' compensation law, but is covered by a local government 
ordinance that requires the local government to pay the employee's full 
salary when the employee is out of work as a result of an injury 
incurred while performing services for the local government. The 
ordinance does not limit or otherwise affect the local government's 
liability to the employee for the work-related injury. The local 
ordinance is not a workers' compensation law, but it is in the nature of 
a workers' compensation act. Therefore, the salary the employee receives 
while out of work as a result of the work-related injury is excluded 
from wages under section 3121(a)(2)(A).
    Example 2. The facts are the same as in Example 1 except that the 
local ordinance requires the employer to continue to pay the employee's 
full salary while the employee is unable to work due to an injury 
whether or not the injury is work-related. Thus, the local ordinance 
does not limit benefits to instances of work-related disability. A 
benefit paid under an ordinance that does not limit benefits to 
instances of work-related injuries is not a statute in the nature of a 
workers' compensation act. Therefore, the salary the injured employee 
receives from the employer while out of work is wages subject to FICA 
even though the employee's injury is work-related.
    Example 3. The facts are the same as in Example 1 except that the 
local ordinance includes a rebuttable presumption that certain injuries, 
including any heart attack incurred by a firefighter or other law 
enforcement personnel is work-related. The presumption in the ordinance 
does not eliminate the requirement that the injury be work-related in 
order to entitle the injured worker to full salary. Therefore, the 
ordinance is a statute in the nature of a workers' compensation

[[Page 30]]

act, and the salary the injured employee receives pursuant to the 
ordinance is excluded from wages under section 3121(a)(2)(A).

    (f) It is immaterial for purposes of this exclusion whether the 
amount or possibility of such benefit payments is taken into 
consideration in fixing the amount of an employee's remuneration or 
whether such payments are required, expressly or impliedly, by the 
contract of service.

[ T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as 
amended by T.D. 9233, 70 FR 74199, Dec. 15, 2005]



Sec.  31.3121(a)(3)-1  Retirement payments.

    The term ``wages'' does not include any payment made by an employer 
to an employee (including any amount paid by an employer for insurance 
or annuities, or into a fund, to provide for any such payment) on 
account of the employee's retirement. Thus, payments made to an employee 
on account of his retirement are excluded from wages under this 
exception even though not made under a plan or system.



Sec.  31.3121(a)(4)-1  Payments on account of sickness or accident 
disability, or medical or hospitalization expenses.

    The term ``wages'' does not include any payment made by an employer 
to, or on behalf of, an employee on account of the employee's sickness 
or accident disability or the medical or hospitalization expenses in 
connection with the employee's sickness or accident disability, if such 
payment is made after the expiration of 6 calendar months following the 
last calendar month in which such employee worked for such employer. 
Such payments are excluded from wages under this exception even though 
not made under a plan or system. If the employee does not actually 
perform services for the employer during the requisite period, the 
existence of the employer- employee relationship during that period is 
immaterial.



Sec.  31.3121(a)(5)-1  Payments from or to certain tax-exempt trusts, or
under or to certain annuity plans or bond purchase plans.

    (a) Payments from or to certain tax- exempt trusts. The term 
``wages'' does not include any payment made--
    (1) By an employer, on behalf of an employee or his beneficiary, 
into a trust, or
    (2) To, or on behalf of, an employee or his beneficiary from a 
trust.

If at the time of such payment the trust is exempt from tax under 
section 501(a) as an organization described in section 401(a). A payment 
made to an employee of such a trust for services rendered as an employee 
of the trust and not as a beneficiary thereof is not within this 
exclusion from wages.
    (b) Payments under or to certain annuity plans. (1) The term 
``wages'' does not include any payment made after December 31, 1962--
    (i) By an employer, on behalf of an employee or his beneficiary, 
into an annuity plan, or
    (ii) To, or on behalf of, an employee or his beneficiary under an 
annuity plan, if at the time of such payment the annuity plan is a plan 
described in section 403(a).
    (2) The term ``wages'' does not include any payment made before 
January 1, 1963--
    (i) By an employer, on behalf of an employee or his beneficiary, 
into an annuity plan, or
    (ii) To, or on behalf of, an employee or his beneficiary under an 
annuity plan,

if at the time of such payment the annuity plan meets the requirements 
of section 401(a)(3), (4), (5), and (6).
    (c) Payments under or to certain bond purchase plans. The term 
``wages'' does not include any payment made after December 31, 1962--
    (1) By an employer, on behalf of an employee or his beneficiary, 
into a bond purchase plan, or
    (2) To, or on behalf of, an employee or his beneficiary under a bond 
purchase plan,

if at the time of such payment the plan is a qualified bond purchase 
plan described in section 405(a).

[T.D. 6876, 31 FR 2596, Feb. 10, 1966]

[[Page 31]]



Sec.  31.3121(a)(5)-2  Payments under or to an annuity contract described
in section 403(b).

    (a) Salary reduction agreement defined. For purposes of section 
3121(a)(5)(D), the term salary reduction agreement means a plan or 
arrangement (whether evidenced by a written instrument or otherwise) 
whereby payment will be made by an employer, on behalf of an employee or 
his or her beneficiary, under or to an annuity contract described in 
section 403(b)--
    (1) If the employee elects to reduce his or her compensation 
pursuant to a cash or deferred election as defined at Sec.  1.401(k)-
1(a)(3) of this chapter;
    (2) If the employee elects to reduce his or her compensation 
pursuant to a one-time irrevocable election made at or before the time 
of initial eligibility to participate in such plan or arrangement (or 
pursuant to a similar arrangement involving a one-time irrevocable 
election); or
    (3) If the employee agrees as a condition of employment (whether 
such condition is set by statute, contract, or otherwise) to make a 
contribution that reduces his or her compensation.
    (b) Effective/applicability date. This section is applicable on 
November 15, 2007.

[T.D. 9367, 72 FR 64942, Nov. 19, 2007]



Sec.  31.3121(a)(6)-1  Payment by an employer of employee tax under 
section 3101 or employee contributions under a State law.

    The term ``wages'' does not include any payment by an employer 
(without deduction from the remuneration of, or other reimbursement 
from, the employee) of either (a) the employee tax imposed by section 
3101 or the corresponding section of prior law, or (b) any payment 
required from an employee under a State unemployment compensation law.



Sec.  31.3121(a)(7)-1  Payments for services not in the course of 
employer's trade or business or for domestic service.

    (a) Meaning of terms--(1) Services not in the course of employer's 
trade or business. The term ``services not in the course of the 
employer's trade or business'' includes services that do not promote or 
advance the trade or business of the employer. Such term does not 
include services performed for a corporation. As used in this section, 
the term does not include service not in the course of the employer's 
trade or business performed on a farm operated for profit or domestic 
service in a private home of the employer. See paragraph (f) of Sec.  
31.3121(g)-1 for provisions relating to services not in the course of 
the employer's trade or business performed on a farm operated for 
profit.
    (2) Domestic service in a private home of the employer. Services of 
a household nature performed by an employee in or about a private home 
of the person by whom he is employed constitute domestic service in a 
private home of the employer. A private home is a fixed place of abode 
of an individual or family. A separate and distinct dwelling unit 
maintained by an individual in an apartment house, hotel, or other 
similar establishment may constitute a private home. If a dwelling house 
is used primarily as a boarding or lodging house for the purpose of 
supplying board or lodging to the public as a business enterprise, it is 
not a private home. In general, services of a household nature in or 
about a private home include services performed by cooks, waiters, 
butlers, housekeepers, governesses, maids, valets, baby sitters, 
janitors, laundresses, furnacemen, caretakers, handymen, gardeners, 
footmen, grooms, and chauffeurs of automobiles for family use. The term 
``domestic service in a private home of the employer'' does not include 
the services enumerated above unless such services are performed in or 
about a private home of the employer. Services not of a household 
nature, such as services performed as a private secretary, tutor, or 
librarian, even though performed in the employer's home, are not 
included within the term ``domestic service in a private home of the 
employer''. As used in this section, the term does not include domestic 
service in a private home of the employer performed on a farm operated 
for profit or service not in the course of the employer's trade or 
business. See paragraph (f) Sec.  31.3121(g)-1 for provisions relating 
to domestic

[[Page 32]]

service in a private home of the employer performed on a farm operated 
for profit.
    (b) Payments other than in cash. The term ``wages'' does not include 
remuneration paid in any medium other than cash (1) for service not in 
the course of the employer's trade or business, or (2) for domestic 
service in a private home of the employer. Cash remuneration includes 
checks and other monetary media of exchange. Remuneration paid in any 
medium other than cash, such as lodging, food, clothing, car tokens, 
transportation passes or tickets, or other goods or commodities, for 
service not in the course of the employer's trade or business or for 
domestic service in a private home of the employer does not constitute 
wages.
    (c) Cash payments. (1) The term wages does not include cash 
remuneration paid by an employer in any calendar year to an employee 
for--
    (i) Domestic service in a private home of the employer, unless the 
cash remuneration paid in such year by the employer to the employee for 
such service equals or exceeds the applicable dollar threshold (as 
defined in section 3121(x)) for such year; or
    (ii) Service not in the course of the employer's trade or business, 
unless the cash remuneration paid in such year by the employer to the 
employee for such service equals or exceeds $100.
    (2) The tests relating to cash remuneration are based on the 
remuneration paid in a calendar year rather than on the remuneration 
earned during a calendar year. The following example illustrates this 
provision:

    Example. On March 31, 2004, employer X pays employee A cash 
remuneration of $100 for service not in the course of X's trade or 
business. Such remuneration constitutes wages subject to the taxes even 
though $10 thereof represents payment for such service performed by A 
for X in December 2003.

    (3) In determining whether wages have been paid either for domestic 
service in a private home of the employer or for service not in the 
course of the employer's trade or business, only cash remuneration for 
such service shall be taken into account. Cash remuneration includes 
checks and other monetary media of exchange. Remuneration paid in any 
other medium, such as lodging, food, clothing, car tokens, 
transportation passes or tickets, or other goods or commodities, is 
disregarded in determining whether the cash-remuneration test is met. If 
an employee receives cash remuneration from an employer in a calendar 
year for both types of services the pertinent cash-remuneration test is 
to be applied separately to each type of service. If an employee 
receives cash remuneration from more than one employer in a calendar 
year for domestic service in a private home of the employer or for 
service not in the course of the employer's trade or business, the 
pertinent cash-remuneration test is to be applied separately to the 
remuneration received from each employer.
    (d) Cross references. (1) For provisions relating to deduction of 
employee tax or amounts equivalent to the tax from cash payments for the 
services described in this section, see Sec.  31.3102-1;
    (2) For provisions relating to time of payment of wages for such 
services, see Sec.  31.3121(a)-2;
    (3) For provisions relating to computations to the nearest dollar of 
any payment of cash remuneration for domestic service in a private home 
of the employer, see Sec.  31.3121(i)-1.
    (e) Effective dates. (1) The provisions of this section apply to any 
cash payment for service not in the course of the employer's trade or 
business made on or after January 1, 1978 and for domestic service in a 
private home of the employer made on or after January 1, 1994.
    (2) For rules applicable to any cash payment made prior to the dates 
set forth in paragraph (e)(1), see Sec.  31.3121(a)(7)-1 in effect at 
such time (see 26 CFR part 31 contained in the edition of 26 CFR Parts 
30 to 39, revised as of April 1, 2006).

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 9266, 71 FR 
35155, June 19, 2006]



Sec.  31.3121(a)(8)-1  Payments for agricultural labor.

    (a) Scope of this section. For purposes of the regulations in this 
section, the term ``agricultural labor'' means only such agricultural 
labor (see Sec.  31.3121(g)-1) as constitutes employment or is

[[Page 33]]

deemed to constitute employment by reason of the rules relating to 
included and excluded services contained in section 3121(c) (see Sec.  
31.3121(c)-1) or the corresponding section of prior law.
    (b) Payments other than in cash. The term ``wages'' does not include 
remuneration paid in any medium other than cash for agricultural labor. 
For meaning of the term ``cash remuneration'', see paragraph (f) of the 
regulations in this section.
    (c) Cash payments. (1) The term wages does not include cash 
remuneration paid by an employer in any calendar year to an employee for 
agricultural labor unless--
    (i) The cash remuneration paid in such year by the employer to the 
employee for such labor is $150 or more; or
    (ii) The employer's expenditures for agricultural labor in such year 
equal or exceed $2,500, except that this paragraph (c)(1)(ii) shall not 
apply in determining whether remuneration paid to an employee 
constitutes wages for agricultural labor if such employee--
    (A) Is employed as a hand-harvest laborer and is paid on a piece 
rate basis in an operation which has been, and is customarily and 
generally recognized as having been, paid on a piece rate basis in the 
region of employment;
    (B) Commutes daily from his permanent residence to the farm on which 
he is so employed; and
    (C) Has been employed in agriculture less than 13 weeks during the 
preceding calendar year.
    (2) The application of the provisions of paragraph (c)(1) of this 
section may be illustrated by the following example:

    Example. Employer X pays A $140 in cash for agricultural labor in 
calendar year 2004. X makes no other payments to A during the year and 
makes no other payment for agricultural labor to any other employee. 
Employee A is not employed as a hand-harvest laborer. Neither the $150-
cash-remuneration test nor the $2,500-employer's-expenditures-for-
agricultural-labor test is met. Accordingly, the remuneration paid by X 
to A is not subject to the taxes. If in 2004 X had paid A $140 in cash 
for agricultural labor and had made expenditures of $2,360 or more to 
other employees for agricultural labor, the $140 paid by X to A would 
have been subject to tax because the $2,500-employer's-expenditures-for-
agricultural-labor test would have been met. Or, if X had paid A $150 in 
cash in 2004 and made no other payments to any other employee for 
agricultural labor, the $150 paid by X to A would have been subject to 
tax because the $150-cash-remuneration test would have been met.

    (d) Application of cash-remuneration test. (1) If an employee 
receives cash remuneration from an employer both for services which 
constitute agricultural labor and for services which do not constitute 
agricultural labor, only the amount of such remuneration which is 
attributable to agricultural labor shall be included in determining 
whether cash remuneration of $150 or more has been paid in the calendar 
year by the employer to the employee for agricultural labor. The 
following example illustrates this paragraph (d)(1):

    Example. Employer X operates a store and also is engaged in farming 
operations. Employee A, who regularly performs services for X in 
connection with the operation of the store, works on X's farm when 
additional help is required for the farm activities. In the calendar 
year 2004, X pays A $140 in cash for services performed in agricultural 
labor, and $4,000 for services performed in connection with the 
operation of the store. X has no additional expenditures for 
agricultural labor in 2004. Since the cash remuneration paid by X to A 
in the calendar year 2004 for agricultural labor is less than $150, the 
$150-cash-remuneration test is not met. The $140 paid by X to A in 2004 
for agricultural labor does not constitute wages and is not subject to 
the taxes.

    (2) The test relating to cash remuneration of $150 or more is based 
on the cash remuneration paid in a calendar year rather than on the 
remuneration earned during a calendar year. It is immaterial if such 
cash remuneration is paid in a calendar year other than the year in 
which the agricultural labor is performed. The following example 
illustrates this paragraph (d)(2):

    Example. Employer X pays cash remuneration of $150 in the calendar 
year 2004 to employee A for agricultural labor. Such remuneration 
constitutes wages even though $10 of such amount represents payment for 
agricultural labor performed by A for X in December 2003.
    (3) In determining whether $150 or more has been paid to an employee 
for agricultural labor, only cash remuneration for such labor shall be 
taken into account. If an employee receives cash remuneration in any one 
calendar year

[[Page 34]]

from more than one employer for agricultural labor, the cash-
remuneration test is to be applied with respect to the remuneration 
received by the employee from each employer in such calendar year for 
such labor.
    (e) Application of employer's-expenditures-for-agricultural-labor 
test. (1) If an employer has expenditures in a calendar year for 
agricultural labor and for non-agricultural labor, only the amount of 
such expenditures for agricultural labor shall be included in 
determining whether the employer's expenditures for agricultural labor 
in such year equal or exceed $2,500. The following example illustrates 
this paragraph (e)(1):

    Example. Employer X operates a store and also is engaged in farming 
operations. Employee A, who regularly performs services for X in 
connection with the operation of the store, works on X's farm when 
additional help is required for the farm activities. In calendar year 
2004, X pays A $140 in cash for services performed in agricultural 
labor, and $4,000 for services performed in connection with the 
operation of the store. X has no additional expenditures for 
agricultural labor in 2004. Since X's expenditures for agricultural 
labor in 2004 are less than $2,500, the employer's-expenditures-for-
agricultural-labor test is not met. The $140 paid by X to A in 2004 for 
agricultural labor does not constitute wages and is not subject to the 
taxes.

    (2) The test relating to an employer's expenditures of $2,500 or 
more for agricultural labor is based on the expenditures paid by the 
employer in a calendar year rather than on the expenses incurred by the 
employer during a calendar year. It is immaterial if the expenditures 
are paid in a calendar year other than the year in which the 
agricultural labor is performed. The following example illustrates this 
paragraph (e)(2):

    Example. Employer X employs A to construct fences on a farm owned by 
X. The work constitutes agricultural labor and is performed over the 
course of November and December 2003. A is not employed by X at any 
other time, however X does have other employees to whom X pays 
remuneration of $2,000 for agricultural labor in 2003. X pays A $140 in 
cash in November 2003 and $140 in cash in January 2004, in full payment 
for the work. The $140 payment to A made in November is not wages for 
calendar year 2003 because the $150-cash-remuneration test is not met 
and X's total expenditures for agricultural labor for such year are not 
equal to or in excess of $2,500. The $140 payment to A made in January 
is not wages for 2004 because the $150 cash-remuneration test is not 
met. However, if X pays additional remuneration to employees for 
agricultural labor in 2004 that equals or exceeds $2,360, the 
employer's-expenditures-for-agricultural-labor test will be met and the 
$140 paid by X to A in 2004 will be considered wages. It is immaterial 
that the work was performed in 2003.

    (f) Meaning of ``cash remuneration.'' Cash remuneration includes 
checks and other monetary media of exchange. Cash remuneration does not 
include payments made in any other medium, such as lodging, food, 
clothing, car tokens, transportation passes or tickets, farm products, 
or other goods or commodities.
    (g) Cross references. (1) For provisions relating to deductions of 
employee tax or amounts equivalent to the tax from cash payments for 
agricultural labor, see Sec.  31.3102-1.
    (2) For provisions relating to the time of payment of wages for 
agricultural labor, see Sec.  31.3121(a)-2.
    (3) For provisions relating to records to be kept with respect to 
agricultural labor, see paragraph (b) of Sec.  31.6001-2.
    (h) Effective dates. The provisions of this section apply to any 
payment for agricultural labor made on or after January 1, 1988. For 
rules applicable to any payment for agricultural labor made prior to 
January 1, 1988, see Sec.  31.3121(a)(8)-1 in effect at such time (see 
26 CFR part 31 contained in the edition of 26 CFR parts 30 to 39, 
revised as of April 1, 2006).

[T.D. 6744, 29 FR 8308, July 2, 1964, as amended by T.D. 9266, 71 FR 
35155, June 19, 2006]



Sec.  31.3121(a)(9)-1  [Reserved]



Sec.  31.3121(a)(10)-1  Payments to certain home workers.

    (a) The term wages does not include remuneration paid by an employer 
in any calendar year to an employee for service performed as a home 
worker who is an employee by reason of the provisions of section 
3121(d)(3)(C) (see Sec.  31.3121(d)-1(d)), unless the cash remuneration 
paid in such calendar year by the employer to the employee for such 
services is $100 or more. The test relating to cash remuneration of $100 
or more is based on remuneration paid in

[[Page 35]]

a calendar year rather than on remuneration earned during a calendar 
year. If cash remuneration of $100 or more is paid in a particular 
calendar year, it is immaterial whether such remuneration is in payment 
for services performed during the year of payment or during any other 
year.
    (b) The application of paragraph (a) of this section may be 
illustrated by the following example:

    Example. A, a home worker, performs services for X, a manufacturer, 
in 2003 and 2004. In the performance of the home work A is an employee 
by reason of section 3121(d)(3)(C). In March 2004, A returns to X 
articles made by A at home from materials received by A from X in 2003. 
X pays A cash remuneration of $100 for such work when the finished 
articles are delivered. The $100 includes $10 which represents 
remuneration for home work performed by A in 2003. The entire $100 is 
subject to the taxes. Any additional cash remuneration paid by X to A in 
2004 for such services is also subject to the taxes.

    (c) In the event an employee receives remuneration in any one 
calendar year from more than one employer for services performed as a 
home worker of the character described in paragraph (a) of this section, 
the regulations in this section are to be applied with respect to the 
remuneration received by the employee from each employer in such 
calendar year for such services. This exclusion from wages has no 
application to remuneration paid for services performed as a home worker 
who is an employee under section 3121(d)(2) (see Sec.  31.3121(d)-1(c)) 
relating to common law employees.
    (d) Cash remuneration includes checks and other monetary media of 
exchange. Remuneration paid in any other medium, such as clothing, car 
tokens, transportation passes or tickets, or other goods or commodities, 
is disregarded in determining whether the $100 cash-remuneration test is 
met. If the cash remuneration paid in any calendar year by an employer 
to an employee for services performed as a home worker of the character 
described in paragraph (a) of this section is $100 or more, then no 
remuneration, whether in cash or in any medium other than cash, paid by 
the employer to the employee in such calendar year for such services is 
excluded from wages under this exception.
    (e)(1) For provisions relating to deductions of employee tax or 
amounts equivalent to the tax from cash payments for services performed 
as a home worker within the meaning of section 3121(d)(3)(C), see Sec.  
31.3102-1.
    (2) For provisions relating to the time of payment of wages for 
services performed as a home worker within the meaning of section 
3121(d)(3)(C), see Sec.  31.3121(a)-2.
    (3) For provisions relating to records to be kept with respect to 
payment of wages for services performed as a home worker within the 
meaning of section 3121(d)(3)(C), see Sec.  31.6001-2.
    (f) The provisions of this section apply to any payment for services 
performed as a home worker within the meaning of section 3121(d)(3)(C) 
made on or after January 1, 1978. For rules applicable to any payment 
for services performed as a home worker within the meaning of section 
3121(d)(3)(C) made prior to January 1, 1978, see Sec.  31.3121(a)(10)-1 
in effect at such time (see 26 CFR part 31 contained in the edition of 
26 CFR parts 30 to 39, revised as of April 1, 2006).

[T.D. 9266, 71 FR 35156, June 19, 2006]



Sec.  31.3121(a)(11)-1  Moving expenses.

    (a) The term ``wages'' does not include remuneration paid on or 
after November 1, 1964, to or on behalf of an employee, either as an 
advance or a reimbursement, specifically for moving expenses incurred or 
expected to be incurred, if (and to the extent that) at the time of 
payment it is reasonable to believe that a corresponding deduction is or 
will be allowable to the employee under section 217. The reasonable 
belief contemplated by the statute may be based upon any evidence 
reasonably sufficient to induce such belief, even though such evidence 
may be insufficient upon closer examination by the district director or 
the courts finally to establish that a deduction is allowable under 
section 217. The reasonable belief shall be based upon the application 
of section 217 and the regulations thereunder in Part 1 of this chapter 
(Income Tax Regulations). When used in this section, the term ``moving 
expenses'' has the same meaning as when used in section 217 and the 
regulations thereunder.

[[Page 36]]

    (b) Except as otherwise provided in paragraph (a) of this section, 
or in a numbered paragraph of section 3121(a), amounts paid to or on 
behalf of an employee for moving expenses are wages for purposes of 
section 3121(a).

[T.D. 7375, 40 FR 42350, Sept. 12, 1975]



Sec.  31.3121(a)(12)-1  Tips.

    The term ``wages'' does not include remuneration received by an 
employee after December 1965 in the form of tips if--
    (a) The tips are paid in any medium other than cash, or
    (b) The cash tips received by an employee in any calendar month in 
the course of his employment by an employer are less than $20.

If the cash tips received by an employee in a calendar month after 
December 1965 in the course of his employment by an employer amount to 
$20 or more, none of the cash tips received by the employee in such 
calendar month are excluded from the term ``wages'' under this section. 
The cash tips to which this section applies include checks and other 
monetary media of exchange. Tips received by an employee in any medium 
other than cash, such as passes, tickets, or other goods or commodities 
do not constitute wages. If an employee in any calendar month performs 
services for two or more employers and receives tips in the course of 
his employment by each employer, the $20 test is to be applied 
separately with respect to the cash tips received by the employee in 
respect of his services for each employer and not to the total cash tips 
received by the employee during the month. As to the time tips are 
deemed paid, see Sec.  31.3121(q)-1. For provisions relating to the 
treatment of tips received by an employee prior to 1966, see paragraph 
(j)(3) of Sec.  31.3121 (a)-1.

[T.D. 7001, 34 FR 999, Jan. 23, 1969]



Sec.  31.3121(a)(13)-1  Payments under certain employers' plans after
retirement, disability, or death.

    (a) In general. The term ``wages'' does not include the amount of 
any payment or series of payments made after January 2, 1968, by an 
employer to, or on behalf of, an employee or any of his dependents under 
a plan established by the employer which makes provisions for his 
employees generally (or for his employees generally and their 
dependents) or for a class or classes of his employees (or for a class 
or classes of his employees and their dependents), which is paid or 
commences to be paid upon or within a reasonable time after the 
termination of an employee's employment relationship because of the 
employee's--
    (1) Death,
    (2) Retirement for disability, or
    (3) Retirement after attaining an age specified in the plan 
established by the employer or in a pension plan of the employer at the 
age at which a person in the employee's circumstances is eligible for 
retirement.

A payment or series of payments made under the circumstances described 
in the preceding sentence is excluded from ``wages'' even if made 
pursuant to an incentive compensation plan which also provides for the 
making of other types of payments. However, any payment or series of 
payments which would have been paid if the employee's relationship had 
not been terminated is not excluded from ``wages'' under this section 
and section 3121(a)(13). For example, lump-sum payments for unused 
vacation time or a final paycheck received after retirement are payments 
which the employee would have received whether or not he retired and 
therefore are not excluded from ``wages'' under this section. Further, 
if any payment is made upon or after termination of employment for any 
reason other than those set out in subparagraphs (1), (2), and (3) of 
this paragraph such payment is not excludable from ``wages'' by this 
section. For example, if a pension plan provides for retirement upon 
disability, completion of 30 years of service, or attainment of age 65, 
and if an employee who is not disabled retires at age 61 after 30 years 
of service, none of the retirement payments made to the employee under 
the pension plan (including any made after he is 65) is excludable from 
``wages'' under this section. However, if the pension plan had 
conditioned retirement after 30 years of service upon attainment of age 
60, all of the retirement payments would have been excludable.

[[Page 37]]

    (b) Plan. The plan or system established by an employer need not 
provide for payments because of termination of employment for all the 
reasons set out in paragraphs (a)(1), (2), and (3) of this section, but 
such plan or system may provide for payments because of termination for 
any one or more of such reasons. Payments because of termination of 
employment for any one or more of such reasons under a plan or system 
established by an employer solely for the dependents of his employees 
are not within this exclusion from wages.
    (c) Dependents. Dependents of an employee include the employee's 
husband or wife, children, and any other members of the employee's 
immediate family.
    (d) Benefit payment. It is immaterial for purposes of this exclusion 
whether the amount or possibility of benefit payments is paid on account 
of services rendered or taken into consideration in fixing the amount of 
an employee's remuneration or whether such payments are required, 
expressly or impliedly, by the contract of service.
    (e) Example. The application of this section may be illustrated by 
the following example:

    Example. A, an employee, receives a salary of $1,500 a month, 
payable on the 5th day of the month following the month for which the 
salary is earned. A's employer has established an incentive compensation 
plan for a class of his employees, including A, providing for the 
payment of deferred compensation on termination of employment, including 
termination upon an employee's death, retirement at age 65 (the 
retirement age specified in the plan), or retirement for disability. On 
March 1, 1973, A attains the age of 65 and retires. On March 5, 1973, A 
receives $5,500 from his employer of which $1,500 represents A's salary 
for services he performed in February 1973, and $4,000 represents 
incentive compensation paid under the employer's plan. The amount of 
$4,000 is excluded from ``wages'' under this section. The amount of 
$1,500 is not excluded from ``wages'' under this section.

[T.D. 7374, 40 FR 30949, July 24, 1975]



Sec.  31.3121(a)(14)-1  Payments by employer to survivor or estate of
former employee.

    The term ``wages'' does not include any payment by an employer to a 
survivor or the estate of a former employee made after 1972 and after 
the calendar year in which such employee died.

[T.D. 7374, 40 FR 30950, July 24, 1975, as amended by T.D. 7373, 40 FR 
30957, July 24, 1975]



Sec.  31.3121(a)(15)-1  Payments by employer to disabled former employee.

    The term ``wages'' does not include any payment made after 1972 by 
an employer to an employee, if at the time such payment is made such 
employee is entitled to disability insurance benefits under section 
223(a) of the Social Security Act and such entitlement commenced prior 
to the calendar year in which such payment is made, and if such employee 
did not perform any service for such employer during the period for 
which such payment is made.

[T.D. 7374, 40 FR 30950, July 24, 1975, as amended by T.D. 7373, 40 FR 
30957, July 24, 1975]



Sec.  31.3121(a)(18)-1  Payments or benefits under a qualified educational
assistance program.

    The term ``wages'' does not include any payment made, or benefit 
furnished, to or for the benefit of an employee in a taxable year 
beginning after December 31, 1978, if at the time of such payment or 
furnishing it is reasonable to believe that the employee will be able to 
exclude such payment or benefit from income under section 127.

[T.D. 7898, 48 FR 31019, July 6, 1983]



Sec.  31.3121(b)-1  Employment; services to which the regulations in this
subpart apply.

    (a) The provisions of the regulations in this subpart relating to 
the term ``employment'' apply with respect to services performed after 
1954. Certain provisions also apply with respect to services performed 
before 1955 for which the remuneration is paid after 1954 (see paragraph 
(b) of Sec.  31.3121(b)-2. For provisions relating generally to services 
performed before 1955, see paragraph (a) of Sec.  31.3121 (b)-2. For 
provisions relating to the circumstances under which services which do 
not constitute employment are nevertheless deemed to be employment, and 
relating to the circumstances under which services which constitute 
employment are

[[Page 38]]

nevertheless deemed not to be employment, see Sec.  31.3121 (c)-1. For 
provisions relating to who are employees and who are employers see 
Sec. Sec.  31.3121 (d)-1 and 31.3121 (d)-2, respectively.
    (b) The taxes apply with respect to remuneration paid after 1954 for 
services performed before 1955, as well as for services performed after 
1954, to the extent that the remuneration and services constitute wages 
and employment. See Sec. Sec.  31.3121(a)-1 to 31.3121(a)(13)-1 relating 
to wages.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6983, 33 FR 
18015, Dec. 4, 1968]



Sec.  31.3121(b)-2  Employment; services performed before 1955.

    (a) General rule. (1) Subject to the provisions of paragraph (b) of 
this section:
    (i) Services performed after 1936 and before 1955 which were 
employment under the applicable law in effect before 1955 constitute 
employment under section 3121(b).
    (ii) Services performed after 1936 and before 1955 which were not 
employment under the applicable law in effect before 1955 do not 
constitute employment under section 3121(b).
    (2) Except as provided in paragraph (b) of this section, 
determination of whether services performed before 1955 constitute 
employment shall be made in accordance with the applicable provisions of 
law in effect before 1955 and of the regulations thereunder. The 
regulations applicable in determining whether service performed after 
1936 and before 1955 constitute employment are as follows:
    (i) Services performed after 1936 and before 1940--26 CFR (1939) 
Part 401 (Regulations 91).
    (ii) Services performed after 1939 and before 1951--26 CFR (1939) 
Part 402 (Regulations 106).
    (iii) Services performed after 1950 and before 1955--26 CFR (1939) 
Part 408 (Regulations 128).
    (b) Certain services performed before 1955 the remuneration for 
which is paid after 1954. (1) Services of the following character 
performed before 1955, for which remuneration is paid after 1954, 
constitute employment under section 3121(b):
    (i) Agricultural labor, as defined in section 3121(g) (see Sec.  
31.3121(g)-1), other than services of the character described in section 
3121(b)(1) (relating to services performed in connection with the 
production or harvesting of certain oleoresinous products and services 
performed by certain foreign agricultural workers), which, at the time 
performed, constituted employment under section 1426(b) of the 1939 
Code, or would have constituted employment except for the provisions of 
section 1426(b)(1) of such Code, as in effect at the time the services 
were performed.
    (ii) Services not in the course of the employers' trade or business 
(see paragraph (a)(1) of Sec.  31.3121(a)(7)-1) which, at the time 
performed, constituted employment under section 1426(b) of the 1939 
Code, or would have constituted employment except for the provisions of 
section 1426(b)(3) of such Code, as in effect at the time the services 
were performed.
    (2) Services of the character described in paragraphs (a) and (b) of 
Sec.  31.3121(b)(1)-1, which were performed by certain foreign 
agricultural workers before 1955 and the remuneration for which is paid 
after 1954, do not constitute employment under section 3121(b), 
irrespective of whether they constituted employment under section 
1426(b) of the 1939 Code, as in effect at the time the services were 
performed.
    (3) This paragraph has no application to services performed before 
1955 and the remuneration for which was paid before 1955.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 
8309, July 2, 1964]



Sec.  31.3121(b)-3  Employment; services performed after 1954.

    (a) In general. Whether services performed after 1954 constitute 
employment is determined in accordance with the provisions of section 
3121(b).
    (b) Services performed within the United States. Services performed 
after 1954 within the United States (see Sec.  31.3121(e)-1) by an 
employee for his employer, unless specifically excepted by section 
3121(b), constitute employment. With respect to services performed 
within the United States, the place where the contract of service is

[[Page 39]]

entered into is immaterial. The citizenship or residence of the employee 
or of the employer also is immaterial except to the extent provided in 
any specific exception from employment. Thus, the employee and the 
employer may be citizens and residents of a foreign country and the 
contract of service may be entered into in a foreign country, and yet, 
if the employee under such contract performs services within the United 
States, there may be to that extent employment.
    (c) Services performed outside the United States--(1) In general. 
Except as provided in paragraphs (c)(2) and (3) of this section, 
services performed outside the United States (see Sec.  31.3121(e)-1) do 
not constitute employment.
    (2) On or in connection with an American vessel or American 
aircraft. (i) Services performed after 1954 by an employee for an 
employer ``on or in connection with'' an American vessel or American 
aircraft outside the United States (see Sec.  31.3121(e)-1) constitute 
employment if:
    (a) The employee is also employed ``on and in connection with'' such 
vessel or aircraft when outside the United States; and
    (b) The services are performed under a contract of service, between 
the employee and the employer, which is entered into within the United 
States, or during the performance of the contract under which the 
services are performed and while the employee is employed on the vessel 
or aircraft it touches at a port within the United States; and
    (c) The services are not excepted under section 3121(b).
    (ii) An employee performs services on and in connection with the 
vessel or aircraft if he performs services on such vessel or aircraft 
which are also in connection with the vessel or aircraft. Services 
performed on the vessel by employees as officers or members of the crew, 
or as employees of concessionaires, of the vessel, for example, are 
performed under such circumstances, since such services are also 
connected with the vessel. Similarly, services performed on the aircraft 
by employees as officers or members of the crew of the aircraft are 
performed on and in connection with such aircraft. Services may be 
performed on the vessel or aircraft, however, which have no connection 
with it, as in the case of services performed by an employee while on 
the vessel or aircraft merely as a passenger in the general sense. For 
example, the services of a buyer in the employ of a department store 
while he is a passenger on a vessel are not in connection with the 
vessel.
    (iii) If services are performed by an employee ``on and in 
connection with'' an American vessel or American aircraft when outside 
the United States and the conditions listed in paragraph (c)(2)(i) (b) 
and (c) of this section are met, then the services of that employee 
performed on or in connection with the vessel or aircraft constitute 
employment. The expression ``on or in connection with'' refers not only 
to services performed on the vessel or aircraft but also to services 
connected with the vessel or aircraft which are not actually performed 
on it (for example, shore services performed as officers or members of 
the crew, or as employees of concessionaires, of the vessel).
    (iv) Services performed by a member of the crew or other employee 
whose contract of service is not entered into within the United States, 
and during the performance of which and while the employee is employed 
on the vessel or aircraft it does not touch at a port within the United 
States, do not constitute employment under this subparagraph, 
notwithstanding services performed by other members of the crew or other 
employees on or in connection with the vessel or aircraft may constitute 
employment.
    (v) A vessel includes every description of watercraft, or other 
contrivance, used as a means of transportation on water. An aircraft 
includes every description of craft, or other contrivance, used as a 
means of transportation through the air. In the case of an aircraft, the 
term ``port'' means an airport. An airport means an area on land or 
water used regularly by aircraft for receiving or discharging passengers 
or cargo. For definitions of ``American vessel'' and ``American 
aircraft'', see Sec.  31.3121(f)-1.
    (vi) With respect to services performed outside the United States on 
or in connection with an American vessel

[[Page 40]]

or American aircraft, the citizenship or residence of the employee is 
immaterial, and the citizenship or residence of the employer is material 
only in case it has a bearing in determining whether a vessel is an 
American vessel.
    (3) By a citizen of the United States as an employee for an American 
employer. Services performed after 1954 outside the United States by a 
citizen of the United States as an employee for an American employer 
constitute employment provided the services are not specifically 
excepted under section 3121(b). For definitions of ``citizen of the 
United States'' and ``American employer'', see Sec. Sec.  31.3121(e)-1 
and 3121 (h)-1, respectively.
    (4) By a citizen of the United States as an employee for a foreign 
subsidiary corporation. For provisions relating to the extension of the 
Federal old-age, survivors, and disability insurance system established 
by title II of the Social Security Act to certain services not 
constituting employment which are performed outside the United States by 
citizens of the United States in the employ of a foreign subsidiary of a 
domestic corporation, see section 3121(1) and Part 36 of this chapter 
(Regulations Relating to Contract Coverage of Employees of Foreign 
Subsidiaries).

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 
8309, July 2, 1964]



Sec.  31.3121(b)-4  Employment; excepted services in general.

    (a) Services performed by an employee for an employer do not 
constitute employment for purposes of the taxes if they are specifically 
excepted from employment under any of the numbered paragraphs of section 
3121(b). Services so excepted do not constitute employment for purposes 
of the taxes even though they are performed within the United States, or 
are performed outside the United States on or in connection with an 
American vessel or American aircraft, or are performed outside the 
United States by a citizen of the United States for an American 
employer. If not otherwise provided in the regulations relating to the 
numbered paragraphs of section 3121(b), such regulations apply to 
services performed after 1954.
    (b) The exception attaches to the services performed by the employee 
and not to the employee as an individual; that is, the exception applies 
only to the services in an excepted class rendered by the employee.

    Example. A is an individual who is employed part time by B to 
perform services which are specifically excepted from employment under 
one of the numbered paragraphs of section 312(b). A is also employed by 
C part time to perform services which constitute employment. While no 
tax liability is incurred with respect to A's remuneration for services 
performed in the employ of B (the services being excepted from 
employment), the exception does not embrace the services performed by A 
in the employ of C (which constitute employment) and the taxes attached 
with respect to the wages (see Sec.  31.3121(a)-1) for such services.

    (c) For provisions relating to the circumstances under which 
services which are excepted are nevertheless deemed to be employment, 
and relating to the circumstances under which services which are not 
excepted are nevertheless deemed not to be employment, see Sec.  
31.3121(c)-1.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 
8310, July 2, 1964]



Sec.  31.3121(b)(1)-1  Certain services performed by foreign agricultural
workers, or performed before 1959 in connection with oleoresinous products.

    (a) Services of workers from Mexico. Services performed before 1965 
by foreign agricultural workers from the Republic of Mexico under 
contracts entered into in accordance with title V of the Agricultural 
Act of 1949, as amended, are excepted from employment. Contracts entered 
into pursuant to the provisions of such title V may provide for the 
performance only of services which constitute ``agricultural 
employment''. The term ``agricultural employment'' includes certain 
services which do not constitute ``agricultural labor'' as that term is 
defined in section 3121(g) (see Sec.  31.3121(g)-1. For purposes of 
title V of the Agricultural Act of 1949, as amended, the term 
``agricultural employment'' includes services or activities included 
within the provisions of section 3(f) of the Fair Labor Standards Act of 
1938, as amended, or

[[Page 41]]

section 3121(g) of the Internal Revenue Code. Under section 507 of the 
Agricultural Act of 1949, as amended, and as in effect before October 3, 
1961, the term ``agricultural employment'' included also horticultural 
employment, cotton ginning, compressing and storing, crushing of oil 
seeds, and the packing, canning, freezing, drying, or other processing 
of perishable or seasonable agricultural products.
    (b) Services of workers from British West Indies. Services performed 
by a foreign agricultural worker lawfully admitted to the United States 
from the Bahamas, Jamaica, or the other British West Indies, on a 
temporary basis to perform form agricultural labor are excepted from 
employment.
    (c) Services performed after 1956 by foreign workers. Services 
performed after 1956 by a foreign agricultural worker lawfully admitted 
to the United States from any foreign country or possession thereof, 
including the Republic of Mexico, on a temporary basis to perform 
agricultural labor are excepted from employment.
    (d) Services performed before 1959 in connection with the production 
or harvesting of certain oleoresinous products. Services performed 
before 1959 in connection with the production or harvesting of crude gum 
(oleoresin) from a living tree or the processing of such crude gum into 
gum spirits of turpentine and gum rosin, provided the processing is 
carried on by the original producer of the crude gum, are expected from 
employment. However, the services to which this paragraph relates 
constitute agricultural labor as defined in section 3121(g) (see 
paragraph (d) of Sec.  31.3121(g)-1). Thus, any cash remuneration paid 
for such services, to the extent that the services are deemed to 
constitute employment by reason of the rules relating to included and 
excluded services continued in section 3121(c) (see Sec.  31.3121(c)-1), 
is taken into account in applying the test prescribed in section 
3121(a)(8)(B) for determining whether cash remuneration paid for 
agricultural labor constitutes wages (see paragraph (c) of Sec.  
31.3121(a)(8)-1).
    (e) Cross-reference. See paragraph (b) of Sec.  31.3121(b)-2 for 
provisions relating to the status of services of the character to which 
paragraphs (a) and (b) of this section apply which were performed before 
1955 and the remuneration for which is paid after 1954.

[T.D. 6744, 29 FR 8310, July 2, 1964]



Sec.  31.3121(b)(2)-1  Domestic service performed by students for certain
college organizations.

    (a) Services of a household nature performed in or about the club 
rooms or house of a local college club, or in or about the club rooms or 
house of a local chapter of a college fraternity or sorority, by a 
student who is enrolled and regularly attending classes at a school, 
college, or university are excepted from employment. For purposes of 
this exception, the statutory tests are the type of services performed 
by the employee, the character of the place where the services are 
performed, and the status of the employee as a student enrolled and 
regularly attending classes at a school, college, or university.
    (b) In general, services of a household nature in or about the club 
rooms or house of a local college club or local chapter of a college 
fraternity or sorority include services rendered by cooks, waiters, 
butlers, maids, janitors, laundresses, furnacemen, handymen, gardeners, 
housekeepers, and housemothers.
    (c) A local college club or local chapter of a college fraternity or 
sorority does not include an alumni club or chapter. If the club rooms 
or house of a local college club or local chapter of a college 
fraternity or sorority is used primarily for the purpose of supplying 
board or lodging to students or the public as a business enterprise, the 
services performed therein are not within the exception.
    (d) An organization is a school, college, or university within the 
meaning of section 3121(b)(2) if its primary function is the 
presentation of formal instruction, it normally maintains a regular 
faculty and curriculum, and it normally has a regularly enrolled body of 
students in attendance at the place where its educational activities are 
regularly carried on. See section 170(b)(1)(A)(ii) and the regulations 
thereunder.
    (e) Services of a household nature are not within the exception if 
performed

[[Page 42]]

in or about rooming or lodging houses, boarding houses, clubs (except 
local college clubs) hotels, hospitals, eleemosynary institutions, or 
commercial offices or establishments.
    (f) For provisions relating to domestic service in a private home of 
the employer, see Sec.  31.3121(a)(7)-1.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as 
amended by T.D. 9167, 69 FR 76405, Dec. 21, 2004]



Sec.  31.3121(b)(3)-1  Family employment.

    (a) Certain services are excepted from employment because of the 
existence of a family relationship between the employee and the 
individual employing him. The exceptions are as follows:
    (1) Services performed by an individual in the employ of his or her 
spouse;
    (2) (i) Services performed before 1961 by a father or mother in the 
employ of his or her son or daughter;
    (ii) Services not in the course of the employer's trade or business, 
or domestic service in a private home of the employer, performed after 
1960 but prior to 1968 by a father or mother in the employ of his or her 
son or daughter;
    (iii) Services not in the course of the employer's trade or 
business, or domestic service in a private home of the employer, 
performed after 1967 by a father or mother in the employ of his or her 
son or daughter unless (a) the employer has a child (including an 
adopted child or stepchild) living in his or her home who is under age 
18 or who has a mental or physical condition which requires the personal 
care and supervision of an adult for at least 4 continuous weeks in the 
calendar quarter in which the services are rendered; and (b) the 
employer is during the calendar quarter in which the services are 
rendered:
    (1) A widow or widower;
    (2) A divorced person who has not remarried; or
    (3) A married person who has a spouse living in the home who has a 
mental or physical condition which results in such spouse's being 
incapable of caring for such child for at least 4 continuous weeks in 
the calendar quarter in which the services are rendered; and
    (3) Services performed by a son or daughter under the age of 21 in 
the employ of his or her father or mother.
    (b) Under paragraph (a) (1) and (2) (i) of this section, the 
exception is conditioned solely upon the family relationship between the 
employee and the individual employing him. Under paragraph (a)(2) (ii) 
and (iii) of this section, in addition to the family relationship, there 
is a further requirement that the services performed after 1960 and 
before 1968 for purposes of paragraph (a)(2)(ii) and after 1967 for 
purposes of paragraph (a)(2)(iii) shall be services not in the course of 
the employer's trade or business or shall be domestic service in a 
private home of the employer. The terms ``services not in the course of 
the employer's trade or business'' and ``domestic service in a private 
home of the employer'' have the same meaning as when used in Sec.  
31.3121(a) (7)-1, except that it is immaterial under paragraphs (a)(2) 
(ii) and (iii) of this section whether or not such services are 
performed on a farm operated for profit. The mere fact that a mental or 
physical disability, whether temporary or permanent, renders a child or 
spouse incapable of self-support does not necessarily mean that the 
child requires the personal care and supervision of an adult or that the 
spouse is incapable of caring for a child within the meaning of 
paragraph (a)(2)(iii) of this section. A written statement by a doctor 
of the existence of the mental or physical condition of the child or 
spouse which states that the child requires the personal care and 
supervision of an adult or that the spouse is incapable of caring for a 
child and which sets forth the period of time during which the condition 
has existed and is likely to exist will usually be sufficient evidence 
to establish the existence and duration of the condition at the time of 
the statement. Under paragraph (a)(3) of this section, in addition to 
the family relationship, there is a further requirement that the son or 
daughter shall be under the age of 21, and the exception continues only 
during the time that the son or daughter is under the age of 21.
    (c) Services performed in the employ of a partnership are within the 
exception described in paragraph (a) of this

[[Page 43]]

section only if the requisite family relationship exists between the 
employee and each of the partners comprising the partnership.
    (d) Services performed in the employ of a corporation are not within 
the exception described in paragraph (a) of this section, except that 
services performed in the employ of an entity that is treated as a 
corporation under Sec.  301.7701-2(c)(2)(iv)(B) of this chapter may 
qualify for the exception if the requirements of the exception are 
otherwise met. An entity that is treated as a corporation under Sec.  
301.7701-2(c)(2)(iv)(B) of this chapter is not treated as the employer 
for purposes of applying section 3121(b)(3) and this section. For 
purposes of applying section 3121(b)(3) and this section, the owner of 
an entity that is treated as a corporation under Sec.  301.7701-
2(c)(2)(iv)(B) of this chapter is treated as the employer.
    (e) Paragraphs (c) and (d) of this section apply to wages paid on or 
after November 1, 2011. However, taxpayers may apply paragraphs (c) and 
(d) of this section to wages paid on or after January 1, 2009.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 
8311, July 2, 1964; T.D. 7374, 40 FR 30950, July 24, 1975; T.D. 9554, 76 
FR 67365, Nov. 1, 2011; T.D. 9670, 79 FR 36206, June 26, 2014]



Sec.  31.3121(b)(4)-1  Services performed on or in connection with a
non-American vessel or aircraft.

    (a) Services performed within the United States by an employee for 
an employer ``on or in connection with'' a vessel not an American 
vessel, or ``on or in connection with'' an aircraft not an American 
aircraft, are excepted from employment if--
    (1) The employee is employed by such employer ``on and in connection 
with'' such vessel or aircraft when outside the United States, and
    (2) (i) The employee is not a citizen of the United States, or (ii) 
the employer is not an American employer.
    (b) An employee performs services on and in connection with the 
vessel or aircraft if he performs services on the vessel or aircraft 
when outside the United States which are also in connection with the 
vessel or aircraft. Services performed on the vessel outside the United 
States by employees as officers or members of the crew, or by employees 
of concessionaires, of the vessel, for example, are performed under such 
circumstances, since such services are also connected with the vessel. 
Similarly, services performed on the aircraft outside the United States 
by employees as officers or members of the crew of the aircraft are 
performed on and in connection with such aircraft. Services may be 
performed on the vessel or aircraft, however, which have no connection 
with it, as in the case of services performed by an employee while on 
the vessel or aircraft merely as a passenger in the general sense. For 
example, the services of a buyer in the employ of a department store 
while he is a passenger on a vessel are not in connection with the 
vessel.
    (c) The expression ``on or in connection with'' refers not only to 
services performed on the vessel or aircraft but also to services 
connected with the vessel or aircraft which are not actually performed 
on it (for example, shore services performed as officers or members of 
the crew, or as employees of concessionaires, of the vessel).
    (d) Services performed within the United States on or in connection 
with a non-American vessel or aircraft for an employer by an employee 
who is not a citizen of the United States are excepted from employment, 
irrespective of whether the employer is or is not an American employer, 
provided the employee also is employed by such employer on and in 
connection with the vessel or aircraft when outside the United States. 
Services performed within the United States on or in connection with a 
non-American vessel or aircraft by an employee for an employer who is 
not an American employer also are excepted from employment, irrespective 
of whether the employee is or is not a citizen of the United States, 
provided the employee also is employed by such employer on and in 
connection with the vessel or aircraft when outside the United States. 
Services performed within the United States on or in connection with a 
non-American vessel or aircraft for an American employer by an employee 
who is a citizen of the United States

[[Page 44]]

are not excepted from employment under section 3121(b)(4), irrespective 
of whether the employee is employed by such employer on and in 
connection with the vessel or aircraft when outside the United States. 
Further, section 3121(b)(4) does not except from employment services 
performed within the United States for an employer, whether or not an 
American employer, on or in connection with a non-American vessel or 
aircraft by an employee, whether or not a citizen of the United States, 
who is not also employed by such employer on and in connection with the 
vessel or aircraft when outside the United States.
    (e) Services performed outside the United States on or in connection 
with a vessel not an American vessel, or on or in connection with an 
aircraft not an American aircraft, by a citizen of the United States as 
an employee for an American employer are not excepted from employment 
under section 3121(b)(4), irrespective of whether the employee is 
employed on and in connection with such vessel or aircraft when outside 
the United States. Services performed outside the United States on or in 
connection with a vessel not an American vessel or on or in connection 
with an aircraft not an American aircraft, either by an employee who is 
not a citizen of the United States or for an employer who is not an 
American employer, do not, in any event, constitute employment. See 
paragraph (c) of Sec.  31.3121(b)-3, relating to services performed 
outside the United States which constitute employment.
    (f) See paragraph (c)(2)(v) of Sec.  31.3121(b)-3 for definitions of 
``vessel'' and ``aircraft'', Sec.  31.3121(f)-1, for definitions of 
``American vessel'' and ``American aircraft'', Sec.  31.3121(e)-1, for 
definition of ``citizen of the United States'', and Sec.  31.3121(h)-1, 
for definition of ``American employer''.



Sec.  31.3121(b)(5)-1  Services in employ of an instrumentality of the
United States specifically exempted from the employer tax.

    Services performed in the employ of an instrumentality of the United 
States are excepted from employment if such instrumentality is exempt 
from the employer tax imposed by section 3111 by virtue of any other 
provision of law which specifically refers to such section 3111 or the 
corresponding section of prior law (section 1410 of the Internal Revenue 
Code of 1939) in granting exemption from the employer tax. This 
exception does not operate to exclude from employment services performed 
in the employ of an instrumentality of the United States unless the 
Congress has granted to such instrumentality a specific exemption from 
the tax imposed by section 3111 or the corresponding section of prior 
law. For provisions which make general exemptions from Federal taxation 
ineffectual as to the employer tax imposed by section 3111, see Sec.  
31.3112-1. For other exceptions from employment applicable with respect 
to services performed in the employ of an instrumentality of the United 
States, see Sec.  31.3121(b)(6)-1.



Sec.  31.3121(b)(6)-1  Services in employ of United States or instrumentality
thereof.

    (a) In general. This section relates to services performed in the 
employ of the United States Government or in the employ of an 
instrumentality of the United States. Particular services which are not 
excepted from employment under one rule set forth in this section may 
nevertheless be excepted under another rule set forth in this section or 
under Sec.  31.3121(b)(5)-1, relating to services in the employ of an 
instrumentality of the United States specifically exempted from the 
employer tax. Moreover, services performed in the employ of the United 
States or of any instrumentality thereof which are not excepted from 
employment under paragraph (5) or (6) of section 3121(b) may 
nevertheless be excepted under some other paragraph of such section. For 
provisions relating generally to the application of the taxes in the 
case of services performed in the employ of the United States or a 
wholly owned instrumentality thereof, see 3122. For provisions relating 
to the computation of remuneration for service performed by an 
individual as a member of a uniformed service or for service performed 
by an individual as a volunteer or volunteer leader within the meaning 
of

[[Page 45]]

the Peace Corps Act, see Sec.  31.3121(i)-2 and Sec.  31.3121(i)-3, 
respectively.
    (b) Services covered under a retirement system established by a law 
of the United States. Services performed in the employ of the United 
States or in the employ of any instrumentality thereof are excepted from 
employment under section 3121(b)(6)(A) if such services are covered 
under a law enacted by the Congress of the United States which 
specifically provides for the establishment of a retirement system for 
employees of the United States or of such instrumentality. 
Determinations as to whether services are covered by a retirement system 
of the requisite character are to be made as of the time such services 
are performed. Services of an employee who has an option to have his 
services covered under a retirement system are not covered under such 
retirement system unless and until he exercises such option. The test is 
whether particular services performed by an employee are covered by a 
retirement system of the requisite character rather than whether the 
position in which such services are performed is covered by such 
retirement system.
    (c) Services performed for an instrumentality not subject to 
employer tax on December 31, 1950, and covered under a retirement system 
established by such instrumentality. (1) Subject to the provisions of 
subparagraph (4) of this paragraph, services performed in the employ of 
an instrumentality of the United States are excepted from employment 
under section 3121(b)(6)(B) if--
    (i) The particular instrumentality was not subject on December 31, 
1950, to the employer tax imposed by section 1410 of the Internal 
Revenue Code of 1939, and
    (ii) The services are covered by a retirement system established by 
such instrumentality.
    (2) If the particular instrumentality was not in existence on 
December 31, 1950, but is created thereafter under a law which was in 
effect on December 31, 1950, services performed in the employ of such 
instrumentality are excepted from employment (unless otherwise provided 
in paragraph (c)(4) of this section) if--
    (i) The instrumentality had it been in existence on December 31, 
1950, would not have been subject on that date to the employer tax 
imposed by section 1410 of the Internal Revenue Code of 1939, and
    (ii) The services are covered by a retirement system established by 
such instrumentality.

It is immaterial, for purposes of this exception, whether the exemption 
from the employer tax on December 31, 1950, resulted, or would have 
resulted, from a tax exemption as such in effect on December 31, 1950, 
or from the provisions of section 1426(b) (6) of the Internal Revenue 
Code of 1939 in effect on that date, relating to the exception from 
employment of services performed in the employ of certain 
instrumentalities of the United States.
    (3) Determinations as to whether services performed in the employ of 
an instrumentality referred to in paragraph (c)(1) or (2) of this 
section are covered by a retirement system established by such 
instrumentality are to be made as of the time such services are 
performed. Services of an employee who has an option to have his 
services covered under a retirement system established by the 
instrumentality are not covered under such retirement system unless and 
until he exercises such option. The test is whether particular services 
performed by an employee are covered by a retirement system established 
by the instrumentality rather than whether the position in which such 
services are performed is covered by such retirement system.
    (4) The exception from employment provided in section 3121(b)(6)(B) 
has no application with respect to any of the following classes of 
services:
    (i) Services performed in the employ of a corporation which is 
wholly owned by the United States;
    (ii) Services performed in the employ of a production credit 
association, a Federal Reserve Bank, or a Federal Credit Union; services 
performed before December 31, 1959, in the employ of a national farm 
loan association; services performed after December 30, 1959, in the 
employ of a Federal land bank association; services performed after 
December 31, 1959, in the employ of a

[[Page 46]]

Federal land bank, a Federal intermediate credit bank, or a bank for 
cooperatives; services performed after December 31, 1972, in the employ 
of a Federal home loan bank; and services performed after December 31, 
1966, and before January 1, 1973, in the employ of a Federal home loan 
bank, in the case of individuals who are in such employ on the latter 
date, provided that an amount equal to the taxes imposed by sections 
3101 and 3111 with respect to all such services performed by all such 
individuals are paid under the provisions of section 3122 by July 1, 
1973;
    (iii) Services performed in the employ of a State, county, or 
community committee under the Commodity Stabilization Service;
    (iv) Services performed by a civilian employee, not compensated from 
funds appropriated by the Congress, in the Army and Air Force Exchange 
Service, Army and Air Force Motion Picture Service, Navy Exchanges, 
Marine Corps Exchanges, or other activities, conducted by an 
instrumentality of the United States subject to the jurisdiction of the 
Secretary of Defense, at installations of the Department of Defense for 
the comfort, pleasure, contentment, and mental and physical improvement 
of personnel of such Department; or
    (v) Services performed by a civilian employee, not compensated from 
funds appropriated by the Congress, in the Coast Guard Exchanges or 
other activities, conducted by an instrumentality of the United States 
subject to the jurisdiction of the Secretary of the Treasury, at 
installations of the Coast Guard for the comfort, pleasure, contentment, 
and mental and physical improvement of personnel of the Coast Guard.
    (d) Special classes of services. The following classes of services 
performed either in the employ of the United States or in the employ of 
any instrumentality thereof are excepted from employment under section 
3121(b)(6)(C):
    (1) Services performed as the President or Vice President of the 
United States or a Member, Delegate, or Resident Commissioner, of or to 
the Congress of the United States;
    (2) Services performed in the legislative branch of the United 
States Government;
    (3) Services performed in a penal institution of the United States 
by an inmate thereof;
    (4) (i) Except as provided in paragraph (d)(4)(ii) of this section, 
services performed by student nurses, medical or dental interns, 
residents in training, student dietitians, student physical therapists, 
or student occupational therapists, assigned or attached to a hospital, 
clinic, or medical or dental laboratory operated by any department, 
agency, or instrumentality of the U.S. Government, or by certain other 
student employees described in section 5351(2) of title 5, United States 
Code.
    (ii) The provisions of paragraph (d)(4)(i) of this section have no 
application to services performed after 1965 by medical or dental 
interns or by medical or dental residents in training.
    (5) Services performed by an individual as an employee serving on a 
temporary basis in case of fire, storm, earthquake, flood, or other 
similar emergency; and
    (6) (i) Except as provided in paragraph (d)(6)(ii) of this section, 
services performed by an individual to whom subchapter III of chapter 83 
of title 5, United States Code (civil service retirement) does not apply 
because he is, with respect to such services, subject to another 
retirement system, established either by a law of the United States or 
by the agency or instrumentality of the United States for which such 
services are performed.
    (ii) The provisions of paragraph (d)(6)(i) of this section have no 
application to service performed by an individual to whom subchapter III 
of chapter 83 of title 5, United States Code (civil service retirement) 
does not apply because such individual is subject to the retirement 
system of the Tennessee Valley Authority, if such service is subject to 
the plan approved by the Secretary of Health and Human Services on 
December 28, 1956, pursuant to section 104 (i)(2) of the Social Security 
Amendments of 1956 (70 Stat. 827). See section 201(m)(4) of such 
amendments for provisions relating to the

[[Page 47]]

timeliness of payment of tax with respect to remuneration paid before 
1957 for such services, and barring the imposition of interest on the 
amount of any such tax due for any period before December 28, 1956.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 
8311, July 2, 1964; T.D. 6983, 33 FR 18016, Dec. 4, 1968; T.D. 7373, 40 
FR 30957, July 24, 1975]



Sec.  31.3121(b)(7)-1  Services in employ of States or their political
subdivisions or instrumentalities.

    (a) In general. Except as provided in other paragraphs of this 
section, services performed in the employ of any State, any political 
subdivision of a State, or any instrumentality of one or more States or 
political subdivisions thereof which is wholly owned by one or more 
States or political subdivisions are excepted from employment. For the 
definition of the term ``State'', as used in this section, see Sec.  
31.3121(e)-1.
    (b) Covered transportation service. The exception from employment 
under section 3121(b)(7) does not apply to covered transportation 
service as defined in section 3121(j). See that section and 31.3121(j)-
1.
    (c) Government of American Samoa. The exception from employment 
under section 3121(b)(7) does not apply to services performed after 1960 
in the employ of the Government of American Samoa, any political 
subdivision thereof, or any instrumentality of such Government or 
political subdivision, or combination thereof, which is wholly owned 
thereby, performed by an officer or employee thereof (including a member 
of the legislature of such Government or political subdivision).
    (d) District of Columbia. The exception from employment under 
section 3121(b)(7) does not apply to services performed after September 
30, 1965, in the employ of the District of Columbia or any 
instrumentality which is wholly owned thereby, if such service is not 
covered by a retirement system established by a law of the United 
States. Notwithstanding the preceding sentence the following classes of 
services performed either in the employ of the District of Columbia or 
in the employ of any instrumentality which is wholly owned thereby are 
excepted from employment:
    (1) Services performed in a hospital or penal institution by a 
patient or inmate thereof.
    (2) Services performed by student nurses, student dietitians, 
student physical therapists, or student occupational therapists assigned 
or attached to a hospital, clinic, or medical or dental laboratory 
operated by the District of Columbia or by any wholly owned 
instrumentality thereof, or by certain other student employees described 
in section 5351(2) of title 5, United States Code. This subparagraph 
does not apply to services performed by medical or dental interns or by 
medical or dental residents in training described in such section 
5351(2).
    (3) Services performed by an individual as an employee serving on a 
temporary basis in case of fire, storm, snow, earthquake, flood, or 
other similar emergency.
    (4) Services performed by a member of a board, committee, or council 
of the District of Columbia, paid on a per diem, meeting, or other fee 
basis.
    (e) Government of Guam. The exception from employment under section 
3121(b)(7) does not apply to services performed after 1972 in the employ 
of the Government of Guam or any instrumentality which is wholly owned 
thereby, by an employee properly classified as a temporary or 
intermittent employee, if such service is not covered by a retirement 
system established by a law of Guam. The preceding sentence shall not 
apply to the services performed by an elected official or a member of 
the legislature or in a hospital or penal institution by a patient or 
inmate thereof. For purposes of this paragraph--
    (1) Any person whose services as an officer or employee of such 
Government or instrumentality is not covered by a retirement system 
established by a law of the United States shall not, with respect to 
such service, be regarded as an employee of the United States or any 
agency or instrumentality thereof, and
    (2) The remuneration for service described in subparagraph (1) 
(including fees paid to a public official) shall be

[[Page 48]]

deemed to have been paid by such Government or instrumentality.

[T.D. 6744, 29 FR 8312, July 2, 1964, as amended by T.D. 6983, 33 FR 
18016, Dec. 4, 1968; T.D. 7373, 40 FR 30958, July 24, 1975]



Sec.  31.3121(b)(7)-2  Service by employees who are not members of a 
public retirement system.

    (a) Table of contents. This paragraph contains a listing of the 
major headings of this Sec.  31.3121(b)(7)-2.

  Sec.  31.3121(b)(7)-2 Service by employees who are not members of a 
                        public retirement system.

    (a) Table of contents.
    (b) Introduction.
    (c) General rule.
    (1) Inclusion in employment of service by employees who are not 
members of a retirement system.
    (2) Treatment of individuals employed in more than one position.
    (d) Definition of qualified participant.
    (1) General rule.
    (2) Special rule for part time, seasonal and temporary employees.
    (3) Alternative lookback rule.
    (4) Treatment of former participants.
    (e) Definition of retirement system.
    (1) Requirement that system provide retirement-type benefits.
    (2) Requirement that system provide minimum level of benefits.
    (f) Transition rules.
    (1) Application of qualified participant rules during 1991.
    (2) Additional transition rules for plans in existence on November 
5, 1990.

    (b) Introduction. Under section 3121(b)(7)(F), wages of an employee 
of a State or local government are generally subject to tax under FlCA 
after July 1, 1991, unless the employee is a member of a retirement 
system maintained by the State or local government entity. This section 
31.3121(b)(7)-2 provides rules for determining whether an employee is a 
``member of a retirement system''. These rules generally treat an 
employee as a member of a retirement system if he or she participates in 
a system that provides retirement benefits, and has an accrued benefit 
or receives an allocation under the system that is comparable to the 
benefits he or she would have or receive under Social Security. In the 
case of part-time, seasonal and temporary employees, this minimum 
retirement benefit is required to be nonforfeitable.
    (c) General rule--(1) Inclusion in employment of service by 
employees who are not members of a retirement system. Except in the case 
of service described in sections 3121(b)(7)(F) (i) through (v), the 
exception from employment under section 3121(b)(7) does not apply to 
service in the employ of a State or any political subdivision thereof, 
or of any instrumentality of one or more of the foregoing that is wholly 
owned thereby, after July 1, 1991, unless the employee is a member of a 
retirement system of such State, political subdivision or 
instrumentality at the time the service is performed. An employee is not 
a member of a retirement system at the time service is performed unless 
at that time he or she is a qualified participant (as defined in 
paragraph (d) of this section) in a retirement system that meets the 
requirements of paragraph (e) of this section with respect to that 
employee.
    (2) Treatment of individuals employed in more than one position. 
Under section 3121(b)(7)(F), whether an employee is a member of a 
retirement system is determined on an entity-by-entity rather than a 
position-by-position basis. Thus, if an employee is a member of a 
retirement system with respect to service he or she performs in one 
position in the employ of a State, political subdivision or 
instrumentality thereof, the employee is generally treated as a member 
of a retirement system with respect to all service performed for the 
same State, political subdivision or instrumentality in any other 
positions. A State is a separate entity from its political subdivisions, 
and an instrumentality is a separate entity from the State or political 
subdivision by which it is owned for purposes of this rule. See 
paragraph (e)(2) of this section, however, for rules relating to service 
and compensation required to be taken into account in determining 
whether an employee is a member of a retirement system for purposes of 
this section. This rule is illustrated by the following examples:

    Example 1. An individual is employed full-time by a county and is a 
qualified participant (as defined in paragraph (d) of this section) in 
its retirement plan with regard to

[[Page 49]]

such employment. In addition to this full-time employment, the 
individual is employed part-time in another position with the same 
county. The part-time position is not covered by the county retirement 
plan, however, and neither the service nor the compensation in the part-
time position is considered in determining the employee's retirement 
benefit under the county retirement plan. Nevertheless, if the 
retirement plan meets the requirements of paragraph (e) of this section 
with respect to the individual, the exclusion from employment under 
section 3121(b)(7) applies to both the employee's full-time and part-
time service with the county.
    Example 2. An individual is employed full-time by a State and is a 
member of its retirement plan. The individual is also employed part-time 
by a city located in the State, but does not participate in the city's 
retirement plan. The services of the individual for the city are not 
excluded from employment under section 3121(b)(7), because the 
determination of whether services constitute employment for such 
purposes is made separately with respect to each political subdivision 
for which services are performed.

    (d) Definition of qualified participant--(1) General rule--(i) 
Defined benefit retirement systems. Whether an employee is a qualified 
participant in a defined benefit retirement system is determined as 
services are performed. An employee is a qualified participant in a 
defined benefit retirement system (within the meaning of paragraph 
(e)(1) of this section) with respect to services performed on a given 
day if, on that day, he or she is or ever has been an actual participant 
in the retirement system and, on that day, he or she actually has a 
total accrued benefit under the retirement system that meets the minimum 
retirement benefit requirement of paragraph (e)(2) of this section. An 
employee may not be treated as an actual participant or as actually 
having an accrued benefit for this purpose to the extent that such 
participation or benefit is subject to any conditions (other than 
vesting), such as a requirement that the employee attain a minimum age, 
perform a minimum period of service, make an election in order to 
participate, or be present at the end of the plan year in order to be 
credited with an accrual, that have not been satisfied. The rules of 
this paragraph (d)(1)(i) are illustrated by the following examples:

    Example 1. A State maintains a defined benefit plan that is a 
retirement system within the meaning of paragraph (e)(1) of this 
section. Under the terms of the plan, employees in positions covered by 
the plan must complete 6 months of service before becoming participants. 
The exception from employment in section 3121(b)(7) does not apply to 
services of an employee during the employee's 6 months of service prior 
to his or her initial entry into the plan. The same result occurs even 
if, upon the satisfaction of this service requirement, the employee is 
given credit under the plan for all service with the employer (i.e., if 
service is credited for the 6-month waiting period). This is true even 
if the employee makes a required contribution in order to gain the 
retroactive credit. The same result also occurs if the employee can 
elect to participate in the plan before the end of the 6-month waiting 
period, but does not elect to do so.
    Example 2. A political subdivision maintains a defined benefit plan 
that is a retirement system within the meaning of paragraph (e)(1) of 
this section. Under the terms of the plan, service during a plan year is 
not credited for accrual purposes unless a participant has at least 
1,000 hours of service during the year. Benefits that accrue only upon 
satisfaction of this 1,000-hour requirement may not be taken into 
account in determining whether an employee is a qualified participant in 
the plan before the 1,000-hour requirement is satisfied.

    (ii) Defined contribution retirement systems. Whether an employee is 
a qualified participant in a defined contribution retirement system is 
determined as services are performed. An employee is a qualified 
participant in a defined contribution or other individual account 
retirement system (within the meaning of paragraph (e)(1) of this 
section) with respect to services performed on a given day if, on that 
day, he or she has satisfied all conditions (other than vesting) for 
receiving an allocation to his or her account (exclusive of earnings) 
that meets the minimum retirement benefit requirement of paragraph 
(e)(2) of this section with respect to compensation during any period 
ending on that day and beginning on or after the beginning of the plan 
year of the retirement system. This is the case regardless of whether 
the allocations were made or accrued before the effective date of 
section 3121(b)(7)(F). This rule is illustrated by the following 
examples:


[[Page 50]]


    Example 1. A State-owned hospital maintains a nonelective defined 
contribution plan that is a retirement system within the meaning of 
paragraph (e)(1) of this section. Under the terms of the plan, employees 
must be employed on the last day of a plan year in order to receive any 
allocation for the year. Employees may not be treated as qualified 
participants in the plan before the last day of the year.
    Example 2. Assume the same facts as in Example 1 except that, under 
the terms of the plan, an employee who terminates service before the end 
of a plan year receives a pro rata portion of the allocation he or she 
would have received at the end of the year, e.g., based on compensation 
earned since the beginning of the plan year. If the pro rata allocation 
available on a given day would meet the minimum retirement benefit 
requirement of paragraph (e)(2) of this section with respect to 
compensation from the beginning of the plan year through that day (or 
some later day), employees are treated as qualified participants in the 
plan on that day.
    Example 3. A political subdivision maintalns an elective defined 
contribution plan that is a retirement system within the meaning of 
paragraph (e)(1) of this section. The plan has a calendar year plan year 
and two open seasons--in December and June--when employees can change 
their contribution elections. In December, an employee elects not to 
contribute to the plan. In June, the employee elects (beginning July 1) 
to contribute a uniform percentage of compensation for each pay period 
to the plan for the remainder of the plan year. The employee is not a 
qualified participant in the plan during the period January-June, 
because no allocations are made to the employee's account with respect 
to compensation during that time, and it is not certain at that time 
that any allocations will be made. If the level of contributions during 
the period July-December meets the minimum retirement benefit 
requirement of paragraph (e)(2) of this section with respect to 
compensation during that period, however, the employee is treated as a 
qualified participant during that period.
    Example 4. Assume the same facts as in Example 3, except that the 
plan allows participants to cancel their elections in cases of economic 
hardship. In October, the employee suffers an economic hardship and 
cancels the election (effective November 1). If the contributions during 
the period July-October are high enough to meet the minimum retirement 
benefit requirement of paragraph (e)(2) of this section with respect to 
compensation during that period, the employee is treated as a qualified 
participant during that period. In addition, if the contributions during 
the period July-October are high enough to meet the requirements for the 
entire period July-December, the employee is treated as a qualified 
participant in the plan throughout the period July-December, even though 
no allocations are made to the employee's account in the last two months 
of the year. There is no requirement that the period used to determine 
whether an employee is a qualified participant on a given day remain the 
same from day to day, as long as the period begins on or after the 
beginning of the plan year and ends on the date the determination is 
being made.
    (2) Special rule for part-time, seasonal and temporary employees--
(i) In general. A part-time, seasonal or temporary employee is generally 
not a qualified participant on a given day unless any benefit relied 
upon to meet the requirements of paragraph (d)(1) of this section is 
100-percent nonforfeitable on that day. This requirement may be applied 
solely to the portion of an employee's benefit under the retirement 
system attributable to compensation and service while an employee is a 
part-time, seasonal or temporary employee, provided that such service is 
taken into account with respect to the remaining portion of the benefit 
for vesting purposes. Rules similar to the rules in section 411(a)(11) 
are applicable in determining whether a benefit is nonforfeitable. Thus, 
a benefit does not fail to be nonforfeitable solely because it can be 
immediately distributed upon separation of service without the consent 
of the employee, provided that the present value of the benefit does not 
exceed the cash-out limit in effect under Sec.  1.411(a)-11(c)(3)(ii) of 
this chapter.
    (ii) Treatment of employees entitled to certain distributions upon 
death or separation from service. A part-time, seasonal or temporary 
employee's benefit under a retirement system is considered 
nonforfeitable within the meaning of paragraph (d)(2)(i) of this section 
on a given day if on that day the employee is unconditionally entitled 
under the retirement system to a single-sum distribution on account of 
death or separation from service of an amount that is at least equal to 
7.5 percent of the participant's compensation (within the meaning of 
paragraph (e)(2)(iii)(B) of this section) for all periods of credited 
service taken into account in determining whether the employee's benefit 
under the retirement system meets the

[[Page 51]]

minimum retirement benefit requirement of paragraph (e)(2) of this 
section. An employee will be considered to be unconditionally entitled 
to a single-sum distribution notwithstanding the fact that the 
distribution may be forfeitable (in whole or in part) upon a finding of 
such employee's criminal misconduct. The participant must be entitled to 
interest on the distributable amount through the date of distribution, 
at a rate meeting the requirements of paragraph (e)(2)(iii)(C) of this 
section, as part of the single sum. See paragraph (f)(2)(i)(C) for a 
transition rule relating to this nonforfeitable benefit safe harbor. The 
rule of this paragraph (d)(2)(ii) is illustrated by the following 
example:

    Example. An employee is required to contribute 7.5 percent of his or 
her compensation to a State's defined benefit plan each year. The 
contribution is ``picked up'' by the employer in accordance with section 
414(h). Under the plan, these amounts plus interest accrued since the 
date each amount was contributed are refundable to the employee in all 
cases upon the employee's death or separation from service with the 
employer. If the interest rate meets the requirements of paragraph 
(e)(2)(iii)(C) of this section, then the employee's benefits under the 
plan are considered nonforfeitable and thus meet the requirement of 
paragraph (d)(2)(i) of this section. Of course, the benefit under the 
plan must still meet the minimum retirement benefit requirement for 
defined benefit plans of paragraph (e)(2)(ii) of this section.

    (iii) Definitions of part-time, seasonal and temporary employee--(A) 
Definition of part-time employee. For purposes of this section, a part-
time employee is any employee who normally works 20 hours or less per 
week. A teacher employed by a post-secondary educational institution 
(e.g., a community or junior college, post-secondary vocational school, 
college, university or graduate school) is not considered a part-time 
employee for purposes of this section if he or she normally has 
classroom hours of one-half or more of the number of classroom hours 
designated by the educational institution as constituting full-time 
employment, provided that such designation is reasonable under all the 
facts and circumstances. In addition, elected officials and election 
workers (otherwise described in section 3121(b)(7)(F)(iv) but paid in 
excess of $100 annually) are not considered part-time, seasonal or 
temporary employees for purposes of this section. The rules of this 
paragraph (d)(2)(iii) are illustrated by the following example:

    Example. A community college treats a teacher as a full-time 
employee if the teacher is assigned to work 15 classroom hours per week. 
A new teacher is assigned to work 8 classroom hours per week. Because 
the assigned classroom hours of the teacher are at least one-half of the 
school's definition of full-time teacher, the teacher is not a part-time 
employee.

    (B) Definition of seasonal employee. For purposes of this section, a 
seasonal employee is any employee who normally works on a full-time 
basis less than 5 months in a year. Thus, for example, individuals who 
are hired by a political subdivision during the tax return season in 
order to process incoming returns and work full-time over a 3-month 
period are seasonal employees.
    (C) Definition of temporary employee. For purposes of this section, 
a temporary employee is any employee performing services under a 
contractual arrangement with the employer of 2 years or less duration. 
Possible contract extensions may be considered in determining the 
duration of a contractual arrangement, but only if, under the facts and 
circumstances, there is a significant likelihood that the employee's 
contract will be extended. Future contract extensions are considered 
significantly likely to occur for purposes of this rule if on average 80 
percent of similarly situated employees (i.e., those in the same or a 
similar job classification with expiring employment contracts) have had 
bona fide offers to renew their contracts in the immediately preceding 2 
academic or calendar years. In addition, future contract extensions are 
considered significantly likely to occur if the employee with respect to 
whom the determination is being made has a history of contract 
extensions with respect to his or her current position. An employee is 
not considered a temporary employee for purposes of this rule solely 
because he or she is included in a unit of employees covered by a 
collective bargaining agreement of 2 years or less duration.

[[Page 52]]

    (D) Treatment of employees participating in certain systems. Whether 
an employee is a part-time, seasonal or temporary employee with respect 
to allocations or benefits under a retirement system is generally 
determined based on service in the position in which the allocations or 
benefits were earned, and does not take into account service in other 
positions with the same or different States, political subdivisions or 
instrumentalities thereof. All of an employee's service in other 
positions with the same or different States, political subdivisions or 
instrumentalities thereof may be taken into account for purposes of 
determining whether an employee is a part-time, seasonal or temporary 
employee with respect to benefits under the retirement system, however, 
Provided that: The employee's service in the other positions is or was 
covered by the retirement system; all service aggregated for purposes of 
determining whether an employee is a part-time, seasonal or temporary 
employee (and related compensation) is aggregated under the system for 
all purposes in determining benefits (including vesting); and the 
employee is treated at least as favorably as a full-time employee under 
the retirement system for benefit accrual purposes. The rule of this 
paragraph (d)(2)(iii)(D) is illustrated by the following example:

    Example. Assume that an employee works 15 hours per week for a 
county and 10 hours per week for a municipality, and that both of these 
political subdivisions contribute to the same state-wide public employee 
retirement system. Assume further that the employee's service in both 
positions is aggregated under the system for all purposes in determining 
benefits (including vesting). If the employee is covered under the 
retirement system with respect to both positions and is treated for 
benefit accrual purposes at least as favorably as full-time employees 
under the retirement system, then the employee is not considered a part-
time employee of either the county or the municipality for purposes of 
the nonforfeitable benefit requirement of paragraph (d)(2)(i) of this 
section.

    (3) Alternative lookback rule--(i) In general. An employee may be 
treated as a qualified participant in a retirement system throughout a 
calendar year if he or she was a qualified participant in such system 
(within the meaning of paragraphs (d) (1) and (2) of this section) at 
the end of the plan year of the system ending in the previous calendar 
year. This rule is illustrated by the following examples:

    Example 1. A political subdivision maintains a plan that is a 
retirement system within the meaning of paragraph (e)(1) of this 
section. An employee is a qualified participant within the meaning of 
paragraph (d)(1) of this section in the plan on the last day of the plan 
year ending on May 31, 1995. If the alternative lookback rule is used to 
determine FICA liability, no such liability exists with respect to the 
employee or employer for calendar year 1996 by reason of section 
3121(b)(7)(F). The same result would apply if the determination is being 
made with respect to calendar year 1992 and the lookback year was the 
plan year ending May 31, 1991, even though that plan year ended before 
the effective date of section 3121(b)(7)(F).
    Example 2. A political subdivision maintains an elective defined 
contribution plan described in section 457(b) of the Code. An employee 
is eligible to participate in the plan but does not elect to contribute 
for a plan year. Under the general rule of paragraph (d)(1) of this 
section, the employee is not a qualified participant in the plan during 
the plan year because contributions sufficient to meet the minimum 
retirement benefit requirement of paragraph (e)(2) of this section are 
not being made. However, if an employee's status as a qualified 
participant is being determined under the alternative lookback rule, 
then the employee is a qualified participant for the calendar year in 
which the determination is being made if he of she was a qualified 
participant as of the end of the plan year that ended in the previous 
calendar year.

    (ii) Application in first year of participation. If the alternative 
lookback rule is used, an employee who participates in the retirement 
system may be treated as a qualified participant on any given day during 
his or her first plan year of participation in a retirement system 
(within the meaning of paragraph (e)(1) of this section) if and only if 
it is reasonable on such day to believe that the employee will be a 
qualified participant (within the meaning of paragraphs (d)(1) and (2) 
of this section) on the last day of such plan year. In the case of a 
defined contribution retirement system, the determination of whether the 
employee is actually (or is expected to be) a qualified participant at 
the end of the plan year must take

[[Page 53]]

into account all compensation since the commencement of participation. 
See paragraph (d)(3)(iv) of this section. If this reasonable belief is 
correct, and the employee is a qualified participant on the last day of 
his or her first plan year of participation, then the exception from 
employment in section 3121(b)(7) will apply without regard to section 
3121(b)(7)(F) to services of the employee for the balance of the 
calendar year in which the plan year ends. For purposes of this 
paragraph (d)(3)(ii), it is not reasonable to assume the establishment 
of a new plan until such establishment actually occurs. In addition, the 
rule in this paragraph (d)(3)(ii) may not be used to treat an employee 
as a qualified participant until the employee actually becomes a 
participant in the retirement system. In the case of a retirement system 
that does not permit a new employee to participate until the first day 
of the first month beginning after the employee's commencement of 
service, or some earlier date, a new employee who is not a part-time, 
seasonal or temporary employee may be treated as a qualified participant 
until such date. This 1-month rule of administrative convenience applies 
without regard to whether the employer has a reasonable belief that the 
employee will be a qualified participant. The rules of this paragraph 
(d)(3)(ii) are illustrated by the following examples:

    Example 1. A political subdivision maintains a plan that is a 
retirement system within the meaning of paragraph (e)(1) of this section 
and uses the alternative lookback rule of this paragraph (d)(3). Under 
the terms of the plan, service during a plan year is not credited for 
accrual purposes unless a participant has at least 1,000 hours of 
service during the year. Assume that an employee becomes a participant. 
If it is reasonable to believe that the employee will be credited with 
1,000 hours of service by the last day of his or her first year of 
participation and thereby become a qualified participant by reason of 
accruing a benefit that meets the minimum retirement benefit requirement 
of paragraph (e)(2) of this section, the services of the employee are 
not subject to FICA tax from the date of initial participation until the 
end of that plan year. If the employee is a qualified participant on the 
last day of his or her first plan year of participation, then the 
exception from employment for purposes of FICA will apply to services of 
the employee for the balance of the calendar year in which the plan year 
ended.
    Example 2. Assume the same facts as Example 1, except that the 
employee is a newly hired employee and the plan provides that an 
employee may not participate until the first day of his or her first 
full month of employment. Under the 1-month rule of convenience, the 
employee may be treated as a qualified participant until the first date 
on which he or she could participate in the plan.

    (iii) Application in last year of participation. If the alternative 
lookback rule is used, an employee may be treated as a qualified 
participant on any given day during his or her last year of 
participation in a retirement system (within the meaning of paragraph 
(e)(1) of this section) if and only if it is reasonable to believe on 
such day that the employee, will be a qualified participant (within the 
meaning of paragraphs (d)(1) and (2) of this section) on his or her last 
day of participation. For purposes of this paragraph (d)(3)(iii), an 
employee's last year of participation means the plan year that the 
employer reasonably ascertains is the final year of such employee's 
participation (e.g., where the employee has a scheduled retirement date 
or where the employer intends to terminate the plan).
    (iv) Special rule for defined contribution retirement systems. An 
employee may not be treated as a qualified participant in a defined 
contribution retirement system under this paragraph (d)(3) if 
compensation for less than a full plan year or other 12-month period is 
regularly taken into account in determining allocations to the 
employee's account for the plan year unless, under all of the facts and 
circumstances, such arrangement is not a device to avoid the imposition 
of FICA taxes. For example, an arrangement under which compensation 
taken into account is limited to the contribution base described in 
section 3121(x)(1) is not considered a device to avoid FICA taxes by 
reason of such limitation. See paragraph (e)(2)(iii)(B) of this section 
for a rule permitting the use of such limitation. This rule is 
illustrated by the following example:

    Example. A political subdivision maintains a defined contribution 
plan that covers all of its full-time employees and is a retirement 
system within the meaning of paragraph

[[Page 54]]

(e)(1) of this section. Under the plan, a portion of each participant's 
compensation in the final month of every plan year is allocated to the 
participant's account. Employees covered under the plan generally may 
not be treated as qualified participants under the alternative lookback 
rule for any portion of the calendar year following the year in which 
such allocation is made.

    (v) Consistency requirement. Beginning with calendar year 1992, if 
the alternative lookback rule is used to determine whether an employee 
is a qualified participant, it must be used consistently from year to 
year and with respect to all employees of the State, political 
subdivision or instrumentality thereof making the determination. If a 
retirement system is sponsored by more than one State, political 
subdivision or instrumentality, this consistency requirement applies 
separately to each plan sponsor.
    (4) Treatment of former participants--(i) In general. In general, 
the rules of this paragraph (d) apply equally to former participants who 
continue to perform service for the same State, political subdivision or 
instrumentality thereof or who return after a break in service. Thus, 
for example, a former employee of a political subdivision with a 
deferred benefit under a defined benefit retirement system maintained by 
the political subdivision who is reemployed by the political subdivision 
but does not resume participation in the retirement system, may continue 
to be a qualified participant in the system after becoming reemployed if 
his or her total accrued benefit under the system meets the minimum 
retirement benefit requirement of paragraph (e)(2) of this section 
(taking into account all periods of service (including current service) 
required to be taken into account under that paragraph). See also 
paragraph (e)(2)(v) of this section for situations in which benefits 
under a retirement system may be taken into account even though they 
relate to service for another employer.
    (ii) Treatment of re-hired annuitants. An employee who is a former 
participant in a retirement system maintained by a State, political 
subdivision or instrumentality thereof, who has previously retired from 
service with the State, political subdivision or instrumentality, and 
who is either in pay status (i.e., is currently receiving retirement 
benefits) under the retirement system or has reached nomal retirement 
age under the retirement system, is deemed to be a qualified participant 
in the retirement system without regard to whether he or she continues 
to accrue a benefit or whether the distribution of benefits under the 
retirement system has been suspended pending cessation of services. This 
rule also applies in the case of an employee who has retired from 
service with another State, political subdivision or instrumentality 
thereof that maintains the same retirement system as the current 
employer, provided the employee is a former participant in the system by 
reason of the employee's former employment. Thus, for example, if a 
teacher retires from service with a school district that participates in 
a state-wide teachers' retirement system, begins to receive benefits 
from the system, and later becomes a substitute teacher in another 
school district that participates in the same state-wide system, the 
employee is treated as a re-hired annuitant under this paragraph 
(d)(4)(ii).
    (e) Definition of retirement system--(1) Requirement that system 
provide retirement-type benefits. For purposes of section 3121(b)(7)(F), 
a retirement system includes any pension, annuity, retirement or similar 
fund or system within the meaning of section 218 of the Social Security 
Act that is maintained by a State, political subdivision or 
instrumentality thereof to provide retirement benefits to its employees 
who are participants. Whether a plan is maintained to provide retirement 
benefits with respect to an employee is determined under the facts and 
circumstances of each case. For example, a plan providing only retiree 
health insurance or other deferred welfare benefits is not considered a 
retirement system for this purpose. The legal form of the system is 
generally not relevant. Thus, for example, a retirement system may 
include a plan described in section 401(a), an annuity plan or contract 
under section 403 or a plan described in section 457(b) or (f) of the 
Internal Revenue Code. In addition, the Social Security system is not a 
retirement system for purposes of section 3121(b)(7)(F)

[[Page 55]]

and this section. These rules are illustrated by the following examples:

    Example 1. Under an employment arrangement, a portion of an 
employee's compensation is regularly deferred for 5 years. Because a 
plan that defers the receipt of compensation for a short span of time 
rather than until retirement is not a plan that provides retirement 
benefits, this arrangement is not a retirement system for purposes of 
section 3121(b)(7)(F).
    Example 2. An individual holds two positions with the same political 
subdivision. The wages earned in one position are subject to FICA tax 
pursuant to an agreement (under section 218 of the Social Security Act) 
between the Secretary of Health and Human Services and the State in 
which the political subdivision is located. Because the Social Security 
system is not a retirement system for purposes of section 3121(b)(7)(F), 
the exception from employment in section 3121(b)(7) does not apply to 
service in the other position unless the employee is otherwise a member 
of a retirement system of such political subdivision.

    (2) Requirement that system provide minimum level of benefits--(i) 
In general. A pension, annuity, retirement or similar fund or system is 
not a retirement system with respect to an employee unless it provides a 
retirement benefit to the employee that is comparable to the benefit 
provided under the Old-Age portion of the Old-Age, Survivor and 
Disability Insurance program of Social Security. Whether a retirement 
system meets this requirement is generally determined on an individual-
by-individual basis. Thus, for example, a pension plan that is not a 
retirement system with respect to an employee may nevertheless be a 
retirement system with respect to other employees covered by the system.
    (ii) Defined benefit retirement systems. A defined benefit 
retirement system maintained by a State, political subdivision or 
instrumentality thereof meets the requirements of this paragraph (e)(2) 
with respect to an employee on a given day if and only if, on that day, 
the employee has an accrued benefit under the system that entitles the 
employee to an annual benefit commencing on or before his or her Social 
Security retirement age that is at least equal to the annual Primary 
Insurance Amount the employee would have under Social Security. For this 
purpose, the Primary Insurance Amount an individual would have under 
Social Security is determined as it would be under the Social Security 
Act if the employee had been covered under Social Security for all 
periods of service with the State, political subdivision or 
instrumentality, had never performed service for any other employer, and 
had been fully insured within the meaning of section 214(a) of the 
Social Security Act, except that all periods of service with the State, 
political subdivision or instrumentality must be taken into account 
(i.e., without reduction for low-earning years).
    (iii) Defined contribution retirement systems--(A) In general. A 
defined contribution retirement system maintained by a State, political 
subdivision or instrumentality thereof meets the requirements of 
paragraph (e)(2)(i) of this section with respect to an employee if and 
only if allocations to the employee's account (not including earnings) 
for a period are at least 7.5 percent of the employee's compensation for 
service for the State, political subdivision or instrumentality during 
the period. Matching contributions by the employer may be taken into 
account for this purpose.
    (B) Definition of compensation. The definition of compensation used 
in determining whether a defined contribution retirement system meets 
the minimum retirement benefit requirement must generally be no less 
inclusive than the definition of the employee's base pay as designated 
by the employer or the retirement system, provided such designation is 
reasonable under all the facts and circumstances. Thus, for example, a 
defined contribution retirement system will not fail to meet this 
requirement merely because it disregards for all purposes one or more of 
the following: overtime pay, bonuses, or single-sum amounts received on 
account of death or separation from service under a bona fide vacation, 
compensatory time or sick pay plan, or under severance pay plans. 
Furthermore, any compensation remaining after such amounts are 
disregarded that is in excess of the contribution base described in 
section 3121(x)(1) at the beginning of the plan year may also be 
disregarded. The rules of this paragraph are illustrated by the 
following example:


[[Page 56]]


    Example. A political subdivision maintains an elective defined 
contribution plan that is a retirement system within the meaning of 
paragraph (e)(1) of this section. The plan has a calendar year plan 
year. In 1995, an employee contributes to the plan at a rate of 7.5 
percent of base pay. Assume that the employee will reach the maximum 
contribution base described in section 3121(x)(1) in October of 1995. 
The employee is a qualified participant in the plan for all of the 1995 
plan year without regard to whether the employee ceases to participate 
at any time after reaching the maximum contribution base.

    (C) Reasonable interest rate requirement. A defined contribution 
retirement system does not satisfy this paragraph (e)(2) with respect to 
an employee unless the employee's account is credited with earnings at a 
rate that is reasonable under all the facts and circumstances, or 
employees' accounts are held in a separate trust that is subject to 
general fiduciary standards and are credited with actual earnings on the 
trust fund. Whether the interest rate with which an employee's account 
is credited is reasonable is determined after reducing the rate to 
adjust for the payment of any administrative expenses. The rule of this 
paragraph (e)(2)(iii)(C) is illustrated by the following example:

    Example. A political subdivision maintains a defined contribution 
plan described in section 457(b). Under the plan, the accounts of 
participants are credited annually on the basis of a variable interest 
rate formula determined as of the beginning of the plan year. The 
formula requires an interest rate (after adjustment for administrative 
expense payments) equal to 100 percent of the Applicable Federal Rate 
for long-term debt instruments. This interest rate constitutes a 
reasonable rate of interest.

    (iv) Treatment of emloyees employed in more than one position with 
the same entity. All service and compensation of an employee with 
respect to his or her employment with a State, political subdivision or 
instrumentality thereof must generally be considered in determining 
whether a benefit meets the requirement of this paragraph (e)(2). 
However, for individuals employed simultaneously in multiple positions 
with the same entity, this determination may (but is not required to) be 
made solely by reference to the service and compensation related to a 
single position of the employee with the State, political subdivision or 
instrumentality thereof making the determination, provided that the 
position is not a part-time, seasonal or temporary position.
    (v) Treatment of employees participating in certain systems. In 
general, only compensation from and service for the State, political 
subdivision or instrumentality thereof that employs the employee (and 
the allocations or benefits related to such compensation or service) on 
a given day are considered in determining whether the employee's benefit 
under the retirement system on that day meets the requirements of this 
paragraph (e)(2), even if the employee has other allocations or benefits 
under the same retirement system from service with another State, 
political subdivision or instrumentality thereof. However, an employee's 
total allocations or benefits under a retirement system maintained by 
multiple States, political subdivisions or instrumentalities thereof 
(including the current employer) may be taken into account if:
    (A) The compensation and service on which the additional allocations 
or benefits are based are also taken into account in determining whether 
the employee's allocations or benefits satisfy the minimum retirement 
benefit requirement;
    (B) The retirement system takes all service and compensation of the 
employee in all positions covered by the system into account for all 
benefit determination purposes; and
    (C) If the employee is a part-time, seasonal or temporary employee, 
he or she is treated under the plan for benefit accrual purposes in as 
favorable a manner as a full-time employee participating in the system.
    (vi) Additional testing methods. Additional testing methods may be 
designated by the Commissioner in revenue procedures, revenue rulings, 
notices or other documents of general applicability.
    (f) Transition rules--(1) Application of qualified participant rules 
during 1991--(i) In general. An employee may be treated as a qualified 
participant in a retirement system (within the meaning of paragraph 
(e)(1) of this section) on a given day during the period July 1

[[Page 57]]

through December 31, 1991, if it is reasonable on that day to believe 
that he or she will be a qualified participant under the general rule in 
paragraphs (d) (1) and (2) of this section by January 1, 1992 (taking 
into account only service and compensation on or after such date). For 
purposes of this paragraph (f)(1)(i), given the facts and circumstances 
of a particular case, it may be reasonable to assume that the terms of a 
plan will be changed or that a new retirement system will be established 
by the end of calendar year 1991, as long as affirmative steps have been 
taken to accomplish this result.
    (ii) Extension of reliance period if legislative action required. If 
a plan amendment or other action is necessary in order to treat an 
employee as a member of a retirement system for purposes of this 
section, such amendment or other action may only be taken by a 
legislative body that does not convene during the period July 1, 1991, 
through December 31, 1991, and the other requirements of paragraph 
(f)(1)(i) of this section are met, the end of the reasonable reliance 
period (including the rule that service and compensation prior to that 
date may be disregarded) provided under paragraph (f)(1)(i) of this 
section is extended from December 31, 1991, to the date that is the last 
day of the first legislative session commencing after December 31, 1991. 
These rules are illustrated by the following examples:

    Example 1. A State maintains a defined benefit plan that meets the 
requirements of paragraph (e) of this section. The plan does not cover a 
particular class of full-time employees as of July 1, 1991. However, in 
light of the enactment of section 3121(b)(7)(F), State officials 
administering the plan for the State intend to request that the 
legislature amend the State statute to include that class of employees 
in the existing plan and otherwise to modify the terms of the plan to 
meet the requirements of section 3121(b)(7)(F) and this section. The 
State legislature meets from January through March each year, and 
legislative action is required to expand coverage under the plan. State 
officials administering the plan have publicized the proposed amendment 
providing for the addition of these employees to the plan. Under the 
transition rule for 1991, if it is reasonable to believe that the 
legislature will pass this bill in the 1992 session, service by the 
employees who will be covered under the plan by reason of the amendment 
is not treated as employment by reason of section 3121(b)(7)(F) during 
the period prior to April 1, 1992. This is true regardless of whether 
the plan provides retroactive coverage for the period July 1, 1991 
through March 31, 1992.
    Example 2. Assume the same facts as in Example 1, except that 
legislative action is not required in order to expand coverage under the 
plan, and that publication of the proposed change to the plan occurs in 
1991. Assume further that coverage is expanded under the plan to include 
the new class of full-time employees as of April 1, 1992. Despite this 
action, in this situation the service by those employees during the 
period January 1, 1992 through March 31, 1992 is not excluded from 
``employment'' under section 3121(b)(7)(F), and wages for that period 
are generally subject to FICA taxes even if the plan provides 
retroactive coverage for any portion of the period July 1, 1991 to March 
31, 1992.

    (2) Additional transition rules for plans in existence on November 
5, 1990--(i) Application of minimum retirement benefit requirement to 
defined benefit retirement systems in plan years beginning before 1993--
(A) In general. A defined benefit retirement system maintained by a 
State, political subdivision or instrumentality thereof on November 5, 
1990, is not subject to the minimum retirement benefit requirement of 
paragraph (e)(2) of this section for any plan year beginning before 
January 1, 1993, with respect to individuals who were actually covered 
under the system on November 5, 1990. Such a retirement system is also 
not subject to the minimum retirement benefit requirement of paragraph 
(e)(2) of this section with respect to an employee who becomes a 
participant after November 5, 1990, if he or she is employed in a 
position that was covered under the retirement system on November 5, 
1990, without regard to whether such coverage was mandatory or elective. 
A retirement system is not described in this paragraph (f)(2)(i)(A) if 
there has been a material decrease in the level of retirement benefits 
under the retirement system pursuant to an amendment adopted subsequent 
to November 5, 1990. Whether such a material decrease in benefits has 
occurred is determined under the facts and circumstances of each case. A 
decrease in benefits is not material to the extent that it does not 
decrease the benefit payable at normal

[[Page 58]]

retirement age. These rules are illustrated by the following examples:

    Example 1. The retirement formula under a retirement plan that was 
in existence on November 5, 1990, is amended to use career average 
compensation instead of a high 3-year average, without any increase in 
the benefit formula. This amendment constitutes a material decrease in 
the level of benefit under the retirement plan. Therefore, the 
retirement plan is subject to the minimum retirement benefit requirement 
for the plan year for which the amendment is effective and for all 
succeeding plan years.
    Example 2. A defined benefit retirement plan that was in existence 
on November 5, 1990, is subsequently amended to include part-time 
employees. Previously, this class of employees was not covered under the 
plan either on a mandatory or on an elective basis. The plan is subject 
to the minimum retirement benefit requirement with respect to the part-
time employees because this class of employees was previously excluded 
from coverage under the retirement plan. Of course, the nonforfeitable 
benefit rule applies to the benefit relied upon to meet the minimum 
retirement benefit requirement with respect to any part-time, seasonal 
or temporary employee covered during this period.

    (B) Treatment in plan years beginning after 1992 of benefits accrued 
during previous plan years. The general rule that a defined benefit 
retirement system meets the minimum retirement benefit requirement on 
the basis of total benefits and service accrued to date is modified for 
plans in existence on November 5, 1990. If a defined benefit retirement 
system in existence on November 5, 1990, does not meet the minimum 
retirement benefit requirement solely because the benefits accrued for 
an employee (with respect to whom the system is entitled to relief under 
paragraph (f)(2)(i)(A) of this section) as of the last day of the last 
plan year beginning before January 1, 1993, do not meet the minimum 
retirement benefit requirement of paragraph (e)(2) of this section with 
respect to service and compensation before that time, then the 
retirement system will be deemed to comply with the requirements of 
paragraph (e)(2) of this section if the future service accruals would 
comply with the requirement of paragraph (e)(2) of this section. If 
retirement benefits under a retirement system in existence on November 
5, 1990 are materially decreased within the meaning of paragraph 
(f)(2)(i)(A) of this section, then the date the decrease is effective is 
substituted for January 1, 1993 for purposes of this paragraph. The rule 
of this paragraph (f)(2)(i)(B) is illustrated by the following example:

    Example. A defined benefit plan maintained by a State was in 
existence on November 5, 1990. It provides a retirement benefit on the 
last day of the 1992 plan year that is insufficient to meet the 
requirements of paragraph (e)(2) of this section based on employees' 
total service and compensation with the State at that time. The plan 
will nevertheless meet the requirements of paragraph (e)(2) of this 
section if it is amended to provide benefits sufficient to meet the 
requirements of paragraph (e)(2) of this section based on employees' 
service and compensation in plan years beginning after December 31, 
1992.

    (C) Treatment of part-time, seasonal or temporary employees. A 
defined benefit retirement system is not exempt from the minimum 
retirement benefit requirement with respect to a part-time, seasonal or 
temporary employee during the transition period provided in paragraph 
(f)(2)(i)(A) of this section unless any retirement benefit provided to 
the employee is 100-percent nonforfeitable within the meaning of 
paragraph (d)(2) of this section. In determining whether the benefit is 
nonforfeitable, the special rule in paragraph (d)(2)(ii) of this section 
is modified in two respects during the transition period: first, the 
percentage of compensation required to be available for distribution is 
reduced from 7.5 percent to 6 percent; and second, the period of service 
with respect to which compensation must be determined is modified to 
include all periods of participation by the employee in the system since 
July 1, 1991.
    (ii) Application of minimum retirement benefit requirement to 
defined contribution retirement systems in plan years beginning before 
1993. A defined contribution retirement system maintained by a State, 
political subdivision or instrumentality thereof on November 5, 1990, 
meets the minimum retirement benefit requirement of paragraph (e) (2) of 
this section with respect to an employee for any plan year beginning 
before January 1, 1993, if mandatory allocations to the employee's 
account (not including

[[Page 59]]

earnings) for a period are at least 6 percent (rather than 7.5 percent) 
of the employee's compensation for service to the State, political 
subdivision or instrumentality during the period, and the plan otherwise 
meets the requirements of paragraph (e)(2)(iii) of this section. This 
transition rule is only available with respect to an employee who is 
actually covered under the system on November 5, 1990, and to an 
employee who becomes a participant after November 5, 1990, if he or she 
is employed in a position that was covered under the retirement system 
on November 5, 1990, without regard to whether such coverage was 
mandatory or elective. In addition, this transition rule is not 
available with respect to a part-time, seasonal or temporary employee 
unless the mandatory allocation required under this paragraph (f)(2)(ii) 
is 100-percent nonforfeitable within the meaning of paragraph (d)(2) of 
this section. A retirement system is not described in this paragraph 
(f)(2)(ii) if there has been a material decrease in the level of 
retirement benefits under the retirement system pursuant to an amendment 
adopted subsequent to November 5, 1990. Whether such a material decrease 
in benefits has occurred is determined under all the facts and 
circumstances.
    (iii) Application of qualified participant rules. A participant with 
respect to whom relief is granted under paragraph (f)(2)(i)(A) of this 
section may be treated as a qualified participant in the defined benefit 
retirement system on a given day if, on that day, he or she is actually 
a participant in the retirement system, and, on that day, it is 
reasonable to believe that the participant will actually accrue a 
benefit before the end of the plan year of such retirement system in 
which the determination is made. A participant is not treated as 
accruing a benefit for purposes of this rule if his or her accrued 
benefits increase solely as a result of an increase in compensation. 
However, an employee is treated as a qualified participant for a plan 
year if the employee meets all of the applicable conditions for accruing 
the maximum current benefit for such year but fails to accrue a benefit 
solely because of a uniformly applicable benefit limit under the plan. 
In addition, an employee may be treated as a qualified participant in 
the system on a given day if the employee is a re-hired annuitant within 
the meaning of paragraph (d)(4)(ii) of this section. This rule is 
illustrated by the following example:

    Example. A political subdivision maintains a defined benefit plan 
that is a retirement system within the meaning of paragraph (e)(1) of 
this section but does not meet the requirements of paragraph (e)(2) of 
this section. If the plan is not subject to the minimum retirement 
benefit requirement, an employee who is a participant in the retirement 
plan as of the end of a plan year beginning before January 1, 1993, and 
may reasonably be expected to accrue a benefit under the plan by the end 
of such plan year may be treated as a qualified participant in the plan 
throughout the plan year regardless of the actual amount of the accrual.

[T.D. 8354, 56 FR 29570, June 28, 1991; 56 FR 40246, Aug. 14, 1991, as 
amended by T.D. 8794, 63 FR 70338, Dec. 21, 1998; T.D. 8891, 65 FR 
44682, July 19, 2000]



Sec.  31.3121(b)(8)-1  Services performed by a minister of a church or
a member of a religious order.

    (a) In general. Services performed by a duly ordained, commissioned, 
or licensed minister of a church in the exercise of his ministry, or by 
a member of a religious order in the exercise of his duties required by 
such order, are excluded from employment, except that services performed 
by a member of such an order in the exercise of such duties (whether 
performed for the order or for another employer) are included in 
employment if an election of coverage under section 3121(r) and Sec.  
31.3121(r)-1 is in effect with respect to such order or with respect to 
the autonomous subdivision thereof to which such member belongs. For 
provisions relating to the election available to certain ministers and 
members of religious orders with respect to the extension of the Federal 
old-age, survivors, and disability insurance system established by title 
II of the Social Security Act to certain services performed by them, see 
Part 1 of this chapter (Income Tax Regulations).
    (b) Service by a minister in the exercise of his ministry. Except as 
provided in paragraph (c)(3) of this section, service performed by a 
minister in the exercise

[[Page 60]]

of his ministry includes the ministration of sacerdotal functions and 
the conduct of religious worship, and the control, conduct, and 
maintenance of religious organizations (including the religious boards, 
societies, and other integral agencies of such organizations), under the 
authority of a religious body constituting a church or church 
denomination. The following rules are applicable in determining whether 
services performed by a minister are performed in the exercise of his 
ministry:
    (1) Whether service performed by a minister constitutes the conduct 
of religious worship or the ministration of sacerdotal functions depends 
on the tenets and practices of the particular religious body 
constituting his church or church denomination.
    (2) Service performed by a minister in the control, conduct, and 
maintenance of a religious organization relates to directing, managing, 
or promoting the activities of such organization. Any religious 
organization is deemed to be under the authority of a religious body 
constituting a church or church denomination if it is organized and 
dedicated to carrying out the tenets and principles of a faith in 
accordance with either the requirements or sanctions governing the 
creation of institutions of the faith. The term ``religious 
organization'' has the same meaning and application as is given to the 
term for income tax purposes.
    (3) (i) If a minister is performing service in the conduct of 
religious worship or the ministration of sacerdotal functions, such 
service is in the exercise of his ministry whether or not it is 
performed for a religious organization.
    (ii) The rule in paragraph (b)(3)(i) of this section may be 
illustrated by the following example:

    Example. M, a duly ordained minister, is engaged to perform service 
as chaplain at N University. M devotes his entire time to performing his 
duties as chaplain which include the conduct of religious worship, 
offering spiritual counsel to the university students, and teaching a 
class in religion. M is performing service in the exercise of his 
ministry.

    (4) (i) If a minister is performing service for an organization 
which is operated as an integral agency, of a religious organization 
under the authority of a religious body constituting a church or church 
denomination, all service performed by the minister in the conduct of 
religious worship, in the ministration of sacerdotal functions, or in 
the control conduct, and maintenance of such organization (see paragraph 
(b)(2) of this section) is in the exercise of his ministry.
    (ii) The rule in paragraph (b)(4)(i) of this section may be 
illustrated by the following example:

    Example. M, a duly ordained minister, is engaged by the N Religious 
Board to serve as director of one of its departments. He performs no 
other service. The N Religious Board is an integral agency of O, a 
religious organization operating under the authority of a religious body 
constituting a church denomination. M is performing service in the 
exercise of his ministry.

    (5) (i) If a minister, pursuant to an assignment or designation by a 
religious body constituting his church, performs service for an 
organization which is neither a religious organization nor operated as 
an integral agency of a religious organization, all service performed by 
him, even though such service may not involve the conduct of religious 
worship or the ministration of sacerdotal functions, is in the exercise 
of his ministry.
    (ii) The rule in paragraph (b)(5)(i) of this section may be 
illustrated by the following example:

    Example. M, a duly ordained minister, is assigned by X, the 
religious body constituting his church, to perform advisory service to Y 
Company in connection with the publication of a book dealing with the 
history of M's church denomination. Y is neither a religious 
organization nor operated as an integral agency of a religious 
organization. M performs no other service for X or Y. M is performing 
service in the exercise of his ministry.

    (c) Service by a minister not in the exercise of his ministry. (1) 
Section 3121(b)(8)(A) does not except from employment service performed 
by a duly ordained, commissioned, or licensed minister of a church which 
is not in the exercise of his ministry.
    (2) (i) If a minister is performing service for an organization 
which is

[[Page 61]]

neither a religious organization nor operated as an integral agency of a 
religious organization and the service is not performed pursuant to an 
assignment or designation by his ecclesiastical superiors, then only the 
service performed by him in the conduct of religious worship or the 
ministration of sacerdotal functions is in the exercise of his ministry. 
See, however, paragraph (c)(3) of this section.
    (ii) The rule in paragraph (c)(2)(i) of this section may be 
illustrated by the following example:

    Example. M, a duly ordained minister, is engaged by N University to 
teach history and mathematics. He performs no other service for N 
although from time to time he performs marriages and conducts funerals 
for relatives and friends. N University is neither a religious 
organization nor operated as an integral agency of a religious 
organization. M is not performing the service for N pursuant to an 
assignment or designation by his ecclesiastical superiors. The service 
performed by M for N University is not in the exercise of his ministry. 
However, service performed by M in performing marriages and conducting 
funerals is in the exercise of his ministry.

    (3) Service performed by a duly ordained, commissioned, or licensed 
minister of a church as an employee of the United States, or a State, 
Territory, or possession of the United States, or the District of 
Columbia, or a foreign government, or a political subdivision of any of 
the foregoing, is not considered to be in the exercise of his ministry 
for purposes of the taxes, even though such service may involve the 
ministration of sacerdotal function or the conduct of religious worship. 
Thus, for example, service performed by an individual as a chaplain in 
the Armed Forces of the United States is considered to be performed by a 
commissioned officer in his capacity as such, and not by a minister in 
the exercise of his ministry. Similarly, service performed by an 
employee of a State as a chaplain in a State prison is considered to be 
performed by a civil servant of the State and not by a minister in the 
exercise of his ministry.
    (d) Service in the exercise of duties required by a religious order. 
Service performed by a member of a religious order in the exercise of 
duties required by such order includes all duties required of the member 
by the order. The nature or extent of such service is immaterial so long 
as it is a service which he is directed or required to perform by his 
ecclesiastical superiors.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as 
amended by T.D. 7280, 38 FR 18369, July 10, 1973]



Sec.  31.3121(b)(9)-1  Railroad industry; services performed by an employee
or an employee representative as defined in section 3231.

    Services performed by an individual as an ``employee'' or as an 
``employee representative'', as those terms are defined in section 3231, 
are excepted from employment. For definitions of employee and employee 
representatives, see Sec. Sec.  31.3231(b)-1 and 31.3231(c)-1.



Sec.  31.3121(b)(10)-1  Services for remuneration of less than $50 for
calendar quarter in the employ of certain organizations exempt from 
income tax.

    (a) Services performed by an employee in a calendar quarter in the 
employ of an organization exempt from income tax under section 501(a) 
(other than an organization described in section 401(a)) or under 
section 521 are excepted from employment if the remuneration for the 
services is less than $50. The test relating to remuneration of $50 is 
based on the remuneration earned during a calendar quarter rather than 
on the remuneration paid in a calendar quarter. The exception applies 
separately with respect to each organization for which the employee 
renders services in a calendar quarter. The type of services performed 
by the employee and the place where the services are performed are 
immaterial; the statutory tests are the character of the organization in 
the employ of which the services are performed and the amount of the 
remuneration for services performed by the employee in the calendar 
quarter. For provisions relating to exemption from income tax under 
section 501(a) or 521, see Part 1 of this chapter (Income Tax 
Regulations).

    Example 1. X is a local lodge of a fraternal organization and is 
exempt from income tax under section 501(a) as an organization of the 
character described in section 501(c)(8). X has two paid employees, A, 
who serves exclusively as recording secretary for the lodge,

[[Page 62]]

and B, who performs services for the lodge as janitor of its clubhouse. 
For services performed during the first calendar quarter of 1955 (that 
is, January 1, 1955, through March 31, 1955, both dates inclusive) A 
earns a total of $30. For services performed by certain student quarter 
B earns $180. Since the remuneration for the services performed by A 
during such quarter is less than $50, all of such services are expected, 
and the taxes do not attach with respect to any of the remuneration for 
such services. Since the remuneration for the services performed by B 
during such quarter, however, is not less than $50, none of such 
services are excepted, and the taxes attached with respect to all of the 
remuneration for such services (that is, $180) as and when paid.
    Example 2. The facts are the same as in example 1, above, except 
that on April 1, 1955, A's salary is increased and, for services 
performed during the calendar quarter beginning on that date (that is, 
April 1, 1955, through June 30, 1955, both dates inclusive), A earns a 
total of $60. Although all of the services performed by A during the 
first quarter were excepted, none of A's services performed during the 
second quarter are excepted since the remuneration for such services is 
not less than $50. The taxes attach with respect to all of the 
remuneration for services performed during the second quarter (that is, 
$60) as and when paid.
    Example 3. The facts are the same as in example 1, above, except 
that A earns $120 for services performed during the year 1955, and such 
amount is paid to him in a lump sum at the end of the year. The services 
performed by A in any calendar quarter during the year are excepted if 
the portion of the $120 attributable to services performed in that 
quarter is less than $50. If, however, the portion of the $120 
attributable to services performed in any calendar quarter during the 
year is not less than $50, the services during that quarter are not 
excepted, and the taxes attach with respect to that portion of the 
remuneration attributable to his services in that quarter.

    (b) See Sec.  31.3121(b)(8)-1, relating to services performed by a 
minister of a church in the exercise of his ministry or by a member of a 
religious order in the exercise of duties required by such order; Sec.  
31.3121(b)(10)-2, relating to services performed by certain students in 
the employ of a school, college, or university or of a nonprofit 
organization auxiliary to a school, college, or university; and Sec.  
31.3121(b)(13)-1, relating to services performed by certain student 
nurses and hospital interns.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as 
amended by T.D. 7373, 40 FR 30958, July 24, 1975; T.D. 9849, 84 FR 9238, 
Mar. 14, 2019]



Sec.  31.3121(b)(10)-2  Services performed by certain students in the
employ of a school, college, or university, or of a nonprofit organization
auxiliary to a school, college, or university.

    (a) General rule. (1) Services performed in the employ of a school, 
college, or university within the meaning of paragraph (c) of this 
section (whether or not the organization is exempt from income tax) are 
excepted from employment, if the services are performed by a student 
within the meaning of paragraph (d) of this section who is enrolled and 
is regularly attending classes at the school, college, or university.
    (2) Services performed in the employ of an organization which is--
    (i) Described in section 509(a)(3) and Sec.  1.509(a)-4;
    (ii) Organized, and at all times thereafter operated, exclusively 
for the benefit of, to perform the functions of, or to carry out the 
purposes of a school, college, or university within the meaning of 
paragraph (c) of this section; and
    (iii) Operated, supervised, or controlled by or in connection with 
the school, college, or university; are excepted from employment, if the 
services are performed by a student who is enrolled and regularly 
attending classes within the meaning of paragraph (d) of this section at 
the school, college, or university. The preceding sentence shall not 
apply to services performed in the employ of a school, college, or 
university of a State or a political subdivision thereof by a student 
referred to in section 218(c)(5) of the Social Security Act (42 U.S.C. 
418(c)(5)) if such services are covered under the agreement between the 
Commissioner of Social Security and such State entered into pursuant to 
section 218 of such Act. For the definitions of ``operated, supervised, 
or controlled by'', ``supervised or controlled in connection with'', and 
``operated in connection with'', see paragraphs (g), (h), and (i), 
respectively, of Sec.  1.509(a)-4.

[[Page 63]]

    (b) Statutory tests. For purposes of this section, if an employee 
has the status of a student within the meaning of paragraph (d) of this 
section, the amount of remuneration for services performed by the 
employee, the type of services performed by the employee, and the place 
where the services are performed are not material. The statutory tests 
are:
    (1) The character of the organization in the employ of which the 
services are performed as a school, college, or university within the 
meaning of paragraph (c) of this section, or as an organization 
described in paragraph (a)(2) of this section, and
    (2) The status of the employee as a student enrolled and regularly 
attending classes within the meaning of paragraph (d) of this section at 
the school, college, or university within the meaning of paragraph (c) 
of this section by which the employee is employed or with which the 
employee's employer is affiliated within the meaning of paragraph (a)(2) 
of this section.
    (c) School, College, or University. An organization is a school, 
college, or university within the meaning of section 3121(b)(10) if its 
primary function is the presentation of formal instruction, it normally 
maintains a regular faculty and curriculum, and it normally has a 
regularly enrolled body of students in attendance at the place where its 
educational activities are regularly carried on. See section 
170(b)(1)(A)(ii) and the regulations thereunder.
    (d) Student Status--general rule. Whether an employee has the status 
of a student performing the services shall be determined based on the 
relationship of the employee with the organization employing the 
employee. In order to have the status of a student, the employee must 
perform services in the employ of a school, college, or university 
within the meaning of paragraph (c) of this section at which the 
employee is enrolled and regularly attending classes in pursuit of a 
course of study within the meaning of paragraphs (d)(1) and (2) of this 
section. In addition, the employee's services must be incident to and 
for the purpose of pursuing a course of study within the meaning of 
paragraph (d)(3) of this section at such school, college, or university. 
An employee who performs services in the employ of an affiliated 
organization within the meaning of paragraph (a)(2) of this section must 
be enrolled and regularly attending classes at the affiliated school, 
college, or university within the meaning of paragraph (c) of this 
section in pursuit of a course of study within the meaning of paragraphs 
(d)(1) and (2) of this section. In addition, the employee's services 
must be incident to and for the purpose of pursuing a course of study 
within the meaning of paragraph (d)(3) of this section at such school, 
college, or university.
    (1) Enrolled and regularly attending classes. An employee must be 
enrolled and regularly attending classes at a school, college, or 
university within the meaning of paragraph (c) of this section at which 
the employee is employed to have the status of a student within the 
meaning of section 3121(b)(10). An employee is enrolled within the 
meaning of section 3121(b)(10) if the employee is registered for a 
course or courses creditable toward an educational credential described 
in paragraph (d)(2) of this section. In addition, the employee must be 
regularly attending classes to have the status of a student. For 
purposes of this paragraph (d)(1), a class is an instructional activity 
led by a faculty member or other qualified individual hired by the 
school, college, or university within the meaning of paragraph (c) of 
this section for identified students following an established 
curriculum. Traditional classroom activities are not the sole means of 
satisfying this requirement. For example, research activities under the 
supervision of a faculty advisor necessary to complete the requirements 
for a Ph.D. degree may constitute classes within the meaning of section 
3121(b)(10). The frequency of these and similar activities determines 
whether an employee may be considered to be regularly attending classes.
    (2) Course of study. An employee must be pursuing a course of study 
in order to have the status of a student. A course of study is one or 
more courses the completion of which fulfills the requirements necessary 
to receive an educational credential granted by a

[[Page 64]]

school, college, or university within the meaning of paragraph (c) of 
this section. For purposes of this paragraph, an educational credential 
is a degree, certificate, or other recognized educational credential 
granted by an organization described in paragraph (c) of this section. A 
course of study also includes one or more courses at a school, college 
or university within the meaning of paragraph (c) of this section the 
completion of which fulfills the requirements necessary for the employee 
to sit for an examination required to receive certification by a 
recognized organization in a field.
    (3) Incident to and for the purpose of pursuing a course of study. 
(i) General rule. An employee's services must be incident to and for the 
purpose of pursuing a course of study in order for the employee to have 
the status of a student. Whether an employee's services are incident to 
and for the purpose of pursuing a course of study shall be determined on 
the basis of the relationship of the employee with the organization for 
which such services are performed as an employee. The educational aspect 
of the relationship between the employer and the employee, as compared 
to the service aspect of the relationship, must be predominant in order 
for the employee's services to be incident to and for the purpose of 
pursuing a course of study. The educational aspect of the relationship 
is evaluated based on all the relevant facts and circumstances related 
to the educational aspect of the relationship. The service aspect of the 
relationship is evaluated based on all the relevant facts and 
circumstances related to the employee's employment. The evaluation of 
the service aspect of the relationship is not affected by the fact that 
the services performed by the employee may have an educational, 
instructional, or training aspect. Except as provided in paragraph 
(d)(3)(iii) of this section, whether the educational aspect or the 
service aspect of an employee's relationship with the employer is 
predominant is determined by considering all the relevant facts and 
circumstances. Relevant factors in evaluating the educational and 
service aspects of an employee's relationship with the employer are 
described in paragraphs (d)(3)(iv) and (v) of this section respectively. 
There may be facts and circumstances that are relevant in evaluating the 
educational and service aspects of the relationship in addition to those 
described in paragraphs (d)(3)(iv) and (v) of this section.
    (ii) Student status determined with respect to each academic term. 
Whether an employee's services are incident to and for the purpose of 
pursuing a course of study is determined separately with respect to each 
academic term. If the relevant facts and circumstances with respect to 
an employee's relationship with the employer change significantly during 
an academic term, whether the employee's services are incident to and 
for the purpose of pursuing a course of study is reevaluated with 
respect to services performed during the remainder of the academic term.
    (iii) Full-time employee. The services of a full-time employee are 
not incident to and for the purpose of pursuing a course of study. The 
determination of whether an employee is a full-time employee is based on 
the employer's standards and practices, except regardless of the 
employer's classification of the employee, an employee whose normal work 
schedule is 40 hours or more per week is considered a full-time 
employee. An employee's normal work schedule is not affected by 
increases in hours worked caused by work demands unforeseen at the start 
of an academic term. However, whether an employee is a full-time 
employee is reevaluated for the remainder of the academic term if the 
employee changes employment positions with the employer. An employee's 
work schedule during academic breaks is not considered in determining 
whether the employee's normal work schedule is 40 hours or more per 
week. The determination of an employee's normal work schedule is not 
affected by the fact that the services performed by the employee may 
have an educational, instructional, or training aspect.
    (iv) Evaluating educational aspect. The educational aspect of an 
employee's relationship with the employer is evaluated based on all the 
relevant facts and circumstances related to the educational aspect of 
the relationship. The

[[Page 65]]

educational aspect of an employee's relationship with the employer is 
generally evaluated based on the employee's course workload. Whether an 
employee's course workload is sufficient in order for the employee's 
employment to be incident to and for the purpose of pursuing a course of 
study depends on the particular facts and circumstances. A relevant 
factor in evaluating an employee's course workload is the employee's 
course workload relative to a full-time course workload at the school, 
college or university within the meaning of paragraph (c) of this 
section at which the employee is enrolled and regularly attending 
classes.
    (v) Evaluating service aspect. The service aspect of an employee's 
relationship with the employer is evaluated based on the facts and 
circumstances related to the employee's employment. Services of an 
employee with the status of a full-time employee within the meaning of 
paragraph (d)(3)(iii) of this section are not incident to and for the 
purpose of pursuing a course of study. Relevant factors in evaluating 
the service aspect of an employee's relationship with the employer are 
described in paragraphs (d)(3)(v)(A), (B), and (C) of this section.
    (A) Normal work schedule and hours worked. If an employee is not a 
full-time employee within the meaning of paragraph (d)(3)(iii) of this 
section, then the employee's normal work schedule and number of hours 
worked per week are relevant factors in evaluating the service aspect of 
the employee's relationship with the employer. As an employee's normal 
work schedule or actual number of hours worked approaches 40 hours per 
week, it is more likely that the service aspect of the employee's 
relationship with the employer is predominant. The determination of an 
employee's normal work schedule and actual number of hours worked is not 
affected by the fact that some of the services performed by the employee 
may have an educational, instructional, or training aspect.
    (B) Professional employee. (1) If an employee has the status of a 
professional employee, then that suggests the service aspect of the 
employee's relationship with the employer is predominant. A professional 
employee is an employee--
    (i) Whose primary duty consists of the performance of work requiring 
knowledge of an advanced type in a field of science or learning 
customarily acquired by a prolonged course of specialized intellectual 
instruction and study, as distinguished from a general academic 
education, from an apprenticeship, and from training in the performance 
of routine mental, manual, or physical processes;
    (ii) Whose work requires the consistent exercise of discretion and 
judgment in its performance; and
    (iii) Whose work is predominantly intellectual and varied in 
character (as opposed to routine mental, manual, mechanical, or physical 
work) and is of such character that the output produced or the result 
accomplished cannot be standardized in relation to a given period of 
time.
    (2) Licensed, professional employee. If an employee is a licensed, 
professional employee, then that further suggests the service aspect of 
the employee's relationship with the employer is predominant. An 
employee is a licensed, professional employee if the employee is 
required to be licensed under state or local law to work in the field in 
which the employee performs services and the employee is a professional 
employee within the meaning of paragraph (d)(3)(v)(B)(1) of this 
section.
    (C) Employment Benefits. Whether an employee is eligible to receive 
one or more employment benefits is a relevant factor in evaluating the 
service aspect of an employee's relationship with the employer. For 
example, eligibility to receive vacation, paid holiday, and paid sick 
leave benefits; eligibility to participate in a retirement plan or 
arrangement described in sections 401(a), 403(b), or 457(a); or 
eligibility to receive employment benefits such as reduced tuition 
(other than qualified tuition reduction under section 117(d)(5) provided 
to a teaching or research assistant who is a graduate student), or 
benefits under sections 79 (life insurance), 127 (qualified educational 
assistance), 129 (dependent care assistance programs), or 137 (adoption 
assistance) suggest that the service aspect of an employee's 
relationship with the

[[Page 66]]

employer is predominant. Eligibility to receive health insurance 
employment benefits is not considered in determining whether the service 
aspect of an employee's relationship with the employer is predominant. 
The weight to be given the fact that an employee is eligible for a 
particular employment benefit may vary depending on the type of benefit. 
For example, eligibility to participate in a retirement plan is 
generally more significant than eligibility to receive a dependent care 
employment benefit. Additional weight is given to the fact that an 
employee is eligible to receive an employment benefit if the benefit is 
generally provided by the employer to employees in positions generally 
held by non-students. Less weight is given to the fact that an employee 
is eligible to receive an employment benefit if eligibility for the 
benefit is mandated by state or local law.
    (e) Examples. The following examples illustrate the principles of 
paragraphs (a) through (d) of this section:

    Example 1. (i) Employee C is employed by State University T to 
provide services as a clerk in T's administrative offices, and is 
enrolled and regularly attending classes at T in pursuit of a B.S. 
degree in biology. C has a course workload during the academic term 
which constitutes a full-time course workload at T. C is considered a 
part-time employee by T during the academic term, and C's normal work 
schedule is 20 hours per week, but occasionally due to work demands 
unforeseen at the start of the academic term C works 40 hours or more 
during a week. C is compensated by hourly wages, and receives no other 
compensation or employment benefits.
    (ii) In this example, C is employed by T, a school, college, or 
university within the meaning of paragraph (c) of this section. C is 
enrolled and regularly attending classes at T in pursuit of a course of 
study. C is not a full-time employee based on T's standards, and C's 
normal work schedule does not cause C to have the status of a full-time 
employee, even though C may occasionally work 40 hours or more during a 
week due to unforeseen work demands. C's part-time employment relative 
to C's full-time course workload indicates that the educational aspect 
of C's relationship with T is predominant. Additional facts supporting 
this conclusion are that C is not a professional employee, and C does 
not receive any employment benefits. Thus, C's services are incident to 
and for the purpose of pursuing a course of study. Accordingly, C's 
services are excepted from employment under section 3121(b)(10).
    Example 2. (i) Employee D is employed in the accounting department 
of University U, and is enrolled and regularly attending classes at U in 
pursuit of an M.B.A. degree. D has a course workload which constitutes a 
half-time course workload at U. D is considered a full-time employee by 
U under U's standards and practices.
    (ii) In this example, D is employed by U, a school, college, or 
university within the meaning of paragraph (c) of this section. In 
addition, D is enrolled and regularly attending classes at U in pursuit 
of a course of study. However, because D is considered a full-time 
employee by U under its standards and practices, D's services are not 
incident to and for the purpose of pursuing a course of study. 
Accordingly, D's services are not excepted from employment under section 
3121(b)(10).
    Example 3. (i) The facts are the same as in Example 2, except that D 
is not considered a full-time employee by U, and D's normal work 
schedule is 32 hours per week. In addition, D's work is repetitive in 
nature and does not require the consistent exercise of discretion and 
judgment, and is not predominantly intellectual and varied in character. 
However, D receives vacation, sick leave, and paid holiday employment 
benefits, and D is eligible to participate in a retirement plan 
maintained by U described in section 401(a).
    (ii) In this example, D's half-time course workload relative to D's 
hours worked and eligibility for employment benefits indicates that the 
service aspect of D's relationship with U is predominant, and thus D's 
services are not incident to and for the purpose of pursuing a course of 
study. Accordingly, D's services are not excepted from employment under 
section 3121(b)(10).
    Example 4. (i) Employee E is employed by University V to provide 
patient care services at a teaching hospital that is an unincorporated 
division of V. These services are performed as part of a medical 
residency program in a medical specialty sponsored by V. The residency 
program in which E participates is accredited by the Accreditation 
Counsel for Graduate Medical Education. Upon completion of the program, 
E will receive a certificate of completion, and be eligible to sit for 
an examination required to be certified by a recognized organization in 
the medical specialty. E's normal work schedule, which includes services 
having an educational, instructional, or training aspect, is 40 hours or 
more per week.
    (ii) In this example, E is employed by V, a school, college, or 
university within the meaning of paragraph (c) of this section. However, 
E's normal work schedule calls for E to perform services 40 or more 
hours per week. E is therefore a full-time employee, and the fact that 
some of E's services have

[[Page 67]]

an educational, instructional, or training aspect does not affect that 
conclusion. Thus, E's services are not incident to and for the purpose 
of pursuing a course of study. Accordingly, E's services are not 
excepted from employment under section 3121(b)(10) and there is no need 
to consider other relevant factors, such as whether E is a professional 
employee or whether E is eligible for employment benefits.
    Example 5. (i) Employee F is employed in the facilities management 
department of University W. F has a B.S. degree in engineering, and is 
completing the work experience required to sit for an examination to 
become a professional engineer eligible for licensure under state or 
local law. F is not attending classes at W.
    (ii) In this example, F is employed by W, a school, college, or 
university within the meaning of paragraph (c) of this section. However, 
F is not enrolled and regularly attending classes at W in pursuit of a 
course of study. F's work experience required to sit for the examination 
is not a course of study for purposes of paragraph (d)(2) of this 
section. Accordingly, F's services are not excepted from employment 
under section 3121(b)(10).
    Example 6. (i) Employee G is employed by Employer X as an apprentice 
in a skilled trade. X is a subcontractor providing services in the field 
in which G wishes to specialize. G is pursuing a certificate in the 
skilled trade from Community College C. G is performing services for X 
pursuant to an internship program sponsored by C under which its 
students gain experience, and receive credit toward a certificate in the 
trade.
    (ii) In this example, G is employed by X. X is not a school, college 
or university within the meaning of paragraph (c) of this section. Thus, 
the exception from employment under section 3121(b)(10) is not available 
with respect to G's services for X.
    Example 7. (i) Employee H is employed by a cosmetology school Y at 
which H is enrolled and regularly attending classes in pursuit of a 
certificate of completion. Y's primary function is to carry on 
educational activities to prepare its students to work in the field of 
cosmetology. Prior to issuing a certificate, Y requires that its 
students gain experience in cosmetology services by performing services 
for the general public on Y's premises. H is scheduled to work and in 
fact works significantly less than 30 hours per week. H's work does not 
require knowledge of an advanced type in a field of science or learning, 
nor is it predominantly intellectual and varied in character. H receives 
remuneration in the form of hourly compensation from Y for providing 
cosmetology services to clients of Y, and does not receive any other 
compensation and is not eligible for employment benefits provided by Y.
    (ii) In this example, H is employed by Y, a school, college or 
university within the meaning of paragraph (c) of this section, and is 
enrolled and regularly attending classes at Y in pursuit of a course of 
study. Factors indicating the educational aspect of H's relationship 
with Y is predominant are that H's hours worked are significantly less 
than 30 per week, H is not a professional employee, and H is not 
eligible for employment benefits. Based on the relevant facts and 
circumstances, the educational aspect of H's relationship with Y is 
predominant. Thus, H's services are incident to and for the purpose of 
pursuing a course of study. Accordingly, H's services are excepted from 
employment under section 3121(b)(10).
    Example 8. (i) Employee J is a graduate teaching assistant at 
University Z. J is enrolled and regularly attending classes at Z in 
pursuit of a graduate degree. J has a course workload which constitutes 
a full-time course workload at Z. J's normal work schedule is 20 hours 
per week, but occasionally due to work demands unforeseen at the start 
of the academic term J works more than 40 hours during a week. J's 
duties include grading quizzes and exams pursuant to guidelines set 
forth by the professor, providing class and laboratory instruction 
pursuant to a lesson plan developed by the professor, and preparing 
laboratory equipment for demonstrations. J receives a cash stipend and 
employment benefits in the form of eligibility to make elective employee 
contributions to an arrangement described in section 403(b). In 
addition, J receives qualified tuition reduction benefits within the 
meaning of section 117(d)(5) with respect to the tuition charged for the 
credits earned for being a graduate teaching assistant.
    (ii) In this example, J is employed by Z, a school, college, or 
university within the meaning of paragraph (c) of this section, and is 
enrolled and regularly attending classes at Z in pursuit of a course of 
study. J's full-time course workload relative to J's normal work 
schedule of 20 hours per week indicates that the educational aspect of 
J's relationship with Z is predominant. In addition, J is not a 
professional employee because J's work does not require the consistent 
exercise of discretion and judgment in its performance. On the other 
hand, the fact that J receives employment benefits in the form of 
eligibility to make elective employee contributions to an arrangement 
described in section 403(b) indicates that the employment aspect of J's 
relationship with Z is predominant. Balancing the relevant facts and 
circumstances, the educational aspect of J's relationship with Z is 
predominant. Thus, J's services are incident to and for the purpose of 
pursuing a course of study. Accordingly, J services are excepted from 
employment under section 3121(b)(10).

    (f) Effective date. Paragraphs (a), (b), (c), (d) and (e) of this 
section apply to

[[Page 68]]

services performed on or after April 1, 2005.
    (g) For provisions relating to domestic service performed by a 
student in a local college club, or local chapter of a college 
fraternity or sorority, see Sec.  31.3121(b)(2)-1.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as 
amended by T.D. 7373, 40 FR 30958, July 24, 1975; T.D. 9167, 69 FR 
76407, Dec. 21, 2004]



Sec.  31.3121(b)(11)-1  Services in the employ of a foreign government.

    (a) Services performed by an employee in the employ of a foreign 
government are excepted from employment. The exception includes not only 
services performed by ambassadors, ministers, and other diplomatic 
officers and employees but also services performed as a consular or 
other officer or employee of a foreign government, or as a nondiplomatic 
representative thereof.
    (b) For purposes of this exception, the citizenship or residence of 
the employee is immaterial. It is also immaterial whether the foreign 
government grants an equivalent exemption with respect to similar 
services performed in the foreign country by citizens of the United 
States.



Sec.  31.3121(b)(12)-1  Services in employ of wholly owned instrumentality
of foreign government.

    (a) Services performed by an employee in the employ of certain 
instrumentalities of a foreign government are excepted from employment. 
The exception includes all services performed in the employ of an 
instrumentality of the government of a foreign country, if--
    (1) The instrumentality is wholly owned by the foreign government;
    (2) The services are of a character similar to those performed in 
foreign countries by employees of the United States Government or of an 
instrumentality thereof; and
    (3) The Secretary of State certifies to the Secretary of the 
Treasury that the foreign government, with respect to whose 
instrumentality and employees thereof exemption is claimed, grants an 
equivalent exemption with respect to services performed in the foreign 
country by employees of the United States Government and of 
instrumentalities thereof.
    (b) For purposes of this exception, the citizenship or residence of 
the employee is immaterial.



Sec.  31.3121(b)(13)-1  Services of student nurse or hospital intern.

    (a) Services performed as a student nurse in the employ of a 
hospital or a nurses' training school are excepted from employment, if 
the student nurse is enrolled and regularly attending classes in a 
nurses' training school and such nurses' training school is chartered or 
approved pursuant to State law.
    (b) Services performed before 1966 as an intern (as distinguished 
from a resident doctor), in the employ of a hospital are excepted from 
employment, if the intern has completed a 4 years' course in a medical 
school chartered or approved pursuant to State law.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6983, 33 FR 
18017, Dec. 4, 1968]



Sec.  31.3121(b)(14)-1  Services in delivery or distribution of newspapers,
shopping news, or magazines.

    (a) Services of individuals under age 18. Services performed by an 
employee under the age of 18 in the delivery or distribution of 
newspapers or shopping news, not including delivery or distribution (as, 
for example, by a regional distributor) to any point for subsequent 
delivery or distribution, are excepted from employment. Thus, the 
services performed by an employee under the age of 18 in making house-
to-house delivery or sale of newspapers or shopping news, including 
handbills and other similar types of advertising material, are excepted 
from employment. The services are excepted irrespective of the form or 
method of compensation. Incidental services by the employees who makes 
the house-to-house delivery, such as services in assembling newspapers, 
are considered to be within the exception. The exception continues only 
during the time that the employee is under the age of 18.
    (b) Services of individuals of any age. Services performed by an 
employee in,

[[Page 69]]

and at the time of, the sale of newspapers or magazines to ultimate 
consumers under an arrangement under which the newspapers or magazines 
are to be sold by him at a fixed price, his compensation being based on 
the retention of the excess of such price over the amount at which the 
newspapers or magazines are charged to him, are excepted from 
employment. The services are excepted whether or not the employee is 
guaranteed a minimum amount of compensation for such services, or is 
entitled to be credited with the unsold newspapers or magazines turned 
back. Moreover, the services are excepted without regard to the age of 
the employee. Services performed other than at the time of sale to the 
ultimate consumer are not within the exception. Thus, the services of a 
regional distributor which are antecedent to but not immediately part of 
the sale to the ultimate consumer are not within the exception. However, 
incidental services by the employee who makes the sale to the ultimate 
consumer, such as services in assembling newspapers or in taking 
newspapers or magazines to the place of sale, are considered to be 
within the exception.



Sec.  31.3121(b)(15)-1  Services in employ of international organization.

    (a) Subject to the provisions of section 1 of the International 
Organizations Immunities Act (22 U.S.C. 288), services performed in the 
employ of an international organization as defined in section 
7701(a)(18) are excepted from employment.
    (b) (1) Section 7701(a)(18) provides as follows:

    Sec. 7701. Definitions. (a) When used in this title, where not 
otherwise distinctly expressed or manifestly incompatible with the 
intent thereof--

                                * * * * *

    (18) International organization. The term ``international 
organization'' means a public international organization entitled to 
enjoy privileges, exemptions, and immunities as an international 
organization under the International Organizations Immunities Act (22 
U.S.C. 288-288f).

    (2) Section 1 of the International Organizations Immunities Act 
provides as follows:

    Sec. 1 [International Organizations Immunities Act.] For the 
purposes of this title [International Organizations Immunities Act], the 
term ``international organization'' means a public international 
organization in which the United States participates pursuant to any 
treaty or under the authority of any Act of Congress authorizing such 
participation or making an appropriation for such participation, and 
which shall have been designated by the President through appropriate 
Executive order as being entitled to enjoy the privileges, exemptions, 
and immunities herein provided. The President shall be authorized, in 
the light of the functions performed by any such international 
organization, by appropriate Executive order to withhold or withdraw 
from any such organization or its officers or employees any of the 
privileges, exemptions, and immunities provided for in this title 
(including the amendments made by this title) or to condition or limit 
the enjoyment by any such organization or its officers or employees of 
any such privilege, exemption, or immunity. The president shall be 
authorized, if in his judgment such action should be justified by reason 
of the abuse by an international organization or its officers and 
employees of the privileges, exemptions, and immunities herein provided 
or for any other reason, at any time to revoke the designation of any 
international organization under this section, whereupon the 
international organization in question shall cease to be classed as an 
international organization for the purposes of this title.



Sec.  31.3121(b)(16)-1  Services performed under share-farming arrangement.

    (a) The term ``employment'' does not include services performed by 
an individual under an arrangement with the owner or tenant of land 
pursuant to which--
    (1) Such individual undertakes to produce agricultural or 
horticultural commodities (including livestock, bees, poultry, and fur-
bearing animals and wildlife) on such land,
    (2) The agricultural or horticultural commodities produced by such 
individual, or the proceeds therefrom, are to be divided between such 
individual and such owner or tenant, and
    (3) The amount of such individual's share depends on the amount of 
the agricultural or horticultural commodities produced.

For purposes of this exception, the arrangement pursuant to which the 
individual's services are performed must meet the specified statutory 
conditions.

[[Page 70]]

    (b) If the arrangement between the parties provides that the 
individual who undertakes to produce a crop or livestock is to be 
compensated at a specified rate of pay or is to receive a fixed sum of 
money or a stipulated quantity of the commodities to be produced, 
without regard to the amount actually produced, as distinguished from a 
proportionate share of the crop or livestock, or the proceeds therefrom, 
the services performed by such individual in the production of such crop 
or livestock is not within the exception.
    (c) For provisions relating to the status, under the Self-Employment 
Contributions Act of 1954, of the services which are excepted from 
``employment'' under this section, see the regulations under section 
1402(a) in Part 1 of this chapter (Income Tax Regulations).

[T.D. 6744, 29 FR 8313, July 2, 1964]



Sec.  31.3121(b)(17)-1  Services in employ of Communist organization.

    The term ``employment'' does not include services performed in the 
employ of any organization in any calendar quarter beginning after June 
30, 1956, and during any part of which such organization is registered, 
or there is in effect a final order of the Subversive Activities Control 
Board requiring such organization to register, under the Internal 
Security Act of 1950 (50 U.S.C. 781 et seq.), as amended, as a 
Communist-action organization, a Communist-front organization, or a 
Communist-infiltrated organization.

[T.D. 6744, 29 FR 8313, July 2, 1964]



Sec.  31.3121(b)(18)-1  Services performed by a resident of the Republic
of the Philippines while temporarily in Guam.

    (a) Services performed after 1960 by a resident of the Republic of 
the Philippines while in Guam on a temporary basis as a nonimmigrant 
alien admitted to Guam pursuant to section 101(a)(15)(H)(ii) of the 
Immigration and Nationality Act (8 U.S.C. 1101) are excepted from 
employment.
    (b) Section 101(a)(15)(H) of the Immigration and Nationality Act 
provides as follows:

    Sec. 101. Definitions. [Immigration and Nationality Act (66 Stat. 
166)]
    (a) As used in this chapter--

                                * * * * *

    (15) The term ``immigrant'' means every alien except an alien who is 
within one of the following classes of nonimmigrant aliens--

                                * * * * *

    (H) An alien having a residence in a foreign country which he has no 
intention of abandoning (i) who is of distinguished merit and ability 
and who is coming temporarily to the United States to perform temporary 
services of an exceptional nature requiring merit and ability; or (ii) 
who is coming temporarily to the United States to perform other 
temporary services or labor, if unemployed persons capable of performing 
such service or labor cannot be found in this country; or (iii) who is 
coming temporarily to the United States as an industrial trainee;

[T.D. 6744, 29 FR 8313, July 2, 1964]



Sec.  31.3121(b)(19)-1  Services of certain nonresident aliens.

    (a) (1) Services performed after 1961 by a nonresident alien 
individual who is temporarily present in the United States as a 
nonimmigrant under subparagraph (F) or (J) of section 101(a)(15) of the 
Immigration and Nationality Act (8 U.S.C. 1101), as amended, are 
excepted from employment if the services are performed to carry out a 
purpose for which the individual was admitted. For purposes of this 
section an alien individual who is temporarily present in the United 
States as a nonimmigrant under such subparagraph (F) or (J) is deemed to 
be a nonresident alien individual. The preceding sentence does not apply 
to the extent it is inconsistent with section 7701(b) and the 
regulations under that section. A nonresident alien individual who is 
temporarily present in the United States as a nonimmigrant under such 
subparagraph (J) includes an alien individual admitted to the United 
States as an ``exchange visitor'' under section 201 of the United States 
Information and Educational Exchange Act of 1948 (22 U.S.C. 1446).
    (2) If services are performed by a nonresident alien individual's 
alien spouse or minor child, who is temporarily present in the United 
States as a nonimmigrant under subparagraph (F) or

[[Page 71]]

(J) of section 101(a)(15) of the Immigration and Nationality Act, as 
amended, the services are not deemed for purposes of this section to be 
performed to carry out a purpose for which such individual was admitted. 
The services of such spouse or child are excepted from employment under 
this section only if the spouse or child was admitted for a purpose 
specified in such subparagraph (F) or (J) and if the services are 
performed to carry out such purpose.
    (b) Section 101 of the Immigration and Nationality Act (8 U.S.C. 
1101), as amended, provides in part as follows:

    Sec. 101. Definitions. [Immigration and Nationality Act (68 Stat. 
166)]
    (a) As used in this chapter--* * *
    (15) The term ``immigrant'' means every alien except an alien who is 
within one of the following classes of nonimmigrant aliens--

                                * * * * *

    (F) (i) An alien having a residence in a foreign country which he 
has no intention of abandoning, who is a bona fide student qualified to 
pursue a full course of study and who seeks to enter the United States 
temporarily and solely for the purpose of pursuing such a course of 
study at an established institution of learning or other recognized 
place of study in the United States, particularly designated by him and 
approved by the Attorney General after consultation with the Office of 
Education of the United States, which institution or place of study 
shall have agreed to report to the Attorney General the termination of 
attendance of each nonimmigrant student, and if any such institution of 
learning or place of study fails to make reports promptly the approval 
shall be withdrawn, and (ii) the alien spouse and minor children of any 
such alien if accompanying him or following to join him;

                                * * * * *

    (J) An alien having a residence in a foreign country which he has no 
intention of abandoning who is a bona fide student, scholar, trainee, 
teacher, professor, research assistant, specialist, or leader in a field 
of specialized knowledge or skill, or other person of similar 
description, who is coming temporarily to the United States as a 
participant in a program designated by the Secretary of State, for the 
purpose of teaching, instructing or lecturing, studying, observing, 
conducting research, consulting, demonstrating special skills, or 
receiving training, and the alien spouse and minor children of any such 
alien if accompanying him or following to join him.

                                * * * * *

(Sec. 101, Immigration and Nationality Act, as amended by sec. 101, Act 
of June 27, 1952, 66 Stat. 166; sec. 109, Act of Sept. 21, 1961, 75 
Stat. 534)

[T.D. 6744, 29 FR 8313, July 2, 1964, as amended by T.D. 8411, 57 FR 
15241, Apr. 27, 1992]



Sec.  31.3121(b)(20)-1  Service performed on a boat engaged in catching
fish.

    (a) In general. (1) Service performed on or after December 31, 1954, 
by an individual on a boat engaged in catching fish or other forms of 
aquatic animal life (hereinafter ``fish'') are excepted from employment 
if--
    (i) The individual receives a share of the boat's (or boats' for a 
fishing operation involving more than one boat) catch of fish or a share 
of the proceeds from the sale of the catch,
    (ii) The amount of the individual's share depends solely on the 
amount of the boat's (or boats' for a fishing operation involving more 
than one boat) catch of fish.
    (iii) The individual does not receive and is not entitled to 
receive, any cash remuneration, other than remuneration that is 
described in sub-division (1) of this subparagraph, and
    (iv) The crew of the boat (or of each boat from which the individual 
receives a share of the catch) normally is made up of fewer than 10 
individuals.
    (2) The requirement of paragraph (a)(1)(ii) is not satisfied if 
there exists an agreement with the boat's (or boats') owner or operator 
by which the individual's remuneration is determined partially or fully 
by a factor not dependent on the size of the catch. For example, if a 
boat is operated under a remuneration arrangement, e.g., a collective 
agreement which specifies that crew members, in addition to receiving a 
share of the catch, are entitled to an hourly wage for repairing nets, 
regardless of whether this wage is actually paid, then all the crew 
members covered by the arrangement are entitled to receive cash 
remuneration other than a share of the catch and their services are not 
excepted from employment by section 3121(b)(20).

[[Page 72]]

    (3) The operating crew of a boat includes all persons on the boat 
(including the captain) who receive any form of remuneration in exchange 
for services rendered while on a boat engaged in catching fish. See 
Sec.  1.6050A-1 for reporting requirements for the operator of a boat 
engaged in catching fish with respect to individuals performing services 
described in this section.
    (4) During the same return period, service performed by a crew 
member may be excepted from employment by section 3121(b)(20) and this 
section for one voyage and not so excepted on a subsequent voyage on the 
same or on a different boat.
    (5) During the same voyage, service performed by one crew member may 
be excepted from employment by section 3121(b)(20) and this section but 
service performed by another crew member may not be so excepted.
    (b) Special rule. Services performed after December 31, 1954, and 
before October 4, 1976, on a boat by an individual engaged in catching 
fish are not excepted from employment for any voyage (for purposes of 
section 3121(b) and the corresponding regulations), even though the 
individual satisfies the requirements of paragraphs (a)(1)(i) through 
(iv) of this section, if the owner or operator of the boat engaged in 
catching fish treated the individual as an employee. For purposes of 
this subparagraph, the individual was treated as an employee if--
    (1) Form 941 was voluntarily filed by the boat operator or owner, 
regardless of whether the tax imposed by chapter 21 was withheld. For 
purposes of this subdivision, the filing of Form 941 is not voluntary if 
the filing was the result of action taken by the Service pursuant to 
section 6651(a) (relating to addition to the tax for failure to file tax 
return or to pay tax);
    (2) The boat owner or operator withheld from the individual's share 
the tax imposed by chapter 21, regardless of whether the tax was paid 
over to the Service; or
    (3) The boat owner or operator made full or partial payment of the 
tax imposed by chapter 21, unless the payment was made pursuant to 
section 7422(a) (relating to no civil actions for refund prior to filing 
claim for refund). However, for purposes of this paragraph crew members 
whose services, but for paragraphs (a)(1)(i) through (iii), would have 
been excepted from employment by section 3121(b)(20) are not required to 
pay self-employment tax on income earned in performing those services. 
See Sec.  1.1402(c)-3(g). Moreover, in such cases the employer is not 
entitled to a refund of the employer's share of any tax imposed by 
chapter 21 that was paid.

[T.D. 7716, 45 FR 57123, Aug. 27, 1980]



Sec.  31.3121(c)-1  Included and excluded services.

    (a) If a portion of the services performed by an employee for an 
employer during a pay period constitutes employment, and the remainder 
does not constitute employment, all the services performed by the 
employee for the employer during the period shall for purposes of the 
taxes be treated alike, that is, either all as included or all as 
excluded. The time during which the employee performs services which 
under section 3121(b) constitute employment, and the time during which 
he performs services which under such section do not constitute 
employment, within the pay period, determine whether all the services 
during the pay period shall be deemed to be included or excluded.
    (b) If one-half or more of the employee's time in the employ of a 
particular person in a pay period is spent in performing services which 
constitute employment, then all the services of that employee for that 
person in that pay period shall be deemed to be employment.
    (c) If less than one-half of the employee's time in the employ of a 
particular person in a pay period is spent in performing services which 
constitute employment, then none of the services of that employee for 
that person in that pay period shall be deemed to be employment.
    (d) The application of the provisions of paragraphs (a), (b), and 
(c) of this section may be illustrated by the following example:

    Example. The AB Club, which is a local college club within the 
meaning of section 3121(b)(2), employs D, a student who is enrolled and 
is regularly attending classes at a

[[Page 73]]

university, to perform domestic service for the club and to keep the 
club's books. The domestic services performed by D for the AB Club do 
not constitute employment, and his services as the club's bookkeeper 
constitute employment. D receives a payment at the end of each month for 
all services which he performs for the club. During a particular month D 
spends 60 hours in performing domestic service for the club and 40 hours 
as the club's bookkeeper. None of D's services during the month are 
deemed to be employment, since less than one-half of his services during 
the month constitutes employment. During another month D spends 35 hours 
in the performance of domestic services and 60 hours in keeping the 
club's books. All of D's services during the month are deemed to be 
employment, since one-half or more of his services during the month 
constitutes employment.

    (e) For purposes of this section, a ``pay period'' is the period (of 
not more than 31 consecutive calendar days) for which a payment of 
remuneration is ordinarily made to the employee by the employer. Thus, 
if the periods for which payments of remuneration are made to the 
employee by the employer are of uniform duration, each such period 
constitutes a ``pay period''. If, however, the periods occasionally vary 
in duration, the ``pay period'' is the period for which a payment of 
remuneration is ordinarily made to the employee by the employer, even 
though that period does not coincide with the actual period for which a 
particular payment of remuneration is made. For example, if an employer 
ordinarily pays a particular employee for each calendar week at the end 
of the week, but the employee receives a payment in the middle of the 
week for the portion of the week already elapsed and receives the 
remainder at the end of the week, the ``pay period'' is still the 
calendar week; or if, instead, that employee is sent on a trip by such 
employer and receives at the end of the third week a single remuneration 
payment for three weeks' services, the ``pay period'' is still the 
calendar week.
    (f) If there is only one period (and such period does not exceed 31 
consecutive calendar days) for which a payment of remuneration is made 
to the employee by the employer, such period is deemed to be a ``pay 
period'' for purposes of this section.
    (g) The rules set forth in this section do not apply (1) with 
respect to any services performed by the employee for the employer if 
the periods for which such employer makes payments of remuneration to 
the employee vary to the extent that there is no period ``for which a 
payment of remuneration is ordinarily made to the employee'', or (2) 
with respect to any services performed by the employee for the employer 
if the period for which a payment of remuneration is ordinarily made to 
the employee by such employer exceeds 31 consecutive calendar days, or 
(3) with respect to any service performed by the employee for the 
employer during a pay period if any of such service is excepted by 
section 3121(b)(9) (see Sec.  31.3121(b)(9)-1).
    (h) If during any period for which a person makes a payment of 
remuneration to an employee only a portion of the employee's services 
constitutes employment, but the rules prescribed in this section are not 
applicable, the taxes attach with respect to such services as constitute 
employment as defined in section 3121(b).

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 
8313, July 2, 1964]



Sec.  31.3121(d)-1  Who are employees.

    (a) In general. (1) Whether an individual is an employee with 
respect to services performed after 1954 is determined in accordance 
with section 3121(d) and (o) and section 3506. This section of the 
regulations applies with respect only to services performed after 1954. 
Whether an individual is an employee with respect to services performed 
after 1936 and before 1940 shall be determined in accordance with the 
applicable provisions of law and of 26 CFR (1939) Part 401 (Regulations 
91). Whether an individual is an employee with respect to services 
performed after 1939 and before 1951 shall be determined in accordance 
with the applicable provisions of law and of 26 CFR (1939) Part 402 
(Regulations 106). Whether an individual is an employee with respect to 
services performed after 1950 and before 1955 shall be determined in 
accordance with the applicable provisions of law and of 26 CFR (1939) 
Part 408 (Regulations 128).

[[Page 74]]

    (2) Section 3121(d) contains three separate and independent tests 
for determining who are employees. Paragraphs (b), (c), and (d) of this 
section relate to the respective tests. Paragraph (b) relates to the 
test for determining whether an officer of a corporation is an employee 
of the corporation. Paragraph (c) relates to the test for determining 
whether an individual is an employee under the usual common law rules. 
Paragraph (d) relates to the test for determining which individuals in 
certain occupational groups who are not employees under the usual common 
law rules are included as employees. If an individual is an employee 
under any one of the tests, he is to be considered an employee for 
purposes of the regulations in this subpart whether or not he is an 
employee under any of the other tests.
    (3) If the relationship of employer and employee exists, the 
designation or description of the relationship by the parties as 
anything other than that of employer and employee is immaterial. Thus, 
if such relationship exists, it is of no consequence that the employee 
is designated as a partner, coadventurer, agent, independent contractor, 
or the like.
    (4) All classes or grades of employees are included within the 
relationship of employer and employee. Thus, superintendents, managers, 
and other supervisory personnel are employees.
    (5) Although an individual may be an employee under this section, 
his services may be of such a nature, or performed under such 
circumstances, as not to constitute employment (see Sec.  31.3121(b)-3).
    (b) Corporate officers. Generally, an officer of a corporation is an 
employee of the corporation. However, an officer of a corporation who as 
such does not perform any services or performs only minor services and 
who neither receives nor is entitled to receive, directly or indirectly, 
any remuneration is considered not to be an employee of the corporation. 
A director of a corporation in his capacity as such is not an employee 
of the corporation.
    (c) Common law employees. (1) Every individual is an employee if 
under the usual common law rules the relationship between him and the 
person for whom he performs services is the legal relationship of 
employer and employee.
    (2) Generally such relationship exists when the person for whom 
services are performed has the right to control and direct the 
individual who performs the services, not only as to the result to be 
accomplished by the work but also as to the details and means by which 
that result is accomplished. That is, an employee is subject to the will 
and control of the employer not only as to what shall be done but how it 
shall be done. In this connection, it is not necessary that the employer 
actually direct or control the manner in which the services are 
performed; it is sufficient if he has the right to do so. The right to 
discharge is also an important factor indicating that the person 
possessing that right is an employer. Other factors characteristic of an 
employer, but not necessarily present in every case, are the furnishing 
of tools and the furnishing of a place to work, to the individual who 
performs the services. In general, if an individual is subject to the 
control or direction of another merely as to the result to be 
accomplished by the work and not as to the means and methods for 
accomplishing the result, he is an independent contractor. An individual 
performing services as an independent contractor is not as to such 
services an employee under the usual common law rules. Individuals such 
as physicians, lawyers, dentists, veterinarians, construction 
contractors, public stenographers, and auctioneers, engaged in the 
pursuit of an independent trade, business, or profession, in which they 
offer their services to the public, are independent contractors and not 
employees.
    (3) Whether the relationship of employer and employee exists under 
the usual common law rules will in doubtful cases be determined upon an 
examination of the particular facts of each case.
    (d) Special classes of employees. (1) In addition to individuals who 
are employees under paragraph (b) or (c) of this section, other 
individuals are employees if they perform services for remuneration 
under certain prescribed circumstances in the following occupational 
groups:

[[Page 75]]

    (i) As an agent-driver or commission-driver engaged in distributing 
meat products, vegetable products, fruit products, bakery products, 
beverages (other than milk), or laundry or dry-cleaning services for his 
principal;
    (ii) As a full-time life insurance salesman;
    (iii) As a home worker performing work, according to specifications 
furnished by the person for whom the services are performed, on 
materials or goods furnished by such person which are required to be 
returned to such person or a person designated by him; or
    (iv) As a traveling or city salesman, other than as an agent-driver 
or commission-driver, engaged upon a full-time basis in the solicitation 
on behalf of, and the transmission to, his principal (except for side-
line sales activities on behalf of some other person) of orders from 
wholesalers, retailers, contractors, or operators of hotels, 
restaurants, or other similar establishments for merchandise for resale 
or supplies for use in their business operations.
    (2) In order for an individual to be an employee under this 
paragraph, the individual must perform services in an occupation falling 
within one of the enumerated groups. If the individual does not perform 
services in one of the designated occupational groups, he is not an 
employee under this paragraph. An individual who is not an employee 
under this paragraph may nevertheless be an employee under paragraph (b) 
or (c) of this section. The language used to designate the respective 
occupational groups relates to fields of endeavor in which particular 
designations are not necessarily in universal use with respect to the 
same service. The designations are addressed to the actual services 
without regard to any technical or colloquial labels which may be 
attached to such services. Thus, a determination whether services fall 
within one of the designated occupational groups depends upon the facts 
of the particular situation.
    (3) The factual situations set forth below are illustrative of some 
of the individuals falling within each of the above enumerated 
occupational groups. The illustrative factual situations are as follows:
    (i) Agent-driver or commission-driver. This occupational group 
includes agent-drivers or commission-drivers who are engaged in 
distributing meat or meat products, vegetables or vegetable products, 
fruit or fruit products, bakery products, beverages (other than milk), 
or laundry or dry-cleaning services for their principals. An agent-
driver or commission-driver includes an individual who operates his own 
truck or the truck of the person for whom he performs services, serves 
customers designated by such person as well as those solicited on his 
own, and whose compensation is a commission on his sales or the 
difference between the price he charges his customers and the price he 
pays to such person for the product or service.
    (ii) Full-time life insurance salesman. An individual whose entire 
or principal business activity is devoted to the solicitation of life 
insurance or annuity contracts, or both, primarily for one life 
insurance company is a full-time life insurance salesman. Such a 
salesman ordinarily uses the office space provided by the company or its 
general agent, and stenographic assistance, telephone facilities, forms, 
rate books, and advertising materials are usually made available to him 
without cost. An individual who is engaged in the general insurance 
business under a contract or contracts of service which do not 
contemplate that the individual's principal business activity will be 
the solicitation of life insurance or annuity contracts, or both, for 
one company, or any individual who devotes only part time to the 
solicitation of life insurance contracts, including annuity contracts, 
and is principally engaged in other endeavors, is not a full-time life 
insurance salesman.
    (iii) Home workers. This occupational group includes a worker who 
performs services off the premises of the person for whom the services 
are performed, according to specifications furnished by such person, on 
materials or goods furnished by such person which are required to be 
returned to such person or a person designated by him. For provisions 
relating to the determination of wages in the case of a home worker to 
whom this subdivision is applicable, see Sec.  31.3121(a)(10)-1.

[[Page 76]]

    (iv) Traveling or city salesman. (a) This occupational group 
includes a city or traveling salesman who is engaged upon a full-time 
basis in the solicitation on behalf of, and the transmission to, his 
principal (except for side-line sales activities on behalf of some other 
person or persons) of orders from wholesalers, retailers, contractors, 
or operators of hotels, restaurants, or other similar establishments for 
merchandise for resale or supplies for use in their business operations. 
An agent-driver or commission-driver is not within this occupational 
group. City or traveling salesmen who sell to retailers or to the others 
specified, operate off the premises of their principals, and are 
generally compensated on a commission basis, are within this 
occupational group. Such salesmen are generally not controlled as to the 
details of their services or the means by which they cover their 
territories, but in the ordinary case they are expected to call on 
regular customers with a fair degree of regularity.
    (b) In order for a city or traveling salesman to be included within 
this occupational group, his entire or principal business activity must 
be devoted to the solicitation of orders for one principal. Thus, the 
multiple-line salesman generally is not within this occupational group. 
However, if the salesman solicits orders primarily for one principal, he 
is not excluded from this occupational group solely because of side-line 
sales activities on behalf of one or more other persons. In such a case, 
the salesman is within this occupational group only with respect to the 
services performed for the person for whom he primarily solicits orders 
and not with respect to the services performed for such other persons. 
The following examples illustrate the application of the foregoing 
provisions:

    Example 1. Salesman A's principal business activity is the 
solicitation of orders from retail pharmacies on behalf of the X 
Wholesale Drug Company. A also occasionally solicits orders for drugs on 
behalf of the Y and Z Companies. A is within this occupational group 
with respect to his services for the X Company but not with respect to 
his services for either the Y Company or the Z Company.
    Example 2. Salesman B's principal business activity is the 
solicitation of orders from retail hardware stores on behalf of the R 
Tool Company and the S Cooking Utensil Company. B regularly solicits 
orders on behalf of both companies. B is not within this occupational 
group with respect to the services performed for either the R Company or 
the S Company.
    Example 3. Salesman C's principal business activity is the house-to-
house solicitation of orders on behalf of the T Brush Company. C 
occasionally solicits such orders from retail stores and restaurants. C 
is not within this occupational group.

    (4)(i) The fact that an individual falls within one of the 
enumerated occupational groups, however, does not make such individual 
an employee under this paragraph unless (a) the contract of service 
contemplates that substantially all the services to which the contract 
relates in the particular designated occupation are to be performed 
personally by such individual, (b) such individual has no substantial 
investment in the facilities used in connection with the performance of 
such services (other than in facilities for transportation) and (c) such 
services are part of a continuing relationship with the person for whom 
the services are performed and are not in the nature of a single 
transaction.
    (ii) The term ``contract of service'', as used in this paragraph, 
means an arrangement, formal or informal, under which the particular 
services are performed. The requirement that the contract of service 
shall contemplate that substantially all the services to which the 
contract relates in the particular designated occupation are to be 
performed personally by the individual means that it is not contemplated 
that any material part of the services to which the contract relates in 
such occupation will be delegated to any other person by the individual 
who undertakes under the contract to perform such services.
    (iii) The facilities to which reference is made in this paragraph 
include equipment and premises available for the work or enterprise as 
distinguished from education, training, and experience, but do not 
include such tools, instruments, equipment, or clothing, as are commonly 
or frequently provided by employees. An investment in an automobile by 
an individual which is

[[Page 77]]

used primarily for his own transportation in connection with the 
performance of services for another person has no significance under 
this paragraph, since such investment is comparable to outlays for 
transportation by an individual performing similar services who does not 
own an automobile. Moreover, the investment in facilities for the 
transportation of the goods or commodities to which the services relate 
is to be excluded in determining the investment in a particular case. If 
an individual has a substantial investment in facilities of the 
requisite character, he is not an employee within the meaning of this 
paragraph, since a substantial investment of the requisite character 
standing alone is sufficient to exclude the individual from the employee 
concept under this paragraph.
    (iv) If the services are not performed as part of a continuing 
relationship with the person for whom the services are performed, but 
are in the nature of a single transaction, the individual performing 
such services is not an employee of such person within the meaning of 
this paragraph. The fact that the services are not performed on 
consecutive workdays does not indicate that the services are not 
performed as part of a continuing relationship.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 
8314, July 2, 1964; T.D. 7691, 45 FR 24129, Apr. 9, 1980]



Sec.  31.3121(d)-2  Who are employers.

    (a) Every person is an employer if he employs one or more employees. 
Neither the number of employees employed nor the period during which any 
such employee is employed is material for the purpose of determining 
whether the person for whom the services are performed is an employer.
    (b) An employer may be an individual, a corporation, a partnership, 
a trust, an estate, a joint-stock company, an association, or a 
syndicate, group, pool, joint venture, or other unincorporated 
organization, group, or entity. A trust or estate, rather than the 
fiduciary acting for on behalf of the trust or estate, is generally the 
employer.
    (c) Although a person may be an employer under this section, 
services performed in his employ may be of such a nature, or performed 
under such circumstances, as not to constitute employment (see Sec.  
31.3121(b)-3).



Sec.  31.3121(e)-1  State, United States, and citizen.

    (a) When used in the regulations in this subpart, the term ``State'' 
includes the District of Columbia, the Commonwealth of Puerto Rico, the 
Virgin Islands, the Territories of Alaska and Hawaii before their 
admission as States, and (when used with respect to services performed 
after 1960) Guam and American Samoa.
    (b) When used in the regulations in this subpart, the term ``United 
States'', when used in a geographical sense, means the several states 
(including the Territories of Alaska and Hawaii before their admission 
as States), the District of Columbia, the Commonwealth of Puerto Rico, 
and the Virgin Islands. When used in the regulations in this subpart 
with respect to services performed after 1960, the term ``United 
States'' also includes Guam and American Samoa when the term is used in 
a geographical sense. The term ``citizen of the United States'' includes 
a citizen of the Commonwealth of Puerto Rico or the Virgin Islands, and, 
effective January 1, 1961, a citizen of Guam or American Samoa.

[T.D. 6744, 29 FR 8314, July 2, 1964]



Sec.  31.3121(f)-1  American vessel and aircraft.

    (a) The term ``American vessel'' means any vessel which is 
documented (that is, registered, enrolled, or licensed) or numbered in 
conformity with the laws of the United States. It also includes any 
vessel which is neither documented nor numbered under the laws of the 
United States, nor documented under the laws of any foreign country, if 
the crew of such vessel is employed solely by one or more citizens or 
residents of the United States or corporations organized under the laws 
of the United States or of any State. (For provisions relating to the 
terms ``State'' and ``citizen'', see Sec.  31.3121 (e)-1.)
    (b) The term ``American aircraft'' means any aircraft registered 
under the laws of the United States.

[[Page 78]]

    (c) For provisions relating to services performed outside the United 
States on or in connection with an American vessel or American aircraft, 
see paragraph (c)(2) of Sec.  31.3121(b)-3.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 
8314, July 2, 1964]



Sec.  31.3121(g)-1  Agricultural labor.

    (a) In general. (1) The term ``agricultural labor'' as defined in 
section 3121(g) includes services of the character described in 
paragraph (b), (c), (d), (e), and (f) of this section. In general, 
however, the term does not include services performed in connection with 
forestry, lumbering, or landscaping.
    (2) The term ``farm'' as used in the regulations in this subpart 
includes stock, dairy, poultry, fruit, fur-bearing animal, and truck 
farms, plantations, ranches, nurseries, ranges, orchards, and such 
greenhouses and other similar structures as are used primarily for the 
raising of agricultural or horticultural commodities. Greenhouses and 
other similar structures used primarily for other purposes (for example, 
display, storage, and fabrication of wreaths, corsages, and bouquets) do 
not constitute ``farms''.
    (3) For provisions relating to the exception from employment 
provided with respect to services performed by certain foreign 
agricultural workers and to services performed before 1959 in connection 
with the production or harvesting of certain oleoresinous products, see 
Sec.  31.3121(b)(1)-1. For provisions relating to the exclusion from 
wages of remuneration paid in any medium other than cash for 
agricultural labor and to the test for determining whether cash 
remuneration paid for agricultural labor constitutes wages, see Sec.  
31.3121(a)(8)-1.
    (b) Services described in section 3121(g)(1). (1) Services performed 
on a farm by an employee of any person in connection with any of the 
following activities constitute agricultural labor:
    (i) The cultivation of the soil;
    (ii) The raising, shearing, feeding, caring for, training, or 
management of livestock, bees, poultry, fur-bearing animals, or 
wildlife; or
    (iii) The raising or harvesting of any other agricultural or 
horticultural commodity.
    (2) Services performed in connection with the production or 
harvesting of maple sap, or in connection with the raising or harvesting 
of mushrooms, or in connection with the hatching of poultry constitute 
agricultural labor only if such services are performed on a farm. Thus, 
services performed in connection with the operation of a hatchery, if 
not operated as part of a poultry or other farm, do not constitute 
agricultural labor.
    (c) Services described in section 3121(g)(2). (1) The following 
services performed by an employee in the employ of the owner or tenant 
or other operator of one or more farms constitute agricultural labor, 
provided the major part of such services is performed on a farm:
    (i) Services performed in connection with the operation, management, 
conservation, improvement, or maintenance of any of such farms or its 
tools or equipment; or
    (ii) Services performed in salvaging timber, or clearing land of 
brush and other debris, left by a hurricane.
    (2) The services described in paragraph (c)(1)(i) of this section 
may include, for example, services performed by carpenters, painters, 
mechanics, farm supervisors, irrigation engineers, bookkeepers, and 
other skilled or semiskilled workers, which contribute in any way to the 
conduct of the farm or farms, as such, operated by the person employing 
them, as distinguished from any other enterprise in which such person 
may be engaged.
    (3) Since the services described in this paragraph must be performed 
in the employ of the owner or tenant or other operator of the farm, the 
term ``agricultural labor'' does not include services performed by 
employees of a commercial painting concern, for example, which contracts 
with a farmer to renovate his farm properties.
    (d) Services described in section 3121(g)(3). Services performed by 
an employee in the employ of any person in connection with any of the 
following operations constitute agricultural labor without regard to the 
place where such services are performed:

[[Page 79]]

    (1) The ginning of cotton;
    (2) The operation or maintenance of ditches, canals, reservoirs, or 
waterways, not owned or operated for profit, used exclusively for 
supplying or storing water for farming purposes; or
    (3) The production or harvesting of crude gum (oleoresin) from a 
living tree or the processing of such crude gum into gum spirits of 
turpentine and gum rosin, provided such processing is carried on by the 
original producer of such crude gum.
    (e) Services described in section 3121(g)(4). (1) Services performed 
by an employee in the handling, planting, drying, packing, packaging, 
processing, freezing, grading, storing, or delivering to storage or to 
market or to a carrier for transportation to market, of any agricultural 
or horticultural commodity constitute agricultural labor if:
    (i) Such services are performed by the employee in the employ of an 
operator of a farm or in the employ of a group of operators of farms 
(other than a cooperative organization);
    (ii) Such services are performed with respect to the commodity in 
its unmanufactured state; and
    (iii) Such operator produced more than one-half of the commodity 
with respect to which such services are performed during the pay period, 
or such group of operators produced all of the commodity with respect to 
which such services are performed during the pay period.
    (2) The term ``operator of a farm'' as used in this paragraph means 
an owner, tenant, or other person, in possession of a farm and engaged 
in the operation of such farm.
    (3) The services described in this paragraph do not constitute 
agricultural labor if performed in the employ of a cooperative 
organization. The term ``organization'' includes corporations, joint-
stock companies, and associations which are treated as corporations 
pursuant to section 7701(a)(3) of the Internal Revenue Code. For 
purposes of this paragraph, any unincorporated group of operators shall 
be deemed a cooperative organization if the number of operators 
comprising such group is more than 20 at any time during the calendar 
quarter in which the services involved are performed.
    (4) Processing services which change the commodity from its raw or 
natural state do not constitute agricultural labor. For example the 
extraction of juices from fruits or vegetables is a processing operation 
which changes the character of the fruits or vegetables from their raw 
or natural state and, therefore, does not constitute agricultural labor. 
Likewise, services performed in the processing of maple sap into maple 
sirup or maple sugar do not constitute agricultural labor. On the other 
hand, services rendered in the cutting and drying of fruits or 
vegetables are processing operations which do not change the character 
of the fruits or vegetables and, therefore, constitute agricultural 
labor, if the other requisite conditions are met. Services performed 
with respect to a commodity after its character has been changed from 
its raw or natural state by a processing operation do not constitute 
agricultural labor.
    (5) The term ``commodity'' refers to a single agricultural or 
horticultural product, for example, all apples are to be treated as a 
single commodity, while apples and peaches are to be treated as two 
separate commodities. The services with respect to each such commodity 
are to be considered separately in determining whether the condition set 
forth in paragraph (e)(1)(iii) of this section has been satisfied. The 
portion of the commodity produced by an operator or group of operators 
with respect to which the services described in this paragraph are 
performed by a particular employee shall be determined on the basis of 
the pay period in which such services were performed by such employee.
    (6) The services described in this paragraph do not include services 
performed in connection with commercial canning or commercial freezing 
or in connection with any commodity after its delivery to a terminal 
market for distribution for consumption. Moreover, since the services 
described in this paragraph must be rendered in the actual handling, 
planting, drying, packing, packaging, processing, freezing, grading, 
storing, or delivering to storage or to market or to a carrier for

[[Page 80]]

transportation to market, of the commodity, such services do not, for 
example, include services performed as stenographers, bookkeepers, 
clerks, and other office employees, even though such services may be in 
connection with such activities. However, to the extent that the 
services of such individuals are performed in the employ of the owner or 
tenant or other operator of a farm and are rendered in major part on a 
farm, they may be within the provisions of paragraph (c) of this 
section.
    (f) Services described in section 3121(g)(5). (1) Service not in the 
course of the employer's trade or business (see paragraph (a)(1) of 
Sec.  31.3121(a)(7)-1) or domestic service in a private home of the 
employer (see paragraph (a)(2) of Sec.  31.3121(a)(7)-1) constitutes 
agricultural labor if such service is performed on a farm operated for 
profit. The determination whether remuneration for any such service 
performed on a farm operated for profit constitutes wages is to be made 
under Sec.  31.3121(a)(8)-1 rather than under Sec.  31.3121(a)(7)-1. For 
provisions relating to the exception from employment provided with 
respect to any such service performed after 1960 by a father or mother 
in the employ of his or her son or daughter, see Sec.  31.3121(b)(3)-1.
    (2) Generally, a farm is not operated for profit if it is occupied 
by the employer primarily for residential purposes, or is used primarily 
for the pleasure of the employer or his family such as for the 
entertainment of guests or as a hobby of the employer or his family.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 
8315, July 2, 1964]



Sec.  31.3121(h)-1  American employer.

    (a) The term ``American employer'' means an employer which is (1) 
the United States or any instrumentality thereof, (2) an individual who 
is a resident of the United States, (3) a partnership, if two-thirds or 
more of the partners are residents of the United States, (4) a trust, if 
all of the trustees are residents of the United States, or (5) a 
corporation organized under the laws of the United States or of any 
State. For provisions relating to the terms ``State'' and ``United 
States'', see Sec.  31.3121(e)-1.
    (b) For provisions relating to services performed outside the United 
States by a citizen of the United States as an employee for an American 
employer, see paragraph (c)(3) of Sec.  31.3121(b)-3 and paragraph (e) 
of Sec.  31.3121(b)(4)-1.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 
8315, July 2, 1964]



Sec.  31.3121(i)-1  Computation to nearest dollar of cash remuneration for
domestic service.

    (a) An employer may, for purposes of the act, elect to compute to 
the nearest dollar any payment of cash remuneration for domestic service 
described in section 3121(a)(7)(B) (see Sec.  31.3121(a)(7)-1) which is 
more or less than a whole-dollar amount. For the purpose of the 
computation to the nearest dollar, the payment of a fractional part of a 
dollar shall be disregarded unless it amounts to one-half dollar or 
more, in which case it shall be increased to one dollar. For example, 
any amount actually paid between $4.50 and $5.49, inclusive, may be 
treated as $5 for purposes of the taxes imposed by the act. If an 
employer elects this method of computation with respect to any payment 
of cash remuneration made in a calendar year for domestic service in his 
private home, he must use the same method in computing each payment of 
cash remuneration of more or less than a whole-dollar amount made to 
each of his employees in such calendar year for domestic service in his 
private home. Moreover, if an employer elects this method of computation 
with respect to payments of the prescribed character made in any 
calendar year, the amount of each payment of cash remuneration so 
computed to the nearest dollar shall, in lieu of the amount actually 
paid, be deemed to constitute the amount of cash remuneration for 
purposes of the act. Thus, the amount of cash payments so computed to 
the nearest dollar shall be used for purposes of determining whether 
such payments constitute wages; for purposes of applying the employee 
and employer tax rates to the wage payments; for purposes of any 
required record keeping; and for

[[Page 81]]

purposes of reporting and paying the employee tax and employer tax with 
respect to such wage payments.
    (b) The provisions of this section apply to any cash payment for 
domestic service in a private home of the employer made on or after 
January 1, 1994. For rules applicable to any cash payment for domestic 
service in a private home of the employer made prior to January 1, 1994, 
see Sec.  31.3121(i)-1 in effect at such time (see 26 CFR part 31 
contained in the edition of 26 CFR parts 30 to 39, revised as of April 
1, 2006).

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 9266, 71 FR 
35157, June 19, 2006]



Sec.  31.3121(i)-2  Computation of remuneration for service performed by
an individual as a member of a uniformed service.

    In the case of an individual performing service after December 31, 
1956, as a member of a uniformed service (see section 31.3121(n)), to 
which the provisions of section 3121(m)(1) (see Sec.  31.3121(m)) are 
applicable, the term ``wages'' shall, subject to the provisions of 
section 3121(a)(1) (see Sec.  31.3121(a)-1), include as the individual's 
remuneration for such service only his basic pay as described in section 
102(10) of the Servicemen's and Veterans' Survivor Benefits Act (38 
U.S.C. 401(1), 403; 72 Stat. 1126).

[T.D. 6744, 29 FR 8315, July 2, 1964]



Sec.  31.3121(i)-3  Computation of remuneration for service performed by
an individual as a volunteer or volunteer leader within the meaning of 
the Peace Corps Act.

    In the case of an individual performing service in his capacity as a 
volunteer or volunteer leader within the meaning of the Peace Corps Act 
(see section 31.3121(p)), the term ``wages'' shall, subject to the 
provisions of section 3121(a)(1) (see Sec.  31.3121(a)-1), include as 
such individual's remuneration for such service only amounts paid 
pursuant to section 5(c) or section 6(1) of the Peace Corps Act (22 
U.S.C. 2501; 75 Stat. 612).

[T.D. 6744, 29 FR 8315, July 2, 1964]



Sec.  31.3121(i)-4  Computation of remuneration for service performed 
by certain members of religious orders.

    In any case where an individual is a member of a religious order (as 
defined in section 3121(r)(2) and paragraph (b) of Sec.  31.3121(r)-1) 
performing service in the exercise of duties required by such order, and 
an election of coverage under section 3121(r) and Sec.  31.3121(r)-1 is 
in effect with respect to such order or the autonomous subdivision 
thereof to which such member belongs, the term ``wages'' shall, subject 
to the provisions of section 3121(a)(1) (relating to definition of 
wages), include as such individual's remuneration for such service the 
fair market value of any board, lodging, clothing, and other perquisites 
furnished to such member by such order or subdivision or by any other 
person or organization pursuant to an agreement (whether written or 
oral) with such order or subdivision. Such other perquisites shall 
include any cash either paid by such order or subdivision or paid by 
another employer and not required by such order or subdivision to be 
remitted to it. For purposes of this section, perquisites shall be 
considered to be furnished over the period during which the member 
receives the benefit of them. (See example 4 of this section.) In no 
case shall the amount included as such individual's remuneration under 
this paragraph be less than $100 a month. All relevant facts and 
elements of value shall be considered in every case. Where the fair 
market value of any board, lodging, clothing, and other perquisites 
furnished to all members of an electing religious order or autonomous 
subdivision (or to all in a group of members) does not vary 
significantly, such order or subdivision may treat all of its members 
(or all in such group of members) as having a uniform wage. The 
provisions of this section may be illustrated by the following examples 
of the treatment of particular perquisites:

    Example 1. M is a religious order which requires its members to take 
a vow of poverty and which has made an election under section 3121(r). 
Under section 3121(i)(4), M must include in the wages of its members the 
fair market value of the clothing it provides for

[[Page 82]]

its members. M and several other religious orders using essentially the 
same type of religious habit purchase clothing for their members from 
either of two suppliers in arms-length transactions. The fair market 
value of such clothing (i.e., the price at which such items would change 
hands between a willing buyer and a willing seller, neither being under 
any compulsion to buy or to sell) is determined by reference to the 
actual sales price of these suppliers to the religious orders.
    Example 2. N is a religious order which requires its members to take 
a vow of poverty and which has made an election under section 3121(r). N 
operates a seminary adjacent to a university. Students at the university 
obtain lodging and board on campus from the university for its fair 
market value of $2,000 for the school year. Such lodging and board is 
essentially the same as that provided by N at its seminary to N's 
members subject to a vow of poverty. Accordingly, the amount to be 
included in the ``wages'' of such members with respect to lodging and 
board for the same period of time is $2,000.
    Example 3. O is a religious order which requires its members to take 
a vow of poverty and to observe silence, and which has made an election 
under section 3121(r). O operates a monastery in a remote rural area. 
Under section 3121(i)(4), O must include in the wages of its members 
assigned to this monastery the fair market value of the board and 
lodging furnished to them. In making a determination of the fair market 
value of such board and lodging, the remoteness of the monastery, as 
well as the smallness of the rooms and the simplicity of their 
furnishings, affect this determination. However, the facts that the 
facility is used by a religious order as a monastery and that the 
order's members maintain silence do not affect the fair market value of 
such items.
    Example 4. P is a religious order which requires its members to take 
a vow of poverty and which has made an election under section 3121(r). 
Several of P's members are attending a university on a full-time basis. 
The fair market value of the board and lodging of each of such members 
at the university is $1,000 per semester. P pays the university $1,000 
at the beginning of each semester for the board and lodging of each of 
such members. In addition, P gives each such member a $400 cash advance 
to cover his miscellaneous expenses during the semester. Under section 
3121(i)(4), P must prorate the fair market value of such members' board 
and lodging, as well as the miscellaneous items, over the semester and 
include such value in the determination of ``wages''.
    Example 5. Q is a religious order which is a corporation organized 
under the laws of Wisconsin, which requires its members to take a vow of 
poverty, and which has made an election under section 3121(r). Q has 
convents in rural South America and in suburbs and central city areas of 
the United States. Characteristically, in the United States its suburban 
convents provide somewhat larger and newer rooms for its members than do 
its convents in city areas. Moreover, its suburban convents have more 
extensive grounds and somewhat more elaborate facilities than do its 
older convents in city areas. However, both types of convents limit 
resident members to a single, plainly furnished room and provide them 
meals which are comparable. Q's members in South America live in 
extremely primitive dwellings and otherwise have extremely modest 
perquisites. Under section 3121(i)(4), Q may report a uniform wage for 
its members who live in suburban convents and city convents in the 
United States, as the board, lodging, and perquisites furnished these 
members do not vary significantly from one convent to the other. Q may 
report another uniform wage (but not less than $100 per month apiece) 
for its members who are citizens of the United States and who reside in 
South America based on the fair market value of the perquisites 
furnished these individuals, as the fair market value of the perquisites 
furnished these individuals varies significantly from that of those 
furnished its members who live in its domestic convents but does not 
vary significantly among members in South America whose wages are 
subject to tax.

[T.D. 7280, 38 FR 18369, July 10, 1973]



Sec.  31.3121(j)-1  Covered transportation service.

    (a) Transportation systems acquired in whole or in part after 1936 
and before 1951--(1) In general. Except as provided in subparagraph (2) 
of this paragraph, all service performed in the employ of a State or 
political subdivision thereof in connection with its operation of a 
public transportation system constitutes covered transportation service 
if any part of the transportation system was acquired from private 
ownership after 1936 and before 1951. For purposes of this subparagraph, 
it is immaterial whether any part of the transportation system was 
acquired before 1937 or after 1950, whether the employee was hired 
before, during, or after 1950, or whether the employee had been employed 
by the employer from whom the State or political subdivision acquired 
its transportation system or any part thereof.
    (2) General retirement system protected by State constitution. 
Except as provided in paragraph (a)(3) of this section, service 
performed in the employ of a State

[[Page 83]]

or political subdivision in connection with its operation of a public 
transportation system acquired in whole or in part from private 
ownership after 1936 and before 1951 does not constitute covered 
transportation service, if substantially all service in connection with 
the operation of the transportation system was, on December 31, 1950, 
covered under a general retirement system providing benefits which are 
protected from diminution or impairment under the State constitution by 
reason of an express provision, dealing specifically with retirement 
systems established by the State or political subdivisions of the State, 
which forbids such diminution or impairment.
    (3) Additions to certain transportation systems by acquisition after 
1950. This subparagraph is applicable only in case of an acquisition 
after 1950 from private ownership of an addition to an existing public 
transportation system which was acquired in whole or in part by a State 
or political subdivision thereof from private ownership after 1936 and 
before 1951 and then only in case service for such existing 
transportation system did not constitute covered transportation service 
by reason of the provisions of subparagraph (2) of this paragraph. 
Service in connection with the operation of such transportation system 
(including any additions acquired after 1950) constitutes covered 
transportation service commencing with the first day of the third 
calendar quarter following the calendar quarter in which the addition to 
the existing transportation system was acquired, if such service is 
performed by an employee who became an employee of the State or 
political subdivision in connection with and at the time of its 
acquisition from private ownership of such addition and who before the 
acquisition of such addition rendered service in employment in 
connection with the operation of the addition so acquired by such State 
or political subdivision. However, service performed by such employee in 
connection with the operation of the transportation system does not 
constitute covered transportation service if, on the first day of the 
third calendar quarter following the calendar quarter in which the 
addition was acquired, such service is covered by a general retirement 
system which does not, with respect to such employee, contain special 
provisions applicable only to employees who became employees of the 
State or political subdivision in connection with and at the time of its 
acquisition of such addition.
    (b) Transportation systems in operation on December 31, 1950, no 
part of which was acquired after 1936 and before 1951--(1) In general. 
Except as provided in paragraph (b)(2) of this section, no service 
performed in the employ of a State or a political subdivision thereof in 
connection with its operation of a public transportation system 
constitutes covered transportation service if no part of such 
transportation system operated by the State or political subdivision on 
December 31, 1950, was acquired from private ownership after 1936 and 
before 1951.
    (2) Additions acquired after 1950. This subparagraph is applicable 
only in case of an acquisition after 1950 from private ownership of an 
addition to an existing public transportation system which was operated 
by a State or political subdivision on December 31, 1950, but no part of 
which was acquired from private ownership after 1936 and before 1951. 
Service in connection with the operation of such transportation system 
(including any additions acquired after 1950) constitutes covered 
transportation service commencing with the first day of the third 
calendar quarter following the calendar quarter in which the addition to 
the existing transportation system was acquired, if such service is 
performed by an employee who became an employee of the State or 
political subdivision in connection with and at the time of its 
acquisition from private ownership of such addition and who before the 
acquisition of such addition rendered service in employment in 
connection with the operation of the addition so acquired by such State 
or political subdivision. However, service performed by such employee in 
connection with the operation of the transportation system does not 
constitute covered transportation service if, on the first day of the 
third calendar quarter following the calendar quarter in which the 
addition was acquired, such service is covered

[[Page 84]]

by a general retirement system which does not, with respect to such 
employee, contain special provisions applicable only to employees who 
became employees of the State or political subdivision in connection 
with and at the time of its acquisition of such addition.
    (c) Transportation systems acquired after 1950. All service 
performed in the employ of a State or political subdivision thereof in 
connection with its operation of a public transportation system 
constitutes covered transportation service if the transportation system 
was not operated by the State or political subdivision before 1951 and, 
at the time of its first acquisition after 1950 from private ownership 
of any part of its transportation system, the State or political 
subdivision did not have a general retirement system covering 
substantially all service performed in connection with the operation of 
the transportation system.
    (d) Definitions. For purposes of this section:
    (1) The term ``general retirement system'' means any pension, 
annuity, retirement, or similar fund or system established by a State or 
by a political subdivision thereof for employees of the State, political 
subdivision, or both; but such term does not include such a fund or 
system which covers only service performed in positions connected with 
the operation of its public transportation system.
    (2) A transportation system or a part thereof is considered to have 
been acquired by a State or political subdivision from private ownership 
if prior to the acquisition service performed by the employees in 
connection with the operation of the system or an acquired part thereof 
constituted employment under the act or under subchapter A of chapter 9 
of the Internal Revenue Code of 1939 or was covered by an agreement 
entered into pursuant to section 218 of the Social Security Act (42 
U.S.C. 418), and some of such employees became employees of the State or 
political subdivision in connection with and at the time of such 
acquisition.
    (3) The term ``political subdivision'' includes an instrumentality 
of a State, of one or more political subdivisions of a State, or of a 
State and one or more of its political subdivisions.
    (4) The term ``employment'' includes service covered by an agreement 
entered into pursuant to section 218 of the Social Security Act.



Sec.  31.3121(l)-1  Agreements entered into by domestic corporations with
respect to foreign subsidiaries.

    For provisions relating to the extension of the Federal old-age, 
survivors, and disability insurance system established by title II of 
the Social Security Act to certain services performed outside the United 
States by citizens of the United States in the employ of a foreign 
subsidiary of a domestic corporation, see the Regulations Relating to 
Contract Coverage of Employees of Foreign Subsidiaries (part 36 of this 
chapter).



Sec.  31.3121(o)-1  Crew leader.

    The term ``crew leader'' means an individual who furnishes 
individuals to perform agricultural labor for another person, if such 
individual pays (either on his own behalf or on behalf of such person) 
the individuals so furnished by him for the agricultural labor performed 
by them and if such individual has not entered into a written agreement 
with such person whereby such individual has been designated as an 
employee of such person. For purposes of this chapter a crew leader is 
deemed to be the employer of the individuals furnished by him to perform 
agricultural labor, after 1956, for another person, and the crew leader 
is deemed not to be an employee of such other person with respect to the 
performance of services by him after 1956 in furnishing such individuals 
or as a member of the crew. An individual is not a crew leader within 
the meaning of section 3121(o) and of this section if he does not pay 
the agricultural workers furnished by him to perform agricultural labor 
for another person, or if there is an agreement between such individual 
and the person for whom the agricultural labor is performed whereby such 
individual is designated as an employee of such person. Whether or not 
such individual is an employee will be determined under the usual 
common-law rules (see paragraph (c) of Sec.  31.3121(d)-1).

[T.D. 6744, 29 FR 8320, July 2, 1964]

[[Page 85]]



Sec.  31.3121(q)-1  Tips included for employee taxes.

    (a) In general. Except as otherwise provided in paragraph (b) of 
this section, tips received after 1965 by an employee in the course of 
his employment shall be considered remuneration for employment. (For 
definition of the term ``employee'' see 3121(d) and Sec.  31.3121(d)-1.) 
Tips reported by an employee to his employer in a written statement 
furnished to the employer pursuant to section 6053(a) (see Sec.  
31.6053-1) shall be deemed to be paid to the employee at the time the 
written statement is furnished to the employer. Tips received by an 
employee which are not reported to his employer in a written statement 
furnished pursuant to section 6053(a) shall be deemed to be paid to the 
employee at the time the tips are actually received by the employee. For 
provisions relating to the collection of employee tax in respect of tips 
from the employee, see Sec.  31.3102-3.
    (b) Tips not included for employer taxes. Tips received after 1965 
by an employee in the course of his employment do not constitute 
remuneration for employment for purposes of computing wages subject to 
the taxes imposed by subsections (a) and (b) of section 3111.
    (c) Tips received by an employee in course of his employment. Tips 
are considered to be received by an employee in the course of his 
employment for an employer regardless of whether the tips are received 
by the employee from a person other than his employer or are paid to the 
employee by the employer. However, only those tips which are received by 
an employee on his own behalf (as distinguished from tips received on 
behalf of another employee) shall be considered as remuneration paid to 
the employee. Thus, where employees practice tip splitting (for example, 
where waiters pay a portion of the tips received by them to the 
busboys), each employee who receives a portion of a tip left by a 
customer of the employer is considered to have received tips in the 
course of his employment.
    (d) Computation of annual wage limitation. In connection with the 
application of the annual wage limitation (see Sec.  31.3121(a)(1)-1), 
tips reported by an employee to his employer in a written statement 
furnished to the employer pursuant to section 6053(a) shall be taken 
into account for purposes of the tax imposed by section 3101. However, 
since tips received by an employee in the course of his employment do 
not constitute remuneration for employment for purposes of the tax 
imposed by section 3111, they are disregarded for purposes of the annual 
wage limitation in respect of such tax. Accordingly, separate 
computations for purposes of the annual wage limitation may be required 
in respect of an employee who receives tips. The provisions of this 
paragraph may be illustrated by the following example:

    Example. During 1966, A is employed as a waiter by X restaurant and 
is paid wages by X restaurant at the rate of $100 a week. At the end of 
October 1966, A has been paid weekly wages in the amount of $4,300 and 
has reported tips in the amount of $2,200. On November 6, 1966, A is 
paid an additional week's wages in the amount of $100 and on November 9, 
1966, A furnishes X restaurant a report of tips actually received by him 
during October. The annual wage limitation of $6,600 (weekly wages of 
$4,400 ($4,300 plus $100) and tips of $2,200) had been reached for 
purposes of the tax imposed by section 3101 prior to November 9 and, 
accordingly, no portion of the tips included in the report furnished on 
that date constitutes wages. However, since tips do not constitute 
remuneration for employment for purposes of the tax imposed by section 
3111, the weekly wages paid to A during the remainder of 1966 will be 
subject to the tax imposed by section 3111.

[T.D. 7001, 34 FR 1000, Jan. 23, 1969]



Sec.  31.3121(r)-1  Election of coverage by religious orders.

    (a) In general. A religious order whose members are required to take 
a vow of poverty, or any autonomous subdivision of such an order, may 
elect to have the Federal old-age, survivors, and disability insurance 
system established by title II of the Social Security Act extended to 
services performed by its members in the exercise of duties required by 
such order or subdivision. See section 3121(i)(4) and Sec.  31.3121(i)-4 
for provisions relating to the computation of the amount of remuneration 
of such members. For purposes of this section, a subdivision of a 
religious order is autonomous if it directs and

[[Page 86]]

governs its members, if it is responsible for its members' care and 
maintenance, if it is responsible for the members' support and 
maintenance in retirement, and if the members live under the authority 
of a religious superior who is elected by them or appointed by higher 
authority.
    (b) Definition of member--(1) In general. For purposes of section 
3121(r) and this section, a member of a religious order means any 
individual who is subject to a vow of poverty as a member of such order, 
who performs tasks usually required (and to the extent usually required) 
of an active member of such order, and who is not considered retired 
because of old age or total disability.
    (2) Retirement because of old age--(i) In general. For purposes of 
section 3121(r)(2) and this paragraph, an individual is considered 
retired because of old age if (A) in view of all the services performed 
by the individual and the surrounding circumstances it is reasonable to 
consider him to be retired, and (B) his retirement occurred by reason of 
old age. Even though an individual performs some services in the 
exercise of duties required by the religious order, the first test (the 
retirement test) is met where it is reasonable to consider the 
individual to be retired.
    (ii) Factors to be considered. In determining whether it is 
reasonable to consider an individual to be retired, consideration is 
first to be given to all of the following factors:
    (A) Nature of services. Consideration is given to the nature of the 
services performed by the individual in the exercise of duties required 
by his religious order. The more highly skilled and valuable such 
services are, the more likely the individual rendering such services is 
not reasonably considered retired. Also, whether such services are of a 
type performed principally by retired members of the individual's 
religious order may be significant.
    (B) Amount of time. Consideration is also given to the amount of 
time the individual devotes to the performance of services in the 
exercise of duties required by his religious order. This time includes 
all the time spent by him in any activity in connection with services 
that might appropriately be performed in the exercise of duties required 
of active members by the order. Normally, an individual who, solely by 
reason of his advanced age, performs services of less than 45 hours per 
month shall be considered retired. In no event shall an individual who, 
solely by reason of his advanced age, performs services of less than 15 
hours per month not be considered retired.
    (C) Comparison of services rendered before and after retirement. In 
addition, consideration is given to the nature and extent of the 
services rendered by the individual before he ``retired,'' as compared 
with the services performed thereafter. A large reduction in the 
importance or amount of services performed by the individual in the 
exercise of duties required by his religious order tends to show that 
the individual is retired; absence of such reduction tends to show that 
the individual is not retired. Normally, an individual who reduces by at 
least 75 percent the amount of services performed shall be considered 
retired.

Where consideration of the factors described in paragraph (b)(2)(ii) of 
this section does not establish whether an individual is or is not 
reasonably considered retired, all other factors are considered.
    (iii) Examples. The rules of this subparagraph may be illustrated by 
the following examples:

    Example 1. A is a member of a religious order who is subject to a 
vow of poverty. A's religious order is principally engaged in providing 
nursing services, and A has been fully trained in the nursing 
profession. In accordance with the practices of her order, upon 
attaining the age of 65, A is relieved of her nursing duties by reason 
of her age, and is assigned to a mother house where she is required to 
perform only such duties as light housekeeping and ordinary gardening. A 
is reasonably considered retired since the services she is performing 
are simple in nature, are markedly less skilled than those professional 
services which she previously performed, are of a type performed 
principally by retired members of her order, and are performed at a 
location to which members frequently retire.
    Example 2. Assume the same facts as in example 1 except that A is 
not reassigned to a mother house. Instead, she is reassigned to full-
time duties in a hospital not utilizing her nursing skills. Whether A 
has met the retirement test requires consideration of the

[[Page 87]]

nature of her work. If A's new duties are almost entirely of a make-work 
nature primarily to occupy her body and mind, she is reasonably 
considered retired. However, if they are essential to the operation of 
the hospital, she is not reasonably considered retired.
    Example 3. B is a member of a religious order who is subject to a 
vow of poverty. As such, he provides supportive services to his order, 
such as housekeeping, cooking, and gardening. By reason of having 
attained the age of 62, he reduces the number of hours spent per day in 
these services from 8 hours to 2 hours. B is reasonably considered 
retired in view of the large reduction in the amount of time he devotes 
to his duties.
    Example 4. C is a member of a religious order who is subject to a 
vow of poverty. In his capacity as a member of the order, he performs 
duties as president of a university. Upon attaining the age of 65, C is 
relieved of his duties as president of the university and instead 
becomes a member of its faculty, teaching two courses whereas full-time 
members of the faculty normally teach four comparable courses. Although 
C's duties are no longer as demanding as those he previously performed, 
and although the amount of his time required for them is less than full 
time, he is nonetheless performing duties requiring a high degree of 
skill for a substantial amount of time. Accordingly, C is not reasonably 
considered retired.
    Example 5. Assume the same facts as in example 4, except that C 
teaches only one course upon being relieved of his position as president 
by reason of age. C is reasonably considered retired.
    Example 6. D is a member of a contemplative order who is subject to 
a vow of poverty. In accordance with the practices of his order, upon 
attaining the age of 70, D reduces by 50 percent the amount of time 
spent performing the normal duties of active members of his order. D is 
not reasonably considered retired.
    Example 7. Assume the same facts as in example 6, except that 
because of his age D no longer participates in the more rigorous 
liturgical services of the order and that the amount of time which he 
spends in all duties which might appropriately be performed by active 
members of his order is reduced by 75 percent. D is reasonably 
considered retired in view of the large reduction in his participation 
in the usual devotional routine of his order.

    (3) Retirement because of total disability. For purposes of section 
3121(r)(2) and this paragraph, an individual is considered retired 
because of total disability (i) if he is unable, by reason of a 
medically determinable physical or mental impairment, to perform the 
tasks usually required of an active member of his order to the extent 
necessary to maintain his status as an active member, and (ii) if such 
impairment is reasonably expected to prevent his resumption of the 
performance of such tasks to such extent. A physical or mental 
impairment is an impairment that results from anatomical, physiological, 
or psychological abnormalities which are demonstrable by medically 
acceptable clinical and laboratory diagnostic techniques. Statements of 
the individual, including his own description of his impairment 
(symptoms), are, alone, insufficient to establish the presence of a 
physical or mental impairment.
    (4) Evidentiary requirements with respect to retirement. There shall 
be attached to the return of taxes paid pursuant to an election under 
section 3121(r) a summary of the facts upon which any determination has 
been made by the religious order or autonomous subdivision that one or 
more of its members retired during the period covered by such return. 
Each summary shall contain the name and social security number of each 
such retired member as well as the date of his retirement. Such order or 
subdivision shall maintain records of the details relating to each such 
``retirement'' sufficient to show whether or not such member or members 
has in fact retired.
    (c) Certificates of election--(1) In general. A religious order or 
an autonomous subdivision of such an order desiring to make an election 
of coverage pursuant to section 3121(r) and this section shall file a 
certificate of election on Form SS-16 in accordance with the 
instructions thereto. However, in the case of an election made before 
August 9, 1973, a document other than Form SS-16 shall constitute a 
certificate of election if it purports to be a binding election of 
coverage and if it is filed with an appropriate official of the Internal 
Revenue Service. Such a document shall be given the effect it would have 
if it were a certificate of election containing the provisions required 
by paragraph (c)(2) of this section. However, it should subsequently be 
supplemented by a Form SS-16.
    (2) Provisions of certificates. Each certificate of election shall 
provide that--

[[Page 88]]

    (i) Such election of coverage by such order or subdivision shall be 
irrevocable,
    (ii) Such election shall apply to all current and future members of 
such order, or in the case of a subdivision thereof to all current and 
future members of such order who belong to such subdivision,
    (iii) All services performed by a member of such order or 
subdivision in the exercise of duties required by such order or 
subdivision shall be deemed to have been performed by such member as an 
employee of such order or subdivision, and
    (iv) The wages of each member, upon which such order or subdivision 
shall pay the taxes imposed on employees and employers by sections 3101 
and 3111, will be determined as provided in section 3121(i)(4).
    (d) Effective date of election--(1) In general. Except as provided 
in paragraph (e) of this section, a certificate of election of coverage 
filed by a religious order or its subdivision pursuant to section 
3121(r) and this section shall be in effect, for purposes of section 
3121(b)(8)(A) and for purposes of section 210(a)(8)(A) of the Social 
Security Act, for the period beginning with whichever of the following 
may be designated by the electing religious order or subdivision:
    (i) The first day of the calendar quarter in which the certificate 
is filed,
    (ii) The first day of the calendar quarter immediately following the 
quarter in which the certificate is filed, or
    (iii) The first day of any calendar quarter preceding the calendar 
quarter in which the certificate is filed, except that such date may not 
be earlier than the first day of the 20th calendar quarter preceding the 
quarter in which such certificate is filed.
    (2) Retroactive elections. Whenever a date is designated as provided 
in paragraph (d)(1)(iii) of this section, the election shall apply to 
services performed before the quarter in which the certificate is filed 
only if the member performing such services was a member at the time 
such services were performed and is living on the first day of the 
quarter in which such certificate is filed. Thus, the election applies 
to an individual who is no longer a member of a religious order on the 
first day of such quarter if he performed services as a member at any 
time on or after the date so designated and is living on the first day 
of the quarter in which such certificate is filed. For purposes of 
computing interest and for purposes of section 6651 (relating to 
additions to tax for failure to file tax return or to pay tax), in any 
case in which such a date is designated the due date for the return and 
payment of the tax, for calendar quarters prior to the quarter in which 
the certificate is filed, resulting from the filing of such certificate 
shall be the last day of the calendar month following the calendar 
quarter in which the certificate is filed. The statutory period for the 
assessment of the tax for such prior calendar quarters shall not expire 
before the expiration of 3 years from such due date.

[T.D. 7280, 38 FR 18370, July 10, 1973, as amended by T.D. 9849, 84 FR 
9238, Mar. 14, 2019]



Sec.  31.3121(s)-1  Concurrent employment by related corporations with
common paymaster.

    (a) In general. For purposes of sections 3102, 3111, and 3121(a)(1), 
except as otherwise provided in paragraph (c) of this section, when two 
or more related corporations concurrently employ the same individual and 
compensate that individual through a common paymaster which is one of 
the related corporations that employs the individual, each of the 
corporations is considered to have paid only the remuneration it 
actually disburses to that individual. This rule applies whether the 
remuneration was paid with respect to the employment relationship of the 
individual with the disbursing corporation or was paid on behalf of 
another related corporation. Accordingly, if all of the remuneration to 
the individual from the related corporations is disbursed through the 
common paymaster, the total amount of taxes imposed with respect to the 
remuneration under sections 3102 and 3111 is determined as though the 
individual has only one employer (the common paymaster). The common 
paymaster is responsible for filing information and tax

[[Page 89]]

returns and issuing Forms W-2 with respect to wages it is considered to 
have paid under this section. Section 3121(s) and this section apply 
only to remuneration disbursed in the form of money, check or similar 
instrument by one of the related corporations or its agent.
    (b) Definitions. The definitions contained in this paragraph are 
applicable only for purposes of this section and Sec.  31.3306(p)-1.
    (1) Related corporations. Corporations shall be considered related 
corporations for an entire calendar quarter (as defined in Sec.  31.0-
2(a)(9)) if they satisfy any one of the following four tests at any time 
during that calendar quarter:
    (i) The corporations are members of a ``controlled group of 
corporations'', as defined in section 1563 of the Code, or would be 
members if section 1563(a)(4) and (b) did not apply and if the phrase 
``more than 50 percent'' were substituted for the phrase ``at least 80 
percent'' wherever it appears in section 1563(a).
    (ii) In the case of a corporation that does not issue stock, either 
fifty percent or more of the members of one corporation's board of 
directors (or other governing body) are members of the other 
corporation's board of directors (or other governing body), or the 
holders of fifty percent or more of the voting power to select such 
members are concurrently the holders of more than fifty percent of that 
power with respect to the other corporation.
    (iii) Fifty percent or more of one corporation's officers are 
concurrently officers of the other corporation.
    (iv) Thirty percent or more of one corporation's employees are 
concurrently employees of the other corporation.

The following examples illustrate the application of this paragraph:

    Example 1. (a) X Corporation employs individuals A, B, D, E, F, G, 
and H. Y Corporation employs individuals A, B, and C. Z Corporation 
employs individuals A, C, I, J, K, L, and M. X Corporation is the 
paymaster for all thirteen individuals. The corporations have no 
officers or stockholders in common.
    (b) X and Y are related corporations because at least 30 percent of 
Y's employees are also employees of X. Y and Z are related corporations 
because at least 30 percent of Y's employees are also employees of Z. X 
and Z are not related corporations because neither corporation has 30 
percent of its employees concurrently employed by the other corporation.
    (c) For purposes of determining the amount of the tax liability 
under sections 3102 and 3111, individual B is treated as having one 
employer. Individual C has two employers for these purposes, although Y 
and Z are related corporations, because C is not employed by X 
Corporation, the common paymaster. Individual A also is treated as 
having two employers for the purposes of these sections because X and Y 
Corporations are treated as one employer, and Z Corporation is treated 
as a second employer (since it is not related to the paymaster, X 
Corporation). Of course, individuals D, E, F, G, H, I, J, K, L, and M 
are not concurrently employed by two or more corporations, and, 
accordingly, section 3121 (s) is inapplicable to them.
    Example 2. M and N Corporations are both related to Corporation O 
but are not related to each other. Individual A is concurrently employed 
by all three corporations and paid by O, their common paymaster. 
Although M and N are not related, O is treated as the employer for A's 
employment with M, N, and O.
    Example 3. Corporations X, Y, and Z meet the definition of related 
corporations for the first time on April 12, 1979, and cease to meet it 
on July 5, 1979. A is concurrently employed by X, Y, and Z throughout 
1979. In each of the four calendar quarters of 1979, A's remuneration 
from X, Y, and Z is $2,000, $10,000, and $30,000, respectively. All of 
the remuneration to A from X, Y, and Z for the year is disbursed by X, 
the common paymaster. Under these circumstances, the amount of wages 
subject to sections 3102 and 3111 is as follows:
    For the first calendar quarter

 
                X                          Y                   Z
 
             $2,000                     $10,000             $22,900
 
 
 

    For the second calendar quarter

 
                X                          Y                   Z
 
             $20,900                       0                   0
 
($22,900-$2,000)
 

    For the third calendar quarter

 
                X                          Y                   Z
 
                0                          0                   0
 
 
 

    For the fourth calendar quarter

 
                X                          Y                   Z
 
                0                       $10,000                0
 
 
 


[[Page 90]]


Of course, if the corporations had been related throughout all of 1979, 
only $22,900 of X's first quarter disbursement would have constituted 
wages subject to sections 3102 and 3111.

    (2) Common paymaster--(i) In general. A common paymaster of a group 
of related corporations is any member thereof that disburses 
remuneration to employees of two or more of those corporations on their 
behalf and that is responsible for keeping books and records for the 
payroll with respect to those employees. The common paymaster is not 
required to disburse remuneration to all the employees of those two or 
more related corporations, but the provisions of this section do not 
apply to any remuneration to an employee that is not disbursed through a 
common paymaster. The common paymaster may pay concurrently employed 
individuals under this section by one combined paycheck, drawn on a 
single bank account, or by separate paychecks, drawn by the common 
paymaster on the accounts of one or more employing corporations.
    (ii) Multiple common paymasters. A group of related corporations may 
have more than one common paymaster. Some of the related corporations 
may use one common paymaster and others of the related corporations use 
another common paymaster with respect to a certain class of employees. A 
corporation that uses a common paymaster to disburse remuneration to 
certain of its employees may use a different common paymaster to 
disburse remuneration to other employees.
    (iii) Examples. The rules of this subparagraph are illustrated by 
the following examples:

    Example 1. S, T, U, and V are related corporations with 2,000 
employees collectively. Forty of these employees are concurrently 
employed by two or more of the corporations, during a calendar quarter. 
The four corporations arrange for S to disburse remuneration to thirty 
of these forty employees for their services. Under these facts, S is the 
common paymaster of S, T, U, and V with respect to the thirty employees. 
S is not a common paymaster with respect to the remaining employees.
    Example 2. (a) W, X, Y, and Z are related corporations. The 
corporations collectively have 20,000 employees. Two hundred of the 
employees are top-level executives and managers, sixty of whom are 
concurrently employed by two or more of the corporations during a 
calendar quarter. Six thousand of the employees are skilled artisans, 
all of whom are concurrently employed by two or more of the corporations 
during the calendar year. The four corporations arrange for Z to 
disburse remuneration to the sixty executives who are concurrently 
employed by two or more of the corporations. W and X arrange for X to 
disburse remuneration to the artisans who are concurrently employed by W 
and X.
    (b) A is an executive who is concurrently employed only by W, Y, and 
Z during the calendar year. Under these facts, Z is a common paymaster 
for W, Y, and Z with respect to A. Assuming that the other requirements 
of this section are met, the amount of the tax liability under sections 
3102 and 3111 is determined as if Z were A's only employer for the 
calendar quarter.
    (c) B is a skilled artisan who is concurrently employed only by W 
and X during the calendar year. Under these facts, X is a common 
paymaster for S and X with respect to B. Assuming that the other 
requirements of this section are met, the amount of the tax liability 
under sections 3102 and 3111 is determined as if X were B's only 
employer for the calendar quarter.

    (3) Concurrent employment. For purposes of this section, the term 
``concurrent employment'' means the contemporaneous existence of an 
employment relationship (within the meaning of section 3121(b)) between 
an individual and two or more corporations. Such a relationship 
contemplates the performance of services by the employee for the benefit 
of the employing corporation (not merely for the benefit of the group of 
corporations), in exchange for remuneration which, if deductible for the 
purposes of Federal income tax, would be deductible by the employing 
corporation. The contemporaneous existence of an employment relationship 
with each corporation is the decisive factor; if it exists, the fact 
that a particular employee is on leave or otherwise temporarily inactive 
is immaterial. However, employment is not concurrent with respect to one 
of the related corporations if the employee's employment relationship 
with that corporation is completely nonexistent during periods when the 
employee is not performing services for that corporation. An employment 
relationship is completely nonexistent if all rights and obligations of 
the employer and employee with respect to employment

[[Page 91]]

have terminated, other than those that customarily exist after 
employment relationships terminate. Examples of rights and obligations 
that customarily exist after employment relationships terminate include 
those with respect to remuneration not yet paid, employer's property 
used by the employee not yet returned to the employer, severance pay, 
and lump-sum termination payments from a deferred compensation plan. 
Circumstances that suggest that an employment relationship has become 
completely nonexistent include unconditional termination of 
participation in deferred compensation plans of the employer, forfeiture 
of seniority claims, and forfeiture of unused fringe benefits such as 
vacation or sick pay. Of course, the continued existence of an 
employment relationship between an individual and a corporation is not 
necessarily established by the individual's continued participation in a 
deferred compensation plan, retention of seniority rights, etc., since 
continuation of those benefits may be attributable to employment with a 
second corporation related to the first corporation if the corporations 
have common benefits plans or if the benefits are continued as a matter 
of corporate reciprocity. An individual who does not perform substantial 
services in exchange for remuneration from a corporation is presumed not 
employed by that corporation. Concurrent employment need not exist for 
any particular length of time to meet the requirements of this section, 
but this section only applies to remuneration disbursed by a common 
paymaster to an individual who is concurrently employed by the common 
paymaster and at least one other related corporation at the time the 
individual performs the services for which the remuneration is paid. If 
the employment relationship is nonexistent during a quarter, that 
employee may not be counted towards the 30-percent test set forth in 
paragraph (b)(1)(iv) of this section; however, even if the employment 
relationship is nonexistent, section 3121(s) of the Code would apply to 
remuneration paid to the former employee for services rendered while the 
employee was a common employee. The principles of this subparagraph are 
illustrated by the following examples.

    Example 1. M, N, and O are related corporations which use N as a 
common paymaster with respect to officers. Their respective headquarters 
are located in three separate cities several hundred miles apart. A is 
an officer of M, N, and O who performs substantial services for each 
corporation. A does not work a set length of time at each corporate 
headquarters, and when A leaves one corporate headquarters, it is not 
known when A will return, although it is expected that A will return. 
Under these facts, A is concurrently employed by the three corporations.
    Example 2. P, Q, and R are related corporations whose geographical 
zones of business activity do not overlap. P, Q, and R have a common 
pension plan and arrange for Q to be a common paymaster for managers and 
executives. All three corporations maintain cafeterias for the use of 
their employees. B is a cafeteria manager who has worked at P's 
headquarters for 3 years. On June 1, 1980, B is transferred from P to 
the position of cafeteria manager of R. There are no plans for B's 
return to P. B's accrued pension benefits, vacation and sick pay, do not 
change as a result of the transfer. The decision to transfer B was made 
by Q, the parent corporation. Under these facts, B is not concurrently 
employed by P and R, because B's employment relationship with P was 
completely nonexistent during B's employment with R. Furthermore, 
section 3121(s) is inapplicable since B also was not employed by Q, the 
common paymaster, because B never contracted to perform services for 
remuneration from Q, and Q did not have the right to control the day-to-
day duties of B's work.
    Example 3. C is employed by two related corporations, S and T. C was 
concurrently employed by these corporations between April 1, 1979, and 
June 30, 1979. The corporations used T as the common paymaster with 
respect to C's wages between May 1, 1979, and September 30, 1979. T pays 
C on May 15 for services performed between April 1 and April 30, on July 
15 for services performed between June 1 and June 30, and on August 15 
for services performed between July 1 and July 31. Section 3121 (s) 
applies to the first two payments but does not apply to the third 
payment (there was no concurrent employment). However, if the third 
payment was made by T for services performed for T, T counts the amounts 
previously disbursed to C in 1979 while C was concurrently employed by S 
and T towards the wage base (see section 3121 (a)(1)).


[[Page 92]]


    (c) Allocation of employment taxes--(1) Responsibility to pay tax. 
If the requirements of this section are met, the common paymaster has 
the primary responsibility for remitting taxes pursuant to sections 3102 
and 3111 with respect to the remuneration it disburses as the common 
paymaster. The common paymaster computes these taxes as though it were 
the sole employer of the concurrently employed individuals. If the 
common paymaster fails to remit these taxes (in whole or in part), it 
remains liable for the full amount of the unpaid portion of these taxes. 
In addition, each of the other related corporations using the common 
paymaster is jointly and severally liable for its appropriate share of 
these taxes. That share is an amount equal to the lesser of:
    (i) The amount of the liability of the common paymaster under 
section 3121(s), after taking account of any tax payments made, or
    (ii) The amount of the liability under sections 3102 and 3111 which, 
but for section 3121(s), would have existed with respect to the 
remuneration from such other related corporation, reduced by an 
allocable portion of any taxes previously paid by the common paymaster 
with respect to that remuneration.

The portion of taxes previously paid by the common paymaster that is 
allocable to each related corporation is determined by multiplying the 
amount of taxes paid by a fraction, the numerator of which is the 
portion of the amount of employment tax liability of the common 
paymaster under section 3121(s) that is allocable to such related 
corporation under paragraph (c)(2) of this section, and the denominator 
of which is the total amount of the common paymaster's liability under 
section 3121(s), both determined without regard to any prior tax 
payments. These rules apply whether or not the tax on employees was 
withheld from the employees' wages.
    (2) Allocation of tax--(i) In general. If the related corporations 
maintain a record of the remuneration disbursed to the employee for 
services performed for each corporation, the remuneration-based 
allocation rules of paragraph (c)(2)(ii) of this section apply. If the 
related corporations do not maintain this record of remuneration, the 
group-wide allocation rules of paragraph (c)(2)(iii) of this section 
apply. In all cases, allocations must be made with respect to each 
payment of wages. The allocation of employment tax liabilities pursuant 
to this subparagraph also determines which related corporation may be 
entitled to income tax deductions with respect to the payments of those 
taxes.
    (ii) Remuneration-based allocation rules. Under the remuneration-
based method of allocation, each related corporation that remunerates an 
employee through a common paymaster has allocated to it for each pay 
period an amount of tax determined according to the following formula:

Portion of wage payment constituting
 re-
 muneration to the employee for        ..  Tax on employees under
 services                                   section 3102 and
 performed for the corporation         ..   tax on employers under
                                            section 3111
-------------------------------------   x   that the common paymaster is
              ---------                     required
Total wage payment constituting remu-  ..   to remit with respect to the
                                            wage pay-
 neration to the employee for all      ..   ment
 services
 performed for the related
 corporations
 using the common paymaster
 


If the remuneration disbursed to an employee for services performed for 
a corporation is inappropriate, the district director may adjust the 
remuneration records of the related corporations to reflect appropriate 
remuneration. The district director may use the principles of Sec.  
1.482-2(b) in making the adjustments.

    Example. (i) X and Y are related corporations which use Y as common 
paymaster for their executives. A is a concurrently employed executive 
who performs services during the first quarter of 1979 for X and Y. Y 
remunerates $4,000 gross pay every week to A, calculated as follows:

[[Page 93]]



----------------------------------------------------------------------------------------------------------------
                                            Remuneration                                 Tax on
                             ------------------------------------------    Tax on       employees
        Wage payments                                                     employers     withheld        Total
                                    X             Y           Total         under         under
                                                                        section 3111  section 3102
----------------------------------------------------------------------------------------------------------------
1...........................        $3,000        $1,000        $4,000       $245.20       $245.20       $490.40
2-3.........................  ............         8,000         8,000        490.40        490.40        980.80
4...........................         1,000         3,000         4,000        245.20        245.20        490.40
5...........................         4,000  ............         4,000        245.20        245.20        490.40
6...........................         2,000         2,000         4,000        177.77        177.77        355.54
7-13........................        10,000        18,000        28,000             0             0             0
                             -----------------------------------------------------------------------------------
    Total...................        20,000        32,000        52,000      1,403.77      1,403.77      2,807.54
----------------------------------------------------------------------------------------------------------------

    The amounts of remuneration to A are determined by the district 
director to be appropriate. Under these facts, the tax is allocated to X 
and Y in the following amounts:
[GRAPHIC] [TIFF OMITTED] TC05OC91.016

    (ii) If Y remits none of the taxes to the Internal Revenue Service, 
X is liable for $2,452.00 (the entire amount due pursuant to sections 
3102 and 3111 with respect to the remuneration to A from X) (12.26% x 
$20,000). Any amount remitted by X to the Internal Revenue Service under 
these circumstances is also credited against the liability of the common 
paymaster, Y. However, only the portion of the employment taxes 
allocated to X under (i) above may be deducted by X as employment taxes 
paid by it in respect of wages paid by it to its employees.
    (iii) If Y remits $1,000.00 of the total $2,807.54 due, Y as common 
paymaster remains liable for $1,807.54 ($2,807.54 minus $1,000). X's 
liability is the lesser of $1,807.54 (the liability of the common 
paymaster), or X's total liability, in the absence of section 3121 (s), 
on wages paid through the common paymaster ($2,452.00) minus a credit 
for an allocable part of the amount remitted by Y. The part is $412.66
[GRAPHIC] [TIFF OMITTED] TC05OC91.017

    (iii) Group-wide allocation rules. Under the group-wide method of 
allocation, the Commissioner may allocate the taxes imposed by sections 
3102 and 3111 in an appropriate manner to a related corporation that 
remunerates an employee through a common paymaster if the common 
paymaster fails to remit the taxes to the Internal Revenue Service. 
Allocation in an appropriate manner varies according to the 
circumstances. It may be based on sales, property, corporate payroll, or 
any other basis that reflects the distribution of the services performed 
by the

[[Page 94]]

employee, or a combination of the foregoing bases. To the extent 
practicable, the Commissioner may use the principles of Sec.  1.482-2(b) 
of this chapter in making the allocations with respect to wages paid 
after December 31, 1978, and on or before July 31, 2009. To the extent 
practicable, the Commissioner may use the principles of Sec.  1.482-9 of 
this chapter in making the allocations with respect to wages paid after 
July 31, 2009.
    (d) Effective/applicability date--(1) In general. This section is 
applicable with respect to wages paid after December 31, 1978. The 
fourth sentence of paragraph (c)(2)(iii) of this section is applicable 
with respect to wages paid after December 31, 1978, and on or before 
July 31, 2009. The fifth sentence of paragraph (c)(2)(iii) of this 
section is applicable with respect to wages paid after July 31, 2009.
    (2) Election to apply regulation to earlier taxable years. A person 
may elect to apply the fifth sentence of paragraph (c)(2)(iii) of this 
section to earlier taxable years in accordance with the rules set forth 
in Sec.  1.482-9(n)(2) of this chapter.

[T.D. 7660, 44 FR 75139, Dec. 19, 1979; 45 FR 17986, Mar. 20, 1980, as 
amended by T.D. 9278, 71 FR 44519, Aug. 4, 2006; T.D. 9456, 74 FR 38876, 
Aug. 4, 2009]



Sec.  31.3121(v)(2)-1  Treatment of amounts deferred under certain 
nonqualified deferred compensation plans.

    (a) Timing of wage inclusion--(1) General timing rule for wages. 
Remuneration for employment that constitutes wages within the meaning of 
section 3121(a) generally is taken into account for purposes of the 
Federal Insurance Contributions Act (FICA) taxes imposed under sections 
3101 and 3111 at the time the remuneration is actually or constructively 
paid. See Sec.  31.3121(a)-2(a).
    (2) Special timing rule for an amount deferred under a nonqualified 
deferred compensation plan--(i) In general. To the extent that 
remuneration deferred under a nonqualified deferred compensation plan 
constitutes wages within the meaning of section 3121(a), the 
remuneration is subject to the special timing rule described in this 
paragraph (a)(2). Remuneration is considered deferred under a 
nonqualified deferred compensation plan within the meaning of section 
3121(v)(2) and this section only if it is provided pursuant to a plan 
described in paragraph (b) of this section. The amount deferred under a 
nonqualified deferred compensation plan is determined under paragraph 
(c) of this section.
    (ii) Special timing rule. Except as otherwise provided in this 
section, an amount deferred under a nonqualified deferred compensation 
plan is required to be taken into account as wages for FICA tax purposes 
as of the later of--
    (A) The date on which the services creating the right to that amount 
are performed (within the meaning of paragraph (e)(2) of this section); 
or
    (B) The date on which the right to that amount is no longer subject 
to a substantial risk of forfeiture (within the meaning of paragraph 
(e)(3) of this section).
    (iii) Inclusion in wages only once (nonduplication rule). Once an 
amount deferred under a nonqualified deferred compensation plan is taken 
into account (within the meaning of paragraph (d)(1) of this section), 
then neither the amount taken into account nor the income attributable 
to the amount taken into account (within the meaning of paragraph (d)(2) 
of this section) is treated as wages for FICA tax purposes at any time 
thereafter.
    (iv) Benefits that do not result from a deferral of compensation. If 
a nonqualified deferred compensation plan (within the meaning of 
paragraph (b)(1) of this section) provides both a benefit that results 
from the deferral of compensation (within the meaning of paragraph 
(b)(3) of this section) and a benefit that does not result from the 
deferral of compensation, the benefit that does not result from the 
deferral of compensation is not subject to the special timing rule 
described in this paragraph (a)(2). For example, if a nonqualified 
deferred compensation plan provides retirement benefits which result 
from the deferral of compensation and disability pay (within the meaning 
of paragraph (b)(4)(iv)(C) of this section) which does not result from 
the deferral of compensation, the retirement benefits provided under the 
plan are subject to the special timing rule in this paragraph (a)(2) and 
the disability pay is not.

[[Page 95]]

    (v) Remuneration that does not constitute wages. If remuneration 
under a nonqualified deferred compensation plan does not constitute 
wages within the meaning of section 3121(a), then that remuneration is 
not taken into account as wages for FICA tax purposes under either the 
general timing rule described in paragraph (a)(1) of this section or the 
special timing rule described in this paragraph (a)(2). For example, 
benefits under a death benefit plan described in section 3121(a)(13) do 
not constitute wages for FICA tax purposes. Therefore, these benefits 
are not included as wages under the general timing rule described in 
paragraph (a)(1) of this section or the special timing rule described in 
this paragraph (a)(2), even if the death benefit plan would otherwise be 
considered a nonqualified deferred compensation plan within the meaning 
of paragraph (b)(1) of this section.
    (b) Nonqualified deferred compensation plan--(1) In general. For 
purposes of this section, the term nonqualified deferred compensation 
plan means any plan or other arrangement, other than a plan described in 
section 3121(a)(5), that is established (within the meaning of paragraph 
(b)(2) of this section) by an employer for one or more of its employees, 
and that provides for the deferral of compensation (within the meaning 
of paragraph (b)(3) of this section). A nonqualified deferred 
compensation plan may be adopted unilaterally by the employer or may be 
negotiated among or agreed to by the employer and one or more employees 
or employee representatives. A plan may constitute a nonqualified 
deferred compensation plan under this section without regard to whether 
the deferrals under the plan are made pursuant to an election by the 
employee or whether the amounts deferred are treated as deferred 
compensation for income tax purposes (e.g., whether the amounts are 
subject to the deduction rules of section 404). In addition, a plan may 
constitute a nonqualified deferred compensation plan under this section 
whether or not it is an employee benefit plan under section 3(3) of the 
Employee Retirement Income Security Act of 1974 (ERISA), as amended (29 
U.S.C. 1002(3)). For purposes of this section, except where the context 
indicates otherwise, the term plan includes a plan or other arrangement.
    (2) Plan establishment--(i) Date plan is established. For purposes 
of this section, a plan is established on the latest of the date on 
which it is adopted, the date on which it is effective, and the date on 
which the material terms of the plan are set forth in writing. For 
purposes of this section, a plan will be deemed to be set forth in 
writing if it is set forth in any other form that is approved by the 
Commissioner. The material terms of the plan include the amount (or the 
method or formula for determining the amount) of deferred compensation 
to be provided under the plan and the time when it may or will be 
provided.
    (ii) Plan amendments. In the case of an amendment that increases the 
amount deferred under a nonqualified deferred compensation plan, the 
plan is not considered established with respect to the additional amount 
deferred until the plan, as amended, is established in accordance with 
paragraph (b)(2)(i) of this section.
    (iii) Transition rule for written plan requirement. For purposes of 
this section, an unwritten plan that was adopted and effective before 
March 25, 1996, is treated as established under this section as of the 
later of the date on which it was adopted or became effective, provided 
that the material terms of the plan are set forth in writing before 
January 1, 2000.
    (3) Plan must provide for the deferral of compensation--(i) Deferral 
of compensation defined. A plan provides for the deferral of 
compensation with respect to an employee only if, under the terms of the 
plan and the relevant facts and circumstances, the employee has a 
legally binding right during a calendar year to compensation that has 
not been actually or constructively received and that, pursuant to the 
terms of the plan, is payable to (or on behalf of) the employee in a 
later year. An employee does not have a legally binding right to 
compensation if that compensation may be unilaterally reduced or 
eliminated by the employer after the services creating the right to the 
compensation have been performed. For

[[Page 96]]

this purpose, compensation is not considered subject to unilateral 
reduction or elimination merely because it may be reduced or eliminated 
by operation of the objective terms of the plan, such as the application 
of an objective provision creating a substantial risk of forfeiture 
(within the meaning of section 83). Similarly, an employee does not fail 
to have a legally binding right to compensation merely because the 
amount of compensation is determined under a formula that provides for 
benefits to be offset by benefits provided under a plan that is 
qualified under section 401(a), or because benefits are reduced due to 
investment losses or, in a final average pay plan, subsequent decreases 
in compensation.
    (ii) Compensation payable pursuant to the employer's customary 
payment timing arrangement. There is no deferral of compensation (within 
the meaning of this paragraph (b)(3)) merely because compensation is 
paid after the last day of a calendar year pursuant to the timing 
arrangement under which the employer ordinarily compensates employees 
for services performed during a payroll period described in section 
3401(b).
    (iii) Short-term deferrals. If, under a nonqualified deferred 
compensation plan, there is a deferral of compensation (within the 
meaning of this paragraph (b)(3)) that causes an amount to be deferred 
from a calendar year to a date that is not more than a brief period of 
time after the end of that calendar year, then, at the employer's 
option, that amount may be treated as if it were not subject to the 
special timing rule described in paragraph (a)(2) of this section. An 
employer may apply this option only if the employer does so for all 
employees covered by the plan and all substantially similar nonqualified 
deferred compensation plans. For purposes of this paragraph (b)(3)(iii), 
whether compensation is deferred to a date that is not more than a brief 
period of time after the end of a calendar year is determined in 
accordance with Sec.  1.404(b)-1T, Q&A-2, of this chapter.
    (4) Plans, arrangements, and benefits that do not provide for the 
deferral of compensation--(i) In general. Notwithstanding paragraph 
(b)(3)(i) of this section, an amount or benefit described in any of 
paragraphs (b)(4)(ii) through (viii) of this section is not treated as 
resulting from the deferral of compensation for purposes of section 
3121(v)(2) and this section and, thus, is not subject to the special 
timing rule of paragraph (a)(2) of this section.
    (ii) Stock options, stock appreciation rights, and other stock value 
rights. The grant of a stock option, stock appreciation right, or other 
stock value right does not constitute the deferral of compensation for 
purposes of section 3121(v)(2). In addition, amounts received as a 
result of the exercise of a stock option, stock appreciation right, or 
other stock value right do not result from the deferral of compensation 
for purposes of section 3121(v)(2) if such amounts are actually or 
constructively received in the calendar year of the exercise. For 
purposes of this paragraph (b)(4)(ii), a stock value right is a right 
granted to an employee with respect to one or more shares of employer 
stock that, to the extent exercised, entitles the employee to a payment 
for each share of stock equal to the excess, or a percentage of the 
excess, of the value of a share of the employer's stock on the date of 
exercise over a specified price (greater than zero).
    Thus, for example, the term stock value right does not include a 
phantom stock or other arrangement under which an employee is awarded 
the right to receive a fixed payment equal to the value of a specified 
number of shares of employer stock.
    (iii) Restricted property. If an employee receives property from, or 
pursuant to, a plan maintained by an employer, there is no deferral of 
compensation (within the meaning of section 3121(v)(2)) merely because 
the value of the property is not includible in income (under section 83) 
in the year of receipt by reason of the property being nontransferable 
and subject to a substantial risk of forfeiture. However, a plan under 
which an employee obtains a legally binding right to receive property 
(whether or not the property is restricted property) in a future year 
may provide for the deferral of compensation within the meaning of 
paragraph (b)(3) of this section and, accordingly, may constitute a 
nonqualified

[[Page 97]]

deferred compensation plan, even though benefits under the plan are or 
may be paid in the form of property.
    (iv) Certain welfare benefits--(A) In general. Vacation benefits, 
sick leave, compensatory time, disability pay, severance pay, and death 
benefits do not result from the deferral of compensation for purposes of 
section 3121(v)(2), even if those benefits constitute wages within the 
meaning of section 3121(a).
    (B) Severance pay. Benefits that are provided under a severance pay 
arrangement (within the meaning of section 3(2)(B)(i) of ERISA) that 
satisfies the conditions in 29 CFR 2510.3-2(b)(1)(i) through (iii) are 
considered severance pay for purposes of this paragraph (b)(4)(iv). If 
benefits are provided under a severance pay arrangement (within the 
meaning of section 3(2)(B)(i) of ERISA), but do not satisfy one or more 
of the conditions in 29 CFR 2510.3-2(b)(1)(i) through (iii), then 
whether those benefits are severance pay within the meaning of this 
paragraph (b)(4)(iv) depends upon the relevant facts and circumstances. 
For this purpose, relevant facts and circumstances include whether the 
benefits are provided over a short period of time commencing immediately 
after (or shortly after) termination of employment or for a substantial 
period of time following termination of employment and whether the 
benefits are provided after any termination or only after retirement (or 
another specified type of termination). Benefits provided under a 
severance pay arrangement (within the meaning of section 3(2)(B)(i) of 
ERISA) are in all cases severance pay within the meaning of this 
paragraph (b)(4)(iv) if the benefits payable under the plan upon an 
employee's termination of employment are payable only if that 
termination is involuntary.
    (C) Death benefits and disability pay--(1) General definition. 
Payments made under a nonqualified deferred compensation plan in the 
event of death are death benefits within the meaning of this paragraph 
(b)(4)(iv), but only to the extent the total benefits payable under the 
plan exceed the lifetime benefits payable under the plan. Similarly, 
payments made under a nonqualified deferred compensation plan in the 
event of disability are disability pay within the meaning of this 
paragraph (b)(4)(iv), but only to the extent the disability benefits 
payable under the plan exceed the lifetime benefits payable under the 
plan. Accordingly, any benefits that a nonqualified deferred 
compensation plan provides in the event of death or disability that are 
associated with an amount deferred under this section are disregarded in 
applying this section to the extent the benefits payable under the plan 
in the event of death or in the event of disability have a value in 
excess of the lifetime benefits payable under the plan.
    (2) Total benefits payable defined. For purposes of paragraph 
(b)(4)(iv)(C)(1) of this section, the term total benefits payable under 
a plan means the present value of the total benefits payable to or on 
behalf of the employee (including benefits payable in the event of the 
employee's death) under the plan, disregarding any benefits that are 
payable only in the event of disability and determined separately with 
respect to each form of distribution or other election that may apply 
with respect to the employee.
    (3) Disability benefits payable defined. For purposes of paragraph 
(b)(4)(iv)(C)(1) of this section, the term disability benefits payable 
under a plan means the present value of the benefits payable to or on 
behalf of the employee under the plan, including benefits payable in the 
event of the employee's disability but excluding death benefits within 
the meaning of this paragraph (b)(4)(iv).
    (4) Lifetime benefits payable defined. For purposes of paragraph 
(b)(4)(iv)(C)(1) of this section, the term lifetime benefits payable 
under a plan means the present value of the benefits that could be 
payable to the employee under the plan during the employee's lifetime, 
determined under the plan's optional form of distribution or other 
election that is or was available to the employee at any time with 
respect to the amount deferred and that provides the largest present 
value to the employee during the employee's lifetime of any such form or 
election so available.

[[Page 98]]

    (5) Rules of application. For purposes of determining present value 
under this paragraph (b)(4)(iv)(C), present value is determined as of 
the time immediately preceding the time the amount deferred under a 
nonqualified deferred compensation plan is required to be taken into 
account under paragraph (e) of this section, using actuarial assumptions 
that are reasonable as of that date but taking into consideration only 
benefits that result from the deferral of compensation, as determined 
under this paragraph (b), and benefits payable in the event of death or 
disability. In addition, for purposes of paragraph (b)(4)(iv)(C)(4) of 
this section, present value must be determined without any discount for 
the probability that the employee may die before benefit payments 
commence and without regard to any benefits payable solely in the event 
of disability.
    (v) Certain benefits provided in connection with impending 
termination--(A) In general. Benefits provided in connection with 
impending termination of employment under paragraph (b)(4)(v)(B) or (C) 
of this section do not result from the deferral of compensation within 
the meaning of section 3121(v)(2).
    (B) Window benefits--(1) In general. For purposes of this paragraph 
(b)(4)(v), except as provided in paragraph (b)(4)(v)(B)(3) of this 
section, a window benefit is provided in connection with impending 
termination of employment. For this purpose, a window benefit is an 
early retirement benefit, retirement-type subsidy, social security 
supplement, or other form of benefit made available by an employer for a 
limited period of time (no greater than one year) to employees who 
terminate employment during that period or to employees who terminate 
employment during that period under specified circumstances.
    (2) Special rule for recurring window benefits. A benefit will not 
be considered a window benefit if an employer establishes a pattern of 
repeatedly providing for similar benefits in similar situations for 
substantially consecutive, limited periods of time. Whether the 
recurrence of these benefits constitutes a pattern of amendments is 
determined based on the facts and circumstances. Although no one factor 
is determinative, relevant factors include whether the benefits are on 
account of a specific business event or condition, the degree to which 
the benefits relate to the event or condition, and whether the event or 
condition is temporary or discrete or is a permanent aspect of the 
employer's business.
    (3) Transition rule for window benefits. In the case of a window 
benefit that is made available for a period of time that begins before 
January 1, 2000, an employer may choose to treat the window benefit as a 
benefit that results from the deferral of compensation if the sole 
reason the window benefit would otherwise fail to be provided pursuant 
to a nonqualified deferred compensation plan is the application of 
paragraph (b)(4)(v)(B)(1) of this section.
    (C) Termination within 12 months of establishment of a benefit or 
plan. For purposes of this paragraph (b)(4)(v), a benefit is provided in 
connection with impending termination of employment, without regard to 
whether it constitutes a window benefit, if--
    (1) An employee's termination of employment occurs within 12 months 
of the establishment of the plan (or amendment) providing the benefit; 
and
    (2) The facts and circumstances indicate that the plan (or 
amendment) is established in contemplation of the employee's impending 
termination of employment.
    (vi) Benefits established after termination. Benefits established 
with respect to an employee after the employee's termination of 
employment do not result from a deferral of compensation within the 
meaning of section 3121(v)(2). However, cost-of-living adjustments on 
benefit payments under a nonqualified deferred compensation plan (within 
the meaning of paragraph (b) of this section) shall not be considered 
benefits established after the employee's termination of employment for 
purposes of this paragraph (b)(4)(vi) merely because the employee does 
not obtain the right to the adjustment until after the employee's 
termination of employment. For purposes of the preceding sentence, cost-
of-living adjustments are payments that satisfy conditions similar to 
those of 29 CFR 2510.3-2(g)(1)(ii) and (iii).

[[Page 99]]

    (vii) Excess parachute payments. An excess parachute payment (as 
defined in section 280G(b)) under an agreement entered into or renewed 
after June 14, 1984, in taxable years ending after such date, does not 
result from the deferral of compensation within the meaning of section 
3121(v)(2). For this purpose, any contract entered into before June 15, 
1984, that is amended after June 14, 1984, in any relevant significant 
aspect, is treated as a contract entered into after June 14, 1984.
    (viii) Compensation for current services. A plan does not provide 
for the deferral of compensation within the meaning of section 
3121(v)(2) if, based on the relevant facts and circumstances, the 
compensation is paid for current services.
    (5) Examples. This paragraph (b) is illustrated by the following 
examples:

    Example 1: (i) In December of 2001, Employer L tells Employee A 
that, if specified goals are satisfied for 2002, Employee A will receive 
a bonus on July 1, 2003, equal to a specified percentage of 2002 
compensation. Because Employee A meets the specified goals, Employer L 
pays the bonus to Employee A on July 1, 2003, consistent with its oral 
commitment.
    (ii) This arrangement is not a nonqualified deferred compensation 
plan under this section because its terms were not set forth in writing 
and, therefore, it was not established in accordance with paragraph 
(b)(2) of this section.
    Example 2: (i) In 2004, Employer M establishes a compensation 
arrangement for Employee B under which Employer M agrees to pay Employee 
B a specified amount based on a percentage of his salary for 2004. The 
amount due is to be paid out of the general assets of Employer M and is 
payable in 2008.
    (ii) Employee B has a legally binding right during 2004 to an amount 
of compensation that has not been actually or constructively received 
and that, pursuant to the terms of the arrangement, is payable in a 
later year. Therefore, the arrangement provides for the deferral of 
compensation.
    Example 3: (i) Employer N establishes a nonqualified deferred 
compensation plan (within the meaning of paragraph (b)(1) of this 
section) for Employee C in 1984. The plan is amended on January 1, 2001, 
to increase benefits, and the amendment provides that the increase in 
benefits is on account of Employee C's performance of services for 
Employer N from 1985 through 2000.
    (ii) The additional benefits that resulted from the plan amendment 
cannot be taken into account as amounts deferred for 1985 through 2000, 
even though the plan was established before then. Pursuant to paragraphs 
(b)(2)(ii) and (e)(1) of this section, the additional benefits cannot be 
taken into account before the latest of the date on which the amendment 
is adopted, the date on which the amendment is effective, or the date on 
which the material terms of the plan, as amended, are set forth in 
writing.
    Example 4: (i) In 2002, Employer O, a state or local government, 
establishes a plan for certain employees that provides for the deferral 
of compensation and that is subject to section 457(a).
    (ii) Paragraph (b)(1) of this section provides that nonqualified 
deferred compensation plan means any plan that is established by an 
employer and that provides for the deferral of compensation, other than 
a plan described in section 3121(a)(5). Section 3121(a)(5) lists, among 
other plans, an exempt governmental deferred compensation plan as 
defined in section 3121(v)(3). Under section 3121(v)(3)(A), this 
definition does not include any plan to which section 457(a) applies. 
Thus, the plan established by Employer O is not an exempt governmental 
deferred compensation plan described in section 3121(v)(3) and, 
consequently, is not a plan described in section 3121(a)(5). 
Accordingly, the plan is a nonqualified deferred compensation plan 
within the meaning of section 3121(v)(2) and paragraph (b)(1) of this 
section.
    (iii) However, the general timing rule of paragraph (a)(1) of this 
section and the special timing rule of paragraph (a)(2) of this section 
apply only to remuneration for employment that constitutes wages. Under 
section 3121(b)(7), certain service performed in the employ of a state, 
or any political subdivision of a state, is not employment. Thus, even 
though the plan is a nonqualified deferred compensation plan, the extent 
to which section 3121(v)(2) applies to a participating employee will 
depend on whether or not the service performed for Employer O is 
excluded from the definition of employment under section 3121(b)(7).
    Example 5: (i) In 2000, Employer P establishes a plan that provides 
for bonuses to be paid to employees based on an objective formula that 
takes into account the employees' performance for the year. Employer P 
does not have the discretion to reduce the amount of any employee's 
bonus after the end of the year. The bonus is not actually calculated 
until March 1 of the following year, and is paid on March 15 of that 
following year.
    (ii) The plan provides for the deferral of compensation because the 
employees have a legally binding right, as of the last day of a calendar 
year, to an amount of compensation that has not been actually or 
constructively received and, pursuant to the terms of the plan, that 
compensation is payable in a later year. However, because the bonuses 
under the plan are paid within a brief period of

[[Page 100]]

time after the end of the calendar year from which they are deferred, 
Employer P may choose, pursuant to paragraph (b)(3)(iii) of this 
section, to treat all the bonuses as if they are not subject to the 
special timing rule of paragraph (a)(2) of this section.
    (iii) If the employer uses the special timing rule, the amount 
deferred would be taken into account as wages on December 31, 2000. If 
the employer chooses not to use the special timing rule, the amount of 
the bonus is wages on the date it is actually or constructively paid, 
March 15, 2000.
    Example 6: (i) Employer Q establishes a plan under which bonuses 
based on performance in one year may be paid on February 1 of the 
following year at the discretion of the board of directors. The board of 
directors meets in January of each year to determine the amount, if any, 
of the bonuses to be paid based on performance in the prior year.
    (ii) Because an employee does not have a legally binding right to 
any bonus until January of the year in which the bonus is paid, any 
bonus paid under the plan in that year is not deferred from the 
preceding calendar year, and the plan does not provide for the deferral 
of compensation within the meaning of paragraph (b)(3)(i) of this 
section.
    Example 7: (i) Employer R maintains a plan for employees that 
provides nonqualified stock options described in Sec.  1.83-7(a) of this 
chapter. Under the plan, employees are granted in 2001 the option to 
acquire shares of employer stock at the fair market value of the shares 
on the date of grant ($50 per share). The options can be exercised at 
any time from the date of grant through 2010. The options do not have a 
readily ascertainable fair market value for purposes of section 83 at 
the date of grant, and shares are issued upon the exercise of the 
options without being subject to a substantial risk of forfeiture within 
the meaning of section 83. In 2005, when the fair market value of a 
share of employer stock is $80, Employee D exercises an option to 
acquire 1,000 shares.
    (ii) Under paragraph (b)(4)(ii) of this section, neither the grant 
of a stock option nor amounts received currently as a result of the 
exercise of a stock option result from the deferral of compensation for 
purposes of section 3121(v)(2). Thus, under the general timing rule of 
paragraph (a)(1) of this section, the $30,000 spread between the amount 
paid for the shares ($50,000) and the fair market value of the shares on 
the date of exercise ($80,000) is taken into account as wages for FICA 
tax purposes in the year of exercise.
    (iii) If the options had been granted at $45 per share, $5 per share 
below the fair market value on date of grant, the $35,000 spread between 
the amount paid for the shares ($45,000) and the fair market value of 
the shares on the date of exercise ($80,000) would similarly be taken 
into account as wages for FICA tax purposes in the year of exercise.
    Example 8: (i) Employer T establishes a phantom stock plan for 
certain employees. Under the plan, an employee is credited on the last 
day of each calendar year with a dollar amount equal to the fair market 
value of 1,000 shares of employer stock. Upon termination of employment 
for any reason, each employee is entitled to receive the value on the 
date of termination, in cash or employer stock, of the shares with which 
he or she has been credited.
    (ii) Because compensation to which the employee has a legally 
binding right as of the last day of one year is paid in a subsequent 
year, the phantom stock plan provides for the deferral of compensation. 
The phantom stock plan does not provide stock value rights within the 
meaning of paragraph (b)(4)(ii) of this section because it provides for 
awards equal in value to the full fair market value of a specified 
number of shares of Employer T stock, rather than the excess of that 
fair market value over a specified price.
    Example 9: (i) Employer U establishes a severance pay arrangement 
(within the meaning of section 3(2)(b)(i) of ERISA) which provides for 
payments solely upon an employee's death, disability, or dismissal from 
employment. The amount of the payments to an employee is based on the 
length of continuous active service with Employer U at the time of 
dismissal, and is paid in monthly installments over a period of three 
years.
    (ii) Because benefits payable under the plan upon termination of 
employment are payable only upon an employee's involuntary termination, 
the plan is a severance pay plan within the meaning of paragraph 
(b)(4)(iv)(B) of this section. Thus, the benefits are not treated as 
resulting from the deferral of compensation for purposes of section 
3121(v)(2).
    Example 10: (i) Employer V establishes a nonqualified deferred 
compensation plan under which employees will receive benefit payments 
commencing at age 65 as a life annuity or in one of several actuarially 
equivalent annuity forms. If an employee dies before benefit payments 
commence under the plan, a benefit is payable to the employee's 
designated beneficiary in a single lump sum payment equal to the present 
value of the employee's annuity benefit. This benefit (sometimes called 
a full reserve death benefit) is calculated using the applicable 
interest rate specified in section 417(e) and, for the period after age 
65, the applicable mortality table specified in section 417(e), both of 
which are reasonable actuarial assumptions. During 2002, Employee E 
obtains a legally binding right to an annuity benefit under the plan, 
payable at age 65. This annuity benefit has a present value of $10,000 
at the end of 2002, determined using the same assumptions as are used 
under the plan to calculate the full reserve death benefit.

[[Page 101]]

    (ii) The present value, at the end of 2002, of the total benefits 
payable to or on behalf of Employee E (i.e., the sum of the present 
value of the annuity benefit commencing at age 65, and the present value 
of the full reserve death benefit, with both determined using the 
actuarial assumptions described in paragraph (i) of this Example 10, 
except also taking into account the probability of death prior to age 
65) is $10,000. This present value does not exceed the present value of 
the annuity benefits that could be payable to Employee E under the plan 
during Employee E's lifetime determined without a discount for the 
possibility that Employee E might die before age 65 (also $10,000). 
Thus, the benefit payable in the event of Employee E's death is not a 
death benefit for purposes of paragraph (b)(4)(iv) of this section.
    (iii) The same result would apply in the case of a plan that bases 
benefits on an interest bearing account balance and pays the account 
balance at termination of employment or death (because the sum of the 
deferred benefits payable in the future if the employee terminates 
employment before death with a discount for the probability of death 
before that date plus the present value of the benefit payable in the 
event of death necessarily equals the present value of the deferred 
benefits payable with no discount for the probability of death).
    Example 11: (i) The facts are the same as in Example 10, except 
that, in lieu of the full reserve death benefit, the plan provides a 
monthly life annuity benefit to an employee's spouse in the event of the 
employee's death before benefit payments commence equal to 100 percent 
of the monthly annuity that would be payable to the employee at age 65 
under the life annuity form. Employee E is age 63 and has a spouse who 
is age 51. The sum of the present value of Employee E's annuity benefit 
commencing at age 65 determined with a discount for the possibility that 
Employee E might die before age 65 and the present value of the 100 
percent annuity death benefit for Employee E's spouse exceeds $10,000.
    (ii) The amount deferred for 2002 is $10,000 (because the 100 
percent annuity death benefit for Employee E's spouse is disregarded to 
the extent that the total benefits payable to or on behalf of Employee E 
exceeds the present value of the annuity benefits that could be payable 
to Employee E under the plan during Employee E's lifetime without a 
discount for the probability of Employee E's death before benefit 
payments commence).
    Example 12: (i) On January 1, 2001, Employer W establishes a plan 
that covers only Employee F, who owns a significant portion of the 
business and who has 30 years of service as of that date. The plan 
provides that, upon Employee F's termination of employment at any time, 
he will receive $200,000 per year for each of the immediately succeeding 
five years. Employee F terminates employment on March 1, 2001.
    (ii) Because Employee F terminates employment within 12 months of 
the establishment of the plan and the facts and circumstances set forth 
above indicate that the plan was established in contemplation of 
impending termination of employment, the plan is considered to be 
established in connection with impending termination within the meaning 
of paragraph (b)(4)(v) of this section. Therefore, the benefits provided 
under the plan are not treated as resulting from the deferral of 
compensation for purposes of section 3121(v)(2).
    Example 13: (i) Employer X establishes a plan on January 1, 2004, to 
supplement the qualified retirement benefits of recently hired 55-year 
old Employee G, who forfeited retirement benefits with her former 
employer in order to accept employment with Employer X. The plan 
provides that Employee G will receive $50,000 per year for life 
beginning at age 65, regardless of when she terminates employment. On 
April 15, 2004, Employee G unexpectedly terminates employment.
    (ii) The facts and circumstances indicate that the plan was not 
established in contemplation of impending termination. Thus, even though 
Employee G terminated employment within 12 months of the establishment 
of the plan, the plan is not considered to be established in connection 
with impending termination within the meaning of paragraph (b)(4)(v) of 
this section. Benefits provided under the plan are treated as resulting 
from the deferral of compensation for purposes of section 3121(v)(2).
    Example 14: (i) Employer Y establishes a plan to provide 
supplemental retirement benefits to a group of management employees who 
are at various stages of their careers. All employees covered by the 
plan are subject to the same benefit formula. Employee H is planning to 
(and actually does) retire within six months of the date on which the 
plan is established.
    (ii) Even though Employee H terminated employment within 12 months 
of the establishment of the plan, the plan is not considered to have 
been established in connection with Employee H's impending termination 
within the meaning of paragraph (b)(4)(v) of this section because the 
facts and circumstances indicate otherwise.
    Example 15: (i) Employee J owns 100 percent of Employer Z, a 
corporation that provides consulting services. Substantially all of 
Employer Z's revenue is derived as a result of the services performed by 
Employee J. In each of 2001, 2002, and 2003, Employer Z has gross 
receipts of $180,000 and expenses (other than salary) of $80,000. In 
each of 2001 and 2002, Employer Z pays Employee J a salary of $100,000 
for services performed in each of those years. On December 31, 2002, 
Employer

[[Page 102]]

Z establishes a plan to pay Employee J $80,000 in 2003. The plan recites 
that the payment is in recognition of prior services. In 2003, Employer 
Z pays Employee J a salary of $20,000 and the $80,000 due under the 
plan.
    (ii) The facts and circumstances described above indicate that the 
$80,000 paid pursuant to the plan is based on services performed by 
Employee J in 2003 and, thus, is paid for current services within the 
meaning of paragraph (b)(4)(viii) of this section. Accordingly, the plan 
does not provide for the deferral of compensation within the meaning of 
section 3121(v)(2), and the $80,000 payment is included as wages in 2003 
under the general timing rule of paragraph (a)(1) of this section.

    (c) Determination of the amount deferred--(1) Account balance 
plans--(i) General rule. For purposes of this section, if benefits for 
an employee are provided under a nonqualified deferred compensation plan 
that is an account balance plan, the amount deferred for a period equals 
the principal amount credited to the employee's account for the period, 
increased or decreased by any income attributable to the principal 
amount through the date the principal amount is required to be taken 
into account as wages under paragraph (e) of this section.
    (ii) Definitions--(A) Account balance plan. For purposes of this 
section, an account balance plan is a nonqualified deferred compensation 
plan under the terms of which a principal amount (or amounts) is 
credited to an individual account for an employee, the income 
attributable to each principal amount is credited (or debited) to the 
individual account, and the benefits payable to the employee are based 
solely on the balance credited to the individual account.
    (B) Income. For purposes of this section, income means any increase 
or decrease in the amount credited to an employee's account that is 
attributable to amounts previously credited to the employee's account, 
regardless of whether the plan denominates that increase or decrease as 
income.
    (iii) Additional rules--(A) Commingled accounts. A plan does not 
fail to be an account balance plan merely because, under the terms of 
the plan, benefits payable to an employee are based solely on a 
specified percentage of an account maintained for all (or a portion of) 
plan participants under which principal amounts and income are credited 
(or debited) to such account.
    (B) Bifurcation permitted. An employer may treat a portion of a 
nonqualified deferred compensation plan as a separate account balance 
plan if that portion satisfies the requirements of this paragraph (c)(1) 
and the amount payable to employees under that portion is determined 
independently of the amount payable under the other portion of the plan.
    (C) Actuarial equivalents. A plan does not fail to be an account 
balance plan merely because the plan permits employees to elect to 
receive their benefits under the plan in a form of benefit other than 
payment of the account balance, provided the amount of benefit payable 
in that other form is actuarially equivalent to payment of the account 
balance using actuarial assumptions that are reasonable. Conversely, a 
plan is not an account balance plan if it provides an optional form of 
benefit that is not actuarially equivalent to the account balance using 
actuarial assumptions that are reasonable. For this purpose, the 
determination of whether forms are actuarially equivalent using 
actuarial assumptions that are reasonable is determined under the rules 
applicable to nonaccount balance plans under paragraph (c)(2)(iii) of 
this section.
    (2) Nonaccount balance plans--(i) General rule. For purposes of this 
section, if benefits for an employee are provided under a nonqualified 
deferred compensation plan that is not an account balance plan (a 
nonaccount balance plan), the amount deferred for a period equals the 
present value of the additional future payment or payments to which the 
employee has obtained a legally binding right (as described in paragraph 
(b)(3)(i) of this section) under the plan during that period.
    (ii) Present value defined. For purposes of this section, present 
value means the value as of a specified date of an amount or series of 
amounts due thereafter, where each amount is multiplied by the 
probability that the condition or conditions on which payment of the 
amount is contingent will be satisfied, and is discounted according to 
an assumed rate of interest to reflect the time value of money. For 
purposes

[[Page 103]]

of this section, the present value must be determined as of the date the 
amount deferred is required to be taken into account as wages under 
paragraph (e) of this section using actuarial assumptions and methods 
that are reasonable as of that date. For this purpose, a discount for 
the probability that an employee will die before commencement of benefit 
payments is permitted, but only to the extent that benefits will be 
forfeited upon death. In addition, the present value cannot be 
discounted for the probability that payments will not be made (or will 
be reduced) because of the unfunded status of the plan, the risk 
associated with any deemed or actual investment of amounts deferred 
under the plan, the risk that the employer, the trustee, or another 
party will be unwilling or unable to pay, the possibility of future plan 
amendments, the possibility of a future change in the law, or similar 
risks or contingencies. Nor is the present value affected by the 
possibility that some of the payments due under the plan will be 
eligible for one of the exclusions from wages in section 3121(a).
    (iii) Treatment of actuarially equivalent benefits--(A) In general. 
In the case of a nonaccount balance plan that permits employees to 
receive their benefits in more than one form or commencing at more than 
one date, the amount deferred is determined by assuming that payments 
are made in the normal form of benefit commencing at normal commencement 
date if the requirements of paragraph (c)(2)(iii)(B) of this section are 
satisfied. Accordingly, in the case of a nonaccount balance plan that 
permits employees to receive their benefits in more than one form or 
commencing at more than one date, unless the requirements of paragraph 
(c)(2)(iii)(B) of this section are satisfied, the amount deferred is 
treated as not reasonably ascertainable under the rules of paragraph 
(e)(4)(i)(B) of this section until a form of benefit and a time of 
commencement are selected.
    (B) Use of normal form commencing at normal commencement date. The 
requirements of this paragraph (c)(2)(iii)(B) are satisfied by a 
nonaccount balance plan if the plan has a single normal form of benefit 
commencing at normal commencement date for the amount deferred and each 
other optional form is actuarially equivalent to the normal form of 
benefit commencing at normal commencement date using actuarial 
assumptions that are reasonable. For this purpose, each form of benefit 
for payment of the amount deferred commencing at a date is a separate 
optional form. For purposes of this paragraph (c)(2)(iii)(B), each 
optional form is actuarially equivalent to the normal form of benefit 
commencing at normal commencement date only if the terms of the plan in 
effect when the amount is deferred provide for every optional form to be 
actuarially equivalent and further provide for actuarial assumptions to 
determine actuarial equivalency that will be reasonable at the time the 
optional form is selected, without regard to whether market interest 
rates are higher or lower at the time the optional form is selected than 
at the time the amount is deferred. Thus, a plan that provides for every 
optional form to be actuarially equivalent satisfies this paragraph 
(c)(2)(iii)(B) if it provides for actuarial equivalence to be 
determined--
    (1) When an optional form is selected or when benefit payments under 
the optional form commence, based on assumptions that are reasonable 
then;
    (2) Based on an index that reflects market rates of interest from 
time to time (for example, the plan specifies that all benefits will be 
actuarially equivalent using the applicable interest rate and applicable 
mortality table specified in section 417(e)); or
    (3) Based on actuarial assumptions specified in the plan and 
provides for those assumptions to be revised to be reasonable 
assumptions if they cease to be reasonable assumptions.
    (C) Fixed mortality assumptions permitted. A plan does not fail to 
satisfy paragraph (c)(2)(iii)(B) of this section merely because the plan 
specifies a fixed mortality assumption that is reasonable at the time 
the amount is deferred, even if that assumption is not reasonable at the 
time the optional form is selected. (But see paragraph (c)(2)(iii)(E) of 
this section for additional rules that apply if the mortality assumption 
is not reasonable at the time the optional form is selected.)

[[Page 104]]

    (D) Normal form of benefit commencing at normal commencement date 
defined. For purposes of this paragraph (c)(2)(iii), the normal form of 
benefit commencing at normal commencement date under the plan is the 
form, and date of commencement, under which the payments due to the 
employee under the plan are expressed, prior to adjustments for form or 
timing of commencement of payments.
    (E) Rule applicable if actuarial assumptions cease to be reasonable. 
If the terms of the plan in effect when an amount is deferred provide 
for actuarial assumptions to determine actuarial equivalency that will 
be reasonable at the time the optional form is selected or payments 
commence as provided in paragraph (c)(2)(iii)(B) of this section, but, 
at that time, the actuarial assumptions used under the plan are not 
reasonable, the employee will be treated as obtaining a legally binding 
right at that time (or, if earlier, at the date on which the plan is 
amended to provide actuarial assumptions that are not reasonable) to any 
additional benefits that result from the use of an unreasonable 
actuarial assumption. This might occur, for example, if the plan 
specifies that the actuarial assumptions will be reasonable assumptions 
to be set at the time the optional form is selected and the assumptions 
used are in fact not reasonable at that time.
    (3) Separate determination for each period. The amount deferred 
under this paragraph (c) is determined separately for each period for 
which there is an amount deferred under the plan. In addition, 
paragraphs (d) and (e) of this section are applied separately with 
respect to the amount deferred for each such period. Thus, for example, 
the fraction described in paragraph (d)(1)(ii)(B) of this section and 
the amount of the true-up at the resolution date described in paragraph 
(e)(4)(ii)(B) of this section are determined separately with respect to 
each amount deferred. See paragraph (e)(4)(ii)(D) of this section for 
special rules for allocating amounts deferred over more than one year.
    (4) Examples. This paragraph (c) is illustrated by the following 
examples. (The examples illustrate the rules in this paragraph (c) and 
include various interest rate and mortality table assumptions, including 
the applicable section 417(e) mortality table, the GAM 83 (male) 
mortality table, and UP-84 mortality table. These tables can be obtained 
from the Society of Actuaries at its internet site at http://
www.soa.org.) The examples are as follows:

    Example 1: (i) Employer M establishes a nonqualified deferred 
compensation plan for Employee A. Under the plan, 10 percent of annual 
compensation is credited on behalf of Employee A on December 31 of each 
year. In addition, a reasonable rate of interest is credited quarterly 
on the balance credited to Employee A as of the last day of the 
preceding quarter. All amounts credited under the plan are 100 percent 
vested and the benefits payable to Employee A are based solely on the 
balance credited to Employee A's account.
    (ii) The plan is an account balance plan. Thus, pursuant to 
paragraph (c)(1) of this section, the amount deferred for a calendar 
year is equal to 10 percent of annual compensation.
    Example 2: (i) Employer N establishes a nonqualified deferred 
compensation plan for Employee B. Under the plan, 2.5 percent of annual 
compensation is credited quarterly on behalf of Employee B. In addition, 
a reasonable rate of interest is credited quarterly on the balance 
credited to Employee B's account as of the last day of the preceding 
quarter. All amounts credited under the plan are 100 percent vested, and 
the benefits payable to Employee B are based solely on the balance 
credited to Employee B's account. As permitted by paragraph (e)(5) of 
this section, any amount deferred under the plan for the calendar year 
is taken into account as wages on the last day of the year.
    (ii) The plan is an account balance plan. Thus, pursuant to 
paragraph (c)(1) of this section, the amount deferred for a calendar 
year equals 10 percent of annual compensation (i.e., the sum of the 
principal amounts credited to Employee B's account for the year) plus 
the interest credited with respect to that 10 percent principal amount 
through the last day of the calendar year. If Employer N had not chosen 
to apply paragraph (e)(5) of this section and, thus, had taken into 
account 2.5 percent of compensation quarterly, the interest credited 
with respect to those quarterly amounts would not have been treated as 
part of the amount deferred for the year.
    Example 3: (i) Employer O establishes a nonqualified deferred 
compensation plan for a group of five employees. Under the plan, a 
specified sum is credited to an account for the benefit of the group of 
employees on July 31 of each year. Income on the balance of the

[[Page 105]]

account is credited annually at a rate that is reasonable for each year. 
The benefit payable to an employee is equal to one-fifth of the account 
balance and is payable, at the employee's option, in a lump sum or in 10 
annual installments that reflect income on the balance.
    (ii) The plan is an account balance plan notwithstanding the fact 
that the employee's benefit is equal to a specified percentage of an 
account maintained for a group of employees.
    Example 4: (i) The facts are the same as in Example 3, except that 
the plan also permits an employee to elect a life annuity that is 
actuarially equivalent to the account balance based on the applicable 
interest rate and applicable mortality table specified in section 417(e) 
at the time the benefit is elected by the employee.
    (ii) Under paragraphs (c)(1)(iii)(C) and (c)(2)(iii) of this 
section, the plan does not fail to be an account balance plan merely 
because the plan permits employees to elect to receive their benefits 
under the plan in a form that is actuarially equivalent to payment of 
the account balance using actuarial assumptions that are reasonable at 
the time the form is selected.
    Example 5: (i) Employer P establishes a nonqualified deferred 
compensation plan for a group of employees. Under the plan, each 
participating employee has a fully vested right to receive a life 
annuity, payable monthly beginning at age 65, equal to the product of 2 
percent for each year of service and the employee's highest average 
annual compensation for any 3-year period. The plan also provides that, 
if an employee dies before age 65, the present value of the future 
payments will be paid to his or her beneficiary. As permitted under 
paragraph (e)(5) of this section, any amount deferred under the plan for 
a calendar year is taken into account as FICA wages as of the last day 
of the year. As of December 31, 2002, Employee C is age 60, has 25 years 
of service, and high 3-year average compensation of $100,000 (the 
average for the years 2000 through 2002). As of December 31, 2003, 
Employee C is age 61, has 26 years of service, and has high 3-year 
average compensation of $104,000. As of December 31, 2004, Employee C is 
age 62, has 27 years of service, and has high 3-year average 
compensation of $105,000. The assumptions that Employer P uses to 
determine the amount deferred for 2003 (a 7 percent interest rate and, 
for the period after commencement of benefit payments, the GAM 83 (male) 
mortality table) and for 2004 (a 7.5 percent interest rate and, for the 
period after commencement of benefit payments, the GAM 83 (male) 
mortality table) are assumed, solely for purposes of this example, to be 
reasonable actuarial assumptions.
    (ii) As of December 31, 2002, Employee C has a legally binding right 
to receive lifetime payments of $50,000 (2 percent x 25 years x 
$100,000) per year. As of December 31, 2003, Employee C has a legally 
binding right to receive lifetime payments of $54,080 (2 percent x 26 
years x $104,000) per year. Thus, during 2003, Employee C has earned a 
legally binding right to additional lifetime payments of $4,080 
($54,080-$50,000) per year beginning at age 65. The amount deferred for 
2003 is the present value, as of December 31, 2003, of these additional 
payments, which is $28,767 ($4,080 x the present value factor for a 
deferred annuity payable at age 65, using the specified actuarial 
assumptions for 2003). Similarly, during 2004, Employee C has earned a 
legally binding right to additional lifetime payments of $2,620 (2 
percent x 27 years x $105,000, minus $54,080) per year beginning at age 
65. The amount deferred for 2004 is the present value, as of December 
31, 2004, of these additional payments, which is $18,845 ($2,620 x the 
present value factor for a deferred annuity payable at age 65, using the 
specified actuarial assumptions for 2004).
    Example 6: (i) Employer Q establishes a nonqualified deferred 
compensation plan for Employee D on January 1, 2001, when Employee D is 
age 63. During 2001, Employee D obtains a fully vested right to receive 
a life annuity under the nonqualified deferred compensation plan equal 
to the excess of $200,000 over the life annuity benefits payable to 
Employee D under a qualified defined benefit pension plan sponsored by 
Employer Q. The life annuity benefit payable annually under the 
qualified plan is the lesser of $200,000 and the section 415(b)(1)(A) 
limitation in effect for the year, where the section 415(b)(1)(A) 
limitation is automatically adjusted to reflect changes in the cost of 
living. Benefits under both the qualified and nonqualified plan are 
payable monthly beginning at age 65. For purposes of this example, the 
section 415(b)(1)(A) limit for 2001 is assumed to be $140,000. The 
nonqualified plan provides no benefits in the event Employee D dies 
prior to commencement of benefit payments. As permitted under paragraph 
(e)(5) of this section, any amount deferred under the plan for a 
calendar year is taken into account as FICA wages as of the last day of 
the year. The assumptions that Employer Q uses to determine the amount 
deferred for 2001 (a 7 percent interest rate, a 3 percent increase in 
the cost of living and the GAM 83 (male) mortality table) are assumed, 
solely for purposes of this example, to be reasonable actuarial 
assumptions. As of December 31, 2001, Employee D has a legally binding 
right to receive lifetime payments as set forth in the following table:

[[Page 106]]



----------------------------------------------------------------------------------------------------------------
                                                                                      Assumed
                                                                                  qualified plan    Net annual
                              Year                                 Annual gross   annual payment   payment under
                                                                      amount      (based on cost   nonqualified
                                                                                    of living)         plan
----------------------------------------------------------------------------------------------------------------
2003............................................................        $200,000        $145,000         $55,000
2004............................................................         200,000         150,000          50,000
2005............................................................         200,000         155,000          45,000
2006............................................................         200,000         160,000          40,000
2007............................................................         200,000         165,000          35,000
2008............................................................         200,000         170,000          30,000
2009............................................................         200,000         175,000          25,000
2010............................................................         200,000         180,000          20,000
2011............................................................         200,000         185,000          15,000
2012............................................................         200,000         190,000          10,000
2013............................................................         200,000         195,000           5,000
2014 and thereafter.............................................         200,000      205,000 or               0
                                                                                         greater
----------------------------------------------------------------------------------------------------------------

    (ii) The amount deferred for 2001 is the present value, as of 
December 31, 2001, of the net lifetime payments under the nonqualified 
plan, or $223,753.

    (d) Amounts taken into account and income attributable thereto--(1) 
Amounts taken into account--(i) In general. For purposes of this 
section, an amount deferred under a nonqualified deferred compensation 
plan is taken into account as of the date it is included in computing 
the amount of wages as defined in section 3121(a), but only to the 
extent that any additional FICA tax that results from such inclusion 
(including any interest and penalties for late payment) is actually paid 
before the expiration of the applicable period of limitations for the 
period in which the amount deferred was required to be taken into 
account under paragraph (e) of this section. Because an amount deferred 
for a calendar year is combined with the employee's other wages for the 
year for purposes of computing FICA taxes with respect to the employee 
for the year, if the employee has other wages that equal or exceed the 
wage base limitations for the Old-Age, Survivors, and Disability 
Insurance (OASDI) portion (or, in the case of years before 1994, the 
Hospital Insurance (HI) portion) of FICA for the year, no portion of the 
amount deferred will actually result in additional OASDI (or HI) tax. 
However, because there is no wage base limitation for the HI portion of 
FICA for years after 1993, the entire amount deferred (in addition to 
all other wages) is subject to the HI tax for the year and, thus, will 
not be considered taken into account for purposes of this section unless 
the HI tax relating to the amount deferred is actually paid. In 
determining whether any additional FICA tax relating to the amount 
deferred is actually paid, any FICA tax paid in a year is treated as 
paid with respect to an amount deferred only after FICA tax is paid on 
all other wages for the year.
    (ii) Amounts not taken into account--(A) Failure to take an amount 
deferred into account under the special timing rule. If an amount 
deferred for a period (as determined under paragraph (c) of this 
section) is not taken into account, then the nonduplication rule of 
paragraph (a)(2)(iii) of this section does not apply, and benefit 
payments attributable to that amount deferred are included as wages in 
accordance with the general timing rule of paragraph (a)(1) of this 
section. For example, if an amount deferred is required to be taken into 
account in a particular year under paragraph (e) of this section, but 
the employer fails to pay the additional FICA tax resulting from that 
amount, then the amount deferred and the income attributable to that 
amount must be included as wages when actually or constructively paid.
    (B) Failure to take a portion of an amount deferred into account 
under the special timing rule. If, as of the date an amount deferred is 
required to be taken into account, only a portion of the amount deferred 
(as determined under paragraph (c) of this section) has been taken into 
account, then a portion of each subsequent benefit payment that is 
attributable to that amount is excluded from wages pursuant to the 
nonduplication rule of paragraph (a)(2)(iii) of this section and the 
balance is subject to the general timing rule of paragraph (a)(1) of 
this section. The portion that is excluded from wages is fixed 
immediately before the attributable benefit payments commence (or, if 
later, the date the amount deferred is required to be taken into 
account) and is determined by multiplying each such payment by a 
fraction, the numerator of which is the amount that was taken into 
account (plus income attributable to that amount determined under 
paragraph (d)(2) of this section through the date

[[Page 107]]

the portion is fixed) and the denominator of which is the present value 
of the future benefit payments attributable to the amount deferred, 
determined as of the date the portion is fixed. For this purpose, if the 
requirements of paragraph (c)(2)(iii)(B) of this section are satisfied, 
the present value is determined by assuming that payments are made in 
the normal form of benefit commencing at normal commencement date. In 
addition, if the employer demonstrates that the amount deferred was 
determined using reasonable actuarial assumptions as determined by the 
Commissioner, the present value of the future benefit payments 
attributable to the amount deferred is determined using those 
assumptions. In any other case, see paragraph (d)(2)(iii) of this 
section.
    (2) Income attributable to the amount taken into account--(i) 
Account balance plans--(A) In general. For purposes of the 
nonduplication rule of paragraph (a)(2)(iii) of this section, in the 
case of an account balance plan, the income attributable to the amount 
taken into account means any amount credited on behalf of an employee 
under the terms of the plan that is income (within the meaning of 
paragraph (c)(1)(ii)(B) of this section) attributable to an amount 
previously taken into account (within the meaning of paragraph (d)(1) of 
this section), but only if the income reflects a rate of return that 
does not exceed either the rate of return on a predetermined actual 
investment (as determined in accordance with paragraph (d)(2)(i)(B) of 
this section) or, if the income does not reflect the rate of return on a 
predetermined actual investment (as so determined), a reasonable rate of 
interest (as determined in accordance with paragraph (d)(2)(i)(C) of 
this section).
    (B) Rules relating to actual investment--(1) In general. For 
purposes of this paragraph (d)(2)(i), the rate of return on a 
predetermined actual investment for any period means the rate of total 
return (including increases or decreases in fair market value) that 
would apply if the account balance were, during the applicable period, 
actually invested in one or more investments that are identified in 
accordance with the plan before the beginning of the period. For this 
purpose, an account balance plan can determine income based on the rate 
of return of a predetermined actual investment regardless of whether 
assets associated with the plan or the employer are actually invested 
therein and regardless of whether that investment is generally available 
to the public. For example, an account balance plan could provide that 
income on the account balance is determined based on an employee's 
prospective election among various investment alternatives that are 
available under the employer's section 401(k) plan, even if one of those 
investment alternatives is not generally available to the public. In 
addition, an actual investment includes an investment identified by 
reference to any stock index with respect to which there are positions 
traded on a national securities exchange described in section 
1256(g)(7)(A).
    (2) Certain rates of return not based on predetermined actual 
investment. A rate of return will not be treated as the rate of return 
on a predetermined actual investment within the meaning of this 
paragraph (d)(2)(i)(B) if the rate of return (to any extent or under any 
conditions) is based on the greater of the rate of return of two or more 
actual investments, is based on the greater of the rate of return on an 
actual investment and a rate of interest (whether or not the rate of 
interest would otherwise be reasonable under paragraph (d)(2)(i)(C) of 
this section), or is based on the rate of return on an actual investment 
that is not predetermined. For example, if a plan bases the rate of 
return on the greater of the rate of return on a predetermined actual 
investment (such as the value of the employer's stock), and a 0 percent 
interest rate (i.e., without regard to decreases in the value of that 
investment), the plan is using a rate of return that is not a rate of 
return on a predetermined actual investment within the meaning of this 
paragraph (d)(2)(i)(B).
    (C) Rules relating to reasonable interest rates--(1) In general. If 
income for a period is credited to an account balance plan on a basis 
other than the rate of return on a predetermined actual investment (as 
determined in accordance

[[Page 108]]

with paragraph (d)(2)(i)(B) of this section), then, except as otherwise 
provided in this paragraph (d)(2)(i)(C), the determination of whether 
the income for the period is based on a reasonable rate of interest will 
be made at the time the amount deferred is required to be taken into 
account and annually thereafter.
    (2) Fixed rates permitted. If, with respect to an amount deferred 
for a period, an account balance plan provides for a fixed rate of 
interest to be credited, and the rate is to be reset under the plan at a 
specified future date that is not later than the end of the fifth 
calendar year that begins after the beginning of the period, the rate is 
reasonable at the beginning of the period, and the rate is not changed 
before the reset date, then the rate will be treated as reasonable in 
all future periods before the reset date.
    (ii) Nonaccount balance plans. For purposes of the nonduplication 
rule of paragraph (a)(2)(iii) of this section, in the case of a 
nonaccount balance plan, the income attributable to the amount taken 
into account means the increase, due solely to the passage of time, in 
the present value of the future payments to which the employee has 
obtained a legally binding right, the present value of which constituted 
the amount taken into account (determined as of the date such amount was 
taken into account), but only if the amount taken into account was 
determined using reasonable actuarial assumptions and methods. Thus, for 
each year, there will be an increase (determined using the same interest 
rate used to determine the amount taken into account) resulting from the 
shortening of the discount period before the future payments are made, 
plus, if applicable, an increase in the present value resulting from the 
employee's survivorship during the year. As a result, if the amount 
deferred for a period is determined using a reasonable interest rate and 
other reasonable actuarial assumptions and methods, and the amount is 
taken into account when required under paragraph (e) of this section, 
then, under the nonduplication rule of paragraph (a)(2)(iii) of this 
section, none of the future payments attributable to that amount will be 
subject to FICA tax when paid.
    (iii) Unreasonable rates of return--(A) Account balance plans. This 
paragraph (d)(2)(iii)(A) applies to an account balance plan under which 
the income credited is based on neither a predetermined actual 
investment, within the meaning of paragraph (d)(2)(i)(B) of this 
section, nor a rate of interest that is reasonable, within the meaning 
of paragraph (d)(2)(i)(C) of this section, as determined by the 
Commissioner. In that event, the employer must calculate the amount that 
would be credited as income under a reasonable rate of interest, 
determine the excess (if any) of the amount credited under the plan over 
the income that would be credited using the reasonable rate of interest, 
and take that excess into account as an additional amount deferred in 
the year the income is credited. If the employer fails to calculate the 
amount that would be credited as income under a reasonable rate of 
interest and to take the excess into account as an additional amount 
deferred in the year the income is credited, or the employer otherwise 
fails to take the full amount deferred into account, then the excess of 
the income credited under the plan over the income that would be 
credited using AFR will be treated as an amount deferred in the year the 
income is credited. For purposes of this section, AFR means the mid-term 
applicable federal rate (as defined pursuant to section 1274(d)) for 
January 1 of the calendar year, compounded annually. In addition, 
pursuant to paragraph (d)(1)(ii) of this section, the excess over the 
income that would result from the application of AFR and any income 
attributable to that excess are subject to the general timing rule of 
paragraph (a)(1) of this section.
    (B) Nonaccount balance plans. If any actuarial assumption or method 
used to determine the amount taken into account under a nonaccount 
balance plan is not reasonable, as determined by the Commissioner, then 
the income attributable to the amount taken into account is limited to 
the income that would result from the application of the AFR and, if 
applicable, the applicable mortality table under section 
417(e)(3)(A)(ii)(I) (the 417(e) mortality

[[Page 109]]

table), both determined as of the January 1 of the calendar year in 
which the amount was taken into account. In addition, paragraph 
(d)(1)(ii)(B) of this section applies and, in calculating the fraction 
described in paragraph (d)(1)(ii)(B) of this section (at the date 
specified in paragraph (d)(1)(ii)(B) of this section), the numerator is 
the amount taken into account plus income (as limited under this 
paragraph (d)(2)(iii)(B)), and the present value in the denominator is 
determined using the AFR, the 417(e) mortality table, and reasonable 
assumptions as to cost of living, each determined as of the time the 
amount deferred was required to be taken into account.
    (3) Examples. This paragraph (d) is illustrated by the following 
examples:

    Example 1: (i) In 2001, Employer M establishes a nonqualified 
deferred compensation plan for Employee A under which all benefits are 
100 percent vested. In 2002, Employee A has $200,000 of current annual 
compensation from Employer M that is subject to FICA tax. The amount 
deferred under the plan on behalf of Employee A for 2002 is $20,000. 
Thus, Employee A has total wages for FICA tax purposes of $220,000. 
Because Employee A has other wages that exceed the OASDI wage base for 
2002, no additional OASDI tax is due as a result of the $20,000 amount 
deferred. Because there is no wage base limitation for the HI portion of 
FICA, additional HI tax liability results from the $20,000 amount 
deferred. However, Employer M fails to pay the additional HI tax.
    (ii) Under paragraph (d)(1)(i) of this section, an amount deferred 
is considered taken into account as wages for FICA tax purposes as of 
the date it is included in computing FICA wages, but only if any 
additional FICA tax liability that results from inclusion of the amount 
deferred is actually paid. Because the HI tax resulting from the $20,000 
amount deferred was not paid, that amount deferred was not taken into 
account within the meaning of paragraph (d)(1) of this section. Thus, 
pursuant to paragraph (d)(1)(ii) of this section, benefit payments 
attributable to the $20,000 amount deferred will be included as wages in 
accordance with the general timing rule of paragraph (a)(1) of this 
section and will be subject to the HI portion of FICA tax when actually 
or constructively paid (and the OASDI portion of FICA tax to the extent 
Employee A's wages do not exceed the OASDI wage base limitation).
    Example 2: (i) The facts are the same as in Example 1, except that 
Employer M takes all actions necessary to correct its failure to pay the 
additional tax before the applicable period of limitations expires for 
2002 (including payment of any applicable interest and penalties).
    (ii) Because the HI tax resulting from the $20,000 amount deferred 
is paid, that amount deferred is considered taken into account for 2002. 
Thus, in accordance with paragraph (a)(2)(iii) of this section, neither 
the amount deferred nor the income attributable to the amount taken into 
account will be treated as wages for FICA tax purposes at any time 
thereafter.
    Example 3: (i) Employer N establishes a nonqualified deferred 
compensation plan under which all benefits are 100 percent vested. Under 
the plan, an employee's account is credited with a contribution equal to 
10 percent of salary on December 31 of each year. The employee's account 
balance also is increased each December 31 by interest on the total 
amounts credited to the employee's account as of the preceding December 
31. The interest rate specified in the plan results in income credits 
that are not based on the rate of return on a predetermined actual 
investment within the meaning of paragraph (d)(2)(i)(B) of this section, 
and that are greater than the income that would result from application 
of a reasonable rate of interest within the meaning of paragraph 
(d)(2)(i)(C) of this section. Employer N fails to take into account an 
additional amount for the excess of the income credited under the plan 
over a reasonable rate of interest.
    (ii) Pursuant to paragraph (d)(2)(iii)(A) of this section, the 
income credits in excess of the income that would be credited using the 
AFR are considered additional amounts deferred in the year credited.
    Example 4: (i) The facts are the same as in Example 3, except that 
the annual increase is based on Moody's Average Corporate Bond Yield.
    (ii) Because this index reflects a reasonable rate of interest, the 
income credited under the plan is considered income attributable to the 
amount taken into account within the meaning of paragraph (d)(2)(i) of 
this section.
    Example 5: (i) The facts are the same as in Example 3, except that 
the annual increase (or decrease) is based on the rate of total return 
on Employer N's publicly traded common stock.
    (ii) Because the income credited under the plan does not exceed the 
actual rate of return on a predetermined actual investment, the income 
credited is considered income attributable to the amount taken into 
account within the meaning of paragraph (d)(2)(i) of this section.
    Example 6: (i) The facts are the same as in Example 3, except that 
the annual rate of increase or decrease is equal to the greater of the 
rate of total return on a specified aggressive growth mutual fund or the 
rate of return on a specified income-oriented mutual fund. Employer N 
fails to take into account an additional amount for the excess of the

[[Page 110]]

income credited under the plan over a reasonable rate of interest.
    (ii) Because the rate of increase or decrease is based on the 
greater of two rates of returns, the increase is not based on the return 
on a predetermined actual investment within the meaning of paragraph 
(d)(2)(i)(B) of this section. Thus, if the rate of return credited under 
the plan (i.e., the greater of the rates of return of the two mutual 
funds) exceeds the income that would be credited using the AFR, the 
excess is not considered income attributable to the amount taken into 
account within the meaning of paragraph (d)(2)(i) of this section and, 
pursuant to paragraph (d)(2)(iii)(A) of this section, is considered an 
additional amount deferred.
    Example 7: (i) The facts are the same as in Example 6, except that 
the annual increase or decrease with respect to 50 percent of the 
employee's account is equal to the rate of total return on the specified 
aggressive growth mutual fund and the annual increase or decrease with 
respect to the other 50 percent of the employee's account is equal to 
the increase or decrease in the Standard & Poor's 500 Index.
    (ii) Because the increase or decrease attributable to any portion of 
the employee's account is based on the return on a predetermined actual 
investment, the entire increase or decrease is considered income 
attributable to the amount taken into account within the meaning of 
paragraph (d)(2)(i) of this section.
    Example 8: (i) The facts are the same as in Example 3, except that, 
pursuant to the terms of the plan, before the beginning of each year, 
the board of directors of Employer N designates a specific investment on 
which the following year's annual increase or decrease will be based. 
The board is authorized to switch investments more frequently on a 
prospective basis. Before the beginning of 2004, the board designates 
Company A stock as the investment for 2004. Before the beginning of 
2005, the board designates Company B stock as the investment for 2005. 
At the end of 2005, the board determines that the return on Company B 
stock was lower than expected and changes its designation for 2005 to 
the rate of return on Company C stock, which had a higher return during 
2005. Employer N fails to take into account an additional amount for the 
excess of the income credited under the plan over a reasonable rate of 
interest.
    (ii) The annual increase or decrease for 2004 is based on the return 
of a predetermined actual investment. Although the annual increase or 
decrease for 2005 is based on an actual investment, the actual 
investment is not predetermined since it was not designated before the 
beginning of 2005. Pursuant to paragraph (d)(2)(iii)(A) of this section, 
the excess of the income credited under the plan over the income 
determined using AFR is an additional amount deferred for 2005.
    Example 9: (i) Employer O establishes a nonqualified deferred 
compensation plan for Employee B. Under the plan, if Employee B survives 
until age 65, he has a fully vested right to receive a lump sum payment 
at that age, equal to the product of 10 percent per year of service and 
Employee B's highest average annual compensation for any 3-year period, 
but no benefits are payable in the event Employee B dies prior to age 
65. As permitted under paragraph (e)(5) of this section, any amount 
deferred under the plan for the calendar year is taken into account as 
wages as of the last day of the year. As of December 31, 2002, Employee 
B has 25 years of service and Employee B's high 3-year average 
compensation is $100,000 (the average for the years 2000 through 2002). 
As of December 31, 2002, Employee B has a legally binding right to 
receive a payment at age 65 of $250,000 (10 percent x 25 years x 
$100,000). As of December 31, 2003, Employee B is age 63, has 26 years 
of service, and has high 3-year average compensation of $104,000. As of 
December 31, 2003, Employee B has a legally binding right to receive a 
payment at age 65 of $270,400 (10 percent x 26 years x $104,000). Thus, 
during 2003, Employee B has earned a legally binding right to an 
additional payment at age 65 of $20,400 ($270,400-$250,000). The 
assumptions that Employer O uses to determine the amount deferred for 
2003 are a 7 percent interest rate and the GAM 83 (male) mortality 
table, which, solely for purposes of this example, are assumed to be 
reasonable actuarial assumptions. The amount deferred for 2003 is the 
present value, as of December 31, 2003, of the $20,400 payment, which is 
$17,353. Employer O takes this amount into account by including it in 
Employee B's FICA wages for 2003 and paying the additional FICA tax.
    (ii) Under paragraph (d)(2)(ii) of this section, the income 
attributable to the amount that was taken into account is the increase 
in the present value of the future payment due solely to the passage of 
time, because the amount deferred was determined using reasonable 
actuarial assumptions and methods. As of the payment date at age 65, the 
present value of the future payment earned during 2003 is $20,400. The 
entire difference between the $20,400 and the $17,353 amount deferred 
($3,047) is the increase in the present value of the future payment due 
solely to the passage of time, and thus constitutes income attributable 
to the amount taken into account. Because the amount deferred was taken 
into account, the entire payment of $20,400 represents either an amount 
deferred that was previously taken into account ($17,353) or income 
attributable to that amount ($3,047). Accordingly, pursuant to the 
nonduplication rule of paragraph

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(a)(2)(iii) of this section, none of the payment is included in wages.
    Example 10: (i) The facts are the same as in Example 9, except that, 
instead of providing a lump sum equal to 10 percent of average 
compensation per year of service, the plan provides Employee B with a 
fully vested right to receive a life annuity, payable monthly beginning 
at age 65, equal to the product of 2 percent for each year of service 
and Employee B's highest average annual compensation for any 3-year 
period. The plan also provides that, if Employee B dies before age 65, 
the present value of the future payments will be paid to his or her 
beneficiary. As of December 31, 2002, Employee B has a legally binding 
right to receive lifetime payments of $50,000 (2 percent x 25 years x 
$100,000) per year. As of December 31, 2003, Employee B has a legally 
binding right to receive lifetime payments of $54,080 (2 percent x 26 
years x $104,000) per year. Thus, during 2003, Employee B has earned a 
legally binding right to additional lifetime payments of $4,080 
($54,080-$50,000) per year beginning at age 65. The amount deferred for 
2003 is $32,935, which is the present value, as of December 31, 2003, of 
these additional payments, determined using the same actuarial 
assumptions and methods used in Example 9, except that there is no 
discount for the probability of death prior to age 65. Employer O takes 
this amount into account by including it in Employee B's FICA wages for 
2003 and paying the additional FICA tax.
    (ii) Under paragraph (d)(2)(ii) of this section, the income 
attributable to the amount that was taken into account is the increase 
in the present value of the future payments due solely to the passage of 
time, because the amount deferred was determined using reasonable 
actuarial assumptions and methods. Because the amount deferred was taken 
into account, each annual payment of $4,080 attributable to the amount 
deferred in 2003 represents either an amount deferred that was 
previously taken into account or income attributable to that amount. 
Accordingly, pursuant to the nonduplication rule of paragraph 
(a)(2)(iii) of this section, none of the payments are included in wages.
    Example 11: (i) The facts are the same as in Example 10, except that 
no amount is taken into account for 2003 because Employer O fails to pay 
the additional FICA tax.
    (ii) Under paragraph (d)(1)(ii)(A) of this section, if an amount 
deferred for a period is not taken into account, then the benefit 
payments attributable to that amount deferred are included as wages in 
accordance with the general timing rule of paragraph (a)(1) of this 
section. In this case, assuming that the amounts deferred in other 
periods were taken into account, $4,080 of each year's total benefit 
payments will be included in wages when actually or constructively paid, 
in accordance with the general timing rule.
    Example 12: (i) Employer P establishes an account balance plan on 
January 1, 2002, under which all benefits are 100 percent vested. The 
plan provides that amounts deferred will be credited annually with 
interest beginning in 2002 at a rate that is greater than a reasonable 
rate of interest. Employer P treats the excess over the applicable 
interest rate in section 417(e) as an additional amount deferred for 
2002 and in each year thereafter, and takes the additional amount into 
account by including it in FICA wages and paying the additional FICA tax 
for the year.
    (ii) Under the nonduplication rule in paragraph (a)(2)(iii) of this 
section, the benefits paid under the plan will be excluded from wages 
for FICA tax purposes.
    Example 13: (i) The facts are the same as in Example 9, except that, 
in determining the amount deferred, Employer O uses a 15 percent 
interest rate, which, solely for purposes of this example, is assumed 
not to be a reasonable interest rate. Employer O determines that the 
amount deferred for 2003 is the present value, as of December 31, 2003, 
of the $20,400 payment, which is $15,023. Employer O includes $15,023 in 
wages and pays any resulting FICA tax. Solely for purposes of this 
example, it is assumed that the AFR as of January 1, 2003, is 7 percent.
    (ii) Under paragraph (d)(2)(iii)(B) of this section, if any 
actuarial assumption or method is not reasonable, then the income 
attributable to the amount taken into account is limited to the income 
that would result from application of the AFR and, if applicable, the 
417(e) mortality table. Because the 15 percent interest rate is 
unreasonable, the income attributable to the amount taken into account 
is limited to the income that would result from using a 7 percent 
interest rate and, in this case, an increase for survivorship using the 
417(e) mortality table. Under these assumptions, the income attributable 
to the $15,023 amount taken into account for 2003 is $1,199 in 2004 and 
$1,313 in 2005. Under paragraph (d)(1)(ii) of this section, the sum of 
these amounts ($17,535) is excluded from Employee B's wages pursuant to 
the nonduplication rule of paragraph (a)(2)(iii) of this section, and 
the balance of the payment ($2,865) is subject to the general timing 
rule of paragraph (a)(1) of this section and, thus, is included in 
Employee B's wages when actually or constructively paid.
    (iii) The same result can be reached by multiplying the attributable 
benefit payments by a fraction, the numerator of which is the amount 
taken into account, and the denominator of which is the amount deferred 
that would have been taken into account at the same time had the amount 
deferred been calculated using the AFR and the 417(e) mortality table. 
These assumptions are determined as of January 1 of the calendar year in 
which the amount was taken into account.

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In this Example 13, the fraction would be $15,023 divided by $17,478, 
which equals .85954. The $20,400 payment is multiplied by this fraction 
to determine the amount of the payment that is excluded from wages 
pursuant to the nonduplication rule of paragraph (a)(2)(iii) of this 
section. Thus, $17,535 ($20,400 x .85954) is excluded from wages and the 
balance ($2,865) is subject to FICA tax when actually or constructively 
paid.
    Example 14: (i) The facts are the same as Example 10, except that 
Employer O calculates the amount deferred for 2003 as $18,252 and takes 
that amount into account by including that amount in wages and paying 
any resulting FICA tax. The assumptions that Employer O uses to 
determine the amount deferred are a 15 percent interest rate and, for 
the period after commencement of benefit payments, the GAM 83 (male) 
mortality table. The 15 percent interest rate is assumed, solely for 
purposes of this example, not to be a reasonable actuarial assumption. 
Solely for purposes of this example, it is assumed that the AFR as of 
January 1, 2003, is 7 percent.
    (ii) Under paragraph (d)(2)(iii)(B) of this section, if any 
actuarial assumption or method used is not reasonable, then the income 
attributable to the amount taken into account is limited to the income 
that would result from application of the AFR and, if applicable, the 
417(e) mortality table. Because the 15 percent interest rate is not 
reasonable, the income attributable to the amount taken into account is 
equal to the income that would result from using a 7 percent interest 
rate and the amount taken into account is treated as if it represented a 
portion of the amount deferred for purposes of applying paragraph 
(d)(1)(ii)(B) of this section. Under these assumptions, the income 
attributable to the $18,252 amount taken into account for 2003 is $1,278 
in 2004 and $1,367 in 2005. Under paragraph (d)(1)(ii)(B) of this 
section, the portion of each benefit payment attributable to the amount 
deferred that is excluded from wages pursuant to the nonduplication rule 
of paragraph (a)(2)(iii) of this section is determined at benefit 
commencement by multiplying each benefit payment by a fraction, the 
numerator of which is the amount taken into account (plus income 
attributable to that amount) and the denominator of which is the present 
value of future benefit payments attributable to the amount deferred. 
Because the interest rate assumption is not reasonable, not only is the 
income limited to the application of the AFR, but the present value in 
the denominator must be determined using the AFR and (if applicable) the 
417(e) mortality table. In this case, the present value is $40,283 and 
thus the fraction is $20,897 divided by $40,283, or .51875. Thus, $2,116 
(.51875 x $4,080) of each year's benefit payment is excluded from wages 
and the balance of each year's payment ($1,964) is subject to the 
general timing rule of paragraph (a)(1) of this section and is included 
in wages when actually or constructively paid.
    (iii) The same result can be reached by multiplying the attributable 
benefit payments by a fraction the numerator of which is the amount 
taken into account, and the denominator of which is the amount deferred 
that would have been taken into account at the same time had the amount 
deferred been calculated using the AFR and the 417(e) mortality table. 
These assumptions are determined as of January 1 of the calendar year in 
which the amount was taken into account. In this Example 14, the 
fraction would be $18,252 divided by $35,185, which equals .51875. The 
$4,080 annual payment is multiplied by this fraction to determine the 
amount of the payment that is excluded from wages pursuant to the 
nonduplication rule of paragraph (a)(2)(iii) of this section. Thus, 
$2,116 ($4,080 x .51875) is excluded from wages and the balance ($1,964) 
is subject to FICA tax when actually or constructively paid.

    (e) Time amounts deferred are required to be taken into account--(1) 
In general. Except as otherwise provided in this paragraph (e), an 
amount deferred under a nonqualified deferred compensation plan must be 
taken into account as wages for FICA tax purposes as of the later of the 
date on which services creating the right to the amount deferred are 
performed (within the meaning of paragraph (e)(2) of this section) or 
the date on which the right to the amount deferred is no longer subject 
to a substantial risk of forfeiture (within the meaning of paragraph 
(e)(3) of this section). However, in no event may any amount deferred 
under a nonqualified deferred compensation plan be taken into account as 
wages for FICA tax purposes prior to the establishment of the plan 
providing for the amount deferred (or, if later, the plan amendment 
providing for the amount deferred). Therefore, if an amount is deferred 
pursuant to the terms of a legally binding agreement that is not put in 
writing until after the amount would otherwise be taken into account 
under this paragraph (e)(1), the amount deferred (including any 
attributable income) must be taken into account as wages for FICA tax 
purposes as of the date the material terms of the plan are put in 
writing.
    (2) Services creating the right to an amount deferred. For purposes 
of this

[[Page 113]]

section, services creating the right to an amount deferred under a 
nonqualified deferred compensation plan are considered to be performed 
as of the date on which, under the terms of the plan and all the facts 
and circumstances, the employee has performed all of the services 
necessary to obtain a legally binding right (as described in paragraph 
(b)(3)(i) of this section) to the amount deferred.
    (3) Substantial risk of forfeiture. For purposes of this section, 
the determination of whether a substantial risk of forfeiture exists 
must be made in accordance with the principles of section 83 and the 
regulations thereunder.
    (4) Amount deferred that is not reasonably ascertainable under a 
nonaccount balance plan--(i) In general--(A) Date required to be taken 
into account. Notwithstanding any other provision of this paragraph (e), 
an amount deferred under a nonaccount balance plan is not required to be 
taken into account as wages under the special timing rule of paragraph 
(a)(2) of this section until the first date on which all of the amount 
deferred is reasonably ascertainable (the resolution date). In this 
case, the amount required to be taken into account as of the resolution 
date is determined in accordance with paragraph (c)(2) of this section.
    (B) Definition of reasonably ascertainable. For purposes of this 
paragraph (e)(4), an amount deferred is considered reasonably 
ascertainable on the first date on which the amount, form, and 
commencement date of the benefit payments attributable to the amount 
deferred are known, and the only actuarial or other assumptions 
regarding future events or circumstances needed to determine the amount 
deferred are interest and mortality. For this purpose, the form and 
commencement date of the benefit payments attributable to the amount 
deferred are treated as known if the requirements of paragraph 
(c)(2)(iii)(B) of this section (under which payments are treated as 
being made in the normal form of benefit commencing at normal 
commencement date) are satisfied. In addition, an amount deferred does 
not fail to be reasonably ascertainable on a date merely because the 
exact amount of the benefit payable cannot readily be calculated on that 
date or merely because the exact amount of the benefit payable depends 
on future changes in the cost of living. If the exact amount of the 
benefit payable depends on future changes in the cost of living, the 
amount deferred must be determined using a reasonable assumption as to 
the future changes in the cost of living. For example, the amount of a 
benefit is treated as known even if the exact amount of the benefit 
payable cannot be determined until future changes in the cost of living 
are reflected in the section 415 limitation on benefits payable under a 
qualified retirement plan.
    (ii) Earlier inclusion permitted--(A) In general. With respect to an 
amount deferred that is not reasonably ascertainable, an employer may 
choose to take an amount into account at any date or dates (an early 
inclusion date or dates) before the resolution date (but not before the 
date described in paragraph (e)(1) of this section with respect to the 
amount deferred). Thus, for example, with respect to an amount deferred 
under a nonaccount balance plan that is not reasonably ascertainable 
because the plan permits employees to receive their benefits in more 
than one form or commencing at more than one date (and the requirements 
of paragraph (c)(2)(iii) of this section are not satisfied), an employer 
may choose to take an amount into account on the date otherwise 
described in paragraph (e)(1) of this section before the form and 
commencement date are selected (based on assumptions as to the form and 
commencement date for the benefit payments) or may choose to wait until 
the form and commencement date of the benefit payments are selected. An 
employer that chooses to take an amount into account at an early 
inclusion date under this paragraph (e)(4)(ii) for an employee under a 
plan is not required until the resolution date to identify the period to 
which the amount taken into account relates.
    (B) True-up at resolution date. If, with respect to an amount 
deferred for a period, an employer chooses to take an amount into 
account as of an early inclusion date in accordance with this

[[Page 114]]

paragraph (e)(4)(ii) and the benefit payments attributable to the amount 
deferred exceed the benefit payments that are actuarially equivalent to 
the amount taken into account at the early inclusion date (payable in 
the same form and using the same commencement date as the benefit 
payments attributable to the amount deferred), then the present value of 
the difference in the benefits, determined in accordance with paragraph 
(c)(2) of this section, must be taken into account as of the resolution 
date.
    (C) Actuarial assumptions. For purposes of determining the benefits 
that are actuarially equivalent to the amount taken into account as of 
an early inclusion date, the amount taken into account is converted to 
an actuarially equivalent benefit payable in the same form and 
commencing on the same date as the actual benefit payments attributable 
to the amount deferred using an interest rate, and, if applicable, 
mortality and cost-of-living assumptions, that were reasonable as of the 
early inclusion date. Thus, with respect to an amount deferred for a 
period, the amount required to be taken into account as of the 
resolution date is the present value (determined using an interest rate, 
and, if applicable, mortality and cost-of-living assumptions, that are 
reasonable as of the resolution date) of the excess, if any, of the 
future benefit payments attributable to the amount deferred over the 
future benefits payable in the same form and commencing on the same date 
that are actuarially equivalent to the portion of the amount deferred 
that was taken into account as of the early inclusion date (where 
actuarial equivalence is determined using an interest rate, and, if 
applicable, mortality and cost-of-living assumptions, that were 
reasonable as of the early inclusion date).
    (D) Allocation rules for amounts deferred over more than one 
period--(1) General rule. The rules of this paragraph (e)(4)(ii)(D) 
apply for purposes of determining whether an amount has been included 
under this paragraph (e)(4) before the earliest date permitted under 
paragraph (e)(1) of this section.
    (2) Future compensation increases. Increases in an employee's 
compensation after the early inclusion date must be disregarded.
    (3) Early retirement subsidies. An early retirement subsidy that the 
employee ultimately receives may be taken into account at an early 
inclusion date if the employee would have a legally binding right to the 
subsidy at the early inclusion date but for any condition that the 
employee continue to render services. Accordingly, an employer may take 
into account at an early inclusion date any early retirement subsidy 
that the employee ultimately receives to the extent that elimination or 
reduction of that subsidy would violate section 411(d)(6)(B)(i) if that 
section applied to the plan.
    (4) Allocation with respect to offsets. In any case in which a 
series of amounts are deferred over more than one period, the amounts 
deferred are not reasonably ascertainable until a single resolution date 
and the benefit payments attributable to the entire series are 
determined under a formula that provides a gross benefit that in the 
aggregate is subject to an objective reduction for future events under 
the terms of the plan, such as an offset for the aggregate benefits 
payable under a plan qualified under section 401(a), the attribution of 
benefit payments to the amount deferred in each period is determined 
under the rules of this paragraph (e)(4)(ii)(D)(4). In a case described 
in the preceding sentence, the benefit payments made as a result of the 
series of amounts deferred may be treated as attributable to the amount 
deferred as of the earliest period in which the employee obtained a 
legally binding right to a benefit under the plan equal to the excess, 
if any, of the amount of the gross benefit attributable to that period 
(determined at the resolution date), over the amount of the reduction 
determined as of the end of that period. Thus, for example, if an 
employee obtains a legally binding right in each of several years to 
benefit payments from a nonqualified deferred compensation plan that 
provides for a specified gross benefit for the years to be offset by the 
benefits payable under a qualified plan, the amount deferred in the 
first year may be treated as equal to the gross benefit

[[Page 115]]

for the year, reduced by the offset applicable at the end of the year 
(even if the offset increases after the end of the year).
    (E) Treatment of benefits paid before the resolution date. If a 
benefit payment is attributable to an amount deferred that is not 
reasonably ascertainable at the time of payment (or is paid before the 
date selected under paragraph (e)(5) of this section), and the employer 
has previously taken an amount into account with respect to the amount 
deferred under the early inclusion rule of this paragraph (e)(4), then, 
in lieu of the pro rata rule provided in paragraph (d)(1)(ii)(B) of this 
section, a first-in-first-out rule applies in determining the portion of 
the benefit payment attributable to the amount taken into account. Under 
this first-in-first-out rule, the benefit payment is compared to the sum 
of the amount taken into account at the early inclusion date and the 
income attributable to that amount. If the benefit payment equals or 
exceeds the amount taken into account at the early inclusion date and 
the income attributable to that amount as of the date of the benefit 
payment, the benefit payment is included as wages under the general 
timing rule of paragraph (a)(1) of this section to the extent of any 
excess, and the amount taken into account at the early inclusion date 
(and income attributable to that amount) is disregarded thereafter with 
respect to the amount deferred. If the amount taken into account at the 
early inclusion date and the income attributable to that amount as of 
the date of the benefit payment exceeds the benefit payment, the benefit 
payment is not included as wages under the general timing rule of 
paragraph (a)(1) of this section and, in determining the amount that 
must be taken into account thereafter with respect to the amount 
deferred, the amount taken into account at the early inclusion date, 
plus attributable income as of the date of the benefit payment, is 
reduced by the amount of the benefit payment, and only the excess plus 
future income attributable to the excess (credited using assumptions 
that were reasonable on the early inclusion date) is taken into 
consideration. If amounts have been taken into account at more than one 
early inclusion date, this paragraph (e)(4)(ii)(E) applies on a first-
in-first-out basis, beginning with the amount taken into account at the 
earliest early inclusion date (including income attributable thereto).
    (5) Rule of administrative convenience. For purposes of this 
section, an employer may treat an amount deferred as required to be 
taken into account under this paragraph (e) on any date that is later 
than, but within the same calendar year as, the actual date on which the 
amount deferred is otherwise required to be taken into account under 
this paragraph (e). For example, if services creating the right to an 
amount deferred are considered performed under paragraph (e)(2) of this 
section periodically throughout a year, the employer may nevertheless 
treat the services creating the right to that amount deferred as 
performed on December 31 of that year. If an employer uses the rule of 
administrative convenience described in this paragraph (e)(5), any 
determination of whether the income attributable to an amount deferred 
under an account balance plan is based on a reasonable rate of interest 
or whether the actuarial assumptions used to determine the present value 
of an amount deferred in a nonaccount balance plan are reasonable will 
be made as of the date the employer selects to take the amount into 
account.
    (6) Portions of an amount deferred required to be taken into account 
on more than one date. If different portions of an amount deferred are 
required to be taken into account under paragraph (e)(1) of this section 
on more than one date (e.g., on account of a graded vesting schedule), 
then each such portion is considered a separate amount deferred for 
purposes of this section.
    (7) Examples. This paragraph (e) is illustrated by the following 
examples:

    Example 1: (i) Employer M establishes a nonqualified deferred 
compensation plan for Employee A on November 1, 2005. Under the plan, 
which is an account balance plan, Employee A obtains a legally binding 
right on the last day of each calendar year (if Employee A is employed 
on that date) to be credited with a principal amount equal to 5

[[Page 116]]

percent of compensation for the year. In addition, a reasonable rate of 
interest is credited quarterly. Employee A's account balance is 
nonforfeitable and is payable upon Employee A's termination of 
employment. For 2006, the principal amount credited to Employee A under 
the plan (which, in this case, is also the amount deferred within the 
meaning of paragraph (c) of this section) is $25,000.
    (ii) Under paragraph (e)(2) of this section, the services creating 
the right to the $25,000 amount deferred are considered performed as of 
December 31, 2006, the date on which Employee A has performed all of the 
services necessary to obtain a legally binding right to the amount 
deferred. Thus, in accordance with paragraph (e)(1) of this section, the 
$25,000 amount deferred must be taken into account as of December 31, 
2006, which is the later of the date on which services creating the 
right to the amount deferred are performed or the date on which the 
right to the amount deferred is no longer subject to a substantial risk 
of forfeiture.
    Example 2: (i) The facts are the same as in Example 1, except that 
the principal amount credited under the plan on the last day of each 
year (and attributable interest) is forfeited if the employee terminates 
employment within five years of that date.
    (ii) Under paragraph (e)(3) of this section, the determination of 
whether the right to an amount deferred is subject to a substantial risk 
of forfeiture is made in accordance with the principles of section 83. 
Under Sec.  1.83-3(c) of this chapter, a substantial risk of forfeiture 
generally exists where rights in property that are transferred are 
conditioned, directly or indirectly, upon the future performance of 
substantial services. Because Employee A's right to receive the $25,000 
principal amount (and attributable interest) is conditioned on the 
performance of services for five years, a substantial risk of forfeiture 
exists with respect to that amount deferred until December 31, 2011.
    (iii) December 31, 2011, is the later of the date on which services 
creating the right to the amount deferred are performed or the date on 
which the right to the amount deferred is no longer subject to a 
substantial risk of forfeiture. Thus, in accordance with paragraph 
(e)(1) of this section, the amount deferred (which, pursuant to 
paragraph (c)(1) of this section, is equal to the $25,000 principal 
amount credited to Employee A's account on December 31, 2006, plus the 
interest credited with respect to that principal amount through December 
31, 2011) must be taken into account as of December 31, 2011.
    Example 3: (i) The facts are the same as in Example 2, except that 
the principal amount credited under the plan on the last day of each 
year (and attributable interest) becomes nonforfeitable according to a 
graded vesting schedule under which 20 percent is vested as of December 
31, 2007; 40 percent is vested as of December 31, 2008; 60 percent is 
vested as of December 31, 2009; 80 percent is vested as of December 31, 
2010; and 100 percent is vested as of December 31, 2011. Because these 
dates are later than the date on which the services creating the right 
to the amount deferred are considered performed (December 31, 2006), the 
amount deferred is required to be taken into account as of these dates 
that fall in five different years.
    (ii) Paragraph (e)(6) of this section provides that, if different 
portions of an amount deferred are required to be taken into account 
under paragraph (e)(1) of this section on more than one date, then each 
such portion is considered a separate amount deferred for purposes of 
this section. Thus, $5,000 of the principal amount, plus interest 
credited through December 31, 2007, is taken into account as an amount 
deferred on December 31, 2007; $5,000 of the principal amount, plus 
interest credited through December 31, 2008, is taken into account as a 
separate amount deferred on December 31, 2008; etc.
    Example 4: (i) On November 21, 2001, Employer N establishes a 
nonqualified deferred compensation plan under which all benefits are 100 
percent vested. The plan provides for Employee B (who is age 45) to 
receive a lump sum benefit of $500,000 at age 65. This benefit will be 
forfeited if Employee B dies before age 65.
    (ii) Because the amount, form, and commencement date of the benefit 
are known, and the only assumptions needed to determine the amount 
deferred are interest and mortality, the amount deferred is reasonably 
ascertainable within the meaning of paragraph (e)(4)(i) of this section 
on November 21, 2001.
    Example 5: (i) The facts are the same as in Example 4, except that 
plan provides that the lump sum will be paid at the later of age 65 or 
termination of employment and provides that the $500,000 payable to 
Employee B is increased by 5 percent per year for each year that payment 
is deferred beyond age 65.
    (ii) Because the commencement date of the benefit payment is 
contingent on when Employee B terminates employment, the commencement 
date of the benefit payment is not known. Thus, the amount deferred is 
not reasonably ascertainable within the meaning of paragraph (e)(4)(i) 
of this section, unless the plan satisfies the requirements of paragraph 
(c)(2)(iii)(B) of this section. Because the fixed 5 percent factor may 
not be reasonable at the time benefit payments commence (i.e., 5 percent 
might be higher or lower than a reasonable interest rate when payments 
commence), the plan fails to satisfy paragraph (c)(2)(iii)(B) of this 
section and accordingly the amount deferred is not reasonably 
ascertainable until termination of employment.

[[Page 117]]

    Example 6: (i) The facts are the same as in Example 4, except that 
the $500,000 is payable to Employee B at the later of age 55 or 
termination of employment.
    (ii) Because the commencement date of the benefit payment is 
contingent on when Employee B terminates employment, the commencement 
date of the benefit payment is not known. Thus, the amount deferred is 
not reasonably ascertainable until termination of employment.
    Example 7: (i) The facts are the same as in Example 4, except that 
Employee B may elect to take the benefit in the form of a life annuity 
of $50,000 per year (commencing at age 65).
    (ii) Because the plan permits employees to elect to receive benefits 
in more than one form and the alternative forms may not have the same 
value when Employee B makes his election, the plan fails to satisfy the 
requirements of paragraph (c)(2)(iii)(B) of this section until a form of 
benefit is selected. Thus, the amount deferred is not reasonably 
ascertainable until then.
    Example 8: (i) Employer O establishes a nonqualified deferred 
compensation plan. The plan is a supplemental executive retirement plan 
(SERP) that provides Employee C with a fully vested right to receive a 
pension, in the form of a life annuity payable monthly, beginning at age 
65, equal to the excess of 3 percent of Employee C's final 3-year 
average pay for each year of participation up to 15 years, over the 
amount payable to Employee C from Employer O's qualified pension plan. 
The amount payable under the qualified pension plan is a life annuity 
payable monthly, beginning at age 65, equal to 1.5 percent of final 3-
year average pay for each year of employment, excluding pay in excess of 
the section 401(a)(17) compensation limit. No benefits are payable under 
the SERP if Employee C dies before age 65. Employee C becomes a 
participant in the SERP on January 1, 2001, at age 44. The amount 
deferred under the SERP for any year is not reasonably ascertainable 
prior to termination of employment because the amount of the benefit is 
not known and the determination of the amount deferred requires 
assumptions other than interest and mortality (e.g., an assumption as to 
Employee C's average pay for the final three years of employment). As 
permitted by paragraph (e)(4)(i) of this section, Employer O chooses not 
to take any amount into account for any year before the resolution date. 
Employee C terminates employment on December 31, 2018 when he is age 62.
    (ii) As of the date Employee C terminates employment, the amount of 
the benefit is known and the only actuarial or other assumptions needed 
to determine the amount deferred are an interest rate assumption and a 
mortality assumption. At that time, the amount deferred in each past 
year becomes reasonably ascertainable, and Employer O is able to 
determine that during 2001 Employee C earned a legally binding right to 
a life annuity of $4,000 per year beginning in 2021 when Employee C is 
age 65. Employer O determines the present value of Employee C's future 
benefit payments under the SERP as of this resolution date (December 31, 
2018), using a 7 percent interest rate and the UP-84 mortality table, 
which, solely for purposes of this example, are assumed to be reasonable 
actuarial assumptions for December 31, 2018. The special timing rule 
will be satisfied if the resulting present value, $26,950, is taken into 
account on that date in accordance with paragraph (d)(1) of this 
section.
    Example 9: (i) The facts are the same as in Example 8, except that 
the plan provides that Employee C may choose to receive early retirement 
benefits on an unreduced basis at any time after age 60 if Employee C 
has completed 15 years of service by that date.
    (ii) As of the date Employee C terminates employment, the amount of 
the benefit is known and the only actuarial or other assumptions needed 
to determine the amount deferred are an interest rate assumption and a 
mortality assumption. At that time, the amount deferred in each past 
year becomes reasonably ascertainable, and Employer O is able to 
determine that during 2001 Employee C earned a legally binding right to 
a life annuity of $4,000 per year beginning on December 31, 2018 when 
Employee C is age 62. Employer O determines the present value of 
Employee C's future benefit payments under the SERP as of this 
resolution date (December 31, 2018), using a 7 percent interest rate and 
the UP-84 mortality table, which, solely for purposes of this example, 
are assumed to be reasonable actuarial assumptions for December 31, 
2018. The special timing rule will be satisfied if the resulting present 
value, $37,576, is taken into account on that date in accordance with 
paragraph (d)(1) of this section.
    Example 10: (i) The facts are the same as in Example 9, except that, 
as permitted under paragraph (e)(4)(ii) of this section, Employer O 
chooses to take an amount into account before the amount deferred for 
2001 is reasonably ascertainable. The amount that Employer O takes into 
account on December 31, 2001, is $13,043 (the present value of a life 
annuity of $4,000 per year, payable at age 62, using a 6 percent 
interest rate and the UP-84 mortality table). Employer O does not take 
any other amount into account before the resolution date.
    (ii) In accordance with paragraph (e)(4)(ii)(B) of this section, 
Employer O must determine any additional amount required to be taken 
into account in 2018. If the $4,000 payable in the form of a life 
annuity beginning at age 62 exceeds the life annuity which is 
actuarially equivalent to the $13,043 previously taken into account, the 
present

[[Page 118]]

value of the excess must be taken into account. In this Example 10, the 
$13,043 previously taken into account is actuarially equivalent to a 
$4,000 annuity commencing at age 62 using a 6 percent interest rate and 
the UP-84 mortality table (which, solely for purposes of this example, 
are assumed to be reasonable actuarial assumptions for December 31, 
2001). Accordingly, no additional amount need be taken into account in 
2018, regardless of any changes in market rates of interest between 2001 
and 2018.
    Example 11: (i) The facts are the same as in Example 9, except that, 
as permitted under paragraph (e)(4)(ii) of this section, Employer O 
chooses to take an amount into account before the amount deferred for 
2001 is reasonably ascertainable. The amount that Employer O takes into 
account on December 31, 2001, is $9,569 (the present value of a life 
annuity of $4,000 per year, payable at age 65, using a 6 percent 
interest rate and the UP-84 mortality table). Employer O does not take 
any other amount into account before the resolution date.
    (ii) In accordance with paragraph (e)(4)(ii)(B) of this section, 
Employer O must determine any additional amount required to be taken 
into account in 2018. If the $4,000 payable in the form of a life 
annuity beginning in 2018 at age 62 exceeds the life annuity which is 
actuarially equivalent to the $9,569 previously taken into account, the 
present value of the excess must be taken into account. In this case, 
the $9,569 previously taken into account is actuarially equivalent to a 
$2,935 annuity commencing at age 62 using a 6 percent interest rate and 
the UP-84 mortality table (which, solely for purposes of this example, 
are assumed to be reasonable actuarial assumptions for December 31, 
2001). Accordingly, an additional amount needs to be taken into account 
in 2018 equal to the present value of the excess of the $4,000 annual 
stream of benefit payments to which Employee C obtained a legally 
binding right during 2001 over the $2,935 annual stream of benefit 
payments which is actuarially equivalent to the amount previously taken 
into account. This present value (i.e., the present value of a life 
annuity equal to $4,000 minus $2,935, or $1,065 annually) is determined 
by Employer O to be $10,005 as of the resolution date using a 7 percent 
interest rate and the UP-84 mortality table (which, solely for purposes 
of this example, are assumed to be reasonable actuarial assumptions for 
December 31, 2018).
    Example 12: (i) The facts are the same as in Example 9, except that 
the amount that Employer O takes into account on December 31, 2001, is 
$15,834 (the present value of $4,000, payable at age 60, using a 6 
percent interest rate and the UP-84 mortality table). Employer O does 
not take any other amount into account before the resolution date.
    (ii) In accordance with paragraph (e)(4)(ii)(B) of this section, 
Employer O must determine any additional amount required to be taken 
into account in 2018. If the $4,000 payable in the form of a life 
annuity beginning at age 62 exceeds the life annuity which is 
actuarially equivalent to the $15,834 previously taken into account, the 
present value of the excess must be taken into account. In this case, 
the $15,834 previously taken into account is actuarially equivalent to a 
$4,856 annuity commencing at age 62 using a 6 percent interest rate and 
the UP-84 mortality table (which, solely for purposes of this example, 
are assumed to be reasonable actuarial assumptions for December 31, 
2001). Because the life annuity of $4,856 per year (which is equivalent 
to the amount taken into account at the early inclusion date) exceeds 
the $4,000 annuity attributable to the amount deferred in 2001, no 
additional amount is required to be taken into account for that amount 
deferred as of the resolution date. Employer O may claim a refund or 
credit for the overpayment of FICA tax with respect to amounts taken 
into account prior to the resolution date to the extent permitted by 
sections 6402, 6413, and 6511.
    Example 13: (i) The facts are the same as in Example 12, except that 
Employee C became a participant in the SERP on January 1, 2000. In 
addition, Employer O determines in 2018 that during 2000 Employee C 
earned a legally binding right to a life annuity of $1,500 per year 
beginning on December 31, 2018.
    (ii) Employer O may allocate the $15,834 previously taken into 
account among any amounts deferred on or before the early inclusion 
date. At the resolution date, Employer O will have to take into account 
the present value of an annuity equal to the excess of the life annuity 
attributable to the amounts deferred for 2000 and 2001 over a life 
annuity of $4,856 per year.
    Example 14: (i) In 2003, Employer P establishes a nonqualified 
deferred compensation plan for Employee D. The plan provides that, in 
consideration of Employee D's services to be performed on Project X in 
2004, Employee D will have a nonforfeitable right to receive 1 percent 
per year of Employer P's net profits associated with Project X for each 
of the immediately succeeding three years. No services beyond 2004 are 
required. The 1 percent of net profits payable each year will be paid on 
March 31 of the immediately succeeding year. One percent of net profits 
associated with Project X is $750,000 in 2005, $400,000 in 2006, and 
$90,000 in 2007. Employee D receives $750,000 on March 31, 2006, 
$400,000 on March 31, 2007, and $90,000 on March 31, 2008.
    (ii) Because the services creating the right to all of the amount 
deferred are performed in 2004, the benefit payments based on the

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2005, 2006, and 2007 net profits are all attributable to the amount 
deferred in 2004. However, because the present value of Employee D's 
future benefit is contingent on future profits, the determination of the 
amount deferred requires the use of assumptions other than interest, 
mortality, and cost of living. Thus, all of the amount deferred in 2004 
will not be reasonably ascertainable within the meaning of paragraph 
(e)(4)(i) of this section until December 31, 2007 (which is the 
resolution date). Employer P does not choose to take any amount into 
account prior to the amount deferred becoming reasonably ascertainable.
    (iii) However, paragraph (d)(1)(ii)(A) of this section provides that 
a benefit payment attributable to an amount deferred under a 
nonqualified deferred compensation plan must be included as wages when 
actually or constructively paid if the amount deferred has not been 
taken into account as wages under the special timing rule of paragraph 
(a)(2) of this section. Thus, the benefit payments in 2006 and 2007 must 
be included as wages when paid.
    (iv) As of December 31, 2007, all of the amount deferred under the 
plan becomes reasonably ascertainable because the amount of the benefit 
payable attributable to the amount deferred is treated as known under 
paragraph (e)(4)(i)(B) of this section, and the only assumption needed 
to determine the present value of the future benefits is interest. 
However, since Employer P was required to treat the payments in 2006 and 
2007 as wages when paid under the general timing rule of paragraph 
(a)(1) of this section, only the present value of the payment to be made 
in 2008 is required to be taken into account as of the resolution date 
(December 31, 2007) under the special timing rule of paragraph (a)(2) of 
this section. Using an interest rate of 10 percent per year (which, 
solely for purposes of this Example 14, is assumed to be reasonable), 
Employer P determines that on December 31, 2007, the present value of 
the future benefits is $87,881, and Employer P includes that additional 
amount in wages for 2007. (Note that Employer P can choose to use the 
lag method of withholding described in paragraph (f)(3) of this section, 
which allows the resolution date amount to be taken into account no 
later than March 31, 2008, provided that the amount deferred is 
increased by interest using the AFR for January of 2008.)
    Example 15: (i) The facts are the same as in Example 14, except that 
Employer P chooses the early inclusion option permitted by paragraph 
(e)(4)(ii) of this section to take $1,000,000 into account on December 
31, 2004, before the amount deferred for 2004 is reasonably 
ascertainable.
    (ii) Pursuant to paragraph (e)(4)(ii)(E) of this section, in 
applying the nonduplication rule of paragraph (a)(2)(iii) of this 
section, a first-in-first-out rule applies in determining the benefit 
payments that are attributable to amounts previously taken into account. 
Using the 10 percent interest rate, Employer P determines that the 
$750,000 benefit payment on March 31, 2006, and the March 31, 2007, 
benefit payment of $400,000 are less than the $1,000,000 taken into 
account at the early inclusion date, plus attributable income, and, 
therefore, are not included in wages when paid.
    (iii) Under paragraph (e)(4)(ii)(E) of this section, if an employer 
chooses to take an amount into account before the resolution date, the 
amount taken into account (plus income attributable to that amount) is 
disregarded to the extent the amount is attributed to benefit payments 
made before the resolution date. Thus, Employer P must reduce the 
$1,000,000 taken into account in 2004 (plus income attributable to that 
amount) based upon the two benefit payments ($750,000 and $400,000) that 
were excluded from wages. Using an interest rate of 10 percent, Employer 
P determines that the amount taken into account in 2004 plus interest to 
the resolution date and reduced based upon the two benefit payments is 
$15,228 and the additional amount that is required to be taken into 
account as of December 31, 2007, is $72,653 ($87,881-$15,228).
    Example 16: (i) Employee E obtains a fully vested, legally binding 
right during 2002, 2003, and 2004 to payments from a nonqualified 
deferred compensation plan of Employer Q under which the benefits are 
based on a formula that includes an actuarial offset by the account 
balance under a qualified defined contribution plan of Employer Q as of 
December 31, 2004. The payments from the nonqualified deferred 
compensation plan are to commence on December 31, 2005. At the 
resolution date for the amounts earned during 2002, 2003, and 2004, 
which is December 31, 2004, Employee E has a legally binding right to a 
net annual benefit of $100,000 payable for life to commence on December 
31, 2005. On the resolution date, Employer Q determines that on December 
31, 2002, Employee E had a legally binding right to receive $100,000 
annually for life beginning on December 31, 2005 (as a result of the 
gross benefit under the nonqualified plan being $120,000 annually for 
life, and the offset being $20,000 annually for life, as of December 31, 
2002). On December 31, 2003, Employee E had a legally binding right to 
receive $95,000 annually for life beginning on December 31, 2005 (as a 
result of the gross benefit under the nonqualified plan being $135,000 
annually for life, and the offset being $40,000 annually for life, as of 
December 31, 2003). On December 31, 2004, Employee E had a legally 
binding right to receive $100,000 annually for life beginning on 
December 31, 2005 (as a result of the gross benefit under the 
nonqualified plan being $145,000 annually for life, and the offset being

[[Page 120]]

$45,000 annually for life, as of December 31, 2004).
    (ii) In this case, pursuant to paragraph (e)(4)(ii)(D)(4) of this 
section, Employer Q can attribute the entire $100,000 life annuity to 
the amount deferred for 2002, even though Employee E's benefit under the 
nonqualified deferred compensation plan is reduced to $95,000 in 2003.
    Example 17: (i) In 2010, Employee F performs services for which she 
earns a right to 10 percent of the proceeds from the sale of a motion 
picture. In 2011, Employee F performs services for which she earns a 
right to 10 percent of the proceeds from the sale of another motion 
picture. These proceeds are calculated by subtracting the total 
advertising expenses for both movies. Payment is to be made in the year 
following the date on which both pictures have been sold, but not later 
than 2018. At the end of 2010, the advertising expenses for both 
pictures totaled $300,000. The first motion picture is sold for 
$10,000,000 in 2014. The second motion picture is sold for $17,000,000 
in 2017. At the end of 2017, the advertising expenses totaled 
$1,700,000. In 2018, Employee F is paid $2,530,000 (10 percent of the 
sum of $10,000,000 and $17,000,000 minus $1,700,000).
    (ii) Pursuant to paragraph (e)(4)(ii)(D)(4) of this section, 
$970,000 (10 percent of the excess of the gross proceeds from the sale 
of the first motion picture at the resolution date in 2017 over the 
advertising expenses incurred at the end of 2010) of the payment made in 
2018 can be attributed to the amount deferred in 2010 (and with the 
remaining payment of $1,560,000 to be attributed to the amount deferred 
in 2011).

    (f) Withholding--(1) In general. Unless an employer applies an 
alternative method described in paragraph (f)(2) or (3) of this section, 
an amount deferred under a nonqualified deferred compensation plan for 
any employee is treated, for purposes of withholding and depositing FICA 
tax, as wages paid by the employer and received by the employee at the 
time it is taken into account in accordance with paragraph (e) of this 
section. However, paragraphs (f)(2) and (3) of this section provide 
alternative methods which may be used with respect to an amount deferred 
for an employee. An employer is not required to be consistent in 
applying the alternatives described in this paragraph (f) with respect 
to different employees or amounts deferred.
    (2) Estimated method--(i) In general. Under the alternative method 
provided in this paragraph (f)(2), the employer may make a reasonable 
estimate of the amount deferred on the date on which the amount is taken 
into account in accordance with paragraph (e) of this section and take 
that estimated amount into account as wages paid by the employer and 
received by the employee on that date (the estimate date), for purposes 
of withholding and depositing FICA tax.
    (ii) Underestimate of the amount deferred--(A) General rule. If the 
employer underestimates the amount deferred (as determined after 
calculating the actual amount deferred that should have been taken into 
account as of the date on which the amount was taken into account in 
accordance with paragraph (e) of this section, using an interest rate 
and other actuarial assumptions that are reasonable as of that date), 
the employer may treat the shortfall as wages paid as of the estimate 
date or as of any date that is no later than three months after the 
estimate date. In either case, the shortfall does not include the income 
credited to the amount deferred after the amount is taken into account 
in accordance with paragraph (e) of this section.
    (B) Shortfall is treated as wages paid on a date after the estimate 
date. If the employer chooses to treat the shortfall as wages paid on a 
date that is no later than three months after the estimate date, the 
employer must take that shortfall into account as wages paid by the 
employer and received by the employee on that date, for purposes of 
withholding and depositing FICA tax.
    (C) Shortfall is treated as wages paid on the estimate date. If the 
employer chooses to treat the shortfall as wages paid as of the estimate 
date, the shortfall is treated as an error for purposes of withholding 
and depositing FICA tax. Appropriate adjustments may be made in 
accordance with section 6205(a) and the regulations thereunder; however, 
for purposes of Sec.  31.6205-1(b), the error need not be treated as 
ascertained before the date that is three months after the estimate 
date.
    (D) Reporting. The employer must report the shortfall as wages on 
Form 941, Employer's Quarterly Federal Tax Return (and, if applicable, 
Form 941c, Supporting Statement to Correct Information) and Form W-2, 
Wage and Tax Statement (or, if applicable, Form W-

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2c, Corrected Wage and Tax Statement) in accordance with its treatment 
of the shortfall under paragraph (f)(2)(ii) (B) or (C) of this section.
    (iii) Overestimate of the amount deferred. If the employer 
overestimates the amount deferred (as determined after calculating the 
actual amount deferred that should have been taken into account as of 
the date on which the amount was taken into account in accordance with 
paragraph (e) of this section, using an interest rate and actuarial 
assumptions that are reasonable as of that date) and deposits more than 
the amount required, the employer may claim a refund or credit in 
accordance with sections 6402, 6413, and 6511. A Form 941c, or an 
equivalent statement, must accompany each claim for refund. In addition, 
Form W-2 or, if applicable, Form W-2c must also reflect the actual 
amount deferred that should have been taken into account.
    (3) Lag method. Under the alternative method provided in this 
paragraph (f)(3), an amount deferred, plus interest, may be treated as 
wages paid by the employer and received by the employee, for purposes of 
withholding and depositing FICA tax, on any date that is no later than 
three months after the date the amount is required to be taken into 
account in accordance with paragraph (e) of this section. For purposes 
of this paragraph (f)(3), the amount deferred must be increased by 
interest through the date on which the wages are treated as paid, at a 
rate that is not less than AFR. If the employer withholds and deposits 
FICA tax in accordance with this paragraph (f)(3), the employer will be 
treated as having taken into account the amount deferred plus income to 
the date on which the wages are treated as paid.
    (4) Examples. This paragraph (f) is illustrated by the following 
examples:

    Example 1: (i) Employer M maintains a nonqualified deferred 
compensation plan that is an account balance plan. The plan provides for 
annual bonuses based on current year profits to be deferred until 
termination of employment. Employer M's profits for 2003, and thus the 
amount deferred, is reasonably ascertainable, but Employer M calculates 
the amount deferred on March 3, 2004, when the relevant data is 
available.
    (ii) In accordance with the alternative method described in 
paragraph (f)(2) of this section, Employer M makes a reasonable estimate 
that the amount deferred that must be taken into account as of December 
31, 2003, for Employee A is $20,000, and withholds and deposits FICA tax 
on that amount as if it were wages paid by Employer M and received by 
Employee A on that date. In January of 2004, Employer M files and 
furnishes Form W-2 for Employee A including the $20,000 in FICA wages. 
On March 3, 2004, Employer M determines that the actual amount deferred 
that should have been taken into account on December 31, 2003, was 
$22,000.
    (iii) In accordance with the alternative method described in 
paragraph (f)(2)(ii) of this section, Employer M may treat the 
additional $2,000 as wages paid to and received by Employee A on 
December 31, 2003, the estimate date. Employer M may treat the $2,000 
shortfall as an error ascertained on March 3, 2004, and withhold and 
deposit FICA tax on that amount. Form W-2c for Employee A for 2003 must 
include the $2,000 shortfall in FICA wages. Employer M must also correct 
the information on Form 941 for the last quarter of 2003, reporting the 
adjustment on Form 941 for the first quarter of 2004, accompanied by 
Form 941c for the last quarter of 2003.
    (iv) Instead, Employer M may treat the $2,000 shortfall as wages 
paid on March 31, 2004, and withhold and deposit FICA tax on that amount 
as if it were wages paid by Employer M and received by Employee A on 
that date. Form W-2 for Employee A for 2004 and Form 941 for the first 
quarter of 2004 must include the $2,000 shortfall in FICA wages.
    Example 2: (i) The facts are the same as in Example 1, except that 
on March 3, 2004, Employer M determines that the actual amount deferred 
that should have been taken into account on December 31, 2003, was 
$19,000.
    (ii) Under paragraph (f)(2)(iii) of this section, Employer M may, in 
accordance with sections 6402, 6413, and 6511, claim a refund or credit 
for the overpayment of tax resulting from the overestimate. In addition, 
Employer M must file and furnish a Form W-2c for Employee A and must 
correct the information on Form 941 for the last quarter of 2003.
    Example 3: (i) The facts are the same as in Example 1, except that 
Employer M does not make a reasonable estimate of the amount deferred 
that must be taken into account as of December 31, 2003. Instead, 
Employer M withholds and deposits FICA tax on the amount deferred plus 
interest on that amount using AFR (for January 2004) as if it were wages 
paid by Employer M and received by Employee A on March 15, 2004.
    (ii) Under the alternative method described in paragraph (f)(3) of 
this section, the amount taken into account on March 15, 2004 (including 
the interest), will be treated as FICA wages paid to and received by 
Employee A on March 15, 2004.

[[Page 122]]

    Example 4: (i) The facts are the same as in Example 1, except that 
an amount is also deferred for Employee B which is required to be taken 
into account on October 15, 2003, and Employer M chooses to use the lag 
method in paragraph (f)(3) of this section in order to provide time to 
calculate the amount deferred.
    (ii) Employer M may use any date not later than January 15, 2004, to 
take the amount deferred into account (provided that the amount deferred 
includes interest, at AFR for January 1, 2003, through December 31, 
2003, and at AFR for January 1, 2004, through January 15, 2004).

    (g) Effective date and transition rules--(1) General effective date. 
Except for paragraphs (g)(2) through (4) of this section, this section 
is applicable on and after January 1, 2000. Thus, paragraphs (a) through 
(f) of this section apply to amounts deferred on or after January 1, 
2000; to amounts deferred before January 1, 2000, which cease to be 
subject to a substantial risk of forfeiture on or after January 1, 2000, 
or for which a resolution date occurs on or after January 1, 2000; and 
to benefits actually or constructively paid on or after January 1, 2000.
    (2) Reasonable, good faith interpretation for amounts deferred and 
benefits paid before January 1, 2000--(i) In general. For periods before 
January 1, 2000 (including amounts deferred before January 1, 2000, and 
any benefits actually or constructively paid before January 1, 2000, 
that are attributable to those amounts deferred), an employer may rely 
on a reasonable, good faith interpretation of section 3121(v)(2), taking 
into account pre-existing guidance. An employer will be deemed to have 
determined FICA tax liability and satisfied FICA withholding 
requirements in accordance with a reasonable, good faith interpretation 
of section 3121(v)(2) if the employer has complied with paragraphs (a) 
through (f) of this section. For purposes of paragraphs (g)(2) through 
(4) of this section, and subject to paragraphs (g)(2)(ii) and (iii) of 
this section, whether an employer that has not complied with paragraphs 
(a) through (f) of this section has determined FICA tax liability and 
satisfied FICA withholding requirements in accordance with a reasonable, 
good faith interpretation of section 3121(v)(2) will be determined based 
on the relevant facts and circumstances, including consistency of 
treatment by the employer and the extent to which the employer has 
resolved unclear issues in its favor.
    (ii) Plan must be established or adopted. If an amount is deferred 
under a plan before January 1, 2000, and benefit payments attributable 
to that amount are actually or constructively paid on or after January 
1, 2000, then in no event will an employer's treatment of the amount 
deferred be considered to be in accordance with a reasonable, good faith 
interpretation of section 3121(v)(2) if the employer treats that amount 
as taken into account as wages for FICA tax purposes prior to the 
establishment of the plan (within the meaning of paragraph (b)(2) of 
this section) providing for the deferred compensation (or, if later, the 
establishment of the plan as amended to provide for the deferred 
compensation, as provided in paragraph (b)(2)(ii) of this section). If 
an amount is deferred under a plan before January 1, 2000, and benefit 
payments attributable to that amount are actually or constructively paid 
before January 1, 2000, then in no event will the employer's treatment 
of that amount deferred be considered to be in accordance with a 
reasonable, good faith interpretation of section 3121(v)(2) if the 
employer treats that amount as taken into account as wages for FICA tax 
purposes prior to the adoption of the plan providing for the deferred 
compensation (or, if later, the adoption of the plan amendment providing 
the deferred compensation). For example, awards, bonuses, raises, 
incentive payments, and other similar amounts granted under a plan as 
compensation for past services may not be taken into account under 
section 3121(v)(2) prior to the establishment (or, if applicable, the 
adoption) of the plan.
    (iii) Certain changes in position for stock options, stock 
appreciation rights, and other stock value rights not reasonable, good 
faith interpretation. In the case of a stock option, stock appreciation 
right, or other stock value right (as defined in paragraph (b)(4)(ii) of 
this section) that is exercised before January 1, 2000, an employer that 
treats the exercise as not subject to FICA tax as a result of the 
nonduplication rule of section 3121(v)(2)(B) is not

[[Page 123]]

acting in accordance with a reasonable, good faith interpretation of 
section 3121(v)(2) if the employer has not treated that grant and all 
earlier grants as subject to section 3121(v)(2) by reporting the current 
value of such options and rights as FICA wages on Form 941 filed for the 
quarter during which each grant was made (or, if later, for the quarter 
during which each grant ceased to be subject to a substantial risk of 
forfeiture).
    (3) Optional adjustments to conform with this section for pre-
effective-date open periods--(i) General rule. If an employer determined 
FICA tax liability with respect to section 3121(v)(2) in any period 
ending before January 1, 2000, for which the applicable period of 
limitations has not expired on January 1, 2000 (pre-effective-date open 
periods), in a manner that was not in accordance with this section, the 
employer may adjust its FICA tax determination for that period to 
conform to this section. Thus, if an amount deferred was taken into 
account in a pre-effective-date open period when it was not required to 
be taken into account (e.g., an amount taken into account before it 
became reasonably ascertainable), the employer may claim a refund or 
credit for any FICA tax paid on that amount to the extent permitted by 
sections 6402, 6413, and 6511.
    (ii) Consistency required. In the case of a plan that is not a 
nonqualified deferred compensation plan (within the meaning of paragraph 
(b)(1) of this section), if any payment was actually or constructively 
paid to an employee under the plan in a pre-effective-date open period 
and that payment was not included in FICA wages by reason of the 
employer's treatment of the plan as a nonqualified deferred compensation 
plan, then the employer may claim a refund or credit for FICA tax paid 
on amounts treated as amounts deferred under the plan (in accordance 
with the employer's treatment of the plan as a nonqualified deferred 
compensation plan) for that employee for pre-effective-date open periods 
only to the extent that the FICA tax paid on all amounts treated as 
amounts deferred for the employee in all pre-effective-date open periods 
under the plan exceeds the FICA tax that would have been due on the 
benefits actually or constructively paid to the employee in those 
periods under the plan if those benefits were included in FICA wages 
when paid. If any benefit payments attributable to amounts deferred 
after December 31, 1993, were actually or constructively paid to an 
employee under a nonqualified deferred compensation plan (within the 
meaning of paragraph (b)(1) of this section) in a pre-effective-date 
open period, but these payments were treated as subject to FICA tax 
because the employer treated the plan as not being a nonqualified 
deferred compensation plan, then the employer may claim a refund or 
credit for the FICA tax paid on those benefit payments only to the 
extent that the FICA tax paid on those benefit payments exceeds the FICA 
tax that would have been due on the amounts deferred to which those 
benefit payments are attributable if those amounts deferred had been 
taken into account when they would have been required to have been taken 
into account under this section (if this section had been in effect 
then).
    (iii) Reporting. Any employer that adjusts its FICA tax 
determination in accordance with paragraphs (g)(3)(i) and (ii) of this 
section must make appropriate adjustments on Form 941 and Form 941c for 
the affected periods, and, in addition, must file and furnish Form W-2, 
or, if applicable, Form W-2c, for any affected employee so that the 
Social Security Administration may correctly post the amount deferred to 
the employee's earnings record. The adjustments may be made in 
accordance with section 6205(a) and the regulations thereunder; however, 
for purposes of Sec.  31.6205-1(b), the error is not required to be 
treated as ascertained before March 31, 2000.
    (4) Application of reasonable, good faith standard--(i) Plans that 
are not subject to section 3121(v)(2). If a plan is not a nonqualified 
deferred compensation plan within the meaning of paragraph (b)(1) of 
this section, but, for a period ending prior to January 1, 2000, and, 
pursuant to a reasonable, good faith interpretation of section 
3121(v)(2), an amount under the plan was taken into account (within the 
meaning of paragraph (d)(1) of this section) as an amount deferred

[[Page 124]]

under a nonqualified deferred compensation plan, then, pursuant to 
paragraph (g)(2) of this section, the following rules shall apply--
    (A) With respect to benefit payments actually or constructively paid 
before January 1, 2000, that are attributable to amounts previously 
taken into account under the plan, no additional FICA tax will be due;
    (B) On or after January 1, 2000, benefit payments under the plan 
must be taken into account as wages when actually or constructively paid 
in accordance with paragraph (a)(1) of this section; and
    (C) To the extent permitted by paragraph (g)(3) of this section, the 
employer may claim a refund or credit for FICA tax actually paid on 
amounts taken into account prior to January 1, 2000.
    (ii) Plans that are subject to section 3121(v)(2) for which the 
amount deferred has not been fully taken into account--(A) In general. 
The rules of paragraphs (g)(4)(ii)(B) through (E) of this section apply 
if a plan is a nonqualified deferred compensation plan (within the 
meaning of paragraph (b)(1) of this section) and, with respect to an 
amount deferred under the plan for an employee prior to January 1, 2000, 
the employer, in accordance with a reasonable, good faith interpretation 
of section 3121(v)(2), either took into account an amount that is less 
than the amount that would have been required to be taken into account 
if paragraphs (a) through (f) of this section had been in effect for 
that period or took no amount into account. Thus, paragraphs 
(g)(4)(ii)(B) through (E) of this section apply both to an employer that 
treated the plan as if it were not a nonqualified deferred compensation 
plan within the meaning of section 3121(v)(2) (by withholding and paying 
FICA tax due on benefits actually or constructively paid under the plan 
during that period, if any) and to an employer that treated the plan as 
a nonqualified deferred compensation plan within the meaning of section 
3121(v)(2).
    (B) No additional tax required. Pursuant to paragraph (g)(2) of this 
section, no additional FICA tax will be due for any period ending prior 
to January 1, 2000.
    (C) General timing rule applicable. In accordance with paragraph 
(d)(1)(ii) of this section, except as provided in paragraphs (g)(4)(ii) 
(D) and (E), the general timing rule described in paragraph (a)(1) of 
this section applies to benefits actually or constructively paid on or 
after January 1, 2000, attributable to an amount deferred in a period 
before January 1, 2000, to the extent the amount taken into account was 
less than the amount that would have been required to be taken into 
account if paragraphs (a) through (f) of this section had been in effect 
before January 1, 2000.
    (D) Special rule for amounts deferred before 1994. The difference 
between the amount that was taken into account in any period ending 
prior to January 1, 1994, and the amount that would have been required 
or permitted to be taken into account in that period if paragraphs (a) 
through (f) of this section had been in effect is treated as if it had 
been taken into account within the meaning of paragraph (d)(1) of this 
section. For example, in the case of an amount deferred before 1994 that 
was not reasonably ascertainable (and which was not subject to a 
substantial risk of forfeiture), the employer is treated as if it had 
anticipated the actual amount, form, and commencement date for the 
benefit payments attributable to the amount deferred and had taken the 
amount deferred into account at an early inclusion date before 1994 
using a method permitted under this section. Thus, with respect to such 
an amount deferred, the employer is not required to take any additional 
amount into account when the amount deferred becomes reasonably 
ascertainable, and no additional FICA tax will be due when the benefit 
payments attributable to the amount deferred are actually or 
constructively paid.
    (E) Special rule for amounts required to be taken into account in 
1994 or 1995. In the case of an amount deferred that would have been 
required to be taken into account in 1994 or 1995 if paragraphs (a) 
through (f) of this section had been in effect, an employer will be 
treated as taking the amount deferred into account under paragraph 
(d)(1) of this section to the extent the employer takes the amount into 
account by

[[Page 125]]

treating it as wages paid by the employer and received by the employee 
as of any date prior to April 1, 2000.
    (iii) Plans that are subject to section 3121(v)(2) for which more 
than the amount deferred has been taken into account. If a plan is a 
nonqualified deferred compensation plan (within the meaning of paragraph 
(b)(1) of this section) and an amount was taken into account under the 
plan for an employee before January 1, 2000, in accordance with a 
reasonable, good faith interpretation of section 3121(v)(2), but that 
amount could not have been taken into account before January 1, 2000, if 
paragraphs (a) through (f) of this section had been in effect then, the 
following rules apply--
    (A) The determination of the amount deferred for any period 
beginning on or after January 1, 2000, must be made in accordance with 
paragraph (c) of this section, and the time when amounts deferred under 
the plan are required to be taken into account must be determined in 
accordance with paragraph (e) of this section, without regard to any 
such amount that was taken into account for any period ending before 
January 1, 2000; and
    (B) To the extent permitted by sections 6402, 6413, and 6511, the 
employer may claim a refund or credit for an overpayment of tax caused 
by the overinclusion of wages that occurred before January 1, 2000.
    (5) Examples. This paragraph (g) is illustrated by the following 
examples:

    Example 1: (i) In 1996, Employer M establishes a nonqualified 
deferred compensation plan that is a nonaccount balance plan for 
Employee A. All benefits under the plan are 100 percent vested. In order 
to determine the amount deferred on behalf of Employee A under the plan 
for 1996 and 1997, Employer M must make assumptions as to the date on 
which Employee A will retire and the form of benefit Employee A will 
elect, in addition to interest, mortality, and cost-of-living 
assumptions. Based on assumptions made with respect to all of these 
contingencies, Employer M determines that the amount deferred for 1996 
is $50,000 and the amount deferred for 1997 is $55,000. In 1996 and 
1997, Employee A's total wages (without regard to the amounts deferred) 
exceed the OASDI wage bases. Employer M withholds and deposits HI tax on 
the $50,000 and $55,000 amounts. Employee A does not retire before 
January 1, 2000. Employer M chooses under paragraph (g)(3) of this 
section to apply this section to 1996 and 1997 before the January 1, 
2000, general effective date.
    (ii) Under this section, the amounts deferred in 1996 and 1997 are 
not reasonably ascertainable (within the meaning of paragraph (e)(4)(i) 
of this section) before January 1, 2000. Thus, as long as the applicable 
period of limitations has not expired for the periods in 1996 and 1997, 
Employer M may, to the extent permitted under paragraph (g)(3) of this 
section, apply for a refund or credit for the HI tax paid on the amounts 
deferred for 1996 and 1997 and, in accordance with paragraph (e)(4) of 
this section, take into account the amounts deferred when they become 
reasonably ascertainable.
    Example 2: (i) Employer N adopts a plan on January 1, 1994, that 
covers Employee B, who has 10 years of service as of that date. The plan 
provides that, in consideration of Employee B's outstanding services 
over the past 10 years, Employee B will be paid a $500,000 lump sum 
distribution upon termination of employment at any time. On January 15, 
1996, Employee B terminates employment with Employer N. Employer N 
determines, based on a reasonable, good faith interpretation of section 
3121(v)(2), that the plan is a nonqualified deferred compensation plan 
under that section. Employer N treats the $500,000 as having been taken 
into account as an amount deferred in 1993 and earlier years.
    (ii) Under paragraph (g)(2)(ii) of this section, if all amounts are 
deferred and all benefits are paid under a plan before January 1, 2000, 
then in no event will an employer's treatment of amounts deferred under 
the plan be considered to be in accordance with a reasonable, good faith 
interpretation of section 3121(v)(2) if the employer treats these 
amounts as taken into account as wages for FICA tax purposes prior to 
the adoption of the plan. Accordingly, Employer N's treatment is not in 
accordance with a reasonable, good faith interpretation of section 
3121(v)(2) because Employer N treated amounts as taken into account in 
years before the adoption of the plan. As a result, the payment made to 
Employee B in 1996 was subject to both the OASDI and HI portions of FICA 
tax when paid.
    Example 3: (i) Employer O adopts a bonus plan on December 1, 1993, 
that becomes effective and legally binding on January 1, 1994. Under the 
plan, which is not set forth in writing, a specified bonus amount (which 
is 100 percent vested) is credited to Employee C's account each December 
31. A reasonable rate of interest on Employee C's account balance is 
credited quarterly. Employee C's account balance will begin to be paid 
in equal annual installments over 10 years beginning on January 1, 2000. 
Employer O determines, based on a reasonable, good faith interpretation 
of section 3121(v)(2), that the bonus plan is a nonqualified deferred 
compensation plan

[[Page 126]]

under that section and, therefore, treats the amounts credited from 
January 1, 1994, through December 31, 1999, as amounts deferred and, in 
accordance with a reasonable, good faith interpretation of section 
3121(v)(2), takes those amounts deferred into account as wages for FICA 
tax purposes as of those dates. The bonus plan is set forth in writing 
on May 1, 1999, and, thus, is treated as established as of January 1, 
1994.
    (ii) Under paragraph (g)(2)(ii) of this section, if an amount is 
deferred before January 1, 2000, and the attributable benefit is paid on 
or after January 1, 2000, then in no event will an employer's treatment 
of the amount deferred under a plan be considered to be in accordance 
with a reasonable, good faith interpretation of section 3121(v)(2) if 
the employer treats the amount deferred as taken into account as wages 
for FICA tax purposes prior to the establishment of the plan (within the 
meaning of paragraph (b)(2) of this section). Because the bonus plan is 
treated as established on January 1, 1994 (pursuant to the transition 
rule for unwritten plans in paragraph (b)(2)(iii) of this section), and 
because Employer O, in accordance with a reasonable, good faith 
interpretation of section 3121(v)(2), took amounts deferred into account 
in 1994 through 1999, the amounts paid to Employee C attributable to 
those amounts deferred will not be subject to FICA tax when paid.
    Example 4: (i) In 1985, Employer P establishes a compensation 
arrangement for Employee D that provides for a lump sum payment to be 
made after termination of employment but the arrangement is not a 
nonqualified deferred compensation plan (within the meaning of paragraph 
(b)(1) of this section). However, prior to January 1, 2000, and in 
accordance with a reasonable, good faith interpretation of section 
3121(v)(2), Employer P treats the arrangement as a nonqualified deferred 
compensation plan under section 3121(v)(2). Employer P determines that 
Employee D's total wages (without regard to the amount deferred) for 
each year from 1985 through 1993 exceed the applicable OASDI and HI wage 
bases for each of those years and, consequently, there is no FICA tax 
liability with respect to the amounts deferred for those years. In 1994, 
Employee D's total wages (without regard to the amount deferred) exceed 
the OASDI wage base. However, because there is no limit on the HI wage 
base, the amount deferred for 1994 results in additional HI tax 
liability of $290, which is timely paid by Employer P.
    (ii) Employee D terminates employment with Employer P in 1995 and 
receives a plan payment of $50,000. In that year, Employee D also 
receives wages of $60,000 from Employer P. In accordance with its 
treatment of the plan as a nonqualified deferred compensation plan under 
section 3121(v)(2), Employer P does not treat the $50,000 payment in 
1995 as wages for FICA tax purposes in that year.
    (iii) Because amounts under a plan were taken into account (within 
the meaning of paragraph (d)(1) of this section) as amounts deferred 
under a nonqualified deferred compensation plan pursuant to a 
reasonable, good faith interpretation of section 3121(v)(2)(A), but that 
plan is not a nonqualified deferred compensation plan within the meaning 
of paragraph (b)(1) of this section, the transition rules provided in 
paragraph (g)(4)(i) of this section apply. Thus, no additional FICA tax 
will be due on the benefits paid in 1995.
    (iv) Because $290 of HI tax was paid on the amount deferred in 1994, 
Employer P is entitled to a refund or credit for that amount to the 
extent permitted under sections 6402, 6413, and 6511--but only to the 
extent that $290 exceeds the FICA tax that would have been due on the 
$50,000 payment in 1995 if that payment had been subject to FICA tax 
when paid (i.e., if paragraphs (a) through (f) of this section had been 
effective for those years). In 1995, Employee D had other wages of 
$60,000. Thus, only $1,200 (the $61,200 OASDI wage base, less the 
$60,000 of other wages) of the $50,000 payment would have been subject 
to OASDI; the full $50,000 would have been subject to HI. This would 
have resulted in $148.80 of OASDI tax ($1,200 x 12.4 percent) and $1,450 
of HI tax ($50,000 x 2.9 percent). Employer P is not entitled to a 
refund or credit under the consistency rule of paragraph (g)(3)(ii) 
because the $290 of HI tax paid in 1994 is less than the total $1,598.80 
of FICA tax liability that would have resulted if this section had 
applied for 1995.
    (v) However, if the benefit payment is instead actually or 
constructively paid on or after January 1, 2000, the benefit payment 
must be taken into account as wages when actually or constructively paid 
in accordance with the general timing rule of paragraph (a)(1) of this 
section (and paragraph (g)(4)(i)(B) of this section).
    Example 5: (i) In 1985, Employer Q establishes a compensation 
arrangement for Employee E that is a nonqualified deferred compensation 
plan within the meaning of paragraph (b)(1) of this section. However, 
prior to January 1, 2000, Employer Q determines, based on a reasonable, 
good faith interpretation of section 3121(v)(2), that the arrangement is 
not a nonqualified deferred compensation plan within the meaning of that 
section. Thus, when Employee E retires at the end of 1996 and benefit 
payments under the arrangement begin in 1997, Employer Q withholds and 
deposits FICA tax on the amounts paid to Employee E. Payments under the 
arrangement continue on or after January 1, 2000. Employer Q does not 
choose

[[Page 127]]

(under paragraph (g)(3) of this section) to adjust its FICA tax 
determination for a pre-effective-date open period by treating this 
section as in effect for all amounts deferred and benefits actually or 
constructively paid for any such period. The periods in 1994 and 1995 
are not pre-effective-date open periods for Employer Q.
    (ii) Under paragraph (g)(4)(ii) of this section, for purposes of 
determining whether benefits actually or constructively paid on or after 
January 1, 2000, were previously taken into account for purposes of 
applying the nonduplication rule of section 3121(v)(2)(B), any amount 
that would have been required to have been taken into account before 
1994 will be treated as if it had been taken into account within the 
meaning of paragraph (d)(1) of this section. Under the nonduplication 
rule, benefit payments attributable to an amount that has been so 
treated as taken into account is not treated as wages for FICA tax 
purposes at any later time (such as upon payment).
    (iii) Because Employer Q does not adjust its FICA tax determination 
by treating this section as in effect for all amounts deferred for 
periods ending after December 31, 1993, any benefit payments 
attributable to amounts deferred in periods ending after December 31, 
1993, will be included in wages when actually or constructively paid in 
accordance with the general timing rule of paragraph (a)(1) of this 
section.
    Example 6: (i) The facts are the same as in Example 5, except that 
Employer Q chooses (in accordance with paragraph (g)(3) of this section) 
to adjust its FICA tax determination for all pre-effective-date open 
periods by treating this section as in effect for all amounts deferred 
for those periods. In addition, Employer Q chooses (in accordance with 
paragraph (g)(4)(ii)(E) of this section) to take the amounts deferred 
for 1994 and 1995 into account by treating these amounts as FICA wages 
paid and received by Employee E on January 15, 2000.
    (ii) In accordance with the nonduplication rule of paragraph 
(a)(2)(iii) of this section, because all amounts deferred for Employee E 
under the plan were taken into account (or treated as taken into 
account), any benefit payments made to Employee E under the plan will 
not be included as FICA wages when actually or constructively paid.
    Example 7: (i) The facts are the same as in Example 5, except that 
Employer Q does not withhold and deposit the FICA tax due on benefits 
actually or constructively paid before January 1, 2000.
    (ii) Because Employer Q did not withhold and deposit the FICA tax 
due on benefits actually or constructively paid before January 1, 2000, 
Employer Q did not determine FICA tax liability and satisfy FICA tax 
withholding requirements in accordance with a reasonable, good faith 
interpretation of section 3121(v)(2). Thus, the transition rules 
provided in paragraphs (g)(3) and (4) of this section do not apply. As a 
result, any amount that would have been required to have been taken into 
account under this section before 1994 is not treated as if it had been 
so taken into account under paragraph (g)(4)(ii)(D) of this section, and 
benefit payments attributable to amounts deferred before January 1, 
2000, are treated as FICA wages when actually or constructively paid in 
accordance with the general timing rule of paragraph (a)(1) of this 
section.
    Example 8: (i) In 1993, Employer R establishes a nonqualified 
deferred compensation plan for Employee F under which Employee F will 
have a fully vested right to receive a lump sum payment in 2000 equal to 
50 percent of Employee F's highest rate of salary. On December 31, 1993, 
Employee F's highest salary is $1 million. In accordance with a 
reasonable, good faith interpretation of section 3121(v)(2), Employer R 
determines that, for 1993, there is an amount deferred that must be 
taken into account as wages for FICA tax purposes. Based on Employer R's 
estimate that Employee F's highest salary will be $3 million in 2000, 
Employer R determines that the amount deferred is equal to the present 
value in 1993 of $1.5 million payable in 2000. However, because Employee 
F has other wages in 1993 that exceed the applicable OASDI and HI wage 
bases for that year, no additional FICA tax is paid as a result of that 
amount deferred being taken into account for 1993. In addition, Employer 
R takes no amounts into account under the plan after 1993 for Employee 
F. Under paragraphs (e)(1) and (4)(ii)(D)(2) of this section, the 
largest amount that could have been taken into account in 1993 is the 
present value of a lump sum payment of $500,000, payable in 2000, 
because that is the maximum amount to which Employee F has a legally 
binding right as of December 31, 1993. Employee F's highest salary is, 
in fact, $3 million in 2000 and Employee F receives $1.5 million under 
the plan on December 31, 2000.
    (ii) In accordance with paragraphs (g)(1) and (4)(iii)(A) of this 
section, the determination of the amount deferred under the plan for any 
period beginning on or after January 1, 2000, and the time when that 
amount deferred is required to be taken into account must be determined 
in accordance with this section. In addition, these determinations must 
be made without regard to any amount deferred that was taken into 
account for any period ending before January 1, 2000, that could not be 
taken into account before January 1, 2000, if paragraphs (a) through (f) 
of this section had been in effect. Because no FICA tax was actually 
paid on that $1 million in 1993, no overpayment of tax was caused by the 
overinclusion of wages in 1993 and, thus, Employer R is not entitled to 
a refund or credit (even assuming that the period

[[Page 128]]

of limitations has been kept open for periods in 1993). In addition, 
because the difference between the present value of the $1.5 million 
payment and the present value of a $500,000 payment was not taken into 
account for periods beginning on or after January 1, 1994, $1 million 
must be included in FICA wages under the general timing rule when paid.

[64 FR 4547, Jan. 29, 1999; 64 FR 15687, Apr. 1, 1999]



Sec.  31.3121(v)(2)-2  Effective dates and transition rules.

    (a) General statutory effective date. Except as otherwise provided 
in paragraphs (b) through (e) of this section, section 3121(v)(2) and 
the amendments made to section 3121(a)(2), (a)(3), and (a)(13) by the 
Social Security Amendments of 1983 (Pub. L. 98-21, 97 Stat. 65), as 
amended by section 2662(f)(2) of the Deficit Reduction Act of 1984 (Pub. 
L. 98-369, 98 Stat. 494), apply to amounts deferred and benefits paid 
after December 31, 1983.
    (b) Definitions. For purposes of Sec.  31.3121(v)(2)-1 and this 
section, the following definitions apply:
    (1) FICA. FICA means the Federal Insurance Contributions Act (26 
U.S.C. 3101 et seq.).
    (2) 457(a) plan. A 457(a) plan means an eligible deferred 
compensation plan of a State or local government or of a tax-exempt 
organization to which section 457(a) applies.
    (3) Gap agreement. Gap agreement means an agreement adopted after 
March 24, 1983, and on or before December 31, 1983, between an 
individual and a nonqualified deferred compensation plan within the 
meaning of Sec.  31.3121(v)(2)-1(b). Such an agreement does not fail to 
be a gap agreement merely because the terms of the plan are changed 
after December 31, 1983.
    (4) Individual party to a gap agreement. Individual party to a gap 
agreement means an individual who was eligible to participate in a gap 
agreement on December 31, 1983, under the terms of the agreement on that 
date. An individual will be treated as an individual party to a gap 
agreement even if the individual has not accrued any benefits under the 
plan by December 31, 1983, and regardless of whether the individual has 
taken any specific action to become a party to the agreement. However, 
an individual who becomes eligible to participate in a gap agreement 
after December 31, 1983, is not an individual party to a gap agreement.
    (5) Individual party to a March 24, 1983 agreement. Individual party 
to a March 24, 1983 agreement means an individual who was eligible to 
participate in a March 24, 1983 agreement under the terms of the 
agreement on March 24, 1983. An individual will be treated as an 
individual party to a March 24, 1983 agreement even if the individual 
has not accrued any benefits under the plan by March 24, 1983, and 
regardless of whether the individual has taken any specific action to 
become a party to the agreement. However, an individual who becomes 
eligible to participate in a March 24, 1983 agreement after March 24, 
1983, is not an individual party to a March 24, 1983 agreement.
    (6) March 24, 1983 agreement. March 24, 1983 agreement means an 
agreement in existence on March 24, 1983, between an individual and a 
nonqualified deferred compensation plan within the meaning of Sec.  
31.3121(v)(2)-1(b). Such an agreement does not fail to be a March 24, 
1983 agreement merely because the terms of the plan are changed after 
March 24, 1983. In addition, for purposes of this paragraph (b)(6) only, 
any plan (or agreement) that provides for payments that qualify for one 
of the retirement payment exclusions is treated as a nonqualified 
deferred compensation plan. For example, Sec.  31.3121(v)(2)-1(b)(4)(v) 
provides that certain benefits established in connection with impending 
termination do not result from the deferral of compensation and thus are 
not considered deferred under a nonqualified deferred compensation plan. 
However, a plan that provides such benefits and that was in existence on 
March 24, 1983, is treated as a nonqualified deferred compensation plan 
for purposes of this paragraph (b) to the extent it provides benefits 
that would have satisfied one of the retirement payment exclusions.
    (7) Retirement payment exclusions. Retirement payment exclusions are 
the exclusions from wages (for FICA tax purposes) for retirement 
payments under section 3121(a)(2)(A), (a)(3), and (a)(13)(A)(iii), as in 
effect on April 19,

[[Page 129]]

1983 (the day before enactment of the Social Security Amendments of 
1983).
    (8) Transition benefits. Transition benefits are payments made after 
December 31, 1983, attributable to services rendered before January 1, 
1984. For this purpose, transition benefits are determined without 
regard to any changes made in the terms of the plan after March 24, 
1983, in the case of a March 24, 1983 agreement or after December 31, 
1983, in the case of a gap agreement.
    (c) Transition rules--(1) In general. Except as provided in 
paragraph (c)(2) or (3) of this section, the general statutory effective 
date described in paragraph (a) of this section applies to benefit 
payments after December 31, 1983. Thus, except as provided in paragraph 
(c)(2) or (3) of this section, section 3121(v)(2) applies, and the 
retirement payment exclusions do not apply, to benefit payments made 
after December 31, 1983, even if the benefit payments are made under a 
March 24, 1983 agreement or a gap agreement.
    (2) Transition benefits under a March 24, 1983 agreement. With 
respect to an individual party to a March 24, 1983 agreement, transition 
benefits paid under that March 24, 1983 agreement (except for those paid 
under a 457(a) plan) are not subject to the special timing rule of 
section 3121(v)(2) and are subject to section 3121(a) as in effect on 
April 19, 1983. Thus, transition benefits under a March 24, 1983 
agreement (except for those under a 457(a) plan) to an individual party 
to a March 24, 1983 agreement are excluded from wages (for FICA tax 
purposes) only if they qualify for any of the retirement payment 
exclusions (or any other exclusion provided under section 3121(a) as in 
effect on April 19, 1983).
    (3) Transition benefits under a gap agreement. With respect to an 
individual party to a gap agreement, the payor of transition benefits 
under the gap agreement must choose to either--
    (i) Take the transition benefits into account as wages when paid; or
    (ii) Take the amount deferred (within the meaning of Sec.  
31.3121(v)(2)-1(c)) with respect to the transition benefits into account 
as wages under section 3121(v)(2) (as if section 3121(v)(2) had applied 
before its general statutory effective date).
    (d) Determining transition benefit portion. For purposes of 
determining the portion of total benefits under a nonqualified deferred 
compensation plan that represents transition benefits, if, under the 
terms of the plan, benefit payments are not attributed to specific years 
of service, the employer may use any reasonable method. For example, if 
a plan provides that the employee will receive benefits equal to 2 
percent of high 3-year average compensation multiplied by years of 
service, and the employee retires after 25 years of service, 9 of which 
are before 1984, the employer may determine that \9/25\ of the total 
benefit payments to be received beginning in 2000 are transition 
benefits attributable to services performed before 1984.
    (e) Order of payment. If an employer determines, in accordance with 
paragraph (d) of this section, that a portion of the total benefits 
under a nonqualified deferred compensation plan constitutes transition 
benefits, then, for purposes of determining the portion of each benefit 
payment that constitutes transition benefits, the employer must treat 
each benefit payment as consisting of transition benefits in the same 
proportion as the transition benefits that have not been paid (as of 
January 1, 2000) bear to total benefits that have not been paid (as of 
January 1, 2000), unless such allocation is inconsistent with the terms 
of the plan. However, for a benefit payment made before January 1, 2000, 
the employer may use any reasonable allocation method to determine the 
portion of a payment that consists of transition benefits, provided that 
the allocation method is consistent with the terms of the plan.

[64 FR 4567, Jan. 29, 1999]



Sec.  31.3123-1  Deductions by an employer from remuneration of an
employee.

    Any amount deducted by an employer from the remuneration of an 
employee is considered to be part of the employee's remuneration and is 
considered to be paid to the employee as remuneration at the time that 
the deduction is made. It is immaterial that any act of Congress or the 
law of any State requires or permits such deductions and the payment of 
the

[[Page 130]]

amount thereof to the United States, a State, or any political 
subdivision thereof.



Sec.  31.3127-1  Exemption for employers and their employees if both are
members of religious faiths opposed to participation in Social Security
Act programs.

    (a) Exemption--(1) Employer. Except as provided in paragraph (b) of 
this section, an employer is exempt from the taxes imposed by section 
3111 on wages paid to an employee if--
    (i) The employer (or if the employer is a partnership, each partner 
therein) and its employee are members of a recognized religious sect or 
division described in section 1402(g)(1);
    (ii) Both the employer (or if the employer is a partnership, each 
partner therein) and the employee adhere to the tenets and teachings of 
that sect; and
    (iii) Both the employer and the employee have filed and had approved 
applications under section 3127(b) for exemption from the taxes imposed 
by sections 3111 and 3101.
    (2) Employee. If an employer is exempt from the taxes imposed by 
section 3111 under paragraph (a)(1) of this section, then each employee 
described in paragraph (a)(1) of this section is exempt from the taxes 
imposed by section 3101 on the wages received with respect to employment 
with that employer.
    (b) Corporation. Services performed in the employ of a corporation 
are not within the exemption described in paragraph (a) of this section, 
except that services performed in the employ of an entity that is 
treated as a corporation under Sec.  301.7701-2(c)(2)(iv)(B) of this 
chapter may qualify for the exemption if the requirements of the 
exemption are otherwise met. An entity that is treated as a corporation 
under Sec.  301.7701-2(c)(2)(iv)(B) of this chapter is not treated as 
the employer for purposes of applying section 3127 and this section. For 
purposes of applying section 3127 and paragraph (a) of this section, the 
owner of an entity that is treated as a corporation under Sec.  
301.7701-2(c)(2)(iv)(B) of this chapter is treated as the employer.
    (c) Effective/applicability date. This section applies to wages paid 
on or after November 1, 2011. However, taxpayers may apply this section 
to wages paid on or after January 1, 2009.

[T.D. 9670, 79 FR 36206, June 26, 2014]



Sec.  31.3131-1T  Recapture of credits.

    (a) Recapture of erroneously refunded credits. Any amount of credits 
for qualified sick leave wages under section 3131(a), including any 
increase to the amount of the credits under sections 3131(d), 3131(e), 
and 3133, that are treated as overpayments and refunded or credited to 
an employer under section 6402(a) or section 6413(b) and to which the 
employer is not entitled, resulting in an erroneous refund to the 
employer, shall be treated as an underpayment of the taxes imposed under 
section 3111(b) and so much of the taxes imposed under section 3221(a) 
as are attributable to the rate in effect under section 3111(b), as 
applicable, and may be assessed and collected by the Secretary in the 
same manner as the taxes.
    (b) Advance credit amounts erroneously refunded. The determination 
of any amount of credits erroneously refunded as described in paragraph 
(a) of this section must take into account any amount of credits 
advanced to an employer under the process established by the Internal 
Revenue Service in accordance with sections 3131(b)(4)(B) and 
3131(g)(6).
    (c) Third party payors. For purposes of this section, employers 
against whom an erroneous refund of the credits under section 3131 
(including any increases in those credits under section 3133), can be 
assessed as an underpayment of the taxes imposed under section 3111(b) 
and so much of the taxes imposed under section 3221(a) as are 
attributable to the rate in effect under section 3111(b), as applicable, 
include persons treated as the employer under sections 3401(d), 3504, 
and 3511, consistent with their liability for the section 3111(b) or 
3121(a) taxes against which the credit applied.
    (d) Applicability date. This section applies to all credit refunds 
under section 3131 (including any increases in those credits under 
section 3133), advanced or paid on or after April 1, 2021.

[T.D. 9953, 86 FR 50642, Sept. 10, 2021]

[[Page 131]]



Sec.  31.3132-1T  Recapture of credits.

    (a) Recapture of erroneously refunded credits. Any amount of credits 
for qualified family leave wages under sections 3132, including any 
increase to the amount of the credits under sections 3132(d), 3132(e), 
and 3133, that are treated as overpayments and refunded or credited to 
an employer under section 6402(a) or section 6413(b) and to which the 
employer is not entitled, resulting in an erroneous refund to the 
employer, shall be treated as an underpayment of the taxes imposed under 
section 3111(b) and so much of the taxes imposed under section 3221(a) 
as are attributable to the rate in effect under section 3111(b), as 
applicable, and may be assessed and collected by the Secretary in the 
same manner as the taxes.
    (b) Advance credit amounts erroneously refunded. The determination 
of any amount of credits erroneously refunded as described in paragraph 
(a) of this section must take into account any amount of credits 
advanced to an employer under the process established by the Internal 
Revenue Service in accordance with sections 3132(b)(3)(B) and 
3132(g)(6).
    (c) Third party payors. For purposes of this section, employers 
against whom an erroneous refund of the credits under section 3132 
(including any increases in those credits under section 3133), can be 
assessed as an underpayment of the taxes imposed under section 3111(b) 
and so much of the taxes imposed under section 3121(a) as are 
attributable to the rate in effect under section 3111(b), as applicable, 
include persons treated as the employer under sections 3401(d), 3504, 
and 3511, consistent with their liability for the section 3111(b) or 
3121(a) taxes against which the credit applied.
    (d) Applicability date. This section applies to all credit refunds 
under section 3132 (including any increases in those credits under 
section 3133) advanced or paid on or after April 1, 2021.

[T.D. 9953, 86 FR 50642, Sept. 10, 2021]



Sec.  31.3134-1T  Recapture of credits.

    (a) Recapture of erroneously refunded credits. Any amount of credits 
for qualified wages under section 3134 of the Code that is treated as an 
overpayment and refunded or credited to an employer under section 
6402(a) or section 6413(b) of the Code and to which the employer is not 
entitled, resulting in an erroneous refund to the employer, shall be 
treated as an underpayment of the taxes imposed under section 3111(b) 
and so much of the taxes imposed under section 3221(a) as are 
attributable to the rate in effect under section 3111(b), as applicable, 
and may be assessed and collected by the Secretary in the same manner as 
the taxes.
    (b) Advance credit amounts erroneously refunded. The determination 
of any amount of credits erroneously refunded as described in paragraph 
(a) of this section must take into account any amount of credits 
advanced to an employer under the process established by the Internal 
Revenue Service in accordance with sections 3134(j) and 3134(m).
    (c) Third party payors. For purposes of this section, employers 
against whom an erroneous refund of the credits under section 3134 can 
be assessed as an underpayment of the taxes imposed under section 
3111(b) and so much of the taxes imposed under section 3121(a) as are 
attributable to the rate in effect under section 3111(b), as applicable, 
include persons treated as the employer under sections 3401(d), 3504, 
and 3511, consistent with their liability for the section 3111(b) or 
3121(a) taxes against which the credit applied.
    (d) Applicability date. This section applies to all credit refunds 
under section 3134 advanced or paid on or after July 1, 2021.

[T.D. 9953, 86 FR 50642, Sept. 10, 2021]



Subpart C_Railroad Retirement Tax Act (Chapter 22, Internal Revenue Code 
                                of 1954)

                            Tax on Employees



Sec.  31.3201-1  Measure of employee tax.

    The employee tax is measured by the amount of compensation received 
for services rendered as an employee. For provisions relating to 
compensation, see Sec.  31.3231(e)-1. For provisions relating to the 
circumstances under which

[[Page 132]]

certain compensation is to be disregarded for the purpose of determining 
the employee tax, see paragraphs (b)(1) and (2) of Sec.  31.3231(e)-1.

[T.D. 8582, 59 FR 66189, Dec. 23, 1994]



Sec.  31.3201-2  Rates and computation of employee tax.

    (a) Rates--(1)(i) Tier 1 tax. The Tier 1 employee tax rate equals 
the sum of the tax rates in effect under section 3101(a), relating to 
old-age, survivors, and disability insurance, and section 3101(b), 
relating to hospital insurance. The Tier 1 employee tax rate is applied 
to compensation up to the contribution base described in section 
3231(e)(2)(B)(i). The contribution base is determined under section 230 
of the Social Security Act and is identical to the old-age, survivors, 
and disability insurance wage base and the hospital insurance wage base, 
respectively, under the Federal Insurance Contributions Act.
    (ii) Example. The rule in paragraph (a)(1)(i) of this section is 
illustrated by the following example.

    Example. A received compensation of $60,000 in 1992. The section 
3101(a) rate of 6.2 percent would be applied to A's compensation up to 
$55,500, the applicable contribution base for 1992. The section 3101(b) 
rate of 1.45 percent would be applied to the entire $60,000 of A's 
compensation because the applicable contribution base for 1992 is 
$130,200.

    (2)(i) Tier 2 tax. The Tier 2 employee tax rate equals the 
percentage set forth in section 3201(b) of the Code. This rate is 
applied to compensation up to the contribution base described in section 
3231(e)(2)(B)(ii).
    (ii) Example. The rule in paragraph (a)(2)(i) of this section is 
illustrated by the following example.

    Example. A received compensation of $60,000 in 1992. The section 
3201(b) rate of 4.90 percent would be applied to A's compensation up to 
$41,400, the applicable contribution base for 1992.

    (b)(1) Computation. The employee tax is computed by multiplying the 
amount of the employee's compensation with respect to which the employee 
tax is imposed by the rate applicable to such compensation, as 
determined under paragraph (a) of this section. The applicable rate is 
the rate in effect when the compensation is received by the employee. 
For rules relating to the time of receipt, see Sec.  31.3121(a)-2 (a) 
and (b).
    (2) Example. The rule in paragraph (b)(1) of this section is 
illustrated by the following example.

    Example. In 1990, employee A received compensation of $1,000 as 
remuneration for services performed for employer R in 1989. The employee 
tax is payable at the rate of 12.55 percent (7.65 percent plus 4.90 
percent) in effect for 1990 (the year the compensation was received), 
and not the 12.41 percent rate (7.51 percent plus 4.90 percent) in 
effect for 1989 (the year the services were performed).

[T.D. 8582, 59 FR 66189, Dec. 23, 1994]



Sec.  31.3202-1  Collection of, and liability for, employee tax.

    (a) Collection; general rule. The employer shall collect from each 
of his employees the employee tax imposed with respect to the 
compensation of the employee by deducting or causing to be deducted the 
amount of such tax from the compensation subject to the tax as and when 
such compensation is paid. As to the measure of the employee tax, see 
Sec.  31.3201-1.
    (b) Collection; payments by two or more employers in excess of 
annual compensation limitation. For rules relating to payments by two or 
more employers in excess of the annual compensation limitation see Sec.  
31.3121(a)(1)-1.
    (c) Undercollections or overcollections. Any undercollection or 
overcollection of employee tax resulting from the employer's inability 
to determine, at the time compensation is paid, the correct amount of 
compensation with respect to which the deduction should be made shall be 
corrected in accordance with the provisions of Subpart G of the 
regulations in this part relating to adjustments, credits, refunds, and 
abatements.
    (d) When fractional part of cent may be disregarded. In collecting 
the employee tax, the employer shall disregard any fractional part of a 
cent of such tax unless it amounts to one-half cent or more, in which 
case it shall be increased to one cent.
    (e) Employer's liability. The employer is liable for the employee 
tax with respect to compensation paid by him,

[[Page 133]]

whether or not collected from the employee. If the employer deducts less 
than the correct amount of employee tax or fails to deduct any part of 
the tax, he is nevertheless liable for the correct amount of the tax. 
Until collected from him, the employee is also liable for the employee 
tax. Any employee tax collected by or on behalf of an employer is a 
special fund in trust for the United States. See section 7501. An 
employer is not liable to any person for the amount of the employee tax 
deducted by him and paid to the district director.
    (f) Concurrent employment. If two or more related corporations who 
are rail employers concurrently employ the same individual and 
compensate that individual through a common paymaster, which is one of 
the related corporations employing the individual, see Sec.  31.3121(s)-
1.
    (g) Special rules regarding Additional Medicare Tax. (1) An employer 
is required to collect from each of its employees the portion of the tax 
imposed by section 3201(a) (as calculated under section 3101(b)(2)) 
(Additional Medicare Tax) with respect to compensation for employment 
performed for the employer by the employee only to the extent the 
employer pays compensation to the employee in excess of $200,000 in a 
calendar year. This rule applies regardless of the employee's filing 
status or other income. Thus, the employer disregards any amount of 
compensation or Federal Insurance Contributions Act (FICA) wages paid to 
the employee's spouse. The employer also disregards any FICA wages paid 
by the employer to the employee or any compensation or FICA wages paid 
to the employee by another employer.

    Example. A, who is married and files a joint return, receives 
$100,000 in compensation from her employer for the calendar year. B, A's 
spouse, receives $300,000 in compensation from his employer for the same 
calendar year. A's compensation is not in excess of $200,000, so A's 
employer does not withhold Additional Medicare Tax. B's employer is 
required to collect Additional Medicare Tax only with respect to 
compensation it pays to B that is in excess of the $200,000 threshold 
(that is, $100,000) for the calendar year.

    (2) To the extent the employer does not collect Additional Medicare 
Tax imposed on the employee by section 3201(a) (as calculated under 
section 3101(b)(2)), the employee is liable to pay the tax.

    Example. C, who is married and files a joint return, receives 
$190,000 in compensation from her employer for the calendar year. D, C's 
spouse, receives $150,000 in compensation from his employer for the same 
calendar year. Neither C's nor D's compensation is in excess of 
$200,000, so neither C's nor D's employers are required to withhold 
Additional Medicare Tax. C and D are liable to pay Additional Medicare 
Tax on $90,000 ($340,000 minus the $250,000 threshold for a joint 
return).

    (3) If the employer deducts less than the correct amount of 
Additional Medicare Tax, or if it fails to deduct any part of Additional 
Medicare Tax, it is nevertheless liable for the correct amount of tax 
that it was required to withhold, unless and until the employee pays the 
tax. If an employee subsequently pays the tax that the employer failed 
to deduct, the tax will not be collected from the employer. The employer 
will not be relieved of its liability for payment of the tax required to 
be withheld unless it can show that the tax under section 3201(a) (as 
calculated under section 3101(b)(2)) has been paid. The employer, 
however, will remain subject to any applicable penalties or additions to 
tax resulting from the failure to withhold as required.
    (h) Effective/applicability date. Paragraph (g) of this section 
applies to quarters beginning on or after November 29, 2013.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6541, 26 FR 
553, Jan. 20, 1961; T.D. 6727, 29 FR 5866, May 5, 1964; T.D. 8582, 59 FR 
66189, Dec. 23, 1994; T.D. 9645, 78 FR 71472, Nov. 29, 2013]

                     Tax on Employee Representatives



Sec.  31.3211-1  Measure of employee representative tax.

    The employee representative tax is measured by the amount of 
compensation received for services rendered as an employee 
representative. For provisions relating to compensation, see Sec.  
31.3231(e)-1.

[T.D. 8582, 59 FR 66190, Dec. 23, 1994]

[[Page 134]]



Sec.  31.3211-2  Rates and computation of employee representative tax.

    (a) Rates--(1)(i) Tier 1 tax. The Tier 1 employee representative tax 
rate equals the sum of the tax rates in effect under sections 3101(a) 
and 3111(a), relating to the employee and the employer tax for old-age, 
survivors, and disability insurance, and sections 3101(b) and 3111(b), 
relating to the employee and the employer tax for hospital insurance. 
The Tier 1 employee representative tax rate is applied to compensation 
up to the contribution base described in section 3231(e)(2)(B)(i). The 
contribution base is determined under section 230 of the Social Security 
Act, and is identical to the old-age, survivors, and disability 
insurance wage base and the hospital insurance wage base, respectively, 
under the Federal Insurance Contributions Act.
    (ii) Example. The rule in paragraph (a)(1)(i) of this section is 
illustrated by the following example.

    Example. B, an employee representative, received compensation of 
$60,000 in 1992. The sections 3101(a) and 3111(a) rates of 12.4 percent 
(6.2 percent plus 6.2 percent) would be applied to B's compensation up 
to $55,500, the applicable contribution base for 1992. The sections 
3101(b) and 3111(b) rates of 2.9 percent (1.45 percent plus 1.45 
percent) would be applied to the entire $60,000 of B's compensation 
because the applicable contribution base for 1992 is $130,200.

    (2) (i) Tier 2 tax. The Tier 2 employee representative tax rate 
equals the percentage set forth in section 3211(a)(2) of the Code. This 
rate is applied up to the contribution base described in section 
3231(e)(2)(B)(ii).
    (ii) Example. The rule in paragraph (a)(2)(i) of this section is 
illustrated by the following example.

    Example. B received compensation of $60,000 in 1992. The section 
3211(a)(2) rate of 14.75 percent would be applied to B's compensation up 
to $41,400, the applicable contribution base for 1992.

    (3) Supplemental Annuity Tax. The supplemental annuity tax for each 
work-hour for which compensation is paid to an employee representative 
for services rendered as an employee representative is imposed at the 
same rate as the excise tax imposed on every employer under section 
3221(c). See also Sec.  31.3211-3.
    (b) (1) Computation. The employee representative tax is computed by 
multiplying the amount of the employee representative's compensation 
with respect to which the employee representative tax is imposed by the 
rate applicable to such compensation, as determined under paragraph (a) 
of this section. The applicable rate is the rate in effect when the 
compensation is received by the employee representative. For rules 
relating to the time of receipt, see Sec.  31.3121(a)-2 (a) and (b).
    (2) Example. The rule in paragraph (b)(1) of this section is 
illustrated by the following example.

    Example. In 1990, employee representative B received $1,000 as 
remuneration for services performed for employer R in 1989. The employee 
representative tax is payable at the rate of 30.05 percent (15.30 
percent plus 14.75 percent) in effect for 1990 (the year the 
compensation was received), and not the 29.77 percent rate (15.02 
percent plus 14.75 percent) in effect for 1989 (the year the services 
were performed).

    (c) (1) Rule where compensation is received both as an employee 
representative and employee. The following rule applies to an individual 
who renders service both as an employee representative and as an 
employee. The employee representative tax is imposed on compensation 
received as an employee representative under the rules described in 
Sec.  31.3211-2. The employee tax is imposed on compensation received as 
an employee under the rules described in Sec.  31.3201-2. However, if 
the total compensation received is greater than the applicable 
contribution base, the employee representative tax is imposed on the 
amount equal to the contribution base less the amount received for 
services rendered as an employee.
    (2) Example. The rule in paragraph (c)(1) of this section is 
illustrated by the following example.

    Example. C performed services both as an employee and an employee 
representative in 1992. C received compensation of $40,000 as an 
employee and $20,000 as an employee representative. C's entire 
compensation of $40,000 is subject to tax under the rules described in 
Sec.  31.3201-2. The amount of employee representative compensation 
subject to the section 3101(a) and the section 3111(a) rate is $15,500 
($55,500-$40,000). The entire

[[Page 135]]

$20,000 is subject to the sections 3101(b) and 3111(b) rates since the 
combined compensation is less than $130,200, the applicable contribution 
base for 1992. The amount of the employee representative compensation 
subject to the section 3211(a)(2) rate is $1,400 ($41,400-$40,000).

[T.D. 8582, 59 FR 66190, Dec. 23, 1994]



Sec.  31.3211-3  Employee representative supplemental tax.

    See paragraphs (a), (b), and (c) of Sec.  31.3221-3 for rules 
applicable to the supplemental tax for each work-hour for which 
compensation is paid to an employee representative for services rendered 
as an employee representative.

[T.D. 8525, 59 FR 9666, Mar. 1, 1994]



Sec.  31.3212-1  Determination of compensation.

    See Sec.  31.3231(e)-1 for regulations applicable to compensation.

                            Tax on Employers



Sec.  31.3221-1  Measure of employer tax.

    (a) General Rule--The employer tax is measured by the amount of 
compensation paid by an employer to its employees. For provisions 
relating to compensation, see Sec.  31.3231(e)-1. For provisions 
relating to the circumstances under which certain compensation is to be 
disregarded for purposes of determining the employer tax, see paragraphs 
(b) (1) and (2) of Sec.  31.3231(e)-1.
    (b) Payments by two or more employers in excess of annual 
compensation limitation. For rules relating to payments by two or more 
employers in excess of the annual compensation limitation, see Sec.  
31.3121(a)(1)-1.
    (c) Underpayments or overpayments. Any underpayment or overpayment 
of employer tax resulting from the employer's inability to determine, at 
the time such tax is paid, the correct amount of compensation with 
respect to which the tax should be paid shall be corrected in accordance 
with the provisions of Subpart G of the regulations in this part 
relating to adjustments, credits, refunds, and abatements.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6541, 26 FR 
555, Jan. 20, 1961; T.D. 8582, 59 FR 66190, Dec. 23, 1994]



Sec.  31.3221-2  Rates and computation of employer tax.

    (a) Rates--(1)(i) Tier 1 tax. The Tier 1 employer tax rate equals 
the sum of the tax rates in effect under section 3111(a), relating to 
old-age, survivors, and disability insurance, and section 3111(b), 
relating to hospital insurance. The Tier 1 employer tax rate is applied 
to compensation up to the contribution base described in section 
3231(e)(2)(B)(i). The contribution base is determined under section 230 
of the Social Security Act and is identical to the old-age, survivors, 
and disability insurance wage base and the hospital insurance wage base, 
respectively, under the Federal Insurance Contributions Act.
    (ii) Example. The rule in paragraph (a)(1)(i) of this section is 
illustrated by the following example.

    Example. R's employee, A, received compensation of $60,000 in 1992. 
The section 3111(a) rate of 6.2 percent would be applied to A's 
compensation up to $55,500, the applicable contribution base for 1992. 
The section 3111(b) rate of 1.45 percent would be applied to the entire 
$60,000 of A's compensation because the applicable contribution base for 
1992 is $130,200.

    (2)(i) Tier 2 tax. The Tier 2 employer tax rate equals the 
percentage set forth in section 3221(b) of the Internal Revenue Code. 
This rate is applied up to the contribution base described in section 
3231(e)(2)(B)(ii).
    (ii) Example. The rule in paragraph (a)(2)(i) of this section is 
illustrated by the following example.

    Example. R's employee, A, received compensation of $60,000 in 1992. 
The section 3221(b) rate of 16.10 percent would be applied to A's 
compensation up to $41,400, the applicable contribution base for 1992.

    (3) Supplemental Annuity Tax. The supplemental annuity tax for each 
work-hour for which compensation is paid by an employer for services 
rendered during any calendar quarter by employees is imposed at the tax 
rate determined each calendar quarter by the Railroad Retirement Board. 
See also Sec.  31.3221-3.
    (b)(1) Computation. The employer tax is computed by multiplying the

[[Page 136]]

amount of the compensation with respect to which the employer tax is 
imposed by the rate applicable to such compensation, as determined under 
paragraph (a) of this section. The applicable rate is the rate in effect 
at the time the compensation is paid. For rules relating to the time of 
payment, see Sec.  31.3121(a)-2(a) and (b).
    (2) Example. The rule in paragraph (b)(1) of this section is 
illustrated by the following example.

    Example. In 1990, R's employee A received $1,000 as remuneration for 
services performed for R in 1989. The employer tax is payable at the 
rate of 23.75 percent (7.65 percent plus 16.10 percent) in effect for 
1990 (the year the compensation was received) and not the 23.61 percent 
rate (7.51 percent plus 16.10 percent) in effect for 1989 (the year the 
services were performed).

[T.D. 8582, 59 FR 66190, Dec. 23, 1994]



Sec.  31.3221-3  Supplemental tax.

    (a) Introduction--(1) In general. Section 3221(c) imposes an excise 
tax on every employer, as defined in section 3231(a) and Sec.  
31.3231(a)-1, with respect to individuals employed by the employer. The 
tax is imposed for each work-hour for which the employer pays 
compensation, as defined in section 3231(e) and Sec.  31.3231(e)-1, for 
services rendered to the employer during a calendar quarter. This Sec.  
31.3221-3 provides rules for determining the number of taxable work-
hours.
    (2) Overview. Paragraph (b) of this section defines work-hours. 
Paragraph (c) of this section demonstrates the calculation of work-
hours. Paragraph (d) of this section offers a safe harbor calculation of 
work-hours for use by any employer in lieu of calculating the number of 
work-hours for each employee.
    (b) Definition of work-hours--(1) In general. For purposes of 
section 3221(c) and this section, work-hours are hours for which the 
employee is compensated, whether or not the employee performs services.
    (i) Payments included in work-hours. Work-hours include regular time 
worked; overtime; time paid for vacations and holidays; time allowed for 
meals; away-from-home terminal time; called and not used, runaround, and 
deadheading time; time for attending court, participating in 
investigations, and attending claim and safety meetings; and guaranteed 
time not worked. Work-hours also include conversion hours, that is, 
compensation converted into work-hours. Conversion hours may be derived 
from payment by the mile or by the piece. Work-hours also include time 
for which the employee is paid for periods of absence not due to 
sickness or accident disability, such as for routine medical and dental 
examinations or for time lost.
    (ii) Payments excluded from work-hours. Certain kinds of payments 
are not subject to conversion into work-hours. These include those 
payments that are specifically excluded from compensation within the 
meaning of section 3231(e), such as certain sick pay payments (section 
3231(e)(1)(i)); tips (section 3231(e)(1)(ii)); and amounts paid 
specifically (either as an advance, as reimbursement, or allowance) for 
traveling expenses (section 3231(e)(1)(iii)). Traveling expenses paid 
under a nonaccountable plan are excluded from work-hours even though 
they are includible in compensation. See Sec.  31.3231(e)-1(a)(5). Also 
excluded from work-hours are amounts representing bonuses, amounts 
received pursuant to the exercise of an employee stock option, and all 
separation payments or severance allowances.
    (2) Hourly compensation. Because the tax under section 3221(c) is 
calculated on the basis of work-hours, the number of hours for which an 
employee receives compensation is the figure used to determine work-
hours. In the case of an hourly-rated employee, each hour for which the 
employee receives compensation is one work-hour.
    (3) Daily, weekly, monthly compensation. (i) If an employee is paid 
by the day, week, month, or other period of time, the tax is imposed on 
the number of hours comprehended in the rate and, if any, the number of 
overtime hours for which additional compensation is paid. Thus, in the 
case of an office worker who receives an annual salary based on an 8-
hour, 5-day-a-week work schedule that includes paid holidays, vacations, 
and sick time, the number of work-hours for one month is 174 (2088 
hours/year / 12 months).

[[Page 137]]

    (ii) The rule in paragraph (b)(3)(i) of this section is illustrated 
by the following examples.

    Example 1 A, an office worker, receives an annual salary that is 
paid monthly. The salary is based on an 8-hour, Monday through Friday 
work schedule. A is not paid for overtime hours. A is not expected to 
work on holidays, during A's annual vacation, or during periods that A 
is ill. The number of work-hours for one month is 174 (2088 hours/year / 
12 months). This figure remains constant, even though some months have 
more workdays than others.
    Example 2 B is paid a stated amount for each day B works, regardless 
of the number of hours worked. However, if B works more than 8 hours 
during any day, B is paid overtime for each additional hour worked that 
day. B is not paid for holidays, vacations, or sick time. During May, B 
worked 6 hours on 4 days, 7 hours on 6 days, 8 hours on 6 days, and 9 
hours on 5 days. Because B is paid a daily rate for up to 8 hours, 8 
hours are comprehended in the daily rate. Therefore, the number of work-
hours for May is 173 (21 days x 8 hours/day + 5 overtime hours), even 
though B actually worked 159 hours.

    (4) Conversion hours--(i) Compensation not based on time (hour, day, 
month, etc.), such as compensation paid by the mile or by the piece, 
must be converted into the number of hours represented by the 
compensation paid. Thus, if an employee is paid by the mile, 1 work-hour 
equals the number of miles constituting a workday, divided by 8 hours. 
However, in the case of a collective bargaining agreement that specifies 
a number of hours as constituting a workday, the number of hours 
specified under the agreement may be used instead of 8.
    (ii) The rule in paragraph (b)(4)(i) of this section is illustrated 
by the following example.

    Example. C's normal workday consists of 2 150-mile round trips that 
together take 6 hours. C is paid by the mile. The collective bargaining 
agreement does not specify the number of hours in a workday. Thus, the 
number of work-hours for each day C works is 8, or 1 work-hour for each 
37.5 miles (300 miles/day / 8 hours/day). If the applicable collective 
bargaining agreement specifies that 6 hours constitute a workday, the 
number of work-hours for each day C works would be 6.

    (c) Calculation of work-hours--(1) An employer may calculate the 
work-hours separately for each employee, as described in the examples in 
this paragraph. If the employer chooses to calculate work-hours 
separately for each employee, the employer must calculate the number of 
regular hours, overtime hours, and conversion hours for each employee 
for each month. In lieu of separate calculations, the employer may 
calculate the work-hours for all the employer's employees using the safe 
harbor formula described in paragraph (d) of this section.
    (2) The rules in paragraph (c) of this section are illustrated by 
the following examples.

    Example 1. D worked 8 hours a day, Monday through Friday, during the 
months of February and March 1992. D did not work on President's Day, 
but was paid for the holiday. D's work-hours for February were 160 (19 
days x 8 hours a day + 8 holiday hours). D's work-hours for March were 
176 (22 days x 8 hours a day).
    Example 2. E worked 7-hour shifts every Tuesday through Saturday 
during the months of February and March 1992. E also worked 7 overtime 
hours during February and 21 overtime hours during March. Also, E was 
paid for 7 hours on President's Day, even though E did not work on that 
day. The number of work-hours for February was 161 (21 days x 7 hours a 
day + 7 overtime hours + 7 holiday hours). The number of work-hours for 
March was 168 (21 days x 7 hours a day + 21 overtime hours). Because E 
receives an hourly wage and was paid for the President's Day holiday, 
the number of hours (7) for which E was paid are added to the hours E 
actually worked. If E had worked on President's Day and had received 
extra pay for working on a holiday and holiday pay for 7 hours, the 
employer would include 14 hours in E's work-hours for that day, the 7 
hours E actually worked and the 7 holiday hours for which E was paid.
    Example 3. Employment beginning during month. F began employment on 
March 16, a Monday, and worked 8 hours a day, Monday through Friday. The 
employer calculates that F's hours for the month were 96, because F 
worked 12 8-hour days during the month. If March 16 were on a Friday, 
the employer would calculate 11 days, or 88 hours.
    Example 4. Employment ending during month. G's last day of 
employment was Friday, March 13. G worked 8 hours a day, Monday through 
Friday, except for March 3, when G was ill. G was paid for 8 hours for 
March 3. The employer calculates that G's work-hours for March were 80, 
because G worked 9 8-hour days and was paid for an additional 8 hours.


[[Page 138]]


    (d) Safe harbor--(1) In general. In lieu of calculating work-hours 
separately for each employee, an employer may use the safe harbor for 
all employees. If the employer elects to use the safe harbor for a 
calendar year, the employer must use the safe harbor for all employees 
for the entire calendar year. If an employer uses the safe harbor for a 
calendar year, the employer need not elect the safe harbor for the 
following calendar year. An employer that elects the safe harbor for a 
calendar year may not subsequently elect to separately calculate 
employee work-hours for that calendar year.
    (2) Method of calculation. The safe harbor treats each employee of 
the employer as receiving monthly compensation for a number of hours 
equal to the safe harbor number. To determine the number of work-hours 
for a month, the employer multiplies the safe harbor number by the 
number that equals the total number of employees to whom the employer 
paid compensation during the month.
    (i) Safe harbor number defined. The safe harbor number is the number 
established in guidance of general applicability promulgated by the 
Commissioner.
    (ii) Employee defined. Solely for purposes of this paragraph, an 
employee is any individual who is paid compensation, within the meaning 
of Sec.  31.3231(e)-1, regardless of the amount, during the month. Thus, 
for example, a part-time, temporary, or seasonal employee is counted as 
an employee. A terminated employee is counted in the month of 
termination (provided the terminated employee received compensation in 
the month of termination), but not in any subsequent month in which the 
employee does not perform service for the employer as an employee, even 
if the terminated employee is paid compensation in a subsequent month. 
Thus, for example, an employee who terminates employment during the 
month, receives compensation during the month of termination, and 
receives a final paycheck the following month is counted as an employee 
of the employer for the month of termination but not for the following 
month.
    (3) Method of election. An employer makes the safe harbor election 
for a calendar year on the employment tax return filed for the previous 
calendar year.
    (4) Additional rules. The Commissioner may, in revenue procedures, 
revenue rulings, notices, or other guidance of general applicability, 
revise the safe harbor number or provide additional safe harbors that 
satisfy section 3221(c).
    (e) Effective dates. This Sec.  31.3221-3 is effective for calendar 
years beginning after December 31, 1992, except that paragraph (d) is 
effective for calendar years beginning after December 31, 1993. 
Taxpayers may apply the rules in paragraphs (a), (b), and (c) of this 
section before January 1, 1993.

[T.D. 8525, 59 FR 9666, Mar. 1, 1994]



Sec.  31.3221-4  Exception from supplemental tax.

    (a) General rule. Section 3221(d) provides an exception from the 
excise tax imposed by section 3221(c). Under this exception, the excise 
tax imposed by section 3221(c) does not apply to an employer with 
respect to employees who are covered by a supplemental pension plan, as 
defined in paragraph (b) of this section, that is established pursuant 
to an agreement reached through collective bargaining between the 
employer and employees, within the meaning of paragraph (c) of this 
section.
    (b) Definition of supplemental pension plan--(1) In general. A plan 
is a supplemental pension plan covered by the section 3221(d) exception 
described in paragraph (a) of this section only if it meets the 
requirements of paragraphs (b)(2) through (b)(4) of this section.
    (2) Pension benefit requirement. A plan is a supplemental pension 
plan within the meaning of this section only if the plan is a pension 
plan within the meaning of Sec.  1.401-1(b)(1)(i) of this chapter. Thus, 
a plan is a supplemental pension plan only if the plan provides for the 
payment of definitely determinable benefits to employees over a period 
of years, usually for life, after retirement. A plan need not be funded 
through a qualified trust that meets the requirements of section 401(a) 
or an annuity contract that meets the requirements of section 403(a) in 
order to meet the requirements of this paragraph (b)(2). A

[[Page 139]]

plan that is a profit-sharing plan within the meaning of Sec.  1.401-
1(b)(1)(ii) of this chapter or a stock bonus plan within the meaning of 
Sec.  1.401-1(b)(1)(iii) of this chapter is not a supplemental pension 
plan within the meaning of this paragraph (b).
    (3) Railroad Retirement Board determination with respect to the 
plan. A plan is a supplemental pension plan within the meaning of this 
paragraph (b) with respect to an employee only during any period for 
which the Railroad Retirement Board has made a determination under 20 
CFR 216.42(d) that the plan is a private pension, the payments from 
which will result in a reduction in the employee's supplemental annuity 
payable under 45 U.S.C. 231a(b). A plan is not a supplemental pension 
plan for any time period before the Railroad Retirement Board has made 
such a determination, or after that determination is no longer in force.
    (4) Other requirements. [Reserved]
    (c) Collective bargaining agreement. A plan is established pursuant 
to a collective bargaining agreement with respect to an employee only 
if, in accordance with the rules of Sec.  1.410(b)-6(d)(2) of this 
chapter, the employee is included in a unit of employees covered by an 
agreement that the Secretary of Labor finds to be a collective 
bargaining agreement between employee representatives and one or more 
employers, provided that there is evidence that retirement benefits were 
the subject of good faith bargaining between employee representatives 
and the employer or employers.
    (d) Substitute section 3221(d) excise tax. Section 3221(d) imposes 
an excise tax on any employer who has been excepted from the excise tax 
imposed under section 3221(c) by the application of section 3221(d) and 
paragraph (a) of this section with respect to an employee. The excise 
tax is equal to the amount of the supplemental annuity paid to that 
employee under 45 U.S.C. 231a(b), plus a percentage thereof determined 
by the Railroad Retirement Board to be sufficient to cover the 
administrative costs attributable to such payments under 45 U.S.C. 
231a(b).
    (e) Effective date--(1) In general. Except as provided in paragraph 
(e)(2) of this section, this section applies beginning on October 1, 
1998.
    (2) Delayed effective date for collective bargaining agreement 
provisions. Paragraph (c) of this section applies beginning on January 
1, 2000.

[T.D. 8832, 64 FR 42833, Aug. 6, 1999]



Sec.  31.3221-5T  Recapture of credits under the Families First Coronavirus
Response Act and the Coronavirus Aid, Relief, and Economic Security Act.

    (a) Recapture of erroneously refunded credits under the Families 
First Coronavirus Response Act. Any amount of credits for qualified sick 
leave wages or qualified family leave wages under sections 7001 and 
7003, respectively, of the Families First Coronavirus Response Act 
(Families First Act), Public Law 116-127, 134 Stat. 178 (2020), as 
modified by section 3606 of the Coronavirus Aid, Relief, and Economic 
Security Act (CARES Act), Public Law 116-136, 134 Stat. 281 (2020), plus 
any amount of credits for qualified health plan expenses under sections 
7001 and 7003, that are treated as overpayments and refunded or credited 
to an employer under section 6402(a) or section 6413(b) of the Internal 
Revenue Code (Code) and to which the employer is not entitled, resulting 
in an erroneous refund to the employer, shall be treated as an 
underpayment of the taxes imposed by section 3221(a) of the Code and may 
be assessed and collected by the Secretary in the same manner as the 
taxes.
    (b) Recapture of erroneously refunded credits under the Coronavirus 
Aid, Relief, and Economic Security Act. Any amount of credits for 
qualified wages under section 2301 of the CARES Act that is treated as 
an overpayment and refunded or credited to an employer under section 
6402(a) or section 6413(b) of the Code and to which the employer is not 
entitled, resulting in an erroneous refund to the employer, shall be 
treated as an underpayment of the taxes imposed by section 3221(a) of 
the Code and may be assessed and collected by the Secretary in the same 
manner as the taxes.
    (c) Advance credit amounts erroneously refunded. The determination 
of any amount of credits erroneously refunded

[[Page 140]]

as described in paragraphs (a) and (b) of this section must take into 
account any amount of credits advanced to an employer under the process 
established by the Internal Revenue Service in accordance with sections 
7001(b)(4)(A)(ii) and 7003(b)(3)(B) of the Families First Act, as 
modified by section 3606 of the CARES Act, and section 2301(l)(1) of the 
CARES Act.
    (d) Third party payors. For purposes of this section, employers 
against whom an erroneous refund of the credits under sections 7001 and 
7003 of the Families First Act, as modified by section 3606 of the CARES 
Act, and the credits under section 2301 of the CARES Act can be assessed 
as an underpayment of the taxes imposed by section 3221(a) include 
persons treated as the employer under sections 3401(d), 3504, and 3511 
of the Code, consistent with their liability for the section 3221(a) 
taxes against which the credit applied.
    (e) Applicability date. This regulation applies to all credit 
refunds under sections 7001 and 7003 of the Families First Act, as 
modified by section 3606 of the CARES Act, advanced or paid on or after 
April 1, 2020, and all credit refunds under section 2301 of the CARES 
Act advanced or paid on or after March 13, 2020.

[T.D. 9904, 85 FR 45519, July 29, 2020]

                           General Provisions



Sec.  31.3231(a)-1  Who are employers.

    (a) Each of the following persons is an employer within the meaning 
of the act:
    (1) Any carrier, that is, any express carrier, sleeping car carrier, 
or rail carrier providing transportation subject to subchapter I of 
chapter 105 of title 49;
    (2) Any company--
    (i) Which is directly or indirectly owned or controlled by one or 
more employers as defined in paragraph (a)(1) of this section, or under 
common control therewith, and
    (ii) Which operates any equipment or facility or performs any 
service (except trucking service, casual service, and the casual 
operation of equipment or facilities) in connection with--
    (a) The transportation of passengers or property by railroad, or
    (b) The receipt, delivery, elevation, transfer in transit, 
refrigeration or icing, storage, or handling of property transported by 
railroad;
    (3) Any receiver, trustee, or other individual or body, judicial or 
otherwise, when in the possession of the property or operating all or 
any part of the business of any employer as defined in paragraph (a)(1) 
or (2) of this section;
    (4) Any railroad association, traffic association, tariff bureau, 
demurrage bureau, weighing and inspection bureau, collection agency, and 
any other association, bureau, agency, or organization controlled and 
maintained wholly or principally by two or more employers as defined in 
paragraph (a)(1), (2) or (3) of this section and engaged in the 
performance of services in connection with or incidental to railroad 
transportation;
    (5) Any railway labor organization, national in scope, which has 
been or may be organized in accordance with the provisions of the 
Railway Labor Act; and
    (6) Any subordinate unit of a national railway-labor-organization 
employer, that is, any State or National legislative committee, general 
committee, insurance department, or local lodge or division, of an 
employer as defined in paragraph (a)(5) of this section, established 
pursuant to the constitution and bylaws of such employer.
    (b) As used in paragraph (a)(2) of this section, the term 
``controlled'' includes direct or indirect control, whether legally 
enforceable and however exercisable or exercised. The control may be by 
means of stock ownership, or by agreements, licenses, or any other 
devices which insure that the operation of the company is in the 
interest of one or more carriers. It is the reality of the control, 
however, which is decisive, not its form nor the mode of its exercise.
    (c) As used in paragraph (a)(2) of this section, the term casual 
applies when the service rendered or the operation of equipment or 
facilities by a controlled company or person in connection with the 
transportation of passengers or property by railroad is so irregular or 
infrequent as to afford no substantial basis for an inference that such 
service

[[Page 141]]

or operation will be repeated, or whenever such service or operation is 
insubstantial.
    (d) The term ``employer'' does not include any street, interurban, 
or suburban electric railway, unless such railway is operating as a part 
of a general steam-railroad system of transportation, but shall not 
exclude any part of the general steam-railroad system of transportation 
which is operated by any other motive power.
    (e) The term ``employer'' does not include any company by reason of 
its being engaged in the mining of coal, the supplying of coal to an 
employer where delivery is not beyond the mine tipple and the operation 
of equipment or facilities for such mining or supplying of coal, or in 
any of such activities.
    (f) Any company that is described in paragraph (a)(2) of this 
section is an employer under section 3231. In certain cases, based on 
all the facts and circumstances, it may be appropriate to segregate 
those businesses engaged in rail services and therefore subject to the 
Railroad Retirement Tax Act from those businesses engaged exclusively in 
nonrail services and therefore not subject to the Railroad Retirement 
Tax Act. The factors considered are set forth in guidance published by 
the Internal Revenue Service.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960; T.D. 
8582, 59 FR 66191, Dec. 23, 1994]



Sec.  31.3231(b)-1  Who are employees.

    (a) In general. (1) An individual who is in the service of one or 
more employers for compensation is an employee within the meaning of the 
act. (For definitions of the terms ``employer'', ``service'', and 
``compensation'', see subsections (a), (d), and (e), respectively, of 
section 3231.) An individual is in the service of an employer, with 
respect to services rendered for compensation, if--
    (i) He is subject to the continuing authority of the employer to 
supervise and direct the manner in which he renders such services; or
    (ii) He is rendering professional or technical services and is 
integrated into the staff of the employer; or
    (iii) He is rendering, on the property used in the employer's 
operations, other personal services the rendition of which is integrated 
into the employer's operations.
    (2) In order that an individual may be in the service of an employer 
within the meaning of paragraph (a)(1)(i) of this section, it is not 
necessary that the employer actually direct or control the manner in 
which the services are rendered; it is sufficient if the employer has 
the right to do so. The right of an employer to discharge an individual 
is also an important factor indicating that the individual is subject to 
the continuing authority of the employer to supervise and direct the 
manner of rendition of the services. Other factors indicating that an 
individual is subject to the continuing authority of the employer to 
supervise and direct the manner of rendition of the services are the 
furnishing of tools and the furnishing of a place to work by the 
employer to the individual who renders the services.
    (3) In general, if an individual is subject to the control or 
direction of an employer merely as to the result to be accomplished by 
the work and not as to the means and methods for accomplishing the 
result, he is an independent contractor. On individual performing 
services as an independent contractor is not, as to such services, in 
the service of an employer within the meaning of paragraph (a)(1)(i) of 
this section. However, an individual performing services as an 
independent contractor may be, as to such services, in the service of an 
employer within the meaning of paragraph (a)(1) (ii) or (iii) of this 
section.
    (4) Whether or not an individual is an employee will be determined 
upon an examination of the particular facts of the case.
    (5) If an individual is an employee, it is of no consequence that he 
is designated as a partner, coadventurer, agent, independent contractor, 
or otherwise, or that he performs services on a part-time basis.
    (6) No distinction is made between classes or grades of employees. 
Thus, superintendents, managers, and other supervisory personnel are 
employees

[[Page 142]]

within the meaning of the act. An officer of an employer is an employee, 
but a director as such is not.
    (7) In determining whether an individual is an employee with respect 
to services rendered within the United States, the citizenship or 
residence of the individual, or the place where the contract of service 
was entered into is immaterial.
    (8) If an individual performs services for an employer (other than a 
local lodge or division or a general committee of a railway-labor-
organization employer) which does not conduct the principal part of its 
business within the United States, such individual shall be deemed to be 
in the service of such employer only to the extent that he performs 
services for it in the United States. Thus, with respect to services 
rendered for such employer outside the United States, such individual is 
not in the service of an employer.
    (9) If an individual performs services for an employer (other than a 
local lodge or division or a general committee of a railway-labor-
organization employer) which conducts the principal part of its business 
within the United States, he is in the service of such employer whether 
his services are rendered within or without the United States. In the 
case of an individual, not a citizen or resident of the United States, 
rendering services in a place outside the United States to an employer 
which is required under the laws applicable in such place to employ, in 
whole or in part, citizens or residents thereof, such individual shall 
not be deemed to be in the service of an employer with respect to 
services so rendered.
    (10) The term ``employee'' does not include any individual while he 
is engaged in the physical operations consisting of the mining of coal, 
the preparation of coal, the handling (other than movement by rail with 
standard railroad locomotives) of coal not beyond the mine tipple, or 
the loading of coal at the tipple.
    (b) Employees of local lodges or divisions of railway-labor-
organization employers. (1) An individual is in the service of a local 
lodge or division of a railway-labor-organization employer (see 
paragraph (a)(6) of Sec.  31.3231(a)-1) only if--
    (i) All, or substantially all, the individuals constituting the 
membership of such local lodge or division are employees of an employer 
conducting the principal part of its business in the United States; or
    (ii) The headquarters of such local lodge or division is located in 
the United States.
    (2) (i) An individual in the service of a local lodge or division is 
not an employee within the meaning of the act unless he was, on or after 
August 29, 1935, in the service of a carrier (see Sec.  31.3231(g) for 
definition of carrier) or he was, on August 29, 1935, in the 
``employment relation'' to a carrier.
    (ii) An individual shall be deemed to have been in the employment 
relation to a carrier on August 29, 1935, if (a) he was on that date on 
leave of absence from his employment expressly granted to him by the 
carrier by whom he was employed, or by a duly authorized representative 
or such carrier, and the grant of such leave of absence was established 
to the satisfaction of the Railroad Retirement Board before July 1947; 
or (b) he was in the service of a carrier after August 29, 1935, and 
before January 1946 in each of six calendar months whether or not 
consecutive; or (c) before August 29, 1935, he did not retire and was 
not retired or discharged from the service of the last carrier by whom 
he was employed or its corporate or operating successor, but (1) solely 
by reason of his physical or mental disability he ceased before August 
29, 1935, to be in the service of such carrier and thereafter remained 
continuously disabled until he attained age sixty-five or until August 
1945, or (2) solely for such last stated reason a carrier by whom he was 
employed before August 29, 1935, or a carrier who is its successor did 
not on or after August 29, 1935, and before August 1945 call him to 
return to service, or (3) if he was so called he was solely for such 
reason unable to render service in six calendar months as provided in 
(b) of this subdivision; or (d) he was on August 29, 1935, absent from 
the service of a carrier by reason of a discharge which, within one year 
after the effective date

[[Page 143]]

thereof, was protested, to an appropriate labor representative or to the 
carrier, as wrongful, and which was followed within 10 years of the 
effective date thereof by his reinstatement in good faith to his former 
service with all his seniority rights. However, an individual shall not 
be deemed to have been in the employment relation to a carrier on August 
29, 1935, if before that date he was granted a pension or gratuity on 
the basis of which a pension was awarded to him pursuant to section 6 of 
the Railroad Retirement Act of 1937 (45 U.S.C. 228f), or if during the 
last payroll period before August 29, 1935, in which he rendered service 
to a carrier he was not, with respect to any service in such payroll 
period, in the service of an employer (see paragraph (a) of this 
section).
    (c) Employees of general committees of railway-labor-organization 
employers. An individual is in the service of a general committee of a 
railway-labor-organization employer (see paragraph (a)(6) of Sec.  
31.3231(a)-1) only if--
    (1) He is representing a local lodge or division described in 
paragraph (b)(1) of this section; or
    (2) All, or substantially all, the individuals represented by such 
general committee are employees of an employer conducting the principal 
part of its business in the United States; or
    (3) He acts in the capacity of a general chairman or an assistant 
general chairman of a general committee which represents individuals 
rendering service in the United States to an employer. In such case, if 
his office or headquarters is not located in the United States and the 
individuals represented by such general committee are employees of an 
employer not conducting the principal part of its business in the United 
States, only a part of his remuneration for such service shall be 
regarded as compensation. The part of his remuneration regarded as 
compensation shall be in the same proportion to his total remuneration 
as the mileage in the United States under the jurisdiction of such 
general committee bears to the total mileage under its jurisdiction, 
unless such mileage formula is inapplicable, in which case such other 
formula as the Railroad Retirement Board may have prescribed pursuant to 
section 1(c) of the Railroad Retirement Act of 1937 (45 U.S.C. 228a) 
shall be applicable. However, no part of his remuneration for such 
service shall be regarded as compensation if the application of such 
mileage formula, or such other formula as the Railroad Retirement Board 
may have prescribed, would result in his compensation for the service 
being less than 10 percent of his remuneration for such service.



Sec.  31.3231(c)-1  Who are employee representatives.

    (a) An employee representative within the meaning of the act is--
    (1) Any officer or official representative of a railway labor 
organization which is not included as an employer under section 3231(a) 
who--
    (i) Was in the service of an employer either before or after June 
29, 1937, and
    (ii) Is duly authorized and designated to represent employees in 
accordance with the Railway Labor Act.

For railway labor organizations which are employers under section 
3231(a), see paragraph (a) (5) and (6) of Sec.  31.3231(a)-1.
    (2) Any individual who is regularly assigned to or regularly 
employed by an employee representative, as defined in paragraph (a)(1) 
of this section, in connection with the duties of such employee 
representative's office.
    (b) In determining whether an individual is an employee 
representative, his citizenship or residence is material only insofar as 
those factors may affect the determination of whether he was ``in the 
service of an employer'' (see paragraph (a) of Sec.  31.3231(b)-1).



Sec.  31.3231(d)-1  Service.

    See Sec.  31.3231(b)-1 for regulations relating to the term ``in the 
service of an employer.''



Sec.  31.3231(e)-1  Compensation.

    (a) Definition--(1) The term compensation has the same meaning as 
the term wages in section 3121(a), determined without regard to section 
3121(b)(9), except as specifically limited by the Railroad Retirement 
Tax Act (chapter 22 of the Internal Revenue Code) or regulation. The 
Commissioner may provide any additional guidance that may be necessary 
or appropriate in applying

[[Page 144]]

the definitions of sections 3121(a) and 3231(e).
    (2) A payment made by an employer to an individual through the 
employer's payroll is presumed, in the absence of evidence to the 
contrary, to be compensation for services rendered as an employee of the 
employer. Likewise, a payment made by an employee organization to an 
employee representative through the organization's payroll is presumed, 
in the absence of evidence to the contrary, to be compensation for 
services rendered by the employee representative as such. For rules 
regarding the treatment of deductions by an employer from remuneration 
of an employee, see Sec.  31.3123-1.
    (3) The term compensation is not confined to amounts paid for active 
service, but includes amounts paid for an identifiable period during 
which the employee is absent from the active service of the employer 
and, in the case of an employee representative, amounts paid for an 
identifiable period during which the employee representative is absent 
from the active service of the employee organization.
    (4) Compensation includes amounts paid to an employee for loss of 
earnings during an identifiable period as the result of the displacement 
of the employee to a less remunerative position or occupation as well as 
pay for time lost.
    (5) For rules regarding the treatment of reimbursement and other 
expense allowance amounts, see Sec.  31.3121(a)-3. For rules regarding 
the inclusion of fringe benefits in compensation, see Sec.  31.3121(a)-
1T.
    (6) Split-dollar life insurance arrangements. See Sec. Sec.  1.61-22 
and 1.7872-15 of this chapter for rules relating to the treatment of 
split-dollar life insurance arrangements.
    (b) Special Rules. (1) If the amount of compensation earned in any 
calendar month by an individual as an employee in the service of a local 
lodge or division of a railway-labor-organization employer is less than 
$25, the amount is disregarded for purposes of determining the employee 
tax under section 3201 and the employer tax under section 3221.
    (2) Compensation for service as a delegate to a national or 
international convention of a railway-labor-organization employer is 
disregarded for purposes of determining the employee tax under section 
3201 and the employer tax under section 3221 if the individual rendering 
the service has not previously rendered service, other than as a 
delegate, which may be included in the individual's years of service for 
purposes of the Railroad Retirement Act.
    (3) For special provisions relating to the compensation of certain 
general chairs or assistant general chairs of a general committee of a 
railway-labor-organization employer, see paragraph (c)(3) of Sec.  
31.3231(b)-1.

[T.D. 8582, 59 FR 66191, Dec. 23, 1994, as amended by T.D. 9092, 68 FR 
54361, Sept. 17, 2003]



Sec.  31.3231(e)-2  Contribution base.

    The term compensation does not include any remuneration paid during 
any calendar year by an employer to an employee for services rendered in 
excess of the applicable contribution base. For rules applying this 
provision, see Sec.  31.3121(a)(1)-1.

[T.D. 8582, 59 FR 66191, Dec. 23, 1994]



  Subpart D_Federal Unemployment Tax Act (Chapter 23, Internal Revenue 
                              Code of 1954)



Sec.  31.3301-1  Persons liable for tax.

    Every person who is an employer as defined in section 3306(a) (see 
Sec.  31.3306(a)-1) is liable for the tax. Even if an employer is not 
subject to any State unemployment compensation law, he is nevertheless 
liable for the tax. However, if he is subject to such a State law, he 
may be entitled to certain credits against the tax (see Sec. Sec.  
31.3302(a)1 to 31.3302(c)-1, inclusive). For provisions relating to 
payment of the tax, see Subpart G of the regulations in this part.



Sec.  31.3301-2  Measure of tax.

    The tax for any calendar year is measured by the amount of wages 
paid by the employer during such year with respect to employment after 
December 31, 1938. (See Sec.  31.3306(b)-1, relating to

[[Page 145]]

wages, and Sec. Sec.  31.3306(c)-1 to 31.3306(c)-3, inclusive, relating 
to employment.)

[T.D. 6658, 28 FR 6632, June 27, 1963]



Sec.  31.3301-3  Rate and computation of tax.

    (a) The rates of tax with respect to wages paid in calendar years 
after 1954 are as follows:

 
                                                                Percent
 
In the calendar years 1955 to 1960, both inclusive...........          3
In the calendar year 1961....................................        3.1
In the calendar year 1962....................................        3.5
In the calendar year 1963....................................       3.35
In the calendar year 1964 and subsequent calendar years......        3.1
 

    (b) The tax is computed by applying to the wages paid in a calendar 
year, with respect to employment after December 31, 1938, the rate in 
effect at the time the wages are paid.

[T.D. 6658, 28 FR 6632, June 27, 1963]



Sec.  31.3301-4  When wages are paid.

    Wages are paid when actually or constructively paid. Wages are 
constructively paid when they are credited to the account of or set 
apart for an employee so that they may be drawn upon by him at any time 
although not then actually reduced to possession. To constitute payment 
in such a case the wages must be credited to or set apart for the 
employee without any substantial limitation or restriction as to the 
time or manner of payment or condition upon which payment is to be made, 
and must be made available to him so that they may be drawn upon at any 
time, and their payment brought within his own control and disposition. 
See Sec.  31.6011(a)-3, relating to the return on which wages are to be 
reported.



Sec.  31.3302(a)-1  Credit against tax for contributions paid.

    (a) In general. Subject to the provision of paragraphs (b) and (c) 
of this section and to the provisions of Sec.  31.3302(c)-1, the 
taxpayer may credit against the tax for any taxable year the total 
amount of contributions paid by him into an unemployment fund maintained 
during such year under a State law which has been found by the Secretary 
of Labor to contain the provisions specified in section 3304(a); 
Provided, however, That no credit may be taken for contributions under a 
State law if such State has not been duly certified for the calendar 
year to the Secretary of the Treasury by the Secretary of Labor. The 
contributions may be credited against the tax whether or not they are 
paid with respect to employment as defined in section 3306(c). For 
provisions relating to additional credit against the tax, see Sec.  
31.3302(b)-1.
    (b) Limitation on the taxable year with respect to which 
contributions are allowable. In order to be allowable as credit against 
the tax for any taxable year, the contributions must have been paid with 
respect to such year.

    Example 1. Under the unemployment compensation law of State X, 
employer M is required to report in his contribution return for the 
quarter ending December 31, 1955, all remuneration payable for services 
rendered in such quarter. A portion of such remuneration is not paid to 
his employees until February 1, 1956. On January 20, 1956, M pays to the 
State the total amount of contributions due with respect to all 
remuneration so required to be reported. Such contributions, including 
those with respect to the remuneration paid on February 1, 1956, may be 
included in computing the credit against the tax for the calendar year 
1955. This is true even though the remuneration paid on February 1, 1956 
(if it constitutes ``wages'') is required to be reported in the Federal 
return for 1956 and not in the Federal return for 1955.
    Example 2. Under the unemployment compensation law of State Y, 
employer N is required to include in his contribution return for the 
quarter ending December 31, 1955, certain remuneration paid on December 
30, to 1955, to an employee for services to be rendered after December 
31. On January 20, 1956, N pays to the State the total amount of 
contributions due with respect to all remuneration required to be 
reported on the contribution return. Such contributions, including those 
with respect to the remuneration paid on December 30, 1955, may be 
included in computing the credit against the tax for the calendar year 
1955.

    (c) Limitation on amount of credit allowable based on time when 
contributions are paid--(1) In general. The amount of credit allowable 
for contributions paid into a State unemployment fund depends in part on 
the time of payment of such contributions. Although contributions paid 
at any time may be credited against the tax (subject to the limitations 
referred to in paragraphs

[[Page 146]]

(c)(2) and (3) of this section), no refund or credit of the tax based on 
credit for contributions paid will be allowed unless the contributions 
are paid prior to the expiration of the period of limitations applicable 
to refund or credit of the tax. For general provisions relating to the 
limitation period and to refunds, credits and abatements of the tax, see 
respectively Sec. Sec.  301.6511(a)-1, 301.6402-2 and 301.6404-1 of this 
chapter (Regulations on Procedure and Administration).
    (2) Amount of credit allowable when contributions are paid on or 
before last day for filing return. Contributions paid into a State 
unemployment fund on or before the last day upon which the Federal 
return for the taxable year is required to be filed may be credited 
against the tax in an amount equal to such contributions, but not, 
however, to exceed the total credits, determined pursuant to Sec.  
31.3302(c)-1. For provisions relating to the time for filing the return, 
see Sec.  31.6071(a)-1 in Subpart G of this part.
    (3) Amount of credit allowable when contributions are paid after 
last day for filing return. Contributions paid into a State unemployment 
fund after the last day upon which the Federal return for the taxable 
year is required to be filed may be credited against the tax in an 
amount not to exceed 90 percent of the amount which would have been 
allowable as credit on account of such contributions had they been paid 
into a State unemployment fund on or before such last day. However, see 
paragraph (c)(4) of this section relating to the payment of 
contributions to the wrong State. For general provisions relating to 
refunds, credits, and abatements of the tax, see Sec. Sec.  301.6402-2 
and 301.6404-1 of this chapter (Regulations on Procedure and 
Administration).

    Example 1. The Federal return of the M Company for the calendar year 
1961 discloses total wages of $400,000. The Federal tax, imposed at the 
rate of 3.1 percent, is $12,400. The company is liable for total State 
contributions of $8,000 for 1961. The due date of the Federal return is 
January 31, 1962, no extension of time for filing the return having been 
granted. The contributions are not paid until February 1, 1962. If the 
contributions had been paid on or before January 31, 1962, the entire 
amount of $8,000 could have been credited against the tax. (Credits 
could not exceed 2.7 percent of the wages, or $10,800. See Sec.  
31.3302(c)-1.) Since the contributions were paid after January 31, 1962, 
the M Company is entitled to a credit of 90 percent of the amount which 
would have been allowable as credit had the contributions been paid on 
time (90 percent of $8,000, or $7,200), the net liability for Federal 
tax being $5,200 ($12,400 minus $7,200).
    Example 2. The facts are the same as in example 1, except that the M 
Company is liable for and pays total State contributions of $12,000, 
instead of $8,000. If the contributions had been paid on or before 
January 31, 1962, the amount allowable as credit would have been $10,800 
(2.7 percent of wages of $400,000). Since the contributions were paid 
after January 31, 1962, the M Company is entitled to a credit of 90 
percent of $10,800, or $9,720, the net liability for Federal tax being 
$2,680 ($12,400 minus $9,720).
    Example 3. The Federal return of the R Company for the calendar year 
1961 discloses a total tax of $3,100. The company is liable for total 
State contributions of $2,700 for such year. The due date of the Federal 
return is January 31, 1962, no extension of time for filing the return 
having been granted. The R Company pays $1,700 of the total State 
contributions on or before such date, and the remaining $1,000 on 
February 1, 1962. If the $1,000 had been paid on or before January 31, 
1962, that amount could have been credited against the tax (such amount 
plus the $1,700 paid on or before January 31, 1962, not exceeding the 
aggregate credit allowable). Since the $1,000 was paid after January 31, 
1962, the R Company is entitled to a credit of 90 percent of this amount 
or $900, plus the credit of $1,700 allowable for the contributions paid 
on or before January 31, 1962. The net liability for Federal tax is thus 
$500 ($3,100 minus $2,600).

    (4) Amount of credit allowable when contributions are paid to wrong 
State. Contributions for the taxable year paid into a State unemployment 
fund which are required under the unemployment compensation law of that 
State, but which are paid with respect to remuneration on the basis of 
which the taxpayer had, prior to such payment, erroneously paid an 
amount as contributions under another unemployment compensation law, 
shall be deemed for purposes of the credit to have been paid at the time 
of the erroneous payment. If, by reason of such other law, the taxpayer 
was entitled to cease paying contributions for such taxable year with 
respect to services subject to such other law, the payment into the 
proper fund shall be deemed for purposes of credit to have been made on 
the date

[[Page 147]]

the Federal return for such year was actually filed by the taxpayer 
under Sec.  31.6011(a)-3.

    Example. Employee N, whose Federal return for the calendar year 1961 
discloses a total tax of $3,100, employs individuals in State X and 
State Y during the calendar year 1961. N assumes in good faith that the 
services of his employees are covered by the unemployment compensation 
law of State Y, and pays as contributions to State Y the amount of 
$2,700 based upon the remuneration of the employees. All of the services 
were in fact covered by the unemployment compensation law of State X, 
and none by the law of State Y. The payment to State Y was made on 
January 31, 1962. When the error was discovered thereafter, N paid to 
State X contributions in the amount of $2,700 based upon such 
remuneration. Since the contributions were paid to State Y on January 
31, 1962, the contributions to State X are, for purposes of the credit, 
deemed to have been paid on such date. N is entitled to a credit of 
$2,700 against the Federal tax of $3,100, the net liability for Federal 
tax being $400 ($3,100 minus $2,700).

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6658, 28 FR 
6632, June 27, 1963]



Sec.  31.3302(a)-2  Refund of State contributions.

    If, subsequent to the filing of the return, a refund is made by a 
State to the taxpayer of any part of his contribution credited against 
the tax, the taxpayer is required to advise the district director of the 
date and amount of such refund and the reason therefor, and to pay the 
tax, if any, due as a result of such refund, together with interest from 
the date when the tax was due.



Sec.  31.3302(a)-3  Proof of credit under section 3302(a).

    Credit against the tax for any calendar year for contributions paid 
into State unemployment funds shall not be allowed unless there is 
submitted to the district director:
    (a) A certificate of the proper officer of each State (the laws of 
which required the contributions to be paid) showing, for the taxpayer:
    (1) The total amount of contributions required to be paid under the 
State law with respect to such calendar year (exclusive of penalties and 
interest) which was actually paid on or before the date the Federal 
return is required to be filed; and
    (2) The amounts and dates of such required payments (exclusive of 
penalties and interest) actually paid after the date the Federal return 
is required to be filed.
    (b) A statement by the taxpayer that no part of any payment made by 
him into a State unemployment fund for such calendar year, which is 
claimed as a credit against the tax, was deducted or is to be deducted 
from the remuneration of individuals in his employ. Such statement shall 
contain or be verified by a written declaration that it is made under 
the penalties of perjury.
    (c) Such other or additional proof as the Commissioner or the 
district director may deem necessary to establish the right to the 
credit provided for under section 3302(a).



Sec.  31.3302(b)-1  Additional credit against tax.

    (a) In general. In addition to the credit against the tax allowable 
for contributions actually paid to State unemployment funds (see Sec.  
31.3302(a)-1), the taxpayer may be entitled to a credit under section 
3302(b). This additional credit is allowable to the taxpayer with 
respect to the amount of contributions which he is relieved from paying 
to an unemployment fund under the provisions of a State law which have 
been certified for the taxable year as provided in section 3303. 
Generally, an additional credit is available to an employer, if under 
the provisions of a State law which have been so certified he is 
permitted to pay contributions to such State for the taxable year, or 
portion thereof, at a rate which is both lower than the highest rate 
applied under such law in such year and lower than 2.7 percent. No 
additional credit is allowable except with respect to a State law 
certified by the Secretary of Labor for the taxable year as provided in 
section 3303 (or with respect to any provisions thereof so certified).
    (b) Method of computing amount of additional credit allowable with 
respect to a State law--(1) Certification of a State law as a whole. In 
ascertaining the additional credit for any taxable year with respect to 
a particular State law which

[[Page 148]]

the Secretary of Labor certifies as a whole to the Secretary of the 
Treasury in accordance with the provisions of section 3303, the taxpayer 
must first compute the following amounts:
    (i) The amount of contributions (whether or not with respect to 
employment as defined in section 3306(c)) which the taxpayer would have 
been required to pay under the State law for such year if throughout the 
year he had been subject to the highest rate applied under such law in 
such year, or to a rate of 2.7 percent, whichever rate is lower.
    (ii) The amount of contributions (whether or not with respect to 
employment as defined in section 3306 (c)) he was required to pay under 
the State law with respect to such year, whether or not paid.

The amount computed under paragraph (b)(1)(ii) of this section should 
then be subtracted from the amount computed under paragraph (b)(1)(i) of 
this section and the result will be the additional credit for the 
taxable year with respect to the law of that State.

    Example. A employs individuals only in State X during the calendar 
year 1955. The unemployment compensation law of State X has been 
certified in its entirety to the Secretary of the Treasury by the 
Secretary of Labor for such year. The highest rate applied in such year 
under such State law to any taxpayer is 3 percent. However, A has 
obtained a rate of 1 percent under the law of such State and is required 
to pay his entire year's contribution at that rate. The amount of 
remuneration of A's employees subject to contributions under such State 
law is $25,000. A's additional credit under section 3302(b) is $425, 
computed as follows:

Remuneration subject to contributions.........................   $25,000
                                                               =========
Contributions at 2.7 percent rate.............................       675
Less:
  Contributions required to be paid at 1 percent rate.........       250
                                                               ---------
Additional credit to A........................................       425
 


Since the 2.7 percent rate is less than the highest rate applied (3 
percent), the 2.7 percent rate is used in computing the amount ($675) 
from which the amount of contributions required to be paid at the 1 
percent rate ($250) is deducted in order to ascertain the additional 
credit ($425).

    (2) Certification with respect to particular provisions of a State 
law. If the Secretary of Labor makes a certification to the Secretary of 
the Treasury with respect to particular provisions of a State law for 
any taxable year pursuant to section 3303, the additional credit of the 
taxpayer for such year with respect to such law shall be computed in 
such manner as the Commissioner shall determine.
    (c) Amount of additional credit allowable to taxpayer with respect 
to more than one State law. If the taxpayer is entitled to additional 
credit with respect to more than one State law in any taxable year, the 
additional credit allowable with respect to each State law shall be 
computed separately (in accordance with paragraph (b) of this section) 
and the total additional credit allowable against the tax for such year 
shall be the aggregate of the additional credits allowable with respect 
to such State laws. For limitation on total credits, see Sec.  
31.3302(c)-1.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6658, 28 FR 
6632, June 27, 1963]



Sec.  31.3302(b)-2  Proof of additional credit under section 3302(b).

    Additional credit under section 3302(b) shall not be allowed against 
the tax for any calendar year unless there is submitted--
    (a) To the Commissioner a certificate of the proper officer of each 
State (with respect to the law of which the additional credit is 
claimed) showing the highest rate of contributions applied under the 
State law in such calendar year to any person having individuals in his 
employ; and
    (b) To the district director a certificate of the proper officer of 
each State (with respect to the law of which the additional credit is 
claimed) showing for the taxpayer--
    (1) The total remuneration with respect to which contributions were 
required to be paid by the taxpayer under the State law with respect to 
such calendar year; and
    (2) The rate of contributions applied to the taxpayer under the 
State law with respect to such calendar year.

If under the law of such State different rates of contributions were 
applied to the taxpayer during particular periods of such calendar year, 
the certificate shall set forth the information called for in paragraphs 
(b)(1) and (2) of this

[[Page 149]]

section with respect to each such period.
    (c) Such other or additional proof as the Commissioner or the 
district director may deem necessary to establish the right to the 
additional credit provided for under section 3302(b).



Sec.  31.3302(c)-1  Limit on total credits.

    (a) In general. Paragraph (b) of this section relates to the 
limitation on the aggregate of the credits allowable under section 3302 
(a) and (b). Paragraph (c) of this section relates to reductions, under 
certain circumstances, of the total credits allowable after applying 
section 3302 (a), (b), and (c)(1). In paragraphs (c)(1), (2), and (3) of 
this section, relate, respectively, to reductions of credits in respect 
of advances under title XII of the Social Security Act before September 
13, 1960, advances under title XII of the Social Security Act after 
September 12, 1960, and payments under the Temporary Unemployment 
Compensation Act of 1958. A reduction of credit under paragraph (c)(1), 
(2), or (3) of this section applies separately from, and in addition to, 
a reduction under any other such subparagraph. See section 3302(d) and 
Sec.  31.3302(d)-1 for definitions and special rules relating to section 
3302(c), and for a provision that, in applying section 3302(c), the 
Federal tax shall be computed at the rate of 3 percent.
    (b) Limitation on aggregate credit. The aggregate of the credit 
under section 3302(a) and the additional credit under section 3302(b) 
shall not exceed 90 percent of the tax against which credit is taken, 
computed as if the tax were imposed at the rate of 3 percent. Thus, the 
aggregate of the credit which is allowable to an employer for any 
taxable year shall not exceed 2.7 percent of the wages paid by the 
employer during the year.
    (c) Reductions of amount of credit otherwise allowable--(1) Advances 
before September 13, 1960, under title XII of Social Security Act--(i) 
Credit reductions for 1961 and 1962. Pursuant to section 3302(c)(2), as 
applicable to credit allowable for any year ended before 1963, the total 
credits otherwise allowable under section 3302 to a taxpayer subject to 
the unemployment compensation law of the State of--
    (a) Alaska shall be reduced for the taxable year 1961 by an amount 
equal to 0.15 percent of the wages paid by the taxpayer during 1961 
which are attributable to Alaska, and shall be reduced for the taxable 
year 1962 by an amount equal to 0.3 percent of the wages paid by the 
taxpayer during 1962 which are attributable to Alaska; or
    (b) Michigan shall be reduced for the taxable year 1962 by an amount 
equal to 0.15 percent of the wages paid by the taxpayer during 1962 
which are attributable to Michigan.
    (ii) Credit reductions for 1963 and subsequent years. If any balance 
of an advance or advances under title XII of the Social Security Act, 
made before September 13, 1960, to the unemployment account of a State, 
remains unpaid on January 1, 1963, or on January 1 of any succeeding 
taxable year, the total credits otherwise allowable under section 3302 
to a taxpayer subject to the unemployment compensation law of the State 
shall be reduced for the taxable year unless--
    (a) No balance of such advance or advances exists as of the 
beginning of November 10 of the taxable year, or
    (b) The State pays into the Federal unemployment account, before 
November 10 of the taxable year, the amount certified by the Secretary 
of Labor pursuant to section 3302(c)(2), and designates such payment as 
being made for purposes of the last sentence of section 3302(c)(2).

The credit reduction for a taxable year shall be a percentage of the 
wages paid by the taxpayer during that taxable year which are 
attributable to the State. The percentage for the taxable year 1963, or 
for any succeeding taxable year beginning before January 1, 1968, is 
0.15 percent (that is, 5 percent of the Federal tax, computed as if 
imposed at the rate of 3 percent of the wages). The percentage for any 
taxable year beginning on or after January 1, 1968, is the percentage 
reduction for the immediately preceding taxable year plus 0.15 percent. 
Thus, for 1968 the percentage is 0.3 percent, for 1969 the percentage is 
0.45 percent, and for 1970 the percentage is 0.6 percent.
    (2) Advances after September 12, 1960, under title XII of Social 
Security Act--(i) In general. If any balance of an advance

[[Page 150]]

or advances under title XII of the Social Security Act, made after 
September 12, 1960, to the unemployment account of a State, remains 
unpaid on January 1 of two consecutive taxable years, the total credits 
otherwise allowable under section 3302 to a taxpayer subject to the 
unemployment compensation law of the State shall be reduced for the 
taxable year beginning with the second consecutive January 1, unless 
prior to November 10 of that taxable year the total amount of any such 
advance or advances made to the account of the State has been fully 
repaid. The reduction made pursuant to this subdivision in the total 
credits otherwise allowable for the taxable year beginning with the 
second consecutive January 1 shall be 0.3 percent of the wages paid by 
the taxpayer during the taxable year which are attributable to the State 
(that is, 10 percent of the Federal tax, computed as if imposed at the 
rate of 3 percent of the wages). In the case of any succeeding taxable 
year beginning with a consecutive January 1 on which there exists such a 
balance of an unreturned advance or advances made after September 12, 
1960, the total credits otherwise allowable shall be further reduced 
unless prior to November 10 of that succeeding taxable year the total 
amount of any such advance or advances made to the account of the State 
has been fully repaid. The reduction for each such succeeding taxable 
year beginning with a consecutive January 1 on which such a balance 
exists shall be a percentage of the wages paid by the taxpayer during 
that succeeding taxable year which are attributable to the State. The 
percentage reduction for any such succeeding taxable year shall be the 
aggregate of (a) the percentage reduction (without regard to paragraph 
(c)(2)(ii) or (iii) of this section) for the immediately preceding 
taxable year, (b) 0.3 percent of the wages paid by the taxpayer during 
the taxable year which are attributable to the State, and (c) the 
percentage, if any, described in paragraph (c)(2)(ii) or (iii) of this 
section.
    (ii) Additional reduction if a balance of advances exists after 
third or fourth consecutive January 1. If the credit reduction described 
in subdivision (i) of this subparagraph is made for the third or fourth 
consecutive taxable year, the total credits otherwise allowable under 
section 3302 to a taxpayer subject to the unemployment compensation law 
of the State shall be further reduced for the taxable year unless the 
average employer contribution rate (see section 3302(d)(4)) for such 
State for the calendar year preceding such taxable year is at least 2.7 
percent. The percentage of reduction, if any, under this subdivision 
shall be the percentage referred to in section 3302(c)(3)(B) which is 
certified by the Secretary of Labor pursuant to section 3302(d)(7).
    (iii) Additional reduction if a balance of advances exists after 
fifth or any succeeding consecutive January 1. If the credit reduction 
described in subdivision (i) of this subparagraph is made for the fifth 
or any succeeding taxable year, the total credits otherwise allowable 
under section 3302 to a taxpayer subject to the unemployment 
compensation law of the State shall be further reduced for the taxable 
year unless the average employer contribution rate (see section 
3302(d)(4)) for the State for the calendar year preceding such taxable 
year equals or exceeds the 5-year benefit cost rate (see section 
3302(d)(5)) applicable to the State for the taxable year or 2.7 percent, 
whichever is higher. The percentage of reduction, if any, under this 
subdivision for a taxable year shall be the percentage referred to in 
section 3302(c)(3)(C) which is certified by the Secretary of Labor 
pursuant to section 3302(d)(7).
    (3) Payments under the Temporary Unemployment Compensation Act of 
1958. If any amount of temporary unemployment compensation was paid in a 
State under the Temporary Unemployment Compensation Act of 1958, the 
total credits otherwise allowable under section 3302 to a taxpayer with 
respect to wages attributable to the State for the taxable year 
beginning January 1, 1963, and for each taxable year thereafter, shall 
be reduced unless prior to November 10 of the taxable year--
    (i) There have been restored to the Treasury the amounts of 
temporary unemployment compensation paid in the State (except amounts 
paid to individuals who exhausted their unemployment compensation under 
title XV of

[[Page 151]]

the Social Security Act and title IV of the Veterans' Readjustment 
Assistance Act of 1952 prior to their making their first claims under 
the Temporary Unemployment Compensation Act of 1958), the amount of 
costs incurred in the administration of the Temporary Unemployment 
Compensation Act of 1958); with respect to the State, and the amount 
estimated by the Secretary of Labor as the State's proportionate share 
of other costs incurred in the administration of such Act, or
    (ii) The State restores to the general fund of the Treasury the 
amount certified by the Secretary of Labor pursuant to section 104 of 
the Temporary Unemployment Compensation Act of 1958, and designates such 
restoration as being made for purposes of the last sentence of such 
section.

The credit reduction for a taxable year shall be a percentage of the 
wages paid by the taxpayer during that year which are attributable to 
the State. The percentage for the taxable year 1963 is 0.15 percent 
(that is, 5 percent of the Federal tax, computed as if imposed at the 
rate of 3 percent). The percentage for any succeeding year is 0.3 
percent (that is, 10 percent of the Federal tax, computed as if imposed 
at the rate of 3 percent).
    (4) Example. The cumulative effect of the credit reductions 
described in this paragraph may be illustrated by the following example:

    Example. Advances to the unemployment account of State X were made 
in 1957 and in 1961 under title XII of the Social Security Act. Payments 
under the Temporary Unemployment Compensation Act of 1958 were made in 
State X in 1958. No portion of the advances or payments is returned 
before November 10, 1964. As a consequence:
    (a) The credit reduction applicable under subparagraph (1) of this 
paragraph is made for 1964 at the rate of 0.15 percent;
    (b) The credit reduction described in subparagraph (2) of this 
paragraph has been made for 1963 (the second successive year after 1961) 
at the rate of 0.3 percent. The rate of credit reduction under 
subparagraph (2) for 1964 is 1 percent (the aggregate of 0.6 percent 
under section 3302(c)(3)(A) and 0.4 percent (assumed for purposes of 
this example to be the percentage referred to in section 3302(c)(3)(B) 
which is certified by the Secretary of Labor), and
    (c) The credit reduction described in subparagraph (3) of this 
paragraph has been made for 1963 at the rate of 0.15 percent. The rate 
of credit reduction for 1964 is 0.3 percent.

The cumulative rate of credit reduction applicable for 1964 to wages 
attributable to State X is 1.45 percent, representing the aggregate of 
the percentage reductions applicable under subparagraphs (1), (2), and 
(3) of this paragraph (0.15 percent, 1 percent, and 0.3 percent, 
respectively). In 1964 Employer A paid wages of $100,000, all of which 
are subject to the unemployment compensation law of State X. The credit 
which would be allowable (under section 3302 (a), (b), and (c)(1)) if 
there were no credit reduction is $2,700. Employer A's tax is computed 
as follows for 1964:

Total taxable wages (attributable to State X)...    $100,000
                                                 =============
Gross Federal tax (3.1 percent of wages)........       3,100
Less credit:
  Gross credit..................................      $2,700
  Credit reduction (1.45 percent of wages)......       1,450
  Net credit....................................       1,250
                                                 -------------
Amount of Federal tax due.......................       1,850
 


[T.D. 6658, 28 FR 6633, June 27, 1963, as amended by T.D. 6708, 29 FR 
3198, Mar. 10, 1964]



Sec.  31.3302(d)-1  Definitions and special rules relating to limit on
total credits.

    (a) Rate of tax deemed to be 3 percent. In applying the provisions 
of section 3302(c) relating to the limitation on total credits, and to 
reductions of credits otherwise allowable, the tax imposed by section 
3301 shall be computed at the rate of 3 percent in lieu of any other 
rate prescribed in section 3301 (see Sec.  31.3301-3).
    (b) Wages attributable to a particular State. For purposes of 
section 3302(c) (2) or (3), wages are attributable to a particular State 
if they are subject to the unemployment compensation law of the State. 
If wages are not subject to the unemployment compensation law of any 
State, the determination as to whether such wages, or any portion 
thereof, are attributable to the particular State with respect to which 
the reduction in total credits is imposed shall be made in accordance 
with rules prescribed by the Commissioner.
    (c) Employment Security Act of 1960. The Employment Security Act of 
1960, referred to in section 3302(c)(2), means

[[Page 152]]

title V of the Social Security Amendments of 1960.

[T.D. 6658, 28 FR 6635, June 27, 1963]



Sec.  31.3302(e)-1  Successor employer.

    (a) In general. In addition to the credits against the tax allowable 
under section 3302(a) and (b) for any taxable year after 1960, the 
taxpayer may be entitled to an amount of credit under section 3302(e). 
Credit under section 3302(e) is provided in the case of a taxpayer who 
(1) acquires substantially all of the property used in a trade or 
business, or in a separate unit of a trade or business, of another 
person (referred to in this section as a predecessor) who is not an 
employer (see Sec.  31.3306(a)-1) for the calendar year in which the 
acquisition takes place, and (2) immediately after the acquisition 
employs in his trade or business one or more individuals who immediately 
prior to the acquisition were employed in the trade or business of the 
predecessor.
    (b) Method of computing credit under section 3302(e). (1) Except as 
provided in paragraph (b)(2) of this section, the amount of credit to 
which the taxpayer may be entitled under section 3302(e) is the amount 
of credit to which the predecessor would be entitled under section 3302 
(a), (b), and (e), without regard to the limits in section 3302(c), if 
the predecessor were an employer.
    (2) If, during the calendar year in which the acquisition takes 
place, the predecessor pays remuneration, subject to contributions under 
the unemployment compensation law of a State, to any employee other than 
the individuals referred to in paragraph (a) of this section, the 
taxpayer will be entitled only to a portion of the amount of credit 
described in paragraph (b)(1) of this section. The portion is determined 
by multiplying such amount by a fraction. The numerator of the fraction 
is the total amount of remuneration, subject to such contributions, paid 
by the predecessor during such year to the individuals referred to in 
paragraph (a) of this section. The denominator of the fraction is the 
total amount of remuneration, subject to such contributions, paid by the 
predecessor during such year to all employees for services performed by 
them in the trade or business, or unit thereof, acquired by the 
taxpayer.

    Example. In April 1961 the X Partnership terminated after selling 
all of its property to the Y Corporation. During 1961, the X Partnership 
paid its employees and former employees a total of $1,000,000 as 
remuneration subject to contributions under the employment compensation 
law of a State. (Note that the X Partnership did not qualify as an 
employer for 1961 for purposes of the Federal unemployment tax, because 
it had employees during less than 20 weeks in 1961.) When the Y 
Corporation acquired the property it concurrently employed all 
individuals who were then in the employ of the X Partnership. Assume 
that the X Partnership, if it had qualified as an employer for 1961, 
would have been entitled to a total credit against the Federal tax of 
$30,000 under section 3302 (a) and (b), without regard to the limits in 
section 3302(c). Of the $1,000,000 remuneration paid by the X 
Partnership in 1961, one-fifth (or $200,000) was paid to individuals who 
were employed by the Y Corporation at the time it acquired the property 
of the X Partnership. Under section 3302(e), therefore, the Y 
Corporation is entitled to credit of $6,000, which is one-fifth of the 
credit ($30,000) which would have been available to the X Partnership.

    (3) The aggregate amount of credit allowable to the taxpayer under 
section 3302 (a), (b), and (e) is subject to the limits in section 
3302(c).
    (c) Proof of credit under section 3302(e). Credit under section 
3302(e) shall not be allowed against the tax for any taxable year unless 
there is submitted to the district director (1) such information or 
proof as may be called for in the return on which the credit is 
reported, or in the instructions relating to the return, and (2) such 
other or additional proof as the Commissioner or the district director 
may deem necessary to establish the right to the credit provided for 
under section 3302(e).
    (d) Cross-references. See paragraph (b) of Sec.  31.3306(b)(1)-1 for 
examples of the acquisition of property used in a trade or business, or 
in a separate unit thereof.

[T.D. 6658, 28 FR 6635, June 27, 1963]



Sec.  31.3306(a)-1  Who are employers.

    (a) Definition--(1) For calendar years 1956 through 1969, inclusive. 
Every person who employs 4 or more employees in employment (within the 
meaning of section 3306 (c) and (d)) on a total of 20

[[Page 153]]

or more calendar days during any calendar year after 1955 and before 
1970, each such day being in a different calendar week, is with respect 
to such year an employer subject to the tax.
    (1a) For 1970 and subsequent calendar years. Every person who 
employs 4 or more employees in employment (within the meaning of section 
3306 (c) and (d)) on a total of 20 or more calendar days during a 
calendar year after 1969, or during the calendar year immediately 
preceding such a calendar year, each such day being in a different 
calendar week, is with respect to such year an employer subject to the 
tax.
    (2) For calendar year 1955. Every person who employs 8 or more 
employees in employment (within the meaning of section 3306 (c) and (d)) 
on a total of 20 or more calendar days during the calendar year 1955, 
each such day being in a different calendar week, is with respect to 
such year an employer subject to the tax.
    (3) General agents of the Secretary of Commerce. For provisions 
relating to the circumstances under which an employee who performs 
services as an officer or member of the crew of an American vessel (i) 
which is owned by or bareboat chartered to the United States and (ii) 
whose business is conducted by a general agent of the Secretary of 
Commerce shall be deemed to be performing services for such general 
agent rather than for the United States, see Sec.  31.3306 (N)-1.
    (b) The several weeks in each of which occurs a day on which the 
prescribed number of employees are employed need not be consecutive 
weeks. It is not necessary that the employees so employed be the same 
individuals; they may be different individuals on each day. Neither is 
it necessary that the prescribed number of employees be employed at the 
same moment of time or for any particular length of time or on any 
particular basis of compensation. It is sufficient if the total number 
of employees employed during the 24 hours of a calendar day is 4 or more 
(8 or more for the calendar year 1955).
    (c) In determining whether a person employs a sufficient number of 
employees to be an employer subject to the tax, each employee is counted 
with respect to services which constitute employment as defined in 
section 3306(c) (see Sec.  31.3306(c)-2). No employee is counted with 
respect to services which do not constitute employment as so defined. 
See, however, paragraph (d) of this section.
    (d) The provisions of paragraph (c) of this section are subject to 
the provisions of section 3306(d), relating to services which do not 
constitute employment but which are deemed to be employment, and 
relating to services which constitute employment but which are deemed 
not to be employment (see Sec.  31.3306(d)-1). For example, if the 
services of an employee during a pay period are deemed to be employment 
under section 3306(d), even though a portion thereof does not constitute 
employment under section 3306(c), the employee is counted with respect 
to all services during the pay period. On the other hand, if the 
services of an employee during a pay period are deemed not to be 
employment, even though a portion thereof constitutes employment, the 
employee is not counted with respect to any services during the pay 
period.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 7037, 35 FR 
6709, Apr. 28, 1970]



Sec.  31.3306(b)-1  Wages.

    (a) Applicable law and regulations--(1) Remuneration paid after 
1954. Whether remuneration paid after 1954 for employment performed 
after 1938 constitutes wages is determined under section 3306(b). 
Accordingly, only remuneration paid after 1954 for employment performed 
after 1938 is covered by this section of the regulations and by the 
sections relating to the statutory exclusions from wages (Sec. Sec.  
31.3306(b)(1)-1 to 31.3306(b)(10)-1).
    (2) Remuneration paid after 1939 and before 1955. Whether 
remuneration paid after 1939 and before 1955 for employment performed 
after 1938 constitutes wages shall be determined in accordance with the 
applicable provisions of law and of 26 CFR (1939) Part 403 (Regulations 
107).
    (3) Remuneration paid in 1939. Whether remuneration paid in 1939 for 
employment performed after 1938 constitutes wages shall be determined in 
accordance with the applicable provisions of

[[Page 154]]

law and of 26 CFR (1939) Part 400 (Regulations 90).
    (b) The term ``wages'' means all remuneration for employment unless 
specifically excepted under section 3306(b) (see Sec. Sec.  
31.3306(b)(1)-1 to 31.3306(b)(10)-1, inclusive) or paragraph (j) of this 
section.
    (c) The name by which the remuneration for employment is designated 
is immaterial. Thus, salaries, fees, bonuses, and commissions are wages 
if paid as compensation for employment.
    (d) The basis upon which the remuneration is paid is immaterial in 
determining whether the remuneration constitutes wages. Thus, it may be 
paid on the basis of piecework or a percentage of profits; and it may be 
paid hourly, daily, weekly, monthly, or annually.
    (e) Except in the case of remuneration paid for services not in the 
course of the employer's trade or business (see Sec.  31.3306(b)(7)-1), 
the medium in which the remuneration is paid is also immaterial. It may 
be paid in cash or in something other than cash, as for example, goods, 
lodging, food, or clothing. Remuneration paid in items other than cash 
shall be computed on the basis of the fair value of such items at the 
time of payments.
    (f) Ordinarily, facilities or privileges (such as entertainment, 
medical services, or so-called ``courtesy'' discounts on purchases), 
furnished or offered by an employer to his employees generally, are not 
considered as remuneration for employment if such facilities or 
privileges are of relatively small value and are offered or furnished by 
the employer merely as a means of promoting the health, good will, 
contentment, or efficiency of his employees. The term ``facilities or 
privileges'', however, does not ordinarily include the value of meals or 
lodging furnished, for example, to restaurant or hotel employees, or to 
seamen or other employees aboard vessels, since generally these items 
constitute an appreciable part of the total remuneration of such 
employees.
    (g) Amounts of so-called ``vacation allowances'' paid to an employee 
constitute wages. Thus, the salary of an employee on vacation, paid 
notwithstanding his absence from work, constitutes wages.
    (h) Amounts paid specifically--either as advances or 
reimbursements--for traveling or other bona fide ordinary and necessary 
expenses incurred or reasonably expected to be incurred in the business 
of the employer are not wages. Traveling and other reimbursed expenses 
must be identified either by making a separate payment or by 
specifically indicating the separate amounts where both wages and 
expense allowances are combined in a single payment. For amounts that 
are received by an employee on or after July 1, 1990, with respect to 
expenses paid or incurred on or after July 1, 1990, see Sec.  
31.3306(b)-2.
    (i) Remuneration paid by an employer to an individual for 
employment, unless such remuneration is specifically excepted under 
section 3306(b), constitutes wages even though at the time paid the 
individual is no longer an employee.

    Example. A is employed by B, an employer, during the month of June 
1955 in employment and is entitled to receive remuneration of $100 for 
the services performed for B during the month. A leaves the employ of B 
at the close of business on June 30, 1955. On July 15, 1955 (when A is 
no longer an employee of B), B pays A the remuneration of $100 which was 
earned for the services performed in June. The $100 is wages, and the 
tax is payable with respect thereto.

    (j) In addition to the exclusions specified in Sec. Sec.  
31.3306(b)(1)-1 to 31.3306(b)(10)-1, inclusive, the following types of 
payments are excluded from wages:
    (1) Remuneration for services which do not constitute employment 
under section 3306(c).
    (2) Remuneration for services which are deemed not to be employment 
under section 3306(d) (Sec.  31.3306(d)-1).
    (3) Tips or gratuities paid directly to an employee by a customer of 
an employer, and not accounted for by the employee to the employer.
    (k) For provisions relating to the treatment of deductions from 
remuneration as payments of remuneration, see Sec.  31.3307-1.
    (l) Split-dollar life insurance arrangements. Except as otherwise 
provided under section 3306(r), see Sec. Sec.  1.61-22 and

[[Page 155]]

1.7872-15 of this chapter for rules relating to the treatment of split-
dollar life insurance arrangements.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6658, 28 FR 
6636, June 27, 1963; T.D. 7375, 40 FR 42350, Sept. 12, 1975; T.D. 8276, 
54 FR 51028, Dec. 12, 1989; T.D. 8324, 55 FR 51697, Dec. 17, 1990; T.D. 
9092, 68 FR 54361, Sept. 17, 2003]



Sec.  31.3306(b)-1T  Question and answer relating to the definition of
wages in section 3306(b) (Temporary).

    The following question and answer relates to the definition of wages 
in section 3306(b) of the Internal Revenue Code of 1954, as amended by 
section 531(d)(3) of the Tax Reform Act of 1984 (98 Stat. 885):
    Q-1: Are fringe benefits included in the definition of wages under 
section 3306(b)?
    A-1: Yes, unless specifically excluded from the definition of 
``wages'' pursuant to section 3306(b) (1) through (16). For example, a 
fringe benefit provided to or on behalf of an employee is excluded from 
the definition of ``wages'' if at the time such benefit is provided it 
is reasonable to believe that the employee will be able to exclude such 
benefit from income under section 117 or 132.

[T.D. 8004, 50 FR 755, Jan. 7, 1985]



Sec.  31.3306(b)-2  Reimbursement and other expense allowance amounts.

    (a) When excluded from wages. If a reimbursement or other expense 
allowance arrangement meets the requirements of section 62(c) of the 
Code and Sec.  1.62-2 and the expenses are substantiated within a 
reasonable period of time, payments made under the arrangement that do 
not exceed the substantiated expenses are treated as paid under an 
accountable plan and are not wages. In addition, if both wages and the 
reimbursement or other expense allowance are combined in a single 
payment, the reimbursement or other expense allowance must be identified 
either by making a separate payment or by specifically identifying the 
amount of the reimbursement or other expense allowance.
    (b) When included in wages--(1) Accountable plans--(i) General rule. 
Except as provided in paragraph (b)(1)(ii) of this section, if a 
reimbursement or other expense allowance arrangement satisfied the 
requirements of section 62(c) and Sec.  1.62-2, but the expenses are not 
substantiated within a reasonable period of time or amounts in excess of 
the substantiated expenses are not returned within a reasonable period 
of time, the amount paid under the arrangement in excess of the 
substantiated expenses is treated as paid under a nonaccountable plan, 
is included in wages, and is subject to withholding and payment of 
employment taxes no later than the first payroll period following the 
end of the reasonable period.
    (ii) Per diem or mileage allowances. If a reimbursement or other 
expense allowance arrangement providing a per diem or mileage allowance 
satisfies the requirements of section 62(c) and Sec.  1.62-2, but the 
allowance is paid at a rate for each day or mile of travel that exceeds 
the amount of the employee's expenses deemed substantiated for a day or 
mile of travel, the excess portion is treated as paid under a 
nonaccountable plan and is included in wages. In the case of a per diem 
or mileage allowance paid as a reimbursement, the excess portion is 
subject to withholding and payment of employment taxes when paid. In the 
case of a per diem or mileage allowance paid as an advance, the excess 
portion is subject to withholding and payment of employment taxes no 
later than the first payroll period following the payroll period in 
which the expenses with respect to which the advance was paid (i.e., the 
days or miles of travel) are substantiated. The Commissioner may, in his 
discretion, prescribe special rules in pronouncements of general 
applicability regarding the timing of withholding and payment of 
employment taxes on per diem and mileage allowances.
    (2) Nonaccountable plans. If a reimbursement or other expense 
allowance arrangement does not satisfy the requirements of section 62(c) 
and Sec.  1.62-2 (e.g., the arrangement does not require expenses to be 
substantiated or require amounts in excess of the substantiated expenses 
to be returned), all amounts paid under the arrangement are treated as 
paid under a nonaccountable plan, are included in wages, and are subject

[[Page 156]]

to withholding and payment of employment taxes when paid.
    (c) Effective dates. This section generally applies to payments made 
under reimbursement or other expense allowance arrangements received by 
an employee on or after July 1, 1990, with respect to expenses paid or 
incurred on or after July 1, 1990. Paragraph (b)(1)(ii) of this section 
applies to payments made under reimbursement or other expense allowance 
arrangements received by an employee on or after January 1, 1991, with 
respect to expenses paid or incurred on or after January 1, 1991.

[T.D. 8324, 55 FR 51697, Dec. 17, 1990]



Sec.  31.3306(b)(1)-1  $3,000 limitation.

    (a) In general. (1) the term ``wages'' does not include that part of 
the remuneration paid within any calendar year by an employer to an 
employee which exceeds the first $3,000 of remuneration (exclusive of 
remuneration excepted from wages in accordance with paragraph (j) of 
Sec.  31.3306(b)-1 or Sec. Sec.  31.3306(b)(2)-1 to 31.3306(b)(8)-1, 
inclusive), paid within such calendar year by such employer to such 
employee for employment performed for him at any time after 1938.
    (2) The $3,000 limitation applies only if the remuneration paid 
during any one calendar year by an employer to the same employee for 
employment performed after 1938 exceeds $3,000. The limitation in such 
case relates to the amount of remuneration paid during any one calendar 
year for employment after 1938 and not to the amount of remuneration for 
employment performed in any one calendar year.

    Example. Employer B, in 1955, pays employee A $2,500 on account of 
$3,000 due him for employment performed in 1955. In 1956 employer B pays 
employee A the balance of $500 due him for employment performed in the 
prior year (1955), and thereafter in 1956 also pays A $3,000 for 
employment performed in 1956. The $2,500 paid in 1955 is subject to tax 
in 1955. The balance of $500 paid in 1956 for employment during 1955 is 
subject to tax in 1956, as is also the first $2,500 paid of the $3,000 
for employment during 1956 (this $500 for 1955 employment added to the 
first $2,500 paid for 1956 employment constitutes the maximum wages 
subject to the tax which could be paid in 1956 by B to A). The final 
$500 paid by B to A in 1956 is not included as wages and is not subject 
to the tax.

    (3) If during a calendar year an employee is paid remuneration by 
more than one employer, the limitation of wages to the first $3,000 of 
remuneration paid applies, not to the aggregate remuneration paid by all 
employers with respect to employment performed after 1938, but instead 
to the remuneration paid during such calendar year by each employer with 
respect to employment performed after 1938. In such case the first 
$3,000 paid during the calendar year by each employer constitutes wages 
and is subject to the tax. In connection with the application of the 
$3,000 limitation, see also paragraph (b) of this section relating to 
the circumstances under which wages paid by a predecessor employer are 
deemed to be paid by his successor. In connection with the annual wage 
limitation in the case of remuneration after December 31, 1978 from two 
or more related corporations that compensate an employee through a 
common paymaster, see Sec.  31.3306(p)-1.

    Example 1. During 1955 employer D pays to employee C a salary of 
$600 a month for employment performed for D during the first seven 
months of 1955, or total remuneration of $4,200. At the end of the fifth 
month C has been paid $3,000 by employer D, and only that part of his 
total remuneration from D constitutes wages subject to the tax. The $600 
paid to employee C by employer D in the sixth month, and the like amount 
paid in the seventh month, are not included as wages and are not subject 
to the tax. At the end of the seventh month C leaves the employ of D and 
enters the employ of E. Employer E pays to C remuneration of $600 a 
month in each of the remaining five months of 1955, or total 
remuneration of $3,000. The entire $3,000 paid by E to employee C 
constitutes wages and is subject to the tax. Thus, the first $3,000 paid 
by employer D and the entire $3,000 paid by employer E constitute wages.
    Example 2. During the calendar year 1955 F is simultaneously an 
officer (an employee) of the X Corporation, the Y Corporation, and the Z 
Corporation, each such corporation being an employer for such year. 
During such year F is paid a salary of $3,000 by each Corporation. Each 
$3,000 paid to F by each of the corporations, X, Y, and Z (whether or 
not such corporations are related), constitutes wages and is subject to 
the tax.

    (b) Wages paid by predecessor attributed to successor. (1) If an 
employer (hereinafter referred to as a successor) during any calendar 
year acquires substantially all the property used in a

[[Page 157]]

trade or business of another employer (hereinafter referred to as a 
predecessor), or used in a separate unit of a trade or business of a 
predecessor, and if immediately after the acquisition the successor 
employs in his trade or business an individual who immediately prior to 
the acquisition was employed in the trade or business of such 
predecessor, then, for purposes of the application of the $3,000 
limitation set forth in paragraph (a) of this section, any remuneration 
(exclusive of remuneration excepted from wages in accordance with 
paragraph (j) of Sec.  31.3306(b)-1 or Sec. Sec.  31.3306(b)(2)-1 to 
31.3306(b)(8)-1, inclusive), with respect to employment paid (or 
considered under this provision as having been paid to such individual 
by such predecessor during such calendar year and prior to such 
acquisition shall be considered as having been paid by such successor. 
Wages paid by a predecessor shall not be considered as having been paid 
by the successor unless both the predecessor and the successor are 
employers as defined in section 3306(a) for the calendar year in which 
the acquisition occurs (see Sec.  31.3306(a)-1, relating to who are 
employers).
    (2) The wages paid, or considered as having been paid, by a 
predecessor to an employee shall, for purposes of the $3,000 limitation, 
be treated as having been paid to such employee by a successor, if:
    (i) The successor during a calendar year acquired substantially all 
the property used in a trade or business, or used in a separate unit of 
a trade or business, of the predecessor;
    (ii) Such employee was employed in the trade or business of the 
predecessor immediately prior to the acquisition and is employed by the 
successor in his trade or business immediately after the acquisition; 
and
    (iii) Such wages were paid during the calendar year in which the 
acquisition occurred and prior to such acquisition.
    (3) The method of acquisition by an employer of the property of 
another employer is immaterial. The acquisition may occur as a 
consequence of the incorporation of a business by a sole proprietor of a 
partnership, the continuance without interruption of the business of a 
previously existing partnership by a new partnership or by a sole 
proprietor, or a purchase or any other transaction whereby substantially 
all the property used in a trade or business, or used in a separate unit 
of a trade or business, of one employer is acquired by another employer.
    (4) Substantially all the property used in a separate unit of a 
trade or business may consist of substantially all the property used in 
the performance of an essential operation of the trade or business, or 
it may consist of substantially all the property used in a relatively 
self-sustaining entity which forms a part of the trade or business.

    Example 1. The M Corporation which is engaged in the manufacture of 
automobiles, including the manufacture of automobile engines, 
discontinues the manufacture of the engines and transfers all the 
property used in such manufacturing operations to the N Company. The N 
Company is considered to have acquired a separate unit of the trade or 
business of the M Corporation, namely, its engine manufacturing unit.
    Example 2. The R Corporation which is engaged in the operation of a 
chain of grocery stores transfers one of such stores to the S Company. 
The S Company is considered to have acquired a separate unit of the 
trade or business of the R Corporation.

    (5) A successor may receive credit for wages paid to an employee by 
a predecessor only if immediately prior to the acquisition the employee 
was employed by the predecessor in his trade or business which was 
acquired by the successor and if immediately after the acquisition such 
employee is employed by the successor in his trade or business (whether 
or not in the same trade or business in which the acquired property is 
used). If the acquisition involves only a separate unit of a trade or 
business of the predecessor, the employee need not have been employed by 
the predecessor in that unit provided he was employed in the trade or 
business of which the acquired unit was a part.

    Example. The Y Corporation in 1955 acquires all the property of the 
X Manufacturing Company and immediately after the acquisition employs in 
its trade or business employee A, who, immediately prior to the 
acquisition, was employed by the X Company. Both the Y Corporation and 
the X Company are employers, as defined in the Act, for the calendar 
year 1955. The X Company has in 1955 (the calendar year in which

[[Page 158]]

the acquisition occurs) and prior to the acquisition paid $2,000 of 
wages to A. The Y Corporation in 1955 pays to A remuneration with 
respect to employment of $2,000. Only $1,000 of such remuneration is 
considered to be wages. For purposes of the $3,000 limitation, the Y 
Corporation is credited with the $2,000 paid to A by the X Company. If, 
in the same calendar year, the property is acquired from the Y 
Corporation by the Z Company, an employer for such year, and A 
immediately after the acquisition is employed by the Z Company in its 
trade or business, no part of the remuneration paid to A by the Z 
Company in the year of the acquisition will be considered to be wages. 
The Z Company will be credited with the remuneration paid to A by the Y 
Corporation and also with the wages paid to A by the X Company 
(considered for purposes of the application of the $3,000 limitation as 
having also been paid by the Y Corporation).

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6658, 28 FR 
6636, June 27, 1963; T.D. 7660, 44 FR 75142, Dec. 19, 1979]



Sec.  31.3306(b)(2)-1  Payments under employers' plans on account of
retirement, sickness or accident disability, medical or hospitalization 
expenses, or death.

    (a) The term ``wages'' does not include the amount of any payment 
(including any amount paid by an employer for insurance or annuities, or 
into a fund, to provide for any such payment) made to, or on behalf of, 
an employee or any of his dependents under a plan or system established 
by an employer which makes provision for his employees generally (or for 
his employees generally and their dependents) or for a class or classes 
of his employees (or for a class or classes of his employees and their 
dependents), on account of:
    (1) An employee's retirement,
    (2) Sickness or accident disability of an employee or any of his 
dependents,
    (3) Medical or hospitalization expenses in connection with sickness 
or accident disability of an employee or any of his dependents, or
    (4) Death of an employee or any of his dependents.
    (b) The plan or system established by an employer need not provide 
for payments on account of all of the specified items, but such plan or 
system may provide for any one or more of such items. Payments for any 
one or more of such items under a plan or system established by an 
employer solely for the dependents of his employees are not within this 
exclusion from wages.
    (c) Dependents of an employee include the employee's husband or 
wife, children, and any other members of the employee's immediate 
family.
    (d) It is immaterial for purposes of this exclusion whether the 
amount or possibility of such benefit payments is taken into 
consideration in fixing the amount of an employee's remuneration or 
whether such payments are required, expressly or impliedly, by the 
contract of service.



Sec.  31.3306(b)(3)-1  Retirement payments.

    The term ``wages'' does not include any payment made by an employer 
to an employee (including any amount paid by an employer for insurance 
or annuities, or into a fund, to provide for any such payment) on 
account of the employee's retirement. Thus payments made to an employee 
on account of his retirement are excluded from wages under this 
exception even though not made under a plan or system.



Sec.  31.3306(b)(4)-1  Payments on account of sickness or accident 
disability, or medical or hospitalization expenses.

    The term ``wages'' does not include any payment made by an employer 
to, or on behalf of, an employee on account of the employee's sickness 
or accident disability or the medical or hospitalization expenses in 
connection with the employee's sickness or accident disability, if such 
payment is made after the expiration of 6 calendar months following the 
last calendar month in which such employee worked for such employer. 
Such payments are excluded from wages under this exception even though 
not made under a plan or system. If the employee does not actually 
perform services for the employer during the requisite period, the 
existence of the employer-employee relationship during that period is 
immaterial.

[[Page 159]]



Sec.  31.3306(b)(5)-1  Payments from or to certain tax-exempt trusts, or
under or to certain annuity plans or bond purchase plans.

    (a) Payments from or to certain tax-exempt trusts. The term 
``wages'' does not include any payment made--
    (1) By an employer, on behalf of an employee or his beneficiary, 
into a trust, or
    (2) To, or on behalf of an employee or his beneficiary from a trust,

if at the time of such payment the trust is exempt from tax under 
section 501(a) as an organization described in section 401(a). A payment 
made to an employee of such a trust for services rendered as an employee 
of the trust and not as a beneficiary thereof is not within this 
exclusion from wages.
    (b) Payments under or to certain annuity plans. (1) The term 
``wages'' does not include any payment made after December 31, 1962--
    (i) By an employer, on behalf of an employee or his beneficiary, 
into an annuity plan, or
    (ii) To, or on behalf of, an employee or his beneficiary under an 
annuity plan, if at the time of such payment the annuity plan is a plan 
described in section 403(a).
    (2) The term ``wages'' does not include any payment made before 
January 1, 1963--
    (i) By an employer, on behalf of an employee or his beneficiary, 
into an annuity plan, or
    (ii) To, or on behalf of, an employee or his beneficiary under an 
annuity plan, if at the time of such payment the annuity plan meets the 
requirements of section 401(a) (3), (4), (5), and (6).
    (c) Payments under or to certain bond purchase plans. The term 
``wages'' does not include any payment made after December 31, 1962--
    (1) By an employer, on behalf of an employee or his beneficiary, 
into a bond purchase plan, or
    (2) To, or on behalf of, an employee or his beneficiary under a bond 
purchase plan,

if at the time of such payment the plan is a qualified bond purchase 
plan described in section 405(a).

[T.D. 6658, 28 FR 6636, June 27, 1963]



Sec.  31.3306(b)(6)-1  Payment by an employer of employee tax under 
section 3101 or employee contributions under a State law.

    The term ``wages'' does not include any payment by an employer 
(without deduction from the remuneration of, or other reimbursement 
from, the employee) of either (a) the employee tax imposed by section 
3101 or the corresponding section of prior law, or (b) any payment 
required from an employee under a State unemployment compensation law.



Sec.  31.3306(b)(7)-1  Payments other than in cash for service not in 
the course of employer's trade or business.

    The term ``wages'' does not include remuneration paid in any medium 
other than cash for service not in the course of the employer's trade or 
business. Cash remuneration includes checks and other monetary media of 
exchange. Remuneration paid in any medium other than cash, such as 
lodging, food, or other goods or commodities, for service not in the 
course of the employer's trade or business does not constitute wages. 
Remuneration paid in any medium other than cash for other types of 
services does not come within this exclusion from wages. For provisions 
relating to the circumstances under which service not in the course of 
the employer's trade or business does not constitute employment, see 
Sec.  31.3306(c)(3)-1.



Sec.  31.3306(b)(8)-1  Payments to employees for non-work periods.

    The term ``wages'' does not include any payment (other than vacation 
or sick pay) made by an employer to an employee after the calendar month 
in which the employee attains age 65, if--
    (a) Such employee does no work (other than being subject to call for 
the performance of work) for such employer in the period for which such 
payment is made; and
    (b) The employer-employee relationship exists between the employer 
and employee throughout the period for which such payment is made.

Vacation or sick pay is not within this exclusion from wages. If the 
employee does any work for the employer in the period for which the 
payment is made,

[[Page 160]]

no remuneration paid by such employer to such employee with respect to 
such period is within this exclusion from wages. For example, if 
employee A, who attained the age of 65 in January 1955, is employed by 
the X Company on a stand-by basis and is paid $200 by the X Company for 
being subject to call during the month of February 1955 and an 
additional $25 for work performed for the X Company on one day in 
February 1955, then none of the $225 is excluded from wages under this 
exception.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6708, 29 FR 
3199, Mar. 10, 1964]



Sec.  31.3306(b)(9)-1  Moving expenses.

    (a) The term ``wages'' does not include remuneration paid on or 
after November 1, 1964, to or on behalf of an employee, either as an 
advance or a reimbursement, specifically for moving expenses incurred or 
expected to be incurred, if (and to the extent that) at the time of 
payment it is reasonable to believe that a corresponding deduction is or 
will be allowable to the employee under section 217. The reasonable 
belief contemplated by the statute may be based upon any evidence 
reasonably sufficient to induce such belief, even though such evidence 
may be insufficient upon closer examination by the district director or 
the courts finally to establish that a deduction is allowable under 
section 217. The reasonable belief shall be based upon the application 
of section 217 and the regulations thereunder in Part 1 of this chapter 
(Income Tax Regulations). When used in this section, the term ``moving 
expenses'' has the same meaning as when used in section 217 and the 
regulations thereunder.
    (b) Except as otherwise provided in paragraph (a) of this section, 
or in a numbered paragraph of section 3306(b), amounts paid to or on 
behalf of an employee for moving expenses are wages for purposes of 
section 3306(b).

[T.D. 7375, 40 FR 42351, Sept. 12, 1975]



Sec.  31.3306(b)(10)-1  Payments under certain employers' plans after
retirement, disability, or death.

    (a) In general. The term ``wages'' does not include the amount of 
any payment or series of payments made after January 2, 1968, by an 
employer to, or on behalf of, an employee or any of his dependents under 
a plan established by the employer which makes provisions for his 
employees generally (or for his employees generally and their 
dependents) or for a class or classes of his employees (or for a class 
or classes of his employees and their dependents), which is paid or 
commences to be paid upon or within a reasonable time after the 
termination of an employee's employment relationship because of the 
employee's--
    (1) Death,
    (2) Retirement for disability, or
    (3) Retirement after attaining an age specified in the plan 
established by the employer or in a pension plan of the employer as the 
age at which a person in the employee's circumstances is eligible for 
retirement.

A payment or series of payments made under the circumstances described 
in the preceding sentence is excluded from ``wages'' even if made 
pursuant to an incentive compensation plan which also provides for the 
making of other types of payments. However, any payment or series of 
payments which would have been paid if the employee's relationship had 
not been terminated is not excluded from ``wages'' under this section 
and section 3306(b)(10). For example, lump-sum payments for unused 
vacation time or a final paycheck received after retirement are payments 
which the employee would have received whether or not he retired and 
therefore are not excluded from ``wages.'' Further, if any payment is 
made upon or after termination of employment for any reason other than 
those set out in paragraphs (a)(1), (2), and (3) of this section such 
payment is not excludable from ``wages'' by this section. For example, 
if a pension plan provides for retirement upon disability, completion of 
30 years of service, or attainment of age 65, and if an employee who is 
not disabled retires at age 61 after 30 years of service, none of the 
retirement payments made to the employee under the pension plan 
(including any made after he is 65) is excludable from ``wages'' under 
this section. However, if the pension plan had conditioned retirement 
after 30 years of

[[Page 161]]

service upon attainment of age 60, all of the retirement payments would 
have been excludable.
    (b) Plan. The plan or system established by an employer need not 
provide for payments because of termination of employment for all the 
reasons set out in paragraphs (a)(1), (2), and (3) of this section, but 
such plan or system may provide for payments because of termination for 
any one or more of such reasons. Payments because of termination of 
employment for any one or more of such reasons under a plan or system 
established by an employer solely for the dependents of his employees 
are not within this exclusion from wages.
    (c) Dependents. Dependents of an employee include the employee's 
husband or wife, children, and any other members of the employee's 
immediate family.
    (d) Benefit payments. It is immaterial for purposes of this 
exclusion whether the amount or possibility of such benefit payments is 
paid on account of services rendered or taken into consideration in 
fixing the amount of an employee's remuneration or whether such payments 
are required expressly or impliedly, by the contract of service.
    (e) Example. The application of this section may be illustrated by 
the following example:

    Example. A, an employee, receives a salary of $1,500 a month, 
payable on the 5th day of the month following the month for which the 
salary is earned. A's employer has established an incentive compensation 
plan for a class of his employees, including A, providing for the 
payment of deferred compensation on termination of employment, including 
termination upon an employee's death, retirement at age 65 (the 
retirement age specified in the plan), or retirement for disability. On 
March 1, 1973, A attains the age of 65 and retires. On March 5, 1973, A 
receives $5,500 from his employer of which $1,500 represents A's salary 
for services he performed in February 1973, and $4,000 represents 
incentive compensation paid under the employer's plan. The amount of 
$4,000 is excluded from ``wages'' under this section. The amount of 
$1,500 is not excluded from ``wages'' under this section.

[T.D. 7374, 40 FR 30951, July 24, 1975]



Sec.  31.3306(b)(13)-1  Payments or benefits under a qualified educational
assistance program.

    The term ``wages'' does not include any payment made, or benefit 
furnished, to or for the benefit of an employee in a taxable year 
beginning after December 31, 1978, if at the time of such payment or 
furnishing it is reasonable to believe that the employee will be able to 
exclude such payment or benefit from income under section 127.

[T.D. 7898, 48 FR 31019, July 6, 1983]



Sec.  31.3306(c)-1  Employment; services performed before 1955.

    (a) Services performed after 1938 and before 1955 constitute 
employment under section 3306(c) if such services were employment under 
the law applicable to the period in which they were performed.
    (b) The tax applies with respect to remuneration paid by an employer 
after 1954 for services performed after 1938 and before 1955, as well as 
for services performed after 1954, to the extent that the remuneration 
and services constitute wages and employment. See Sec. Sec.  31.3306(b)-
1 to 31.3306(b)(8)-1, inclusive, relating to wages.
    (c) Determination of whether services performed after 1938 and 
before 1955 constitute employment shall be made in accordance with the 
provisions of law applicable to the period in which they were performed 
and of the regulations thereunder. The regulations applicable in 
determining whether services performed after 1938 and before 1955 
constitute employment are as follows:
    (1) Services performed in 1939--26 CFR (1939) Part 400 (Regulations 
90).
    (2) Services performed after 1939 and before 1955--26 CFR (1939) 
Part 403 (Regulations 107).



Sec.  31.3306(c)-2  Employment; services performed after 1954.

    (a) In general. Whether services performed after 1954 constitute 
employment is determined under subsections (c) and (n) of section 3306.
    (b) Services performed within the United States. Services performed 
after 1954 within the United States (see Sec.  31.3306(j)-1) by an 
employee for the

[[Page 162]]

person employing him, unless specifically excepted under section 
3306(c), constitute employment. With respect to services performed 
within the United States, the place where the contract of service is 
entered into is immaterial. The citizenship or residence of the employee 
or of the person employing him also is immaterial except to the extent 
provided in any specific exception from employment. Thus, the employee 
and the person employing him may be citizens and residents of a foreign 
country and the contract of service may be entered into in a foreign 
country, and yet, if the employee under such contract performs services 
within the United States, there may be to that extent employment.
    (c) Services performed outside the United States--(1) In general. 
Except as provided in subparagraph (2) of this paragraph, services 
performed outside the United States (see Sec.  31.3306(j)-1) do not 
constitute employment.
    (2) On or in connection with an American vessel or American 
aircraft. (i) This subparagraph relates to services performed after 1954 
``on or in connection with'' an American vessel, and to services 
performed after 1961 ``on or in connection with'' an American aircraft 
to the extent that the remuneration for the latter services is paid 
after 1961. Such services performed outside the United States by an 
employee for the person employing him constitute employment if:
    (a) The employee is also employed ``on and in connection with'' such 
vessel or aircraft when outside the United States; and
    (b) The services are performed under a contract of service, between 
the employee and the person employing him, which is entered into within 
the United States, or during the performance of the contract under which 
the services are performed and while the employee is employed on the 
vessel or aircraft it touches at a port within the United States; and
    (c) The services are not excepted under section 3306(c). (See 
particularly Sec.  31.3306(c)(17)-1, relating to fishing.)
    (ii) An employee performs services on and in connection with the 
vessel or aircraft if he performs services on the vessel or aircraft 
which are also in connection with the vessel or aircraft. Services 
performed on the vessel by employees as officers or members of the crew, 
or as employees of concessionaires, of the vessel, for example, are 
performed under such circumstances, since the services are also 
connected with the vessel. Similarly, services performed on the aircraft 
by employees as officers or members of the crew of the aircraft are 
performed on and in connection with such aircraft. Services may be 
performed on the vessel or aircraft, however, which have no connection 
with it, as in the case of services performed by an employee while on 
the vessel or aircraft merely as a passenger in the general sense. For 
example, the services of a buyer in the employ of a department store 
while he is a passenger on a vessel are not in connection with the 
vessel.
    (iii) If services are performed by an employee ``on and in 
connection with'' an American vessel or American aircraft when outside 
the United States and the conditions in (b) and (c) of paragraph 
(c)(2)(i) of this section are met, then the services of that employee 
performed on or in connection with the vessel or aircraft constitute 
employment. The expression ``on or in connection with'' refers not only 
to services performed on the vessel or aircraft but also to services 
connected with the vessel or aircraft which are not actually performed 
on it (for example, shore services performed as officers or members of 
the crew, or as employees of concessionaires, of the vessel).
    (iv) Services performed by a member of the crew or other employee 
whose contract of service is not entered into within the United States, 
and during the performance of which and while the employee is employed 
on the vessel or aircraft it does not touch at a port within the United 
States, do not constitute employment, notwithstanding that service 
performed by other members of the crew or other employees on or in 
connection with the vessel or aircraft may constitute employment.
    (v) A vessel includes every description of watercraft, or other 
contrivance, used as a means of transportation on water. An aircraft 
includes every

[[Page 163]]

description of craft, or other contrivance, used as a means of 
transportation through the air. In the case of an aircraft, the term 
``port'' means an airport. An airport means an area on land or water 
used regularly by aircraft for receiving or discharging passengers or 
cargo. For definitions of ``American vessel'' and ``American aircraft'', 
see Sec.  31.3306(m)-1.
    (vi) With respect to services performed outside the United States on 
or in connection with an American vessel or American aircraft, the 
citizenship or residence of the employee is immaterial, and the 
citizenship or residence of the employer is material only in case it has 
a bearing in determining whether a vessel is an American vessel.

[T.D. 6658, 28 FR 6636, June 27, 1963]



Sec.  31.3306(c)-3  Employment; excepted services in general.

    (a) Services performed by an employee for the person employing him 
do not constitute employment for purposes of the tax if they are 
specifically excepted from employment under any of the numbered 
paragraphs of section 3306(c). Services so excepted do not constitute 
employment for purposes of the tax even though they are performed within 
the United States, or are performed outside the United States on or in 
connection with an American vessel or American aircraft. If not 
otherwise provided in the regulations relating to the numbered 
paragraphs of section 3306(c), such regulations apply with respect to 
services performed after 1954.
    (b) The exception attaches to the services performed by the employee 
and not to the employee as an individual; that is, the exception applies 
only to the services rendered by the employee in an excepted class.

    Example. A is an individual who is employed part time by B to 
perform services which constitutes ``agricultural labor'' (see Sec.  
31.3306 (k)-1). A is also employed by C part time to perform services as 
a grocery clerk in a store owned by him. While A's services which 
constitute ``agricultural labor'' are expected, the exception does not 
embrace the services performed by A as a grocery clerk in the employ of 
C and the latter services are not excepted from employment.

    (c) For provisions relating to the circumstances under which 
services which are excepted are nevertheless deemed to be employment, 
and relating to the circumstances under which services which are not 
excepted are nevertheless deemed not to be employment, see Sec.  
31.3306(d)-1.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6658, 28 FR 
6637, June 27, 1963]



Sec.  31.3306(c)(1)-1  Agricultural labor.

    Services performed by an employee for the person employing him which 
constitute ``agricultural labor'' as defined in section 3306(k) are 
excepted from employment. For provisions relating to the definition of 
the term ``agricultural labor'', see Sec.  31.3306(k)-1.



Sec.  31.3306(c)(2)-1  Domestic service.

    (a) In a private home. (1) Services of a household nature performed 
by an employee in or about a private home of the person by whom he is 
employed are excepted from employment. A private home is a fixed place 
of abode of an individual or family. A separate and distinct dwelling 
unit maintained by an individual in an apartment house, hotel, or other 
similar establishment may constitute a private home. If a dwelling house 
is used primarily as a boarding or lodging house for the purpose of 
supplying board or lodging to the public as a business enterprise, it is 
not a private home and the services performed therein are not excepted.
    (2) In general, services of a household nature in or about a private 
home include services performed by cooks, waiters, butlers, 
housekeepers, governesses, maids, valets, baby sitters, janitors, 
laundresses, furnacemen, caretakers, handymen, gardeners, footmen, 
grooms, and chauffeurs of automobile for family use.
    (b) In a local college club or local chapter of a college fraternity 
or sorority. (1) Services of a household nature performed by an employee 
in or about the club rooms or house of a local college club or of a 
local chapter of a college fraternity or sorority by which he is 
employed are excepted from employment. A local college club or local 
chapter of a college fraternity or sorority does not include an alumni 
club or

[[Page 164]]

chapter. If the club rooms or house of a local college club or local 
chapter of a college fraternity or sorority is used primarily for the 
purpose of supplying board or lodging to students or the public as a 
business enterprise, the services performed therein are not within the 
exception.
    (2) In general, services of a household nature in or about the club 
rooms or house of a local college club or local chapter of a college 
fraternity or sorority include services rendered by cooks, waiters, 
butlers, maids, janitors, laundresses, furnacemen, handymen, gardeners, 
housekeepers, and housemothers.
    (c) Services not excepted. Services not of a household nature, such 
as services performed as a private secretary, tutor, or librarian, even 
though performed in the employer's private home or in a local college 
club or local chapter of a college fraternity or sorority, are not 
within the exception. Services of a household nature are not within the 
exception if performed in or about rooming or lodging houses, boarding 
houses, clubs (except local college clubs), hotels, hospitals, 
eleemosynary institutions, or commercial offices or establishments.



Sec.  31.3306(c)(3)-1  Services not in the course of employer's trade
or business.

    (a) Services not in the course of the employer's trade or business 
performed by an employe for an employer in a calendar quarter are 
excepted from employment unless--
    (1) The cash remuneration paid for such services performed by the 
employee for the employer in the calendar quarter is $50 or more; and
    (2) Such employee is regularly employed in the calendar quarter by 
such employer to perform such services.

Unless the tests set forth in both paragraphs (a)(1) and (2) of this 
section are met, the services are excepted from employment.
    (b) The term ``services not in the course of the employer's trade or 
business'' includes services that do not promote or advance the trade or 
business of the employer. Services performed for a corporation do not 
come within the exception.
    (c) The test relating to cash remuneration of $50 or more is based 
on the remuneration earned during a calendar quarter rather than on the 
remuneration paid in a calendar quarter. However, for purposes of 
determining whether the test is met, it is also required that the 
remuneration be paid, although it is immaterial when the remuneration is 
paid. Furthermore, in determining whether $50 or more has been paid for 
services not in the course of the employer's trade or business, only 
cash remuneration for such services shall be taken into account. The 
term ``cash remuneration'' includes checks and other monetary media of 
exchange. Remuneration paid in any other medium, such as lodging, food, 
or other goods or commodities, is disregarded in determining whether the 
cash-remuneration test is met.
    (d) For purposes of this exception, an individual is deemed to be 
regularly employed by an employer during a calendar quarter only if--
    (1) Such individual performs services not in the course of the 
employer's trade or business for such employer for some portion of the 
day on at least 24 days (whether or not consecutive) during such 
calendar quarter; or
    (2) Such individual was regularly employed (as determined under 
paragraph (d)(1) of this section) by such employer in the performance of 
services not in the course of the employer's trade or business during 
the preceding calendar quarter (including the last calendar quarter of 
1954).
    (e) In determining whether an employee has performed services not in 
the course of the employer's trade or business on at least 24 days 
during a calendar quarter, there shall be counted as one day--
    (1) Any day or portion thereof on which the employee actually 
performs such services; and
    (2) Any day or portion thereof on which the employee does not 
perform services of the prescribed character but with respect to which 
cash remuneration is paid or payable to the employee for such services, 
such as a day on which the employee is sick or on vacation.

An employee who on a particular day reports for work and, at the 
direction

[[Page 165]]

of his employer, holds himself in readiness to perform services not in 
the course of the employer's trade or business shall be considered to be 
engaged in the actual performance of such services on that day. For 
purposes of this exception, a day is a period of 24 hours commencing at 
midnight and ending at midnight.
    (f) For provisions relating to the exclusion from wages of 
remuneration paid in any medium other than cash for services not in the 
course of the employer's trade or business, see Sec.  31.3306(b) (7)-1.



Sec.  31.3306(c)(4)-1  Services on or in connection with a non-American
vessel or aircraft.

    (a) Services performed within the United States by an employee for 
an employer ``on or in connection with'' a vessel not an American 
vessel, or ``on or in connection with'' an aircraft not an American 
aircraft, are excepted from employment if the employee is employed by 
the employer ``on and in connection with'' the vessel or aircraft when 
outside the United States.
    (b) An employee performs services on and in connection with the 
vessel or aircraft if he performs services on the vessel or aircraft 
when outside the United States which are also in connection with the 
vessel or aircraft. Services performed on the vessel outside the United 
States by employees as officers or members of the crew, or by employees 
of concessionaires, of the vessel, for example, are performed under such 
circumstances, since such services are also connected with the vessel. 
Similarly, services performed on the aircraft outside the United States 
by employees as officers or members of the crew of the aircraft are 
performed on and in connection with such aircraft. Services may be 
performed on the vessel or aircraft, however, which have no connection 
with it, as in the case of services performed by an employee while on 
the vessel or aircraft merely as a passenger in the general sense. For 
example, the services of a buyer in the employ of a department store 
while he is a passenger on a vessel are not in connection with the 
vessel.
    (c) The expression ``on or in connection with'' refers not only to 
services performed on the vessel or aircraft but also to services 
connected with the vessel or aircraft which are not actually performed 
on it (for example, shore services performed as officers or members of 
the crew, or as employees of concessionaires, of the vessel).
    (d) The citizenship or residence of the employee and the place where 
the contract of service is entered into are immaterial for purposes of 
this exception, and the citizenship or residence of the person employing 
him is material only in case it has a bearing in determining whether the 
vessel is an American vessel. For definitions of the terms ``vessel'' 
and ``aircraft'', see paragraph (c)(2)(v) of Sec.  31.3306(c)-2. For 
definitions of the terms ``American vessel'' and ``American aircraft'', 
see Sec.  31.3306(m)-1.
    (e) Since the only services performed outside the United States 
which constitute employment are those described in section 3306(c) and 
paragraph (c) of Sec.  31.3306(c)-2 (relating to services performed 
outside the United States on or in connection with an American vessel or 
American aircraft), services performed outside the United States on or 
in connection with a vessel not an American vessel, or an aircraft not 
an American aircraft, do not constitute employment in any event.
    (f) The provisions of section 3306(c) (4) and of this section, 
insofar as they relate to services performed on or in connection with an 
aircraft not an American aircraft, apply only to services performed 
after 1961 for which remuneration is paid after 1961.

[T.D. 6658, 28 FR 6637, June 27, 1963]



Sec.  31.3306(c)(5)-1  Family employment.

    (a) Certain services are excepted from employment because of the 
existence of a family relationship between the employee and the 
individual employing him. The exceptions are as follows:
    (1) Services performed by an individual in the employ of his or her 
spouse;
    (2) Services performed by a father or mother in the employ of his or 
her son or daughter; and

[[Page 166]]

    (3) Services performed by a son or daughter under the age of 21 in 
the employ of his or her father or mother.
    (b) Under paragraph (a) (1) and (2) of this section, the exception 
is conditioned solely upon the family relationship between the employee 
and the individual employing him. Under paragraph (a)(3) of this 
section, in addition to the family relationship, there is a further 
requirement that the son or daughter shall be under the age of 21, and 
the exception continues only during the time that such son or daughter 
is under the age of 21.
    (c) Services performed in the employ of a partnership are within the 
exception described in paragraph (a) of this section only if the 
requisite family relationship exists between the employee and each of 
the partners comprising the partnership.
    (d) Services performed in the employ of a corporation are not within 
the exception described in paragraph (a) of this section, except that 
services performed in the employ of an entity that is treated as a 
corporation under Sec.  301.7701-2(c)(2)(iv)(B) of this chapter may 
qualify for the exception if the requirements of the exception are 
otherwise met. An entity that is treated as a corporation under Sec.  
301.7701-2(c)(2)(iv)(B) of this chapter is not treated as the employer 
for purposes of applying section 3306(c)(5) and this section. For 
purposes of applying section 3306(c)(5) and this section, the owner of 
an entity that is treated as a corporation under Sec.  301.7701-
2(c)(2)(iv)(B) of this chapter is treated as the employer.
    (e) Paragraphs (c) and (d) of this section apply to wages paid on or 
after November 1, 2011. However, taxpayers may apply paragraphs (c) and 
(d) of this section to wages paid on or after January 1, 2009.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as 
amended by T.D. 9554, 76 FR 67365, Nov. 1, 2011; T.D. 9670, 79 FR 36206, 
June 26, 2014]



Sec.  31.3306(c)(6)-1  Services in employ of United States or instrumentality
thereof.

    (a) Services in employ of United States or wholly-owned 
instrumentality thereof. Services performed in the employ of the United 
States Government, except as provided in section 3306(n) (see Sec.  
31.3306(n)-1), are excepted from employment. Services performed in the 
employ of an instrumentality of the United States which is wholly owned 
by the United States also are excepted from employment.
    (b) Services in employ of instrumentality not wholly owned by United 
States--(1) Services performed after 1961. Services performed after 1961 
in the employ of an instrumentality of the United States which is 
partially owned by the United States are excepted from employment, if 
the remuneration for such service is paid after 1961. Services performed 
after 1961 in the employ of an instrumentality of the United States 
which is neither wholly owned nor partially owned by the United States 
are excepted from employment if (i) the instrumentality is exempt from 
the tax imposed by section 3301 by virtue of any provision of law which 
specifically refers to section 3301 or the corresponding section of 
prior law in granting exemption from such tax, and (ii) the remuneration 
for such service is paid after 1961. For provisions which make general 
exemptions from Federal taxation ineffectual as to the tax imposed by 
section 3301, see Sec.  31.3308-1.
    (2) Services performed before 1962. Services performed in the employ 
of an instrumentality of the United States which is not wholly owned by 
the United States are excepted from employment if the instrumentality is 
exempt from the tax imposed by section 3301 by virtue of any other 
provision of law, and (i) the services are performed before 1962 or (ii) 
remuneration for the services is paid before 1962.

[T.D. 6658, 28 FR 6638, June 27, 1963]



Sec.  31.3306(c)(7)-1  Services in employ of States or their political
subdivisions or instrumentalities.

    (a) Services performed in the employ of any State, or of any 
political subdivision thereof, are excepted from employment. Services 
performed in the employ of an instrumentality of one or more States or 
political subdivisions thereof are excepted if the instrumentality is 
wholly owned by one or more of the foregoing. Services performed in the 
employ of an instrumentality of

[[Page 167]]

one or more of the several States or political subdivisions thereof 
which is not wholly owned by one or more of the foregoing are excepted 
only to the extent that the instrumentality is with respect to such 
services immune under the Constitution of the United States from the tax 
imposed by section 3301.
    (b) For provisions relating to the term ``State'' see Sec.  
31.3306(j)-1.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6658, 28 FR 
6638, June 27, 1963]



Sec.  31.3306(c)(8)-1  Services in employ of religious, charitable,
educational, or certain other organizations exempt from income tax.

    (a) Services performed after 1961. Services performed by an employee 
after 1961 in the employ of a religious, charitable, educational, or 
other organization described in section 501(c)(3) which is exempt from 
income tax under section 501(a) are excepted from employment, if the 
remuneration for such service is paid after 1961. For provisions 
relating to exemption from income tax of an organization described in 
section 501(c) (3), see Part 1 of this chapter (Income Tax Regulations).
    (b) Services performed before 1962. (1) Services performed by an 
employee in the employ of an organization described in section 
3306(c)(8) as in effect before 1962, that is, a corporation, community 
chest, fund, or foundation, organized and operated exclusively for 
religious, charitable, scientific, testing for public safety, literary, 
or educational purposes, or for the prevention of cruelty to children or 
animals, no part of the net earnings of which inures to the benefit of 
any private shareholder or individual, and no substantial part of the 
activities of which is carrying on propaganda, or otherwise attempting, 
to influence legislation, are excepted from employment if (i) the 
services are performed before 1962, or (ii) remuneration for the 
services is paid before 1962.
    (2) Any organization which is an organization of a type described in 
section 501(c)(3) and which--
    (i) Is exempt from income tax under section 501(a), or
    (ii) Has been denied exemption from income tax under section 501(a) 
by reason of the provisions of section 503 or 504, relating to 
prohibited transactions and to accumulations out of income, 
respectively,

is an organization of a type described in section 3306(c)(8) as in 
effect before 1962. An organization which would be an organization of a 
type described in section 501(c)(3) except for those provisions of 
section 501(c)(3) which are not contained in section 3306(c)(8) as in 
effect before 1962 (provisions relating to participation or intervention 
in a political campaign on behalf of a candidate for public office) is 
also an organization of a type described in section 3306(c)(8) as in 
effect before 1962.

[T.D. 6658, 28 FR 6638, June 27, 1963]



Sec.  31.3306(c)(9)-1  Railroad industry; services performed by an employee
or an employee representative under the Railroad Unemployment Insurance Act.

    (a) Services performed by an individual as an ``employee'' or as an 
``employee representative'', as those terms are defined in section 1 of 
the Railroad Unemployment Insurance Act, as amended, are excepted from 
employment.
    (b) Section 1 of the Railroad Unemployment Insurance Act (45 U.S.C. 
351), as amended, provides, in part, as follows:

    For the purposes of this Act, except when used in amending the 
provisions of other Acts--
    (a) The term ``employer'' means any carrier (as defined in 
subsection (b) of this section), and any company which is directly or 
indirectly owned or controlled by one or more such carriers or under 
common control therewith, and which operates any equipment or facility 
or performs any service (except trucking service, casual service, and 
the casual operation of equipment or facilities) in connection with the 
transportation of passengers or property by railroad, or the receipt, 
delivery elevation, transfer in transit, refrigeration or icing, 
storage, or handling of property transported by railroad, and any 
receiver, trustee, or other individual or body, judicial or otherwise, 
when in the possession of the property or operating all or any part of 
the business of any such employer: Provided, however, That the term 
``employer'' shall not include any street, interurban, or suburban 
electric railway, unless such railway is operating as a part of a 
general steam-railroad system of transportation, but

[[Page 168]]

shall not exclude any part of the general steam-railroad system of 
transportation now or hereafter operated by any other motive power. The 
Interstate Commerce Commission is hereby authorized and directed upon 
request of the Board, or upon complaint of any party interested, to 
determine after hearing whether any line operated by electric power 
falls within the terms of this proviso. The term ``employer'' shall also 
include railroad associations, traffic associations, tariff bureaus, 
demurrage bureaus, weighing and inspection bureaus, collection agencies, 
and other associations, bureaus, agencies, or organizations controlled 
and maintained wholly or principally by two or more employers as 
hereinbefore defined and engaged in the performance of services in 
connection with or incidental to railroad transportation and railway 
labor organizations, national in scope, which have been or may be 
organized in accordance with the provisions of the Railway Labor Act, 
and their State and National legislative committees and their general 
committees and their insurance departments and their local lodges and 
divisions, established pursuant to the constitution and bylaws of such 
organizations. The term ``employer'' shall not include any company by 
reason of its being engaged in the mining of coal, the supplying of coal 
to an employer where delivery is not beyond the mine tipple, and the 
operation of equipment or facilities therefor, or in any of such 
activities.
    (b) The term ``carrier'' means an express company, sleeping-car 
company, or carrier by railroad, subject to part I of the Interstate 
Commerce Act.
    (c) The term ``company'' includes corporations, associations, and 
joint-stock companies.
    (d) The term ``employee'' (except when used in phrases establishing 
a different meaning) means any individual who is or has been (i) in the 
service of one or more employers for compensation, or (ii) an employee 
representative. The term ``employee'' shall include an employee of a 
local lodge or division defined as an employer in section 1 (a) only if 
he was in the service of a carrier on or after August 29, 1935. The term 
``employee'' includes an officer of an employer.
    The term ``employee'' shall not include any individual while such 
individual is engaged in the physical operations consisting of the 
mining of coal, the preparation of coal, the handling (other than 
movement by rail with standard railroad locomotives) of coal not beyond 
the mine tipple, or the loading of coal at the tipple.
    (e) An individual is in the service of an employer whether his 
service is rendered within or without the United States if (i) he is 
subject to the continuing authority of the employer to supervise and 
direct the manner of rendition of his service, or he is rendering 
professional or technical services and is integrated into the staff of 
the employer, or he is rendering, on the property used in the employer's 
operations, other personal services the rendition of which is integrated 
into the employer's operations, and (ii) he renders such service for 
compensation: Provided, however, That an individual shall be deemed to 
be in the service of an employer, other than a local lodge or division 
or a general committee of a railway-labor-organization employer, not 
conducting the principal part of its business in the United States only 
when he is rendering service to it in the United States; and an 
individual shall be deemed to be in the service of such a local lodge or 
division only if (1) all, or substantially all, the individuals 
constituting its membership are employees of an employer conducting the 
principal part of its business in the United States; or (2) the 
headquarters of such local lodge or division is located in the United 
States; and an individual shall be deemed to be in the service of such a 
general committee only if (1) he is representing a local lodge or 
division described in clauses (1) or (2) immediately above; or (2) all, 
or substantially all, the individuals represented by it are employees of 
an employer conducting the principal part of its business in the United 
States; or (3) he acts in the capacity of a general chairman or an 
assistant general chairman of a general committee which represents 
individuals rendering service in the United States to an employer, but 
in such case if his office or headquarters is not located in the United 
States and the individuals represented by such general committee are 
employees of an employer not conducting the principal part of its 
business in the United States, only such proportion of the remuneration 
for such service shall be regarded as compensation as the proportion 
which the mileage in the United States under the jurisdiction of such 
general committee bears to the total mileage under its jurisdiction, 
unless such mileage formula is inapplicable, in which case the Board may 
prescribe such other formula as it finds to be equitable, and if the 
application of such mileage formula, or such other formula as the Board 
may prescribe, would result in the compensation of the individual being 
less than 10 per centum of his remuneration for such service no part of 
such remuneration shall be regarded as compensation: Provided further, 
That an individual not a citizen or resident of the United States shall 
not be deemed to be in the service of an employer when rendering service 
outside the United States to an employer who is required under the laws 
applicable in the place where the service is rendered to employ therein, 
in whole or in part, citizens or residents thereof.
    (f) The term ``employee representative'' means any officer or 
official representative of a railway labor organization other than a

[[Page 169]]

labor organization included in the term employer as defined in section 
1(a) who before or after August 29, 1935, was in the service of an 
employer as defined in section 1(a) and who is duly authorized and 
designated to represent employees in accordance with the Railway Labor 
Act, and any individual who is regularly assigned to or regularly 
employed by such officer or official representative in connection with 
the duties of his office.

                                * * * * *

    (i) The term ``compensation'' means any form of money remuneration, 
including pay for time lost but excluding tips, paid for services 
rendered as an employee to one or more employers, or as an employee 
representative: Provided, however, That in computing the compensation 
paid to any employee, no part of any month's compensation in excess of 
$300 for any month before July 1, 1954, or in excess of $350 for any 
month after June 30, 1954, and before the calendar month next following 
the month [May] in which this Act was amended in 1959, or in excess of 
$400 for any month after the month [May] in which this Act was so 
amended, shall be recognized. A payment made by an employer to an 
individual through the employer's pay roll shall be presumed, in the 
absence of evidence to the contrary, to be compensation for service 
rendered by such individual as an employee of the employer in the period 
with respect to which the payment is made. An employee shall be deemed 
to be paid, ``for time lost'' the amount he is paid by an employer with 
respect to an identifiable period of absence from the active service of 
the employer, including absence on account of personal injury, and the 
amount he is paid by the employer for loss of earnings resulting from 
his displacement to a less remunerative position or occupation. If a 
payment is made by an employer with respect to a personal injury and 
includes pay for time lost, the total payment shall be deemed to be paid 
for time lost unless, at the time of payment, a part of such payment is 
specifically apportioned to factors other than time lost, in which event 
only such part of the payment as is not so apportioned shall be deemed 
to be paid for time lost. Compensation earned in any calendar month 
before 1947 shall be deemed paid in such month regardless of whether or 
when payment will have been in fact made, and compensation earned in any 
calendar year after 1946 but paid after the end of such calendar year 
shall be deemed to be compensation paid in the calendar year in which it 
will have been earned if it is so reported by the employer before 
February 1 of the next succeeding calendar year or, if the employee 
establishes, subject to the provisions of section 8, the period during 
which such compensation will have been earned.

                                * * * * *

    (r) The term ``Board'' means the Railroad Retirement Board.
    (s) The term ``United States'', when used in a geographical sense, 
means the States, Alaska, Hawaii, and the District of Columbia.

                                * * * * *

(Sec. 1, Railroad Unemployment Insurance Act, as amended by secs. 1 and 
2, Act of June 20, 1939, 53 Stat. 845; secs. 1 and 3, Act of Aug. 13, 
1940, 54 Stat. 785, 786; sec. 15, Act of Apr. 8, 1942, 56 Stat. 210; 
secs. 1 and 2, Act of July 31, 1946, 60 Stat. 722; sec. 302, Act of Aug. 
31, 1954, 68 Stat. 1040; sec. 301, Act of May 19, 1959, Pub. L. 86-28, 
73 Stat. 30)

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6658, 28 FR 
6638, June 27, 1963]



Sec.  31.3306(c)(10)-1  Services in the employ of certain organizations
exempt from income tax.

    (a) In general. (1) This section deals with the exception from 
employment of certain services performed in the employ of any 
organization exempt from income tax under section 501(a) (other than an 
organization described in section 401(a)) or under section 521. (See the 
provisions of Sec. Sec.  1.401-1, 1.501(a)-1, and 1.521-1 of this 
chapter (Income Tax Regulations).) If the services meet the tests set 
forth in paragraphs (b), (c), (d), or (e) of this section, the services 
are excepted.
    (2) See also Sec.  31.3306(c)(8)-1 for provisions relating to the 
exception of services performed in the employ of religious, charitable, 
educational, or certain other organizations exempt from income tax; 
Sec.  31.3306(c)(10)-2 for provisions relating to the exception of 
services performed by certain students in the employ of a school, 
college, or university; and Sec.  31.3306(c)(10)-3 for provisions 
relating to the exception of services performed before 1962 in the 
employ of certain employees' beneficiary associations.
    (b) Remuneration less than $50 for calendar quarter. Services 
performed by an employee in a calendar quarter in the employ of an 
organization exempt from income tax under section 501(a) (other

[[Page 170]]

than an organization described in section 401(a)) or under section 521 
are excepted from employment, if the remuneration for the service is 
less than $50. The test relating to remuneration of $50 is based on the 
remuneration earned during a calendar quarter rather than on the 
remuneration paid in a calendar quarter. The exception applies 
separately with respect to each organization for which the employee 
renders services in a calendar quarter. The type of services performed 
by the employee and the place where the services are performed are 
immaterial; the statutory tests are the character of the organization in 
the employ of which the services are performed and the amount of the 
remuneration for services performed by the employee in the calendar 
quarter.

    Example 1. X is a local lodge of a fraternal organization and is 
exempt from income tax under section 501(a) as an organization of the 
character described in section 501 (c)(8). X has a number of paid 
employees, among them being A who serves exclusively as recording 
secretary for the lodge, and B who performs services for the lodge as 
janitor of its clubhouse. For services performed during the first 
calendar quarter of 1955 (that is, January 1, 1955, through March 31, 
1955, both dates inclusive) A earns a total of $30. For services 
performed during the same calendar quarter B earns $180. Since the 
remuneration for the services performed by A during such quarter is less 
than $50, all of such services are excepted. Thus, A is not counted as 
an employee in employment on any of the days during such quarter for 
purposes of determining whether the X organization is an employer (see 
Sec.  31.3306(a)-1). Even though it is subsequently determined that X is 
an employer, A's remuneration of $30 for services performed during the 
first calendar quarter of such year is not subject to tax. B's services, 
however, are not excepted during such quarter since the remuneration 
therefor is not less than $50. Thus, B is counted as an employee in 
employment during all of such quarter for purposes of determining 
whether the X organization is an employer. If it is determined that the 
X organization is an employer, B's remuneration of $180 for services 
performed during the first calendar quarter is included in computing the 
tax.
    Example 2. The facts are the same as in example 1, above, except 
that on April 1, 1955, A's salary is increased and, for services 
performed during the calendar quarter beginning on that date (that is, 
April 1, 1955, through June 30, 1955, both dates inclusive), A earns 
$60. Although all of the services performed by A during the first 
quarter were excepted, none of A's services performed during the second 
quarter are excepted since the remuneration for such services is not 
less than $50. A, therefore, is counted as an employee in employment 
during all of the second quarter for the purpose of determining whether 
the X organization is an employer. If it is determined that the X 
organization is an employer, A's remuneration of $60 for services 
performed during the second calendar quarter is included in computing 
the tax.
    Example 3. The facts are the same as in example 1, above, except 
that A earns $120 for services performed during the year 1955, and such 
amount is paid to him in a lump sum at the end of the year. The services 
performed by A in any calendar quarter during the year are excepted if 
the portion of the $120 attributable to services performed in that 
quarter is less than $50. In such case, A is not counted as an employee 
in employment on any of the days during such quarter for purposes of 
determining whether the X organization is an employer. If, however, the 
portion of the $120 attributable to services performed in any calendar 
quarter during the year is not less than $50, the services during that 
quarter are not excepted. In the latter case, A is counted as an 
employee in employment during all of such quarter and, if it is 
determined that the X organization is an employer, that portion of the 
$120 attributable to services performed in such quarter is included in 
computing the tax.

    (c) Collection of dues or premiums for fraternal beneficiary 
societies, and ritualistic services in connection with such societies, 
before 1962. The following services performed by an employee in the 
employ of a fraternal beneficiary society, order, or association exempt 
from income tax under section 501(a) are excepted from employment if the 
services are performed before 1962 or if remuneration for the services 
is paid before 1962:
    (1) Services performed away from the home office of such a society, 
order, or association in connection with the collection of dues or 
premiums for such society, order, or association; and
    (2) Ritualistic services (wherever performed) in connection with 
such a society, order, or association.

For purposes of the paragraph the amount of the remuneration for 
services performed by the employee in the calendar quarter is 
immaterial; the tests are the character of the organization in whose 
employ the services are performed, the type of services, and, in

[[Page 171]]

the case of collection of dues or premiums, the place where the services 
are performed.
    (d) Students employed before 1962. (1) Services performed in the 
employ of an organization exempt from income tax under section 501(a) 
(other than an organization described in section 401(a)) or under 
section 521 by a student who is enrolled and is regularly attending 
classes at a school, college, or university, are excepted from 
employment if the services are performed before 1962 or if remuneration 
for the services is paid before 1962. For purposes of this paragraph, 
the amount of remuneration for services performed by the employee in the 
calendar quarter, the type of services, and the place where the services 
are performed are immaterial; the tests are the character of the 
organization in whose employ the services are performed and the status 
of the employee as a student enrolled and regularly attending classes at 
a school, college, or university.
    (2) The term ``school, college, or university'' as used in this 
paragraph is to be taken in its commonly or generally accepted sense. 
For provisions relating to services performed before 1962 by a student 
enrolled and regularly attending classes at a school, college, or 
university not exempt from income tax in the employ of such school, 
college, or university, see paragraph (b) of Sec.  31.3306(c)(10)-2. For 
provisions relating to services performed after 1961 by a student 
enrolled and regularly attending classes at a school, college, or 
university in the employ of such school, college, or university, see 
paragraph (a) or Sec.  31.3306(c)(10)-2.
    (e) Services performed before 1962 in employ of agricultural or 
horticultural organization exempt from income tax. (1) Services 
performed by an employee in the employ of an agricultural or 
horticultural organization which is described in section 501(c)(5) and 
the regulations thereunder and which is exempt from income tax under 
section 501(a) are excepted from employment if the services are 
performed before 1962 or if remuneration for the services is paid before 
1962.
    (2) For purposes of this paragraph, the type of services performed 
by the employee, the amount of remuneration for the services, and the 
place where the services are performed are immaterial; the test is the 
character of the organization in whose employ the services are 
performed.

[T.D. 6658, 28 FR 6639, June 27, 1963]



Sec.  31.3306(c)(10)-2  Services of student in employ of school, college,
or university.

    (a) Services performed after 1961. Services performed after 1961 in 
the employ of a school, college, or university, by a student who is 
enrolled and is regularly attending classes at the school, college, or 
university, are excepted from employment (whether or not the school, 
college, or university is exempt from income tax), if remuneration for 
the services is paid after 1961.
    (b) Services performed before 1962. Services performed in the employ 
of a school, college, or university not exempt from income tax under 
section 501(a), by a student who is enrolled and is regularly attending 
classes at the school, college, or university, are excepted from 
employment if the services are performed before 1962 or if remuneration 
for the services is paid before 1962.
    (c) General rule. (1) For purposes of this section, the tests are 
the character of the organization in the employ of which the services 
are performed and the status of the employee as a student enrolled and 
regularly attending classes at the school, college, or university 
described in paragraph (c)(2) of this section, in the employ of which 
the employee performs the services. If an employee has the status of a 
student within the meaning of paragraph (d) of this section, the type of 
services performed by the employee, the place where the services are 
performed, and the amount of remuneration for services performed by the 
employee are not material.
    (2) School, college, or university. An organization is a school, 
college, or university within the meaning of section 3306(c)(10)(B) if 
its primary function is the presentation of formal instruction, it 
normally maintains a regular faculty and curriculum, and it normally has 
a regularly enrolled body of students in attendance at the place where 
its educational activities are regularly

[[Page 172]]

carried on. See section 170(b)(1)(A)(ii) and the regulations thereunder.
    (d) Student Status--general rule. Whether an employee has the status 
of a student within the meaning of section 3306(c)(10)(B) performing the 
services shall be determined based on the relationship of the employee 
with the organization for which the services are performed. In order to 
have the status of a student within the meaning of section 
3306(c)(10)(B), the employee must perform services in the employ of a 
school, college, or university described in paragraph (c)(2) of this 
section at which the employee is enrolled and regularly attending 
classes in pursuit of a course of study within the meaning of paragraphs 
(d)(1) and (2) of this section. In addition, the employee's services 
must be incident to and for the purpose of pursuing a course of study at 
such school, college, or university within the meaning of paragraph 
(d)(3) of this section.
    (1) Enrolled and regularly attending classes. An employee must be 
enrolled and regularly attending classes at a school, college, or 
university within the meaning of paragraph (c)(2) of this section at 
which the employee is employed to have the status of a student within 
the meaning of section 3306(c)(10)(B). An employee is enrolled within 
the meaning of section 3306(c)(10)(B) if the employee is registered for 
a course or courses creditable toward an educational credential 
described in paragraph (d)(2) of this section. In addition, the employee 
must be regularly attending classes to have the status of a student. For 
purposes of this paragraph (d)(1), a class is an instructional activity 
led by a faculty member or other qualified individual hired by the 
school, college, or university within the meaning of paragraph (c)(2) of 
this section for identified students following an established 
curriculum. The frequency of these and similar activities determines 
whether an employee may be considered to be regularly attending classes.
    (2) Course of study. An employee must be pursuing a course of study 
in order to have the status of a student within the meaning of section 
3306(c)(10)(B). A course of study is one or more courses the completion 
of which fulfills the requirements necessary to receive an educational 
credential granted by a school, college, or university within the 
meaning of paragraph (c)(2) of this section. For purposes of this 
paragraph, an educational credential is a degree, certificate, or other 
recognized educational credential granted by an organization described 
in paragraph (c)(2) of this section. In addition, a course of study is 
one or more courses at a school, college or university within the 
meaning of paragraph (c)(2) of this section the completion of which 
fulfills the requirements necessary for the employee to sit for an 
examination required to receive certification by a recognized 
organization in a field.
    (3) Incident to and for the purpose of pursuing a course of study. 
(i) General rule. An employee's services must be incident to and for the 
purpose of pursuing a course of study in order for the employee to have 
the status of a student. Whether an employee's services are incident to 
and for the purpose of pursuing a course of study shall be determined on 
the basis of the relationship of the employee with the organization for 
which such services are performed as an employee. The educational aspect 
of the relationship between the employer and the employee, as compared 
to the service aspect of the relationship, must be predominant in order 
for the employee's services to be incident to and for the purpose of 
pursuing a course of study. The educational aspect of the relationship 
is evaluated based on all the relevant facts and circumstances related 
to the educational aspect of the relationship. The service aspect of the 
relationship is evaluated based on all the relevant facts and 
circumstances related to the employee's employment. The evaluation of 
the service aspect of the relationship is not affected by the fact that 
the services performed by the employee may have an educational, 
instructional, or training aspect. Except as provided in paragraph 
(d)(3)(iii) of this section, whether the educational aspect or the 
service aspect of an employee's relationship with the employer is 
predominant is determined by considering all the relevant facts and 
circumstances. Relevant factors in evaluating the educational and 
service

[[Page 173]]

aspects of an employee's relationship with the employer are described in 
paragraphs (d)(3)(iv) and (v) of this section respectively. There may be 
facts and circumstances that are relevant in evaluating the educational 
and service aspects of the relationship in addition to those described 
in paragraphs (d)(3)(iv) and (v) of this section.
    (ii) Student status determined with respect to each academic term. 
Whether an employee's services are incident to and for the purpose of 
pursuing a course of study is determined separately with respect to each 
academic term. If the relevant facts and circumstances with respect to 
an employee's relationship with the employer change significantly during 
an academic term, whether the employee's services are incident to and 
for the purpose of pursuing a course of study is reevaluated with 
respect to services performed during the remainder of the academic term.
    (iii) Full-time employee. The services of a full-time employee are 
not incident to and for the purpose of pursuing a course of study. The 
determination of whether an employee is a full-time employee is based on 
the employer's standards and practices, except regardless of the 
employer's classification of the employee, an employee whose normal work 
schedule is 40 hours or more per week is considered a full-time 
employee. An employee's normal work schedule is not affected by 
increases in hours worked caused by work demands unforeseen at the start 
of an academic term. However, whether an employee is a full-time 
employee is reevaluated for the remainder of the academic term if the 
employee changes employment positions with the employer. An employee's 
work schedule during academic breaks is not considered in determining 
whether the employee's normal work schedule is 40 hours or more per 
week. The determination of the employee's normal work schedule is not 
affected by the fact that the services performed by the individual may 
have an educational, instructional, or training aspect.
    (iv) Evaluating educational aspect. The educational aspect of an 
employee's relationship with the employer is evaluated based on all the 
relevant facts and circumstances related to the educational aspect of 
the relationship. The educational aspect of an employee's relationship 
with the employer is generally evaluated based on the employee's course 
workload. Whether an employee's course workload is sufficient in order 
for the employee's employment to be incident to and for the purpose of 
pursuing a course of study depends on the particular facts and 
circumstances. A relevant factor in evaluating an employee's course 
workload is the employee's course workload relative to a full-time 
course workload at the school, college or university within the meaning 
of paragraph (c)(2) of this section at which the employee is enrolled 
and regularly attending classes.
    (v) Evaluating service aspect. The service aspect of an employee's 
relationship with the employer is evaluated based on the facts and 
circumstances related to the employee's employment. Services of an 
employee with the status of a full-time employee within the meaning of 
paragraph (d)(3)(iii) of this section are not incident to and for the 
purpose of pursuing a course of study. Relevant factors in evaluating 
the service aspect of an employee's relationship with the employer are 
described in paragraphs (d)(3)(v)(A), (B), and (C) of this section.
    (A) Normal work schedule and hours worked. If an employee is not a 
full-time employee within the meaning of paragraph (d)(3)(iii) of this 
section, then the employee's normal work schedule and number of hours 
worked per week are relevant factors in evaluating the service aspect of 
the employee's relationship with the employer. As an employee's normal 
work schedule or actual number of hours worked approaches 40 hours per 
week, it is more likely that the service aspect of the employee's 
relationship with the employer is predominant. The determination of the 
employee's normal work schedule and actual number of hours worked is not 
affected by the fact that some of the services performed by the 
individual may have an educational, instructional, or training aspect.
    (B) Professional employee. (1) If an employee has the status of a 
professional employee, then that suggests that the

[[Page 174]]

service aspect of the employee's relationship with the employer is 
predominant. A professional employee is an employee--
    (i) Whose primary duty consists of the performance of work requiring 
knowledge of an advanced type in a field of science or learning 
customarily acquired by a prolonged course of specialized intellectual 
instruction and study, as distinguished from a general academic 
education, from an apprenticeship, and from training in the performance 
of routine mental, manual, or physical processes;
    (ii) Whose work requires the consistent exercise of discretion and 
judgment in its performance; and
    (iii) Whose work is predominantly intellectual and varied in 
character (as opposed to routine mental, manual, mechanical, or physical 
work) and is of such character that the output produced or the result 
accomplished cannot be standardized in relation to a given period of 
time.
    (2) Licensed, professional employee. If an employee is a licensed, 
professional employee, then that further suggests the service aspect of 
the employee's relationship with the employer is predominant. An 
employee is a licensed, professional employee if the employee is 
required to be licensed under state or local law to work in the field in 
which the employee performs services and the employee is a professional 
employee within the meaning of paragraph (d)(3)(v)(B)(1) of this 
section.
    (C) Employment Benefits. Whether an employee is eligible to receive 
employment benefits is a relevant factor in evaluating the service 
aspect of an employee's relationship with the employer. For example, 
eligibility to receive vacation, paid holiday, and paid sick leave 
benefits; eligibility to participate in a retirement plan described in 
section 401(a); or eligibility to receive employment benefits such as 
reduced tuition, or benefits under section 79 (life insurance), 127 
(qualified educational assistance), 129 (dependent care assistance 
programs), or 137 (adoption assistance) suggest that the service aspect 
of an employee's relationship with the employer is predominant. 
Eligibility to receive health insurance employment benefits is not 
considered in determining whether the service aspect of an employee's 
relationship with the employer is predominant. The weight to be given 
the fact that an employee is eligible for a particular benefit may vary 
depending on the type of employment benefit. For example, eligibility to 
participate in a retirement plan is generally more significant than 
eligibility to receive a dependent care employment benefit. Additional 
weight is given to the fact that an employee is eligible to receive an 
employment benefit if the benefit is generally provided by the employer 
to employees in positions generally held by non-students.
    (e) Effective date. Paragraphs (c) and (d) of this section apply to 
services performed on or after April 1, 2005.

[T.D. 6658, 28 FR 6640, June 27, 1963, as amended by T.D. 9167, 69 FR 
76410, Dec. 21, 2004]



Sec.  31.3306(c)(10)-3  Services before 1962 in employ of certain employees'
beneficiary associations.

    (a) Voluntary employees' beneficiary associations. Services 
performed by an employee in the employ of a voluntary employees' 
beneficiary association providing for the payment of life, sick, 
accident, or other benefits to the members of such association or their 
dependents are excepted from employment if--
    (1) No part of its net earnings inures (other than through such 
payments) to the benefit of any private shareholder or individual,
    (2) 85 percent or more of the income consists of amounts collected 
from members for the sole purpose of making such payments and meeting 
expenses, and
    (3) The services are performed before 1962, or remuneration for the 
services is paid before 1962.
    (b) Federal employees' beneficiary associations. Services performed 
by an employee in the employ of a voluntary employees' beneficiary 
association providing for the payment of life, sick, accident, or other 
benefits to the members of such association or their dependents or their 
designated beneficiaries are excepted from employment if--
    (1) Admission to membership in the association is limited to 
individuals

[[Page 175]]

who are officers or employees of the United States Government,
    (2) No part of the net earnings of the association inures (other 
than through such payments) to the benefit of any private shareholder or 
individual, and
    (3) The services are performed before 1962, or remuneration for the 
services is paid before 1962.
    (c) Application of tests. For purposes of this section, the type of 
services performed by the employee, the amount of remuneration for the 
services, and the place where the services are performed are immaterial; 
the test is the character of the organization in whose employ the 
services are performed.

[T.D. 6658, 28 FR 6640, June 27, 1963]



Sec.  31.3306(c)(11)-1  Services in employ of foreign government.

    (a) Services performed by an employee in the employ of a foreign 
government are excepted from employment. The exception includes not only 
services performed by ambassadors, ministers, and other diplomatic 
officers and employees but also services performed as a consular or 
other officer or employee of a foreign government, or as a nondiplomatic 
representative thereof.
    (b) For purposes of this exception, the citizenship or residence of 
the employee is immaterial. It is also immaterial whether the foreign 
government grants an equivalent exemption with respect to similar 
services performed in the foreign country by citizens of the United 
States.



Sec.  31.3306(c)(12)-1  Services in employ of wholly owned instrumentality
of foreign government.

    (a) Services performed by an employee in the employ of certain 
instrumentalities of a foreign government are excepted from employment. 
The exception includes all services performed in the employ of an 
instrumentality of the government of a foreign country, if--
    (1) The instrumentality is wholly owned by the foreign government;
    (2) The services are of a character similar to those performed in 
foreign countries by employees of the United States Government or of an 
instrumentality thereof; and
    (3) The Secretary of State certifies to the Secretary of the 
Treasury that the foreign government, with respect to whose 
instrumentality exemption is claimed, grants an equivalent exemption 
with respect to services performed in the foreign country by employees 
of the United States Government and of instrumentalities thereof.
    (b) For purposes of this exception, the citizenship or residence of 
the employee is immaterial.



Sec.  31.3306(c)(13)-1  Services of student nurse or hospital intern.

    (a) Services performed as a student nurse in the employ of a 
hospital or a nurses' training school are excepted from employment, if 
the student nurse is enrolled and regularly attending classes in a 
nurses' training school and such nurses' training school is chartered or 
approved pursuant to State law.
    (b) Services performed as an intern (as distinguished from a 
resident doctor) in the employ of a hospital are excepted from 
employment, if the intern has completed a 4 years' course in a medical 
school chartered or approved pursuant to State law.



Sec.  31.3306(c)(14)-1  Services of insurance agent or solicitor.

    (a) Services performed for a person by an employee as an insurance 
agent or insurance solicitor are excepted from employment, if all such 
services performed for such person by such individual are performed for 
remuneration solely by way of commission.
    (b) If all or any part of the remuneration of an employee for 
services performed as an insurance agent or insurance solicitor for a 
person is a salary, none of his services performed as an insurance agent 
or insurance solicitor for such person are excepted from employment, and 
his total remuneration (for example, salary, or salary and commissions) 
for such services is included for purposes of computing the tax.



Sec.  31.3306(c)(15)-1  Services in delivery or distribution of newspapers,
shopping news, or magazines.

    (a) Services of individuals under age 18. Services performed by an 
employee under the age of 18 in the delivery or

[[Page 176]]

distribution of newspapers or shopping news, not including delivery or 
distribution (as, for example, by a regional distributor) to any point 
for subsequent delivery or distribution, are excepted from employment. 
Thus, the services performed by an employee under the age of 18 in 
making house-to-house delivery or sale of newspapers or shopping news, 
including handbills and other similar types of advertising material, are 
excepted. The services are excepted irrespective of the form or method 
of compensation. Incidental services by the employee who makes the 
house-to-house delivery, such as services in assembling newspapers, are 
considered to be within the exception. The exception continues only 
during the time that the employee is under the age of 18.
    (b) Services of individuals of any age. Services performed by an 
employee in, and at the time of, the sale of newspapers or magazines to 
ultimate consumers under an arrangement under which the newspapers or 
magazines are to be sold by him at a fixed price, his compensation being 
based on the retention of the excess of such price over the amount at 
which the newspapers or magazines are charged to him, are excepted from 
employment. The services are excepted whether or not the employee is 
guaranteed a minimum amount of compensation for such services, or is 
entitled to be credited with the unsold newspapers or magazines turned 
back. Moreover, the services are excepted without regard to the age of 
the employee. Services performed other than at the time of sale to the 
ultimate consumer are not within the exception. Thus, the services of a 
regional distributor which are antecedent to but not immediately part of 
the sale to the ultimate consumer are not within the exception. However, 
incidental services by the employee who makes the sale to the ultimate 
consumer, such as services in assembling newspapers or in taking 
newspapers or magazines to the place of sale, are considered to be 
within the exception.



Sec.  31.3306(c)(16)-1  Services in employ of international organization.

    (a) Subject to the provisions of section 1 of the International 
Organizations Immunities Act (22 U.S.C. 228), services performed in the 
employ of an international organization as defined in section 
7701(a)(18) are excepted from employment.
    (b) (1) Section 701(a)(18) provides as follows:

    Sec. 7701. Definitions. (a) When used in this title, where not 
otherwise distinctly expressed or manifestly incompatible with the 
intent thereof--

                                * * * * *

    (18) International organization. The term ``international 
organization'' means a public international organization entitled to 
enjoy privileges, exemptions, and immunities as an international 
organization under the International Organizations Immunities Act (22 
U.S.C. 288-288f).

    (2) Section 1 of the International Organizations Immunities Act 
provides as follows:

    Sec. 1. [International Organizations Immunities Act.] For the 
purposes of this title [International Organizations Immunities Act], the 
term ``international organization'' means a public international 
organization in which the United States participates pursuant to any 
treaty or under the authority of any Act of Congress authorizing such 
participation or making an appropriation for such participation, and 
which shall have been designated by the President through appropriate 
Executive order as being entitled to enjoy the privileges, exemptions, 
and immunities herein provided. The President shall be authorized, in 
the light of the functions performed by any such international 
organization, by appropriate Executive order to withhold or withdraw 
from any such organization or its officers or employees any of the 
privileges, exemptions, and immunities provided for in this title 
(including the amendments made by this title) or to condition or limit 
the enjoyment by any such organization or its officers or employees of 
any such privilege, exemption, or immunity. The President shall be 
authorized, if in his judgment such action should be justified by reason 
of the abuse by an international organization or its officers and 
employees of the privileges, exemptions, and immunities herein provided 
or for any other reason, at any time to revoke the designation of any 
international organization under this section, whereupon the 
international organization in question shall cease to be classed as an 
international organization for the purposes of this title.

[[Page 177]]



Sec.  31.3306(c)(17)-1  Fishing services.

    (a) In general. Subject to the limitations prescribed in paragraphs 
(b) and (c) of this section, services described in this paragraph are 
excepted from employment. Services performed by an individual in the 
catching, taking, harvesting, cultivating, or farming of any kind of 
fish, shell-fish (for example, oysters, clams, and mussels), crustacea 
(for example, lobsters, crabs, and shrimps), sponges, seaweeds, or other 
aquatic forms of animal and vegetable life are excepted. The exception 
extends to services performed as an officer or member of the crew of a 
vessel while the vessel is engaged in any such activity whether or not 
the officer or member of the crew is himself so engaged. In the case of 
an individual who is engaged in any such activity in the employ of any 
person, the services performed, by such individual in the employ of such 
person, as an ordinary incident to any such activity are also excepted. 
Similarly, for example, the shore services of an officer or member of 
the crew of a vessel engaged in any such activity are excepted if such 
services are an ordinary incident to any such activity. Services 
performed as an ordinary incident to any such activity may include, for 
example, services performed in such cleaning, icing, and packing of fish 
as are necessary for the immediate preservation of the catch.
    (b) Salmon and halibut fishing. Services performed in connection 
with the catching or taking of salmon or halibut, for commercial 
purposes, are not within the exception. Thus, neither the services of an 
officer or member of the crew of a vessel (irrespective of its tonnage) 
which is engaged in the catching or taking of salmon or halibut, for 
commercial purposes, nor the services of any other individual in 
connection with such activity, are within the exception.
    (c) Vessels of more than 10 net tons. Services described in 
paragraph (a) of this section performed on or in connection with a 
vessel of more than 10 net tons are not within the exception. For 
purposes of the exception, the tonnage of the vessel shall be determined 
in the manner provided for determining the register tonnage of merchant 
vessels under the laws of the United States.



Sec.  31.3306(c)(18)-1  Services of certain nonresident aliens.

    (a) (1) Services performed after 1961 by a nonresident alien 
individual who is temporarily present in the United States as a 
nonimmigrant under subparagraph (F) or (J) of section 101(a) (15) of the 
Immigration and Nationality Act (8 U.S.C. 1101), as amended, are 
excepted from employment if the services are performed to carry out a 
purpose for which the individual was admitted. For purposes of this 
section an alien individual who is temporarily present in the United 
States as a nonimmigrant under such subparagraph (F) or (J) is deemed to 
be a nonresident alien individual. The preceding sentence does not apply 
to the extent it is inconsistent with section 7701(b) and the 
regulations under that section. A nonresident alien individual who is 
temporarily present in the United States as a nonimmigrant under such 
subparagraph (J) includes an alien individual admitted to the United 
States as an ``exchange visitor'' under section 201 of the United States 
Information and Educational Exchange Act of 1948 (22 U.S.C. 1446).
    (2) If services are performed by a nonresident alien individual's 
alien spouse or minor child, who is temporarily present in the United 
States as a nonimmigrant under subparagraph (F) or (J) of section 
101(a)(15) of the Immigration and Nationality Act, as amended, the 
services are not deemed for purposes of this section to be performed to 
carry out a purpose for which such individual was admitted. The services 
of such spouse or child are excepted from employment under this section 
only if the spouse or child was admitted for a purpose specified in such 
subparagraph (F) or (J) and if the services are performed to carry out 
such purpose.
    (b) Section 101 of the Immigration and Nationality Act (8 U.S.C. 
1101), as amended, provides, in part, as follows:

    Sec. 101. Definitions. [Immigration and Nationality Act (66 Stat. 
166)]
    (a) As used in this chapter--* * *
    (15) The term immigrant means every alien except an alien who is 
within one of the following classes of nonimmigrant aliens--

                                * * * * *

[[Page 178]]

    (F) (i) An alien having a residence in a foreign country which he 
has no intention of abandoning, who is a bona fide student qualified to 
pursue a full course of study and who seeks to enter the United States 
temporarily and solely for the purpose of pursuing such a course of 
study at an established institution of learning or other recognized 
place of study in the United States, particularly designated by him and 
approved by the Attorney General after consultation with the Office of 
Education of the United States, which institution or place of study 
shall have agreed to report to the Attorney General the termination of 
attendance of each nonimmigrant student, and if any such institution of 
learning or place of study fails to make reports promptly the approval 
shall be withdrawn, and (ii) the alien spouse and minor children of any 
such alien if accompanying him or following to join him;

                                * * * * *

    (J) An alien having a residence in a foreign country which he has no 
intention of abandoning who is a bona fide student, scholar, trainee, 
teacher, professor, research assistant, specialist, or leader in a field 
of specialized knowledge or skill, or other person of similar 
description, who is coming temporarily to the United States as a 
participant in a program designated by the Secretary of State, for the 
purpose of teaching, instructing or lecturing, studying, observing, 
conducting research, consulting, demonstrating special skills, or 
receiving training, and the alien spouse and minor children of any such 
alien if accompanying him or following to join him.

                                * * * * *

(Sec. 101, Immigration and Nationality Act, as amended by sec. 101, Act 
of June 27, 1952, 66 Stat. 166; sec. 109, Act of Sept. 21, 1961, 75 
Stat. 534)

[T.D. 6658, 28 FR 6640, June 27, 1963, as amended by T.D. 8411, 57 FR 
15241, Apr. 27, 1992]



Sec.  31.3306(d)-1  Included and excluded service.

    (a) If a portion of the services performed by an employee for the 
person employing him during a pay period constitutes employment, and the 
remainder does not constitute employment, all the services of the 
employee during the period shall for purposes of the tax be treated 
alike, that is, either all as included or all as excluded. The time 
during which the employee performs services which under section 3306(c) 
constitute employment, and the time during which he performs services 
which under such section do not constitute employment, within the pay 
period, determine whether all the services during the pay period shall 
be deemed to be included or excluded.
    (b) If one-half or more of the employee's time in the employ of a 
particular person in a pay period is spent in performing services which 
constitute employment, then all the services of that employee for that 
person in that pay period shall be deemed to be employment.
    (c) If less than one-half of the employee's time in the employ of a 
particular person in a pay period is spent in performing services which 
constitute employment, then none of the services of that employee for 
that person in that pay period shall be deemed to be employment.
    (d) The application of the provisions of paragraphs (a), (b), and 
(c) of this section may be illustrated by the following examples:

    Example 1. Employer B, who operates a farm and a store, employs A to 
perform services in connection with both operations. A's services on the 
farm are such that they are excepted as agricultural labor and do not 
constitute employment, and his services in the store constitute 
employment. He is paid at the end of each month. During a particular 
month A works 120 hours on the farm and 80 hours in the store. None of 
A's services during the month are deemed to be employment, since less 
than one-half of his services during the month constitutes employment. 
During another month A works 75 hours on the farm and 120 hours in the 
store. All of A's services during the month are deemed to be employment, 
since one-half or more of his services during the month constitutes 
employment.
    Example 2. Employee C is employed as a maid by D, a medical doctor, 
whose home and office are located in the same building. C's services in 
the home are excepted as domestic service and do not constitute 
employment, and her services in the office constitute employment. She is 
paid each week. During a particular week C works 20 hours in the home 
and 20 hours in the office. All of C's services during that week are 
deemed to be employment, since one-half or more of her services during 
the week constitutes employment. During another week C works 22 hours in 
the home and 15 hours in the office. None of C's services during that 
week are deemed to be employment, since less than one-half of

[[Page 179]]

her services during the week constitutes employment.

    (e) For purposes of this section, a ``pay period'' is the period (of 
not more than 31 consecutive calendar days) for which a payment of 
remuneration is ordinarily made to the employee by the person employing 
him. Thus, if the periods for which payments of remuneration are made to 
the employee by such person are of uniform duration, each such period 
constitutes a ``pay period''. If, however, the periods occasionally vary 
in duration, the ``pay period'' is the period for which a payment of 
remuneration is ordinarily made to the employee by such person, even 
though that period does not coincide with the actual period for which a 
particular payment of remuneration is made. For example, if a person 
ordinarily pays a particular employee for each calendar week at the end 
of the week, but the employee receives a payment in the middle of the 
week for the portion of the week already elapsed and receives the 
remainder at the end of the week, the ``pay period'' is still the 
calendar week; or if, instead, that employee is sent on a trip by such 
person and receives at the end of the third week a single remuneration 
payment for 3 weeks' services, the ``pay period'' is still the calendar 
week.
    (f) If there is only one period (and such period does not exceed 31 
consecutive calendar days) for which a payment of remuneration is made 
to the employee by the person employing him, such period is deemed to be 
a ``pay period'' for purposes of this section.
    (g) The rules set forth in this section do not apply (1) with 
respect to any services performed by the employee for the person 
employing him if the periods for which such person makes payments of 
remuneration to the employee vary to the extent that there is no period 
``for which a payment of remuneration is ordinarily made to the 
employee,'' or (2) with respect to any services performed by the 
employee for the person employing him if the period for which a payment 
of remuneration is ordinarily made to the employee by such person 
exceeds 31 consecutive calendar days, or (3) with respect to any service 
performed by the employee for the person employing him during a pay 
period if any of such service is excepted by section 3306(c) (9) (see 
Sec.  31.3306(c) (9)-1).
    (h) If during any period for which a person makes a payment of 
remuneration to an employee only a portion of the employee's services 
constitutes employment, but the rules prescribed in this section are not 
applicable, the tax attaches with respect to such services as constitute 
employment as defined in section 3306(c) (provided such person is an 
employer as defined in section 3306(a) and Sec.  31.3306(a)-1).



Sec.  31.3306(i)-1  Who are employees.

    (a) Every individual is an employee if the relationship between him 
and the person for whom he performs services is the legal relationship 
of employer and employee. (The word ``employer'' as used in this section 
only, notwithstanding the provisions of Sec.  31.3306(a)-1, includes a 
person who employs one or more employees.)
    (b) Generally such relationship exists when the person for whom 
services are performed has the right to control and direct the 
individual who performs the services, not only as to the result to be 
accomplished by the work but also as to the details and means by which 
that result is accomplished. That is, an employee is subject to the will 
and control of the employer not only as to what shall be done but how it 
shall be done. In this connection, it is not necessary that the employer 
actually direct or control the manner in which the services are 
performed; it is sufficient if he has the right to do so. The right to 
discharge is also an important factor indicating that the person 
possessing that right is an employer. Other factors characteristic of an 
employer, but not necessarily present in every case, are the furnishing 
of tools and the furnishing of a place to work, to the individual who 
performs the services. In general, if an individual is subject to the 
control or direction of another merely as to the result to be 
accomplished by the work and not as to the means and methods for 
accomplishing the result, he is an independent contractor. An individual 
performing services as an independent contractor is not as to such 
services an

[[Page 180]]

employee. Individuals such as physicians, lawyers, dentists, 
veterinarians, construction contractors, public stenographers, and 
auctioneers, engaged in the pursuit of an independent trade, business, 
or profession, in which they offer their services to the public, are 
independent contractors and not employees.
    (c) Whether the relationship of employer and employee exists will in 
doubtful cases be determined upon an examination of the particular facts 
of each case.
    (d) If the relationship of employer and employee exists, the 
designation or description of the relationship by the parties as 
anything other than that of employer and employee is immaterial. Thus, 
if such relationship exists, it is of no consequence that the employee 
is designated as a partner, coadventurer, agent, independent contractor, 
or the like.
    (e) All classes or grades of employees are included within the 
relationship of employer and employee. Thus, superintendents, managers, 
and other supervisory personnel are employees. Generally, an officer of 
a corporation is an employee of the corporation. However, an officer of 
a corporation who as such does not perform any services or performs only 
minor services and who neither receives nor is entitled to receive, 
directly or indirectly, any remuneration is considered not to be an 
employee of the corporation. A director of a corporation in his capacity 
as such is not an employee of the corporation.
    (f) Although an individual may be an employee under this section, 
his services may be of such a nature, or performed under such 
circumstances, as not to constitute employment (see Sec.  31.3306(c)-2).



Sec.  31.3306(j)-1  State, United States, and citizen.

    (a) When used in the regulations in this subpart, the term ``State'' 
includes the District of Columbia, the Territories of Alaska and Hawaii 
before their admission as States, and (when used with respect to 
remuneration paid after 1960 for services performed after 1960) the 
Commonwealth of Puerto Rico.
    (b) When used in the regulations in this subpart, the term ``United 
States'', when used in a geographical sense, means the several States 
(including the Territories of Alaska and Hawaii before their admission 
as States), and the District of Columbia. When used in the regulations 
in this subpart with respect to remuneration paid after 1960 for 
services performed after 1960, the term ``United States'' also includes 
the Commonwealth of Puerto Rico when the term is used in a geographical 
sense, and the term ``citizen of the United States'' includes a citizen 
of the Commonwealth of Puerto Rico.

[T.D. 6658, 28 FR 6641, June 27, 1963]



Sec.  31.3306(k)-1  Agricultural labor.

    (a) In general. (1) Services performed by an employee for the person 
employing him which constitute ``agricultural labor'' as defined in 
section 3306(k) are excepted from employment by reason of section 
3306(c)(1). See Sec.  31.3306(c)(1)-1. The term ``agricultural labor'' 
as defined in section 3306(k) includes services of the character 
described in paragraphs (b), (c), (d), and (e) of this section. In 
general, however, the term does not include services performed in 
connection with forestry, lumbering, or landscaping.
    (2) The term ``farm'' as used in this subpart includes stock, dairy, 
poultry, fruit, fur-bearing animal, and truck farms, plantations, 
ranches, nurseries, ranges, orchards, and such greenhouses and other 
similar structures as are used primarily for the raising of agricultural 
or horticultural commodities. Greenhouses and other similar structures 
used primarily for other purposes (for example, display, storage, and 
fabrication of wreaths, corsages, and bouquets) do not constitute 
``farms''.
    (b) Services described in section 3306(k)(1). Services performed on 
a farm by an employee of any person in connection with any of the 
following activities constitute agricultural labor:
    (1) The cultivation of the soil;
    (2) The raising, shearing, feeding, caring for, training, or 
management of livestock, bees, poultry, fur-bearing animals, or 
wildlife; or

[[Page 181]]

    (3) The raising or harvesting of any other agricultural or 
horticultural commodity.
    (c) Services described in section 3306(k)(2). (1) The following 
services performed by an employee in the employ of the owner or tenant 
or other operator of one or more farms constitute agricultural labor, if 
the major part of such services is performed on a farm:
    (i) Services performed in connection with the operation, management, 
conservation, improvement, or maintenance of any such farms or its tools 
or equipment; or
    (ii) Services performed in salvaging timber, or clearing land of 
brush and other debris, left by a hurricane.
    (2) The services described in paragraph (c)(1)(i) of this section 
may include, for example, services performed by carpenters, painters, 
mechanics, farm supervisors, irrigation engineers, bookkeepers, and 
other skilled or semiskilled workers, which contribute in any way to the 
conduct of the farm or farms, as such, operated by the person employing 
them, as distinguished from any other enterprise in which such person 
may be engaged.
    (3) Since the services described in this paragraph must be performed 
in the employ of the owner or tenant or other operator of the farm, 
services performed by employees of a commercial painting concern, for 
example, which contracts with a farmer to renovate his farm properties, 
do not constitute agricultural labor.
    (d) Services described in section 3306(k)(3). Services performed by 
an employee in the employ of any person in connection with any of the 
following operations constitute agricultural labor without regard to the 
place where such services are performed:
    (1) The ginning of cotton;
    (2) The hatching of poultry;
    (3) The raising or harvesting of mushrooms;
    (4) The operation or maintenance of ditches, canals, reservoirs, or 
waterways used exclusively for supplying or storing water for farming 
purposes;
    (5) The production or harvesting of maple sap or the processing of 
maple sap into maple sirup or maple sugar (but not the subsequent 
blending or other processing of such sirup or sugar with other 
products); or
    (6) The production or harvesting of crude gum (oleoresin) from a 
living tree or the processing of such crude gum into gum spirits of 
turpentine and gum rosin provided such processing is carried on by the 
original producer of such crude gum.
    (e) Services described in section 3306(k)(4). (1)(i) Services 
performed by an employee in the employ of a farmer or a farmers' 
cooperative organization or group in the handling, planting, drying, 
packing, packaging, processing, freezing, grading, storing, or 
delivering to storage or to market or to a carrier for transportation to 
market, of any agricultural or horticultural commodity, other than 
fruits and vegetables (see paragraph (e)(2) of this section), produced 
by such farmer or farmer-members of such organization or group of 
farmers constitute agricultural labor, if such services are performed as 
an incident to ordinary farming operations.
    (ii) Generally services are performed ``as an incident to ordinary 
farming operations'' within the meaning of this paragraph if they are 
services of the character ordinarily performed by the employees of a 
farmer or of a farmers' cooperative organization or group as a 
prerequisite to the marketing, in its unmanufactured state, of any 
agricultural or horticultural commodity produced by such farmer or by 
the members of such farmers' organization or group. Services performed 
by employees of such farmer or farmers' organization or group in the 
handling, planting, drying, packing, packaging, processing, freezing, 
grading, storing, or delivering to storage or to market or to a carrier 
for transportation to market, of commodities produced by persons other 
than such farmer or members of such farmers' organization or group are 
not performed ``as an incident to ordinary farming operations''.
    (2) Services performed by an employee in the employ of any person in 
the handling, planting, drying, packing, packaging, processing, 
freezing, grading, storing, or delivering to storage or to market or to 
a carrier for transportation to market, of fruits and

[[Page 182]]

vegetables, whether or not of a perishable nature, constitute 
agricultural labor, if such services are performed as an incident to the 
preparation of such fruits and vegetables for market. For example, if 
services in the sorting, grading, or storing of fruits, or in the 
cleaning of beans, are performed as an incident to their preparation for 
market, such services may constitute agricultural labor, whether 
performed in the employ of a farmer, a farmers' cooperative, or a 
commercial handler of such commodities.
    (3) The services described in paragraphs (e)(1) and (2) of this 
section do not include services performed in connection with commercial 
canning or commercial freezing or in connection with any commodity after 
its delivery to a terminal market for distribution for consumption. 
Moreover, since the services described in such subparagraphs must be 
rendered in the actual handling, planting, drying, packing, packaging, 
processing, freezing, grading, storing, or delivering to storage or to 
market or to a carrier for transportation to market, of the commodity, 
such services do not, for example, include services performed as 
stenographers, bookkeepers, clerks, and other office employees, even 
though such services may be in connection with such activities. However, 
to the extent that the services of such individuals are performed in the 
employ of the owner or tenant or other operator of a farm and are 
rendered in major part on a farm, they may be within the provisions of 
paragraph (c) of this section.



Sec.  31.3306(m)-1  American vessel and aircraft.

    (a) The term ``American vessel'' means any vessel which is 
documented (that is, registered, enrolled, or licensed) or numbered in 
conformity with the laws of the United States. It also includes any 
vessel which is neither documented nor numbered under the laws of the 
United States, nor documented under the laws of any foreign country, if 
the crew of such vessel is employed solely by one or more citizens or 
residents of the United States or corporations organized under the laws 
of the United States or of any State. (For provisions relating to the 
terms ``State'' and ``citizen'', see Sec.  31.3306(j)-1.)
    (b) The term ``American aircraft'' means any aircraft registered 
under the laws of the United States.
    (c) For provisions relating to services performed outside the United 
States on or in connection with an American vessel or American aircraft, 
see paragraph (c) of Sec.  31.3306(c)-2.

[T.D. 6658, 28 FR 6641, June 27, 1963]



Sec.  31.3306(n)-1  Services on American vessel whose business is conducted
by general agent of Secretary of Commerce.

    (a) Section 3306(n) and this section of the regulations apply with 
respect only to services performed by an officer or member of the crew 
of an American vessel (1) which is owned by or bareboat chartered to the 
United States, and (2) whose business is conducted by a general agent of 
the Secretary of Commerce. Whether services performed by such an officer 
or member of a crew under the above conditions constitute employment is 
determined under section 3306(c) and (n), but without regard to section 
3306(c)(6). See Sec.  31.3306(c)(6)-1, relating to services performed in 
the employ of the United States and instrumentalities thereof. If, 
without regard to section 3306(c)(6), such services constitute 
employment, they are not excepted from employment by reason of the fact 
that they are performed on or in connection with an American vessel 
which is owned by or bareboat chartered to the United States and whose 
business is conducted by a general agent of the Secretary of Commerce, 
that is, such services are not excepted from employment by section 
3306(c)(6). For provisions relating to services performed within the 
United States and services performed outside the United States which 
constitute employment, see Sec.  31.3306(c)-2.
    (b) The expression ``officer or member of the crew'' includes the 
master or officer in charge of the vessel, however designated, and every 
individual, subject to his authority, serving on board and contributing 
in any way to the operation and welfare of the vessel. Thus, the 
expression includes, for example, the master, mates, pilots, pursers, 
surgeons, stewards, engineers, firemen,

[[Page 183]]

cooks, clerks, carpenters, and deck hands.
    (c) An employee of the United States who performs services as an 
officer or member of the crew of an American vessel which is owned by or 
bareboat chartered to the United States and whose business is conducted 
by a general agent of the Secretary of Commerce shall be deemed, under 
section 3306(n), to be performing services for such general agent rather 
than for the United States. Any such general agent of the Secretary of 
Commerce is considered a legal entity in his capacity as such general 
agent, separate and distinct from his identity as a person employing 
individuals on his own account. Each such general agent who in his 
capacity as such qualifies as an employer under section 3306(a) is with 
respect to each calendar year for which he so qualifies subject to the 
tax imposed by section 3301, and to all the requirements imposed upon an 
employer as defined in section 3306(a) by the regulations in this part, 
with respect to services which constitute employment by reason of 
section 3306(n) and this section of the regulations.



Sec.  31.3306(p)-1  Employees of related corporations.

    (a) In general. For purposes of sections 3301, 3302, and 3306(b)(1), 
when two or more related corporations concurrently employ the same 
individual and compensate that individual through a common paymaster 
which is one of the related corporations for which the individual 
performs services, each of the corporations is considered to have paid 
only the remuneration it actually disburses to that individual (unless 
the disbursing corporation fails to remit the taxes due). Paragraphs (b) 
and (c) of Sec.  31.3121(s)-1 contain rules defining related 
corporations, common paymasters, and concurrent employment, and rules 
for determining the liability of the other related corporations for 
employment taxes if the common paymaster fails to remit the taxes 
pursuant to sections 3102 and 3111, and for allocating these taxes among 
the related corporations. Those rules also apply to the tax under 
section 3301. For purposes of applying those rules to this section, 
references in those rules to section 3111 are considered references to 
sections 3301 and 3302, and references to section 3121 are considered 
references to section 3306.
    (b) Allocation of credit for contributions to State unemployment 
funds. A special rule for applying the rules of Sec.  31.3121(s)-1 to 
this section applies if it is necessary to determine the ultimate 
liability of each related corporation for which services are performed 
in the event the common paymaster fails to remit the tax to the Internal 
Revenue Service. In determining the ultimate liability of a corporation, 
the credit for contributions to State unemployment funds that the 
corporation may claim under section 3302 is calculated as if each 
corporation were a separate employer.
    (c) Effective date. This section is effective with respect to wages 
paid after December 31, 1978.

[T.D. 7660, 44 FR 75142, Dec. 19, 1979]



Sec.  31.3306(r)(2)-1  Treatment of amounts deferred under certain nonqualified
deferred compensation plans.

    (a) In general. Section 3306(r)(2) provides a special timing rule 
for the tax imposed by section 3301 with respect to any amount deferred 
under a nonqualified deferred compensation plan. Section 31.3121(v)(2)-1 
contains rules relating to when amounts deferred under certain 
nonqualified deferred compensation plans are wages for purposes of 
sections 3121(v)(2), 3101, and 3111. The rules in Sec.  31.3121(v)(2)-1 
also apply to the special timing rule of section 3306(r)(2). For 
purposes of applying the rules in Sec.  31.3121(v)(2)-1 to section 
3306(r)(2) and this paragraph (a), references to the Federal Insurance 
Contributions Act are considered references to the Federal Unemployment 
Tax Act (26 U.S.C. 3301 et seq.), references to FICA are considered 
references to FUTA, references to section 3101 or 3111 are considered 
references to section 3301, references to section 3121(v)(2) are 
considered references to section 3306(r)(2), references to section 
3121(a), (a)(5), and (a)(13) are considered references to section 
3306(b), (b)(5), and (b)(10), respectively, and references to Sec.  
31.3121(a)-2(a) are considered references to Sec.  31.3301-4.

[[Page 184]]

    (b) Effective dates and transition rules. Except as otherwise 
provided, section 3306(r)(2) applies to remuneration paid after December 
31, 1984. Section 31.3121(v)(2)-2 contains effective date rules for 
certain remuneration paid after December 31, 1983, for purposes of 
section 3121(v)(2). The rules in Sec.  31.3121(v)(2)-2 also apply to 
section 3306(r)(2). For purposes of applying the rules in Sec.  
31.3121(v)(2)-2 to section 3306(r)(2) and this paragraph (b), references 
to section 3121(v)(2) are considered references to section 3306(r)(2), 
and references to section 3121(a)(2), (a)(3), or (a)(13) are considered 
references to section 3306(b)(2), (b)(3), or (b)(10), respectively. In 
addition, references to Sec.  31.3121(v)(2)-1 are considered references 
to paragraph (a) of this section. For purposes of applying the rules of 
Sec.  31.3121(v)(2)-2 to this paragraph (b)--
    (1) References to ``December 31, 1983'' are considered references to 
``December 31, 1984'';
    (2) References to ``before 1984'' are considered references to 
``before 1985'';
    (3) References to ``Federal Insurance Contributions Act'' are 
considered references to ``Federal Unemployment Tax Act''; and
    (4) References to ``FICA'' are considered references to ``FUTA''.

[64 FR 4541, Jan. 29, 1999]



Sec.  31.3307-1  Deductions by an employer from remuneration of an employee.

    Any amount deducted by an employer from the remuneration of an 
employee is considered to be a part of the employee's remuneration and 
is considered to be paid to the employee as remuneration at the time 
that the deduction is made. It is immaterial that any act of Congress or 
the law of any State requires or permits such deductions and the payment 
of the amount thereof to the United States, a State, or any political 
subdivision thereof.



Sec.  31.3308-1  Instrumentalities of the United States specifically 
exempted from tax imposed by section 3301.

    Section 3308 makes ineffectual as to the tax imposed by section 3301 
(with respect to remuneration paid after 1961 for services performed 
after 1961) those provisions of law which grant to an instrumentality of 
the United States an exemption from taxation, unless such provisions 
grant a specific exemption from the tax imposed by section 3301 by an 
express reference to such section or the corresponding section of prior 
law. Thus, the general exceptions from Federal taxation granted by 
various statutes to certain instrumentalities of the United States 
without specific reference to the tax imposed by section 3301 or the 
corresponding section of prior law are rendered inoperative insofar as 
such exemptions relate to the tax imposed by section 3301. For 
provisions relating to the exception from employment of services 
performed in the employ of an instrumentality of the United States 
specifically exempted from the tax imposed by section 3301, see Sec.  
31.3306(c)(6)-1.

[T.D. 6658, 28 FR 6641, June 27, 1963]



              Subpart E_Collection of Income Tax at Source



Sec.  31.3401(a)-1  Wages.

    (a) In general. (1) The term ``wages'' means all remuneration for 
services performed by an employee for his employer unless specifically 
excepted under section 3401(a) or excepted under section 3402(e).
    (2) The name by which the remuneration for services is designated is 
immaterial. Thus, salaries, fees, bonuses, commissions on sales or on 
insurance premiums, pensions, and retired pay are wages within the 
meaning of the statute if paid as compensation for services performed by 
the employee for his employer.
    (3) The basis upon which the remuneration is paid is immaterial in 
determining whether the remuneration constitutes wages. Thus, it may be 
paid on the basis of piecework, or a percentage of profits; and may be 
paid hourly, daily, weekly, monthly, or annually.
    (4) Generally the medium in which remuneration is paid is also 
immaterial. It may be paid in cash or in something other than cash, as 
for example, stocks, bonds, or other forms of property. (See, however, 
Sec.  31.3401(a)(11)-1, relating to the exclusion from wages of 
remuneration paid in any medium other than cash for services not in the

[[Page 185]]

course of the employer's trade or business, and Sec.  31.3401(a)(16)-1, 
relating to the exclusion from wages of tips paid in any medium other 
than cash.) If services are paid for in a medium other than cash, the 
fair market value of the thing taken in payment is the amount to be 
included as wages. If the services were rendered at a stipulated price, 
in the absence of evidence to the contrary, such price will be presumed 
to be the fair value of the remuneration received. If a corporation 
transfers to its employees its own stock as remuneration for services 
rendered by the employee, the amount of such remuneration is the fair 
market value of the stock at the time of the transfer.
    (5) Remuneration for services, unless such remuneration is 
specifically excepted by the statute, constitutes wages even though at 
the time paid the relationship of employer and employee no longer exists 
between the person in whose employ the services were performed and the 
individual who performed them.

    Example. A is employed by R during the month of January 1955 and is 
entitled to receive remuneration of $100 for the services performed for 
R, the employer, during the month. A leaves the employ of R at the close 
of business on January 31, 1955. On February 15, 1955 (when A is no 
longer an employee of R), R pays A the remuneration of $100 which was 
earned for the services performed in January. The $100 is wages within 
the meaning of the statute.

    (b) Certain specific items--(1) Pensions and retirement pay. (i) In 
general, pensions and retired pay are wages subject to withholding. 
However, no withholding is required with respect to amounts paid to an 
employee upon retirement which are taxable as annuities under the 
provisions of section 72 or 403. So-called pensions awarded by one to 
whom no services have been rendered are mere gifts or gratuities and do 
not constitute wages. Those payments of pensions or other benefits by 
the Federal Government under title 38 of the United States Code which 
are excluded from gross income are not wages subject to withholding.
    (ii) Amounts received as retirement pay for service in the Armed 
Forces of the United States, the Coast and Geodetic Survey, or the 
Public Health Service or as a disability annuity paid under the 
provisions of section 831 of the Foreign Service Act of 1946, as amended 
(22) U.S.C. 1081; 60 Stat. 1021), are subject to withholding unless such 
pay or disability annuity is excluded from gross income under section 
104(a)(4), or is taxable as an annuity under the provisions of section 
72. Where such retirement pay or disability annuity (not excluded from 
gross income under section 104(a)(4) and not taxable as an annuity under 
the provisions of section 72) is paid to a nonresident alien individual, 
withholding is required only in the case of such amounts paid to a 
nonresident alien individual who is a resident of Puerto Rico.
    (2) Traveling and other expenses. Amounts paid specifically--either 
as advances or reimbursements--for traveling or other bona fide ordinary 
and necessary expenses incurred or reasonably expected to be incurred in 
the business of the employer are not wages and are not subject to 
withholding. Traveling and other reimbursed expenses must be identified 
either by making a separate payment or by specifically indicating the 
separate amounts where both wages and expense allowances are combined in 
a single payment. For amounts that are received by an employee on or 
after July 1, 1990, with respect to expenses paid or incurred on or 
after July 1, 1990, see Sec.  31.3401 (a)-4.
    (3) Vacation allowances. Amounts of so-called ``vacation 
allowances'' paid to an employee constitute wages. Thus, the salary of 
an employee on vacation, paid notwithstanding his absence from work, 
constitutes wages.
    (4) Dismissal payments. Any payments made by an employer to an 
employee on account of dismissal, that is, involuntary separation from 
the service of the employer, constitute wages regardless of whether the 
employer is legally bound by contract, statute, or otherwise to make 
such payments.
    (5) Deductions by employer from remuneration of an employee. Any 
amount deducted by an employer from the remuneration of an employee is 
considered to be a part of the employee's remuneration and is considered 
to be paid to the employee as remuneration

[[Page 186]]

at the time that the deduction is made. It is immaterial that any act of 
Congress, or the law of any State or of Puerto Rico, requires or permits 
such deductions and the payment of the amounts thereof to the United 
States, a State, a Territory, Puerto Rico, or the District of Columbia, 
or any political subdivision of any one or more of the foregoing.
    (6) Payment by an employer of employee's tax, or employee's 
contributions under a State law. The term ``wages'' includes the amount 
paid by an employer on behalf of an employee (without deduction from the 
remuneration of, or other reimbursement from, the employee) on account 
of any payment required from an employee under a State unemployment 
compensation law, or on account of any tax imposed upon the employee by 
any taxing authority, including the taxes imposed by sections 3101 and 
3201.
    (7) Remuneration for services as employee of nonresident alien 
individual or foreign entity. The term ``wages'' includes remuneration 
for services performed by a citizen or resident (including, in regard to 
wages paid after February 28, 1979, an individual treated as a resident 
under section 6013 (g) or (h)) of the United States as an employee of a 
nonresident alien individual, foreign partnership, or foreign 
corporation whether or not such alien individual or foreign entity is 
engaged in trade or business within the United States. Any person paying 
wages on behalf of a nonresident alien individual, foreign partnership, 
or foreign corporation, not engaged in trade or business within the 
United States (including Puerto Rico as if a part of the United States), 
is subject to all the provisions of law and regulations applicable with 
respect to an employer. See Sec.  31.3401(d)-1, relating to the term 
``employer'', and Sec.  31.3401(a)(8)(C)-1, relating to remuneration 
paid for services performed by a citizen of the United States in Puerto 
Rico.
    (8) Amounts paid under accident or health plans--(i) Amounts paid in 
taxable years beginning on or after January 1, 1977--(a) In general. 
Withholding is required on all payments of amounts includible in gross 
income under section 105(a) and Sec.  1.105-1 (relating to amounts 
attributable to employer contributions), made in taxable years beginning 
on or after January 1, 1977, to an employee under an accident or health 
plan for a period of absence from work on account of personal injuries 
or sickness. Payments on which withholding is required by this 
subdivision are wages as defined in section 3401(a), and the employer 
shall deduct and withhold in accordance with the requirements of chapter 
24 of subtitle C of the Code. Third party payments of sick pay, as 
defined in section 3402(o) and the regulations thereunder, are not wages 
for purposes of this section.
    (b) Payments made by an agent of the employer. (1) Payments are 
considered made by the employer if a third party makes the payments as 
an agent of the employer. The determining factor as to whether a third 
party is an agent of the employer is whether the third party bears any 
insurance risk. If the third party bears no insurance risk and is 
reimbursed on a cost plus fee basis, the third party is an agent of the 
employer even if the third party is responsible for making 
determinations of the eligibility of individual employees of the 
employer for sick pay payments. If the third party is paid an insurance 
premium and not reimbursed on a cost plus fee basis, the third party is 
not an agent of the employer, but the third party is a payor of third 
party sick pay for purposes of voluntary withholding from sick pay under 
sections 3402(o) and 6051(f) and the regulations thereunder. If a third 
party and an employer enter into an agency agreement as provided in 
paragraph (c) of Sec.  31.6051-3 (relating to statements required in 
case of sick pay paid by third parties), that agency agreement does not 
make the third party an agent of the employer for purposes of this 
paragraph.
    (2) Payments made by agents subject to this paragraph are 
supplemental wages as defined in Sec.  31.3402(g)-1, and are therefore 
subject to the rules regarding withholding tax on supplemental wages 
provided in Sec.  31.3402(g)-1. For purposes of those rules, unless the 
agent is also an agent for purposes of withholding tax from the 
employee's regular wages, the agent may deem tax to have been withheld 
from regular

[[Page 187]]

wages paid to the employee during the calendar year.
    (3) This paragraph is only applicable to amounts paid on or after 
May 25, 1983 unless the agent actually withheld taxes before that date.
    (c) Exceptions to withholding. (1) Withholding is not required on 
payments that are specifically excepted under the numbered paragraphs of 
section 3401(a) (relating to the definition of wages), under section 
3402(e) (relating to included and excluded wages), or under section 
3402(n) (relating to employees incurring no income tax liability).
    (2) Withholding is not required on disability payments to the extent 
that the payments are excludable from gross income under section 105(d). 
In determining the excludable portion of the disability payments, the 
employer may assume that payments that the employer makes to the 
employee are the employee's sole source of income. This exception 
applies only if the employee furnishes the employer with adequate 
verification of disability. A certificate from a qualified physician 
attesting that the employee is permanently and totally disabled (within 
the meaning of section 105(d)) shall be deemed to constitute adequate 
verification. This exception does not affect the requirement that a 
statement (which includes any amount paid under section 105(d)) be 
furnished under either section 6041 (relating to information at source) 
or section 6051 (relating to receipts for employees) and the regulations 
thereunder.
    (ii) Amounts paid after December 31, 1955 and before January 1, 
1977--(a) In general. The term ``wage continuation payment'', as used in 
this subdivision, means any payment to an employee which is made after 
December 31, 1955, and before January 1, 1977 under a wage continuation 
plan (as defined in paragraph (a)(2)(i) of Sec.  1.105-4 and Sec.  
1.105-5 of Part 1 of this chapter (Income Tax Regulations)) for a period 
of absence from work on account of personal injuries or sickness, to the 
extent such payment is attributable to contributions made by the 
employer which were not includable in the employee's gross income or is 
paid by the employer. Any such payment, whether or not excluded from the 
gross income of the employee under section 105(d), constitutes ``wages'' 
(unless specifically excepted under any of the numbered paragraphs of 
section 3401(a) or under section 3402(e) and withholding thereon is 
required except as provided in paragraphs (b)(8)(ii) (b), (c), and (d) 
of this section.
    (b) Amounts paid before January 1, 1977, by employer for whom 
services are performed for period of absence beginning after December 
31, 1963. (1) Withholding is not required upon the amount of any wage 
continuation payment for a period of absence beginning after December 
31, 1963, paid before January 1, 1977, to an employee directly by the 
employer for whom he performs services to the extent that such payment 
is excludable from the gross income of the employee under the provisions 
of section 105(d) in effect with respect to such payments, provided the 
records maintained by the employer--
    (i) Separately show the amount of each such payment and the 
excludable portion thereof, and
    (ii) Contain data substantiating the employee's entitlement to the 
exclusion provided in section 105(d) with respect to such amount, either 
by a written statement from the employee specifying whether his absence 
from work during the period for which the payment was made was due to a 
personal injury or to sickness and whether he was hospitalized for at 
least one day during this period; or by any other information which the 
employer reasonably believes establishes the employee's entitlement to 
the exclusion under section 105(d). Employers shall not be required to 
ascertain the accuracy of any written statement submitted by an employee 
in accordance with this subdivision (b)(1)(ii).

For purposes of this subdivision (b)(1), wage continuation payments 
reasonably expected by the employer to be made on behalf of the employer 
by another person shall be taken into account in determining whether the 
75 percent test contained in section 105(d) is met and in computing the 
amount of any wage continuation payment made directly by the employer 
for whom services are performed by the employee which is within the $75 
or $100 weekly rate of exclusion from the gross income

[[Page 188]]

of the employee provided in section 105(d). In making this latter 
computation, the amount excludable under section 105(d) shall be applied 
first against payments reasonably expected to be made on behalf of the 
employer by the other person and then, to the extent any part of the 
exclusion remains, against the payments made directly by the employer. 
In a case in which wage continuation payments are not paid at a constant 
rate for the first 30 calendar days of the period of absence, the 
determination of whether the 75 percent test contained in section 105(d) 
is met shall be based upon the length of the employee's absence as of 
the end of the period for which the payment by the employer is made, 
without regard to the effect which any further extension of such absence 
may have upon the excludability of the payment.
    (2) The computation of the amount of any wage continuation payment 
with repect to which the employer may refrain from withholding may be 
illustrated by the following examples:

    Example 1. A, an employee of B, normally works Monday through Friday 
and has a regular weekly rate of wages of $100. On Monday, November 5, 
1974, A becomes ill, and as a result is absent from work for two weeks, 
returing to work on Monday, November 19, 1974. A is not hospitalized. 
Under B's noncontributory wage continuation plan, A receives no benefits 
for the first three working days of absence and is paid benefits 
directly by B at the rate of $85 a week thereafter ($34 for the last two 
days of the first week of absence and $85 for the second week of 
absence). No wage continuation payment is made by any other person. 
Since the benefits are entirely attributable to contributions to the 
plan by B, such benefits are wage continuation payments in their 
entirety. The wage continuation payments for the first seven calendar 
days of absence are not excludable from A's gross income because A was 
not hospitalized for at least one day during his period of absence, and 
therefore B must withhold with respect to such payments. Under section 
105(a), the wage continuation payments attributable to absence after the 
first seven calendar days of absence are excludable to the extent that 
they do not exceed a rate of $75 a week. Under the principles stated in 
paragraph (e)(6)(iv) of Sec.  1.105-4 of this chapter (Income Tax 
Regulations), the wage continuation payments in this case are at a rate 
not in excess of 75 percent (\119/200\ or 59.5 percent) of A's regular 
weekly rate of wages. Accordingly, B may refrain from withholding with 
respect to $75 of the wage continuation payment attributable to the 
second week of absence.
    Example 2. Assume the facts in example 1 except that A is unable to 
return to work until Monday, February 11, 1975, and that, of the $85 a 
week of wage continuation payments $35 is paid directly by B and $50 is 
reasonably expected by B to be paid by C, an insurance company, on 
behalf of B. In such a case, both the $50 and the $35 payments 
constitute wage continuation payments and the amount of such payments 
which is attributable to the first 30 calendar days of absence is at a 
rate not in excess of 75 percent (\323/440\ or 73.4 percent) of A's 
regular weekly rate of wages. Therefore, under section 105(d), the 
portion of such payments which is attributable to absence after the 
first seven calendar days of absence is excludable to the extent that it 
does not exceed a rate of $75 a week for the eighth through the 
thirtieth calendar day of absence and does not exceed a rate of $100 a 
week thereafter. B may refrain from withholding with repect to $25 a 
week (the amount by which the $75 maximum excludable amount exceeds the 
$50 reasonably expected by B to be paid by C) of his direct payments for 
the eighth through the thirtieth calendar day of absence. Thereafter, B 
may refrain from withholding with respect to the entire $35 paid 
directly by him since the maximum excludable amount ($100 a week) 
exceeds the total of payments made by B and payments which B reasonably 
expects will be made by C.

    (c) Amounts paid by employer for whom services are performed for 
period of absence beginning before January 1, 1964. Withholding is not 
required upon the amount of any wage continuation payment for a period 
of absence beginning before January 1, 1964, made to an employee 
directly by the employer for whom he performs services to the extent 
that such payment is excludable from the gross income of the employee 
under the provisions of section 105(d) in effect with respect to such 
payments, provided the records maintained by the employer--
    (1) Separately show the amount of each such payment and the 
excludable portion thereof, and
    (2) Contain data substantiating the employee's entitlement to the 
exclusion provided in section 105(d) with respect to such amount, either 
by a written statement from the employee specifying whether his absence 
from work during the period for which the payment was made was due to a 
personal injury or whether such absence was due to sickness, and, if the 
latter,

[[Page 189]]

whether he was hospitalized for at least one day during this period; or 
by any other information which the employer reasonably believes 
establishes the employee's entitlement to the exclusion under section 
105(d). Employers shall not be required to ascertain the accuracy of the 
information contained in any written statement submitted by an employee 
in accordance with this paragraph (b)(8)(ii)(c)(2). For purposes of this 
paragraph (b)(8)(ii)(c), the computation of the amount excludable form 
the gross income of the employee under section 105(d) may be made either 
on the basis of the wage continuation payments which are made directly 
by the employer for whom the employee performs services, or on the basis 
of such payments in conjunction with any wage continuation payments made 
on behalf of the employer by a person who is regarded as an employer 
under section 3401(d)(1).
    (d) Amounts paid before January 1, 1977 by person other than the 
employer for whom services are performed. No tax shall be withheld upon 
any wage continuation payment made to an employee by or on behalf of a 
person who is not the employer for whom the employee performs services 
but who is regarded as an employer under section 3401(d)(1). For 
example, no tax shall be withheld with respect to wage continuation 
payments made on behalf of an employer by an insurance company under an 
accident or health policy, by a separate trust under an accident or 
health plan, or by a State agency from a sickness and disability fund 
maintained under State law.
    (e) Cross references. See sections 6001 and 6051 and the regulations 
thereunder for rules with respect to the records which must be 
maintained in connection with wage continuation payments and for rules 
with respect to the statements which must be furnished an employee in 
connection with wage continuation payments, respectively. See also 
section 105 and Sec.  1.105-4 of this chapter (Income Tax Regulations).
    (9) Value of meals and lodging. The value of any meals or lodging 
furnished to an employee by his employer is not subject to withholding 
if the value of the meals or lodging is excludable from the gross income 
of the employee. See Sec.  1.119-1 of this chapter (Income Tax 
Regulations).
    (10) Facilities or privileges. Ordinarily, facilities or privileges 
(such as entertainment, medical services, or so-called ``courtesy'' 
discounts on purchases), furnished or offered by an employer to his 
employees generally, are not considered as wages subject to withholding 
if such facilities or privileges are of relatively small value and are 
offered or furnished by the employer merely as a means of promoting the 
health, good will, contentment, or efficiency of his employees.
    (11) Tips or gratuities. Tips or gratuities paid, prior to January 
1, 1966, directly to an employee by a customer of an employer, and not 
accounted for by the employee to the employer are not subject to 
withholding. For provisions relating to the treatment of tips received 
by an employee after December 31, 1965, as wages, see Sec. Sec.  
31.3401(f)-1 and 31.3402(k)-1.
    (12) Remuneration for services performed by permanent resident of 
Virgin Islands--(i) Exemption from withholding. No tax shall be withheld 
for the United States under chapter 24 from a payment of wages by an 
employer, including the United States or any agency thereof, to an 
employee if at the time of payment it is reasonable to believe that the 
employee will be required to satisfy his income tax obligations with 
respect to such wages under section 28(a) of the Revised Organic Act of 
the Virgin Islands (68 Stat. 508). That section provides that all 
persons whose permanent residence is in the Virgin Islands ``shall 
satisfy their income tax obligations under applicable taxing statutes of 
the United States by paying their tax on income derived from all sources 
both within and outside the Virgin Islands into the treasury of the 
Virgin Islands''.
    (ii) Claiming exemption. If the employee furnishes to the employer a 
statement in duplicate that he expects to satisfy his income tax 
obligations under section 28(a) of the Revised Organic Act of the Virgin 
Islands with respect to all wages subsequently to be paid to him by the 
employer during the taxable year to which the statement

[[Page 190]]

relates, the employer may, in the absence of information to the 
contrary, rely on such statement as establishing reasonable belief that 
the employee will so satisfy his income tax obligations. The employee's 
statement shall identify the taxable year to which it relates, and both 
the original and the duplicate copy thereof shall be signed and dated by 
the employee.
    (iii) Disposition of statement. The original of the statement shall 
be retained by the employer. The duplicate copy of the statement shall 
be sent by the employer to the Director of International Operations, 
Washington, D.C. 20225, on or before the last day of the calendar year 
in which the employer receives the statement from the employee.
    (iv) Applicability of subparagraph. This subparagraph has no 
application with respect to any payment of remuneration which is not 
subject to withholding by reason of any other provision of the 
regulations in this subpart.
    (13) Federal employees resident in Puerto Rico. Except as provided 
in paragraph (d) of Sec.  31.3401(a)(6)-1, the term ``wages'' includes 
remuneration for services performed by a nonresident alien individual 
who is a resident of Puerto Rico if such services are performed as an 
employee of the United States or any agency thereof. The place where the 
services are performed is immaterial for purposes of this subparagraph.
    (14) Supplemental unemployment compensation benefits. (i) 
Supplemental unemployment compensation benefits paid to an individual 
after December 31, 1970, shall be treated (for purposes of the 
provisions of Subparts E, F, and G of this part which relate to 
withholding of income tax) as if they were wages, to the extent such 
benefits are includible in the gross income of such individual.
    (ii) For purposes of this subparagraph, the term ``supplemental 
unemployment compensation benefits'' means amounts which are paid to an 
employee, pursuant to a plan to which the employer is a party, because 
of the employee's involuntary separation from the employment of the 
employer, whether or not such separation is temporary, but only when 
such separation is one resulting directly from a reduction in force, the 
discontinuance of a plant or operation, or other similar conditions.
    (iii) For the meanings of the terms ``involuntary separation from 
the employment of the employer'' and ``other similar conditions'', see 
subparagraphs (3) and (4) of Sec.  1.501(c)(17)-1(b) of this chapter 
(Income Tax Regulations).
    (iv) As used in this subparagraph, the term ``employee'' means an 
employee within the meaning of paragraph (a) of Sec.  31.3401(c)-1, the 
term ``employer'' means an employer within the meaning of paragraph (a) 
of Sec.  31.3401(d)-1, and the term ``employment'' means employment as 
defined under the usual common law rules.
    (v) References in this chapter to wages as defined in section 
3401(a) shall be deemed to refer also to supplemental unemployment 
compensation benefits which are treated under this subparagraph as if 
they were wages.
    (15) Split-dollar life insurance arrangements. See Sec.  1.61-22 of 
this chapter for rules relating to the treatment of split-dollar life 
insurance arrangements.
    (c) Geographical definitions. For definition of the term ``United 
States'' and for other geographical definitions relating to the 
Continental Shelf see section 638 and Sec.  1.638-1 of this chapter.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6654, 28 FR 
5251, May 28, 1963; T.D. 6908, 31 FR 16775, Dec. 31, 1966; T.D. 7001, 34 
FR 1000, Jan. 23, 1969; T.D. 7068, 35 FR 17328, Nov. 11, 1970; T.D. 
7277, 38 FR 12742, May 15, 1973; T.D. 7493, 42 FR 33728, July 1, 1977; 
T.D. 7670, 45 FR 6932, Jan. 31, 1980; T.D. 7888, 48 FR 17587, Apr. 25, 
1983; T.D. 8276, 54 FR 51028, Dec. 12, 1989; T.D. 8324, 55 FR 51697, 
Dec. 17, 1990; T.D. 9092, 68 FR 54361, Sept. 17, 2003; T.D. 9276, 71 FR 
42054, July 25, 2006]



Sec.  31.3401(a)-1T  Question and answer relating to the definition of
wages in section 3401(a) (Temporary).

    The following question and answer relates to the definition of wages 
in section 3401(a) of the Internal Revenue Code of 1954, as amended by 
section 531(d)(4) of the Tax Reform Act of 1984 (98 Stat. 886):
    Q-1: Are fringe benefits included in the definition of ``wages'' 
under section 3401(a)?

[[Page 191]]

    A-1: Yes, unless specifically excluded from the definition of 
``wages'' pursuant to section 3401(a) (1) through (20). For example, a 
fringe benefit provided to or on behalf of an employee is excluded from 
the definition of ``wages'' if at the time such benefit is provided it 
is reasonable to believe that the employee will be able to exclude such 
benefit from income under section 117 or 132.

[T.D. 8004, 50 FR 756, Jan. 7, 1985]



Sec.  31.3401(a)-2  Exclusions from wages.

    (a) In general. (1) The term ``wages'' does not include any 
remuneration for services performed by an employee for his employer 
which is specifically excepted from wages under section 3401(a).
    (2) The exception attaches to the remuneration for services 
performed by an employee and not to the employee as an individual; that 
is, the exception applies only to the remuneration in an excepted 
category.

    Example. A is an individual who is employed part time by B to 
perform domestic service in his home (see Sec.  31.3401(a)(3)-1). A is 
also employed by C part time to perform services as a clerk in a 
department store owned by him. While no withholding is required with 
respect to A's remuneration for services performed in the employ of B 
(the remuneration being excluded from wages), the exception does not 
embrace the remuneration for services performed by A in the employ of C 
and withholding is required with respect to the wages for such services.

    (3) For provisions relating to the circumstances under which 
remuneration which is excepted is nevertheless deemed to be wages, and 
relating to the circumstances under which remuneration which is not 
excepted is nevertheless deemed not to be wages, see Sec.  31.3402(e)-1.
    (4) For provisions relating to payments with respect to which a 
voluntary withholding agreement is in effect, which are not defined as 
wages in section 3401(a) but which are nevertheless deemed to be wages, 
see Sec. Sec.  31.3401(a)-3 and 31.3402(p)-1.
    (b) Fees paid a public official. (1) Authorized fees paid to public 
officials such as notaries public, clerks of courts, sheriffs, etc., for 
services rendered in the performance of their official duties are 
excepted from wages and hence are not subject to withholding. However, 
salaries paid such officials by the Government, or by a Government 
agency or instrumentality, are subject to withholding.
    (2) Amounts paid to precinct workers for services performed at 
election booths in State, county, and municipal elections and fees paid 
to jurors and witnesses are in the nature of fees paid to public 
officials and therefore are not subject to withholding.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6654, 28 FR 
5251, May 28, 1963; T.D. 7096, 36 FR 5216, Mar. 18, 1971]



Sec.  31.3401(a)-3  Amounts deemed wages under voluntary withholding
agreements.

    (a) In general. Notwithstanding the exceptions to the definition of 
wages specified in section 3401(a) and the regulations thereunder, the 
term ``wages'' includes the amounts described in paragraph (b)(1) of 
this section with respect to which there is a voluntary withholding 
agreement in effect under section 3402(p). References in this chapter to 
the definition of wages contained in section 3401(a) shall be deemed to 
refer also to this section (Sec.  31.3401(a)-3).
    (b) Remuneration for services. (1) Except as provided in 
subparagraph (2) of this paragraph, the amounts referred to in paragraph 
(a) of this section include any remuneration for services performed by 
an employee for an employer which, without regard to this section, does 
not constitute wages under section 3401(a). For example, remuneration 
for services performed by an agricultural worker or a domestic worker in 
a private home (amounts which are specifically excluded from the 
definition of wages by section 3401(a) (2) and (3), respectively) are 
amounts with respect to which a voluntary withholding agreement may be 
entered into under section 3402(p). See Sec. Sec.  31.3401(c)-1 and 
31.3401(d)-1 for the definitions of ``employee'' and ``employer''.
    (2) For purposes of this paragraph, remuneration for services shall 
not include amounts not subject to withholding under Sec.  31.3401(a)-
1(b)(12) (relating to remuneration for services performed by a permanent 
resident of the

[[Page 192]]

Virgin Islands), Sec.  31.3401(a)-2(b) (relating to fees paid to a 
public official), section 3401(a)(5) (relating to remuneration for 
services for foreign government or international organization), section 
3401(a)(8)(B) (relating to remuneration for services performed in a 
possession of the United States (other than Puerto Rico) by citizens of 
the United States), section 3401(a)(8)(C) (relating to remuneration for 
services performed in Puerto Rico by citizens of the United States), 
section 3401(a)(11) (relating to remuneration other than in cash for 
service not in the course of employer's trade or business), section 
3401(a)(12) (relating to payments from or to certain tax-exempt trusts, 
or under or to certain annuity plans or bond purchase plans), section 
3401(a)(14) (relating to group-term life insurance), section 3401(a)(15) 
(relating to moving expenses), or section 3401(a)(16)(A) (relating to 
tips paid in any medium other than cash).

[T.D. 7096, 36 FR 5216, Mar. 18, 1971]



Sec.  31.3401(a)-4  Reimbursements and other expense allowance amounts.

    (a) When excluded from wages. If a reimbursement or other expense 
allowance arrangement meets the requirements of section 62(c) of the 
Code and Sec.  1.62-2 and the expenses are substantiated within a 
reasonable period of time, payments made under the arrangement that do 
not exceed the substantiated expenses are treated as paid under an 
accountable plan and are not wages. In addition, if both wages and the 
reimbursement or other expense allowance are combined in a single 
payment, the reimbursement or other expense allowance must be identified 
either by making a separate payment or by specifically identifying the 
amount of the reimbursement or other expense allowance.
    (b) When included in wages--(1) Accountable plans--(i) General rule. 
Except as provided in paragraph (b)(1)(ii) of this section, if a 
reimbursement or other expense allowance arrangement satisfies the 
requirements of section 62(c) and Sec.  1.62-2, but the expenses are not 
substantiated within a reasonable period of time or amounts in excess of 
the substantiated expenses are not returned within a reasonable period 
of time, the amount paid under the arrangement in excess of the 
substantiated expenses is treated as paid under a nonaccountable plan, 
is included in wages, and is subject to withholding and payment of 
employment taxes no later than the first payroll period following the 
end of the reasonable period.
    (ii) Per diem or mileage allowances. If a reimbursement or other 
expense allowance arrangement providing a per diem or mileage allowance 
satisfies the requirements of section 62(c) and Sec.  1.62-2, but the 
allowance is paid at a rate for each day or mile of travel that exceeds 
the amount of the employee's expenses deemed substantiated for a day or 
mile of travel, the excess portion is treated as paid under a 
nonaccountable plan and is included in wages. In the case of a per diem 
or mileage allowance paid as a reimbursement, the excess portion is 
subject to withholding and payment of employment taxes when paid. In the 
case of a per diem or mileage allowance paid as an advance, the excess 
portion is subject to withholding and payment of employment taxes no 
later than the first payroll period following the payroll period in 
which the expenses with respect to which the advance was paid (i.e., the 
days or miles of travel) are substantiated. The Commissioner may, in his 
discretion, prescribe special rules in pronouncements of general 
applicability regarding the timing of withholding and payment of 
employment taxes on per diem and mileage allowances.
    (2) Nonaccountable plans. If a reimbursement or other expense 
allowance arrangement does not satisfy the requirements of section 62(c) 
and Sec.  1.62-2 (e.g., the arrangement does not require expenses to be 
substantiated or require amounts in excess of the substantiated expenses 
to be returned), all amounts paid under the arrangement are treated as 
paid under a nonaccountable plan, are included in wages, and are subject 
to withholding and payment of employment taxes when paid.
    (c) Withholding rate. Payments made under reimbursement or other 
expense allowance arrangements that are subject to income tax 
withholding are supplemental wages as defined in Sec.  31.3402(g)-1. 
Accordingly, withholding

[[Page 193]]

on such supplemental wages is calculated under the rules provided with 
respect to supplemental wages in Sec.  31.3402(g)-1.
    (d) Effective dates. This section generally applies to payments made 
under reimbursement or other expense allowance arrangements received by 
an employee on or after July 1, 1990, with respect to expenses paid or 
incurred on or after July 1, 1990. Paragraph (b)(1)(ii) of this section 
applies to payments made under reimbursement or other expense allowance 
arrangements received by an employee on or after January 1, 1991, with 
respect to expenses paid or incurred on or after January 1, 1991.

[T.D. 8324, 55 FR 51698, Dec. 17, 1990, as amended by T.D. 9276, 71 FR 
42054, July 25, 2006]



Sec.  31.3401(a)(1)-1  Remuneration of members of the Armed Forces of 
the United States for active service in combat zone or while hospitalized
as a result of such service.

    Remuneration paid for active service as a member of the Armed Forces 
of the United States performed in a month during any part of which such 
member served in a combat zone (as determined under section 112) or is 
hospitalized at any place as a result of wounds, disease, or injury 
incurred while serving in such a combat zone is excepted from wages and 
is, therefore, not subject to withholding. The exception with respect to 
hospitalization is applicable, however, only if during all of such month 
there are combatant activities in some combat zone (as determined under 
section 112). See Sec.  1.112-1 of this chapter (Income Tax 
Regulations).



Sec.  31.3401(a)(2)-1  Agricultural labor.

    The term ``wages'' does not include remuneration for services which 
constitute agricultural labor as defined in section 3121(g). For 
regulations relating to the definition of the term ``agricultural 
labor'', see Sec.  31.3121(g)-1.



Sec.  31.3401(a)(3)-1  Remuneration for domestic service.

    (a) In a private home. (1) Remuneration paid for services of a 
household nature performed by an employee in or about a private home of 
the person by whom he is employed is excepted from wages and hence is 
not subject to withholding. A private home is a fixed place of abode of 
an individual or family. A separate and distinct dwelling unit 
maintained by an individual in an apartment house, hotel, or other 
similar establishment may constitute a private home. If a dwelling house 
is used primarily as a boarding or lodging house for the purpose of 
supplying board or lodging to the public as a business enterprise, it is 
not a private home, and the remuneration paid for services performed 
therein is not within the exception.
    (2) In general, services of a household nature in or about a private 
home include services performed by cooks, waiters, butlers, 
housekeepers, governesses, maids, valets, baby sitters, janitors, 
laundresses, furnacemen, caretakers, handymen, gardeners, footmen, 
grooms, and chauffeurs of automobiles for family use.
    (b) In a local college club or local chapter of a college fraternity 
or sorority. (1) Remuneration paid for services of a household nature 
performed by an employee in or about the club rooms or house of a local 
college club or of a local chapter of a college fraternity or sorority 
by which he is employed is excepted from wages and hence is not subject 
to withholding. A local college club or local chapter of a college 
fraternity or sorority does not include an alumni club or chapter. If 
the club rooms or house of a local college club or local chapter of a 
college fraternity or sorority is used primarily for the purpose of 
supplying board or lodging to students or the public as a business 
enterprise, the remuneration paid for services performed therein is not 
within the exception.
    (2) In general, services of a household nature in or about the club 
rooms or house of a local college club or local chapter of a college 
fraternity or sorority include services rendered by cooks, waiters, 
butlers, maids, janitors, laundresses, furnacemen, handymen, gardeners, 
housekeepers, and housemothers.
    (c) Remuneration not excepted. Remuneration paid for services not of 
a household nature, such as services performed as a private secretary, 
tutor, or

[[Page 194]]

librarian, even though performed in the employer's private home or in a 
local college club or local chapter of a college fraternity or sorority, 
is not within the exception. Remuneration paid for services of a 
household nature is not within the exception if performed in or about 
rooming, or lodging houses, boarding houses, clubs (except local college 
clubs), hotels, hospitals, eleemosynary institutions, or commercial 
offices or establishments.



Sec.  31.3401(a)(4)-1  Cash remuneration for service not in the course of
employer's trade or business.

    (a) Cash remuneration paid for services not in the course of the 
employer's trade or business performed by an employee for an employer in 
a calendar quarter is excepted from wages and hence is not subject to 
withholding unless--
    (1) The cash remuneration paid for such services performed by the 
employee for the employer in the calendar quarter is $50 or more; and
    (2) Such employee is regularly employed in the calendar quarter by 
such employer to perform such services.

Unless the tests set forth in both paragraphs (a)(1) and (2) of this 
section are met, cash remuneration for service not in the course of the 
employer's trade or business is excluded from wages. (For provisions 
relating to the exclusion from wages of remuneration paid in any medium 
other than cash for services not in the course of the employer's trade 
or business, see Sec.  31.3401(a)(11)-1.)
    (b) The term ``services not in the course of the employer's trade or 
business'' includes services that do not promote or advance the trade or 
business of the employer. As used in this section, the term does not 
include service not in the course of the employer's trade or business 
performed on a farm operated for profit or domestic service in a private 
home, local college club, or local chapter of a college fraternity or 
sorority. Accordingly, this exception does not apply with respect to 
remuneration which is excepted from wages under section 3401(a)(2) or 
section 3401(a)(3) (see Sec. Sec.  31.3401(a)(2)-1 and 31.3401(a)(3)-1, 
respectively). Remuneration paid for service performed for a corporation 
does not come within the exception.
    (c) The test relating to cash remuneration of $50 or more is based 
on the remuneration earned during a calendar quarter rather than on the 
remuneration paid in a calendar quarter. However, for purposes of 
determining whether the test is met, it is also required that the 
remuneration be paid, although it is immaterial when the remuneration is 
paid. Furthemore, in determining whether $50 or more has been paid for 
service not in the course of the employer's trade or business, only cash 
remuneration for such service shall be taken into account. The term 
``cash remuneration'' includes checks and other monetary media of 
exchange. Remuneration paid in any other medium, such as lodging, food, 
or other goods or commodities, is disregarded in determining whether the 
cash-remuneration test is met.
    (d) For purposes of this exception, an individual is deemed to be 
regularly employed by an employer during a calendar quarter only if--
    (1) Such individual performs service not in the course of the 
employer's trade or business for such employer for some portion of the 
day on at least 24 days (whether or not consecutive) during such 
calendar quarter; or
    (2) Such individual was regularly employed (as determined under 
paragraph (d)(1) of this section) by such employer in the performance of 
service not in the course of the employer's trade or business during the 
preceding calendar quarter.
    (e) In determining whether an employee has performed service not in 
the course of the employer's trade or business on at least 24 days 
during a calendar quarter, there shall be counted as one day--
    (1) Any day or portion thereof on which the employee actually 
performs such service; and
    (2) Any day or portion thereof on which the employee does not 
perform service of the prescribed character but with respect to which 
cash remuneration is paid or payable to the employee for such service, 
such as a day on which the employee is sick or on vacation.

[[Page 195]]


An employee who on a particular day reports for work and, at the 
direction of his employer, holds himself in readiness to perform service 
not in the course of the employer's trade or business shall be 
considered to be engaged in the actual performance of such service on 
that day. For purposes of this exception, a day is a continuous period 
of 24 hours commencing at midnight and ending at midnight.



Sec.  31.3401(a)(5)-1  Remuneration for services for foreign government
or international organization.

    (a) Services for foreign government. (1) Remuneration paid for 
services performed as an employee of a foreign government is excepted 
from wages and hence is not subject to withholding. The exception 
includes not only remuneration paid for services performed by 
ambassadors, ministers, and other diplomatic officers and employees but 
also remuneration paid for services performed as a consular or other 
officer or employee of a foreign government or as a nondiplomatic 
representative of such a government. However, the exception does not 
include remuneration for services performed for a corporation created or 
organized in the United States or under the laws of the United States or 
any State (including the District of Columbia or the Territory of Alaska 
or Hawaii) or of Puerto Rico even though such corporation is wholly 
owned by such a government.
    (2) The citizenship or residence of the employee and the place where 
the services are performed are immaterial for purposes of the exception.
    (b) Services for international organization. (1) Subject to the 
provisions of section 1 of the International Organizations Immunities 
Act (22 U.S.C. 288), remuneration paid for services performed within or 
without the United States by an employee for an international 
organization as defined in section 7701(a)(18) is excepted from wages 
and hence is not subject to withholding. The term ``employee'' as used 
in the preceding sentence includes not only an employee who is a citizen 
or resident of the United States but also an employee who is a 
nonresident alien individual. The term ``employee'' also includes an 
officer. An organization designated by the President through appropriate 
Executive order as entitled to enjoy the privileges, exemptions, and 
immunities provided in the International Organizations Immunities Act 
may enjoy the benefits of the exclusion from wages with respect to 
remuneration paid for services performed for such organization prior to 
the date of the issuance of such Executive order, if (i) the Executive 
order does not provide otherwise and (ii) the organization is a public 
international organization in which the United States participates, 
pursuant to a treaty or under the authority of an act of Congress 
authorizing such participation or making an appropriation for such 
participation, at the time such services are performed.
    (2) Section 7701(a)(18) provides as follows:

    Sec. 7701. Definitions. (a) When used in this title, where not 
otherwise distinctly expressed or manifestly incompatible with the 
intent thereof--

                                * * * * *

    (18) International organization. The term ``international 
organization'' means a public international organization entitled to 
enjoy privileges, exemptions, and immunities as an international 
organization under the International Organizations Immunities Act (22 
U.S.C. 288-288f).

    (3) Section 1 of the International Organizations Immunities Act 
provides as follows:

    Section 1. [International Organizations Immunities Act.] For the 
purposes of this title [International Organizations Immunities Act], the 
term ``international organization'' means a public international 
organization in which the United States participates pursuant to any 
treaty or under the authority of any Act of Congress authorizing such 
participation or making an appropriation for such participation, and 
which shall have been designated by the President through appropriate 
Executive order as being entitled to enjoy the privileges, exemptions, 
and immunities herein provided. The President shall be authorized, in 
the light of the functions performed by any such international 
organization, by appropriate Executive order to withhold or withdraw 
from any such organization or its officers or employees any of the 
privileges, exemption, and immunities provided for in this title 
(including the amendments made by this title) or to condition or limit 
the enjoyment by any such organization or its officers or employees of 
any

[[Page 196]]

such privilege, exemption, or immunity. The President shall be 
authorized, if in his judgment such action should be justified by reason 
of the abuse by an international organization or its officers and 
employees of the privileges, exemptions, and immunities herein provided 
or for any other reason, at any time to revoke the designation of any 
international organization under this section, whereupon the 
international organization in question shall cease to be classed as an 
international organization for the purposes of this title.



Sec.  31.3401(a)(6)-1  Remuneration for services of nonresident alien
individuals.

    (a) In general. All remuneration paid after December 31, 1966, for 
services performed by a nonresident alien individual, if such 
remuneration otherwise constitutes wages within the meaning of Sec.  
31.3401(a)-1 and if such remuneration is effectively connected with the 
conduct of a trade or business within the United States, is subject to 
withholding under section 3402 unless excepted from wages under this 
section. In regard to wages paid under this section after February 28, 
1979, the term ``nonresident alien individual'' does not include a 
nonresident alien individual treated as a resident under section 6013 
(g) or (h).
    (b) Remuneration for services performed outside the United States. 
Remuneration paid to a nonresident alien individual (other than a 
resident of Puerto Rico) for services performed outside the United 
States is excepted from wages and hence is not subject to withholding.
    (c) Remuneration for services of residents of Canada or Mexico who 
enter and leave the United States at frequent intervals--(1) 
Transportation service. Remuneration paid to a nonresident alien 
individual who is a resident of Canada or Mexico and who, in the 
performance of his duties in transportation service between points in 
the United States and points in such foreign country, enters and leaves 
the United States at frequent intervals, is excepted from wages and 
hence is not subject to withholding. This exception applies to personnel 
engaged in railroad, bus, truck, ferry, steamboat, aircraft, or other 
transportation services and applies whether the employer is a domestic 
or foreign entity. Thus, the remuneration of a nonresident alien 
individual who is a resident of Canada and an employee of a domestic 
railroad, for services as a member of the crew of a train operating 
between points in Canada and points in the United States, is not subject 
to withholding under section 3402.
    (2) Service on international projects. Remuneration paid to a 
nonresident alien individual who is a resident of Canada or Mexico and 
who, in the performance of his duties in connection with the 
construction, maintenance, or operation of a waterway, viaduct, dam, or 
bridge traversed by, or traversing, the boundary between the United 
States and Canada or the boundary between the United States and Mexico, 
as the case may be, enters and leaves the United States at frequent 
intervals, is excepted from wages and hence is not subject to 
withholding. Thus, the remuneration of a nonresident alien individual 
who is a resident of Canada, for services as an employee in connection 
with the construction, maintenance, or operation of the Saint Lawrence 
Seaway and who, in the performance of such services, enters and leaves 
the United States at frequent intervals, is not subject to withholding 
under section 3402.
    (3) Limitation. The exceptions provided by this paragraph do not 
apply to the remuneration of a resident of Canada or of Mexico who is 
employed wholly within the United States as, for example, where such a 
resident is employed to perform service at a fixed point or points in 
the United States, such as a factory, store, office, or designated area 
or areas within the United States, and who commutes from his home in 
Canada or Mexico, in the pursuit of his employment within the United 
States.
    (4) Certificate required. In order for an exception provided by this 
paragraph to apply for any taxable year, the nonresident alien employee 
must furnish his employer a statement in duplicate for the taxable year 
setting forth the employee's name, address, and taxpayer identifying 
number, and certifying (i) that he is not a citizen or resident of the 
United States, (ii) that he is a resident of Canada or Mexico, as

[[Page 197]]

the case may be, and (iii) that he expects to meet the requirements of 
paragraph (c)(1) or (2) of this section with respect to remuneration to 
be paid during the taxable year in respect of which the statement is 
filed. The statement shall be dated, shall identify the taxable year to 
which it relates, shall be signed by the employee, and shall contain, or 
be verified by, a written declaration that it is made under the 
penalties of perjury. No particular form is prescribed for this 
statement. The duplicate copy of each statement filed during any 
calendar year pursuant to this paragraph shall be forwarded by the 
employer with, and attached to, the Form 1042S required by paragraph (c) 
of Sec.  1.1461-2 with respect to such remuneration for such calendar 
year.
    (d) Remuneration for services performed by residents of Puerto Rico. 
(1) Remuneration paid for services performed in Puerto Rico by a 
nonresident alien individual who is a resident of Puerto Rico for an 
employer (other than the United States or any agency thereof) is 
excepted from wages and hence is not subject to withholding.
    (2) Remuneration paid for services performed outside the United 
States but not in Puerto Rico by a nonresident alien individual who is a 
resident of Puerto Rico for an employer (other than the United States or 
any agency thereof) is excepted from wages and hence is not subject to 
withholding if such individual does not expect to be a resident of 
Puerto Rico during the entire taxable year. In order for the exception 
provided by this subparagraph to apply for any taxable year, the 
nonresident alien employee must furnish his employer a statement for the 
taxable year setting forth the employee's name and address and 
certifying (i) that he is not a citizen or resident of the United States 
and (ii) that he is a resident of Puerto Rico but does not expect to be 
a resident of Puerto Rico during the entire taxable year. The statement 
shall be dated, shall identify the taxable year to which it relates, 
shall be signed by the employee, and shall contain, or be verified by, a 
written declaration that it is made under the penalties of perjury. No 
particular form is prescribed for this statement.
    (3) Remuneration paid for services performed outside the United 
States by a nonresident alien individual who is a resident of Puerto 
Rico as an employee of the United States or any agency thereof is 
excepted from wages and hence is not subject to withholding if such 
individual does not expect to be a resident of Puerto Rico during the 
entire taxable year. In order for the exception provided by this 
subparagraph to apply for any taxable year, the nonresident alien 
employee must furnish his employer a statement for the taxable year 
setting forth the employee's name and address and certifying (i) that he 
is not a citizen or resident of the United States and (ii) that he is a 
resident of Puerto Rico but does not expect to be a resident of Puerto 
Rico during the entire taxable year. This statement shall be dated, 
shall identify the taxable year to which it relates, shall be signed by 
the employee, and shall contain, or be verified by, a written 
declaration that it is made under the penalties of perjury. No 
particular form is prescribed for this statement.
    (e) Exemption from income tax for remuneration paid for services 
performed before January 1, 2001. Remuneration paid for services 
performed within the United States by a nonresident alien individual 
before January 1, 2001, is excepted from wages and hence is not subject 
to withholding if such remuneration is, or will be, exempt from income 
tax imposed by chapter 1 of the Internal Revenue Code by reason of a 
provision of the Internal Revenue Code or an income tax convention to 
which the United States is a party. In order for the exception provided 
by this paragraph to apply for any taxable year, the nonresident alien 
employee must furnish his employer a statement in duplicate for the 
taxable year setting forth the employee's name, address, and taxpayer 
identifying number, and certifying (1) that he is not a citizen or 
resident of the United States, (2) that the remuneration to be paid to 
him during the taxable year is, or will be, exempt from the tax imposed 
by chapter 1 of the Code, and (3) the reason why such remuneration is so 
exempt from tax. If the remuneration is claimed to be exempt from tax by 
reason of a provision of an income tax

[[Page 198]]

convention to which the United States is a party, the statement shall 
also indicate the provision and tax convention under which the exemption 
is claimed, the country of which the employee is a resident, and 
sufficient facts to justify the claim to exemption. The statement shall 
be dated, shall identify the taxable year for which it is to apply and 
the remuneration to which it relates, shall be signed by the employee, 
and shall contain, or be verified by, a written declaration that it is 
made under the penalties of perjury. No particular form is prescribed 
for this statement. The duplicate copy of each statement filed during 
any calendar year pursuant to this paragraph shall be forwarded by the 
employer with, and attached to, the Form 1042S required by paragraph (c) 
of Sec.  1.1461-2 with respect to such remuneration for such calendar 
year.
    (f) Exemption from income tax for remuneration paid for services 
performed after December 31, 2000. Remuneration paid for services 
performed within the United States by a nonresident alien individual 
after December 31, 2000, is excepted from wages and hence is not subject 
to withholding if such remuneration is, or will be, exempt from the 
income tax imposed by chapter 1 of the Internal Revenue Code by reason 
of a provision of the Internal Revenue Code or an income tax convention 
to which the United States is a party. An employer may rely on a claim 
that the employee is entitled to an exemption from tax if it complies 
with the requirements of Sec.  1.1441-1(e)(1)(ii) of this chapter (for a 
claim based on a provision of the Internal Revenue Code) or Sec.  
1.1441-4(b)(2) of this chapter (for a claim based on an income tax 
convention).

[T.D. 6908, 31 FR 16775, Dec. 31, 1966, as amended by T.D. 7670, 45 FR 
6932, Jan. 31, 1980; T.D. 7977, 49 FR 36836, Sept. 20, 1984; T.D. 8734, 
62 FR 53493, Oct. 14, 1997; T.D. 8804, 63 FR 72189, Dec. 31, 1998; T.D. 
8856, 64 FR 73412, Dec. 30, 1999]



Sec.  31.3401(a)(6)-1A  Remuneration for services of certain nonresident
alien individuals paid before January 1, 1967.

    (a) Except in the case of certain nonresident alien individuals who 
are residents of Canada, Mexico, or Puerto Rico or individuals who are 
temporarily present in the United States as nonimmigrants under 
subparagraph (F) or (J) of section 101(a)(15) of the Immigration and 
Nationality Act (8 U.S.C. 1101), as amended, remuneration for services 
performed by nonresident alien individuals does not constitute wages 
subject to withholding under section 3402. For withholding of income tax 
on remuneration paid for services performed within the United States in 
the case of nonresident alien individuals generally, see Sec.  1.1441-1 
and following of this chapter (Income Tax Regulations).
    (b) Remuneration paid to nonresident aliens who are residents of a 
contiguous country (Canada or Mexico) and who enter and leave the United 
States at frequent intervals is not excepted from wages under section 
3401(a)(6). See, however, Sec.  31.3401(a)(7)-1, relating to 
remuneration paid to such nonresident alien individuals when engaged in 
transportation service.
    (c) Remuneration paid to a nonresident alien individual for services 
performed in Puerto Rico for an employer (other than the United States 
or any agency thereof) is excepted from wages and hence is not subject 
to withholding, even though such alien individual is a resident of 
Puerto Rico at the time when such services are performed. Wages paid for 
services performed by a nonresident alien individual who is a resident 
of Puerto Rico are subject to withholding if such services are performed 
as an employee of the United States or any agency thereof. The place of 
performance of such services is immaterial, provided such alien 
individual is a resident of Puerto Rico at the time of performance of 
the services. Wages representing retirement pay for services in the 
Armed Forces of the United States, the Coast and Geodetic Survey, or the 
Public Health Service, or a disability annuity paid under the provisions 
of section 831 of the Foreign Service Act of 1946, as amended (22 U.S.C. 
1081; 60 Stat. 1021), are subject to withholding, under the limitations 
specified in paragraph (b)(1)(ii) of Sec.  31.3401(a)-1, in the case of 
an alien resident of Puerto Rico.
    (d) (1) Remuneration paid after 1961 to a nonresident alien 
individual who is

[[Page 199]]

temporarily present in the United States as a nonimmigrant under 
subparagraph (F) or (J) of section 101(a)(15) of the Immigration and 
Nationality Act (8 U.S.C. 1101), as amended, is not excepted from wages 
under section 3401(a)(6) if the remuneration is exempt from withholding 
under section 1441(a) by reason of section 1441(c)(4)(B) and is not 
exempt from taxation under section 872(b)(3). See Sec. Sec.  1.872-2 and 
1.1441-4 of this chapter (Income Tax Regulations). A nonresident alien 
individual who is temporarily present in the United States as a 
nonimmigrant under subparagraph (J) includes an alien individual 
admitted to the United States as an ``exchange visitor'' under section 
201 of the United States Information and Educational Exchange Act of 
1948 (22 U.S.C. 1446).
    (2) Section 101 of the Immigration and Nationality Act (8 U.S.C. 
1101), as amended, provides in part, as follows:

    Sec. 101. Definitions. [Immigration and Nationality Act (66 Stat. 
166)]
    (a) As used in this chapter--* * *
    (15) The term ``immigrant'' means every alien except an alien who is 
within one of the following classes of nonimmigrant aliens--

                                * * * * *

    (F) (i) An alien having a residence in a foreign country which he 
has no intention of abandoning, who is a bona fide student qualified to 
pursue a full course of study and who seeks to enter the United States 
temporarily and solely for the purpose of pursuing such a course of 
study at an established institution of learning or other recognized 
place of study in the United States, particularly designated by him and 
approved by the Attorney General after consultation with the Office of 
Education of the United States, which institution or place of study 
shall have agreed to report to the Attorney General the termination of 
attendance of each nonimmigrant student, and if any such institution of 
learning or place of study fails to make reports promptly the approval 
shall be withdrawn, and (ii) the alien spouse and minor children of any 
such alien if accompanying him or following to join him;

                                * * * * *

    (J) An alien having a residence in a foreign country which he has no 
intention of abandoning who is a bona fide student, scholar, trainee, 
teacher, professor, research assistant, specialist, or leader in a field 
of specialized knowledge or skill, or other person of similar 
description, who is coming temporarily to the United States as a 
participant in a program designated by the Secretary of State, for the 
purpose of teaching, instructing or lecturing, studying, observing, 
conducting research, consulting, demonstrating special skills, or 
receiving training, and the alien spouse and minor children of any such 
alien if accompanying him or following to join him.

    (e) This section shall not apply with respect to remuneration paid 
after December 31, 1966. For rules with respect to such remuneration see 
Sec.  31.3401(a)(6)-1.

(Sec. 101. Immigration and Nationality Act, as amended by sec. 101, Act 
of June 27, 1952, 66 Stat. 166; sec. 109, Act of Sept. 21, 1961, 75 
Stat. 534)

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6654, 28 FR 
5251, May 28, 1963; T.D. 6727, 29 FR 5869, May 5, 1964; T.D. 6908, 31 FR 
16775, Dec. 31, 1966]



Sec.  31.3401(a)(7)-1  Remuneration paid before January 1, 1967, for services
performed by nonresident alien individuals who are residents of a contiguous 
country and who enter and leave the United States at frequent intervals.

    (a) Transportation service. Remuneration paid to nonresident aliens 
who are residents of a contiguous country (Canada or Mexico) and who, in 
the performance of their duties in transportation service between points 
in the United States and points in a contiguous country, enter and leave 
the United States at frequent intervals, is excepted from wages and 
hence is not subject to withholding. This exception applies to personnel 
engaged in railroad, bus, ferry, steamboat, and aircraft services and 
applies whether the employer is a domestic or foreign entity. Thus, the 
remuneration of a nonresident alien individual who is a resident of 
Canada and an employee of a domestic railroad, for services as a member 
of the crew of a train operating between points in Canada and points in 
the United States, is not subject to withholding under section 3402.
    (b) Service on international projects. Remuneration paid to 
nonresident aliens who are residents of a contiguous country (Canada or 
Mexico) and who, in the performance of their duties in connection with 
the construction,

[[Page 200]]

maintenance or operation of a waterway, viaduct, dam, or bridge 
traversed by or traversing the boundary between the United States and 
Canada or the boundary between the United States and Mexico, as the case 
may be, enter and leave the United States at frequent intervals, is 
excepted from wages and hence is not subject to withholding. Thus, the 
remuneration of a nonresident alien individual who is a resident of 
Canada, for services as an employee in connection with the construction, 
maintenance, or operation of the Saint Lawrence Seaway and who, in the 
performance of such services, enters and leaves the United States at 
frequent intervals, is not subject to withholding under section 3402.
    (c) Limitation on application of section. The exception provided by 
this section has no application to the remuneration of a resident of 
Canada or of Mexico who is employed wholly within the United States as, 
for example, where such a resident is employed to perform service at a 
fixed point or points in the United States, such as a factory, store, 
office, or designated area or areas within the United States, and who 
commutes from his home in Canada or Mexico in the pursuit of his 
employment within the United States.
    (d) Certificate required. In order for the exception to apply, the 
nonresident alien employee must furnish his employer a statement setting 
forth the employee's name and address and certifying (1) that he is not 
a citizen of the United States, (2) that he is a resident of Canada or 
Mexico, as the case may be, and (3) the approximate period of time 
during which he has had such status. Such statement shall be dated, 
shall be signed by the employee, and shall contain, or be verified by, a 
written declaration that it is made under the penalties of perjury. No 
particular form is prescribed for this statement.
    (e) Effective date. This section shall not apply with respect to 
remuneration paid after December 31, 1966. For rules with respect to 
such remuneration see Sec.  31.3401(a)(6)-1.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6908, 31 FR 
16776, Dec. 31, 1966]



Sec.  31.3401(a)(8)(A)-1  Remuneration for services performed outside
the United States by citizens of the United States.

    (a) Remuneration excluded from gross income under section 911. (1) 
(i) Remuneration paid for services performed outside the United States 
for an employer (other than the United States or any agency thereof) by 
a citizen of the United States does not constitute wages and hence is 
not subject to withholding, if at the time of payment it is reasonable 
to believe that such remuneration will be excluded from gross income 
under the provisions of section 911. The reasonable belief contemplated 
by the statute may be based upon any evidence reasonably sufficient to 
induce such belief, even though such evidence may be insufficient upon 
closer examination by the district director or the courts finally to 
establish that the remuneration is excludable from gross income under 
the provisions of section 911. The reasonable belief shall be based upon 
the application of section 911 and the regulations thereunder in Part 1 
of this chapter (Income Tax Regulations).
    (ii) Remuneration paid by an employer to an employee constitutes 
wages, and hence is subject to withholding only to the extent that the 
remuneration is expected to exceed the aggregate amount which is 
excludable from the employee's gross income under section 911(a). For 
amounts paid after December 31, 1984, the determination of the amount 
subject to withholding shall be made by applying the excludable amount, 
on a pro rata basis, to each payment of remuneration to the employee. 
For this purpose, an employer is not required to ascertain information 
with respect to amounts received by his employee from any other source; 
but, if the employer has such information, he shall take it into account 
in determining whether the earned income of the employee is in excess of 
the applicable limitation. For purposes of section 911(d)(5) and Sec.  
1.911-2(c), relating to an employee who states to the authorities of a 
foreign country that he is not a resident of that country, the employer 
is not required to ascertain whether such a

[[Page 201]]

statement has been made; but if an employer knows that such a statement 
has been made, he shall presume that the employee is not a bona fide 
resident of that country, unless the employer also knows that the 
authorities of the foreign country have determined, notwithstanding the 
statement that the employee is a resident of that country. For purposes 
of section 911(d)(1) or Sec.  1.911-2(a) relating to the definition of a 
qualified individual, the reasonable belief contemplated by the statute 
may be based on a presumption as set forth in subparagraph (2) or (3) of 
this paragraph. For purposes of sections 911(a)(2) and 911(c)(2) and 
Sec.  1.911-4(b) and (d)(1), relating to the housing cost amount 
exclusion and the definition of housing expenses, the reasonable belief 
contemplated by the statute may be based on the presumption set forth in 
subparagraph (4) of this paragraph.
    (2)(i) The employer may, in the absence of cause for a reasonable 
belief to the contrary, presume that an employee will maintain a tax 
home in a foreign country or countries and be a bona fide resident of a 
foreign country or countries, within the meaning of section 911(d)(1), 
for an uninterrupted period which includes each taxable year of the 
employee, or applicable portion thereof, in respect of which the 
employee properly executes and delivers to the employer a statement that 
the employee meets or will meet the requirement of Sec.  1.911-2(a) 
relating to maintaining a tax home and a bona fide residence in a 
foreign country for the taxable year. This statement must set forth the 
facts alleged as the basis for this determination and contain a 
declaration by the employee that the statement is made under the 
penalties of perjury. Sample forms of acceptable statements may be 
obtained by writing to the Foreign Operations District, Internal Revenue 
Service, Washington, D.C. 20225 (Form IO-673).
    (ii) If the employer was entitled to presume for the two consecutive 
taxable years immediately preceding an employee's current taxable year 
that such employee was a bona fide resident of a foreign country or 
countries for an uninterrupted period which includes such preceding 
taxable years, he may, if such employee is residing in a foreign country 
on the first day of such current taxable year, presume, in the absence 
of cause for a reasonable belief to the contrary, and without obtaining 
from the employee the statement prescribed in subdivision (i) of this 
subparagraph, that the employee will be a bona fide resident of a 
foreign country or countries in such current taxable year.
    (3) The employer may, in the absence of cause for a reasonable 
belief to the contrary, presume that an employee will maintain a tax 
home in a foreign country or countries and be present in a foreign 
country or countries during at least 330 full days during any period of 
twelve consecutive months, within the meaning of section 911(d)(1), and 
that such period includes each taxable year of the employee, or 
applicable portion thereof, in respect of which the employee properly 
executes and delivers to the employer a statement that the employee 
meets or will meet the requirements of Sec.  1.911-2(a) relating to 
maintaining a tax home and being physically present in a foreign country 
for the taxable year. This statement must set forth the facts alleged as 
the basis for this determination and contain a declaration by the 
employee that the statement is made under the penalties of perjury. 
Sample forms of acceptable statements may be obtained by writing to the 
Foreign Operations District, Internal Revenue Service, Washington, D.C. 
20225 (Form IO-673).
    (4) The employer may, in the absence of cause for a reasonable 
belief to the contrary, presume that an employee's housing cost amount 
will be the amount shown on a statement properly executed and delivered 
to the employer. This statement must set forth the employee's estimation 
of the following items: housing expenses (as defined in Sec.  1.911-
4(b)), the housing cost amount exclusion (as defined in Sec.  1.911-
4(d)(1)), and the qualifying period (as defined in Sec.  1.911-2(a)). 
The statement must contain a declaration by the employee that it is made 
under the penalties of perjury. Sample forms of acceptable statements 
may be obtained by writing to the Foreign Operations District, Internal 
Revenue Service, Washington, D.C. 20225 (IO-673). The

[[Page 202]]

employer may not rely on a statement from an employee if the employer, 
based on his or her knowledge of housing costs in the vicinity of the 
employee's tax home (as defined in Sec.  1.911-2(b)), believes the 
employee's housing expenses are lavish or extravagant under the 
circumstances.
    (b) Remuneration subject to withholding of income tax under law of a 
foreign country or a possession of the United States. (1) Remuneration 
paid for services performed in a foreign country or in a possession of 
the United States for an employer (other than the United States or any 
agency thereof) by a citizen of the United States does not constitute 
wages and hence is not subject to withholding, if at the time of the 
payment of such remuneration the employer is required by the law of any 
foreign country or of any possession of the United States to withhold 
income tax upon such remuneration. This paragraph, insofar as it relates 
to remuneration paid for services performed in a possession of the 
United States, applies only with respect to remuneration paid on or 
after August 9, 1955.
    (2) Remuneration is not exempt from withholding under this paragraph 
if the employer is not required by the law of a foreign country or of a 
possession of the United States to withhold income tax upon such 
remuneration. Mere agreements between the employer and the employee 
whereby the estimated income tax of a foreign country or of a possession 
of the United States is withheld from the remuneration in anticipation 
of actual liability under the law of such country or possession will not 
suffice.
    (3) The exemption from withholding provided by this paragraph does 
not apply by reason of withholding of income tax pursuant to the law of 
a territory of the United States, of a political subdivision of a 
possession of the United States, or of a political subdivision of a 
foreign state.
    (4) For provisions relating to remuneration for services performed 
by a permanent resident of the Virgin Islands, see paragraph (b)(12) of 
Sec.  31.3401(a)-1.
    (c) Limitation on application of section. This section has no 
application to the remuneration paid to a citizen of the United States 
for services performed outside the United States as an employee of the 
United States or any agency thereof.

(Approved by the Office of Management and Budget under control number 
1545-0067)

(Sec. 911, 95 Stat. 194; 26 U.S.C. 911), sec. 7805 (68A Stat. 917; 26 
U.S.C. 7805) of the Internal Revenue Code of 1954)

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6697, 28 FR 
13745, Dec. 17, 1963; T.D. 8006, 50 FR 2977, Jan. 23, 1985]



Sec.  31.3401(a)(8)(B)-1  Remuneration for services performed in possession
of the United States (other than Puerto Rico) by citizen of the United States.

    (a) Remuneration paid for services for an employer (other than the 
United States or any agency thereof) performed by a citizen of the 
United States within a possession of the United States (other than 
Puerto Rico) does not constitute wages and hence is not subject to 
withholding, if it is reasonable to believe that at least 80 percent of 
the remuneration to be paid to the employee by such employer during the 
calendar year will be for such services. The reasonable belief 
contemplated by section 3401(a)(8)(B) may be based upon any evidence 
reasonably sufficient to induce such belief, even though such evidence 
may be insufficient upon closer examination by the district director or 
the courts finally to establish that at least 80 percent of the 
remuneration paid by the employer to the employee during the calendar 
year was for services performed within such a possession of the United 
States.
    (b) This section has no application to remuneration paid to a 
citizen of the United States for services performed in any possession of 
the United States as an employee of the United States or any agency 
thereof.
    (c) For provisions relating to remuneration for services performed 
by a permanent resident of the Virgin Islands, see paragraph (b)(12) of 
Sec.  31.3401(a)-1.



Sec.  31.3401(a)(8)(C)-1  Remuneration for services performed in Puerto Rico
by citizen of the United States.

    (a) Remuneration paid for services performed within Puerto Rico for 
an

[[Page 203]]

employer (other than the United States or any agency thereof) by a 
citizen of the United States does not constitute wages and hence is not 
subject to withholding, if it is reasonable to believe that during the 
entire calendar year the employee will be a bona fide resident of Puerto 
Rico. The reasonable belief contemplated by section 3401(a)(8)(C) may be 
based upon any evidence reasonably sufficient to induce such belief, 
even though such evidence may be insufficient upon closer examination by 
the district director or the courts finally to establish that the 
employee was a bona fide resident of Puerto Rico for the entire calendar 
year.
    (b) The employer may, in the absence of cause for a reasonable 
belief to the contrary, presume that an employee will be a bona fide 
resident of Puerto Rico during the entire calendar year.
    (1) Unless the employee is known by the employer to have maintained 
his abode at a place outside Puerto Rico at some time during the current 
or the preceding calendar year; or
    (2) In any case where the employee files with the employer a 
statement (containing a declaration under the penalties of perjury that 
such statement is true to the best of the employee's knowledge and 
belief) that such employee has at all times during the current calendar 
year been a bona fide resident of Puerto Rico and that he intends to 
remain a bona fide resident of Puerto Rico during the entire remaining 
portion of such current calendar year.
    (c) This section has no application to remuneration paid to a 
citizen of the United States for services performed in Puerto Rico as an 
employee of the United States or any agency thereof.



Sec.  31.3401(a)(9)-1  Remuneration for services performed by a minister
of a church or a member of a religious order.

    (a) In general. Remuneration paid for services performed by a duly 
ordained, commissioned, or licensed minister of a church in the exercise 
of his ministry, or by a member of a religious order in the exercise of 
duties required by such order, is excepted from wages and hence is not 
subject to withholding.
    (b) Service by a minister in the exercise of his ministry. Except as 
provided in paragraph (c)(3) of this section, service performed by a 
minister in the exercise of his ministry includes the ministration of 
sacerdotal functions and the conduct of religious worship, and the 
control, conduct, and maintenance of religious organizations (including 
the religious boards, societies, and other integral agencies of such 
organizations), under the authority of a religious body constituting a 
church or church denomination. The following rules are applicable in 
determining whether services performed by a minister are performed in 
the exercise of his ministry:
    (1) Whether service performed by a minister constitutes the conduct 
of religious worship or the ministration of sacerdotal functions depends 
on the tenents and practices of the particular religious body 
constituting his church or church denomination.
    (2) Service performed by a minister in the control, conduct, and 
maintenance of a religious organization relates to directing, managing, 
or promoting the activities of such organization. Any religious 
organization is deemed to be under the authority of a religious body 
constituting a church or church denomination if it is organized and 
dedicated to carrying out the tenents and principles of a faith in 
accordance with either the requirements or sanctions governing the 
creation of institutions of the faith. The term ``religious 
organization'' has the same meaning and application as is given to the 
term for income tax purposes.
    (3) (i) If a minister is performing service in the conduct of 
religious worship or the ministration of sacerdotal functions, such 
service is in the exercise of his ministry whether or not it is 
performed for a religious organization.
    (ii) The rule in paragraph (b)(3)(i) of this section may be 
illustrated by the following example:

    Example. M, a duly ordained minister, is engaged to perform service 
as chaplain at N University. M devotes his entire time to performing his 
duties as chaplain which include the conduct of religious worship, 
offering spiritual counsel to the university students, and teaching a 
class in religion. M is performing service in the exercise of his 
ministry.


[[Page 204]]


    (4) (i) If a minister is performing service for an organization 
which is operated as an integral agency of a religious organization 
under the authority of a religious body constituting a church or church 
denomination, all service performed by the minister in the conduct of 
religious worship, in the ministration of sacerdotal functions, or in 
the control, conduct, and maintenance of such organization (see 
paragraph (b)(2) of this section) is in the exercise of his ministry.
    (ii) The rule in paragraph (b)(4)(i) of this section may be 
illustrated by the following example:

    Example. M, a duly ordained minister, is engaged by the N Religious 
Board to serve as director of one of its departments. He performs no 
other service. The N Religious Board is an integral agency of O, a 
religious organization operating under the authority of a religious body 
constituting a church denomination. M is performing service in the 
exercise of his ministry.

    (5) (i) If a minister, pursuant to an assignment or designation by a 
religious body constituting his church, performs service for an 
organization which is neither a religious organization nor operated as 
an integral agency of a religious organization, all service performed by 
him, even though such service may not involve the conduct of religious 
worship or the ministration of sacerdotal functions, is in the exercise 
of his ministry.
    (ii) The rule in subdivision (i) of this subparagraph may be 
illustrated by the following example:

    Example. M, a duly ordained minister, is assigned by X, the 
religious body constituting his church, to perform advisory service to Y 
Company in connection with the publication of a book dealing with the 
history of M's church denomination. Y is neither a religious 
organization nor operated as an integral agency of a religious 
organization. M performs no other service for X or Y. M is performing 
service in the exercise of his ministry.

    (c) Service by a minister not in the exercise of his ministry. (1) 
Section 3401(a)(9) does not except from wages remuneration for service 
performed by a duly ordained, commissioned, or licensed minister of a 
church which is not in the exercise of his ministry.
    (2) (i) If a minister is performing service for an organization 
which is neither a religious organization nor operated as an integral 
agency of a religious organization and the service is not performed 
pursuant to an assignment or designation by his ecclesiastical 
superiors, then only the service performed by him in the conduct of 
religious worship or the ministration of sacerdotal functions is in the 
exercise of his ministry. See, however, paragraph (b)(3) of this 
section.
    (ii) The rule in subdivision (i) of this subparagraph may be 
illustrated by the following example:

    Example. M, a duly ordained minister, is engaged by N University to 
teach history and mathematics. He performs no other service for N 
although from time to time he performs marriages and conducts funerals 
for relatives and friends. N University is neither a religious 
organization nor operated as an integral agency of a religious 
organization. M is not performing the service for N pursuant to an 
assignment or designation by his ecclesiastical superiors. The service 
performed by M for N University is not in the exercise of his ministry. 
However, service performed by M in performing marriages and conducting 
funerals is in the exercise of his ministry.

    (3) Service performed by a duly ordained, commissioned, or licensed 
minister of a church as an employee of the United States, or a State, 
Territory, or possession of the United States, or the District of 
Columbia, or a foreign government, or a political subdivision of any of 
the foregoing, is not considered to be in the exercise of his ministry 
for purposes of the collection of income tax at source on wages, even 
though such service may involve the ministration of sacerdotal functions 
or the conduct of religious worship. Thus, for example, service 
performed by an individual as a chaplain in the Armed Forces of the 
United States is considered to be performed by a commissioned officer in 
his capacity as such, and not by a minister in the exercise of his 
ministry. Similarly, service performed by an employee of a State as a 
chaplain in a State prison is considered to be performed by a civil 
servant of the State and not by a minister in the exercise of his 
ministry.

[[Page 205]]

    (d) Service in the exercise of duties required by a religious order. 
Service performed by a member of a religious order in the exercise of 
duties required by such order includes all duties required of the member 
by the order. The nature or extent of such service is immaterial so long 
as it is a service which he is directed or required to perform by his 
ecclesiastical superiors.



Sec.  31.3401(a)(10)-1  Remuneration for services in delivery or distribution
of newspapers, shopping news, or magazines.

    (a) Services of individuals under age 18. Remuneration for services 
performed by an employee under the age of 18 in the delivery or 
distribution of newspapers, or shopping news, not including delivery or 
distribution (as, for example, by a regional distributor) to any point 
for subsequent delivery or distribution, is excepted from wages and 
hence is not subject to withholding. Thus, remuneration for services 
performed by an employee under the age of 18 in making house-to-house 
delivery or sale of newspapers or shopping news, including handbills and 
other similar types of advertising material, is excepted from wages. The 
remuneration is excepted irrespective of the form or method thereof. 
Remuneration for incidental services by the employee who makes the 
house-to-house delivery, such as services in assembling newspapers, is 
considered to be within the exception. The exception continues only 
during the time that the employee is under the age of 18.
    (b) Services of individuals of any age. Remuneration for services 
performed by an employee in, and at the time of, the sale of newspapers 
or magazines to ultimate consumers under an arrangement under which the 
newspapers or magazines are to be sold by him at a fixed price, his 
remuneration being based on the retention of the excess of such price 
over the amount at which the newspapers or magazines are charged to him, 
is excepted from wages and hence is not subject to withholding. The 
remuneration is excepted whether or not the employee is guaranteed a 
minimum amount or remuneration, or is entitled to be credited with the 
unsold newspapers or magazines turned back. Moreover, the remuneration 
is excepted without regard to the age of the employee. Remuneration for 
services performed other than at the time of sale to the ultimate 
consumer is not within the exception. Thus, remuneration for services of 
a regional distributor which are antecedent to but not immediately part 
of the sale to the ultimate consumer is not within the exception. 
However, remuneration for incidental services by the employee who makes 
the sale to the ultimate consumer, such as services in assembling 
newspapers or in taking newspapers or magazines to the place of sale, is 
considered to be within the exception.



Sec.  31.3401(a)(11)-1  Remuneration other than in cash for service not in
the course of employer's trade or business.

    (a) Remuneration paid in any medium other than cash for services not 
in the course of the employer's trade or business is excepted from wages 
and hence is not subject to withholding. Cash remuneration includes 
checks and other monetary media of exchange. Remuneration paid in any 
medium other than cash, such as lodging, food, or other goods or 
commodities, for services not in the course of the employer's trade or 
business does not constitute wages. Remuneration paid in any medium 
other than cash for other types of services does not come within this 
exception from wages. For provisions relating to cash remuneration for 
service not in the course of employer's trade or business, see Sec.  
31.3401(a)(4)-1.
    (b) As used in this section, the term ``services not in the course 
of the employer's trade or business'' has the same meaning as when used 
in Sec.  31.3401(a)(4)-1.



Sec.  31.3401(a)(12)-1  Payments from or to certain tax-exempt trusts, or
under or to certain annuity plans or bond purchase plans, or to individual
retirement plans.

    (a) Payments from or to certain taxexempt trusts. The term ``wages'' 
does not include any payment made--
    (1) By an employer, on behalf of an employee or his beneficiary, 
into a trust, or

[[Page 206]]

    (2) To, or on behalf of, an employee or his beneficiary from a 
trust,

if at the time of such payment the trust is exempt from tax under 
section 501(a) as an organization described in section 401(a). A payment 
made to an employee of such a trust for services rendered as an employee 
of the trust and not as a beneficiary thereof is not within this 
exclusion from wages. Also, since supplemental unemployment compensation 
benefits are treated under paragraph (b) (14) of Sec.  31.3401 (a)-1 as 
if they were wages for purposes of this chapter, this section does not 
apply to such benefits.
    (b) Payments under or to certain annuity plans. (1) The term 
``wages'' does not include any payment made after December 31, 1962--
    (i) By an employer, on behalf of an employee or his beneficiary, 
into an annuity plan, or
    (ii) To, or on behalf of, an employee or his beneficiary under an 
annuity plan, if at the time of such payment the annuity plan is a plan 
described in section 403(a).
    (2) The term ``wages'' does not include any payment made before 
January 1, 1963--
    (i) By an employer, on behalf of an employee or his beneficiary, 
into an annuity plan, or
    (ii) To, or on behalf of, an employee or his beneficiary under an 
annuity plan, if at the time of such payment the annuity plan meets the 
requirements of section 401 (a) (3), (4), (5), and (6).
    (c) Payments under or to certain bond purchase plans. The term 
``wages'' does not include any payment made after December 31, 1962--
    (1) By an employer, on behalf of an employee or his beneficiary, 
into a bond purchase plan, or
    (2) To, or on behalf of, an employee or his beneficiary under a bond 
purchase plan,

if at the time of such payment the plan is a qualified bond purchase 
plan described in section 405(a).
    (d) Payment to individual retirement plans. (1) The term ``wages'' 
does not include any payment to an individual retirement plan described 
in section 7701(a)(37) by an employer after December 31, 1974, on behalf 
of an employee, if, at the time of such payment, it is reasonable for 
the employer to believe that the employee will be entitled to a 
deduction for such payment under section 219(a).
    (2) The term ``wages'' does not include any payment to an individual 
retirement plan described in section 7701(a)(37) by an employer after 
December 31, 1976, on behalf of an employee, if, at the time of such 
payment, it is reasonable for the employer to believe that the employee 
on whose behalf the payment is made will be entitled to a deduction for 
such payment under section 220(a).
    (3) The term ``wages'' does not include any payment to a simplified 
employee pension arrangement described in section 408(k) by an employer 
after December 31, 1978, on behalf of an employee, if, at the time of 
such payment, it is reasonable for the employer to believe that the 
employee on whose behalf the payment is made will be entitled to a 
deduction for such payment under section 219(a).

[T.D. 6654, 28 FR 5252, May 28, 1963, as amended by T.D. 7068, 35 FR 
17329, Nov. 11, 1970; T.D. 7730, 45 FR 72652, Nov. 3, 1980]



Sec.  31.3401(a)(13)-1  Remuneration for services performed by Peace Corps
volunteers.

    (a) Remuneration paid after September 22, 1961, for services 
performed as a volunteer or volunteer leader within the meaning of the 
Peace Corps Act (22 U.S.C. 2501) is excepted from wages, and hence is 
not subject to withholding, unless the remuneration is paid pursuant to 
section 5(c) or section 6(1) of the Peace Corps Act.
    (b) Sections 5 and 6 of the Peace Corps Act (22 U.S.C. 2504, 2505) 
provide, in part, as follows:

    Sec. 5 Peace Corps Volunteers [Peace Corps Act (75 Stat. 613); as 
amended by sec. 2(b), Act of December 13, 1963 (P.L. 88-200, 77 Stat. 
359); sec. 2(a), Act of August 24, 1965, (P.L. 89-134, 79 Stat. 549); 
sec. 3(a), Act of July 24, 1970 (P.L. 91-352, 84 Stat. 464)]

                                * * * * *

    (c) Readjustment allowances. Volunteers shall be entitled to receive 
a readjustment allowance at a rate not to exceed $75 for each month of 
satisfactory service as determined by the President; except that, in the 
cases of

[[Page 207]]

volunteers who have one or more minor children at the time of their 
entering a period of pre-enrollment training, one parent shall be 
entitled to receive a readjustment allowance at a rate not to exceed 
$125 for each month of satisfactory service as determined by the 
President. The readjustment allowance of each volunteer shall be payable 
on his return to the United States: Provided, however, That, under such 
circumstances as the President may determine, the accrued readjustment 
allowance, or any part thereof, may be paid to the volunteer, members of 
his family or others, during the period of his service, or prior to his 
return to the United States. In the event of the volunteer's death 
during the period of his service, the amount of any unpaid readjustment 
allowance shall be paid in accordance with the provisions of section 
5582(b) of title 5. For purposes of the Internal Revenue Code of 1954, a 
volunteer shall be deemed to be paid and to receive each amount of a 
readjustment allowance to which he is entitled after December 31, 1964, 
when such amount is transferred from funds made available under this 
chapter to the fund from which such readjustment allowance is payable.

                                * * * * *

    Sec. 6 Peace Corps Volunteer Leaders; number; applicability of 
chapter; benefits [Peace Corps Act (75 Stat. 615), as amended by sec. 3, 
Act of December 13, 1963 (P.L. 88-200, 77 Stat. 360)] The President may 
enroll in the Peace Corps qualified citizens or nationals of the United 
States whose services are required for supervisory or other special 
duties or responsibilities in connection with programs under this 
chapter (referred to in this Act as ``volunteer leaders''). The ratio of 
the total number of volunteer leaders to the total number of volunteers 
in service at any one time shall not exceed one to twenty-five. Except 
as otherwise provided in this Act, all of the provisions of this Act 
applicable to volunteers shall be applicable to volunteer leaders, and 
the term ``volunteers'' shall include ``volunteer leaders'': Provided, 
however, That--
    (1) Volunteer leaders shall be entitled to receive a readjustment 
allowance at a rate not to exceed $125 for each month of satisfactory 
service as determined by the President;

[T.D. 6654, 28 FR 5252, May 28, 1963, as amended by T.D. 7493, 42 FR 
33729, July 1, 1977]



Sec.  31.3401(a)(14)-1  Group-term life insurance.

    (a) The cost of group-term life insurance on the life of an employee 
is excepted from wages, and hence is not subject to withholding. For 
provisions relating generally to such remuneration, and for reporting 
requirements with respect to such remuneration, see sections 79 and 
6052, respectively, and the regulations thereunder in Part 1 of this 
chapter (Income Tax Regulations).
    (b) The cost of group-term life insurance on the life of an 
employee's spouse or children is not subject to withholding if it is 
excludable from the employee's gross income because it is merely 
incidental. See paragraph (d)(2)(ii)(b) of Sec.  1.61-2 in Part 1 of 
this chapter (Income Tax Regulations).

[T.D. 7493, 42 FR 33730, July 1, 1977]



Sec.  31.3401(a)(15)-1  Moving expenses.

    (a) An amount paid to or on behalf of an employee after March 4, 
1964, either as an advance or a reimbusement, specifically for moving 
expenses incurred or expected to be incurred is excepted from wages, and 
hence is not subject to withholding, if (and to the extent that) at the 
time of payment it is reasonable to believe that a corresponding 
deduction is or will be allowable to the employee under section 217. The 
reasonable belief contemplated by the statute may be based upon any 
evidence reasonably sufficient to induce such belief, even though such 
evidence may be insufficient upon closer examination by the district 
director or the courts finally to establish that a deduction is 
allowable under section 217. The reasonable belief shall be based upon 
the application of section 217 and the regulations thereunder in Part 1 
of this chapter (Income Tax Regulations). When used in this section, the 
term ``moving expenses'' has the same meaning as when used in section 
217. See Sec.  1.6041-2(a) in Part 1 of this chapter (Income Tax 
Regulations), relating to return of information as to payments to 
employees, and Sec.  31.6051-1(e), relating to the reporting of 
reimbursements of or payments of certain moving expenses.
    (b) Except as otherwise provided in paragraph (a) of this section, 
or in a numbered paragraph of section 3401(a), amounts paid to or on 
behalf of an employee for moving expenses constitute wages subject to 
withholding.

[T.D. 7493, 42 FR 33730, July 1, 1977]

[[Page 208]]



Sec.  31.3401(a)(16)-1  Tips.

    Tips paid to an employee are excepted from wages and hence not 
subject to withholding if--
    (a) The tips are paid in any medium other than cash, or
    (b) The cash tips received by an employee in any calendar month in 
the course of his employment by an employer are less than $20.

However, if the cash tips received by an employee in a calendar month in 
the course of his employment by an employer amount to $20 or more, none 
of the cash tips received by the employee in such calendar month are 
excepted from wages under this section. The cash tips to which this 
section applies include checks and other monetary media of exchange. 
Tips received by an employee in any medium other than cash, such as 
passes, tickets, or other goods or commodities do not constitute wages. 
If an employee in any calendar month performs services for two or more 
employers and receives tips in the course of his employment by each 
employer, the $20 test is to be applied separately with respect to the 
cash tips received by the employee in respect of his services for each 
employer and not to the total cash tips received by the employee during 
the month. As to the time tips are deemed paid, see Sec.  31.3401(f)-1. 
For provisions relating to the treatment of tips received by an employee 
prior to 1966, see paragraph (b)(11) of Sec.  31.3401(a)-1.

[T.D. 7001, 34 FR 1001, Jan. 23, 1969]



Sec.  31.3401(a)(17)-1  Remuneration for services performed on a boat
engaged in catching fish.

    (a) Remuneration for services performed on or after December 31, 
1954, by an individual on a boat engaged in catching fish or other forms 
of aquatic animal life (hereinafter ``fish'') is excepted from wages and 
hence is not subject to withholding if--
    (1) The individual receives a share of the boat's (or boats' for a 
fishing operation involved more than one boat) catch of fish or a share 
of the proceeds from the sale of the catch,
    (2) The amount of the individual's share depends solely on the 
amount of the boat's (or boats' for a fishing operation involving more 
than one boat) catch of fish,
    (3) The individual does not receive, and is not entitled to receive, 
any cash remuneration, other than remuneration that is described in 
subparagraph (1) of this paragraph, and
    (4) The crew of the boat (or of each boat from which the individual 
receives a share of the catch) normally is made up of fewer than 10 
individuals.
    (b) The requirement of paragraph (a)(2) of this section is not 
satisfied if there exists an agreement with the boat's (or boats') owner 
or operator by which the individual's remuneration is determined 
partially or fully by a factor not dependent on the size of the catch. 
For example, if a boat is operated under a remuneration arrangement, 
e.g., a union contract, which specifies that crew members, in addition 
to receiving a share of the catch, are entitled to an hourly wage for 
repairing nets, regardless of whether this wage is actually paid, then 
all the crew members covered by the arrangement are entitled to receive 
cash remuneration other than as a share of the catch and are not 
excepted from employment by section 3121(b)(20).
    (c) The operating crew of a boat includes all persons on the boat 
(including the captain) who receive any form of remuneration in exchange 
for services rendered while on a boat engaged in catching fish. See 
Sec.  1.6050A-1 for reporting requirements for the operator of a boat 
engaged in catching fish with respect to individuals performing services 
described in this section.
    (d) During the same return period, service performed by a crew 
member may be excepted from employment by section 3121(b)(20) and this 
section for one voyage and not so excepted on a subsequent voyage on the 
same or on a different boat.

[T.D. 7716, 45 FR 57124, Aug. 27, 1980]



Sec.  31.3401(a)(18)-1  Payments or benefits under a qualified educational
assistance program.

    A payment made, or benefit furnished, to or for the benefit of an 
employee in a taxable year beginning after December 31, 1978, does not 
constitute wages and hence is not subject to withholding if, at the time 
of such

[[Page 209]]

payment or furnishing, it is reasonable to believe that the employee 
will be able to exclude such payment or benefit from income under 
section 127.

[T.D. 7898, 48 FR 31019, July 6, 1983]



Sec.  31.3401(a)(19)-1  Reimbursements under a self-insured medical
reimbursement plan.

    Amounts reimbursed to or on behalf of an employee after December 31, 
1979, as a medical care reimbursement under a self-insured medical 
reimbursement plan (within the meaning of section 105(h)(6)) do not 
constitute wages and hence are not subject to withholding even though 
such reimbursement is includible in the gross income of an employee. For 
rules with respect to self-insured medical reimbursement plans, see 
section 105(h) and Sec.  1.105-11 of this Chapter (Income Tax 
Regulations).

(Secs. 105(h) and 7805 Internal Revenue Code of 1954; 94 Stat. 2855, 68A 
Stat. 917 (26 U.S.C. 105(h) and 7805))

[T.D. 7754, 46 FR 3509, Jan. 15, 1981. Redesignated by T.D. 7898, 48 FR 
31019, July 6, 1983]



Sec.  31.3401(b)-1  Payroll period.

    (a) The term payroll period means the period of service for which a 
payment of wages is ordinarily made to an employee by his employer. It 
is immaterial that the wages are not always paid at regular intervals. 
For example, if an employer ordinarily pays a particular employee for 
each calendar week at the end of the week, but if for some reason the 
employee in a given week receives a payment in the middle of the week 
for the portion of the week already elapsed and receives the remainder 
at the end of the week, the payroll period is still the calendar week; 
or if, instead, that employee is sent on a 3-week trip by his employer 
and receives at the end of the trip a single wage payment for three 
weeks' services, the payroll period is still the calendar week, and the 
wage payment shall be treated as though it were three separate weekly 
wage payments.
    (b) For the purpose of section 3402, an employee can have but one 
payroll period with respect to wages paid by any one employer. Thus, if 
an employee is paid a regular wage for a weekly payroll period and in 
addition thereto is paid supplemental wages (for example, bonuses) 
determined with respect to a different period, the payroll period is the 
weekly payroll period. For computation of tax on supplemental wage 
payments, see Sec.  31.3402(g)-1.
    (c) The term payroll period also means the period of accrual of 
supplemental unemployment compensation benefits for which a payment of 
such benefits is ordinarily made. Thus if benefits are ordinarily 
accrued and paid on a monthly basis, the payroll period is deemed to be 
monthly.
    (d) The term miscellaneous payroll period means a payroll period 
other than a daily, weekly, biweekly, semi-monthly, monthly, quarterly, 
semiannual, or annual payroll period.

[T.D. 6516, 25 FR 13096, Dec. 20, 1960, as amended by T.D. 7068, 35 FR 
17329, Nov. 11, 1970]



Sec.  31.3401(c)-1  Employee.

    (a) The term employee includes every individual performing services 
if the relationship between him and the person for whom he performs such 
services is the legal relationship of employer and employee. The term 
includes officers and employees, whether elected or appointed, of the 
United States, a State, Territory, Puerto Rico, or any political 
subdivision thereof, or the District of Columbia, or any agency or 
instrumentality of any one or more of the foregoing.
    (b) Generally the relationship of employer and employee exists when 
the person for whom services are performed has the right to control and 
direct the individual who performs the services, not only as to the 
result to be accomplished by the work but also as to the details and 
means by which that result is accomplished. That is, an employee is 
subject to the will and control of the employer not only as to what 
shall be done but how it shall be done. In this connection, it is not 
necessary that the employer actually direct or control the manner in 
which the services are performed; it is sufficient if he has the right 
to do so. The right to discharge is also an important factor indicating 
that the person possessing that right is an employer. Other factors 
characteristic of an employer, but not necessarily present in every 
case, are the

[[Page 210]]

furnishing of tools and the furnishing of a place to work to the 
individual who performs the services. In general, if an individual is 
subject to the control or direction of another merely as to the result 
to be accomplished by the work and not as to the means and methods for 
accomplishing the result, he is not an employee.
    (c) Generally, physicians, lawyers, dentists, veterinarians, 
contractors, subcontractors, public stenographers, auctioneers, and 
others who follow an independent trade, business, or profession, in 
which they offer their services to the public, are not employees.
    (d) Whether the relationship of employer and employee exists will in 
doubtful cases be determined upon an examination of the particular facts 
of each case.
    (e) If the relationship of employer and employee exists, the 
designation or description of the relationship by the parties as 
anything other than that of employer and employee is immaterial. Thus, 
if such relationship exists, it is of no consequence that the employee 
is designated as a partner, coadventurer, agent, independent contractor, 
or the like.
    (f) All classes or grades of employees are included within the 
relationship of employer and employee. Thus, superintendents, managers 
and other supervisory personnel are employees. Generally, an officer of 
a corporation is an employee of the corporation. However, an officer of 
a corporation who as such does not perform any services or performs only 
minor services and who neither receives nor is entitled to receive, 
directly or indirectly, any remuneration is not considered to be an 
employee of the corporation. A director of a corporation in his capacity 
as such is not an employee of the corporation.
    (g) The term employee includes every individual who receives a 
supplemental unemployment compensation benefit which is treated under 
paragraph (b)(14) of Sec.  31.3401(a)-1 as if it were wages.
    (h) Although an individual may be an employee under this section, 
his services may be of such a nature, or performed under such 
circumstances, that the remuneration paid for such services does not 
constitute wages within the meaning of section 3401(a).

[T.D. 6516, 25 FR 13096, Dec. 20, 1960, as amended by T.D. 7068, 35 FR 
17329, Nov. 11, 1970]



Sec.  31.3401(d)-1  Employer.

    (a) The term employer means any person for whom an individual 
performs or performed any service, of whatever nature, as the employee 
of such person.
    (b) It is not necessary that the services be continuing at the time 
the wages are paid in order that the status of employer exist. Thus, for 
purposes of withholding, a person for whom an individual has performed 
past services for which he is still receiving wages from such person is 
an employer.
    (c) An employer may be an individual, a corporation, a partnership, 
a trust, an estate, a joint-stock company, an association, or a 
syndicate, group, pool, joint venture, or other unincorporated 
organization, group or entity. A trust or estate, rather than the 
fiduciary acting for or on behalf of the trust or estate, is generally 
the employer.
    (d) The term employer embraces not only individuals and 
organizations engaged in trade or business, but organizations exempt 
from income tax, such as religious and charitable organizations, 
educational institutions, clubs, social organizations and societies, as 
well as the governments of the United States, the States, Territories, 
Puerto Rico, and the District of Columbia, including their agencies, 
instrumentalities, and political subdivisions.
    (e) The term employer also means (except for the purpose of the 
definition of wages) any person paying wages on behalf of a nonresident 
alien individual, foreign partnership, or foreign corporation, not 
engaged in trade or business within the United States (including Puerto 
Rico as if a part of the United States).
    (f) If the person for whom the services are or were performed does 
not have legal control of the payment of the wages for such services, 
the term employer means (except for the purpose of the definition of 
wages) the person having such control. For example, where wages, such as 
certain types of pensions or retired pay, are paid by a

[[Page 211]]

trust and the person for whom the services were performed has no legal 
control over the payment of such wages, the trust is the employer.
    (g) The term employer also means a person making a payment of a 
supplemental unemployment compensation benefit which is treated under 
paragraph (b)(14) of Sec.  31.3401(a)-1 as if it were wages. For 
example, if supplemental unemployment compensation benefits are paid 
from a trust which was created under the terms of a collective 
bargaining agreement, the trust shall generally be deemed to be the 
employer. However, if the person making such payment is acting solely as 
an agent for another person, the term employer shall mean such other 
person and not the person actually making the payment.
    (h) It is a basic purpose to centralize in the employer the 
responsibility for withholding, returning, and paying the tax, and for 
furnishing the statements required under section 6051 and Sec.  31.6051-
1. The special definitions of the term employer in paragraphs (e), (f), 
and (g) of this section are designed solely to meet special or unusual 
situations. They are not intended as a departure from the basic purpose.

[T.D. 6516, 25 FR 13096, Dec. 20, 1960, as amended by T.D. 7068, 35 FR 
17329, Nov. 11, 1970]



Sec.  31.3401(f)-1  Tips.

    (a) Tips considered wages. Tips received after 1965 by an employee 
in the course of his employment are considered to be wages, and thus 
subject to withholding of income tax at source. For an exception to the 
rule that tips constitute wages, see Sec. Sec.  31.3401(a)(16) and 
31.3401(a)(16)-1, relating to tips paid in a medium other than cash and 
cash tips of less than $20. For definition of the term ``employee,'' see 
Sec. Sec.  31.3401(c) and 31.3401(c)-1.
    (b) When tips deemed paid. Tips reported by an employee to his 
employer in a written statement furnished to the employer pursuant to 
section 6053(a) (see Sec.  31.6053-1) shall be deemed to be paid to the 
employee at the time the written statement is furnished to the employer. 
Tips received by an employee which are not reported to his employer in a 
written statement furnished pursuant to section 6053(a) shall be deemed 
to be paid to the employee at the time the tips are actually received by 
the employee.

[T.D. 7001, 34 FR 1001, Jan. 23, 1969]



Sec.  31.3402(a)-1  Requirement of withholding.

    (a) Section 3402 provides alternative methods, at the election of 
the employer, for use in computing the amount of income tax to be 
collected at source on wages. Under the percentage method of withholding 
(see Sec.  31.3402(b)-1), the employer is required to deduct and 
withhold a tax computed in accordance with the provisions of section 
3402(a). Under the wage bracket method of withholding (see Sec.  
31.3402(c)-1), the employer is required to deduct and withhold a tax 
determined in accordance with the provisions of section 3402(c). The 
employer may elect to use the percentage method, the wage bracket 
method, or certain other methods (see Sec.  31.3402(h) (4)-1). Different 
methods may be used by the employer with respect to different groups of 
employees.
    (b) The employer is required to collect the tax by deducting and 
withholding the amount thereof from the employee's wages as and when 
paid, either actually or constructively. Wages are constructively paid 
when they are credited to the account of or set apart for an employee so 
that they may be drawn upon by him at any time although not then 
actually reduced to possession. To constitute payment in such a case, 
the wages must be credited to or set apart for the employee without any 
substantial limitation or restriction as to the time or manner of 
payment or condition upon which payment is to be made, and must be made 
available to him so that they may be drawn upon at any time, and their 
payment brought within his own control and disposition.
    (c) Except as provided in sections 3402 (j) and (k) (see Sec. Sec.  
31.3402(j)-1 and 31.3402(k)-1, relating to noncash remuneration paid to 
retail commission salesman and to tips received by an employee in the 
course of his employment, respectively), an employer is required to 
deduct and withhold the tax notwithstanding the wages are paid in

[[Page 212]]

something other than money (for example, wages paid in stocks or bonds; 
see Sec.  31.3401 (a)-1) and to pay over the tax in money. If wages are 
paid in property other than money, the employer should make necessary 
arrangements to insure that the amount of the tax required to be 
withheld is available for payment in money.
    (d) For provisions relating to the circumstances under which tax is 
required to be deducted and withheld from certain amounts received under 
accident and health plans, see paragraph (b)(8) of Sec.  31.3401(a)-1.
    (e) As a matter of business administration, certain of the 
mechanical details of the withholding process may be handled by 
representatives of the employer. Thus, in the case of an employer having 
branch offices, the branch manager or other representative may actually, 
as a matter of internal administration, withhold the tax or prepare the 
statements required under section 6051. Nevertheless, the legal 
responsibility for withholding, paying, and returning the tax and 
furnishing such statements rests with the employer. For provisions 
relating to statements under section 6051, see Sec.  31.6051-1.
    (f) The amount of any tax withheld and collected by the employer is 
a special fund in trust for the United States. See section 7501.
    (g) For purposes of chapter 24 of the Code and this subpart:
    (1) References to ``withholding exemption certificate'' include 
``withholding allowance certificate'' unless otherwise stated in this 
subpart.
    (2) [Reserved]
    (h) The provisions of paragraph (g) of this section apply on and 
after October 6, 2020. Taxpayers may choose to apply paragraph (g) of 
this section on or after January 1, 2020 and before October 6, 2020.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 7001, 34 FR 
1001, Jan. 23, 1969; T.D. 7115, 36 FR 9209, May 21, 1971; T.D. 7888, 48 
FR 17588, Apr. 25, 1983; T.D. 9924, 85 FR 63026, Oct. 6, 2020]



Sec.  31.3402(b)-1  Percentage method of withholding.

    (a) Percentage method of withholding. The amount of tax to be 
deducted and withheld from an employee's wages under the percentage 
method of withholding is determined based on the entry for the 
employee's anticipated filing status or marital status and other entries 
on the employee's withholding allowance certificate using the applicable 
percentage method tables and computational procedures set forth in the 
applicable forms, instructions, publications, and other guidance 
prescribed by the Commissioner issued with respect to the period in 
which wages are paid.
    (b) Applicability date. The provisions of this section apply on and 
after October 6, 2020. Taxpayers may choose to apply this section on or 
after January 1, 2020 and before October 6, 2020. For rules that apply 
before October 6, 2020, see 26 CFR part 31, revised as of April 1, 2020.

[T.D. 9924, 85 FR 63026, Oct. 6, 2020]



Sec.  31.3402(c)-1  Wage bracket withholding.

    (a) In general. (1) The employer may elect to use the wage bracket 
method provided in section 3402(c) instead of the percentage method with 
respect to any employee. The tax computed under the wage bracket method 
shall be in lieu of the tax required to be deducted and withheld under 
section 3402(a).
    (2) The amount of tax to be deducted and withheld from an employee's 
wages under the wage bracket method of withholding is determined based 
on the entry for the employee's anticipated filing status or marital 
status and other entries on the employee's withholding allowance 
certificate using the applicable wage bracket method tables and 
computational procedures set forth in the applicable forms, 
instructions, publications, and other guidance prescribed by the 
Commissioner issued with respect to the period in which wages are paid.
    (3) For provisions relating to the treatment of wages paid under 
accident and health plans and wages paid other than in cash to retail 
commission salesmen, see paragraph (b)(8) of Sec.  31.3401(a)-1 and 
Sec.  31.3402(j)-1, respectively.
    (b) Established payroll periods, other than daily or miscellaneous, 
covered by wage bracket withholding tables. The

[[Page 213]]

wage bracket withholding tables applicable to the employee's filing 
status set forth in forms, instructions, publications, and other 
guidance prescribed by the Commissioner for established periods other 
than daily or miscellaneous should be used in determining the tax to be 
deducted and withheld for any such period without reference to the time 
the employee is actually engaged in the performance of services during 
such payroll period.

    Example 1. On June 30, 1971, employee A is paid wages for a 
semimonthly payroll period. A has in effect a withholding exemption 
certificate indicating that he claims two withholding exemptions and 
that he is married. A's wages are determined at the rate of $2 per hour. 
During a certain payroll period he works only 24 hours and earns $48. 
Although A worked only 24 hours during the semimonthly payroll period, 
the applicable wage bracket withholding table contained in Circular E 
for a semimonthly payroll period for an employee who is married should 
be used in determining the tax to be withheld. Under this table it will 
be found that no tax is required to be withheld from a wage payment of 
$48 when two withholding exemptions are claimed.
    Example 2. On May 14, 1971, employee B is paid wages for a weekly 
payroll period. B has in effect a withholding exemption certification 
indicating that he claims one withholding exemption and that he is 
single. B's wages are determined at the rate of $2 per hour. During a 
certain payroll period B works 18 hours and earns $36. Although B worked 
only 18 hours during the weekly payroll period the applicable wage 
bracket withholding table for a weekly payroll period for an employee 
who is single should be used in determining the tax to be withheld. 
Under this table it will be found that $0.50 is the amount of tax to be 
withheld from a wage payment of $36 when one withholding exemption is 
claimed.

    (c) Periods to which the tables for a daily or miscellaneous payroll 
period are applicable--(1) In general. The tables applicable to a daily 
or miscellaneous payroll period show the tentative amount of tax to be 
deducted and withheld from an employee's wages for the employee's filing 
status for one day. Where the withholding is computed under the rules 
applicable to a miscellaneous payroll period, the wages and the amounts 
shown in the applicable table must be placed on a comparable basis. This 
may be accomplished by reducing the wages paid for the period to a daily 
basis by dividing the total wages by the number of days (including 
Sundays and holidays) in the period. The amount of the tax shown in the 
applicable table as the tax required to be withheld from the wages, as 
so reduced to a daily basis, should then be multiplied by the number of 
days (including Sundays and holidays) in the period.
    (2) Period not a payroll period. If wages are paid for a period 
which is not a payroll period, the amount to be deducted and withheld 
under the wage bracket method shall be the amount applicable in the case 
of a miscellaneous payroll period containing a number of days (including 
Sundays and holidays) equal to the number of days (including Sundays and 
holidays) in the period with respect to which such wages are paid.

    Example. An individual performs services for a contractor in 
connection with a construction project. He has in effect a withholding 
exemption certificate indicating that he claims two withholding 
exemptions and that he is married. Wages have been fixed at the rate of 
$36 per day, to be paid upon completion of the project. The project is 
completed before July 1, 1971, in 12 consecutive days, at the end of 
which period the individual is paid wages of $360 for 10 days' services 
performed during the period. Under the wage bracket method the amount to 
be deducted and withheld from such wages is determined by dividing the 
amount of the wages ($360) by the number of days in the period (12), the 
result being $30. The amount of tax required to be withheld is 
determined under the appropriate table applicable to a miscellaneous 
payroll period for an employee who is married. Under this table the tax 
required to be withheld is $47.40 (12 x $3.95).

    (3) Wages paid without regard to any period. If wages are paid to an 
employee without regard to any particular period, as, for example, 
commissions paid to a salesman upon consummation of a sale, the amount 
of tax to be deducted and withheld shall be determined in the same 
manner as in the case of a miscellaneous payroll period containing a 
number of days (including Sundays and holidays) equal to the number of 
days (including Sundays and holidays) which have elapsed, beginning with 
the latest of the following days:

[[Page 214]]

    (i) The first day after the last payment of wages to such employee 
by such employer in the calendar year, or
    (ii) The date on which such individual's employment with such 
employer began in the calendar year, or
    (iii) January 1 of such calendar year, and ending with (and 
including) the date on which such wages are paid.

    Example. On April 2, 1971, C is employed by the X Real Estate 
Company to sell real estate on a commission basis, commissions to be 
paid only upon consummation of sales. C has in effect a withholding 
exemption certificate indicating that he claims one withholding 
exemption and that he is not married. On May 22, 1971, C receives a 
commission of $300, his first commission since April 2, 1971. Again on 
June 19, 1971, C receives a commission of $420. Under the wage bracket 
method, the amount of tax to be deducted and withheld in respect of the 
commission paid on May 22, is $10, which amount is obtained by 
multiplying $0.20 (tax per day under the appropriate wage bracket table 
applicable to a daily or miscellaneous payroll period for an employee 
who is not married where wages are at least $6 but less than $6.25 a 
day) by 50 (number of days elapsed); and the amount of tax to be 
withheld with respect to the commission paid on June 19 is $54.60, which 
amount is obtained by multiplying $1.95 (tax under the appropriate wage 
bracket table for a daily or miscellaneous payroll period where wages 
are at least $15 but less than $15.50 a day) by 28 (number of days 
elapsed).

    (d) Period or elapsed time less than 1 week. (1) It is the general 
rule that if wages are paid for a payroll period or other period of less 
than 1 week, the tax to be deducted and withheld under the wage bracket 
method shall be the amount computed for a daily payroll period, or for a 
miscellaneous payroll period containing the same number of days 
(including Sundays and holidays) as the payroll period, or other period, 
for which such wages are paid. In the case of wages paid without regard 
to any period, if the elapsed time computed as provided in paragraph (c) 
of this section is less than 1 week, the same rule is applicable.

    Example 1. On May 14, 1971, an employee who has a daily payroll 
period is paid wages of $15 per day. The employee has in effect a 
withholding exemption certificate indicating that he claims one 
withholding exemption and that he is not married. Under the applicable 
table for a daily payroll period for an employee who is not married, the 
amount of tax to be deducted and withheld from each such payment of 
wages is $1.95.
    Example 2. An employee works for a certain employer on 4 consecutive 
days for which he is paid wages totalling $60 on July 25, 1971. The 
employee has in effect a withholding exemption certificate claiming two 
withholding exemptions and indicating that he is married. The amount of 
tax to be deducted and withheld under the wage bracket method is $5.60 
(4 x $1.40).

    (2) If the payroll period, other period or elapsed time where wages 
are paid without regard to any period, is less than one week, the 
employer may, under certain conditions, elect to deduct and withhold the 
tax determined by the application of the wage table for a weekly payroll 
period to the aggregate of the wages paid to the employee during the 
calendar week. The election to use the weekly wage table in such cases 
is subject to the limitations and conditions prescribed in Circular E 
with respect to employers using the percentage method in similar cases.
    (3) As used in this paragraph the term ``calendar week'' means a 
period of seven consecutive days beginning with Sunday and ending with 
Saturday.
    (e) Rounding off of wage payment. In determining the amount to be 
deducted and withheld under the wage bracket method the wages may, at 
the election of the employer, be computed to the nearest dollar, 
provided such wages are in excess of the highest wage bracket of the 
applicable table. For the purpose of the computation to the nearest 
dollar, the payment of a fractional part of a dollar shall be 
disregarded unless it amounts to one-half dollar or more, in which case 
it shall be increased to $1.00. Thus, if the payroll period of an 
employee is weekly and the wage payment of such employee is $255.49, the 
employer may compute the tax on the excess over $200 as if the excess 
were $55 instead of $55.49. If the weekly wage payment is $255.50, the 
employer may, in computing the tax, consider the excess over $200 to be 
$56 instead of $55.50.
    (f) Applicability date. The provisions of this section apply on and 
after October 6, 2020. Taxpayers may choose to apply this section on or 
after January 1, 2020 and before October 6, 2020. For rules that apply 
before October 6, 2020,

[[Page 215]]

see 26 CFR part 31, revised as of April 1, 2020.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6860, 30 FR 
13942, Nov. 4, 1965; T.D. 7115, 36 FR 9215, May 21, 1971; T.D. 7888, 48 
FR 17588, Apr. 25, 1983; T.D. 7915, 48 FR 44073, Sept. 27, 1983; T.D. 
9924, 85 FR 63027, Oct. 6, 2020]



Sec.  31.3402(d)-1  Failure to withhold.

    If the employer in violation of the provisions of section 3402 fails 
to deduct and withhold the tax, and thereafter the income tax against 
which the tax under section 3402 may be credited is paid, the tax under 
section 3402 shall not be collected from the employer. Such payment does 
not, however, operate to relieve the employer from liability for 
penalties or additions to the tax applicable in respect of such failure 
to deduct and withhold. The employer will not be relieved of his 
liability for payment of the tax required to be withheld unless he can 
show that the tax against which the tax under section 3402 may be 
credited has been paid. See Sec.  31.3403-1, relating to liability for 
tax.



Sec.  31.3402(e)-1  Included and excluded wages.

    (a) If a portion of the remuneration paid by an employer to his 
employee for services performed during a payroll period of not more than 
31 consecutive days constitutes wages, and the remainder does not 
constitute wages, all the remuneration paid the employee for services 
performed during such period shall for purposes of withholding be 
treated alike, that is, either all included as wages or all excluded. 
The time during which the employee performs services, the remuneration 
for which under section 3401(a) constitutes wages, and the time during 
which he performs services, the remuneration for which under such 
section does not constitute wages, determine whether all the 
remuneration for services performed during the payroll period shall be 
deemed to be included or excluded.
    (b) If one-half or more of the employee's time in the employ of a 
particular employer in a payroll period is spent in performing services 
the remuneration for which consititutes wages, then all the remuneration 
paid the employee for services performed in that payroll period shall be 
deemed to be wages.
    (c) If less than one-half of the employee's time in the employ of a 
particular employer in a payroll period is spent in performing services 
the remuneration for which constitutes wages, then none of the 
remuneration paid the employee for services performed in that payroll 
period shall be deemed to be wages.
    (d) The application of the provisions of paragraphs (a), (b), and 
(c) of this section may be illustrated by the following examples:

    Example 1. Employer B, who operates a store and a farm, employs A to 
perform services in connection with both operations. The remuneration 
paid A for services on the farm is excepted as remuneration for 
agricultural labor, and the remuneration for services performed in the 
store constitutes wages. Employee A is paid on a monthly basis. During a 
particular month, A works 120 hours on the farm and 80 hours in the 
store. None of the remuneration paid by B to A for services performed 
during the month is deemed to be wages, since the remuneration paid for 
less than one-half of the services performed during the month 
constitutes wages. During another month A works 75 hours on the farm and 
120 hours in the store. All of the remuneration paid by B to A for 
services performed during the month is deemed to be wages since the 
remuneration paid for one-half or more of the services performed during 
the month constitutes wages.
    Example 2. Employee C is employed as a maid by D, a physician, whose 
home and office are located in the same building. The remuneration paid 
C for services in the home is excepted as remuneration for domestic 
service, and the remuneration paid for her services in the office 
constitutes wages. C is paid on a weekly basis. During a particular week 
C works 20 hours in the home and 20 hours in the office. All of the 
remuneration paid by D to C for services performed during that week is 
deemed to be wages, since the remuneration paid for one-half or more of 
the services performed during the week constitutes wages. During another 
week C works 22 hours in the home and 15 hours in the office. None of 
the remuneration paid by D to C for services performed during that week 
is deemed to be wages, since the remuneration paid for less than one-
half of the services performed during the week constitutes wages.

    (e) The rules set forth in this section do not apply (1) with 
respect to any remuneration paid for services performed by an employee 
for his employer if the

[[Page 216]]

periods for which remuneration is paid by the employer vary to the 
extent that there is no period which constitutes a payroll period within 
the meaning of section 3401(b) (see Sec.  31.3401(b)-1), or (2) with 
respect to any remuneration paid for services performed by an employee 
for his employer if the payroll period for which remuneration is paid 
exceeds 31 consecutive days. In any such case withholding is required 
with respect to that portion of such remuneration which constitutes 
wages.



Sec.  31.3402(f)(1)-1  Withholding allowance.

    (a) In general. (1) Except as otherwise provided in section 
3402(f)(6) (see Sec.  31.3402(f)(6)-1), an employee receiving wages 
will, on any day, be entitled to a withholding allowance as provided in 
section 3402(f)(1) and paragraph (b) of this section. In order to 
receive the benefit of the withholding allowance, the employee must 
furnish to the employer a valid withholding allowance certificate in 
effect for the calendar year as provided in section 3402(f)(2) and Sec.  
31.3402(f)(2)-1.
    (2) The employer is not required to ascertain whether the 
withholding allowance claimed is greater than the withholding allowance 
to which the employee is entitled. For rules relating to invalid 
withholding allowance certificates, see Sec.  31.3402(f)(2)-1(f)(3), for 
rules relating to required submission of copies of certain withholding 
allowance certificates to the Internal Revenue Service, see Sec.  
31.3402(f)(2)-1(g)(1), and for rules relating to the notice of the 
maximum withholding allowance permitted, see Sec.  31.3402(f)(2)-
1(g)(2).
    (b) Withholding allowance defined. (1) Generally, the withholding 
allowance to which an employee is entitled is determined under the 
computational procedures prescribed by the Commissioner in forms, 
instructions, publications, and other guidance for the calendar year for 
which the withholding allowance certificate is in effect.
    (2) The withholding allowance is determined based on the following--
    (i) Whether the employee is an individual for whom a deduction is 
allowable with respect to another taxpayer under section 151;
    (ii) If the employee is married, whether the employee's spouse is an 
individual for whom a deduction is allowable with respect to another 
taxpayer under section 151 but only if such spouse does not have in 
effect a withholding allowance certificate claiming such deduction;
    (iii) If the employee is married, whether the employee's spouse is 
entitled to additional deductions, credits, or other items the employee 
elects to take into account under Sec.  31.3402(m)-1 or would be so 
entitled if the employee's spouse were an employee receiving wages, but 
only if such spouse does not have in effect a withholding allowance 
certificate claiming such allowance;
    (iv) Any credit under section 24(a) that the employee reasonably 
expects to be able to claim on the employee's income tax return for the 
calendar year for which the withholding allowance certificate is in 
effect, except that the employee may not take into account any credit 
under section 24(a) if this credit is claimed on another valid 
withholding allowance certificate in effect with respect to another 
employer of the employee or the employee's spouse. In addition, an 
employee whose employer must withhold for that employee pursuant to a 
notice under Sec.  31.3402(f)(2)-1(g)(2) must offset any tax benefit 
resulting from a credit under section 24(a) with any anticipated income 
tax attributable to items other than wages includible in the employee's 
gross income in the manner prescribed by the Commissioner;
    (v) Any additional deductions, credits, or other items the employee 
elects to take into account under Sec.  31.3402(m)-1 for the calendar 
year for which the withholding allowance certificate is in effect;
    (vi) The basic standard deduction (as defined in section 63(c)(2)) 
relating to the filing status the employee reasonably expects to claim 
on the employee's income tax return for the calendar year for which the 
withholding allowance certificate is in effect; and
    (vii) Any adjustment resulting from multiple withholding allowance 
certificates the employee, the employee's spouse, or both have or 
reasonably expect to have in effect with respect to one or more 
employers, determined

[[Page 217]]

based on the instructions to the withholding allowance certificate and 
other guidance for the calendar year for which the withholding allowance 
certificate is in effect.
    (c) Applicability date. The provisions of this section apply on and 
after October 6, 2020. Taxpayers may choose to apply this section on or 
after January 1, 2020 and before October 6, 2020. For rules that apply 
before October 6, 2020, see 26 CFR part 31, revised as of April 1, 2020.

[T.D. 9924, 85 FR 63027, Oct. 6, 2020]



Sec.  31.3402(f)(2)-1  Furnishing of withholding allowance certificates.

    (a) On commencement of employment. (1) On or before the date on 
which an individual commences employment with an employer, the 
individual must furnish the employer with a signed withholding allowance 
certificate (see Sec.  31.3402(f)(5)-1) relating to the filing status 
the employee reasonably expects to claim under Sec.  31.3402(l)-1(b) for 
the calendar year for which the withholding allowance certificate is in 
effect and the withholding allowance under Sec.  31.3402(f)(1)-1(b) that 
the employee claims.
    (2) In no event may the withholding allowance exceed the withholding 
allowance that the employee is entitled to as determined based on the 
employee's reasonable expectations and the instructions set forth in 
forms, instructions, publications, and other guidance prescribed by the 
Commissioner.
    (3) The employee may claim exemption from withholding if the 
certifications described in section 3402(n) and Sec.  31.3402(n)-1(a)(1) 
and (2) are true with respect to the employee.
    (4) If an employee has no valid withholding allowance certificate in 
effect with the employer at the time of the payment of the wages, and 
fails to furnish a valid withholding allowance certificate to the 
employer, the employee will be treated as single but having the 
withholding allowance provided in forms, instructions, publications, and 
other guidance prescribed by the Commissioner.
    (b) Change of status that affects calendar year--(1) General rule. 
If, on any day during the calendar year, the employee experiences a 
change of status that reduces the employee's withholding allowance or 
withholding allowances, in the manner described in paragraph (b)(2) of 
this section, the employee must, within 10 days after the change occurs, 
furnish the employer with a new withholding allowance certificate 
claiming the withholding allowance to which the employee is entitled 
under Sec.  31.3402(f)(1)-1(b), unless paragraph (b)(3) of this section 
applies to the employee.
    (2) Changes of status. A change of status occurs if any of the 
following changes occur on any day during the calendar year:
    (i) The employee's filing status changes in the manner described in 
Sec.  31.3402(l)-1(c).
    (ii) The employee no longer has only one withholding allowance 
certificate in effect for the employee, the employee's spouse, or both, 
and the employee or the employee's spouse selects higher withholding 
rate tables on the additional withholding allowance certificate, but 
higher withholding rate tables are not selected on any previously 
furnished withholding allowance certificate.
    (iii) The employee has multiple withholding allowance certificates 
in effect on which higher withholding rate tables are not selected, and 
the employee or the employee's spouse reasonably expects an increase in 
regular wages for the calendar year (as defined in Sec.  31.3402(g)-
1(a)(1)(ii)) in excess of $10,000.
    (iv) The employee has included on a valid withholding allowance 
certificate the child tax credit allowed under section 24(a) but 
reasonably expects the number of individuals who satisfy the definition 
of ``qualifying child'' as defined in section 24(c) who will be reported 
on the employee's income tax return for the year for which tax is being 
withheld to be less than the number taken into account in completing the 
withholding allowance certificate.
    (v) The employee has included on a valid withholding allowance 
certificate a tax credit allowed under section 24(a) or other tax 
credits allowed under Sec.  31.3402(m)-1 but reasonably expects the 
employee's tax credits that will be reported on the employee's income 
tax return for the year for which tax is

[[Page 218]]

being withheld to decrease by more than $500 from the amount taken into 
account in completing the withholding allowance certificate.
    (vi) The employee has included on a valid withholding allowance 
certificate deductions allowed under Sec.  31.3402(m)-1 but reasonably 
expects the employee's included income tax deductions that will be 
reported on the employee's income tax return for the year for which tax 
is being withheld to decrease by more than $2,300 from the amount taken 
into account in completing the withholding allowance certificate.
    (vii) It is no longer reasonable for an employee who has furnished 
the employer with a withholding allowance certificate which relies upon 
the certifications described in Sec.  31.3402(n)-1(a) to anticipate that 
the employee will incur no liability for income tax imposed under 
subtitle A of the Code for the current or previous taxable year.
    (3) Exception. If one or more of the changes described in paragraph 
(b)(2) of this section occurs, but the total effect of the changes 
together with any other changes affecting the employee's anticipated tax 
liability under subtitle A is not anticipated to result in an amount of 
tax to be deducted and withheld from the employee's wages under section 
3402 for the year that is less than the employee's anticipated tax 
liability under subtitle A, the employee is not required to furnish a 
new withholding allowance certificate.
    (c) Increase in withholding allowance. If, on any day during the 
calendar year, the employee experiences a change of status that 
increases the employee's withholding allowance, the employee may furnish 
the employer with a new withholding allowance certificate claiming the 
withholding allowance the employee is entitled to under Sec.  
31.3402(f)(1)-1(b).
    (d) Exemption from withholding. If, on any day during the calendar 
year, the certifications described in section 3402(n) and Sec.  
31.3402(n)-1(a)(1) and (2) are true with respect to an employee, the 
employee may furnish the employer with a withholding allowance 
certificate claiming exemption from withholding in the manner described 
in forms, instructions, publications, and other guidance prescribed by 
the Commissioner.
    (e) Change of status which affects next calendar year--(1) General 
rule. If, on any day during the calendar year, the withholding allowance 
to which the employee will be, or may reasonably be expected to be, 
entitled under Sec.  31.3402(f)(1)-1(b) for the next calendar year, but 
not for the current calendar year, decreases in the manner prescribed in 
paragraph (b)(2) of this section, the employee must furnish a new 
withholding allowance certificate claiming the withholding allowance the 
employee is entitled to under Sec.  31.3402(f)(1)-1(b) to take effect in 
the next calendar year by the later of December 1 of the calendar year 
of the year in which the change occurs or within 10 days after the 
change occurs, unless paragraph (e)(2) of this section applies to the 
employee.
    (2) Exception. If one or more of the changes in paragraph (b)(2) of 
this section occurs, but the total effect of the changes together with 
any other changes affecting the employee's anticipated tax liability 
under subtitle A is not anticipated to result in an amount of tax to be 
deducted and withheld from the employee's wages under section 3402 for 
the employee's next year that is less than the employee's anticipated 
tax liability under subtitle A, the employee is not required to furnish 
a new withholding allowance certificate.
    (f) Special rules--(1) Employer requests. Before December 1 of each 
year, every employer should request each employee to furnish a new 
withholding allowance certificate for the next calendar year, in the 
event of a change to the employee's withholding allowance.
    (2) Social security account numbers. Every individual to whom a 
social security number has been assigned must include such number on any 
withholding allowance certificate furnished to an employer. An employee 
may not use a truncated social security number (see Sec.  301.6109-4 of 
this chapter) in completing the withholding allowance certificate. For 
provisions relating to the obtaining of an account number from the 
Social Security Administration, see Sec.  31.6011(b)-2.

[[Page 219]]

    (3) Invalid withholding allowance certificates--(i) General rule. 
Any alteration of or unauthorized addition to a withholding allowance 
certificate causes such certificate to be invalid; see Sec.  
31.3402(f)(5)-1(b) for the definitions of alteration and unauthorized 
addition. Any withholding allowance certificate which the employee 
clearly indicates to be false by an oral statement or by a written 
statement (other than one made on the withholding allowance certificate 
itself) made by the employee to the employer on or before the date on 
which the employee furnishes such certificate is also invalid. For 
purposes of the preceding sentence, the term ``employer'' includes any 
individual authorized by the employer either to receive withholding 
allowance certificates, to make withholding computations, or to make 
payroll distributions.
    (ii) Employer disregard of invalid withholding allowance 
certificate. If an employer receives an invalid withholding allowance 
certificate, the employer must disregard it for purposes of computing 
withholding. The employer must inform the employee who furnished the 
certificate that it is invalid and must request another withholding 
allowance certificate from the employee. If the employee who furnished 
the invalid certificate fails to comply with the employer's request, the 
employer must treat the employee as single but having the withholding 
allowance provided by the forms, instructions, publications, and other 
guidance prescribed by the Commissioner. If, however, a prior 
certificate is in effect with respect to the employee, the employer must 
continue to withhold in accordance with the prior certificate.
    (g) Submission of certain withholding allowance certificates and 
notice of maximum withholding allowance permitted--(1) Submission of 
certain withholding allowance certificates--(i) In general. An employer 
must submit to the Internal Revenue Service (IRS) a copy of any 
currently effective withholding allowance certificate as directed in a 
written notice to the employer from the IRS or as directed in published 
guidance.
    (A) Notice to submit withholding allowance certificates. A notice to 
the employer to submit withholding allowance certificates may relate 
either to one or more named employees, to one or more reasonably 
segregable units of the employer, or to withholding allowance 
certificates under certain specified criteria. The notice will designate 
the IRS office to which the copies of the withholding allowance 
certificates must be submitted. Alternatively, upon notice from the IRS, 
the employer must make available for inspection by an IRS employee 
withholding allowance 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 allowance certificates 
under certain specified criteria.
    (B) Published guidance. Employers may also be required to submit 
copies of withholding allowance certificates under certain specified 
criteria when directed to do so by the IRS in published guidance in the 
Internal Revenue Bulletin (see Sec.  601.601(d)(2) of this chapter).
    (ii) Withholding after submission of withholding allowance 
certificate. After a copy of a withholding allowance certificate has 
been submitted to the IRS under this paragraph (g)(1), the employer must 
withhold tax on the basis of the withholding allowance certificate, if 
the withholding allowance certificate meets the requirements of Sec.  
31.3402(f)(5)-1. However, the employer may not withhold on the basis of 
the withholding allowance certificate if the certificate must be 
disregarded based on a notice of the maximum withholding allowance 
permitted under the provisions of paragraph (g)(2) of this section.
    (2) Notice of the maximum withholding allowance permitted--(i) 
Notice to employer. The IRS may notify the employer in writing that the 
employee is not entitled to claim a complete exemption from withholding 
or more than the maximum withholding allowance specified by the IRS in 
the written notice. The notice will also specify the applicable filing 
status for purposes of calculating the required amount of withholding. 
The notice will specify

[[Page 220]]

the IRS office to be contacted for further information. The notice of 
maximum withholding allowance permitted may be issued if--
    (A) The IRS determines that a copy of a withholding allowance 
certificate submitted under paragraph (g)(1) of this section or 
otherwise provided to the IRS includes 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, 
withholding allowances, or a specified withholding allowance.
    (ii) Notice to employee. If the IRS provides a notice to the 
employer under this paragraph (g)(2), the IRS will also provide the 
employer with a similar notice for the employee (employee notice) that 
identifies the maximum withholding allowance permitted and specifies the 
filing status to be used for calculating the required amount of 
withholding for the employee. The employee notice will indicate the 
process by which the employee can provide additional information to the 
IRS for purposes of determining the appropriate withholding allowance 
and/or modifying the specified filing status. The IRS will also mail a 
similar 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. If the IRS is unable to determine a last 
known address for the employee, the IRS will use other available 
information as appropriate to mail the notice to the employee.
    (iii) Requirement to furnish. If the employee is employed by the 
employer as of the date of the notice, the employer must furnish the 
employee notice to the employee within 10 business days of receipt. The 
employer may follow any reasonable business practice to furnish the copy 
of the notice to the employee. For purposes of this paragraph 
(g)(2)(iii), the determination of whether an employee is employed as of 
the date of the notice is based on all the facts and circumstances, 
including whether the employer has treated the employment relationship 
as terminated for other purposes. An employee who is not performing 
services for the employer as of the date of the notice is employed by 
the employer as of the date of the notice for purposes of this paragraph 
(g)(2)(iii) if--
    (A) The employer pays wages with respect to prior employment to the 
employee subject to income tax withholding on or after the date 
specified in the notice;
    (B) The employer reasonably expects the employee to resume the 
performance of services for the employer within twelve months of the 
date of the notice; or
    (C) The employee is on a bona fide leave of absence and either the 
period of such leave does not exceed twelve months or the employee 
retains a right to reemployment with the employer under an applicable 
statute or by contract.
    (iv) Requirement to withhold based on the notice. If the employer is 
required to furnish the employee notice to the employee under paragraph 
(g)(2)(iii) of this section, then the employer must withhold tax on the 
basis of the maximum withholding allowance and the filing status 
specified in the notice for any wages paid after the date specified in 
the notice, except as provided in paragraphs (g)(2)(v) through (ix) of 
this section. 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. If the notice was 
provided to the employer based on computational procedures applicable to 
a withholding allowance certificate that was in effect on December 31, 
2019 or earlier, the employer may comply with the requirement in this 
paragraph (g)(2)(iv) to withhold on the basis of the notice by 
implementing the maximum withholding allowance and filing status 
permitted by using the computational bridge entries as set forth in 
forms, instructions, publications, and other guidance prescribed by the 
Commissioner to calculate withholding for a withholding

[[Page 221]]

allowance certificate that was in effect on December 31, 2019 or 
earlier.
    (v) Employment resumes after twelve months. If the employer is 
required to furnish the employee notice to the employee only pursuant to 
paragraph (g)(2)(iii)(B) of this section and the employee resumes the 
performance of services for the employer more than 12 months after the 
date of the notice, then the employer is not required to withhold based 
on the notice.
    (vi) Requirement to withhold based on an existing Form W-4. If a 
withholding allowance certificate is in effect with respect to the 
employee before the employer receives a notice of the maximum 
withholding allowance permitted under this paragraph (g)(2), the 
employer must continue to withhold tax in accordance with the existing 
withholding allowance certificate, rather than on the basis of the 
notice, if the existing withholding allowance certificate does not claim 
complete exemption from withholding and claims a filing status, a 
withholding allowance, and any additional amount under Sec.  31.3402(i)-
1(a)(1) and (2) that results in more withholding than would result from 
applying the filing status and withholding allowance specified in the 
notice.
    (vii) Modification notice. After issuing the notice specifying the 
maximum withholding allowance permitted and the filing status, the IRS 
may issue a subsequent notice to the employer and the employee that 
modifies the original notice (modification notice). The modification 
notice may change the filing status and/or the withholding allowance 
permitted. The employer must withhold based on the modification notice 
as of the date specified in the modification notice. If the modification 
notice was provided to the employer based on computational procedures 
applicable to a withholding allowance certificate that was in effect on 
December 31, 2019 or earlier, the employer may comply with the 
requirement in this paragraph (g)(2)(vii) to withhold on the basis of 
the modification notice by implementing the maximum withholding 
allowance and filing status permitted by using the optional 
computational bridge entries as set forth in forms, instructions, 
publications, and other guidance prescribed by the Commissioner to 
calculate withholding for a withholding allowance certificate that was 
in effect on December 31, 2019 or earlier.
    (viii) Requirement to withhold after termination of employment. If 
the employee is employed as of the date of the notice under paragraph 
(g)(2)(iii) of this section but the employer or employee terminates the 
employment relationship after the date of the notice, the employer must 
continue to withhold based on the maximum withholding allowance and the 
filing status specified in the notice or a modification notice if any 
wages subject to income tax withholding are paid with respect to the 
prior employment after such date. Furthermore, the employer must 
withhold based on the notice or modification notice if the employee 
resumes an employment relationship with the employer within 12 months 
after the termination of the employment relationship. Whether the 
employment relationship is terminated is based on all the facts and 
circumstances.
    (ix) Requirement to withhold based on new Form W-4. The employee may 
furnish a new withholding allowance certificate after the employer 
receives a notice or modification notice from the IRS of the maximum 
withholding allowance permitted under this paragraph (g)(2).
    (A) Employee requests more withholding. If the employee furnishes a 
new withholding allowance certificate after the employer receives the 
notice or modification notice, the employer must withhold tax on the 
basis of that new certificate only if the new certificate does not claim 
complete exemption from withholding and claims a filing status, a 
withholding allowance, and any additional amount under Sec.  31.3402(i)-
1(a)(1) and (2) that results in more withholding than would result under 
the notice or modification notice.
    (B) Employee requests less withholding. If the employee furnishes a 
new withholding allowance certificate after the employer receives the 
notice or modification notice, the employer must disregard the new 
certificate and withhold on the basis of the notice or modification 
notice if the employee claims

[[Page 222]]

complete exemption from withholding or claims a filing status, a 
withholding allowance, and any additional amount under Sec.  31.3402(i)-
1(a)(1) and (2) that results in less withholding than would result under 
the notice or modification notice. If the employee wants to put a new 
certificate into effect that results in less withholding than that 
required under the notice or modification notice, the employee must 
contact the IRS. The employer must withhold on the basis of the notice 
or modification notice unless the IRS subsequently notifies the employer 
to withhold based 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 allowance certificates, to make withholding 
computations, or to make payroll distributions.
    (4) Examples. The following examples illustrate the rules of this 
section.

    (i) Example 1. Employer U receives a notice from the IRS that 
identifies the maximum withholding allowance permitted and specifies the 
filing status for Employee A. Employee A is not currently performing any 
services for Employer U. However, Employer U is continuing to make 
certain wage payments to Employee A. Employer U must furnish the 
employee notice to Employee A within 10 business days of receipt and 
must withhold based on the notice on any wages paid to Employee A on or 
after the date specified in the notice.
    (ii) Example 2. Employer V receives a notice in October of Year 1 
from the IRS that identifies the maximum withholding allowance permitted 
and specifies the filing status for Employee B. Employee B has not 
performed services for Employer V since August of Year 1. However, since 
Employee B has performed services for Employer V for several years on a 
seasonal basis, Employer V reasonably expects Employee B to resume the 
performance of services for Employer V in June of Year 2, a date that is 
within 12 months of the date of the notice. Employer V is required to 
furnish the notice to Employee B within 10 business days of receipt. 
Employee B does not resume the performance of services with Employer V 
until June of Year 3. Employer V is not required to withhold based on 
the notice.
    (iii) Example 3. Employer W receives a notice from the IRS that 
identifies the maximum withholding allowance permitted and specifies the 
filing status for Employee C. Employee C began a 4-month unpaid 
maternity leave of absence three weeks before Employer W received the 
notice. Employer W must furnish the employee notice to Employee C within 
10 business days of receipt. When her maternity leave ends and Employee 
C resumes performing services for Employer W, Employer W must withhold 
based on the notice.
    (iv) Example 4. Employer X receives a notice from the IRS in Year 1 
that identifies the maximum withholding allowance permitted and 
specifies the filing status for Employee D. Employer X must furnish the 
employee notice to Employee D within 10 business days of receipt and 
withhold based on the notice. In Year 2, Employee D terminates the 
employment relationship. Employee D applies for a different position 
with Employer X and resumes employment 10 months after having left her 
previous position with Employer X. Since Employer X rehired Employee D 
within 12 months after the termination of employment, Employer X must 
withhold based on the notice.
    (v) Example 5. Employer Y receives a notice from the IRS that 
identifies the maximum withholding allowance permitted and specifies the 
filing status for Employee E. Employer Y must furnish the employee 
notice to Employee E within 10 business days of receipt. After receipt 
of this notice, Employee E contacts the IRS and establishes that the 
employee is entitled to claim a modified filing status and withholding 
allowance. Employer Y receives a modification notice from the IRS that 
changes the maximum withholding allowance permitted for Employee E. 
Employer Y must withhold tax based on the modification notice as of the 
date specified in such notice.
    (vi) Example 6. Employer Z pays remuneration to Employee F, a United 
States citizen, for services performed in Country M. Employer Z receives 
a notice from the IRS in Year 1 that identifies the maximum withholding 
allowance permitted and specifies the filing status for Employee F. 
Employer Z must furnish the employee notice to Employee F within 10 
business days of receipt. Employer Z reasonably believes all the 
remuneration paid to Employee F in Year 1 is excluded from Employee F's 
gross income under section 911. Since section 3401(a)(8)(B) excludes 
such remuneration from wages for income tax withholding purposes, 
Employer X does not have to withhold on such remuneration, 
notwithstanding the maximum withholding allowance permitted and filing 
status specified in the notice. In Year 2, Employee F returns to the 
United States to perform services. Employer Z does not reasonably 
believe any part of Employee F's remuneration paid in Year 2 is excluded 
from Employee F's gross income under section 911. Rather, Employer Z 
reasonably believes that remuneration paid to Employee F in Year 2 is 
subject to income tax withholding. Employer Z must withhold on the 
remuneration

[[Page 223]]

paid to Employee F in Year 2 based on the notice.

    (h) Applicability date. The provisions of paragraph (g) of this 
section apply on February 13, 2020. Taxpayers may choose to apply 
paragraph (g) of this section on or after January 1, 2020 and before 
February 13, 2020. For rules that apply under paragraph (g) of this 
section before February 13, 2020, see 26 CFR part 31, revised as of 
April 1, 2020. The provisions of paragraphs (a) through (f) of this 
section apply on and after October 6, 2020. Taxpayers may choose to 
apply the provisions of paragraph (a) through (f) of this section on or 
after January 1, 2020 and before October 6, 2020. For rules that apply 
before October 6, 2020, see 26 CFR part 31, revised as of April 1, 2020.

[T.D. 9924, 85 FR 63028, Oct. 6, 2020]



Sec.  31.3402(f)(3)-1  When withholding allowance certificate takes effect.

    (a) No withholding allowance certificate on file. A withholding 
allowance certificate furnished to the employer in any case in which no 
previous withholding allowance certificate is in effect with such 
employer, takes effect as of the beginning of the first payroll period 
ending, or the first payment of wages made without regard to a payroll 
period, on or after the date on which such certificate is so furnished.
    (b) Withholding allowance certificate on file. Except as provided in 
paragraph (c) of this section, a withholding allowance certificate 
furnished to the employer in any case in which a previous withholding 
allowance certificate is in effect with such employer takes effect as of 
the beginning of the first payroll period ending (or the first payment 
of wages made without regard to a payroll period) on or after the 30th 
day after the day on which such certificate is so furnished. However, 
the employer may elect to put a withholding allowance certificate into 
effect earlier, beginning with any payment of wages on or after the day 
on which the certificate is so furnished.
    (c) Withholding allowance certificate furnished to take effect in 
next calendar year. A withholding allowance certificate furnished to the 
employer pursuant to section 3402(f)(2)(C) (see Sec.  31.3402(f)(2)-1(e) 
or Sec.  31.3402(l)-1(c)) which effects a change for the next calendar 
year, does not take effect, and may not be made effective, with respect 
to the calendar year in which the certificate is furnished.
    (d) Applicability date. The provisions of this section apply on and 
after October 6, 2020. Taxpayers may choose to apply this section on or 
after January 1, 2020 and before October 6, 2020. For rules that apply 
before October 6, 2020, see 26 CFR part 31, revised as of April 1, 2020.

[T.D. 9924, 85 FR 63031, Oct. 6, 2020]



Sec.  31.3402(f)(4)-1  Effective period of a withholding allowance 
certificate.

    (a) In general. Except as provided in paragraph (b) of this section 
and Sec.  31.3402(f)(2)-1(g)(2), a withholding allowance certificate 
that takes effect under section 3402(f) of the Internal Revenue Code of 
1986 continues in effect with respect to the employee until another 
withholding allowance certificate takes effect under section 3402(f). An 
employer's use of computational bridge entries as set forth in forms, 
instructions, publications, and other guidance prescribed by the 
Commissioner to calculate withholding for a withholding allowance 
certificate that was in effect on December 31, 2019 or earlier continues 
in effect an employee's withholding allowance certificate under this 
paragraph (a).
    (b) Certifications under section 3402(n) eliminating requirement of 
withholding. The certifications described in Sec.  31.3402(n)-1(a) made 
by an employee with respect to the employee's preceding taxable year and 
current taxable year are effective until either a new withholding 
allowance certificate furnished by the employee takes effect or the 
existing certificate that relies upon such certifications expires. If an 
employee's certificate expires and the employee fails to furnish a valid 
withholding allowance certificate, the employee will be treated as 
single but having the withholding allowance provided in forms, 
instructions, publications, and other guidance prescribed by the 
Commissioner. In no case shall a withholding allowance certificate that 
relies upon such certifications be effective with respect to any payment 
of wages made to an employee:

[[Page 224]]

    (1) In the case of an employee whose liability for tax under 
subtitle A of the Code is determined on a calendar year basis, after 
February 15 of the calendar year following the estimation year; or
    (2) In the case of an employee to whom paragraph (b)(1) of this 
section does not apply, after the 15th day of the 2nd calendar month 
following the last day of the estimation year.
    (c) Estimation year. The estimation year is the taxable year 
including the day on which the employee furnishes the withholding 
allowance certificate to the employer, except that if the employee 
furnishes the withholding allowance certificate to the employer and 
specifies on the certificate that the certificate is not to take effect 
until a specified future date, the estimation year will be the taxable 
year including that specified future date.
    (d) Applicability to notice of maximum withholding allowance. If a 
withholding allowance certificate is no longer in effect because of the 
application of Sec.  31.3402(f)(2)-1(g)(2), the employer is no longer 
required to withhold pursuant to any notice under Sec.  31.3402(f)(2)-
1(g)(2), and the employee fails to furnish the employer a valid 
withholding allowance certificate, then the employee will be treated as 
single but having the withholding allowance provided in forms, 
instructions, publications, and other guidance prescribed by the 
Commissioner, in accordance with Sec.  31.3402(f)(2)-1(a)(4).
    (e) Applicability date. The provisions of this section apply on and 
after October 6, 2020. Taxpayers may choose to apply this section on or 
after January 1, 2020 and before October 6, 2020. For rules that apply 
before October 6, 2020, see 26 CFR part 31, revised as of April 1, 2020.

[T.D. 9924, 85 FR 63031, Oct. 6, 2020]



Sec.  31.3402(f)(5)-1  Form and contents of withholding allowance
certificates.

    (a) In general--(1) Form W-4. Form W-4, ``Employee's Withholding 
Certificate,'' previously called ``Employee's Withholding Allowance 
Certificate,'' is the form prescribed for the withholding allowance 
certificate required to be furnished under section 3402(f)(2). A 
withholding allowance certificate must be prepared in accordance with 
the instructions applicable thereto and must set forth fully and clearly 
the information that is called for therein. In lieu of the prescribed 
form, an employer may prepare and provide to employees a form the 
provisions of which are identical to those of the prescribed form, but 
only if the employer also provides employees with all the tables, 
instructions, and worksheets set forth in the Form W-4 in effect at that 
time, and only if the employer complies with all revenue procedures and 
other guidance prescribed by the Commissioner relating to substitute 
forms in effect at that time.
    (2) Employee substitute forms. Employers are prohibited from 
accepting a substitute form developed by an employee, and an employee 
furnishing such form will be treated as failing to furnish a withholding 
allowance certificate. For further guidance regarding the employer's 
obligations when an employee is treated as failing to furnish a 
withholding allowance certificate, see Sec.  31.3402(f)(2)-1.
    (3) Current year revision. Only the Form W-4 revision in effect for 
a calendar year may be furnished by an employee in that calendar year 
and given legal effect by the employer, unless provided otherwise in 
forms, instructions, publications, or other guidance, except that an 
employee may furnish the Form W-4 revision for the following calendar 
year in the current calendar year to take effect for the following 
calendar year.
    (4) Examples. The following examples illustrate the rule in 
paragraph (a)(3) of this section.
    (i) Example 1. Employee A furnishes a 2019 Form W-4 to Employer X in 
calendar year 2020. The 2019 Form W-4 furnished by Employee A in 2020 
has no legal effect. Employer X must disregard this 2019 Form W-4 
furnished in 2020 and continue to withhold based on a previously 
furnished Form W-4 that has been in effect for Employee A, if any. If 
Employee A has no Form W-4 in effect, she is treated as having no valid 
withholding allowance certificate in effect.
    (ii) Example 2. Employee A furnishes a 2021 Form W-4 to Employer X 
in calendar year 2020 to take effect in calendar year 2021. The 2021 
Form W-4 is

[[Page 225]]

valid, and the employer must put this form into effect in 2021 in 
accordance with the timing rules in Sec.  31.3402(f)(3)-1.
    (b) Invalid Form W-4. A Form W-4 does not meet the requirements of 
section 3402(f)(5) or this section and is invalid if it includes an 
alteration or unauthorized addition. For purposes of Sec.  
31.3402(f)(2)-1(f)(3) and this paragraph (b)--
    (1) An alteration of a withholding allowance certificate is any 
deletion of the language of the jurat or other similar provision of such 
certificate by which the employee certifies or affirms the correctness 
of the completed certificate, or any material defacing of such 
certificate; and
    (2) An unauthorized addition to a withholding allowance certificate 
is any writing on such certificate other than the entries requested on 
the Form W-4 (e.g., name, address, and filing status) or permitted by 
instructions or other guidance. For purposes of this paragraph (b)(2), 
an entry claiming exemption from withholding that is accompanied by 
other entries on the Form W-4 (other than the employee's filing status) 
that could potentially affect the amount of income tax deducted and 
withheld from the employee's pay is an unauthorized addition; 
consequently, the employer must treat the Form W-4 as an invalid Form W-
4.
    (c) Electronic Form W-4--(1) In general. An employer may establish a 
system for its employees to furnish withholding allowance certificates 
electronically.
    (2) Requirements--(i) In general. The electronic system must ensure 
that the information received is the information sent and must document 
all occasions of employee access that result in the furnishing of a Form 
W-4. In addition, the design and operation of the electronic system, 
including access procedures, must make it reasonably certain that the 
person accessing the system and furnishing the Form W-4 is the employee 
identified in the form.
    (ii) Information to employer. The electronic furnishing must provide 
the employer with exactly the same information as the current version of 
the official Internal Revenue Service (IRS) Form W-4 available on 
irs.gov.
    (iii) Information to employee. The electronic Form W-4 system must 
provide the employee with the same information as the current version of 
the official IRS Form W-4 available on irs.gov and must satisfy any 
requirements specified by the IRS in forms, publications, and other 
guidance. The electronic Form W-4 system must provide employees the 
ability to claim exemption from withholding under section 3402(n) and 
must include the two certifications described in Sec.  31.3402(n)-1(a).
    (iv) Jurat and signature requirements. The electronic furnishing 
must be signed by the employee under penalties of perjury.
    (A) Jurat. The jurat (perjury statement) must contain the language 
that appears on the paper Form W-4. The electronic program must inform 
the employee that he or she must make the declaration set forth in the 
jurat and that the declaration is made by signing the Form W-4. The 
instructions and the language of the jurat must immediately follow the 
employee's income tax withholding selections and immediately precede the 
employee's electronic signature.
    (B) Electronic signature. The electronic signature must identify the 
employee furnishing the electronic Form W-4 and authenticate and verify 
the furnishing. For purposes of this paragraph (c)(2)(iv)(B), the terms 
``authenticate'' and ``verify'' have the same meanings as they do when 
applied to a written signature on a paper Form W-4. An electronic 
signature can be in any form that satisfies the foregoing requirements. 
The electronic signature must be the final entry in the employee's Form 
W-4 furnished electronically.
    (v) Copies of electronic Forms W-4. Upon request by the Internal 
Revenue Service, the employer must supply a hard copy of the electronic 
Form W-4 and a statement that, to the best of the employer's knowledge, 
the electronic Form W-4 was furnished by the named employee. The 
hardcopy of the electronic Form W-4 must provide exactly the same 
information as, but need not be a facsimile of, the paper Form W-4.
    (d) Applicability date. The provisions of paragraphs (a)(3) and (4) 
of this section apply on and after March 16, 2020. Taxpayers may choose 
to apply the

[[Page 226]]

provisions of paragraphs (a)(3) and (4) of this section on or after 
January 1, 2020 and before March 16, 2020. For the provision of 
paragraph (a)(3) of this section that applies before March 16, 2020, see 
26 CFR part 31, revised as of April 1, 2020. The provisions of 
paragraphs (a)(1) and (2), (b), and (c) of this section apply on and 
after October 6, 2020. Taxpayers may choose to apply paragraphs (a)(1) 
and (2), (b), and (c) of this section on or after January 1, 2020 and 
before October 6, 2020. For rules that apply before October 6, 2020, see 
26 CFR part 31, revised as of April 1, 2020.

[T.D. 9924, 85 FR 63032, Oct. 6, 2020]



Sec.  31.3402(f)(6)-1  Withholding exemptions for nonresident alien
individuals.

    (a) In general. (1) A nonresident alien individual (other than a 
nonresident alien individual treated as a resident under section 6013(g) 
or (h)) subject to withholding under section 3402 is on any one day 
entitled to the number of withholding exemptions corresponding to the 
number of personal exemptions to which the nonresident alien is entitled 
on such day by reason of the application of section 873(b)(3) or section 
876, whichever applies. Thus, a nonresident alien individual who is not 
a resident of Canada or Mexico and who is not a resident of Puerto Rico 
during the entire taxable year, is allowed only one withholding 
exemption.
    (2) The withholding exemption in paragraph (a) of this section and 
section 3402(f)(6) is the deduction allowed to the nonresident alien 
individual under section 151.
    (b) Additional guidance. A nonresident alien individual (other than 
a nonresident alien individual treated as a resident under section 
6013(g) or (h)) subject to withholding must follow administrative 
guidance such as forms, instructions, publications, or other guidance 
prescribed by the Commissioner to determine the nonresident alien's 
withholding allowance.
    (c) Applicability date. The provisions of this section apply on and 
after October 6, 2020. Taxpayers may choose to apply this section on or 
after January 1, 2020 and before October 6, 2020. For rules that apply 
before October 6, 2020, see 26 CFR part 31, revised as of April 1, 2020.

[T.D. 9924, 85 FR 63032, Oct. 6, 2020]



Sec.  31.3402(g)-1  Supplemental wage payments.

    (a) In general and withholding on supplemental wages in excess of 
$1,000,000--(1) Determination of supplemental wages and regular wages--
(i) Supplemental wages. An employee's remuneration may consist of 
regular wages and supplemental wages. Supplemental wages are all wages 
paid by an employer that are not regular wages. Supplemental wages 
include wage payments made without regard to an employee's payroll 
period, but also may include payments made for a payroll period. 
Examples of wage payments that are included in supplemental wages 
include reported tips (except as provided in paragraph (a)(1)(v) of this 
section), overtime pay (except as provided in paragraph (a)(1)(iv) of 
this section), bonuses, back pay, commissions, wages paid under 
reimbursement or other expense allowance arrangements, nonqualified 
deferred compensation includible in wages, wages paid as noncash fringe 
benefits, sick pay paid by a third party as an agent of the employer, 
amounts that are includible in gross income under section 409A, income 
recognized on the exercise of a nonstatutory stock option, wages from 
imputed income for health coverage for a non-dependent, and wage income 
recognized on the lapse of a restriction on restricted property 
transferred from an employer to an employee. Amounts that are described 
as supplemental wages in this definition are supplemental wages 
regardless of whether the employer has paid the employee any regular 
wages during either the calendar year of the payment or any prior 
calendar year. Thus, for example, if the only wages that an employer has 
ever paid an employee are payments of noncash fringe benefits and income 
recognized on the exercise of a nonstatutory stock option, such payments 
are classified as supplemental wages.
    (ii) Regular wages. As distinguished from supplemental wages, 
regular wages are amounts that are paid at a regular hourly, daily, or 
similar periodic rate (and not an overtime rate) for

[[Page 227]]

the current payroll period or at a predetermined fixed determinable 
amount for the current payroll period. Thus, among other things, wages 
that vary from payroll period to payroll period (such as commissions, 
reported tips, bonuses, or overtime pay) are not regular wages, except 
that an employer may treat tips as regular wages under paragraph 
(a)(1)(v) of this section and an employer may treat overtime pay as 
regular wages under paragraph (a)(1)(iv) of this section.
    (iii) Amounts that are not wages subject to income tax withholding. 
If an amount of remuneration is not wages subject to income tax 
withholding, it is neither regular wages nor supplemental wages. Thus, 
for example, income from the disqualifying dispositions of shares of 
stock acquired pursuant to the exercise of statutory stock options, as 
described in section 421(b), is not included in regular wages or 
supplemental wages.
    (iv) Optional treatment of overtime pay as regular wages. Employers 
may treat overtime pay as regular wages rather than supplemental wages. 
For this purpose, overtime pay is defined as any pay required to be paid 
pursuant to federal (Fair Labor Standards Act), state, or local 
governmental laws at a rate higher than the normal wage rate of the 
employee because the employee has worked hours in excess of the number 
of hours deemed to constitute a normal work week or work day.
    (v) Optional treatment of tips as regular wages. Employers may treat 
tips as regular wages rather than supplemental wages. For this purpose, 
tips are defined as including all tips which are reported to the 
employer pursuant to section 6053.
    (vi) Amount to be withheld. The calculation of the amount of the 
income tax withholding with respect to supplemental wage payments is 
provided for under paragraph (a)(2) through (a)(7) of this section.
    (2) Mandatory flat rate withholding. If a supplemental wage payment, 
when added to all supplemental wage payments previously made by one 
employer (as defined in paragraph (a)(3) of this section) to an employee 
during the calendar year, exceeds $1,000,000, the rate used in 
determining the amount of withholding on the excess (including any 
excess which is a portion of a supplemental wage payment) shall be equal 
to the highest rate of tax applicable under section 1 for such taxable 
years beginning in such calendar year. This flat rate shall be applied 
without regard to whether income tax has been withheld from the 
employee's regular wages, and without regard to any entries on Form W-4, 
including whether the employee has claimed exempt status on Form W-4 or 
whether the employee has requested additional withholding on Form W-4, 
and without regard to the withholding method used by the employer. 
Withholding under this paragraph (a)(2) is mandatory flat rate 
withholding.
    (3) Certain persons treated as one employer--(i) Persons under 
common control. For purposes of paragraph (a)(2) of this section, all 
persons treated as a single employer under subsection (a) or (b) of 
section 52 shall be treated as one employer.
    (ii) Agents. For purposes of paragraph (a)(2) of this section, any 
payment made to an employee by a third party acting as an agent for the 
employer (regardless of whether such person shall have been designated 
as an agent pursuant to section 3504) shall be considered as made by the 
employer except as provided in paragraph (a)(4)(iii) of this section.
    (4) Treatment of certain items in determining applicability of 
mandatory flat rate withholding--(i) Optional treatment of compensation 
not subject to income tax withholding. For purposes of paragraph (a)(2) 
of this section, employers may determine whether an employee has 
received $1,000,000 of supplemental wages during a calendar year by 
including in supplemental wages amounts includible in income but not 
subject to withholding that are reported as wages, tips, other 
compensation on Form W-2.
    (ii) Allocation of salary reduction deferrals. In allocating salary 
reduction deferral amounts excludable from wages for purposes of 
determining whether the employer has paid $1,000,000 of supplemental 
wages under paragraph (a)(2) of this section, employers must allocate 
such salary reduction deferral amounts to the type of compensation 
(i.e., gross amounts of regular wage

[[Page 228]]

payments or gross amounts of supplemental wage payments) actually being 
deferred.
    (iii) Optional de minimis exception for certain payments by agents. 
For purposes of paragraph (a)(2) of this section, if an agent makes 
total wage payments (including regular wages and supplemental wages) of 
less than $100,000 to an individual during any calendar year, an 
employer or other agent may disregard such payments in determining 
whether the individual has received $1,000,000 of supplemental wages 
during the calendar year, and such agent need not consider whether the 
individual has received other supplemental wages in determining the 
amount of income tax to be withheld from the payments. An employer may 
not avail itself of this exception if the employer is making payments to 
the employee using five or more agents and a principal effect of such 
use of agents is to reduce the applicability of mandatory flat rate 
withholding to the employee. For purposes of paragraph (a)(2) of this 
section, if an agent makes total wage payments of $100,000 or more to an 
individual during any calendar year, the entire amount of supplemental 
wages paid by the agent during the calendar year to the employee must be 
taken into account (by other agents of the employer that make total wage 
payments to the employee of $100,000 or more, by the agent, and by the 
employer for which the agent is acting) in determining whether the 
employee has received $1,000,000 of supplemental wages.
    (iv) Treatment of supplemental wage payment exceeding $1,000,000 
cumulative threshold. In the case of a supplemental wage payment that, 
when added to all supplemental wage payments previously made by the 
employer to the employee in the calendar year, results in the employee 
having received in excess of $1,000,000 supplemental wages for the 
calendar year, the employer is required to impose withholding under 
paragraph (a)(2) of this section only on the portion of the payment that 
is in excess of $1,000,000 (taking into account all prior supplemental 
wage payments during the year). However, an employer may subject the 
entire amount of such supplemental wage payment to the withholding 
imposed by paragraph (a)(2) of this section.
    (5) Withholding on supplemental wages that are not subject to 
mandatory flat rate withholding. To the extent that paragraph (a)(2) of 
this section does not apply to a supplemental wage payment (or a portion 
of a payment), the amount of the tax required to be withheld on the 
supplemental wages when paid shall be determined under the rules 
provided in paragraphs (a)(6) and (7) of this section.
    (6) Aggregate procedure for withholding on supplemental wages--(i) 
Applicability. The employer is required to determine withholding upon 
supplemental wages under this paragraph (a)(6) if paragraph (a)(2) of 
this section does not apply to the payment or portion of the payment and 
if paragraph (a)(7) of this section may not be used with respect to the 
payment. In addition, employers have the option of using this paragraph 
(a)(6) to calculate withholding with respect to a supplemental wage 
payment, if paragraph (a)(2) of this section does not apply to the 
payment, but if paragraph (a)(7) of this section could be used with 
respect to the payment.
    (ii) Procedure. Provided this procedure applies under paragraph 
(a)(6)(i) of this section, the supplemental wages, if paid concurrently 
with wages for a payroll period, are aggregated with the wages paid for 
such payroll period. If not paid concurrently, the supplemental wages 
are aggregated with the wages paid or to be paid within the same 
calendar year for the last preceding payroll period or for the current 
payroll period, if any. The amount of tax to be withheld is determined 
as if the aggregate of the supplemental wages and the regular wages 
constituted a single wage payment for the regular payroll period. The 
withholding method used by the employer with respect to regular wages 
would then be used to calculate the withholding on this single wage 
payment and the employer would take into consideration the Form W-4 
submitted by the employee. This procedure is the aggregate procedure for 
withholding on supplemental wages.
    (7) Optional flat rate withholding on supplemental wages--(i) 
Applicability.

[[Page 229]]

The employer may determine withholding upon supplemental wages under 
this paragraph (a)(7) if three conditions are met--
    (A) Paragraph (a)(2) of this section does not apply to the payment 
or the portion of the payment;
    (B) The supplemental wages are either not paid concurrently with 
regular wages or are separately stated on the payroll records of the 
employer; and
    (C) Income tax has been withheld from regular wages of the employee 
during the calendar year of the payment or the preceding calendar year.
    (ii) Procedure. The determination of the tax to be withheld under 
paragraph (a)(7)(iii) of this section is made without reference to any 
payment of regular wages and without regard to any entries on the Form 
W-4 other than the entry claiming exempt status on Form W-4 (see Sec.  
31.3402(n)-1(b)). Withholding under this procedure is optional flat rate 
withholding.
    (iii) Rate applicable for purposes of optional flat rate 
withholding. Provided the conditions of paragraph (a)(7)(i) of this 
section have been met, the employer may determine the tax to be 
withheld--
    (A) From supplemental wages paid after April 30, 1966, and prior to 
January 1, 1994, by using a flat percentage rate of 20 percent;
    (B) From supplemental wages paid after December 31, 1993, and on or 
before August 6, 2001, by using a flat percentage rate of 28 percent;
    (C) From supplemental wages paid after August 6, 2001, and on or 
before December 31, 2001, by using a flat percentage rate of 27.5 
percent;
    (D) From supplemental wages paid after December 31, 2001, and on or 
before May 27, 2003, by using a flat percentage rate of 27 percent;
    (E) From supplemental wages paid after May 27, 2003, and on or 
before December 31, 2004, by using a flat percentage rate of 25 percent; 
and
    (F) From supplemental wages paid after December 31, 2004, by using a 
flat percentage rate of 28 percent (or the corresponding rate in effect 
under section 1(i)(2) for taxable years beginning in the calendar year 
in which the payment is made).
    (8) Examples. For purposes of these examples, it is assumed that the 
rate for purposes of mandatory flat rate withholding for 2007 is 35 
percent, and the rate for purposes of optional flat rate withholding for 
2007 is 25 percent. The following examples illustrate this paragraph 
(a):

    Example 1. (i) Employee A is an employee of three entities (X, Y, 
and Z) that are treated as a single employer under section 52(a) or (b). 
In 2007, X pays regular wages to A on a monthly payroll period for 
services performed for X, Y, and Z. The regular wages are paid on the 
third business day of each month. Income tax is withheld from the 
regular wages of A during the year. A receives only the following 
supplemental wage payments during 2007 in addition to the regular wages 
paid by X--
(A) A bonus of $600,000 from X on March 15, 2007;
(B) A bonus of $2,300,000 from Y on November 15, 2007; and
(C) A bonus of $10,000 from Z on December 31, 2007.
    (ii) In this Example 1, the $600,000 bonus from X is a supplemental 
wage payment. The withholding on the $600,000 payment from X could be 
determined under either paragraph (a)(6) or (7) of this section because 
income tax has been withheld from the regular wages of A. If X elects to 
use the aggregate procedure under paragraph (a)(6) of this section, the 
amount of withholding on the supplemental wages would be based on 
aggregating the supplemental wages and the regular wages paid by X 
either for the current or last payroll period and treating the total of 
the regular wages paid by X and the $600,000 supplemental wages as a 
single wage payment for a regular payroll period. The withholding method 
used by the employer with respect to regular wages would then be used to 
calculate the withholding on this single wage payment, and the employer 
would take into consideration the Form W-4 furnished by the employee.
    (iii) In this Example 1, the $2,300,000 bonus from Y is a 
supplemental wage payment. To calculate the withholding on the 
$2,300,000 supplemental wage payment from Y, the $600,000 of 
supplemental wages X has already paid to A in 2007 must be taken into 
account because X and Y are treated as the same employer under section 
52(a) or (b). Thus, the withholding on the first $400,000 of the payment 
(i.e., the cumulative supplemental wages not in excess of $1,000,000) is 
computed separately from the withholding on the remaining $1,900,000 of 
the payment (i.e., the amount of the cumulative supplemental wages in 
excess of $1,000,000). With respect to the first $400,000, the 
withholding could be computed under either paragraph (a)(6) or

[[Page 230]]

(a)(7) of this section, because income tax has been withheld from the 
regular wages of the employee. If Y elected to withhold income tax using 
paragraph (a)(7) of this section, Y would withhold on the $400,000 
component at 25 percent (pursuant to paragraph (a)(7)(iii)(F) of this 
section), which would result in $100,000 tax withheld. The remaining 
$1,900,000 of the bonus would be subject to mandatory flat rate 
withholding at the maximum rate of tax in effect under section 1 for 
2007 (35%) without regard to the Form W-4 submitted by A. The amount 
withheld from the $1,900,000 would be $665,000. The withholding on the 
first component and the withholding on the second component then would 
be added together to determine the total income tax withholding on the 
supplemental wage payment from Y. Alternatively, under paragraph 
(a)(4)(iv) of this section, Y could treat the entire $2,300,000 bonus 
payment as subject to mandatory flat rate withholding at the maximum 
rate of tax (35%), in which case the amount to be withheld would be 35 
percent of $2,300,000, or $805,000.
    (iv) The $10,000 bonus paid from Z is also a supplemental wage 
payment. To calculate the withholding on the $10,000 bonus, the 
$2,900,000 in cumulative supplemental wages already paid to A in 2007 by 
X and Y must be taken into account because X, Y, and Z are treated as a 
single employer. The entire $10,000 bonus would be subject to mandatory 
flat rate withholding at the maximum rate of tax in effect under section 
1 for 2007. The income tax required to be withheld on this payment would 
be 35 percent of $10,000 or $3,500.

    Example 2. Employees B and C work for employer M. Each employee 
receives a monthly salary of $3,000 in 2007. As a result of the 
withholding allowances claimed by B, there has been no income tax 
withholding on the regular wages M pays to B during either 2007 or 2006. 
In contrast, M has withheld income tax from regular wages M pays to C 
during 2007. Together with the monthly salary check paid in December 
2007 to each employee, M includes a bonus of $2,000, which is the only 
supplemental wage payment each employee receives from M in 2007. The 
bonuses are separately stated on the payroll records of M. Because M has 
withheld no income tax from B's regular wages during either the calendar 
year of the $2,000 bonus or the preceding calendar year, M cannot use 
optional flat rate withholding provided under paragraph (a)(7) of this 
section to calculate the income tax withholding on B's $2,000 bonus. 
Consequently, M must use the aggregate procedure set forth in paragraph 
(a)(6) of this section to calculate the income tax withholding due on 
the $2,000 bonus to B. With respect to the bonus paid to C, M has the 
option of using either the aggregate procedure provided under paragraph 
(a)(6) of this section or the optional flat rate withholding provided 
under paragraph (a)(7) of this section to calculate the income tax 
withholding due.

    Example 3. (i) Employee D works as an employee of Corporation R. 
Corporations R and T are treated as a single employer under section 
52(a) or (b). R makes regular wage payments to Employee D of $200,000 on 
a monthly basis in 2007, and income tax is withheld from those wages. R 
pays D a bonus for his services as an employee equal to $3,000,000 on 
June 30, 2007. Unrelated company U pays D sick pay as an agent of the 
employer R and such sick pay is supplemental wages pursuant to Sec.  
31.3401(a)-1(b)(8)(i)(b)(2). U pays D $50,000 of sick pay on October 31, 
2007. Corporation T decides to award bonuses to all employees of R and 
T, and pays a bonus of $100,000 to D on December 31, 2007. D received no 
other payments from R, T, or U.
    (ii) In chronological summary, D is paid the following wages other 
than the regular monthly wages paid by R:
(A) June 30, 2007--$3,000,000 (bonus from R);
(B) October 31, 2007--$50,000 (sick pay from U); and
(C) December 31, 2007--$100,000 (bonus from T).
    (iii) In this Example 3, each payment of wages other than the 
regular monthly wage payments from R is considered to be supplemental 
wages for purposes of withholding under Sec.  31.3402(g)-1(a)(2). The 
amount of regular wages from R is irrelevant in determining when 
mandatory flat rate withholding on supplemental wages must be applied.
    (iv) Because income tax has been withheld on D's regular wages, 
income tax may be withheld on $1,000,000 of the $3,000,000 bonus paid on 
June 30, 2007, under either paragraph (a)(6) or (7) of this section. If 
R elects to use optional flat rate withholding provided under paragraph 
(a)(7)(iii)(F) of this section, withholding would be calculated at 25 
percent of the $1,000,000 portion of the payment and would be $250,000.
    (v) Income tax withheld on the following supplemental wage payments 
(or portion of a payment) as follows is required to be calculated at the 
maximum rate in effect under section 1, or 35 percent in 2007--
(A) $2,000,000 of the $3,000,000 bonus paid by R on June 30, 2007; and
(B) all of the $100,000 bonus paid by T on December 31, 2007.
    (vi) Pursuant to paragraph (a)(4)(iii) of this section, because the 
total wage payments made by U, an agent of the employer, to D are less 
than $100,000, U is permitted to determine the amount of income tax to 
be withheld without regard to other supplemental wage payments made to 
the employee. Income tax withholding on the $50,000 in sick pay may be 
determined under either paragraph (a)(6) or (7) of this section.

[[Page 231]]

If U elects to withhold income tax at the flat rate provided under 
paragraph (a)(7)(iii)(F) of this section, withholding on the $50,000 of 
sick pay would be calculated at 25 percent of the $50,000 payment and 
would be $12,500. Alternatively, U may choose to take account of the 
$3,000,000 in supplemental wages paid by the employer during 2007 prior 
to payment of the $50,000 sick pay, and withholding on the $50,000 of 
sick pay could be calculated applying the mandatory flat rate of 35 
percent, resulting in withholding of $17,500 on the $50,000 payment.

    Example 4. (i) Employer J has decided it wants to grant its employee 
B a $1,000,000 net bonus (after withholding) to be paid in 2007. 
Employer J has withheld income tax from the regular wages of the 
employee. Employer J has made no other supplemental wage payments to B 
during the year.
    (ii) This Example 4 requires grossing up the supplemental wage 
payment to determine the gross wages necessary to result in a net 
payment of $1,000,000. If the employer elected to use optional flat rate 
withholding, the first $1,000,000 of the wages would be subject to 25 
percent withholding. However, any wages above that, including amounts 
representing gross-up payments, would be subject to mandatory 35 percent 
withholding. The withholding applicable to the first $1,000,000 (i.e., 
$250,000) would thus be required to be grossed-up at a 35 percent rate 
to determine the gross wage amount in excess of $1,000,000. Thus, the 
wages in excess of $1,000,000 would be equal to $250,000 divided by .65 
(computed by subtracting .35 from 1) or $384,615.38. Thus the total 
supplemental wage payment, taking into account income tax withholding 
only (and not Federal Insurance Contributions Act taxes), to B would be 
$1,384,615.38, and the total withholding with respect to the payment if 
Employer J elected optional flat rate withholding with respect to the 
first $1,000,000, would be $384,615.38.

    (9) Certain noncash payments to retail commission salesmen. For 
provisions relating to the treatment of wages that are not subject to 
paragraph (a)(2) of this section and that are paid other than in cash to 
retail commission salesmen, see Sec.  31.3402(j)-1.
    (10) Alternative methods. The Secretary may provide by publication 
in the Internal Revenue Bulletin (see Sec.  601.601(d)(2)(ii)(b) of this 
chapter) for alternative withholding methods that will allow an employer 
to meet its responsibility for the mandatory flat rate withholding 
required by paragraph (a)(2) of this section.
    (b) Special rule where aggregate withholding exemption exceeds wages 
paid. (1) This rule does not apply to the extent that paragraph (a)(2) 
of this section applies to the supplemental wage payment. If 
supplemental wages are paid to an employee during a calendar year for a 
period which involves two or more consecutive payroll periods, for which 
other wages also are paid during such calendar year, and the aggregate 
of such other wages is less than the aggregate of the amounts determined 
under the table provided in section 3402(b) (1) as the withholding 
exemptions applicable for such payroll periods, the amount of the tax 
required to be withheld on the supplemental wages shall be computed as 
follows:

    Step 1. Determine an average wage for each of such payroll periods 
by dividing the sum of the supplemental wages and the wages paid for 
such payroll periods by the number of such payroll periods.
    Step 2. Determine a tax for each payroll period as if the amount of 
the average wage constituted the wages paid for such payroll period.
    Step 3. From the sum of the amounts of tax determined in Step 2 
subtract the total amount of tax withheld, or to be withheld, from the 
wages, other than the supplemental wages, for such payroll periods. The 
remainder, if any shall constitute the amount of the tax to be withheld 
upon the supplemental wages.
    Example. An employee has a weekly payroll period ending on Saturday 
of each week, the wages for which are paid on Friday of the succeeding 
week. On the 10th day of each month he is paid a bonus based upon 
production during the payroll periods for which wages were paid in the 
preceding month. The employee is paid a weekly wage of $64 on each of 
the five Fridays occurring in July 1966. On August 10, 1966, the 
employee is paid a bonus of $125 based upon production during the five 
payroll periods covered by the wages paid in July. On the date of 
payment of the bonus, the employee, who is married and has three 
children, has a withholding exemption certificate in effect indicating 
that he is married and claiming five withholding exemptions. The amount 
of the tax to be withheld from the bonus paid on August 10, 1966, is 
computed as follows:

Wages paid in July 1966 for 5 payroll periods (5 x $64).....     $320.00
Bonus paid August 10, 1966..................................      125.00
                                                             -----------
 Aggregate of wages and bonus...............................      445.00
                                                             ===========
Average wage per payroll period ($445 / 5)..................       89.00
Computation of tax under percentage method: Withholding            67.50
 exemptions (5 x $13.50)....................................
                                                             -----------
 Remainder subject to tax...................................       21.50
                                                             ===========

[[Page 232]]

 
Tax on average wage for 1 week under percentage method of           2.45
 withholding (married person with weekly payroll period) 14
 percent of $17.50 (excess over $4))........................
                                                             ===========
Tax on average wage for 5 weeks.............................       12.25
Less: Tax previously withheld on weekly wage payments of $64        None
  Tax to be withheld on supplemental wages..................       12.25
                                                             ===========
Computation of tax under wage bracket method: Tax on $89           12.50
 wage under weekly wage table for married person ($2.50 per
 week for 5 weeks)..........................................
Less: Tax previously withheld on weekly wage payments of $64        None
Tax to be withheld on supplemental wages....................       12.50
 

    (2) Applicability. The rules prescribed in this paragraph (b) shall, 
at the election of the employer, be applied in lieu of the rules 
prescribed in paragraph (a) of this section except that this paragraph 
shall not be applicable in any case in which the payroll period of the 
employee is less than one week or to the extent that paragraph (a)(2) of 
this section applies to the supplemental wage payment.
    (c) Vacation allowances. Amounts of so-called ``vacation 
allowances'' shall be subject to withholding as though they were regular 
wage payments made for the period covered by the vacation. If the 
vacation allowance is paid in addition to the regular wage payment for 
such period, the rules applicable with respect to supplemental wage 
payments shall apply to such vacation allowance.
    (d) Applicability date. The provisions of paragraphs (a)(2) and 
(a)(7)(ii) of this section apply on and after October 6, 2020. Taxpayers 
may choose to apply paragraphs (a)(2) and (a)(7)(ii) of this section on 
or after January 1, 2020 and before October 6, 2020. For the provisions 
of paragraphs (a)(2) and (a)(7)(ii) of this section that apply before 
October 6, 2020, see 26 CFR part 31, revised as of April 1, 2020.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6860, 30 FR 
13947, Nov. 4, 1965; T.D. 6882, 31 FR 5661, Apr. 12, 1966; T.D. 9276, 71 
FR 42054, July 25, 2006; 71 FR 58276, Oct. 3, 2006; 71 FR 77612, Dec. 
27, 2006; 72 FR 3734, Jan. 26, 2007; T.D 9924, 85 FR 63033, Oct. 6, 
2020]



Sec.  31.3402(g)-2  Wages paid for payroll period of more than one year.

    If wages are paid to an employee for a payroll period of more than 
one year, for the purpose of determining the amount of tax required to 
be deducted and withheld in respect of such wages--
    (a) Under the percentage method, the amount of the tax shall be 
determined as if such payroll period constituted an annual payroll 
period, and
    (b) Under the wage bracket method, the amount of the tax shall be 
determined as if such payroll period constituted a miscellaneous payroll 
period of 365 days.



Sec.  31.3402(g)-3  Wages paid through an agent, fiduciary, or other
person on behalf of two or more employers.

    (a) If a payment of wages is made to an employee by an employer 
through an agent, fiduciary, or other person who also has the control, 
receipt, custody, or disposal of, or pays the wages payable by another 
employer to such employee, the amount of the tax required to be withheld 
on each wage payment made through such agent, fiduciary, or person 
shall, whether the wages are paid separately on behalf of each employer 
or paid in a lump sum on behalf of all such employers, be determined 
upon the aggregate amount of such wage payment or payments in the same 
manner as if such aggregate amount had been paid by one employer. Hence, 
under either the percentage method or the wage bracket method the tax 
shall be determined upon the aggregate amount of the wage payment.
    (b) In any such case, each employer shall be liable for the return 
and payment of a pro rata portion of the tax so determined, such portion 
to be determined in the ratio which the amount contributed by the 
particular employer bears to the aggregate of such wages.
    (c) For example, three companies maintain a central management 
agency which carries on the administrative work of the several 
companies. The central agency organization consists of a staff of 
clerks, bookkeepers, stenographers, etc., who are the common employees 
of the three companies. The expenses of the central agency, including 
wages paid to the foregoing employees, are borne by the several 
companies in certain agreed proportions. Company X pays 45 percent, 
Company Y pays 35 percent and Company Z pays 20 percent

[[Page 233]]

of such expenses. The amount of tax required to be withheld on the wages 
paid to persons employed in the central agency should be determined in 
accordance with the provisions of this section. In such event, Company X 
is liable as an employer for the return and payment of 45 percent of the 
tax required to be withheld, Company Y is liable for the return and 
payment of 35 percent of the tax and Company Z is liable for the return 
and payment of 20 percent of the tax. (See Sec.  31.3504-1, relating to 
acts to be performed by agents.)



Sec.  31.3402(h)(1)-1  Withholding on basis of average wages.

    (a) In general. An employer may determine the amount of tax to be 
deducted and withheld upon a payment of wages to an employee on the 
basis of the employee's average estimated wages, with necessary 
adjustments, for any quarter. This paragraph applies only where the 
method desired to be used includes wages other than tips (whether or not 
tips are also included).
    (b) Withholding on the basis of average estimated tips--(1) In 
general. Subject to certain limitations and conditions, an employer may, 
at his discretion, withhold the tax under section 3402 in respect of 
tips reported by an employee to the employer on an estimated basis. An 
employer who elects to make withholding of the tax on an estimated basis 
shall:
    (i) In respect of each employee, make an estimate of the amount of 
tips that will be reported, pursuant to section 6053, by the employee to 
the employer in a calendar quarter.
    (ii) Determine the amount which must be deducted and withheld upon 
each payment of wages (exclusive of tips) which are under the control of 
the employer to be made during the quarter by the employer to the 
employee. The total amount which must be deducted and withheld shall be 
determined by assuming that the estimated tips for the quarter represent 
the amount of wages to be paid to the employee in the form of tips in 
the quarter and that such tips will be ratably (in terms of pay periods) 
paid during the quarter.
    (iii) Deduct and withhold from any payment of wages (exclusive of 
tips) which are under the control of the employer, or from funds 
referred to in section 3402(k) (see Sec. Sec.  31.3402(k) and 
31.3402(k)-1), such amount as may be necessary to adjust the amount of 
tax withheld on the estimated basis to conform to the amount required to 
be withheld in respect of tips reported by the employee to the employer 
during the calendar quarter in written statements furnished to the 
employer pursuant to section 6053(a). If an adjustment is required, the 
additional tax required to be withheld may be deducted upon any payment 
of wages (exclusive of tips) which are under the control of the employer 
during the quarter and within the first 30 days following the quarter or 
from funds turned over by the employee to the employer for such purpose 
within such period. For provisions relating to the repayment to an 
employee, or other disposition, of amounts deducted from an employee's 
remuneration in excess of the correct amount of tax, see Sec.  
31.6413(a)-1.
    (2) Estimating tips employee will report--(i) Initial estimate. The 
initial estimate of the amount of tips that will be reported by a 
particular employee in a calendar quarter shall be made on the basis of 
the facts and circumstances surrounding the employment of that employee. 
However, if a number of employees are employed under substantially the 
same circumstances and working conditions, the initial estimate 
established for one such employee may be used as the initial estimate 
for other employees in that group.
    (ii) Adjusting estimate. If the quarterly estimate of tips in 
respect of a particular employee continues to differ substantially from 
the amount of tips reported by the employee and there are no unusual 
factors involved (for example, an extended absence from work due to 
illness) the employer shall make an appropriate adjustment of his 
estimate of the amount of tips that will be reported by the employee.
    (iii) Reasonableness of estimate. The employer must be prepared, 
upon request of the district director, to disclose the factors upon 
which he relied

[[Page 234]]

in making the estimate, and his reasons for believing that the estimate 
is reasonable.

[T.D. 7053, 35 FR 11626, July 21, 1970]



Sec.  31.3402(h)(2)-1  Withholding on basis of annualized wages.

    An employer may determine the amount of tax to be deducted and 
withheld upon a payment of wages to an employee by taking the following 
steps:

    Step 1. Multiply the amount of the employee's wages for the payroll 
period by the number of such periods in the calendar year.
    Step 2. Determine the amount of tax which would be required to be 
deducted and withheld upon the amount determined in Step 1 if that 
amount constituted the actual wages for the calendar year and the 
payroll period of the employee were an annual payroll period.
    Step 3. Divide the amount of tax determined in Step 2 by the number 
of periods by which the employee's wages were multiplied in Step 1.
    Example. On July 1, 1970, A, a single person who is on a weekly 
payroll period and claims one exemption, receives wages of $100 from X 
Co., his employer. X Co. multiplies the weekly wage of $100 by 52 weeks 
to determine an annual wage of $5,200. It then subtracts $650 for A's 
withholding exemption and arrives at a balance of $4,550. The applicable 
table in section 3402(a) for annual payroll periods indicates that the 
amount of tax to be withheld thereon is $376 plus $314.50 (17 percent of 
excess over $2,700), or a total of $690.50. The annual tax of $690.50, 
when divided by 52 to arrive at the portion thereof attributable to the 
weekly payroll period, equals $13.28. X Co. may, if it chooses, withhold 
$13.28 rather than the amount specified in section 3402 (a) or (c) for a 
weekly payroll period.

[T.D. 7053, 35 FR 11627, July 21, 1970]



Sec.  31.3402(h)(3)-1  Withholding on basis of cumulative wages.

    (a) In general. In the case of an employee who has in effect a 
request that the amount of tax to be withheld from his wages be computed 
on the basis of his cumulative wages, and whose wages since the 
beginning of the current calendar year have been paid with respect to 
the same category of payroll period (e.g., weekly or semimonthly), the 
employer may determine the amount of tax to be deducted and withheld 
upon a payment of wages made to the employee after December 31, 1969, by 
taking the following steps:

    Step 1. Add the amount of the wages to be paid the employee for the 
payroll period to the total amount of wages paid by the employer to the 
employee during the calendar year.
    Step 2. Divide the aggregate amount of wages computed in Step 1 by 
the number of payroll periods to which that amount relates.
    Step 3. Compute the total amount of tax that would have been 
required to be deducted and withheld under section 3402(a) if the 
average amount of wages (as computed in Step 2) had been paid to the 
employee for the number of payroll periods to which the aggregate amount 
of wages (computed in Step 1) relates.
    Step 4. Determine the excess, if any, of the amount of tax computed 
in Step 3 over the total amount of tax already deducted and withheld by 
the employer from wages paid to the employee during the calendar year.
    Example. On July 1, 1970, Y Co. employs B, a single person claiming 
one exemption. Y Co. pays B the following amounts of wages on the basis 
of a biweekly payroll period on the following pay days:

July 20.......................................................    $1,000
August 3......................................................       300
August 17.....................................................       300
August 31.....................................................       300
September 14..................................................       300
September 28..................................................       300
 


On October 5, B requests that Y Co. withhold on the basis of his 
cumulative wages with respect to his wages to be paid on October 12 and 
thereafter. Y Co. adds the $300 in wages to be paid to B on October 12 
to the payments of wages already made to B during the calendar year, and 
determines that the aggregate amount of wages is $2,800. The average 
amount of wages for the 7 biweekly payroll periods is $400. The total 
amount of tax required to be deducted and withheld for payments of $400 
for each of 7 biweekly payroll periods is $485.87 under section 3402(a). 
Since the total amount of tax which has been deducted and withheld by Y 
Co. through September 28 is $484.86, Y Co. may, if it chooses, deduct 
and withhold $1.01 (the amount by which $485.87 exceeds the total amount 
already withheld by Y Co.) from the payment of wages to B on October 12 
rather than the amount specified in section 3402 (a) or (c).

    (b) Employee's request and revocation of request. An employee's 
request that his employer withhold on the basis of his cumulative wages 
and a notice of revocation of such request shall be in writing and in 
such form as the employer may prescribe. An employee's

[[Page 235]]

request furnished to his employer pursuant to this section shall be 
effective, and may be acted upon by his employer, after the furnishing 
of such request and before a revocation thereof is effective. A 
revocation of such request may be made at any time by the employee 
furnishing his employer with a notice of revocation. The employer may 
give immediate effect to a revocation, but, in any event, a revocation 
shall be effective with respect to payments of wages made on or after 
the first ``status determination date'' (see section 3402(f)(3)(B)) 
which occurs at least 30 days after the date on which such notice is 
furnished.
    (c) Requests due to increases or decreases in allowances. An 
employee may request pursuant to this section that his employer withhold 
on the basis of the employee's cumulative wages when the employee is 
entitled to claim an increased or decreased number of withholding 
allowances under Sec.  31.3402(m)-1 during the estimation year (as 
defined in Sec.  31.3402(m)-1(c)(1)).

(Secs. 3402(i) and (m) and 7805 of the Internal Revenue Code of 1954 (26 
U.S.C. 3402 (i) and (m), 95 Stat. 172, 184; 26 U.S.C. 7805, 68A Stat. 
917))

[T.D. 7053, 35 FR 11627, July 21, 1970, as amended by T.D. 7915, 48 FR 
44074, Sept. 27, 1983]



Sec.  31.3402(h)(4)-1  Other methods.

    (a) Maximum permissible deviations. An employer may use any other 
method of withholding under which the employer will deduct and withhold 
upon wages paid to an employee after December 31, 1969, for a payroll 
period substantially the same amount as would be required to be deducted 
and withheld by applying section 3402(a) with respect to the payroll 
period. For purposes of section 3402(h)(4) and this section, an amount 
is substantially the same as the amount required to be deducted and 
withheld under section 3402(a) if its deviation from the latter amount 
is not greater than the maximum permissible deviation prescribed in this 
paragraph. The maximum permissible deviation under this paragraph is 
determined by annualizing wages as provided in Step 1 of Sec.  
31.3402(h)(2)-1 and applying the following table to the amount of tax 
required to be deducted and withheld under section 3402(a) with respect 
to such annualized wages, as determined under Step 2 of Sec.  
31.3402(h)(2)-1:

 
 If the tax required to be withheld under      The maximum permissible
 the annual percentage rate schedule is--       annual deviation is--
 
$10 to $100...............................  $10, plus 10 percent of
                                             excess over $10.
$100 to $1,000............................  $19, plus 3 percent of
                                             excess over $100.
$1,000 or over............................  $46, plus 1 percent of
                                             excess over $1,000.
 


In any case, an amount which is less than $10 more or less per year than 
the amount required to be deducted and withheld under section 3402(a) is 
substantially the same as the latter amount. If any method produces 
results which are not greater than the prescribed maximum deviations 
only with respect to some of his employees, the employer may use such 
method only with respect to such employees. An employer should 
thoroughly test any method which he contemplates using to ascertain 
whether it meets the tolerances prescribed by this paragraph. An 
employer may not use any method, one of the principal purposes of which 
is to consistently produce amounts to be deducted and withheld which are 
less (though substantially the same) than the amount required to be 
deducted and withheld by applying section 3402(a).
    (b) Part-year employment method of withholding--(1) In general. In 
addition to the methods authorized by other paragraphs of this section, 
in the case of part-year employment (as defined in subparagraph (4) of 
this paragraph) of an employee who determines his liability for tax 
under subtitle A of the Code on a calendar-year basis and who has in 
effect a request that the amount of tax to be withheld from his wages be 
computed according to the part-year employment method described in this 
paragraph, the employer may determine the amount of tax to be deducted 
and withheld upon a payment of wages made to the employee on or after 
January 5, 1973, by taking the following steps:

    Step 1. Add the amount of wages to be paid to the employee for the 
current payroll period to the total amount of wages paid by

[[Page 236]]

the employer to the employee for all preceding payroll periods included 
in the current term of continuous employment (as defined in subparagraph 
(3) of this paragraph) of the employee by the employer;
    Step 2. Divide the aggregate amount of wages computed in Step 1 by 
the total of the number of payroll periods to which that amount relates 
plus the equivalent number of payroll periods (as defined in 
subparagraph (2) of this paragraph) in the employee's term of continuous 
unemployment immediately preceding the current term of continuous 
employment, such term of continuous unemployment to be exclusive of any 
days prior to the beginning of the current calendar year;
    Step 3. Determine the total amount of tax that would have been 
required to be deducted and withheld under section 3402 if the average 
amount of wages (as computed in Step 2) had been paid to the employee 
for the number of payroll periods determined in Step 2 (including the 
equivalent number of payroll periods); and
    Step 4. Determine the excess, if any, of the amount of tax computed 
in Step 3 over the total amount of tax already deducted and withheld by 
the employer from wages paid to the employee for all payroll periods 
during the current term of continuous employment.


The use of the method described in this paragraph does not preclude the 
employee from claiming additional withholding allowances pursuant to 
section 3402(m) or the standard deduction allowance pursuant to section 
3402(f)(1)(G).
    (2) Equivalent number of payroll periods. For purposes of this 
paragraph, the equivalent number of payroll periods shall be determined 
by dividing the number of calendar days contained in the current payroll 
period into the number of calendar days between the later of (i) the day 
certified by the employee as his last day of employment prior to his 
current term of continuous employment during the calendar year in which 
such term commenced, or (ii) the last day of the calendar year 
immediately preceding the current calendar year, and the first day of 
the current term of continuous employment. For purposes of the preceding 
sentence, the term ``calendar days'' includes holidays, Saturdays, and 
Sundays. In determining the equivalent number of payroll periods, any 
fraction obtained in the division described in the first sentence of 
this subparagraph shall be disregarded. An employee paid for a 
miscellaneous payroll period shall be considered to have a daily payroll 
period for purposes of this subparagraph. In a case in which an employee 
is paid for a daily or miscellaneous payroll period and the employer 
elects under Circular E to compute the tax to be withheld as if the 
aggregate of the wages paid to the employee during the calendar week 
were paid for a weekly period, the employer shall determine the 
equivalent number of payroll periods for purposes of the computation of 
the tax to be withheld for the calendar week on the basis of a weekly 
payroll period (notwithstanding the fact that a determination of the 
equivalent number of payroll periods for purposes of the computation of 
the tax to be withheld upon wages paid for daily or miscellaneous 
payroll periods within such calendar week has been made on the basis of 
a daily or miscellaneous payroll period).
    (3) Term of continuous employment. For purposes of this paragraph, a 
term of employment is continuous if it is either a single term of 
employment or two or more consecutive terms of employment with the same 
employer. A term of continuous employment begins on the first day on 
which any services are performed by the employee for the employer for 
which compensation is paid or payable. Such term ends on the earlier of 
(i) the last day during the current term of continuous employment on 
which any services are performed by the employee for the employer, or 
(ii) if the employee performs no services for the employer for a period 
of more than 30 calendar days, the last day preceding such period on 
which any services are performed by the employee for the employer. For 
example, a professional athlete who signs a contract on December 31, 
1973, to perform services from July 1 through December 31 for the 
calendar years 1974, 1975, and 1976 has a new term of employment 
beginning each July 1 and accordingly may qualify for use of the part-
year withholding method in each of such years. Likewise, a term of 
continuous employment is not broken by a temporary layoff of no more 
than 30

[[Page 237]]

days. On the other hand, when an employment relationship is actually 
terminated the term of continuous employment is ended even though a new 
employment relationship is established with the same employer within 30 
days. A ``term of continuous employment'' includes all days on which an 
employee performs any services for an employer and includes days on 
which services are not performed because of illness or vacation, or 
because such days are holidays or are regular days off (such as 
Saturdays and Sundays, or days off in lieu of Saturdays and Sundays), or 
other days for which the employee is not scheduled to work. For example, 
an employee who is employed 2 days a week for the same employer from 
March 1 through December 31 has a term of continuous employment of 306 
days.
    (4) Part-year employment. For purposes of this paragraph, ``part-
year employment'' means one or more terms of continuous employment with 
all employers which term or terms will not aggregate more than 245 days 
within a calendar year. For example, A graduates from college in May and 
was not employed from January through May. A accepts a permanent 
position with X Co., beginning June 1. Since the total duration of A's 
term of continuous employment will, during the current calendar year, 
not exceed 245 days it does qualify as part-year employment for purposes 
of this section.

If, however, A had also worked for Y Co. from December 15 of the 
previous year through February 5 of the current calendar year, the total 
duration of A's terms of continuous employment will, during the current 
calendar year, exceed 245 days (36 days (January 1 through February 5) 
plus 214 days (June 1 through December 31) equals 250 days). This year's 
employment does not therefore qualify as part-year employment for 
purposes of this section.
    (5) Employee's request. (i) An employee's request that his employer 
withhold according to the part-year employment method shall be in 
writing and in such form as the employer may prescribe. Such request 
shall be made under the penalties of perjury and shall contain the 
following information--
    (a) The last day of employment (if any) by any employer prior to the 
current term of continuous employment during the calendar year in which 
such term commenced.
    (b) A statement that the employee reasonably anticipates that he 
will be employed for an aggregate of no more than 245 days in all terms 
of continuous employment during the current calendar year, and
    (c) The employee uses a calendar-year accounting period.


An employee's request furnished to his employer pursuant to this section 
shall be effective, and may be acted upon by his employer, with respect 
to wages paid after the furnishing of such request, and shall cease to 
be effective with respect to any wages paid on or after the beginning of 
the payroll period during which the current calendar year will end.
    (ii) If, on any day during the calendar year, any of the 
anticipations stated by the employee in his statement provided pursuant 
to subdivision (i)(b) of this subparagraph becomes unreasonable, the 
employee shall revoke the request described in this subparagraph before 
the end of the payroll period during which it becomes unreasonable. The 
revocation shall be effective as of the beginning of the payroll period 
during which it is made.
    (c) Applicability date. The removal of paragraph (b) from this 
section as of October 6, 2020, which provided for combined FICA and 
income tax withholding tables, applies on and after January 1, 2020. For 
rules that apply before January 1, 2020, see 26 CFR part 31, revised as 
of April 1, 2020.

[T.D. 7053, 35 FR 11627, July 21, 1970, as amended by T.D. 7251, 38 FR 
867, Jan. 5, 1973; T.D. 7915, 48 FR 44074, Sept. 27, 1983; T.D 9924, 85 
FR 63033, Oct. 6, 2020]



Sec.  31.3402(i)-1  Increases in withholding.

    (a) Increases in withholding--(1) In general. In addition to the tax 
required to be deducted and withheld in accordance with the provisions 
of section 3402, the employee may request, after September 30, 1981, 
that the employer deduct and withhold an additional amount from the 
employee's wages. The employer must comply with the employee's request, 
except that the

[[Page 238]]

employer shall comply with the employee's request only to the extent 
that the amount that the employee requests to be deducted and withheld 
under this section does not exceed the amount that remains after the 
employer has deducted and withheld all amounts otherwise required to be 
deducted and withheld by Federal law (other than by section 3402(i) and 
this section), State law, and local law (other than by State or local 
law that provides for voluntary withholding). The employer must comply 
with the employee's request in accordance with the time limitations of 
Sec.  31.3402(f)(3)-1 (relating to when withholding exemption 
certificate takes effect). The employee must make his request on Form W-
4 as provided in Sec.  31.3402(f)(5)-1 (relating to form and contents of 
withholding exemption certificates), and this Form W-4 shall take effect 
and remain effective in accordance with section 3402(f) and the 
regulations thereunder.
    (2) Increases in withholding based on additional income. (i) The 
employee may request that the employer add an additional amount to the 
employee's wages and that the employer deduct and withhold an additional 
amount of income tax resulting from this addition under the 
computational procedures prescribed by the Commissioner in forms, 
instructions, publications, and other guidance for the calendar year for 
which the withholding allowance certificate claiming an additional 
amount to add to the employee's wages is furnished;
    (ii) The employee may request that the employer deduct and withhold 
additional amounts of income tax resulting from the employee selecting 
higher withholding rate tables on the withholding allowance certificate;
    (iii) The employer must comply with the employee's request under 
paragraph (a)(1)(i) or (ii) of this section, except that the employer 
shall comply with the employee's request only to the extent that the 
amount that the employee requests to be deducted and withheld under this 
section does not exceed the amount that remains after the employer has 
deducted and withheld all amounts otherwise required to be deducted and 
withheld by Federal law (other than by section 3402(i) and this 
section), State law, and local law (other than by State or local law 
that provides for voluntary withholding); and
    (iv) The employer must comply with the employee's request in 
accordance with the time limitations in Sec.  31.3402(f)(3)-1. The 
employee must make the request on Form W-4 as provided in Sec.  
31.3402(f)(5)-1 (relating to form and contents of withholding allowance 
certificates), and this Form W-4 shall take effect and remain effective 
in accordance with section 3402(f) and Sec.  31.3402(f)(4)-1.
    (3) Amount deducted treated as tax. The amount deducted and withheld 
pursuant to paragraphs (a)(1) and (2) of this section shall be treated 
as tax required to be deducted and withheld under section 3402.
    (b) Applicability date. The provisions of paragraphs (a)(2) and (3) 
of this section apply on and after October 6, 2020. Taxpayers may choose 
to apply paragraphs (a)(2) and (3) this section on or after January 1, 
2020 and before October 6, 2020.

[T.D. 7915, 48 FR 44074, Sept. 27, 1983, as amended by T.D. 9924, 85 FR 
63033, Oct. 6, 2020]



Sec.  31.3402(j)-1  Remuneration other than in cash for service performed
by retail commission salesman.

    (a) In general. (1) An employer, in computing the amount to be 
deducted and withheld as tax in accordance with section 3402, may, at 
his election, disregard any wages paid, after August 9, 1955, in a 
medium other than cash for services performed for him by an employee if 
(i) the noncash remuneration is paid for services performed by the 
employee as a retail commission salesman and (ii) the employer 
ordinarily pays the employee remuneration solely by way of cash 
commissions for services performed by him as a retail commission 
salesman.
    (2) Section 3402(j) and this section are not applicable with respect 
to wages paid to the employee that are subject to withholding under 
Sec.  31.3402(g)-1(a)(2). Section 3402(j) and this section are not 
applicable with respect to noncash wages paid to a retail commission 
salesman for services performed by him

[[Page 239]]

in a capacity other than as such a salesman. Such sections are not 
applicable with respect to noncash wages paid by an employer to an 
employee for services performed as a retail commission salesman if the 
employer ordinarily pays the employee remuneration other than by way of 
cash commissions for such services. Thus, noncash remuneration may not 
be disregarded in computing the amount to be deducted and withheld in a 
case where the employee, for services performed as a retail commission 
salesman, is paid both a salary and cash commissions on sales, or is 
ordinarily paid in something other than cash (stocks, bonds, or other 
forms of property) notwithstanding that the amount of remuneration paid 
to the employee is measured by sales.
    (b) Retail commission salesman. For purposes of section 3402(j) and 
this section, the term ``retail commission salesman'' includes an 
employee who is engaged in the solicitation of orders at retail, that 
is, from the ultimate consumer, for merchandise or other products 
offered for sale by his employer. The term does not include an employee 
salesman engaged in the solicitation on behalf of his employer of orders 
from wholesalers, retailers, or others, for merchandise for resale. 
However, if the salesman solicits orders for more than one principal, he 
is not excluded from the term solely because he solicits orders from 
wholesalers or retailers on behalf of one or more principals. In such 
case the salesman may be a retail commission salesman with respect to 
services performed for one or more principals and not with respect to 
services performed for his other principals.
    (c) Noncash remuneration. The term ``noncash remuneration'' includes 
remuneration paid in any medium other than cash, such as goods or 
commodities, stocks, bonds, or other forms of property. The term does 
not include checks or other monetary media of exchange.
    (d) Cross reference. For provisions relating to records required to 
be kept and statements which must be furnished an employee with respect 
to wage payments, see sections 6001 and 6051 and the regulations 
thereunder in Subpart G of this part.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as 
amended by T.D. 9276, 71 FR 42057, July 25, 2006]



Sec.  31.3402(k)-1  Special rule for tips.

    (a) Withholding of income tax in respect of tips--(1) In general. 
Subject to the limitations set forth in paragraph (a)(2) of this 
section, an employer is required to deduct and withhold from each of his 
employees tax in respect of those tips received by the employee which 
constitute wages. (For provisions relating to the treatment of tips as 
wages, see Sec. Sec.  3401(a)(16) and 3401(f).) The employer shall make 
the withholding by deducting or causing to be deducted the amount of the 
tax from wages (exclusive of tips) which are under the control of the 
employer or other funds turned over by the employee to the employer (see 
paragraph (a)(3) of this section). For purposes of this section the 
terms ``wages (exclusive of tips) which are under the control of the 
employer'' means, with respect to a payment of wages, an amount equal to 
wages as defined in section 3401(a) except that tips and noncash 
remuneration which are wages are not included, less the sum of--
    (i) The tax under section 3101 required to be collected by the 
employer in respect of wages as defined in section 3121(a) (exclusive of 
tips);
    (ii) The tax under section 3402 required to be collected by the 
employer in respect of wages as defined in section 3401(a) (exclusive of 
tips); and
    (iii) The amount of taxes imposed on the remuneration of an employee 
withheld by the employer pursuant to State and local law (including 
amounts withheld under an agreement between the employer and the 
employee pursuant to such law) except that the amount of taxes taken 
into account in this subdivision shall not include any amount 
attributable to tips.
    (2) Limitations. An employer is required to deduct and withhold the 
tax on tips which constitute wages only in respect of those tips which 
are reported by the employee to the employer in a written statement 
furnished to the employer pursuant to section 6053(a). The

[[Page 240]]

employer is responsible for the collection of the tax on tips reported 
to him only to the extent that the emloyer can, during the period 
beginning at the time the written statement is submitted to him and 
ending at the close of the calendar year in which the statement was 
submitted, collect the tax by deducting it or causing it to be deducted 
as provided in subparagraph (1) of this paragraph.
    (3) Furnishing of funds to employer. If the amount of the tax in 
respect of tips reported by the employee to the employer in a written 
statement furnished pursuant to section 6053(a) exceeds the wages 
(exclusive of tips) which are under the control of the employer from 
which the employer is required to withhold the tax in respect of such 
tips, the employee may furnish to the employer, within the period 
specified in subparagraph (2) of this paragraph, an amount of money 
equal to the amount of such excess.
    (b) Less than $20 of tips. Notwithstanding the provisions of 
paragraph (a) of this section, if an employee furnishes to his employer 
a written statement--
    (1) Covering a period of less than 1 month, and
    (2) The statement is furnished to the employer prior to the close of 
the 10th day of the month following the month in which the tips were 
actually received by the employee, and
    (3) The aggregate amount of tips reported in the statement and in 
all other statements previously furnished by the employee covering 
periods within the same month is less than $20, and such statements, 
collectively, do not cover the entire month,

the employer may deduct amounts equivalent to the tax on such tips from 
wages (exclusive of tips) which are under the control of the employer or 
other funds turned over by the employee to the employer. For provisions 
relating to the repayment to an employee, or other disposition, of 
amounts deducted from an employee's remuneration in excess of the 
correct amount of tax, see Sec.  31.6413(a)-1. (As to the exclusion from 
wages of tips of less than $20, see Sec.  31.3401(a)(16)-1.)
    (c) Priority of tax collection--(1) In general. In the case of a 
payment of wages (exclusive of tips), the employer shall deduct or cause 
to be deducted in the following order:
    (i) The tax under section 3101 and the tax under section 3402 with 
respect to such payment of wages.
    (ii) Any tax under section 3101 which, at the time of payment of the 
wages, the employer is required to collect--
    (a) In respect of tips reported by the employee to the employer in a 
written statement furnished to the employer pursuant to section 6053(a), 
or
    (b) By reason of the employer's election to make collection of the 
tax under section 3101 in respect of tips on an estimated basis,


but which has not been collected by the employer and which cannot be 
deducted from funds turned over by the employee to the employer for such 
purpose. (See Sec.  31.3102-3, relating to collection of, and liability 
for, employee tax on tips.)
    (iii) Any tax under section 3402 which, at the time of the payment 
of the wages, the employer is required to collect--
    (a) In respect of tips reported by the employee to the employer in a 
written statement furnished to the employer pursuant to section 6053(a), 
or
    (b) By reason of the employer's election to make collection of the 
tax under section 3402 in respect of tips on an estimated basis,


but which has not been collected by the employer and which cannot be 
deducted from funds turned over by the employee to the employer for such 
purpose. For provisions relating to the witholding of tax on the basis 
of average estimated tips, see paragraph (b) of Sec.  31.3402(h)(1)-1.
    (2) Examples. The application of paragraph (b)(1) of this section 
may be illustrated by the following examples (The amounts used in the 
following examples are intended for illustrative purposes and do not 
necessarily reflect currently effective rates or amounts.):

    Example 1. W is a waiter employed by R restaurant. W's principal 
remuneration for his services is in the form of tips received from 
patrons of R; however, he also receives a salary from R of $40 per week, 
which is paid to him every Friday. W is a member of a labor union which 
has a contract with R pursuant to which R is to collect dues for the

[[Page 241]]

union by withholding from the wages of its employees at the rate of $1 
per week. In addition to the taxes required to be withheld under the 
Internal Revenue Code, W's wages are subject to withholding of a state 
income tax imposed upon both his regular wage and his tips received and 
reported to R.
    On Monday of a given week W furnishes a written statement to R 
pursuant to section 6053(a) in which he reports the receipt of $160 in 
tips. The $40 wage to be paid to W on Friday of the same week is subject 
to the following items of withholding:

------------------------------------------------------------------------
                                           Taxes
                                            with      Taxes
                                          respect      with
                                             to      respect     Total
                                          regular    to tips
                                            wage
------------------------------------------------------------------------
Section 3101 (F.I.C.A.)................      $1.76      $7.04      $8.80
Section 3402 (income tax at source)....       5.65      28.30      33.95
State income tax.......................       1.20       4.80       6.00
Union dues.............................  .........  .........       1.00
                                                              ----------
  Total................................  .........  .........      49.75
------------------------------------------------------------------------


W does not turn over any funds to R. R should satisfy the taxes imposed 
by sections 3101 and 3402 out of W's $40 wage as follows: The taxes 
imposed with respect to the regular wage (a total of $74l) should be 
satisfied first. The taxes imposed with respect to tips are to be 
withheld only out of ``wages (exclusive of tips) which are under the 
control of the employer'' as that phrase is defined in Sec. Sec.  
31.3102-3(a)(1) and 31.3402(k)-1(a)(1). The amount of such wages under 
the control of employer in this example is $31.39, or $40, less the 
amounts applied in satisfaction of the Federal and State withholding 
taxes imposed with respect to the regular $40 wage ($8.61). This $31.39 
is applied first in satisfaction of the tax under section 3101 with 
respect to tips ($7.04) in the balance of $24.35 is applied in partial 
satisfaction of the withholding of income tax at source under section 
3402 with respect to tips. The amount of the tax with respect to tips 
under section 3402 which remains unsatisfied ($3.95) should be withheld 
from wages under the control of the employer the following week.
    Example 2. During the week following the week dealt with in example 
1, W furnishes a written statement to R pursuant to withholding:

------------------------------------------------------------------------
                                           Taxes
                                            with      Taxes
                                          respect      with
                                             to      respect     Total
                                          regular    to tips
                                            wage
------------------------------------------------------------------------
Section 3101 (F.I.C.A.)................      $1.76      $5.72      $7.48
Section 3402 (Income tax at source):
  Current week.........................       5.65      22.30      27.95
  Carryover from prior week............  .........       3.95       3.95
State income tax.......................       1.20       3.90       5.10
Union dues.............................  .........  .........       1.00
Garnishment............................  .........  .........      10.00
                                                              ----------
  Total................................  .........  .........      55.48
------------------------------------------------------------------------


As in example 1, the amount of ``wages (exclusive of tips) which are 
under the control of the employer'' is $31.39. This amount is applied 
first in satisfaction of the tax under section 3101 with respect to tips 
($5.72) and the balance is applied in partial satisfaction of the 
withholding of income tax at source under section 3402 with respect to 
tips (a total of $26.25), including that portion of the amount required 
to be withheld from the prior week's wages which remained unsatisfied. 
The amount of the tax with respect to tips under section 3402 which 
remains unsatisfied ($0.58) should be withheld from wages under the 
control of the employer the following week.

[T.D. 7001, 34 FR 1002, Jan. 23, 1969, as amended by T.D. 7053, 35 FR 
11628, July 21, 1970]



Sec.  31.3402(l)-1  Determination and disclosure of marital or filing status.

    (a) In general. An employer shall apply the applicable percentage 
method or wage bracket method withholding tables corresponding to the 
marital status or filing status that the employee selects on a valid 
withholding allowance certificate as set forth in forms, instructions, 
publications, and other guidance prescribed by the Commissioner.
    (b) Employee's filing status. An employee will be treated as single 
unless the employee selects head of household or married filing jointly 
filing status on a valid withholding allowance certificate. Employees 
may select a filing status other than single, subject to the following 
conditions:
    (1) The employee may select head of household filing status on the 
employee's withholding allowance certificate only if the employee 
reasonably expects to be eligible to claim head of household filing 
status under section 2(b) and Sec.  1.2-2(b) of this chapter on the 
employee's income tax return.
    (2) The employee may select married filing jointly filing status on 
the employee's withholding allowance certificate only if paragraph (d) 
of this section applies to the employee and the

[[Page 242]]

employee reasonably expects to file jointly a single return of income 
under subtitle A of the Code with the employee's spouse. If an employee 
is married and expects to file a separate return from the employee's 
spouse, the employee must select single or married filing separately 
filing status on the employee's withholding allowance certificate.
    (c) Change in filing status--(1) In general. Unless paragraph (c)(2) 
of this section applies, the employee must within 10 days furnish the 
employer with a new withholding allowance certificate if the employee's 
filing status changes--
    (i) From married filing jointly (or qualifying widow(er)) to head of 
household, married filing separately, or single; or
    (ii) From head of household to married filing separately or single.
    (2) Exception. If the employee's filing status changes in the manner 
described in paragraph (c)(1)(i) or (ii) of this section, but the total 
effect of the changes together with other changes affecting the 
employee's anticipated tax liability under subtitle A does not result in 
an amount of tax to be deducted and withheld from the employee's wages 
for the taxable year that is less than the employee's anticipated tax 
liability under subtitle A, the employee is not required to furnish a 
new withholding allowance certificate within 10 days. However, the 
employee must furnish a new withholding allowance certificate to take 
effect the following calendar year by the later of December 1 of the 
calendar year in which the employee's filing status changes, or within 
10 days of such change.
    (d) Determination of marital status. For the purposes of section 
3402(l)(2) and paragraph (b) of this section, paragraphs (d)(1) and (2) 
of this section shall be applied in determining whether an employee is a 
single person or a married person:
    (1) An employee shall on any day be considered as a single person 
and not married if--
    (i) The employee is legally separated from the employee's spouse 
under a decree of divorce or separate maintenance; or
    (ii) Either the employee or the employee's spouse is, or on any 
preceding day within the same calendar year was, a nonresident alien 
unless the employee has made or reasonably expects to make an election 
under section 6013(g) in the time and manner prescribed in Sec.  1.6013-
6(a)(4) of this chapter.
    (2) An employee shall on any day be considered as a married person 
if paragraph (d)(1) of this section does not apply and--
    (i) The employee is married within the meaning of Sec.  301.7701-
18(b) of this chapter on the day the withholding allowance certificate 
is furnished;
    (ii) The employee's spouse died during the employee's taxable year; 
or
    (iii) The employee's spouse died during one of the two taxable years 
immediately preceding the current taxable year and, on the basis of 
facts existing at the beginning of such day, the employee reasonably 
expects, at the close of the taxable year, to be a surviving spouse as 
defined in section 2 and Sec.  1.2-2(a) of this chapter. The employee 
must reasonably expect to file an income tax return claiming qualifying 
widow(er) status.
    (e) Applicability date. The provisions of this section apply on and 
after October 6, 2020. Taxpayers may choose to apply paragraphs (a)(2) 
and (3) this section on or after January 1, 2020 and before October 6, 
2020. For rules that apply before October 6, 2020, see 26 CFR part 31, 
revised as of April 1, 2020.

[T.D. 9924, 85 FR 63034, Oct. 6, 2020]



Sec.  31.3402(m)-1  Additional withholding allowance.

    (a) In general. In determining the withholding allowance or 
additional reductions in withholding under section 3402(m) on employee 
withholding allowance certificates furnished to the employer to be 
effective on or after January 1, 2020, employees may take into account 
the estimated tax deductions described in paragraph (b) of this section, 
the estimated tax credits described in paragraph (c) of this section, 
and estimated tax payments described in paragraph (d) of this section. 
Employees may only claim items in paragraphs (b), (c), and (d) of this 
section to

[[Page 243]]

the extent provided in paragraph (e) of this section.
    (b) Estimated tax deductions. Employees may take into account the 
following income tax deductions in chapter 1 of the Code:
    (1) Estimated itemized deductions (as defined in section 63(d)) 
allowable under chapter 1;
    (2) Estimated deductions described in section 62(a), except for--
    (i) Any deduction described in section 62(a)(1);
    (ii) Any deduction described in section 62(a)(2) if the 
reimbursement or payment for the amount allowable as such deduction is 
excludable from wages subject to income tax withholding;
    (iii) Any deduction described in section 62(a)(3);
    (iv) Any deduction described in section 62(a)(4); and
    (v) Any deduction described in section 62(a)(5);
    (3) Estimated deductions for net operating loss carryovers under 
section 172;
    (4) The estimated aggregate net losses from schedules C (Profit or 
Loss from Business), D (Capital Gains and Losses), E (Supplemental 
Income and Loss), and F (Profit or Loss from Farming) of Form 1040 and 
from the last line of Part II of Form 4797 (Sale of Business Property);
    (5) Estimated additional standard deduction for the aged and blind 
provided under section 63(c)(3) and section 63(f);
    (6) Estimated deduction allowed under section 199A; and
    (7) Estimated deduction or deductions allowed under section 151.
    (c) Estimated tax credits. Employees may take into account the 
estimated income tax credits allowable under chapter 1, except for--
    (1) The credit under section 31(a) for taxes withheld under chapter 
24 of the Code (which includes taxes withheld on wages and amounts 
treated as wages for chapter 24 purposes, such as pension withholding 
under section 3405 and backup withholding under section 3406) unless, on 
the day the employee estimates this amount, the amount has been actually 
withheld from the employee's wages (or another payment treated as wages 
for this purpose), the employee enters this amount of tax withheld 
pursuant to the instructions in the Tax Withholding Estimator (or 
successor) or Publication 505 (or successor), and the employee is not an 
employee whose employer must withhold for that employee pursuant to a 
notice under Sec.  31.3402(f)(2)-1(g)(2);
    (2) The credit for tax withheld at source for nonresident aliens and 
foreign corporations under section 33; and
    (3) Any credit to the extent that the employee has filed or expects 
to file any IRS form claiming such credit other than the employee's 
United States Individual Income Tax Return (Form 1040).
    (d) Estimated tax payments. Employees may take into account 
estimated tax payments only if--
    (1) The employee's employer is not obligated to withhold on the 
employee's wages pursuant to a notice under Sec.  31.3402(f)(2)-1(g)(2);
    (2) The amount claimed has been paid with the payment voucher from 
Form 1040-ES (or was otherwise designated by the taxpayer as a payment 
of estimated tax) or is planned to be made with respect to nonwage items 
but only if the planned amount does not decrease withholding below the 
pro-rata share of chapter 1 tax attributable to wages as determined 
under forms, instructions, publications, and other guidance prescribed 
by the Commissioner;
    (3) The employee uses the Tax Withholding Estimator (or successor) 
or Publication 505 (or successor) and enters the amount claimed pursuant 
to the instructions in the Tax Withholding Estimator (or successor) or 
Publication 505 (or successor); and
    (4) In using the Tax Withholding Estimator (or successor) or 
Publication 505 (or successor), the employee includes all items of 
nonwage income the Tax Withholding Estimator (or successor) or 
Publication 505 (or successor) prompts or instructs the employee to 
enter or include.
    (e) Definitions and special rules--(1) Estimated. The term 
``estimated'' as used in this section to modify the terms ``deduction,'' 
``deductions,'' ``credits,'' ``losses,'' and ``amount of decrease'' 
means with respect to an employee the

[[Page 244]]

aggregate dollar amount of a particular item that the employee 
reasonably expects will be allowable to the employee on the employee's 
income tax return for the estimation year under the section of the Code 
specified for each item. In no event shall that amount exceed the sum 
of:
    (i) The amount shown for that particular item on the income tax 
return that the employee has filed for the taxable year preceding the 
estimation year (or, if such return has not yet been filed, then the 
income tax return that the employee filed for the taxable year preceding 
such year), which amount the employee also reasonably expects to show on 
the income tax return for the estimation year; plus
    (ii) The determinable additional amounts (as defined in paragraph 
(e)(1)(iii) of this section) for each item for the estimation year.
    (iii) The determinable additional amounts are amounts that are not 
included in paragraph (e)(1)(i) of this section and that are 
demonstrably attributable to identifiable events during the estimation 
year or the preceding year. Amounts are demonstrably attributable to 
identifiable events if they relate to payments already made during the 
estimation year, to binding obligations to make payments (including the 
payment of taxes) during the year, and to other transactions or 
occurrences, the implementation of which has begun and is verifiable at 
the time the employee furnishes a withholding allowance certificate. The 
estimation year is the taxable year including the day on which the 
employee furnishes the withholding allowance certificate to the 
employer, except that if the employee furnishes the withholding 
allowance certificate to the employer and specifies on the certificate 
that the certificate is not to take effect until a specified future 
date, the estimation year shall be the taxable year including that 
specified future date. It is not reasonable for an employee to include 
in his or her withholding computation for the estimation year any amount 
that is shown for a particular item on the income tax return that the 
employee has filed for the taxable year preceding the estimation year 
(or, if such return has not yet been filed, then the income tax return 
that the employee filed for the taxable year preceding such year) and 
that has been disallowed by the Service as part of an adjustment 
described in Sec.  601.103(b) of this chapter (relating to examination 
and determination of tax liability) and Sec.  601.105(b) through (d) of 
this chapter (relating to examination of returns), without regard to any 
pending request for reconsideration, protest, request for consideration 
by an Appeals office, or civil action in which such proposed adjustment 
is at issue.
    (2) Restriction for employees with nonwage income. The employee must 
offset any deduction described in paragraph (b) of this section with 
items includible in the employee's gross income for which no Federal 
income tax is withheld in accordance with forms, instructions, 
publications, and other guidance prescribed by the Commissioner. In 
addition, an employee whose employer must withhold for that employee 
pursuant to a notice under Sec.  31.3402(f)(2)-1(g)(2) must offset any 
tax benefit resulting from any deduction or credit described in 
paragraph (b) or (c) of this section with the anticipated income tax 
attributable to items other than wages includible in the employee's 
gross income in the manner determined by the Commissioner.
    (3) Multiple withholding allowance certificates--(i) In general. The 
employee may not take into account deductions, credits, or estimated tax 
payments described in paragraph (b), (c), or (d) of this section if 
these deductions, credits, or estimated tax payments are claimed on 
another valid withholding allowance certificate in effect with respect 
to another employer of the employee or any employer of the employee's 
spouse.
    (ii) Married taxpayers filing jointly. Married taxpayers who 
reasonably expect to file as married filing jointly on their Federal 
income tax return for the estimation year determine the withholding 
allowance to which they are entitled under section 3402(m) on the basis 
of their combined wages, allowable credits or deductions, and estimated 
tax payments permitted to be taken into account. The deductions, 
credits, or estimated tax payments described in paragraphs (b), (c), and 
(d) of this section to which either spouse is

[[Page 245]]

entitled may be claimed by either spouse or may be allocated between 
both spouses. However, one spouse may not claim deductions, credits, or 
estimated tax payments described in paragraphs (b), (c), and (d) of this 
section claimed on the other spouse's withholding allowance certificate.
    (iii) Married taxpayers filing separately. A married taxpayer who 
reasonably expects to file a separate income tax return from the 
employee's spouse for the estimation year determines the withholding 
allowance deductions, credits, or estimated tax payments described in 
paragraphs (b), (c), and (d) of this section on the basis of the 
employee's individual wages, deductions, credits, and estimated tax 
payments.
    (4) IRS instructions. An employee must follow the instructions to 
the Form W-4, and other IRS forms, instructions, publications, and 
related guidance in determining the employee's withholding allowance or 
other reductions in withholding permitted under section 3402(m) for 
deductions, credits, or estimated tax payments described in paragraphs 
(b), (c), and (d) of this section.
    (f) Applicability date. The provisions of this section apply on or 
after October 6, 2020. Taxpayers may choose to apply paragraphs (a)(2) 
and (3) this section on or after January 1, 2020 and before October 6, 
2020. For rules that apply before October 6, 2020, see 26 CFR part 31, 
revised as of April 1, 2020.

[T.D. 9924, 85 FR 63034, Oct. 6, 2020]



Sec.  31.3402(n)-1  Employees incurring no income tax liability.

    (a) In general. Notwithstanding any other provision of this subpart 
(except to the extent a payment of wages is subject to withholding under 
Sec.  31.3402(g)-1(a)(2)), an employer shall not deduct and withhold any 
tax under chapter 24 of the Code upon a payment of wages made to an 
employee, if there is in effect with respect to the payment a 
withholding allowance certificate furnished to the employer by the 
employee which certifies that--
    (1) The employee incurred no liability for income tax imposed under 
subtitle A of the Internal Revenue Code for the employee's preceding 
taxable year; and
    (2) The employee anticipates that the employee will incur no 
liability for income tax imposed under subtitle A for the employee's 
current taxable year.
    (b) Mandatory flat rate withholding. To the extent wages are subject 
to income tax withholding under Sec.  31.3402(g)-1(a)(2), such wages are 
subject to such income tax withholding regardless of whether a 
withholding allowance certificate under section 3402(n) and this section 
has been furnished to the employer.
    (c) Liability for income tax. For purposes of section 3402(n) and 
this section, an employee is not considered to incur liability for 
income tax imposed under subtitle A if the amount of such tax imposed is 
equal to or less than the total amount of credits against such tax which 
are allowable under chapter 1 of the Internal Revenue Code, other than 
those credits allowable under section 31 or 34. For purposes of this 
section, an employee who files a joint return under section 6013 is 
considered to incur liability for any tax shown on such return. An 
employee who is entitled to file a joint return under section 6013 shall 
not certify that the employee anticipates that he or she will incur no 
liability for income tax imposed by subtitle A for the employee's 
current taxable year if such statement would not be true in the event 
that the employee files a joint return for such year, unless the 
employee filed a separate return for the preceding taxable year and 
anticipates that the employee will file a separate return for the 
current taxable year.
    (d) Rules about withholding allowance certificates. For rules 
relating to invalid withholding allowance certificates, see Sec.  
31.3402(f)(2)-1(h), and for rules relating to disregarding certain 
withholding allowance certificates on which an employee claims a 
complete exemption from withholding, see Sec.  31.3402(f)(2)-1(i).
    (e) Examples. The following examples illustrate this section:
    (1) Example 1. A, an unmarried, calendar-year basis taxpayer, files 
an income tax return for 2020 on April 10, 2021, showing that A had 
adjusted gross income of $5,000 and is not liable for any income tax for 
2020. A had $180 of income tax withheld during 2020. A anticipates that 
A's gross income for 2021

[[Page 246]]

will be approximately the same amount, and that A will not incur income 
tax liability for that year. On April 20, 2021, A commences employment 
and furnishes the employer a withholding allowance certificate 
certifying that A incurred no liability for income tax imposed under 
subtitle A for 2020, and that A anticipates that A will incur no 
liability for income tax imposed under subtitle A for 2021. A's employer 
shall not deduct and withhold on payments of wages made to A on or after 
April 20, 2021. Under Sec.  31.3402(f)(4)-1(b), unless A furnishes a new 
withholding allowance certificate including the certifications described 
in paragraph (a) of this section to the employer, the employer is 
required to deduct and withhold upon payments of wages to A made after 
February 15, 2022.
    (2) Example 2. Assume the facts are the same as in paragraph (e)(1) 
of this section (Example 1) except that A had been employed by the 
employer prior to April 20, 2021, and had furnished the employer a 
withholding allowance certificate prior to furnishing the withholding 
allowance certificate including the certifications described in 
paragraph (a) of this section on April 20, 2021. Under Sec.  
31.3402(f)(3)-1(b), the employer would be required to give effect to the 
new withholding allowance certificate no later than the beginning of the 
first payroll period ending (or the first payment of wages made without 
regard to a payroll period) on or after May 20, 2021. However, under 
Sec.  31.3402(f)(3)-1(b), the employer could, if it chose, make the new 
withholding allowance certificate effective with respect to any payment 
of wages made on or after April 20, 2021, and before the effective date 
mandated by section 3402(f)(3)(B)(i) and Sec.  31.3402(f)(3)-1(b). Under 
Sec.  31.3402(f)(4)-1(b), unless A furnishes a new withholding allowance 
certificate including the certifications described in Sec.  31.3402(n)-
1(a) to A's employer, the employer is required to deduct and withhold 
upon payments of wages to A made after February 15, 2022.
    (3) Example 3. Assume the facts are the same as in paragraph (e)(1) 
of this section (Example 1) except that for 2020 A has taxable income of 
$8,000, income tax liability of $839, and income tax withheld of $1,195. 
Although A received a refund of $356 due to income tax withholding of 
$1,195, A may not certify on A's withholding allowance certificate that 
A incurred no liability for income tax imposed by subtitle A for 2020.
    (f) Applicability date. The provisions of this section apply on and 
after October 6, 2020. Taxpayers may choose to apply paragraphs (a)(2) 
and (3) this section on or after January 1, 2020 and before October 6, 
2020. For rules that apply before October 6, 2020, see 26 CFR part 31, 
revised as of April 1, 2020.

[T.D. 9924, 85 FR 63036, Oct. 6, 2020]



Sec.  31.3402(o)-1  Extension of withholding to supplemental unemployment
compensation benefits.

    (a) In general. Withholding of income tax is required under section 
3402(o) with respect to payments of supplemental unemployment 
compensation benefits made after December 31, 1970, which are treated 
under paragraph (b)(14) of Sec.  31.3401(a)-1 as if they were wages.
    (b) Withholding exemption certificates. For purposes of section 
3402(f) (2) and (3) and the regulations thereunder (relating to 
withholding exemption certificates), in the case of supplemental 
unemployment compensation benefits an employment relationship shall be 
considered to commence with either the date on which such benefits begin 
to accrue or January 1, 1971, whichever is later, and the withholding 
exemption certificate furnished the employer with respect to such 
commencement of employment shall be considered the first certificate 
furnished the employer. The withholding exemption certificate furnished 
by the employee to his former employer (with whom his employment has 
been involuntarily terminated, within the meaning of paragraph 
(b)(14)(ii) of Sec.  31.3401(a)-1) shall be treated as meeting the 
requirements of section 3402(f)(2)(A) and the regulations thereunder if 
such former employer furnishes such certificate to the employee's 
current employer, as defined in paragraph (g) of Sec.  31.340(d)-1, or 
if such former employer is the agent of such current employer with 
respect to the employee's withholding exemption certificate. However, 
the preceding

[[Page 247]]

sentence shall not be applicable if such employee furnishes a new 
withholding exemption certificate to such current employer (or his 
agent), provided that such withholding exemption certificate meets the 
requirements of section 3402(f)(2)(A) and the regulations thereunder. 
See the definitions of payroll period in paragraph (c) of Sec.  
31.3401(b)-1 and of employee in paragraph (g) of Sec.  31.3401(c)-1.

[T.D. 7068, 35 FR 17329, Nov. 11, 1970, as amended by T.D. 7803, 47 FR 
3546, Jan. 26, 1982]



Sec.  31.3402(o)-2  Extension of withholding to annuity payments if
requested by payee.

    (a) In general. Under section 3402(o) of the Internal Revenue Code 
of 1954 and this section, the payee (as defined in paragraph (g)(2) of 
this section) of an annuity (as defined in paragraph (g)(1) of this 
section) may request the payor (as defined in paragraph (g)(3) of this 
section) of the annuity to withhold income tax with respect to payments 
of the annuity made after December 31, 1970. If such a request is made, 
the payor shall deduct and withhold as requested.
    (b) Manner of making request. A payee who wishes a payor to deduct 
and withhold income tax from annuity payments shall file a request with 
the payor to deduct and withhold a specific whole dollar amount from 
each annuity payment. Such specific dollar amount requested shall be at 
least $5 per month and shall not reduce the net amount of any annuity 
payment received by the payee below $10. The request shall be made on 
Form W-4P (annuitant's withholding exemption certificate and request) in 
accordance with the instructions applicable thereto, and shall set forth 
fully and clearly the data therein called for. In lieu of Form W-4P, 
payors may prepare and use a form the provisions of which are identical 
with those of Form W-4P.

For the requirements relating to Form W-4P with respect to qualified 
State individual income taxes, see paragraph (d)(3)(i) of Sec.  
301.6361-1 of this chapter (Regulations on Procedure and 
Administration).
    (c) When request takes effect. Upon receipt of a request under this 
section the payor of the annuity with respect to which such request was 
made shall deduct and withhold the amount specified in such request from 
each annuity payment commencing with the first annuity payment made on 
or after the date which occurs--
    (1) In a case in which no previous request is in effect, 3 calendar 
months after the date on which such request is furnished to such payor, 
and
    (2) In a case in which a previous request is in effect, the first 
status determination date (see section 3402(f)(3)(B) and paragraph (d) 
of Sec.  31.3402(f)(3)-1 of this chapter) which occurs at least 30 days 
after the date on which such request is so furnished.

However, the payor may, at his election, commence to deduct and withhold 
such specified amount with respect to an annuity payment which is made 
prior to the annuity payment described in the preceding sentence with 
respect to which the payor must commence to deduct and withhold.
    (d) Duration and termination of request. A request under this 
section shall continue in effect until terminated. The payee may 
terminate the request by furnishing the payor a signed written notice of 
termination. Such notice of termination shall, except as hereinafter 
provided, take effect with respect to the first payment of an amount in 
respect of which the request is in effect which is made on or after the 
first status determination date (see section 3402(f)(3)(B) and paragraph 
(d) of Sec.  31.3402(f)(3)-1 of this chapter) which occurs at least 30 
days after the date on which such notice is so furnished. However, at 
the election of such payor, such notice may be made effective with 
respect to any payment of an amount in respect of which the request is 
in effect which is made on or after the date on which such notice is so 
furnished and before such status determination date.
    (e) Special rules. For purposes of chapter 24 of subtitle C of the 
Internal Revenue Code of 1954 (relating to collection of income tax at 
source on wages) and of subtitle F of such Code (relating to procedure 
and administration), and the regulations thereunder--
    (1) An amount which is requested to be withheld pursuant to this 
section

[[Page 248]]

shall be deemed a tax required to be deducted and withheld under section 
3402.
    (2) An amount deducted and withheld pursuant to this section shall 
be deemed an amount deducted and withheld under section 3402.
    (3) The term ``wages'' includes the gross amount of an annuity 
payment with respect to which there is in effect a request for 
withholding under this section. However, references to the definition of 
wages in section 3401(a) which are made in section 6014 (relating to 
election by the taxpayor not to compute the tax on his annual return) 
and section 6015(a) (relating to declaration of estimated tax by 
individuals) shall not be deemed to include any portion of such an 
annuity payment.
    (4) The term ``employer'' includes a payor with respect to whom a 
request for withholding is in effect under this section.
    (5) The term ``employee'' includes a payee with respect to whom a 
request for withholding is in effect under this section.
    (6) The term ``payroll period'' includes the period of accrual with 
respect to which payments of an annuity which is subject to withholding 
under this section are ordinarily made.
    (f) Returns of income tax withheld and statements for payees. (1) 
Form W-2P is to be used in lieu of Form W-2, which is required to be 
furnished by an employer to an employee under Sec.  31.6051-1 of this 
chapter and to the Social Security Administration under paragraph (a) of 
Sec.  31.6051-2 of this chapter, with respect to an annuity subject to 
withholding under this section. If an amount is required to be deducted 
and withheld under this section from any or all of the payments made to 
a payee under an annuity contract during a calendar year, all payments 
with respect to that annuity contract are required to be reported on 
Form W-2P, in lieu of Form 1099, as prescribed in Sec. Sec.  1.6041-1, 
1.6041-2, and 1.6047-1 of this chapter; any other annuity payments made 
by the same payor to the same payee may, at the option of the payor, be 
reported on Form W-2P.
    (2) Each statement on Form W-2P shall show the following:
    (i) The gross amount of annuity payments made during the calendar 
year, whether or not income tax withholding under this section was in 
effect with respect to all such payments,
    (ii) The total amount deducted and withheld as tax under section 
3402 of this section, and
    (iii) The information required to be shown by Form W-2P and the 
instructions applicable thereto.

For the requirements relating to Form W-2P with respect to qualified 
State individual income taxes, see paragraph (d)(3)(ii) of Sec.  
301.6361-1 of this chapter (Regulations on Procedure and 
Administration).
    (3) The provisions of Sec.  1.9101-1 of this chapter (relating to 
permission to submit information required by certain returns and 
statements on magnetic tape) shall be applicable to the information 
required to be furnished on Form W-2P.
    (4) The provisions of Sec.  31.6109-1 of this chapter (relating to 
supplying of identifying numbers) shall be applicable to Form W-2P and 
to any payee of an annuity to whom a statement on Form W-2P is required 
to be furnished.
    (g) Definitions. For purposes of this section--
    (1) The term ``annuity'' means periodic payments which are payable 
over a period greater than 1 year and which are treated under section 72 
as amounts received as an annuity, whether or not such periodic payments 
are variable in amount. Also, periodic payments to an individual who is 
retired before the normal retirement age for reasons of disability, to 
which the provisions of section 105(d) apply, shall be deemed to be an 
annuity for purposes of this section. A lump-sum payment (including a 
total distribution under section 72(n)) is not an annuity.
    (2) The term ``payee'' means an individual who is a citizen or 
resident of the United States and who receives an annuity payment.
    (3) The term ``payor'' means a person making an annuity payment 
except that, if the person making the payment is acting soley as an 
agent for another person, the term ``payor'' shall mean such other 
person and not the person actually making the payment. For example, if a 
bank makes an annuity payment only as agent for an employees' trust, the 
trust shall be deemed to

[[Page 249]]

be the ``payor.'' Notwithstanding the preceding two sentences, any 
person who, under section 3401(a) (5) or (8), would not be required to 
deduct and withhold the tax under section 3402 if the annuity payment 
were remuneration for services shall not be considered a ``payor.''

(Sec. 7805, 68A Stat. 917; 26 U.S.C. 7805; 86 Stat. 944, 26 U.S.C. 6364; 
68A Stat. 747, 26 U.S.C. 6051)

[T.D. 7056, 35 FR 13436, Aug. 22, 1970, as amended by T.D. 7577, 43 FR 
59360, Dec. 20, 1978: T.D. 7580, 43 FR 60160, Dec. 26, 1978. 
Redesignated by T.D. 7803, 47 FR 3546, Jan. 26, 1982]



Sec.  31.3402(o)-3  Extension of withholding to sick pay.

    (a) In general. Under section 3402(o) of the Internal Revenue Code 
of 1954 and this section, the payee (as defined in paragraph (h)(2) of 
this section) of sick pay (as defined in paragraph (h)(1) of this 
section) may request the payor (as defined in paragraph (h)(3) of this 
section) of the sick pay to withhold income tax with respect to payments 
of sick pay made on or after May 1, 1981. If such a request is made, the 
payor must deduct and withhold as requested.
    (b) Manner of making request. A payee who wishes a payor to deduct 
and withhold income tax from sick pay shall file a written request with 
the payor to deduct and withhold a specific whole dollar amount (subject 
to the limitations of paragraph (c) of this section) from each sick pay 
payment. The request shall be made on Form W-4S in accordance with the 
instructions applicable thereto, and shall set forth fully and clearly 
the data therein called for. In lieu of Form W-4S, payors may prepare 
and use a form the provisions of which are identical to those of Form W-
4S. The payee must include his social security account number in the 
request.
    (c) Amount requested to be withheld. The payee shall request that 
the payor withhold a specific whole dollar amount. The specific whole 
dollar amount shall be at least $20 per weekly payment of sick pay. If 
the payee is paid sick pay computed on a daily basis, the specific whole 
dollar amount shall be at least $4 per daily payment of sick pay. If the 
payee is paid sick pay on a biweekly basis, the specific whole dollar 
amount shall be at least $40 per 2 week payment of sick pay. If the 
payee is paid sick pay on a semimonthly basis, the specific whole dollar 
amount shall be at least $44 per semimonthly payment of sick pay. If the 
payee is paid sick pay on a monthly basis, the specific whole dollar 
amount shall be at least $88 per monthly payment of sick pay. If the 
payee is paid sick pay on a basis other than weekly, daily, biweekly, 
semi-monthly, or monthly, the specific whole dollar amount shall be the 
equivalent of at least $4 per day, assuming a 5 day work week of 8 hours 
per day (40 hours total) in each 7 day calendar week. In the case of a 
payment which is greater or less than a full payment, the amount 
withheld is to bear the same relation to the specific whole dollar 
amount requested to be withheld as such payment bears to a full payment. 
For example, assume an individual receives sick pay of $100 per week and 
requests that $25 per week be withheld for taxes. After 4 full weeks of 
absence, the individual returns to work on a Wednesday (having been 
absent on sick leave Monday and Tuesday). For the week the individual 
returns to work, the individual would be entitled to $40 of sick pay, 
$10 of which would be withheld for taxes. The payor may, at his option, 
permit the payee to request that the payor withhold a specific 
percentage from each payment. The specific percentage shall be at least 
10 percent. If the payor so opts, the payor must also accept requests 
under the whole dollar method. If the amount requested to be withheld 
under either the whole dollar method or the optional percentage method 
reduces the net amount of a sick pay payment received by the payee to 
below $10, no income tax shall be withheld from that payment by the 
payor.
    (d) When request takes effect. The payor must deduct and withhold 
the amount specified in the request with respect to payments made more 
than 7 days after the date on which the request is received by the 
payor. At the election of the payor, the request may take effect before 
this deadline.

[[Page 250]]

    (e) Duration and termination of request. A request under this 
section shall continue in effect until changed or terminated. The payee 
may change the request by filing a new written request that meets all of 
the requirements of paragraphs (b) and (c) of this section. The new 
request shall take effect as specified in paragraph (d) of this section 
and the old request shall be deemed terminated when the new request 
takes effect. The payee may terminate the request by furnishing the 
payor a signed written notice of termination containing both a request 
to terminate withholding and all the information contained in the 
request to withhold. This written notice of termination shall take 
effect with respect to payments made more than 7 days after the date on 
which the notice of termination is received by the payor. At the 
election of the payor, the request may take effect before this deadline.
    (f) Special rules. For purposes of chapter 24 on subtitle C of the 
Internal Revenue Code of 1954 (relating to collection of income tax at 
source on wages) and of subtitle F of the Code (relating to procedure 
and administration), and the regulations thereunder--
    (1) An amount which is requested to be withheld pursuant to this 
section shall be deemed a tax required to be deducted and withheld under 
section 3402.
    (2) An amount deducted and withheld pursuant to this section shall 
be deemed an amount deducted and withheld under section 3402.
    (3) The term ``wages'' includes the gross amount of a sick pay 
payment with respect to which there is in effect a request for 
withholding under this section. However, references to the definition of 
wages in section 3401(a) which are made in section 6014 (relating to 
election by the taxpayer not to compute the tax on his annual return) 
and section 6015(a) (relating to declaration of estimated tax by 
individuals) shall not be deemed to include any portion of such a sick 
pay payment.
    (4) The term ``employer'' includes a payor with respect to whom a 
request for withholding is in effect under this section.
    (5) The term ``employee'' includes a payee with respect to whom a 
request for withholding is in effect under this section.
    (6) The term ``payroll period'' includes the period of accrual with 
respect to which payments of sick pay which are subject to withholding 
under this section are ordinarily made.
    (g) Statements required to be furnished to payees. See section 
6051(f) and the regulations thereunder for requirements relating to 
statements required to be furnished to payees.
    (h) Definitions. (1) (i) The term ``sick pay'' means any payment 
made to an individual which does not constitute wages (determined 
without regard to section 3402(o) and this section), which is paid to an 
employee pursuant to a plan to which the employer is a party, and which 
constitutes remuneration or a payment in lieu of remuneration for any 
period during which the employee is temporarily absent from work on 
account of personal injuries or sickness. The term ``personal injuries 
or sickness'' shall have the same meaning as ascribed thereto by section 
105(a) and the regulations thereunder. The term ``sick pay'' does not 
include any amounts either excludable from gross income under section 
104(a) (1), (2), (4) or (5) or section 105(b) or (c) or paid under 
section 3402(o)(1)(B). The term ``sick pay'' does not include amounts 
paid under a plan if all amounts paid under the plan are paid to 
individuals who are described in the first sentence of section 105(d)(4) 
(relating to the definition of permanent and total disability) and the 
regulations thereunder. Amounts paid under any other plan shall be 
deemed to be paid for a period during which the employee is temporarily 
absent from work. For sick pay paid in 1981 only, however, the payor may 
opt not to follow the rules of the two preceding sentences but to follow 
instead the rule that an employee is temporarily absent if his absence 
is not described in section 105(d)(4) (relating to the definition of 
permanent and total disability) and the regulations thereunder. An 
employer is not a party to the plan if the plan is a contract between 
only employees and a third party payor or the employer makes no 
contributions to provide sick pay benefits under the plan, even if the 
employer withholds amounts from the

[[Page 251]]

employees' salaries and pays the amounts over to the third party payor.
    (ii) This paragraph (h)(1) may be illustrated by the following 
examples:

    Example 1. Employee A works for P Company and Employee B works for Q 
Company. P Company has contracted with R Insurance Company for R to pay 
P's employees the equivalent of their normal wages when they are 
temporarily absent from work because of sickness or personal injury. Q 
Company has neither entered into such a contract, nor will it make such 
payments directly from it own funds. B consequently goes to S Insurance 
Company and purchases directly an insurance policy which will pay him 
the equivalent of his normal wages when he is unable to work because of 
sickness or personal injury. Both A and B are subsequently temporarily 
absent from work on account of sickness or personal injuries. A receives 
payments from R and B receives payments from S. Neither the payments 
made by R to A nor the payments made by S to B constitute wages 
(determined without regard to section 3402(o) and this section). A may 
request that R withhold income taxes under section 3402(o) and this 
section from the payments he receives because the payments are sick pay 
as defined in section 3402(o) and this section. B may not request that S 
withhold income taxes under section 3402(o) and this section from the 
payments he receives because the payments are not paid pursuant to a 
plan to which Q Company is a party and thus are not sick pay as defined 
in section 3402(o) and this section.
    Example 2. Employees C and D both work for T Company , which has 
contracted with U Insurance Company for U to pay T's employees for all 
sickness or injury claims Employee C is sick and out from work for a 
month. U pays C the equivalent of C's regular pay. Employee D loses his 
arm in an accident and U pays D $10,000. C may request that U withhold 
income taxes under section 3402(o) and this section from the payments he 
receives because the payments constitute remuneration or a payment in 
lieu of remuneration for any period during which the employee is 
temporarily absent from work on account of sickness or personal 
injuries. D may not request that U withhold income taxes from the 
payments he receives because the payments do not constitute remuneration 
or a payment in lieu of remuneration for any period during which the 
employee is temporarily absent from work on account of sickness or 
personal injuries.

    (2) The term ``payee'' means an individual who is a citizen or 
resident of the United States and who receives a sick pay payment.
    (3) (i) The term ``payor'' means any person making a sick pay 
payment who is not the employer (as defined in section 3401 and in Sec.  
31.3401(d)-1 (except paragraph (f) thereof)) of the payee. If however 
the person making the payment is acting solely as an agent for another 
person, the term ``payor'' shall mean the other person and not the 
person actually making the payment.
    (ii) This paragraph (h)(3) may be illustrated by the following 
examples:

    Example 1. X Company contracts with Y Insurance Company for Y to pay 
X's employees the equivalent of their normal wages when they are 
temporarily absent from work because of sickness or personal injury. Y 
computes the amount to be paid and determines the date payment is to be 
made for each of X's employees. Y then instructs Z Bank to issue a check 
for that amount on that date. Y reimburses Z for the amount of the check 
plus Z's administrative costs. Under these circumstances, Z is the agent 
of Y and Y is the payor under section 3402(o) and this section.
    Example 2. V Company contracts with W Company for W to pay V's 
employees the equivalent of their normal wages when they are temporarily 
absent from work on account of sickness or personal injury. Under the 
contractual arrangement, V advises W of the wages normally paid to each 
of V's employees. V tells W when an employee of V is temporarily absent 
from work on account of sickness or personal injury, and W computes the 
amount to be paid the employee and makes payments of sick pay to the 
employee during the period of the employee's absence. V subsequently 
reimburses W for the amount of those payments and pays W a fee for W's 
services. Under these circumstances, W is acting solely as the agent of 
V, and a payee may not request under section 3402(o) and these 
regulations that W withhold income taxes from his payments. However, see 
section 3401 and the regulations thereunder for the obligation of V to 
withhold income taxes from the payments that W makes as the agent of V, 
which are not excluded from income under section 105 and the regulations 
thereunder and which are wages under section 3401 and the regulations 
thereunder. See also Sec.  31.3402(g)-1 (relating to supplemental wage 
payments) for the conditions under which a flat percentage rate of 
withholding may be used.
    Example 3. Assume the same facts as in Example 2, except that the 
consideration for W's services is a set insurance premium rather than 
reimbursement for costs plus a fee. Under these circumstances W is the 
payor and is not acting solely as the agent of V. An employee of V to 
whom W makes payments

[[Page 252]]

under the agreement may request under section 3402(o) and the 
regulations thereunder that W withhold income taxes from those payments.

    (i) Special rules for sick pay paid pursuant to certain collective-
bargaining agreements. (1) Special rules (enumerated in subparagraph 
(2)) apply to sick pay where all of the following tests are met.
    (i) The sick pay must be paid pursuant to a collective-bargaining 
agreement between employee representatives and one or more employers.
    (ii) The agreement must contain a provision that section 3402(o)(5) 
is to apply to sick pay paid pursuant to the agreement.
    (iii) The agreement must contain a provision for determining the 
amount to be deducted and withheld from each payment of sick pay.
    (iv) The social security number of the payee must be furnished to 
the payor. The agreement may provide that the employer will furnish this 
or the payee may furnish his social security number directly to the 
payor.
    (v) The payor must be furnished with information that is necessary 
for the payor to determine whether the payment is pursuant to the 
agreement and to determine the amount to be deducted and withheld. The 
agreement may provide that the employer will furnish this information 
directly to the payor.
    (2) The following special rules apply to sick pay where all of the 
tests of subparagraph (1) are met.
    (i) The requirement of section 3402(o)(1)(c) and this section that a 
request for withholding be in effect does not apply.
    (ii) The amount to be deducted and withheld from the sick pay shall 
be determined according to the provisions of the agreement and not 
according to this section. This rule shall not however apply--
    (A) To payments enumerated in section 3402(n) (relating to employees 
incurring no income tax liability) and the regulations thereunder, or
    (B) To payments made to a payee more than 7 days after the date that 
the payor receives a statement from the payee that the payee expects to 
claim an exclusion from gross income under section 105(d). Such 
statement must include adequate verification of disability. A 
certificate from a qualified physician attesting that the employee is 
permanently and totally disabled (within the meaning of section 105(d)) 
shall be deemed to constitute adequate verification. If the payor 
receives such a statement, the payor shall not withhold any income tax 
from the payments made to the payee, regardless of the provisions of the 
collective bargaining agreement. This exception from withholding does 
not affect the requirements of Sec.  31.6051-3.

(Secs. 3402(o), 7805, Internal Revenue Code of 1954 (94 Stat. 3495, (26 
U.S.C. 3402(o)); 68A Stat. 917 (26 U.S.C. 7805)))

[T.D. 7813, 47 FR 11277, Mar. 16, 1982, as amended by T.D. 7915, 48 FR 
44076, Sept. 27, 1983]



Sec.  31.3402(p)-1  Voluntary withholding agreements.

    (a) Employer-employee agreement. An employee and his employer may 
enter into an agreement under section 3402(p)(3)(A) to provide for the 
withholding of income tax upon payments of amounts described in 
paragraph (b)(1) of Sec.  31.3401(a)-3, made after December 31, 1970. An 
agreement may be entered into under this section only with respect to 
amounts which are includible in the gross income of the employee under 
section 61, and must be applicable to all such amounts paid by the 
employer to the employee. The amount to be withheld pursuant to an 
agreement under section 3402(p)(3)(A) shall be determined under the 
rules contained in section 3402 and the regulations thereunder. See 
Sec.  31.3405(c)-1, Q&A-3 concerning agreements to have more than 20-
percent Federal income tax withheld from eligible rollover distributions 
within the meaning of section 402.
    (b) Form and duration of employer-employee agreement. (1)(i) Except 
as provided in subdivision (ii) of this subparagraph, an employee who 
desires to enter into an agreement under section 3402(p)(3)(A) shall 
furnish his employer with Form W-4 (withholding exemption certificate) 
executed in accordance with the provisions of section 3402(f) and the 
regulations thereunder. The

[[Page 253]]

furnishing of such Form W-4 shall constitute a request for withholding.
    (ii) In the case of an employee who desires to enter into an 
agreement under section 3402(p)(3)(A) with his employer, if the employee 
performs services (in addition to those to be the subject of the 
agreement) the remuneration for which is subject to mandatory income tax 
withholding by such employer, or if the employee wishes to specify that 
the agreement terminate on a specific date, the employee shall furnish 
the employer with a request for withholding which shall be signed by the 
employee, and shall contain--
    (a) The name, address, and social security number of the employee 
making the request,
    (b) The name and address of the employer,
    (c) A statement that the employee desires withholding of Federal 
income tax, and applicable, of qualified State individual income tax 
(see paragraph (d)(3)(i) of Sec.  301.6361-1 of this chapter 
(Regulations on Procedures and Administration)), and
    (d) If the employee desires that the agreement terminate on a 
specific date, the date of termination of the agreement.


If accepted by the employer as provided in subdivision (iii) of this 
subparagraph, the request shall be attached to, and constitute part of, 
the employee's Form W-4. An employee who furnishes his employer a 
request for withholding under this subdivision shall also furnish such 
employer with Form W-4 if such employee does not already have a Form W-4 
in effect with such employer.
    (iii) No request for withholding under section 3402(p)(3)(A) shall 
be effective as an agreement between an employer and an employee until 
the employer accepts the request by commencing to withhold from the 
amounts with respect to which the request was made.
    (2) An agreement under section 3402(p)(3)(A) shall be effective for 
such period as the employer and employee mutually agree upon. However, 
either the employer or the employee may terminate the agreement prior to 
the end of such period by furnishing a signed written notice to the 
other. Unless the employer and employee agree to an earlier termination 
date, the notice shall be effective with respect to the first payment of 
an amount in respect of which the agreement is in effect which is made 
on or after the first ``status determination date'' (January 1, May 1, 
July 1, and October 1 of each year) that occurs at least 30 days after 
the date on which the notice is furnished. If the employee executes a 
new Form W-4, the request upon which an agreement under section 
3402(p)(3)(A) is based shall be attached to, and constitute a part of, 
such new Form W-4.
    (c) Other payments. The Secretary may issue guidance by publication 
in the Internal Revenue Bulletin (IRB) (which will be available at 
www.IRS.gov) describing other payments for which withholding under a 
voluntary withholding agreement would be appropriate and authorizing 
payors to agree to withhold income tax on such payments if requested by 
the payee. Requirements regarding the form and duration of voluntary 
withholding agreements authorized by this paragraph (c) will be provided 
in the IRB guidance issued regarding specific types of payments.
    (d) Effective/applicability date. (1) This section applies on and 
after September 16, 2014.

(86 Stat. 944, 26 U.S.C. 6364; 68A Stat. 917, 26 U.S.C. 7805)

[T.D. 7096, 36 FR 5216, Mar. 18, 1971, as amended by T.D. 7577, 43 FR 
59359, Dec. 20, 1978; T.D. 8619, 60 FR 49215, Sept. 22, 1995; T.D. 9692, 
79 FR 55363, Sept. 16, 2014]



Sec.  31.3402(q)-1  Extension of withholding to certain gambling winnings.

    (a) Withholding obligation--(1) General rule. Every person, 
including the Government of the United States, a State, or a political 
subdivision thereof, or any instrumentality of any of the foregoing 
making any payment of ``winnings subject to withholding'' (defined in 
paragraph (b) of the section) must deduct and withhold a tax in an 
amount equal to the product of the third lowest rate of tax applicable 
under section 1(c) and the payment. The tax must be deducted and 
withheld upon payment of the winnings by the person making the payment 
(``payer''). See paragraph (c)(5)(ii) of this section

[[Page 254]]

for a special rule relating to the time for making deposits of withheld 
amounts and filing the return with respect to those amounts. Any person 
receiving a payment of winnings subject to withholding must furnish the 
payer a statement as required in paragraph (d) of this section. Payers 
of winnings subject to withholding must file a return with the Internal 
Revenue Service and furnish a statement to the payee as required in 
paragraph (e) of this section. With respect to reporting requirements 
for certain payments of gambling winnings not subject to withholding, 
see section 6041 and the regulations thereunder.
    (2) Exceptions. The tax imposed under section 3402(q)(1) and this 
section shall not apply (i) with respect to a payment of winnings which 
is made to a nonresident alien individual or foreign corporation under 
the circumstances described in paragraph (c)(4) of this section or (ii) 
with respect to a payment of winnings from a slot machine play, or a 
keno or bingo game.
    (b) Winnings subject to withholding--(1) In general. Winnings 
subject to withholding means any payment from--
    (i) A wager placed in a State-conducted lottery (defined in 
paragraph (c)(2) of this section) but only if the proceeds from the 
wager exceed $5,000;
    (ii) A wager placed in a sweepstakes, wagering pool, or lottery 
other than a State-conducted lottery but only if the proceeds from the 
wager exceed $5,000; or
    (iii) Any other wagering transaction (as defined in paragraph (c)(3) 
of this section) but only if the proceeds from the wager:
    (A) Exceed $5,000; and
    (B) Are at least 300 times as large as the amount of the wager.
    (2) Total proceeds subject to withholding. If proceeds from the 
wager qualify as winnings subject to withholding, then the total 
proceeds from the wager, and not merely amounts in excess of $5,000, are 
subject to withholding.
    (c) Definitions; special rules--(1) Rules for determining amount of 
proceeds from a wager--(i) In general. The amount of proceeds from a 
wager is the amount paid with respect to the wager, less the amount of 
the wager.
    (ii) Amount of the wager in the case of horse races, dog races, and 
jai alai. In the case of a wagering transaction with respect to horse 
races, dog races, or jai alai, all wagers placed in a single parimutuel 
pool and represented on a single ticket are aggregated and treated as a 
single wager for purposes of determining the amount of the wager. A 
ticket in the case of horse races, dog races, or jai alai is a written 
or electronic record that the payee must present to collect proceeds 
from a wager or wagers.
    (iii) Amount paid with respect to a wager--(A) Identical wagers. 
Amounts paid with respect to identical wagers are treated as paid with 
respect to a single wager for purposes of calculating the amount of 
proceeds from a wager. Two or more wagers are identical wagers if 
winning depends on the occurrence (or non-occurrence) of the same event 
or events; the wagers are placed with the same payer; and, in the case 
of horse races, dog races, or jai alai, the wagers are placed in the 
same parimutuel pool. Wagers may be identical wagers even if the amounts 
wagered differ as long as the wagers are otherwise treated as identical 
wagers under this paragraph (c)(1)(iii)(A). Tickets purchased in a 
lottery generally are not identical wagers, because the designation of 
each ticket as a winner generally would not be based on the occurrence 
of the same event, for example, the drawing of a particular number.
    (B) Non-monetary proceeds. In determining the amount paid with 
respect to a wager, proceeds which are not money are taken into account 
at the fair market value.
    (C) Periodic payments. Periodic payments, including installment 
payments or payments which are to be made periodically for the life of a 
person, are aggregated for purposes of determining the amount paid with 
respect to the wager. The aggregate amount of periodic payments to be 
made for a person's life is based on that person's life expectancy. See 
Sec. Sec.  1.72-5 and 1.72-9 of this chapter for rules used in computing 
the expected return on annuities. For purposes of determining the amount 
subject to withholding, the

[[Page 255]]

first periodic payment must be reduced by the amount of the wager.
    (2) Wager placed in a State-conducted lottery. The term ``wager 
placed in a State-conducted lottery'' means a wager placed in a lottery 
conducted by an agency of a State acting under authority of State law 
provided that the wager is placed with the State agency conducting such 
lottery or with its authorized employees or agents. This term includes 
wagers placed in State-conducted lotteries in which the amount of 
winnings is determined by a parimutuel system.
    (3) Other wagering transaction. The term ``other wagering 
transaction'' means any wagering transaction other than one in a 
lottery, sweepstakes, or wagering pool. This term includes a wagering 
transaction in a parimutuel pool with respect to horse races, dog races, 
or jai alai.
    (4) Certain payments to nonresident aliens or foreign corporations. 
A payment of winnings that is subject to withholding tax under section 
1441(a) (relating to withholding on nonresident aliens) or 1442(a) 
(relating to withholding on foreign corporations) is not subject to the 
tax imposed by section 3402(q) and this section when the payee is a 
foreign person, as determined under the rules of section 1441(a) and the 
regulations thereunder. A payment is treated as being subject to 
withholding tax under section 1441(a) or 1442(a) notwithstanding that 
the rate of such tax is reduced (even to zero) as may be provided by an 
applicable treaty with another country. However, a reduced or zero rate 
of withholding of tax must not be applied by the payer in lieu of the 
rate imposed by sections 1441 and 1442 unless the person receiving the 
winnings has provided to the payer the documentation required by Sec.  
1.1441-6 of this chapter to establish entitlement to treaty benefits.
    (5) Gambling winnings treated as payments by employer to employee. 
(i) Except as provided in subdivision (ii), for purposes of sections 
3403 and 3404 and the regulations thereunder and for purposes of so much 
of subtitle F (except section 7205) and the regulations thereunder as 
relate to chapter 24, payments to any person of winnings subject to 
withholding under this section shall be treated as if they are wages 
paid by an employer to an employee.
    (ii) Solely for purposes of applying the deposit rules under 6302(c) 
and the return requirement of section 6011, the withholding from 
winnings shall be deemed to have been made no earlier than at the time 
the winner's identity is known to the payer. Thus, for example, winnings 
from a State-conducted lottery are subject to withholding when actually 
or constructively paid, whichever is earlier; however, the time for 
depositing the withheld taxes and filing a return with respect thereto 
shall be determined by reference to the date on which the winner's 
identity is known to the State, if such date is later than the date on 
which the winnings are actively or constructively paid. If a payer's 
obligation to pay winnings terminates other than by payment, all 
liabilities and requirements resulting from the requirement that the 
payer deduct and withhold with respect to such winnings shall also 
terminate.

    (d) Statement furnished by payee--(1) In general. Each person who is 
making a payment subject to withholding under this section must obtain 
from the payee a statement described in paragraph (d)(2) of this 
section.
    (2) Contents of statement. Each person who is to receive a payment 
of winnings subject to withholding under this section must furnish the 
payer a statement on Form W-2G or 5754 (whichever is applicable) made 
under the penalties of perjury containing--
    (i) The name, address, and taxpayer identification number of the 
winner accompanied by a declaration that no other person is entitled to 
any portion of such payment, or
    (ii) The name, address, and taxpayer identification number of the 
payee and of every person entitled to any portion of the payment.
    (3) Multiple payments. If more than one payment of winnings subject 
to withholding is to be made with respect to a single wager, for example 
in the case of an annuity, the payee is required to furnish the payer a 
statement with respect to the first payment only, provided that the 
other payments are taken into account in a return required by paragraph 
(e) of this section.

[[Page 256]]

    (4) Reliance on statement for identical wagers. If the payee 
furnishes the statement which may be required pursuant to Sec.  1.6011-3 
of this chapter (regarding the requirement of a statement from payees of 
certain gambling winnings), indicating that the payee (and any other 
persons entitled to a portion of the winnings) is entitled to winnings 
from identical wagers, as defined in paragraph (c)(1)(iii)(A) of this 
section, and indicating the amount of the winnings, if any, then the 
payer may rely upon the statement in determining the total amount of 
proceeds from the wager under paragraph (c)(1) of this section.
    (e) Return of payer--(1) In general. Every person making payment of 
winnings for which a statement is required under paragraph (d) of this 
section must file a return on Form W-2G at the Internal Revenue Service 
location designated in the instructions to the form on or before 
February 28 (March 31 if filed electronically) of the calendar year 
following the calendar year in which the payment of winnings is made. 
The return required by this paragraph (e) need not include the statement 
by the payee required by paragraph (d) of this section and, therefore, 
need not be signed by the payee, provided the statement is retained by 
the payer as long as its contents may become material in the 
administration of any internal revenue law. In addition, the return 
required by this paragraph (e) need not contain the information required 
by paragraph (e)(1)(v) of this section provided the information is 
obtained with respect to the payee and retained by the payer as long as 
its contents may become material in the administration of any internal 
revenue law. For payments to more than one winner, a separate Form W-2G, 
which in no event need be signed by the winner, must be filed with 
respect to each such winner. Each Form W-2G must contain the following:
    (i) The name, address, and taxpayer identification number of the 
payer;
    (ii) The name, address, and taxpayer identification number of the 
winner;
    (iii) The date, amount of the payment, and amount withheld;
    (iv) The type of wagering transaction;
    (v) Except with respect to winnings from a wager placed in a State-
conducted lottery, a general description of the two types of 
identification (as described in paragraph (e)(2) of this section), one 
of which must have the payee's photograph on it (except in the case of 
tribal member identification cards in certain circumstances as described 
in paragraph (e)(3) of this section), that the payer relied on to verify 
the payee's name, address, and taxpayer identification number;
    (vi) The amount of winnings from identical wagers; and
    (vii) Any other information required by the form, instructions, or 
other applicable guidance published in the Internal Revenue Bulletin.
    (2) Identification. The following items are treated as 
identification for purposes of paragraph (e)(1)(v) of this section--
    (i) Government-issued identification (for example, a driver's 
license, passport, social security card, military identification card, 
tribal member identification card issued by a federally-recognized 
Indian tribe, or voter registration card) in the name of the payee; and
    (ii) A Form W-9, ``Request for Taxpayer Identification Number and 
Certification,'' signed by the payee that includes the payee's name, 
address, taxpayer identification number, and other information required 
by the form. A Form W-9 is not acceptable for this purpose if the payee 
has modified the form (other than pursuant to instructions to the form) 
or if the payee has deleted the jurat or other similar provisions by 
which the payee certifies or affirms the correctness of the statements 
contained on the form.
    (3) Special rule for tribal member identification cards. A tribal 
member identification card need not contain the payee's photograph to 
meet the identification requirement described in paragraph (e)(1)(v) of 
this section if--
    (i) The payee is a member of a federally-recognized Indian tribe;
    (ii) The payee presents the payer with a tribal member 
identification card issued by a federally-recognized Indian tribe 
stating that the payee is a member of such tribe; and

[[Page 257]]

    (iii) The payer is a gaming establishment (as described in Sec.  
1.6041-10(b)(2)(iv) of this chapter) owned or licensed (in accordance 
with 25 U.S.C. 2710) by the tribal government that issued the tribal 
member identification card referred to in paragraph (e)(3)(ii) of this 
section.
    (4) Transmittal form. Persons making payments of winnings subject to 
withholding must use Form 1096 to transmit Forms W-2G to the Internal 
Revenue Service.
    (5) Furnishing a statement to the payee. Every payer required to 
make a return under paragraph (e)(1) of this section must also make and 
furnish to each payee, with respect to each payment of winnings subject 
to withholding, a written statement that contains the information that 
is required to be included on the return under paragraph (e)(1) of this 
section. The payer must furnish the statement to the payee on or before 
January 31st of the year following the calendar year in which payment of 
the winnings subject to withholding is made. The statement will be 
considered furnished to the payee if it is provided to the payee at the 
time of payment or if it is mailed to the payee on or before January 
31st of the year following the calendar year in which payment was made.
    (f) Examples. The provisions of this section may be illustrated by 
the following examples:

    Example 1. A purchases a lottery ticket for $1 in the State W 
lottery from an authorized agent of State W. On February 1, 1977, the 
drawing is held and A wins $5,001. Since the proceeds of the wager 
($5,001--$1) are not greater than $5,000, State W is not required to 
withhold or deduct any amount from A's winnings.
    Example 2. Assume the same facts as in example 1 except that A 
purchases two $1 tickets and that A wins $5,002 when one of the tickets 
is drawn. State W must deduct and withhold tax at a rate of 20% from 
$5,001 ($5,002 less the $1 wager), or $1,000.20.
    Example 3. C purchases a lottery ticket for $1. On June 1, 1979, the 
lottery drawing is held and C wins the grand prize of $50,000, payable 
$500 monthly. The payer must deduct and withhold tax at a rate of 20% 
from each payment of winnings. Therefore, $99.80 must be withheld from 
the first monthly payment to B ($500-$1) x 20% = $99.80) and $100 ($500 
x 20%) must be withheld from each monthly payment thereafter.
    Example 4. Assume the same facts as in example 3, except that C wins 
an automobile rather than the grand prize. The fair market value of the 
automobile on the date on which it is made available to C is $10,000. 
The payer must deduct and withhold a tax of $2,000 (($10,001-$1) x 20%). 
This may be accomplished, for example, if C pays $2,000 to the payer. 
Alternatively, if the payer, as part of the prize, pays all taxes 
required to be duducted and withheld, the payer must deduct and withhold 
tax not only on the fair market value of the automobile less the wager, 
but also on the taxes it pays that are required to be deducted and 
withheld. This results in a pyramiding of taxes requiring the use of an 
algebraic formula. Under this formula, the payer must deduct and 
withhold a tax of 25 percent of the fair market value of the automobile 
less the wager ($2,500) and, in addition, the payer must indicate on 
Form W-2G the amount of such winnings as $12,501 ($10,001 + 25%($10,001-
$1)).
    Example 5. D purchases a ticket for $1 in the State Y lottery from 
an authorized agent of State Y On January 1, 1976, a drawing is held and 
D wins $100 a month for the rest of D's life. It is actuarially 
determined that, on January 3, 1977, D's life expectancy is 5 years. 
Based on that determination, the proceeds from the wager paid to D on or 
after January 3, 1977, will exceed $5,000. Therefore, State Y must 
deduct and withhold $20 from each monthly payment made on or after 
January 3, 1977. (None of such payments is reduced by the amount of the 
wager because the amount of the wager was offset by the first payment of 
winnings which was made before January 3, 1977)).
    Example 6. Assume the same facts as in example 5 except that State Y 
purchases in its own name, as owner, an annuity of $100 a month for D's 
life from E Corporation, in order to fund its own obligation to make the 
payments. Although State Y remains liable for the withholding of tax, E 
Corporation as paying agent for State Y, making payments directly to D, 
should deduct and withhold from each monthly payment in the manner 
described in example 5.
    Example 7. E purchases a sweepstakes ticket for $1 in a sweepstakes 
conducted by W. E purchases the ticket on behalf of himself and on 
behalf of F and G, who have contributed equal amounts toward the 
purchase of the ticket and who have agreed to share equally in any 
prizes won. The ticket which E purchases wins $1,002. Since the proceeds 
of the wager ($1,002--$1) are greater than $1,000 W is required to 
withhold and deduct 20 percent of such proceeds.
    Example 8. On February 1, 1977, a drawing is held in the State X 
lottery in which a winning ticket is selected. The person holding the 
winning ticket is entitled to proceeds of $100,000 payable either as a 
lump sum upon demand or $10,000 a year for 10 years. Under

[[Page 258]]

State law, the winning ticket must be presented to an authorized agent 
of State X before February 1, 1978. Until the ticket is presented, State 
X does not know the identity of the winner. On December 1, 1977, H, the 
winner, presents the winning ticket to an authorized agent of the State 
X lottery. The winnings are constructively paid to H on February 1, 
1977. Since H, has the option of receiving the entire proceeds upon 
demand, State X is required to deduct and withhold $20,000 ($100,000 x 
20%) from the proceeds of H's winnings on February 1, 1977; but for 
purposes of determining the time at which the deposit and inclusion on 
Form 941 of these taxes is to be made, the withholding shall be deemed 
to have beem made on December 1, 1977.
    Example 9. J purchases a subscription to N magazine, at the regular 
subscription price. All new subscribers are automatically eligible for a 
special drawing. The drawing is held and J wins $50,000. Since J has not 
paid any more than the regular subscription price, J has not placed a 
wager or entered a wagering transaction. Therefore, N is not required to 
deduct and withhold J's winnings.
    Example 10. (i) B places a $15 bet at the cashier window at the 
racetrack for horse A to win the fifth race at the racetrack that day. 
After placing the first bet, B gains confidence in horse A's prospects 
to win and places an additional $40 bet at the cashier window at the 
racetrack for horse A to win the fifth race, receiving a second ticket 
for this second bet. Horse A wins the fifth race, and B wins a total of 
$5,500 (100 to 1 odds) on those bets. The $15 bet and the $40 bet are 
identical wagers under paragraph (c)(1)(iii)(A) of this section because 
winning on both bets depended on the occurrence of the same event and 
the bets are placed in the same parimutuel pool with the same payer. 
This is true regardless of the fact that the amount of the wager differs 
in each case.
    (ii) B cashes the tickets at different cashier windows. Pursuant to 
paragraph (d) of this section and Sec.  1.6011-3, B completes a Form W-
2G indicating that the amount of winnings is from identical wagers and 
provides the form to each cashier. The payments by each cashier of 
$1,500 and $4,000 are less than the $5,000 threshold for withholding, 
but under paragraph (c)(1)(iii)(A) of this section, identical wagers are 
treated as paid with respect to a single wager for purposes of 
determining the proceeds from a wager. The payment is not subject to 
withholding or reporting because although the proceeds from the wager 
are $5,445 ($1,500 + $4,000 - $55), the proceeds from the wager are not 
at least 300 times as great as the amount wagered ($55 x 300 = $16,500).
    Example 11. B makes two $1,000 bets in a single ``show'' pool for 
the same jai alai game, one bet on Player X to show and one bet on 
Player Y to show. A show bet is a winning bet if the player comes in 
first, second, or third in a single game. The bets are placed at the 
same time at the same cashier window, and B receives a single ticket 
showing both bets. Player X places second in the game, and Player Y does 
not place first, second, or third in the game. B wins $8,000 from his 
bet on Player X. Because winning on both bets does not depend on the 
occurrence of the same event, the bets are not identical bets under 
paragraph (c)(1)(iii)(A) of this section. However, pursuant to the rule 
in paragraph (c)(1)(ii) of this section, the amount of the wager is the 
aggregate amount of both wagers ($2,000) because the bets were placed in 
a single parimutuel pool and reflected on a single ticket. The payment 
is not subject to withholding or reporting because although the proceeds 
from the wager are $6,000 ($8,000 - $2,000), the proceeds from the wager 
are not at least 300 times as great as the amount wagered ($2,000 x 300 
= $600,000).
    Example 12. B bets a total of $120 on a three-dog exacta box bet 
($20 for each one of the six combinations played) at the dog racetrack 
and receives a single ticket reflecting the bet from the cashier. B wins 
$5,040 from one of the selected combinations. Pursuant to the rule in 
paragraph (c)(1)(ii) of this section, the amount of the wager is $120, 
not $20 for the single winning combination of the six combinations 
played. The payment is not subject to withholding under section 3402(q) 
because the proceeds from the wager are $4,920 ($5,040 - $120), which is 
below the section 3402(q) withholding threshold.
    Example 13. B makes two $12 Pick 6 bets at the horse racetrack at 
two different cashier windows and receives two different tickets each 
representing a single $12 Pick 6 bet. In his two Pick 6 bets, B selects 
the same horses to win races 1-5 but selects different horses to win 
race 6. All Pick 6 bets on those races at that racetrack are part of a 
single parimutuel pool from which Pick 6 winning bets are paid. B wins 
$5,020 from one of his Pick 6 bets. Pursuant to the rule in paragraph 
(c)(1)(ii) of this section, the bets are not aggregated for purposes of 
determining the amount of the wager because the bets are reflected on 
separate tickets. Assuming that the applicable rate is 25%, the 
racetrack must deduct and withhold $1,252 (($5,020 - $12) x 25%) because 
the amount of the proceeds of $5,008 ($5,020 - $12) is greater than 
$5,000 and is at least 300 times as great as the amount wagered ($12 x 
300 = $3,600). The racetrack also must report B's winnings on Form W-2G 
pursuant to paragraph (e) of this section and furnish a copy of the Form 
W-2G to B.
    Example 14. C makes two $50 bets in two different parimutuel pools 
for the same jai alai game. One bet is an ``exacta'' in which C bets on 
player M to win and player N to ``place.'' The other bet is a 
``trifecta'' in which C bets on player M to win, player N to

[[Page 259]]

``place,'' and player O to ``show.'' C wins both bets and is paid $2,000 
with respect to the bet in the ``exacta'' pool and $3,100 with respect 
to the bet in the ``trifecta'' pool. Under paragraph (c)(1)(iii)(A) of 
this section, the bets are not identical bets. Under paragraph 
(c)(1)(ii) of this section, the bets are not aggregated for purposes of 
determining the amount of the wager for either payment because they are 
not wagers in the same parimutuel pool. No section 3402(q) withholding 
is required on either payment because neither payment separately exceeds 
the $5,000 withholding threshold.
    Example 15. C makes two $100 bets for the same dog to win a 
particular race. C places one bet at the racetrack and one bet at an 
off-track betting establishment, but the two pools constitute a single 
pool. C receives separate tickets for each bet. C wins both bets and is 
paid $4,000 from the racetrack and $4,000 from the off-track betting 
establishment. Under paragraph (c)(1)(ii) of this section, the bets are 
not aggregated for purposes of determining the amount of the wager 
because the wager placed at the racetrack and the wager placed at the 
off-track betting establishment are reflected on separate tickets, 
despite being placed in the same parimutuel pool. No section 3402(q) 
withholding is required because neither payment separately exceeds the 
$5,000 withholding threshold.
    Example 16. C places a $200 Pick 6 bet for a series of races at the 
racetrack on a particular day and receives a single ticket for the bet. 
No wager correctly picks all six races that day, so that portion of the 
pool carries over to the following day. On the following day, C places 
an additional $200 Pick 6 bet for that day's series of races and 
receives a new ticket for that bet. C wins $100,000 on the second day. 
Pursuant to the rule in paragraph (c)(1)(ii) of this section, the bets 
are on two separate tickets, so C's two Pick 6 bets are not aggregated 
for purposes of determining the amount of the wager. Assuming that the 
applicable rate is 25%, the racetrack must deduct and withhold $24,950 
(($100,000 - $200) x 25%) because the amount of the proceeds of $99,800 
($100,000 - $200) is greater than $5,000, and is at least 300 times as 
great as the amount wagered ($200 x 300 = $60,000). The racetrack also 
must report C's winnings on Form W-2G pursuant to paragraph (e) of this 
section and furnish a copy of the Form W-2G to C.
    (g) Applicability date. The rules in this section apply to payments 
made with respect to a winning event that occurs after November 13, 
2017. For rules that apply to payments made with respect to a winning 
event on or before that date, see Sec.  31.3402(q)-1 as contained in 26 
CFR part 31, revised April 1, 2017.

(Secs. 6011 and 7805 of the Internal Revenue Code of 1954 (68A Stat. 
732, 917; 26 U.S.C. 6011, 7805)

[T.D. 7787, 46 FR 46908, Sept. 23, 1981, as amended by T.D. 7919, 48 FR 
46298, Oct. 12, 1983; 48 FR 55728, Dec. 15, 1983; T.D. 7943, 49 FR 5345, 
Feb. 13, 1984; 49 FR 8437, Mar. 7, 1984; T.D. 8895, 65 FR 50408, Aug. 
18, 2000; T.D. 9824, 82 FR 44926, Sept. 27, 2017]



Sec.  31.3402(r)-1  Withholding on distributions of Indian gaming profits
to tribal members.

    (a) (1) General rule. Section 3402(r)(1) requires every person, 
including an Indian tribe, making a payment to a member of an Indian 
tribe from the net revenues of any class II or class III gaming 
activity, as defined in 25 U.S.C. 2703, conducted or licensed by such 
tribe to deduct and withhold from such payment a tax in an amount equal 
to such payment's proportionate share of the annualized tax, as that 
term is defined in section 3402(r)(3).
    (2) Withholding tables. Except as provided in paragraph (a)(4) of 
this section, the amount of a payment's proportionate share of the 
annualized tax shall be determined under the applicable table provided 
by the Commissioner.
    (3) Annualized amount of payment. Section 3402(r)(5) provides that 
payments shall be placed on an annualized basis under regulations 
prescribed by the Secretary. A payment may be placed on an annualized 
basis by multiplying the amount of the payment by the total number of 
payments to be made in a calendar year. For example, a monthly payment 
may be annualized by multiplying the amount of the payment by 12. 
Similarly, a quarterly payment may be annualized by multiplying the 
amount of the payment by 4.
    (4) Alternate withholding procedures--(i) In general. Any procedure 
for determining the amount to be deducted and withheld under section 
3402(r) may be used, provided that the amount of tax deducted and 
withheld is substantially the same as it would be using the tables 
provided by the Commissioner under paragraph (a)(2) of this section. At 
the election of an Indian tribe, the amount to be deducted and withheld

[[Page 260]]

under section 3402(r) shall be determined in accordance with this 
alternate procedure.
    (ii) Method of election. It is sufficient for purposes of making an 
election under this paragraph (a)(4) that an Indian tribe evidence the 
election in any reasonable way, including use of a particular method. 
Thus, no written election is required.
    (5) Additional withholding permitted. Consistent with the provisions 
of section 3402(p), a tribal member and a tribe may enter into an 
agreement to provide for the deduction and withholding of additional 
amounts from payments in order to satisfy the anticipated tax liability 
of the tribal member. The agreement may be made in a manner similar to 
that described in Sec.  31.3402(p)-1 (with respect to voluntary 
withholding agreements between employees and employers).
    (b) Effective date. This section applies to payments made after 
December 31, 1994.

[T.D. 8634, 60 FR 65238, Dec. 19, 1995]



Sec.  31.3403-1  Liability for tax.

    Every employer required to deduct and withhold the tax under section 
3402 from the wages of an employee is liable for the payment of such tax 
whether or not it is collected from the employee by the employer. If, 
for example, the employer deducts less than the correct amount of tax, 
or if he fails to deduct any part of the tax, he is nevertheless liable 
for the correct amount of the tax. See, however, Sec.  31.3402(d)-1. The 
employer is relieved of liability to any other person for the amount of 
any such tax withheld and paid to the district director or deposited 
with a duly designated depositary of the United States.



Sec.  31.3404-1  Return and payment by governmental employer.

    If the United States, or a State, Territory, Puerto Rico, or a 
political subdivision thereof, or the District of Columbia, or any 
agency or instrumentality of any one or more of the foregoing, is an 
employer required to deduct and withhold tax under Chapter 24, the 
return of the amount deducted and withheld as such tax may be made by 
the officer or employee having control of the payment of the wages or 
other officer or employee appropriately designated for that purpose. 
(For provisions relating to the execution and filing of returns, see 
Subpart G of the regulations in this part.)



Sec.  31.3405(a)-1  Questions and answers relating to Federal income
tax withholding on periodic retirement and annuity payments.

    (a) The questions and answers in this section relate to Federal 
income tax withholding on periodic payments under section 3405(a), as 
amended by section 11041(c)(2)(G) of the Tax Cuts and Jobs Act (Pub. L. 
115-97, 131 Stat. 2054 (2017)). The withholding rules of section 3405(a) 
do not apply to periodic payments that are eligible rollover 
distributions (as defined in section 402(f)(2)(A)). See generally 
section 3405(c) and Sec.  31.3405(c)-1 for Federal income tax 
withholding rules applicable to eligible rollover distributions. See 
section 3405(e)(13) for additional rules applicable to certain periodic 
payments under section 3405(a) and nonperiodic distributions under 
section 3405(b) that are to be delivered outside the United States and 
its possessions. For additional guidance regarding periodic payments, 
see Sec. Sec.  35.3405-1 and 35.3405-1T of this chapter.
    (b)(1) Q-1: How will Federal income tax be withheld from a periodic 
payment?
    (2) A-1: In the case of a periodic payment that is subject to 
withholding under section 3405(a), amounts are withheld as if the 
payment were a payment of wages by an employer to the employee for the 
appropriate payroll period. If the payee has not furnished a withholding 
certificate, the amount to be withheld is determined in the manner 
described in the applicable forms, instructions, publications, and other 
guidance prescribed by the Commissioner. The rules for withholding when 
the payee has not furnished a withholding certificate apply regardless 
of whether the payor is aware of the payee's actual marital status or 
actual Federal income tax filing status.
    (c)(1) Q-2: Do rules similar to those for wage withholding apply to 
the furnishing of a withholding certificate for periodic payments?

[[Page 261]]

    (2) A-2: Yes. Unless the rules of section 3405 specifically conflict 
with the rules of section 3402, the rules for withholding on periodic 
payments that are not eligible rollover distributions will parallel the 
rules for wage withholding. Thus, if a withholding certificate is 
furnished by a payee, it will generally take effect in accordance with 
section 3402(f)(3) and as provided in applicable forms, instructions, 
publications, and other guidance prescribed by the Commissioner. If no 
withholding certificate is furnished, the amount withheld must be 
determined in the manner described in the applicable forms, 
instructions, publications, and other guidance prescribed by the 
Commissioner for withholding on periodic payments when no withholding 
certificate is furnished.
    (d)(1) Q-3: What is the applicability date of this section?
    (2) A-3: This section applies with respect to periodic payments made 
after December 31, 2020.

[T.D. 9920, 85 FR 61815, Oct. 1, 2020]



Sec.  31.3405(c)-1  Withholding on eligible rollover distributions;
questions and answers.

    The following questions and answers relate to withholding on 
eligible rollover distributions under section 3405(c) of the Internal 
Revenue Code of 1986, as added by section 522(b) of the Unemployment 
Compensation Amendments of 1992 (Public Law 102-318, 106 Stat. 290) 
(UCA). For additional UCA guidance under sections 401(a)(31), 402(c), 
402(f), and 403(b)(8) and (10), see Sec. Sec.  1.401(a)(31)-1, 1.402(c)-
2, 1.402(f)-1, and 1.403(b)-2 of this chapter, respectively.

                            List of Questions

    Q-1: What are the withholding requirements under section 3405 for 
distributions from qualified plans and section 403(b) annuities?
    Q-2: May a distributee elect under section 3405(c) not to have 
Federal income tax withheld from an eligible rollover distribution?
    Q-3: May a distributee be permitted to elect to have more than 20-
percent Federal income tax withheld from an eligible rollover 
distribution?
    Q-4: Who has responsibility for complying with section 3405(c) 
relating to the 20-percent income tax withholding on eligible rollover 
distributions?
    Q-5: May the plan administrator shift the withholding responsibility 
to the payor and, if so, how?
    Q-6: How does the 20-percent withholding requirement under section 
3405(c) apply if a distributee elects to have a portion of an eligible 
rollover distribution paid to an eligible retirement plan in a direct 
rollover and to have the remainder of that distribution paid to the 
distributee?
    Q-7: Will the plan administrator be subject to liability for tax, 
interest, or penalties for failure to withhold 20 percent from an 
eligible rollover distribution that, because of erroneous information 
provided by a distributee, is not paid to an eligible retirement plan 
even though the distributee elected a direct rollover?
    Q-8: Is an eligible rollover distribution that is paid to a 
qualified defined benefit plan subject to 20-percent withholding?
    Q-9: If property other than cash, employer securities, or plan loans 
is distributed, how is the 20-percent income tax withholding required 
under section 3405(c) accomplished?
    Q-10: What assumptions may a plan administrator make regarding 
whether a benefit is an eligible rollover distribution for purposes of 
determining the amount of a distribution that is subject to 20-percent 
mandatory withholding?
    Q-11: Are there special rules for applying the 20-percent 
withholding requirement to employer securities and a plan loan offset 
amount distributed in an eligible rollover distribution?
    Q-12: How does the mandatory withholding rule apply to net 
unrealized appreciation from employer securities?
    Q-13: Does the 20-percent withholding requirement apply to eligible 
rollover distributions from a qualified plan distributed annuity 
contract?
    Q-14: Must a payor or plan administrator withhold tax from an 
eligible rollover distribution for which a direct rollover election was 
not made if the amount of the distribution is less than $200?
    Q-15: If eligible rollover distributions are made from a qualified 
plan, who has responsibility for making the returns and reports required 
under these regulations?
    Q-16: What eligible rollover distributions must be reported on Form 
1099-R?
    Q-17: Must the plan administrator, trustee or custodian of the 
eligible retirement plan report amounts received in a direct rollover?

                          Questions and Answers

    Q-1: What are the withholding requirements under section 3405 for 
distributions from qualified plans and section 403(b) annuities?
    A-1: (a) General rule. Section 3405(c), added by UCA, provides that 
any designated distribution that is an eligible rollover distribution 
(as defined in section 402(f)(2)(A))

[[Page 262]]

from a qualified plan or a section 403(b) annuity is subject to income 
tax withholding at the rate of 20 percent unless the distributee of the 
eligible rollover distribution elects to have the distribution paid 
directly to an eligible retirement plan in a direct rollover. See Sec.  
1.402(c)-2, Q&A-2 of this chapter for the definition of a qualified plan 
and Sec.  1.403(b)-7(b) of this chapter for the definition of a section 
403(b) annuity. For purposes of section 3405 and this section, with 
respect to a distribution from a qualified plan, an eligible retirement 
plan is a trust qualified under section 401(a), an annuity plan 
described in section 403(a), or an individual retirement plan (as 
described in Sec.  1.402(c)-2, Q&A-2 of this chapter). For purposes of 
section 3405 and this section, with respect to a distribution from a 
section 403(b) annuity, an eligible retirement plan is an annuity 
contract, a custodial account, a retirement income account described in 
section 403(b), or an individual retirement plan. If a designated 
distribution is not an eligible rollover distribution, it is subject to 
the elective withholding provisions of section 3405(a) and (b) and Sec.  
35.3405-1 of this chapter and is not subject to the mandatory 
withholding provisions of section 3405(c) and this section.
    (b) Application of other statutory provisions. See Sec.  
1.401(a)(31)-1 of this chapter concerning the requirements and the 
procedures for electing a direct rollover under section 401(a)(31). See 
section 402(c)(2) and (4), and Sec.  1.402(c)-2, Q&A-3 through Q&A-10 
and Q&A-14 of this chapter for rules to determine what constitutes an 
eligible rollover distribution. See Sec.  1.402(f)-1, Q&A-1 through Q&A-
3 and Sec.  1.403(b)-7(b) of this chapter concerning the notice that 
must be provided to a distributee, within a reasonable period of time 
before making an eligible rollover distribution. See Sec.  1.403(b)-7(b) 
of this chapter for guidance concerning the rollover provisions and 
direct rollover requirements for distributions from annuities described 
in section 403(b).
    (c) Effective date--(1) Statutory effective date--(i) General rule. 
Section 3405(c), as added by UCA, applies to eligible rollover 
distributions made on or after January 1, 1993, even if the employee's 
employment with the employer maintaining the plan terminated before 
January 1, 1993 and even if the eligible rollover distribution is part 
of a series of payments that began before January 1, 1993.
    (ii) Special rule for governmental section 403(b) annuities. Section 
522 of UCA provides a special effective date for governmental section 
403(b) annuities. This special effective date appears in Sec.  1.403(b)-
2T of this chapter (as it appeared in the April 1, 1995 edition of 26 
CFR part 1).
    (2) Regulatory effective date. This section applies to eligible 
rollover distributions made on or after October 19, 1995. For eligible 
rollover distributions made on or after January 1, 1993 and before 
October 19, 1995, Sec.  31.3405(c)-1T (as it appeared in the April 1, 
1995 edition of 26 CFR part 1), applies. However, for any distribution 
made on or after January 1, 1993 but before October 19, 1995, a plan 
administrator or payor may comply with the withholding requirements of 
section 3405(c) by substituting any or all provisions of this section 
for the corresponding provisions of Sec.  31.3405(c)-1T, if any.
    Q-2: May a distributee elect under section 3405(c) not to have 
Federal income tax withheld from an eligible rollover distribution?
    A-2: No. The 20-percent income tax withholding imposed under section 
3405(c)(1) applies to an eligible rollover distribution unless the 
distributee elects under section 401(a)(31) to have the eligible 
rollover distribution paid directly to an eligible retirement plan in a 
direct rollover. See Sec.  1.401(a)(31)-1 and Sec.  1.403(b)-7(b) of 
this chapter for provisions concerning the requirement that a 
distributee of an eligible rollover distribution be permitted to elect a 
distribution in the form of a direct rollover.
    Q-3: May a distributee be permitted to elect to have more than 20-
percent Federal income tax withheld from an eligible rollover 
distribution?
    A-3: Yes. Under section 3402(p), a distributee of an eligible 
rollover distribution and the plan administrator or payor are permitted 
to enter into an agreement to provide for withholding in excess of 20 
percent from an eligible rollover distribution. Any agreement must be 
made in accordance with applicable forms and instructions. However, no 
request for withholding will be effective between the plan administrator 
or payor and the distributee until the plan administrator or payor 
accepts the request by commencing to withhold from the amounts with 
respect to which the request was made. An agreement under section 
3402(p) shall be effective for such period as the plan administrator or 
payor and the distributee mutually agree upon. However, either party to 
the agreement may terminate the agreement prior to the end of such 
period by furnishing a signed written notice to the other.
    Q-4: Who has responsibility for complying with section 3405(c) 
relating to the 20-percent income tax withholding on eligible rollover 
distributions?
    A-4: Section 3405(d) generally requires the plan administrator of a 
qualified plan and the payor of a section 403(b) annuity to withhold 
under section 3405(c)(1) an amount equal to 20 percent of the portion of 
an eligible rollover distribution that the distributee does not elect to 
have paid in a direct rollover. When an amount is paid under a qualified 
plan distributed annuity contract as defined in Sec.  1.402(c)-2, Q&A-10 
of this chapter,

[[Page 263]]

the payor is treated as the plan administrator. See Q&A-13 of this 
section concerning eligible rollover distributions from a qualified plan 
distributed annuity contract.
    Q-5: May the plan administrator shift the withholding responsibility 
to the payor and, if so, how?
    A-5: Yes. The plan administrator may shift the withholding 
responsibility to the payor by following the procedures set forth in 
Sec.  35.3405-1, Q&A E-2 through E-5 of this chapter (relating to 
elective withholding on pensions, annuities and certain other deferred 
income) with appropriate adjustments, including the plan administrator's 
identification of amounts that constitute required minimum 
distributions.
    Q-6: How does the 20-percent withholding requirement under section 
3405(c) apply if a distributee elects to have a portion of an eligible 
rollover distribution paid to an eligible retirement plan in a direct 
rollover and to have the remainder of that distribution paid to the 
distributee?
    A-6: If a distributee elects to have a portion of an eligible 
rollover distribution paid to an eligible retirement plan in a direct 
rollover and to receive the remainder of the distribution, the 20-
percent withholding requirement under section 3405(c) applies only to 
the portion of the eligible rollover distribution that the distributee 
receives and not to the portion that is paid in a direct rollover.
    Q-7: Will the plan administrator be subject to liability for tax, 
interest, or penalties for failure to withhold 20 percent from an 
eligible rollover distribution that, because of erroneous information 
provided by a distributee, is not paid to an eligible retirement plan 
even though the distributee elected a direct rollover?
    A-7: (a) General rule. If the plan administrator reasonably relied 
on adequate information provided by the distributee (as described in 
paragraph (b) of this Q&A), the plan administrator will not be subject 
to liability for taxes, interest, or penalties for failure to withhold 
income tax from an eligible rollover distribution solely because the 
distribution is paid to an account or plan that is not an eligible 
retirement plan (as defined, with respect to distributions from 
qualified plans, in section 402(c)(8)(B) and Sec.  1.402(c)-2, Q&A-2 of 
this chapter and, with respect to a distributions from section 403(b) 
annuities, in Sec.  1.403(b)-7(b) of this chapter.) Although the plan 
administrator is not required to verify independently the accuracy of 
information provided by the distributee, the plan administrator's 
reliance on the information furnished must be reasonable. For example, 
it is not reasonable for the plan administrator to rely on information 
that is clearly erroneous on its face.
    (b) Adequate information. The plan administrator has obtained from 
the distributee adequate information on which to rely in making a direct 
rollover if the distributee furnishes to the plan administrator: the 
name of the eligible retirement plan; a representation that the 
recipient plan is an individual retirement plan, a qualified plan, or a 
section 403(b) annuity, as appropriate; and any other information that 
is necessary in order to permit the plan administrator to accomplish the 
direct rollover by the means it has selected. This information must 
include any information needed to comply with the specific requirements 
of Sec.  1.401(a)(31)-1, Q&A-3 and Q&A-4 of this chapter. For example, 
if the direct rollover is to be made by mailing a check to the trustee 
of an individual retirement account, the plan administrator must obtain, 
in addition to the name of the individual retirement account and the 
representation described above, the name and address of the trustee of 
the individual retirement account.
    Q-8: Is an eligible rollover distribution that is paid to a 
qualified defined benefit plan subject to 20-percent withholding?
    A-8: No. If an eligible rollover distribution is paid in a direct 
rollover to an eligible retirement plan within the meaning of section 
402(c)(8), including a qualified defined benefit plan, it is reasonable 
to believe that the distribution is not includible in gross income 
pursuant to section 402(c)(1). Accordingly, pursuant to section 
3405(e)(1)(B), the distribution is not a designated distribution and is 
not subject to 20-percent withholding.
    Q-9: If property other than cash, employer securities, or plan loans 
is distributed, how is the 20-percent income tax withholding required 
under section 3405(c) accomplished?
    A-9: When all or a portion of an eligible rollover distribution 
subject to 20-percent income tax withholding under section 3405(c) 
consists of property other than cash, employer securities, or plan loan 
offset amounts, the plan administrator or payor must apply Sec.  
35.3405-1, Q&A F-2 of this chapter and may apply Sec.  35.3405-1, Q&A F-
3 of this chapter in determining how to satisfy the withholding 
requirements.
    Q-10: What assumptions may a plan administrator make regarding 
whether a benefit is an eligible rollover distribution for purposes of 
determining the amount of a distribution that is subject to 20-percent 
mandatory withholding?
    A-10: (a) In general. For purposes of determining the amount of a 
distribution that is subject to 20-percent mandatory withholding, a plan 
administrator may make the assumptions described in paragraphs (b), (c), 
and (d) of this Q&A in determining the amount of a distribution that is 
an eligible rollover distribution and a designated distribution. Section 
1.401(a)(31)-1, Q&A-18 of this chapter provides assumptions for purposes 
of complying with section 401(a)(31).

[[Page 264]]

See Sec.  1.402(c)-2, Q&A-15 of this chapter concerning the effect of 
these assumptions for purposes of section 402(c).
    (b) $5,000 death benefit. A plan administrator may assume that a 
distribution that qualifies for the $5,000 death benefit exclusion under 
section 101(b) is the only death benefit being paid with respect to a 
deceased employee that qualifies for that exclusion. Thus, in such a 
case, the plan administrator may assume that the distribution is not an 
eligible rollover distribution to the extent that it would be excludible 
from gross income based on this assumption.
    (c) Required minimum distributions. The plan administrator is 
permitted to determine the amount of the minimum distribution required 
to satisfy section 401(a)(9)(A) for any calendar year by assuming that 
there is no designated beneficiary.
    (d) Valuation of property. In the case of a distribution that 
includes property, in calculating the amount of the distribution for 
purposes of applying section 3405(c), the value of the property may be 
determined in accordance with Sec.  35.3405-1, Q&A F-1 of this chapter.
    Q-11: Are there special rules for applying the 20-percent 
withholding requirement to employer securities and a plan loan offset 
amount distributed in an eligible rollover distribution?
    A-11: Yes. The maximum amount to be withheld on any designated 
distribution (including any eligible rollover distribution) under 
section 3405(c) must not exceed the sum of the cash and the fair market 
value of property (excluding employer securities) received in the 
distribution. The amount of the sum is determined without regard to 
whether any portion of the cash or property is a designated distribution 
or an eligible rollover distribution. For purposes of this rule, any 
plan loan offset amount, as defined in Sec.  1.402(c)-2, Q&A-9 of this 
chapter, is treated in the same manner as employer securities. Thus, 
although employer securities and plan loan offset amounts must be 
included in the amount that is multiplied by 20-percent, the total 
amount required to be withheld for an eligible rollover distribution is 
limited to the sum of the cash and the fair market value of property 
received by the distributee, excluding any amount of the distribution 
that is a plan loan offset amount or that is distributed in the form of 
employer securities. For example, if the only portion of an eligible 
rollover distribution that is not paid in a direct rollover consists of 
employer securities or a plan loan offset amount, withholding is not 
required. In addition, if a distribution consists solely of employer 
securities and cash (not in excess of $200) in lieu of fractional 
shares, no amount is required to be withheld as income tax from the 
distribution under section 3405 (including section 3405(c) and this 
section). For purposes of section 3405 and this section, employer 
securities means securities of the employer corporation within the 
meaning of section 402(e)(4)(E)(ii).
    Q-12: How does the mandatory withholding rule apply to net 
unrealized appreciation from employer securities?
    A-12: An eligible rollover distribution can include net unrealized 
appreciation from employer securities, within the meaning of section 
402(e)(4), even if the net unrealized appreciation is excluded from 
gross income under section 402(e)(4). However, to the extent that it is 
excludable from gross income pursuant to section 402(e)(4), net 
unrealized appreciation is not a designated distribution pursuant to 
section 3405(e)(1)(B) because it is reasonable to believe that it is not 
includable in gross income. Thus, to the extent that net unrealized 
appreciation is excludable from gross income pursuant to section 
402(e)(4), net unrealized appreciation is not included in the amount of 
an eligible rollover distribution that is subject to 20-percent 
withholding.
    Q-13: Does the 20-percent withholding requirement apply to eligible 
rollover distributions from a qualified plan distributed annuity 
contract?
    A-13: The 20-percent withholding requirement applies to eligible 
rollover distributions from a qualified plan distributed annuity 
contract as defined in Q&A-10 of Sec.  1.402(c)-2 of this chapter. In 
the case of an eligible rollover distribution from such an annuity 
contract, the payor is treated as the plan administrator for purposes of 
section 3405. See Sec.  1.401(a)(31)-1, Q&A-17 of this chapter 
concerning the direct rollover requirements that apply to distributions 
from such an annuity contract and see Sec.  1.402(c)-2, Q&A-10 of this 
chapter concerning the treatment of distributions from such annuity 
contracts as eligible rollover distributions.
    Q-14: Must a payor or plan administrator withhold tax from an 
eligible rollover distribution for which a direct rollover election was 
not made if the amount of the distribution is less than $200?
    A-14: No. However, all eligible rollover distributions received 
within one taxable year of the distributee under the same plan must be 
aggregated for purposes of determining whether the $200 floor is 
reached. If the plan administrator or payor does not know at the time of 
the first distribution (that is less than $200) whether there will be 
additional eligible rollover distributions during the year for which 
aggregation is required, the plan administrator need not withhold from 
the first distribution. If distributions are made within one taxable 
year under more than one plan of an employer, the plan administrator or 
payor may, but need not, aggregate distributions for purposes of 
determining whether the $200 floor is reached. However, once the $200 
threshold has been

[[Page 265]]

reached, the sum of all payments during the year must be used to 
determine the applicable amount to be withheld from subsequent payments 
during the year.
    Q-15: If eligible rollover distributions are made from a qualified 
plan, who has responsibility for making the returns and reports required 
under these regulations?
    A-15: Generally, the plan administrator, as defined in section 
414(g), is responsible for maintaining the records and making the 
required reports with respect to eligible rollover distributions from 
qualified plans. However, if the plan administrator fails to keep the 
required records and make the required reports, the employer maintaining 
the plan is responsible for the reports and returns.
    Q-16: What eligible rollover distributions must be reported on Form 
1099-R?
    A-16: Each eligible rollover distribution, including each eligible 
rollover distribution that is paid directly to an eligible retirement 
plan in a direct rollover, must be reported on Form 1099-R in accordance 
with the instructions for Form 1099-R. For purposes of the reporting 
required under section 6047(e), a direct rollover is treated as a 
distribution that is immediately rolled over to an eligible retirement 
plan. Distributions that are not eligible rollover distributions are 
subject to the reporting requirements set forth in Sec.  35.3405-1 of 
this chapter and applicable forms and instructions.
    Q-17: Must the plan administrator, trustee or custodian of the 
eligible retirement plan report amounts received in a direct rollover?
    A-17: (a) Individual retirement plan. If a distributee elects to 
have an eligible rollover distribution paid to an individual retirement 
plan in a direct rollover, the eligible rollover distribution is 
reported on Form 5498 as a rollover contribution to the individual 
retirement plan, in accordance with the instructions for Form 5498.
    (b) Qualified plan or section 403(b) annuity. If a distributee 
elects to have an eligible rollover distribution paid to a qualified 
plan or section 403(b) annuity, the recipient plan or annuity is not 
required to report the receipt of the rollover contribution.

[T.D. 8619, 60 FR 49215, Sept. 22, 1995, as amended by T.D. 8880, 65 FR 
21315, Apr. 21, 2000; T.D. 9340, 72 FR 41159, July 26, 2007]



Sec.  31.3406-0  Outline of the backup withholding regulations.

    This section lists paragraphs contained in Sec. Sec.  31.3406(a)-1 
through 31.3406(i)-1.

    Sec.  31.3406(a)-1 Backup withholding requirement on reportable 
                                payments.

    (a) Overview.
    (b) Conditions that invoke the backup withholding requirement.
    (1) Conditions applicable to all reportable payments.
    (2) Conditions applicable only to reportable interest or dividend 
payments.
    (c) Exceptions.
    (d) Cross references.

  Sec.  31.3406(a)-2 Definition of payors obligated to backup withhold.

    (a) In general.
    (b) Persons treated as payors.
    (c) Persons not treated as payors.
    (d) Effective date.

   Sec.  31.3406(a)-3 Scope and extent of accounts subject to backup 
                              withholding.

  Sec.  31.3406(a)-4 Time when payments are considered to be paid and 
                     subject to backup withholding.

    (a) Timing.
    (1) In general.
    (2) Special rules for dividends.
    (b) Amounts reportable under section 6045.
    (1) In general.
    (2) Special rule for interest accrued on bonds.
    (c) Middlemen.
    (1) In general.
    (2) Special rule for common trust funds.
    (3) Special rule for certain grantor trusts.

           Sec.  31.3406(b)(2)-1 Reportable interest payment.

    (a) Interest subject to backup withholding.
    (1) In general.
    (2) Special rule for tax-exempt interest.
    (b) Amount subject to backup withholding.
    (1) In general.
    (2) Special rule to adjust for premature withdrawal penalty.

             Sec.  31.3406(b)(2)-2 Original issue discount.

    (a) Original issue discount subject to backup withholding.
    (b) Amount subject to backup withholding and time when backup 
withholding is imposed with respect to short-term obligations.
    (c) Transferred short-term obligations.
    (1) Subsequent holder may establish purchase price.
    (2) Subsequent holder unable (or not permitted) to establish 
purchase price.
    (3) Transferred obligation.
    (d) Amount subject to backup withholding and time when backup 
withholding is imposed with respect to long-term obligations.
    (1) No cash payments prior to maturity.
    (2) Registered long-term obligations with cash payments prior to 
maturity.
    (3) Transferred registered long-term obligations with payments prior 
to maturity.
    (e) Bearer long-term obligations.
    (1) Payments prior to maturity.
    (2) Payments at maturity.

[[Page 266]]

               Sec.  31.3406(b)(2)-3 Window transactions.

    (a) Requirement to backup withhold.
    (b) Window transaction defined.
    (c) Manner of furnishing taxpayer identification number in the case 
of a window transaction.

           Sec.  31.3406(b)(2)-4 Reportable dividend payment.

    (a) Dividends subject to backup withholding.
    (b) Dividends not subject to backup withholding.
    (c) Amount subject to backup withholding.
    (1) In general.
    (2) Reasonable estimate of amount of dividend subject to backup 
withholding.
    (3) Reinvested dividends.

      Sec.  31.3406(b)(2)-5 Reportable patronage dividend payment.

    (a) Patronage dividends subject to backup withholding.
    (b) Amount subject to backup withholding.
    (1) Failure to provide taxpayer identification number or 
notification of incorrect taxpayer identification number.
    (2) Notified payee underreporting or payee certification failure.

    Sec.  31.3406(b)(3)-1 Reportable payments of rents, commissions, 
                     nonemployee compensation, etc.

    (a) Section 6041 and 6041A(a) payments subject to backup 
withholding.
    (b) Amount subject to backup withholding.
    (1) In general.
    (2) Net commissions.
    (3) Payments aggregating $600 or more for the calendar year.

Sec.  31.3406(b)(3)-2 Reportable barter exchanges and gross proceeds of 
             sales of securities or commodities by brokers.

    (a) Transactions subject to backup withholding.
    (b) Amount subject to backup withholding.
    (1) In general.
    (2) Forward contracts, including foreign currency contracts, and 
regulated futures contracts.
    (3) Security sales made through a margin account.
    (4) Security short sales.
    (5) Fractional shares.

   Sec.  31.3406(b)(3)-3 Reportable payments by certain fishing boat 
                               operators.

    (a) Payments subject to backup withholding.
    (b) Amount subject to backup withholding.

         Sec.  31.3406(b)(3)-4 Reportable payments of royalties.

    (a) Royalty payments subject to backup withholding.
    (b) Amount subject to backup withholding.

  Sec.  31.3406(b)(3)-5 Reportable payments of payment card and third 
                       party network transactions.

    (a) Payment card and third party network transactions subject to 
backup withholding.
    (b) Amount subject to backup withholding.
    (c) Time when payments are considered to be subject to backup 
withholding.
    (d) Backup withholding from an alternate source.
    (e) Effective/applicability date.

      Sec.  31.3406(b)(4)-1 Exemption for certain minimal payments.

    (a) In general.
    (b) Manner of making the election.
    (c) How to annualize.
    (1) In general.
    (2) Special aggregation rule for reportable interest and dividends.
    (d) Exception for window transactions and original issue discount.

Sec.  31.3406(c)-1 Notified payee underreporting of reportable interest 
                          or dividend payments.

    (a) Overview.
    (b) Definitions.
    (1) Notified payee underreporting.
    (2) Payee underreporting.
    (c) Notice to payors regarding backup withholding due to notified 
payee underreporting.
    (1) In general.
    (2) Additional requirements for payors that are also brokers.
    (3) Payor identification of accounts of the payee subject to backup 
withholding due to notified payee underreporting.
    (d) Notice from payors of backup withholding due to notified payee 
underreporting.
    (1) In general.
    (2) Procedures.
    (e) Period during which backup withholding is required.
    (1) In general.
    (2) Stop withholding.
    (3) Dormant accounts.
    (f) Notice to payees from the Internal Revenue Service.
    (1) Notice period.
    (2) Payee subject to backup withholding.
    (3) Disclosure of names of payors and brokers.
    (4) Backup withholding certification.
    (g) Determination by the Internal Revenue Service that backup 
withholding should not start or should be stopped.
    (1) In general.
    (2) Date notice to stop backup withholding will be provided.
    (3) Grounds for determination.
    (4) No underreporting.
    (5) Correcting any payee underreporting.
    (6) Undue hardship.
    (7) Bona fide dispute.

[[Page 267]]

    (h) Payees filing a joint return.
    (1) In general.
    (2) Exceptions.
    (i) [Reserved]
    (j) Penalties.

      Sec.  31.3406(d)-1 Manner required for furnishing a taxpayer 
                         identification number.

    (a) Requirement to backup withhold.
    (b) Reportable interest or dividend account.
    (1) Manner required for furnishing a taxpayer identification number 
with respect to a pre-1984 account or instrument.
    (2) Determination of pre-1984 account or instrument.
    (3) Manner required for furnishing a taxpayer identification number 
with respect to an account or instrument that is not a pre-1984 account.
    (4) Special rule with respect to the acquisition of a readily 
tradable instrument in a transaction between certain parties acting 
without the assistance of a broker.
    (c) Brokerage account.
    (1) Manner required for furnishing a taxpayer identification number 
with respect to a brokerage relationship that is not a post-1983 
brokerage account.
    (2) Manner required for furnishing a taxpayer identification number 
with respect to a post-1983 brokerage account.
    (d) Rents, commissions, nonemployee compensation, and certain 
fishing boat operators, etc.--Manner required for furnishing a taxpayer 
identification number.

             Sec.  31.3406(d)-2 Payee certification failure.

    (a) Requirement to backup withhold.
    (b) Exceptions.

Sec.  31.3406(d)-3 Special 30-day rules for certain reportable payments.

    (a) Accounts or readily tradable instruments acquired directly from 
the payor (including a broker who holds an instrument in street name) by 
electronic transmission or by mail.
    (b) Sale of an instrument for a customer by electronic transmission 
or by mail.
    (c) Application to foreign payees.

   Sec.  31.3406(d)-4 Special rules for readily tradable instruments 
                       acquired through a broker.

    (a) Readily tradable instruments acquired through post-1983 
brokerage accounts with a broker who is not a payor.
    (1) In general.
    (2) Additional requirements.
    (3) Transactions entered into through a brokerage account that is 
not a post-1983 brokerage account.
    (4) Payor must notify payee.
    (b) Notices.
    (1) Form of notice by broker to payor.
    (2) Form of notice by payor to payee.
    (c) Payor's reliance on information from broker.
    (1) In general.
    (2) Amount subject to backup withholding.

   Sec.  31.3406(d)-5 Backup withholding when the Service or a broker 
      notifies the payor to withhold because the payee's taxpayer 
                   identification number is incorrect.

    (a) Overview.
    (b) Definitions and special rules.
    (1) Definition of an incorrect name/TIN combination.
    (2) Definition of account.
    (3) Definition of business day.
    (4) Certain exceptions.
    (c) Notice regarding an incorrect name/TIN combination.
    (1) In general.
    (2) Additional requirements for payors that are also brokers.
    (3) Payor identification of the account or accounts of the payee 
that have the incorrect taxpayer identification number.
    (4) Special rule for joint accounts.
    (5) Date of receipt.
    (d) Notice from payors of backup withholding due to an incorrect 
name/TIN combination.
    (1) In general.
    (2) Procedures.
    (e) Period during which backup withholding is required due to 
notification of an incorrect name/TIN combination.
    (1) In general.
    (2) Grace periods.
    (3) Dormant accounts.
    (f) Manner required for payee to furnish certified taxpayer 
identification number.
    (g) Receipt of two notices within a 3-year period.
    (1) In general.
    (2) Notice to payee who has provided two incorrect name/TIN 
combinations within 3 calendar years.
    (3) Period during which backup withholding is required due to a 
second notice of an incorrect name/TIN combination within 3 calendar 
years.
    (4) Receipt of two notices in one calendar year.
    (5) Notification from the Social Security Administration (or the 
Internal Revenue Service) validating a name/TIN combination.
    (h) Payors must use newly provided certified number.
    (i) Effective date.
    (j) Examples.

 Sec.  31.3406(e)-1 Period during which backup withholding is required.

    (a) In general.
    (b) Failure to furnish a taxpayer identification number in the 
manner required.
    (1) Start withholding.
    (2) Stop withholding.

[[Page 268]]

    (c) Notification of an incorrect taxpayer identification number.
    (d) Notified payee underreporting.
    (e) Payee certification failure.
    (1) Start withholding.
    (2) Stop withholding.
    (f) Rule for determining when the payor receives a taxpayer 
identification number or certificate from a payee.

           Sec.  31.3406(f)-1 Confidentiality of information.

    (a) Confidentiality and liability for violation.
    (b) Permissible use of information.
    (1) In general.
    (2) Window transactions.
    (c) Specific restrictions on the use of information.

Sec.  31.3406(g)-1 Exception for payments to certain payees and certain 
                             other payments.

    (a) Exempt recipients.
    (1) In general.
    (2) Nonexclusive list.
    (b) Determination of whether a person is described in paragraph 
(a)(1) of this section.
    (c) Prepaid or advance premium life-insurance contracts.
    (d) Reportable payments made to Canadian nonresident alien 
individuals.
    (e) Certain reportable payments made outside the United States by 
foreign persons, foreign offices of United States banks and brokers, and 
others.
    (f) Special rule for certain payment card transactions.

 Sec.  31.3406(g)-2 Exception for reportable payments for which backup 
                   withholding is otherwise required.

    (a) In general.
    (b) Payment of wages.
    (c) Distribution from a pension, annuity, or other plan of deferred 
compensation.
    (d) Gambling winnings.
    (1) In general.
    (2) Definition of a reportable gambling winning and determination of 
amount subject to backup withholding.
    (3) Special rules.
    (e) Certain real estate transactions.
    (f) Certain payments after an acquisition of accounts or 
instruments.
    (g) Certain gross proceeds.
    (h) Applicability date.

   Sec.  31.3406(g)-3 Exemption while payee is waiting for a taxpayer 
                         identification number.

    (a) In general.
    (1) Backup withholding not required for 60 days.
    (2) Reserve method.
    (3) Alternative rule; 7-day grace period.
    (b) Special rule for readily tradable instruments.
    (c) Exceptions.
    (1) In general.
    (2) Special rule for amounts subject to reporting under section 6045 
other than proceeds of redemptions of bearer obligations.
    (d) Awaiting-TIN certificate.
    (e) Form for awaiting-TIN certificate.

                     Sec.  31.3406(h)-1 Definitions.

    (a) In general.
    (b) Taxpayer identification number.
    (1) In general.
    (2) Obviously incorrect number.
    (c) Broker.
    (d) Readily tradable instrument.
    (e) Day.
    (f) Business day.

                    Sec.  31.3406(h)-2 Special rules.

    (a) Joint accounts.
    (1) Relevant name and taxpayer identification number combination.
    (2) Optional rule for accounts subject to backup withholding under 
section 3406(a)(1)(B) or (C) where the names are switched.
    (3) Joint foreign payees.
    (b) Backup withholding from an alternative source.
    (1) In general.
    (2) Exceptions for payments made in property.
    (c) Trusts.
    (d) Adjustment of prior withholding by middleman.
    (e) Conversion of amounts paid in foreign currency into United 
States dollars.
    (1) Convertible foreign currency.
    (2) Nonconvertible foreign currency. [Reserved]
    (f) Coordination with other sections.
    (g) Tax liabilities and penalties.
    (h) To whom payor is liable for amount withheld.

                    Sec.  31.3406(h)-3 Certificates.

    (a) Prescribed form to furnish information under penalties of 
perjury.
    (1) In general.
    (2) Use of a single or multiple Forms W-9 for accounts of the same 
payee.
    (b) Prescribed form to furnish a noncertified taxpayer 
identification number.
    (c) Forms prepared by payors or brokers.
    (1) Substitute forms; in general.
    (2) Form for exempt recipient.
    (d) Special rule for brokers.
    (e) Reasonable reliance on certificate.
    (1) In general.
    (2) Circumstances establishing reasonable reliance.
    (f) Who may sign certificate.
    (1) In general.
    (2) Notified payee underreporting.
    (g) Retention of certificates.

[[Page 269]]

    (1) Accounts or instruments that are not pre-1984 accounts and 
brokerage relationships that are post-1983 brokerage accounts.
    (2) Accounts or instruments that are pre-1984 accounts and brokerage 
relationships that are not post-1983 brokerage accounts.
    (h) Cross references.

                   Sec.  31.3406(i)-1 Effective date.

[T.D. 8637, 60 FR 66112, Dec. 21, 1995, as amended by T.D. 8734, 62 FR 
53493, Oct. 14, 1997; T.D. 9010, 67 FR 48759, July 26, 2002; T.D. 9496, 
75 FR 49834, Aug. 16, 2010; T.D. 9824, 82 FR 44929, Sept. 27, 2017]



Sec.  31.3406(a)-1  Backup withholding requirement on reportable payments.

    (a) Overview. Under section 3406, a payor must deduct and withhold 
31 percent of a reportable payment if a condition for withholding 
exists. Reportable payments mean interest and dividend payments (as 
defined in section 3406(b)(2)) and other reportable payments (as defined 
in section 3406(b)(3)). The conditions described in paragraph (b)(1) of 
this section apply to all reportable payments, including reportable 
interest and dividend payments. The conditions described in paragraph 
(b)(2) of this section apply only to reportable interest and dividend 
payments.
    (b) Conditions that invoke the backup withholding requirement--(1) 
Conditions applicable to all reportable payments. A payor of a 
reportable payment must deduct and withhold under section 3406 if--
    (i) The payee of the reportable payment does not furnish the payee's 
taxpayer identification number to the payor, as required in section 
3406(a)(1)(A) and Sec.  31.3406(d)-1; or
    (ii) The Internal Revenue Service or a broker notifies the payor 
that the taxpayer identification number furnished by its payee for a 
reportable payment is incorrect, as described in section 3406(a)(1)(B) 
and Sec.  31.3406(d)-5.
    (2) Conditions applicable only to reportable interest or dividend 
payments. A payor of a reportable interest or dividend payment must 
deduct and withhold under section 3406 if--
    (i) The Internal Revenue Service or a broker notifies the payor that 
its payee has underreported interest or dividend income, as described in 
section 3406(a)(1)(C) and Sec.  31.3406(c)-1; or
    (ii) The payee fails to certify to the payor or broker that the 
payee is not subject to withholding due to notified payee 
underreporting, as described in section 3406(a)(1)(D) and Sec.  
31.3406(d)-2.
    (c) Exceptions. The requirement to withhold does not apply to 
certain minimal payments as described in Sec.  31.3406(b)(4)-1 or to 
payments exempt from withholding under Sec. Sec.  31.3406(g)-1 through 
31.3406(g)-3.
    (d) Cross references. For the definition of payor, see Sec.  
31.3406(a)-2. For the definition of taxpayer identification number, see 
Sec.  31.3406(h)-1(b).

[T.D. 8637, 60 FR 66114, Dec. 21, 1995]



Sec.  31.3406(a)-2  Definition of payors obligated to backup withhold.

    (a) In general. Payor means the person that is required to make an 
information return under section 6041, 6041A(a), 6042, 6044, 6045, 6049, 
6050A, 6050N, or 6050W with respect to any reportable payment (as 
described in section 3406(b)), or that is described in paragraph (b) of 
this section.
    (b) Persons treated as payors. The following persons are treated as 
payors for purposes of section 3406--
    (1) A grantor trust established after December 31, 1995, all of 
which is owned by two or more grantors (treating for this purpose 
spouses filing a joint return as one grantor);
    (2) A grantor trust with ten or more grantors established on or 
after January 1, 1984 but before January 1, 1996;
    (3) A common trust fund; and
    (4) A partnership or an S corporation that makes a reportable 
payment.
    (c) Persons not treated as payors. A person on the following list is 
not treated as a payor for purposes of section 3406 if the person does 
not have a reporting obligation under the section on information 
reporting to which the payment relates--
    (1) A trust (other than a grantor trust as described in paragraph 
(b)(1) or (2) of this section) that files a Form 1041 containing 
information required to be shown on an information return, including 
amounts withheld under section 3406; or
    (2) A partnership making a payment of a distributive share or an S 
corporation making a similar distribution.

[[Page 270]]

    (d) Effective date. The provisions of this section apply to payments 
made after December 31, 2002.

[T.D. 9010, 67 FR 48759, July 26, 2002, as amended by T.D. 9496, 75 FR 
49835, Aug. 16, 2010]



Sec.  31.3406(a)-3  Scope and extent of accounts subject to backup
withholding.

    A payor who is required to withhold under Sec.  31.3406(a)-1 must 
withhold--
    (a) On the accounts subject to withholding under Sec.  31.3406(a)-1 
(b)(1)(i) or (b)(2)(ii); and
    (b) On the accounts subject to withholding under Sec.  31.3406(a)-
1(b)(1)(ii) or (b)(2)(i), as described under Sec.  31.3406(d)-5 
(relating to notification of incorrect TIN) or Sec.  31.3406(c)-1 
(relating to notified payee underreporting), respectively.

[T.D. 8637, 60 FR 66114, Dec. 21, 1995]



Sec.  31.3406(a)-4  Time when payments are considered to be paid and 
subject to backup withholding.

    (a) Timing--(1) In general. If backup withholding is required under 
section 3406 on a reportable payment (as defined in section 3406(b)), 
the payor must withhold at the time it makes the payment to the payee or 
to the payee's account that is subject to withholding. Amounts are 
considered paid when they are credited to the account of, or made 
available to, the payee. Amounts are not considered paid solely because 
they are posted (e.g., an informational notation on the payee's 
passbook) if they are not actually credited to the payee's account or 
made available to the payee. See paragraph (c) of this section for the 
timing of withholding by a middleman.
    (2) Special rules for dividends. For purposes of section 3406 and 
this section--
    (i) Record date earlier than payment date. In the case of stock for 
which the record date is earlier than the payment date, the dividends 
are considered paid on the payment date.
    (ii) Dividends paid in corporate reorganizations. In the case of a 
corporate reorganization, if a payee is required to exchange stock held 
in the former corporation for stock in the new corporation before the 
dividends that have been paid with respect to the stock in the new 
corporation will be provided to the payee, the dividend is considered 
paid on the date the payee actually exchanges the stock and receives the 
dividend.
    (b) Amounts reportable under section 6045--(1) In general. 
Notwithstanding paragraph (a) of this section, in the case of a 
transaction reportable under section 6045 (except in the case of forward 
contracts (including foreign currency contracts), regulated futures 
contracts, and security short sales), the obligation to withhold under 
section 3406 arises on the date the sale is entered on the books of the 
broker or the date the exchange occurs as provided in Sec.  1.6045-
1(f)(3) of this chapter. A broker (in its capacity as payor) is not 
required, however, to satisfy its withholding liability until payment is 
made. See Sec.  31.3406(b)(3)-2(b)(2) for special rules applicable to 
forward contracts (including foreign currency contracts), regulated 
futures contracts, and security short sales.
    (2) Special rule for interest accrued on bonds. For purposes of 
determining the time that interest is considered paid and subject to 
withholding under section 3406 when bonds are sold between interest 
payment dates, the portion of the sales price representing interest 
accrued to the date of sale is considered a portion of a reportable 
payment of gross proceeds under section 6045 (provided that the accrued 
interest is not tax-exempt as described in section 103(a), relating to 
certain governmental obligations), and is not considered to be a payment 
of interest for purposes of section 6049.
    (c) Middlemen--(1) In general. A person that is a middleman and is a 
person defined in Sec.  31.3406(a)-2(b) or in the section on information 
reporting to which the payment relates must withhold under section 3406 
at the time the reportable payment is received by or credited to the 
middleman. If the middleman makes or credits the reportable payment to 
the payee prior to the middleman's receipt of the corresponding payment, 
the middleman may withhold at the time the reportable payment is made or 
credited to the payee.
    (2) Special rule for common trust funds. A common trust fund (as 
defined in section 584) must withhold either--

[[Page 271]]

    (i) At the time the reportable payment is received by or credited to 
the common trust fund as provided in paragraph (c)(1) of this section;
    (ii) On the date on which the assets of the common trust fund are 
valued; or
    (iii) At the time the common trust fund pays or credits the 
reportable payment to a participant of the common trust fund.
    (3) Special rule for certain grantor trusts. For grantor trusts 
described in Sec.  31.3406(a)-2(b)(1) or (2), reportable payments made 
to the trust are treated as paid by the trust to each grantor, in an 
amount equal to the distribution made by the trust to each grantor, on 
the date that the reportable payment is paid to the trust (except for 
gross proceeds reportable under section 6045). Paragraph (b)(2) of this 
section applies to a grantor trust making a payment of gross proceeds 
under section 6045 subject to withholding under section 3406. For 
purposes of this paragraph (c)(3) a husband and wife filing a joint 
return are considered to be one grantor.

[T.D. 8637, 60 FR 66115, Dec. 21, 1995, as amended by T.D. 9010, 67 FR 
48760, July 26, 2002]



Sec.  31.3406(b)(2)-1  Reportable interest payment.

    (a) Interest subject to backup withholding--(1) In general. A 
payment of a kind, and to a payee, that is required to be reported under 
section 6049 (relating to returns regarding interest and original issue 
discount) is a reportable payment for purposes of section 3406, subject 
to the special rules of Sec.  31.3406(b)(2)-2 (relating to original 
issue discount) and Sec.  31.3406(b)(2)-3 (relating to window 
transactions). See Sec.  31.6051-4 for the requirement to furnish a 
statement to the payee if tax is withheld under section 3406.
    (2) Special rule for tax-exempt interest. When an issuer is required 
to make an information return under Sec.  1.6049-4(d)(8) of this chapter 
because a payee provided a signed written statement on the envelope or 
shell incorrectly claiming that the interest was exempt from taxation 
under section 103(a) (as described in Sec.  1.6049-5(b)(1)(ii) of this 
chapter), the issuer is not required to impose withholding under section 
3406.
    (b) Amount subject to backup withholding--(1) In general. The amount 
of interest subject to withholding under section 3406 is the amount 
subject to reporting under section 6049.
    (2) Special rule to adjust for premature withdrawal penalty. Solely 
for purposes of computing the amount subject to withholding under 
section 3406, the payor may elect not to withhold from the portion of 
any interest payment that is not received by the payee because a penalty 
is in fact imposed for premature withdrawal of funds deposited in a time 
savings account, certificate of deposit, or similar class of deposit.

[T.D. 8637, 60 FR 66115, Dec. 21, 1995]



Sec.  31.3406(b)(2)-2  Original issue discount.

    (a) Original issue discount subject to backup withholding. The 
amount of original issue discount, treated as interest, subject to 
withholding under section 3406 is the amount subject to reporting under 
section 6049, but is limited to the amount of cash paid. In addition, if 
an original issue discount obligation, subject to reporting under 
section 6045, is sold prior to maturity and with respect to the seller a 
condition exists for imposing withholding under section 3406 on the 
gross proceeds, then withholding under Sec.  31.3406(b)(3)-2 applies to 
the gross proceeds of the sale reportable under section 6045, and not to 
the amount of any original issue discount includible in the gross income 
of the seller for the calendar year of the sale. See Sec.  31.6051-4 for 
the requirement to furnish a statement to the payee if tax is withheld 
under section 3406.
    (b) Amount subject to backup withholding and time when backup 
withholding is imposed with respect to short-term obligations. In the 
case of an obligation with a fixed maturity date not exceeding one year 
from the date of issue (a short-term obligation), withholding under 
section 3406 applies to any payment of original issue discount on the 
obligation includible in the gross income of the holder to the extent of 
the cash amount of the payment. See Sec.  1.1273-1 of this chapter to

[[Page 272]]

determine the amount of original issue discount on a short-term 
obligation. See Sec.  1.446-2(e)(1) of this chapter to determine the 
amount of a payment treated as original issue discount.
    (c) Transferred short-term obligations--(1) Subsequent holder may 
establish purchase price--(i) In general. At maturity of a short-term 
obligation, a subsequent holder (i.e., any person who purchased or 
otherwise obtained the obligation after the obligation was issued to the 
original holder) may establish the price of the obligation. The price 
established by the subsequent holder must then be treated as the 
original issue price for purposes of computing the amount of the 
original issue discount subject to withholding under section 3406. The 
price of a short-term obligation may be established by confirmation 
receipt or other record of a similar type or, if the obligation is 
redeemed by or through the person from whom the obligation was purchased 
or otherwise obtained, by the records of the person from whom or through 
whom the obligation was purchased or otherwise obtained. The subsequent 
holder is not required to certify under penalties of perjury that the 
price determined under this paragraph (c)(1)(i) is correct.
    (ii) Exception. A payor may elect to disregard the price at which 
the subsequent holder purchased or otherwise obtained the obligation if 
the payor's computer or recordkeeping system on which the details of the 
obligation are stored is not able to accept that price without 
significant manual intervention.
    (2) Subsequent holder unable (or not permitted) to establish 
purchase price. If a subsequent holder fails (or is unable, pursuant to 
paragraph (c)(1)(ii) of this section) to establish the purchase price of 
the obligation, then the person redeeming the obligation must determine 
the amount subject to withholding under section 3406 as though the 
obligation had been purchased by the holder on the date of issue. If the 
person redeeming the obligation is the issuer of the obligation, then 
the issuer must determine the amount subject to withholding from its 
records. If a person other than the issuer of the obligation redeems the 
obligation and the obligation is listed in Internal Revenue Service 
Publication 1212, List of Original Issue Discount Obligations, that 
person must determine the amount subject to withholding by using the 
issue price indicated in Publication 1212.
    (3) Transferred obligation. If a short-term obligation is 
transferred, no part of the purchase price is considered a reportable 
interest payment under section 6049. Withholding under section 3406 
applies, however, to the gross proceeds of the sale of the obligation if 
the transfer is subject to reporting under section 6045 and a condition 
exists for imposing withholding. For the rules regarding withholding for 
amounts subject to reporting under section 6045, see Sec.  
31.3406(b)(3)-2.
    (d) Amount subject to backup withholding and time when backup 
withholding is imposed with respect to long-term obligations--(1) No 
cash payments prior to maturity. In the case of an obligation with a 
fixed maturity date that is more than one year from the date of issue (a 
long-term obligation) and with no cash payments prior to maturity, 
withholding under section 3406 applies at the maturity of the obligation 
to the amount of original issue discount includible in the gross income 
of the holder for the calendar year in which the obligation matures. The 
amount required to be withheld must not exceed the amount of the cash 
payment.
    (2) Registered long-term obligations with cash payments prior to 
maturity. In the case of a long-term obligation in registered form that 
provides for cash payments prior to maturity, withholding under section 
3406 applies at the time cash payments are made to the sum of the 
amounts of qualified stated interest and original issue discount 
includible in the gross income of the holder for the calendar year in 
which the cash payments are made. The amount required to be withheld at 
the time of any cash payment, however, must not exceed the amount of the 
cash payment. If more than one cash payment is made during a calendar 
year, the tax that is required to be withheld with respect to original 
issue discount must be allocated among all the expected cash payments in 
the ratio that each cash payment bears to the total of the expected cash 
payments.

[[Page 273]]

    (3) Transferred registered long-term obligations with payments prior 
to maturity. In the case of a long-term obligation that is transferred 
after its issuance from the original holder, the amount subject to 
withholding under section 3406 with respect to a subsequent holder is 
the amount of original issue discount includible in the gross income of 
all holders during the calendar year (without regard to any amount paid 
by a subsequent holder at the time of transfer). If the person redeeming 
the obligation at maturity is the issuer of the obligation, the issuer 
must determine the amount subject to withholding through its records by 
treating the holder as if he were the original holder. If a person 
redeeming the obligation at maturity is a person other than the issuer 
of the obligation, and the obligation is listed in Internal Revenue 
Service Publication 1212, List of Original Issue Discount Obligations, 
the person must determine the amount subject to withholding by using the 
issue price indicated in Publication 1212.
    (e) Bearer long-term obligations. In the case of a bearer long-term 
obligation with cash payments prior to maturity--
    (1) Payments prior to maturity. Withholding under section 3406 
applies prior to maturity only to the payment of qualified stated 
interest (and not to any amount of original issue discount) includible 
in the gross income of the holder for the calendar year.
    (2) Payments at maturity. At maturity of the obligation, withholding 
applies to the sum of any qualified stated interest payment made at 
maturity and the total amount of original issue discount includible in 
the gross income of the holder during the calendar year of maturity. The 
amount required to be withheld at the time of the cash payment, however, 
must not exceed the amount of the cash payment.

[T.D. 8637, 60 FR 66115, Dec. 21, 1995; 61 FR 12135, Mar. 25, 1996]



Sec.  31.3406(b)(2)-3  Window transactions.

    (a) Requirement to backup withhold. Withholding under section 3406 
applies to a window transaction (as defined in paragraph (b) of this 
section) only if the payee does not furnish a taxpayer identification 
number to the payor in the manner required in paragraph (c) of this 
section or furnishes an obviously incorrect number as described in Sec.  
31.3406(h)-1(b)(2). Withholding does not apply to a window transaction 
even though the Internal Revenue Service notifies the payor of the 
payee's incorrect taxpayer identification number under section 
3406(a)(1)(B) or of notified payee underreporting under section 
3406(a)(1)(C). The payee in a window transaction is not required to 
certify under penalties of perjury that the payee is not subject to 
withholding due to notified payee underreporting (as described in Sec.  
31.3406(d)-2(b)(2)).
    (b) Window transaction defined. Window transaction means a payment 
of interest with respect to any of the following obligations:
    (1) An interest coupon in bearer form that is subject to taxation 
(i.e., other than exempt interest described in Sec.  1.6049-5(b)(1)(ii) 
of this chapter);
    (2) A United States savings bond; or
    (3) A discount obligation having a maturity at issue of one year or 
less, including commercial paper and bankers' acceptances that are in 
definitive form (i.e., evidenced by a paper document other than a 
confirmation receipt) but not including short-term government 
obligations (as defined in section 1271(a)(3)(B)).
    (c) Manner of furnishing taxpayer identification number in the case 
of a window transaction. A payee must furnish the payee's taxpayer 
identification number to the payor with respect to a window transaction 
either orally or in writing at the time that the window transaction 
occurs. See Sec.  31.3406(g)-3(c)(1)(i), which provides that a payee may 
not claim the payee is awaiting receipt of a taxpayer identification 
number with respect to a window transaction. The payee is not required 
to certify, under penalties of perjury, that the taxpayer identification 
number provided is correct.

[T.D. 8637, 60 FR 66116, Dec. 21, 1995]



Sec.  31.3406(b)(2)-4  Reportable dividend payment.

    (a) Dividends subject to backup withholding. A payment of a kind, 
and to a payee, that is required to be reported under section 6042 
(relating to returns

[[Page 274]]

regarding payments of dividends and corporate earnings and profits) is a 
reportable payment for purposes of section 3406. See paragraph (b) of 
this section for certain dividends not subject to withholding under 
section 3406. See Sec.  31.6051-4 for the requirement to furnish a 
statement to the payee if tax is withheld under section 3406.
    (b) Dividends not subject to backup withholding. Except as provided 
in Sec.  31.3406(b)(3)-2 (relating to transactions reportable under 
section 6045), withholding under section 3406 does not apply to--
    (1) Any amount treated as a taxable dividend by reason of section 
302 (relating to redemptions of stock), section 304 (relating to 
redemptions through the use of related corporations), section 306 
(relating to disposition of certain stock), section 356 (relating to 
receipt of additional consideration in connection with certain 
reorganizations), or section 1081(e)(2) (relating to certain 
distributions pursuant to an order of the Securities and Exchange 
Commission);
    (2) Any exempt-interest dividend, as defined in section 
852(b)(5)(A), paid by a regulated investment company; or
    (3) Any amount paid or treated as paid during a year by a regulated 
investment company, provided that the payor reasonably estimates, as 
provided in paragraph (c)(2) of this section, that 95 percent or more of 
all dividends paid or treated as paid during the year are exempt-
interest dividends.
    (c) Amount subject to backup withholding--(1) In general. The amount 
of a dividend subject to withholding under section 3406 is the amount 
subject to reporting under section 6042, including any dividend that is 
reinvested pursuant to a plan under which a shareholder may elect to 
receive stock as a dividend instead of property. Except as otherwise 
provided in this paragraph (c), withholding applies to the entire amount 
of the distribution.
    (2) Reasonable estimate of amount of dividend subject to backup 
withholding. Pursuant to section 6042(b)(3) and Sec.  1.6042-3(c) of 
this chapter, if the payor is unable to determine the portion of a 
distribution that is a dividend, the entire amount of the distribution 
must be treated as a dividend for information reporting under section 
6042. Hence, withholding applies to the entire amount of the 
distribution. If a payor is able reasonably to estimate under section 
6042 and Sec.  1.6042-3(c) of this chapter the portion of a distribution 
that is not a dividend, however, the payor must not withhold on that 
portion (which is not considered a dividend). A payor making a payment, 
all or a portion of which may not be a dividend, may use previous 
experience to estimate the portion of a distribution that is not a 
dividend. The payor's estimate is considered reasonable if--
    (i) The estimate does not exceed the proportion of the distributions 
made by the payor during the most recent calendar year for which a Form 
1099 was required to be filed that was not reported by the payor as a 
dividend; and
    (ii) The payor has no reasonable basis to expect that the proportion 
of the distribution that is not a dividend will be substantially 
different for the current year.
    (3) Reinvested dividends. In the case of a dividend paid pursuant to 
a dividend reinvestment plan, withholding under section 3406 applies, 
pursuant to Sec.  31.3406(a)-4(a), at the time and to the amount made 
available to the shareholder or credited to the shareholder's account. 
At the discretion of the payor, withholding under section 3406 need not 
be applied to any excess of the fair market value of the shares of stock 
received by the shareholder or credited to the shareholder's account 
over the purchase price of the shares (including shares acquired by the 
shareholder at a discount in connection with the dividend distribution) 
or to any fee that is paid by the payor in the nature of a broker's fee 
for purchase of the stock or service charge for maintenance of the 
shareholder's account. The payor must, however, treat any excess amounts 
and fees on a consistent basis for each calendar year.

[T.D. 8637, 60 FR 66117, Dec. 21, 1995]



Sec.  31.3406(b)(2)-5  Reportable patronage dividend payment.

    (a) Patronage dividends subject to backup withholding. A payment of 
a kind, and to a payee, that is required to be reported under section 
6044 (relating to returns regarding patronage

[[Page 275]]

dividends) is a reportable payment for purposes of section 3406. See 
Sec.  31.6051-4 for the requirement to furnish a statement to the payee 
if tax is withheld under section 3406.
    (b) Amount subject to backup withholding--(1) Failure to provide 
taxpayer identification number or notification of incorrect taxpayer 
identification number. For purposes of sections 3406(a)(1) (A) and (B), 
the amount of a payment described in paragraph (a) of this section that 
is subject to withholding under section 3406 is the amount subject to 
reporting under section 6044, but only to the extent the payment is made 
in money. For purposes of this paragraph (b), money includes cash or a 
qualified check (as defined in section 1388(c)(4)).
    (2) Notified payee underreporting or payee certification failure. 
For purposes of sections 3406(a)(1) (C) and (D), the amount of a payment 
described in paragraph (a) of this section that is subject to 
withholding under section 3406 is the amount subject to withholding 
under paragraph (b)(1) of this section, but only if 50 percent or more 
of that reportable amount is paid in money. Thus, a payor is required to 
withhold according to this paragraph (b)(2) on a payment if--
    (i) There has been a notified payee underreporting described in 
section 3406(a)(1)(C) and Sec.  31.3406(c)-1 or there has been a payee 
certification failure described in section 3406(a)(1)(D) and Sec.  
31.3406(d)-2;
    (ii) The payor makes a reportable payment subject to reporting under 
section 6044 to the payee; and
    (iii) Fifty percent or more of the payment is in cash or by 
qualified check.

[T.D. 8637, 60 FR 66117, Dec. 21, 1995]



Sec.  31.3406(b)(3)-1  Reportable payments of rents, commissions, 
nonemployee compensation, etc.

    (a) Section 6041 and 6041A(a) payments subject to backup 
withholding. A payment of a kind, and to a payee, that is required to be 
reported under section 6041 (relating to information reporting of rents, 
commissions, nonemployee compensation, etc.) or a payment that is 
required to be reported under section 6041A(a) (relating to information 
reporting of payments to nonemployees for services) is a reportable 
payment for purposes of section 3406. See paragraph (b) of this section 
for an exception concerning payments aggregating less than $600. See 
Sec.  31.6051-4 for the requirement to furnish a statement to the payee 
if tax is withheld under section 3406.
    (b) Amount subject to backup withholding--(1) In general. The amount 
of a payment described in paragraph (a) of this section subject to 
withholding under section 3406 is the amount subject to reporting under 
section 6041 or section 6041A(a).
    (2) Net commissions. Withholding under section 3406 does not apply 
to net commissions paid to unincorporated special agents with respect to 
insurance policies that are subject to reporting under section 6041, 
provided that no cash is actually paid by the payor to the special 
agent.
    (3) Payments aggregating $600 or more for the calendar year--(i) In 
general. A payment is a reportable payment under paragraph (a) of this 
section only if the aggregate amount of the current payment and all 
previous payments to the payee during the calendar year aggregate $600 
or more. The amount subject to withholding is the entire amount of the 
payment that causes the total amount paid to the payee to equal $600 or 
more and the amount of any subsequent payments made to the payee during 
the calendar year. This paragraph (b)(3)(i) does not apply to gambling 
winnings (as provided in Sec.  31.3406(g)-2(e)(1)).
    (ii) Exceptions--(A) The $600 aggregation rule. The $600 aggregation 
rule of paragraph (b)(3)(i) of this section does not apply if the payor 
was required to make an information return under section 6041 or 
6041A(a) for the preceding calendar year with respect to payments to the 
payee, or the payor was required to withhold under section 3406 during 
the preceding calendar year with respect to payments to the payee that 
were reportable under section 6041 or 6041A(a).
    (B) Determination of whether payments aggregate $600 or more. In 
determining whether payments to a payee aggregate $600 or more during a 
calendar year for purposes of withholding under section 3406, the payor 
must aggregate only payments of the same kind made

[[Page 276]]

to the same payee. For this purpose, payments are of the same kind if 
they are of the same type, regardless of whether they are reportable 
under the same section. However, a payor with different paying 
departments making reportable payments of the same kind is not required 
to aggregate payments made by all those departments unless it is the 
payor's customary method to aggregate those payments. A payor may, in 
its discretion, aggregate--
    (1) Payments not of the same kind to the same payee, reportable 
under either section 6041 or 6041A(a); and
    (2) Payments reportable under section 6041 with payments reportable 
under section 6041A(a).

[T.D. 8637, 60 FR 66117, Dec. 21, 1995]



Sec.  31.3406(b)(3)-2  Reportable barter exchanges and gross proceeds of
sales of securities or commodities by brokers.

    (a) Transactions subject to backup withholding. A payment of a kind, 
and to a payee, that any broker (as defined in section 6045(c) and Sec.  
1.6045-1(a)(1) of this chapter) or any barter exchange (as defined in 
section 6045(c) and Sec.  1.6045-1(a)(4) of this chapter) is required to 
report under section 6045 is a reportable payment for purposes of 
section 3406. See Sec.  31.6051-4 for the requirement to furnish a 
statement to the payee if tax is withheld under section 3406.
    (b) Amount subject to backup withholding--(1) In general. The amount 
subject to withholding under section 3406 is the amount subject to 
reporting under section 6045. The amount subject to withholding with 
respect to broker reporting is the amount of gross proceeds (as 
determined under Sec.  1.6045-1(d)(5) of this chapter). The amount 
subject to withholding with respect to barter exchanges is the amount 
received by any member or client (as determined under Sec.  1.6045-
1(f)(4) of this chapter).
    (2) Forward contracts, including foreign currency contracts, and 
regulated futures contracts--(i) In general. If a customer is subject to 
withholding under section 3406 with respect to a forward contract 
(subject to information reporting under Sec.  1.6045-1(c)(5) of this 
chapter), including a foreign currency contract (as defined in section 
1256(g)(2)), or a regulated futures contract (as defined in section 
1256(g)(1)), or with respect to an account through which those contracts 
are disposed of or acquired, the broker must withhold on both of the 
following amounts:
    (A) All cash or property withdrawn from the account by the customer 
during the relevant year; and
    (B) The amount of cash in the account available for withdrawal by 
the customer at the relevant year-end (including both gross proceeds and 
variation margin).
    (ii) Rules concerning withdrawals. A withdrawal includes the use of 
money (including both gross proceeds and variation margin) or property 
in the account to purchase any property other than property acquired in 
connection with the closing of a contract. For this purpose, the 
acceptance of a warehouse receipt or other taking of delivery to close a 
contract is in connection with the closing of a contract only if the 
property acquired is disposed of by the close of the seventh trading day 
following the trading day that the customer takes delivery under the 
contract. In addition, making delivery to close a contract is in 
connection with the closing of a contract only if the broker is able to 
determine that the property used to close the contract was acquired no 
earlier than the seventh trading day prior to the trading day on which 
delivery is made. Withdrawals do not include repayments of debt incurred 
in connection with making or taking delivery that meets the requirements 
of this paragraph (b)(2). Withdrawals also do not include payments of 
commissions, fees, transfers of cash from the account to another futures 
account that is subject to this paragraph (b)(2) or cash withdrawals 
traceable to dispositions of property other than futures (not including 
profit on the contract separately reportable under Sec.  1.6045-
1(c)(5)(i)(b) of this chapter).
    (iii) Special rule for forward contracts, including foreign currency 
contracts, and regulated futures contracts. The determination of whether 
the customer is subject to withholding under section 3406 with respect 
to an account containing forward contracts, including

[[Page 277]]

foreign currency contracts, or regulated futures contracts must be made 
at the time of the cash or property withdrawals or the relevant year-
end, whichever is applicable.
    (3) Security sales made through a margin account. The amount 
described in paragraph (a) of this section that is subject to 
withholding under section 3406 in the case of a security sale made 
through a margin account (as defined in 12 CFR part 220 (Regulation T)) 
is the gross proceeds (as defined in Sec.  1.6045-1(d)(5) of this 
chapter) of the sale. The amount required to be withheld with respect to 
the sale, however, is limited to the amount of cash available for 
withdrawal by the customer immediately after the settlement of the sale. 
For this purpose, the amount available for withdrawal by the customer 
does not include amounts required to satisfy margin maintenance under 
Regulation T, rules and regulations of the National Association of 
Securities Dealers and national securities exchanges, and generally 
applicable self-imposed rules of the margin account carrier.
    (4) Security short sales--(i) Amount subject to backup withholding. 
The amount subject to withholding under section 3406 with respect to a 
short sale of securities is the gross proceeds (as defined in Sec.  
1.6045-1(d)(5) of this chapter) of the short sale. At the option of the 
broker, however, the amount subject to withholding may be the gain upon 
the closing of the short sale (if any); consequently, the obligation to 
withhold under section 3406 would be deferred until the closing 
transaction. A broker may use this alternative method of determining the 
amount subject to withholding under section 3406 with respect to a short 
sale only if at the time the short sale is initiated, the broker expects 
that the amount of gain realized upon the closing of the short sale will 
be determinable from the broker's records. If, due to events unforeseen 
at the time the short sale was initiated, the broker is unable to 
determine the basis of the property used to close the short sale, the 
property must be assumed for this purpose to have a basis of zero.
    (ii) Time of backup withholding. The determination of whether a 
short seller is subject to withholding under section 3406 must be made 
on the date of the initiation or closing, as the case may be, or on the 
date that the initiation or closing, as the case may be, is entered on 
the broker's books and records.
    (5) Fractional shares. A broker is not required to withhold under 
section 3406 with respect to a sale of a fractional share of stock 
resulting in less than $20 of gross proceeds (as described in Sec.  
1.6045-1(c)(3)(x) of this chapter).

[T.D. 8637, 60 FR 66118, Dec. 21, 1995, as amended by T.D. 9010, 67 FR 
48760, July 26, 2002]



Sec.  31.3406(b)(3)-3  Reportable payments by certain fishing boat operators.

    (a) Payments subject to backup withholding. A payment of a kind, and 
to a payee, that is required to be reported under section 6050A 
(relating to information reporting by certain fishing boat operators) is 
a reportable payment for purposes of section 3406. See Sec.  31.6051-4 
for the requirement to furnish a statement to the payee if tax is 
withheld under section 3406.
    (b) Amount subject to backup withholding. The amount described in 
paragraph (a) of this section subject to withholding under section 3406 
is the amount subject to reporting under section 6050A, but only to the 
extent the amount is paid in money and represents a share of the 
proceeds of the catch.

[T.D. 8637, 60 FR 66119, Dec. 21, 1995]



Sec.  31.3406(b)(3)-4  Reportable payments of royalties.

    (a) Royalty payments subject to backup withholding. A payment of a 
kind, and to a payee, that is required to be reported under section 
6050N (relating to information reporting of payments of royalties) is a 
reportable payment for purposes of section 3406. See Sec.  31.6051-4 for 
the requirement to furnish a statement to the payee if tax is withheld 
under section 3406.
    (b) Amount subject to backup withholding. In general, the amount 
described in paragraph (a) of this section that is subject to 
withholding under section 3406 is the amount subject to reporting under 
section 6050N. However, if the reportable payment is for

[[Page 278]]

an oil or gas interest, the amount subject to withholding is the net 
amount the payee receives (i.e., the gross proceeds less production-
related taxes such as state severance taxes).

[T.D. 8637, 60 FR 66119, Dec. 21, 1995]



Sec.  31.3406(b)(3)-5  Reportable payments of payment card and third party
network transactions.

    (a) Payment card and third party network transactions subject to 
backup withholding. The gross amount of a reportable transaction that is 
required to be reported under section 6050W (relating to information 
reporting for payment card and third party network transactions) is a 
reportable payment for purposes of section 3406. See Sec.  31.6051-4 for 
the requirement to furnish a statement to the payee if tax is withheld 
under section 3406.
    (b) Amount subject to backup withholding. In general, the amount 
described in paragraph (a) of this section that is subject to 
withholding under section 3406 is the amount subject to reporting under 
section 6050W. In the case of payments made in settlement of third party 
network transactions, the amount subject to withholding under section 
3406 is determined without regard to the exception for de minimis 
payments by third party settlement organizations in section 6050W(e) and 
the associated regulations.
    (c) Time when payments are considered to be subject to backup 
withholding--(1) In general. In the case of a payment card or third 
party network transaction reportable under section 6050W, the obligation 
to withhold arises on the date of the transaction. A payor is not 
required, however, to satisfy its withholding liability until the time 
that payment is made.
    (2) Example. The provisions of paragraph (c)(1) are illustrated by 
the following example:

    Example. On Day 1, Customer A uses a payment card to purchase $100 
worth of goods from Merchant B. Bank X, the merchant acquiring entity 
for B, is the party with the contractual obligation to make payment to B 
in settlement of the transaction. On Day 2, X, after deducting fees of 
$2, makes payment of $98 to settle the transaction for the sale of goods 
from B to A. Under paragraph (a)(6) of Sec.  1.6050W-1, X must report 
the amount of $100, the amount of the transaction on Day 1, without any 
reduction for fees or any other amount, as the gross amount of this 
reportable payment transaction on the annual information return filed 
under paragraph (a)(1) of Sec.  1.6050W-1. Under paragraph (c)(1) of 
this section, X's obligation, if any, to backup withhold arises on Day 
1, the backup withholding obligation must be satisfied on Day 2, and the 
amount subject to backup withholding is $100 (the gross amount of the 
reportable payment transaction (as defined in paragraph (a)(6) of Sec.  
1.6050W-1)).

    (d) Backup withholding from an alternate source--(1) In general. A 
payor may not withhold under section 3406 from a source maintained by 
the payor other than the source with respect to which there exists a 
liability to withhold under section 3406 with respect to the payee. See 
section 3403 and Sec.  31.3403-1, which provide that the payor is liable 
for the amount required to be withheld regardless of whether the payor 
withholds.
    (2) Exceptions for backup withholding when there are no funds 
available--(i) Backup withholding from an alternative source. In the 
event there are no funds available in the source with respect to which 
there exists a liability to withhold under section 3406 with respect to 
the payee, the payor may withhold under section 3406 from another source 
maintained by the payee with the payor. The source from which the tax is 
withheld under section 3406 must be payable to at least one of the 
persons listed on the account subject to withholding. If the account or 
source is not payable exclusively to the same person or persons listed 
on the account subject to withholding under section 3406, then the payor 
must obtain a written statement from all other persons to whom the 
account or source is payable authorizing the payor to withhold under 
section 3406 from the alternative account or source. A payor that elects 
to withhold under section 3406 from an alternative source may determine 
the account or source from which the tax is to be withheld, or may allow 
the payee to designate the alternative source.
    (ii) Deferral of withholding. If the payor cannot locate, with 
reasonable care (following procedures substantially similar to those set 
forth in Sec.  31.3406(d)-5(c)(3)(ii)(A) and (B)), an alternative source 
of cash from which

[[Page 279]]

the payor may satisfy its withholding obligation pursuant to paragraph 
(d)(2)(i) of this section, the payor may defer its obligation to 
withhold under section 3406 until the earlier of--
    (A) The date on which cash, in a sufficient amount to satisfy the 
obligation in full, is deposited in the account subject to withholding 
under section 3406; or
    (B) The close of the fourth calendar year after the obligation 
arose.
    (iii) Termination of obligation to backup withhold. If, at the close 
of the fourth calendar year after the backup withholding arose, the 
payor has not located an alternate source of cash from which the payor 
may satisfy its withholding obligation, and sufficient cash to satisfy 
the obligation in full has not been deposited in the account subject to 
withholding under section 3406, then the obligation to backup withhold 
terminates at the close of the fourth calendar year.
    (e) Effective/applicability date. The provisions of this section 
apply to amounts paid after December 31, 2011.

[T.D. 9496, 75 FR 49835, Aug. 16, 2010]



Sec.  31.3406(b)(4)-1  Exemption for certain minimal payments.

    (a) In general. A payor of reportable interest or dividends (as 
described in section 3406(b)(2)) or of royalties (as described in 
section 3406(b)(3)(E)) may elect not to withhold from a payment that 
does not exceed $10 and that on an annualized basis does not exceed $10 
(see paragraph (c) of this section). A broker or barter exchange may 
elect not to withhold on gross proceeds of $10 or less without regard to 
the annualization requirement. See Sec.  31.6051-4 for the requirement 
to furnish a statement to the payee if tax is withheld under section 
3406.
    (b) Manner of making the election. The election not to withhold from 
payments that do not exceed $10 can be made only for payments described 
in paragraph (a) of this section. The election may be made on a payment-
by-payment basis.
    (c) How to annualize--(1) In general. To annualize a reportable 
interest payment, dividend payment, or royalty payment, a payor must 
calculate what the amount of the payment would be if it were paid for a 
1-year period (instead of the period for which it actually is paid). The 
annualized amount is determined by dividing the amount of the payment by 
the number of days in the period for which it is being paid and then 
multiplying that result by the number of days in the year. If the 
annualized amount is $10 or less, the payor may elect not to withhold on 
that payment regardless of whether more than $10 may be or has been paid 
to the payee in other reportable payments during the calendar year. 
Conversely, if the annualized amount is more than $10, withholding 
applies even if $10 or less is actually paid to the payee during the 
calendar year. For purposes of computing the annualized amount, the 
payor may assume that February always consists of 28 days and that the 
year always consists of 360 days. For amounts that are deposited with a 
payor in a new account or certificate between the dates on which the 
payor customarily pays or credits interest, the payor may assume that 
the period for which the interest is paid is the payor's customary 
period for paying or crediting interest.
    (2) Special aggregation rule for reportable interest and dividends. 
If a payor maintains records that reflect multiple holdings of one payee 
and the payor makes an aggregate payment of reportable interest or 
dividends (as defined in section 3406(b)(2)) with respect to those 
multiple holdings (such as a dividend check that reflects payment on all 
stock owned by the payee), the payor must annualize the aggregate 
payment.
    (d) Exception for window transactions and original issue discount. A 
payor is not required to annualize payments made in window transactions 
(as defined in Sec.  31.3406(b)(2)-3(b)) or payments of original issue 
discount. With respect to a window transaction, however, the payor is 
required to aggregate all payments made in the same transaction (e.g., 
payments made with respect to coupons or obligations presented for 
payment at the same time as described in Sec.  1.6049-4(e)(4) of this 
chapter).

[T.D. 8637, 60 FR 66119, Dec. 21, 1995]

[[Page 280]]



Sec.  31.3406(c)-1  Notified payee underreporting of reportable interest
or dividend payments.

    (a) Overview. Withholding under section 3406(a)(1)(C) applies to any 
reportable interest or dividend payment (as defined in section 
3406(b)(2)) made with respect to an account of a payee if the Internal 
Revenue Service or a broker notifies a payor under paragraph (c) (1) or 
(2) of this section that the payee is subject to withholding due to 
notified payee underreporting (as defined in paragraph (b)(1) of this 
section), and the payor is required under paragraph (c)(3) of this 
section to identify that account. After receiving the notice and 
identifying accounts, the payor must notify the payee, in accordance 
with paragraph (d) of this section, that withholding due to notified 
payee underreporting has started. Paragraph (e) of this section 
describes the period for which withholding due to notified payee 
underreporting is required. Paragraph (f) of this section provides rules 
concerning notices that the Internal Revenue Service will send to a 
payee before notifying a payor that the payee is subject to withholding 
due to notified payee underreporting. Paragraph (g) of this section 
provides rules that a payee can use to prevent withholding due to 
notified payee underreporting from starting or to stop it once it has 
started. Paragraph (h) of this section provides special rules for joint 
accounts of payees who have filed a joint return. See section 6682 for 
the penalties that may apply to a payee subject to withholding under 
section 3406(a)(1)(C).
    (b) Definitions--(1) Notified payee underreporting. Notified payee 
underreporting means that the Internal Revenue Service has--
    (i) Determined that there was a payee underreporting (as defined in 
paragraph (b)(2) of this section);
    (ii) Mailed at least four notices under paragraph (f)(1) of this 
section to the payee (over a period of at least 120 days) with respect 
to the underreporting; and
    (iii) Assessed any deficiency attributable to the underreporting in 
the case of any payee who has filed a return.
    (2) Payee underreporting--(i) In general. Payee underreporting means 
that the Internal Revenue Service has determined, for a taxable year, 
that--
    (A) A payee failed to include in the payee's return of tax under 
chapter 1 of the Internal Revenue Code for that year any portion of a 
reportable interest or dividend payment required to be shown on that tax 
return; or
    (B) A payee may be required to file a return for that year and to 
include a reportable interest or dividend payment in the return, but 
failed to file the return.
    (ii) Payments included in making payee underreporting determination. 
The determination of whether there is payee underreporting is made by 
treating as reportable interest or dividend payments, all payments of 
dividends reported under section 6042, all patronage dividends reported 
under section 6044, and all interest and original issue discount 
reported under section 6049, regardless of whether withholding due to 
notified payee underreporting applies to those payments.
    (c) Notice to payors regarding backup withholding due to notified 
payee underreporting--(1) In general. If the Internal Revenue Service or 
a broker notifies a payor that a payee is subject to withholding due to 
notified payee underreporting, the payor must--
    (i) Identify any accounts of the payee under the rules of paragraph 
(c)(3) of this section; and
    (ii) Notify the payee and withhold under section 3406 on reportable 
interest or dividend payments made with respect to any identified 
account under the rules of paragraphs (d) and (e) of this section.
    (2) Additional requirements for payors that are also brokers--(i) In 
general. A broker must notify the payor of a readily tradable instrument 
that the payee of the instrument is subject to withholding due to 
notified payee underreporting if--
    (A) The broker (in its capacity as a payor) receives a notice from 
the Internal Revenue Service under paragraph (c)(1) of this section that 
a payee is subject to withholding due to notified payee underreporting 
and the broker is required to identify an account of the

[[Page 281]]

payee under paragraph (c)(3) of this section;
    (B) The payee subsequently acquires the instrument from the broker 
through the same account; and
    (C) The acquisition of the instrument occurs after the close of the 
30th business day after the date that the broker receives the notice (or 
on any earlier date that the broker may begin applying this paragraph 
(c)(2) after receipt of the notice described in paragraph (c)(1) of this 
section).
    (ii) Transfer out of street name. For purposes of this paragraph 
(c)(2), an acquisition includes a transfer of an instrument out of 
street name into the name of the registered owner (i.e., the payee).
    (iii) Method of providing notice. A broker must provide the notice 
required under this paragraph (c)(2) to the payor of the instrument with 
the transfer instructions for the acquisition. See Sec.  31.3406(d)-
4(a)(2).
    (iv) Termination of obligation to provide information. The 
obligation of a broker to provide notice to payors under this paragraph 
(c)(2) terminates simultaneously with the termination of the broker's 
obligation to withhold (in its capacity as payor) due to notified payee 
underreporting on reportable interest or dividends made with respect to 
the account.
    (3) Payor identification of accounts of the payee subject to backup 
withholding due to notified payee underreporting--(i) In general--(A) 
Notice from the Internal Revenue Service. If a payor receives a notice 
from the Internal Revenue Service under paragraph (c)(1) of this 
section, the payor must identify, exercising reasonable care, all 
accounts using the same taxpayer identification number for information 
reporting purposes as the one provided in the notice. The notice may 
provide, however, that the payor need only identify the account or 
accounts corresponding to any account number or designation and related 
taxpayer identification number used for information reporting purposes 
as that listed on the notice.
    (B) Notice from a broker. If a payor receives a notice from a broker 
under paragraphs (c) (1) and (2) of this section, the payor is not 
required to identify any account other than the account identified in 
the notice.
    (ii) Exercise of reasonable care. If an account identified pursuant 
to paragraph (c)(3)(i)(A) of this section contains a customer identifier 
that can be used to retrieve systemically any other accounts that use 
the same taxpayer identification number for information reporting 
purposes, the payor must identify all accounts that can be so retrieved. 
Otherwise, a payor is considered to exercise reasonable care in 
identifying accounts subject to withholding under section 3406(a)(1)(C) 
if the payor searches any computer or other recordkeeping system for the 
region, division, or branch that serves the geographic area in which the 
payee's mailing address is located and that was established (or is 
maintained) to reflect reportable interest or dividend payments.
    (iii) Newly opened accounts. (A) In general, a new account is not 
subject to withholding under section 3406(a)(1)(C) if the payee provides 
to the payor a Form W-9 (or other acceptable substitute) on which the 
payor may reasonably rely (within the meaning of Sec.  31.3406(h)-
3(e)(2) without regard to Sec.  31.3406(h)-3(e)(2)(v)), unless the payor 
has actual knowledge (within the meaning of paragraph (c)(3)(iii)(B) of 
this section) that the statements made on the form are not true.
    (B) For purposes of paragraph (c)(3)(iii)(A) of this section, a 
payor is considered to have actual knowledge that a payee's statement 
that the payee is not subject to withholding under section 3406(a)(1)(C) 
is not true if--
    (1) The employee or individual agent of the payor who receives the 
payee's certification knows that the statement is not true;
    (2) In conducting the investigation, if any, required by paragraph 
(c)(3)(iii)(C) of this section, the payor identifies any other accounts 
of the payee that are already subject to withholding under section 
3406(a)(1)(C); or
    (3) In the course of processing the certification or in 
administering an account to which a certification relates, the payor 
discovers that the payor was previously notified by the Internal

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Revenue Service that the payee is subject to withholding under section 
3406(a)(1)(C) and no notice was received to stop withholding pursuant to 
section 3406(c)(3) prior to the time of the discovery.
    (C) Except as provided in this paragraph (c)(3)(iii)(C), a payor is 
not required to investigate whether the statements made on the Form W-9 
described in paragraph (c)(3)(iii)(A) of this section are true. If, 
however, in opening a new account, the payor relies on the same Form W-9 
(or appropriate substitute) that it relied on previously in opening 
another account, the payor must investigate whether any such existing 
account is subject to withholding under section 3406(a)(1)(C). 
Similarly, if the payor utilizes a universal account system described in 
the first sentence of paragraph (c)(3)(ii) of this section, and in 
opening a new account the payor searches its records to determine 
whether the new account should be identified under an existing 
identifier (because the payee has existing accounts with the payor), the 
payor must investigate whether any existing accounts identified with the 
same identifier are subject to withholding under section 3406(a)(1)(C).
    (d) Notice from payors of backup withholding due to notified payee 
underreporting--(1) In general. If a payor receives notice from the 
Internal Revenue Service or a broker under paragraph (c)(1) of this 
section and is required to identify an account under paragraph (c)(3) of 
this section as an account of the payee, the payor must notify the payee 
in accordance with paragraph (d)(2) of this section that withholding due 
to notified payee underreporting has started.
    (2) Procedures. The payor must send the notice required by paragraph 
(d)(1) of this section to the payee no later than 15 days after the date 
that the payor makes the first payment subject to withholding due to 
notified payee underreporting. The payor must send the notice by first-
class mail to the payee at the payee's last known address. The notice to 
the payee required by paragraph (d)(1) of this section must state--
    (i) That the Internal Revenue Service has given notice that the 
payee has underreported reportable interest or dividends;
    (ii) That, as a result of the underreporting, the payor is required 
under section 3406(a)(1)(C) of the Internal Revenue Code to withhold 31 
percent of reportable interest or dividend payments made to the payee;
    (iii) The date that the payor started (or plans to start) 
withholding due to notified payee underreporting under section 
3406(a)(1)(C);
    (iv) The account number or numbers that are subject to withholding 
due to notified payee underreporting;
    (v) That the payee must obtain a determination from the Internal 
Revenue Service in order to stop the withholding due to notified payee 
underreporting; and
    (vi) That while the payee is subject to withholding due to notified 
payee underreporting, the payee may not certify to a payor making 
reportable interest or dividend payments (or to a broker acquiring a 
readily tradable instrument for the payee) that the payee is not subject 
to withholding due to notified underreporting.
    (e) Period during which backup withholding is required--(1) In 
general. If a payor receives notice from the Internal Revenue Service or 
a broker under paragraph (c)(1) of this section, the payor must impose 
withholding under section 3406(a)(1)(C) on all reportable interest or 
dividend payments with respect to any account of the payee required to 
be identified under paragraph (c)(3) of this section made after the 
close of the 30th business day after the day on which the payor receives 
that notice and before the stop date (as described in paragraph (e)(2) 
of this section). A payor may choose to start withholding under this 
paragraph (e)(1) at any time during the 30-business-day period described 
in the preceding sentence.
    (2) Stop withholding--(i) When no underreporting exists or undue 
hardship exists--(A) Stop date. In the case of a determination under 
paragraph (g)(3) (i) or (iii) of this section that no underreporting 
exists or that an undue hardship exists, the stop date is the day that 
is 30 days after the earlier of--

[[Page 283]]

    (1) The date on which the payor receives written notification from 
the Internal Revenue Service under paragraph (g) of this section that 
withholding is to stop; or
    (2) The date on which the payor receives a copy of the written 
certification provided to the payee by the Internal Revenue Service 
under paragraph (g) of this section that withholding is to stop.
    (B) Acceleration of stop date. A payor may choose to stop 
withholding at any time during the 30-day period described in paragraph 
(e)(2)(i)(A) of this section.
    (ii) When underreporting is corrected or bona fide dispute exists. 
In the case of a determination under paragraph (g)(3) (ii) or (iv) of 
this section that the underreporting has been corrected or that a bona 
fide dispute exists, the stop date occurs on the first day of January 
(immediately following a period of at least twelve months ending on 
October 15 of any calendar year in which the determination has been 
made) or if later, the stop date determined under paragraph (e)(2)(i) of 
this section.
    (3) Dormant accounts. The requirement that a payor withhold under 
this paragraph (e) on reportable interest or dividend payments made with 
respect to an account terminates no later than the close of the third 
calendar year ending after the later of--
    (i) The date that the most recent reportable interest or dividend 
payment was made with respect to that account; or
    (ii) The date that the payor received notice under paragraph (c)(1) 
of this section.
    (f) Notice to payees from the Internal Revenue Service--(1) Notice 
period. After the Internal Revenue Service determines under paragraph 
(b)(2) of this section that payee underreporting exists, the Internal 
Revenue Service will mail to the payee at least four notices over a 
period of at least 120 days (the notice period) before payors will be 
notified under paragraph (c)(1) of this section that the payee is 
subject to withholding due to notified payee underreporting. The notices 
may be accompanied by, or incorporated in, other notices provided to the 
payee by the Internal Revenue Service.
    (2) Payee subject to backup withholding. After the Internal Revenue 
Service provides the notices described in paragraph (f)(1) of this 
section, the Internal Revenue Service will send notices to payors under 
paragraph (c)(1) of this section unless--
    (i) A payee obtains a determination under paragraph (g) of this 
section; or
    (ii) In the case of a payee who has filed a tax return, the Internal 
Revenue Service has not assessed the deficiency attributable to the 
underreporting.
    (3) Disclosure of names of payors and brokers. Pursuant to section 
3406(c)(5) the Internal Revenue Service may require a payee subject to 
withholding due to notified payee underreporting to disclose the names 
of all the payee's payors of reportable interest or dividend payments 
and the names of all of the brokers with whom the payee has accounts 
which may involve reportable interest or dividend payments. To the 
extent required in the request from the Internal Revenue Service, the 
payee must also provide the payee's account numbers and other 
information necessary to identify the payee's accounts.
    (4) Backup withholding certification. After a payee receives a final 
notice from the Internal Revenue Service under paragraph (f)(1) of this 
section, the payee is not permitted to certify to any payor or broker, 
under penalties of perjury, that the payee is not subject to withholding 
under section 3406(a)(1)(C), until the payee receives the certification 
from the Internal Revenue Service under paragraph (g) of this section 
advising the payee that the payee is no longer subject to withholding 
under section 3406(a)(1)(C). A final notice will contain the information 
described in this paragraph (f)(4). See sections 6682 and 7205(b) for 
civil and criminal penalties for making a false certification.
    (g) Determination by the Internal Revenue Service that backup 
withholding should not start or should be stopped--(1) In general. A 
payee may prevent withholding due to notified payee underreporting from 
starting, or stop the withholding once it has started, by requesting and 
receiving a determination from the Internal Revenue Service under one or 
more of the provisions of

[[Page 284]]

paragraph (g)(3) of this section. Following its review of a request for 
a determination under paragraph (g)(3) of this section, the Internal 
Revenue Service will either make the determination or provide the payee 
with a written report informing the payee that the request for 
determination is being denied and the reasons for the denial. If a 
determination is made during the notice period (as defined in paragraph 
(f)(1) of this section), the payee is not subject to withholding due to 
notified payee underreporting with respect to any taxable year for which 
a determination was made. If a determination is made after the notice 
period, the Internal Revenue Service will, at the time prescribed in 
paragraph (g)(2) of this section, provide written certification to a 
payee that withholding is to stop, and will notify payors who were 
contacted pursuant to paragraph (c)(1) of this section to stop 
withholding. A broker who (in its capacity as payor) under this 
paragraph (g)(1) receives a notice from the Internal Revenue Service or 
a copy of the certification provided to a payee by the Internal Revenue 
Service is not required to provide a corresponding notice to any payors 
whom the broker has previously notified under paragraph (c)(2) of this 
section.
    (2) Date notice to stop backup withholding will be provided--(i) 
Underreporting corrected or bona fide dispute. If the Internal Revenue 
Service makes a determination under paragraph (g)(3) (ii) or (iv) of 
this section during the 12-month period ending on October 15 of any 
calendar year (as described in paragraph (e)(2)(ii) of this section), 
the Internal Revenue Service will provide the certification and the 
notices described in paragraph (g)(1) of this section no later than 
December 1 of that calendar year.
    (ii) No underreporting or undue hardship. If the Internal Revenue 
Service makes a determination under paragraph (g)(3)(i) or (iii) of this 
section, the Internal Revenue Service will provide the notices described 
in paragraph (g)(1) of this section no later than the 45th day after the 
day on which the Internal Revenue Service makes its determination.
    (3) Grounds for determination. The Internal Revenue Service will 
make a determination that withholding due to notified payee 
underreporting should not start or should stop once it has started if 
the payee--
    (i) Shows that there was no payee underreporting (as provided in 
paragraph (g)(4) of this section) for each taxable year with respect to 
which the Internal Revenue Service determined under paragraph (b)(2) of 
this section that there was payee underreporting;
    (ii) Corrects any payee underreporting (as provided in paragraph 
(g)(5) of this section) for each taxable year with respect to which the 
Internal Revenue Service determined under paragraph (b)(2) of this 
section that there was payee underreporting;
    (iii) Shows that withholding will cause or is causing an undue 
hardship (as defined in paragraph (g)(6) of this section) and that it is 
unlikely that the payee will underreport interest or dividend payments 
again; or
    (iv) Shows that a bona fide dispute exists regarding whether any 
underreporting has occurred (as provided in paragraph (g)(7) of this 
section) for each taxable year with respect to which the Internal 
Revenue Service determined under paragraph (b)(2) of this section that 
there was payee underreporting.
    (4) No underreporting. A payee may show that no underreporting of 
reportable interest or dividends payments exists by presenting--
    (i) Receipts or other satisfactory documentation to the Internal 
Revenue Service showing that all taxes relating to the payments were 
reported; or
    (ii) Evidence showing that the payee did not have to file a return 
for the taxable year in question (e.g., because the payee did not make 
enough income) or that the underreporting determination was based upon a 
factual, clerical, or other error.
    (5) Correcting any payee underreporting--(i) Before issuance of a 
statutory notice of deficiency. Before a statutory notice of deficiency 
is issued to a payee pursuant to section 6212, the payee may correct 
underreporting--
    (A) By filing a return if one was not previously filed and including 
the unreported interest and dividends thereon;

[[Page 285]]

    (B) By filing an amended return in the event a return was filed and 
including the unreported interest and dividends thereon; or
    (C) By consenting to the additional assessment according to 
applicable notices and forms sent to the payee by the Internal Revenue 
Service with respect to the underreporting, and paying taxes, penalties, 
and interest due with respect to any underreported interest or dividend 
payments.
    (ii) After issuance of a statutory notice of deficiency. After a 
statutory notice of deficiency is issued to a payee--
    (A) The payee may correct underreporting at any time, by filing a 
return if one was not previously filed and paying the entire deficiency 
and any other taxes including penalties and interest attributable to any 
payee underreporting of interest or dividend payments; or
    (B) The payee may correct underreporting after the mailing of the 
statutory notice of deficiency but before the expiration of the 90-day 
or 150-day period described in section 6213(a) or, if a petition is 
filed with the United States Tax Court, before the decision of the Tax 
Court is final, by making a remittance to the Internal Revenue Service 
of the amounts described in paragraph (g)(5)(ii)(A) of this section. The 
payee must specifically designate in writing that the remittance is a 
deposit in the nature of a cash bond.
    (iii) Special rules. For purposes of paragraph (g)(5)(ii) of this 
section, the payee will not be deemed to have corrected the payee 
underreporting under paragraph (g)(5)(ii)(B) of this section after the 
remittance is returned to the payee in the manner described in any 
applicable administrative procedure. For further guidance on a deposit 
in the nature of a cash bond, see subparagraph 2 of section 4.01 of Rev. 
Proc. 84-58 (1984-2 C.B. 501). (See Sec.  601.601(d)(2) of this 
chapter.) Once the remittance is returned to the payee, the rules of 
this section will apply. If the Internal Revenue Service previously 
contacted payors of the payee to start withholding with respect to the 
notified payee underreporting, however, the Internal Revenue Service 
will recontact those payors to start withholding under paragraph (c)(1) 
of this section with respect to the payee underreporting without regard 
to paragraph (f) of this section.
    (6) Undue hardship--(i) In general. A determination of undue 
hardship will be based on the overall impact to the payee of having 
reportable interest or dividend payments withheld at a 31 percent rate 
under section 3406. In addition, a determination of undue hardship will 
be made only if the Internal Revenue Service concludes that it is 
unlikely that any payee underreporting will occur again.
    (ii) Factors. Factors that will be considered in determining whether 
withholding causes undue hardship include, but are not limited to, the 
following--
    (A) Whether estimated tax payments, and other credits for current 
tax liabilities, or amounts withheld on employee wages or pensions, in 
addition to withholding under section 3406, would cause significant 
overwithholding;
    (B) The payee's health, including the payee's ability to pay 
foreseeable medical expenses;
    (C) The extent of the payee's reliance on interest and dividend 
payments to meet necessary living expenses and the existence, if any, of 
other sources of income;
    (D) Whether other income of the payee is limited or fixed
    (e.g., social security, pension, and unearned income);
    (E) The payee's ability to sell or liquidate stocks, bonds, bank 
accounts, trust accounts, or other assets, and the consequences of doing 
so;
    (F) Whether the payee reported and timely paid the most recent 
year's tax liability, including interest and dividend income; and
    (G) Whether the payee has filed a bankruptcy petition with the 
United States Bankruptcy Court.
    (7) Bona fide dispute. The Internal Revenue Service may make a 
determination under this paragraph (g)(7) if there is a dispute between 
the payee and the Internal Revenue Service on a question of fact or law 
that is material to a determination under paragraph (g)(3)(i) of this 
section and, based upon all the facts and circumstances, the Internal 
Revenue Service finds that the dispute is asserted in good faith by the

[[Page 286]]

payee and there is a reasonable basis for the payee's position.
    (h) Payees filing a joint return--(1) In general. For purposes of 
this section, if payee underreporting is found to exist with respect to 
a joint return, then the provisions of this section apply to both payees 
(i.e., the husband and wife). As a result, both payees are subject to 
withholding on accounts in their individual names as well as accounts in 
their joint names. Either or both payees may satisfy the criteria for a 
determination that no payee underreporting exists, that the 
underreporting has been corrected, or that a bona fide dispute exists 
(as provided in paragraph (g)(3) (i), (ii), or (iv) of this section). 
Both payees, however, must satisfy the criteria for a determination that 
withholding will cause or is causing undue hardship (as provided in 
paragraph (g)(3)(iii) of this section).
    (2) Exceptions--(i) Innocent spouse. A spouse who files a joint 
return may obtain a determination that withholding should stop or not 
start with respect to payments made to his or her individual accounts, 
if the spouse shows that--
    (A) He or she did not underreport income because he or she is a 
spouse described in section 6013(e), i.e., innocent spouse; or
    (B) There is a bona fide dispute regarding whether he or she is an 
innocent spouse and hence did not underreport income.
    (ii) Divorced or legally separated payee. A payee who, at the time 
of the request for a determination under paragraph (g) of this section, 
is divorced or separated under State law may obtain a determination that 
undue hardship exists (or would exist) under paragraph (g)(3)(iii) of 
this section with respect to reportable interest or dividend payments 
made to his or her individual accounts if the divorced or legally 
separated payee satisfies the criteria for a determination under 
paragraph (g)(6) of this section.
    (i) [Reserved]
    (j) Penalties. For the application of penalties related to this 
section, see sections 6682 and 7205(b).

[T.D. 8637, 60 FR 66119, Dec. 21, 1995]



Sec.  31.3406(d)-1  Manner required for furnishing a taxpayer 
identification number.

    (a) Requirement to backup withhold. Withholding under section 
3406(a)(1)(A) applies to a reportable payment (as defined in section 
3406(b)) if the payee does not furnish the payee's taxpayer 
identification number to the payor in the manner required by this 
section. The period for which withholding is required is described in 
Sec.  31.3406(e)-1(b). See Sec.  31.3406(d)-3(a) and (b) for special 
rules when an account is established directly with, or an instrument is 
acquired directly from, the payor by electronic transmission or by mail, 
or an instrument is sold through a broker by electronic transmission or 
by mail. See Sec.  31.3406(d)-4 for special rules applicable to readily 
tradable instruments acquired through a broker. See Sec.  31.3406(h)-
3(e) for the rules on when a payor may rely on a Form W-9. See also 
Sec.  31.3406(g)-3 for rules regarding a payee awaiting receipt of a 
taxpayer identification number. See the applicable information reporting 
sections and section 6109 and the regulations thereunder to determine 
whose taxpayer identification number should be provided.
    (b) Reportable interest or dividend account--(1) Manner required for 
furnishing a taxpayer identification number with respect to a pre-1984 
account or instrument. A payee must furnish the payee's taxpayer 
identification number to the payor with respect to any obligation, 
deposit, certificate, share, membership, contract, investment, account, 
or other relationship or instrument established or acquired on or before 
December 31, 1983 (a pre-1984 account) and with respect to which the 
payor makes a reportable interest or dividend payment (as defined in 
section 3406(b)(2)). The manner of determining whether an account or an 
instrument is a pre-1984 account is described in paragraph (b)(2) of 
this section. The payee of a pre-1984 account may furnish the payee's 
taxpayer identification number to the payor orally or in writing. The 
payee is not required to certify under penalties of perjury that the 
taxpayer identification number is correct.
    (2) Determination of pre-1984 account or instrument--(i) In general. 
An account

[[Page 287]]

that is in existence before January 1, 1984, will be considered a pre-
1984 account, regardless of whether additional deposits are made to the 
account on or after January 1, 1984. An account established as an 
expansion of a credit union prime account in existence prior to January 
1, 1984, constitutes a pre-1984 account. If funds taken from one account 
in existence prior to January 1, 1984, are used to create a new account 
on or after that date, however, the new account does not constitute a 
pre-1984 account except as provided in the preceding sentence. An 
instrument acquired prior to January 1, 1984, is a pre-1984 account. 
Regardless of when an instrument was acquired, if it is negotiated in a 
window transaction as defined in Sec.  31.3406(b)(2)-3(b), it is treated 
as an instrument acquired after December 31, 1983. An obligation in 
bearer form and subject to reporting under section 6045, whenever 
acquired, is not a pre-1984 account. Any instrument, whenever acquired, 
that is held in a brokerage account is considered a pre-1984 account if 
the brokerage account is not a post-1983 brokerage account (as described 
in paragraph (c)(1)(ii) of this section). If shares of a corporation are 
held before January 1, 1984 (or considered held before that date by 
operation of this paragraph (b)(2)), and additional shares are acquired 
by the holder, irrespective of whether the shares are received by reason 
of a stock dividend, investing new cash, or otherwise, the new shares, 
in the discretion of the payor, may be considered a pre-1984 account. In 
the case of a qualified employee trust that distributes instruments in 
kind, any instrument distributed from the trust is considered a pre-1984 
account with respect to employees who were participants in the trust 
before 1984. Similarly, when a payor offers participants in a plan the 
opportunity to purchase stock of the payor after a specified time, using 
the money that the payee invested during that period of time, the stock 
so purchased after December 31, 1983, is considered a pre-1984 account 
with respect to participants in the plan who either owned shares or 
invested money in the plan before January 1, 1984.
    (ii) Account or instrument automatically acquired on the maturity or 
termination of an account. When an account is opened, or an instrument 
is acquired, automatically on the maturity or termination of an account 
that was in existence or an instrument that was held before January 1, 
1984 (or considered to have been in existence or held before that date 
by operation of this paragraph (b)(2)(ii)), without the participation of 
the payee, the new account or instrument, in the discretion of the 
payor, may be considered a pre-1984 account. For purposes of the 
preceding sentence, a payee is not considered to have participated in 
the acquisition of the new account or instrument solely because the 
payee failed to exercise a right to withdraw funds at the maturity or 
termination of the old account or instrument.
    (iii) Insurance policies. In the case of insurance policies in 
effect on December 31, 1983, the election of a dividend accumulation 
option pursuant to which interest is paid (as defined in Sec.  1.6049-
5(a)(4) of this chapter), or the creation of an account in which 
proceeds of a policy are held for the policy beneficiary, may, in the 
payor's discretion, be treated as a pre-1984 account.
    (iv) Acquisitions of accounts and instruments--(A) Pre-1984 or post-
1983 status known. If a payor acquires accounts or instruments of 
another payor (including through a tax-free reorganization under section 
368), the acquiring payor must treat the persons specified in this 
paragraph (b)(2)(iv)(A) as having the same requirement to furnish a 
taxpayer identification number in the manner required under this 
paragraph (b) to the acquiring payor for information reporting, 
withholding, and related tax provisions as existed with respect to the 
payor whose accounts or instruments were acquired. Persons specified in 
this paragraph (b)(2)(iv)(A) are persons who held accounts or 
instruments in the other payor immediately before the acquisition and 
who receive an account or instrument in the acquiring payor immediately 
after the acquisition.
    (B) Pre-1984 or post-1983 status unknown. If the acquiring payor, as 
described in paragraph (b)(2)(iv)(A) of this section, is unable to 
identify from the business records of the other payor whether any or all 
of the accounts or

[[Page 288]]

instruments of the persons specified in paragraph (b)(2)(iv)(A) of this 
section are pre-1984 (or post-1983) accounts or instruments, then the 
acquiring payor may treat these unidentified accounts or instruments as 
pre-1984 accounts or instruments.
    (C) Cross reference. See Sec.  31.3406(g)-2(g) for the limited 
exception from withholding under section 3406(a)(1)(A) on accounts or 
instruments described in paragraphs (b)(2)(iv) (A) and (B) of this 
section for which the payor does not have a taxpayer identification 
number.
    (3) Manner required for furnishing a taxpayer identification number 
with respect to an account or instrument that is not a pre-1984 account. 
A payee who receives reportable interest or dividend payments (as 
defined in section 3406(b)(2)) from a payor must certify under penalties 
of perjury that the taxpayer identification number the payee furnishes 
to the payor is the payee's correct taxpayer identification number. The 
payee must make the certification only with respect to an account or 
instrument that is not a pre-1984 account (as described in paragraph 
(b)(2) of this section). See Sec.  31.3406(h)-3 for a description of the 
certificate on which the certification must be made. See Sec.  
31.3406(d)-2 for the requirement that the payee must certify under 
penalties of perjury that the payee is not subject to withholding due to 
notified payee underreporting. See Sec.  31.3406(d)-3(a) with respect to 
an account established directly with, or an instrument acquired directly 
from, the payor by electronic transmission or by mail. See Sec.  
31.3406(d)-4 for the rules applicable to readily tradable instruments 
acquired through a broker.
    (4) Special rule with respect to the acquisition of a readily 
tradable instrument in a transaction between certain parties acting 
without the assistance of a broker. If a payee, at any time, acquires a 
readily tradable instrument without the assistance of a broker, and no 
party to the acquisition is a broker or an agent of the payor, the payee 
must furnish the payee's taxpayer identification number to the payor 
prior to the time reportable payments are made on the instrument. The 
payee is not required to certify under penalties of perjury that the 
number is correct. See Sec.  31.3406(d)-2 for the rule that a payee is 
not subject to withholding due to notified payee underreporting with 
respect to a readily tradable instrument acquired in the manner 
described in this paragraph (b)(4). A broker is considered to provide 
assistance in the acquisition of an instrument if the person effecting 
the acquisition would be required to make an information return under 
section 6045 if such person were to sell the instrument. See Sec.  
31.3406(d)-4 for rules relating to an acquisition of a readily tradable 
instrument when a broker is involved.
    (c) Brokerage account--(1) Manner required for furnishing a taxpayer 
identification number with respect to a brokerage relationship that is 
not a post-1983 brokerage account--(i) In general. With respect to any 
instrument, investment, or deposit made through a brokerage account that 
is not a post-1983 brokerage account, a payee must furnish the payee's 
taxpayer identification number to the broker either orally or in 
writing. The payee is not required to certify under penalties of perjury 
that the taxpayer identification number is correct. See paragraph 
(b)(2)(i) of this section for the rule that any instrument, whenever 
acquired, that is held in a brokerage account that is not a post-1983 
brokerage account, is considered held in an account that is not a post-
1983 brokerage account. For example, in 1983 a payee established and 
acquired a readily tradable instrument from a brokerage account; no 
activity took place through that account until the payee purchased a 
readily tradable instrument in 1995. That readily tradable instrument is 
not held in a post-1983 brokerage account; therefore, the payee need not 
certify under penalties of perjury that the payee's taxpayer 
identification number is correct.
    (ii) Definition of a brokerage account that is not a post-1983 
brokerage account. A brokerage account that was established by a payee 
before January 1, 1984, through which during 1983 the broker either 
bought or sold securities for the payee or held securities on behalf of 
the payee as a nominee (i.e., in street name), is an account that is not 
a post-1983 brokerage account.

[[Page 289]]

    (2) Manner required for furnishing a taxpayer identification number 
with respect to a post-1983 brokerage account--(i) In general. With 
respect to a post-1983 brokerage account, the payee must furnish the 
payee's taxpayer identification number to the broker and certify under 
penalties of perjury that the taxpayer identification number furnished 
is correct, except as provided in Sec.  31.3406(d)-3(b).
    (ii) Definition of a post-1983 brokerage account. A brokerage 
account established after December 31, 1983 (or before January 1, 1984, 
through which during 1983 the broker neither bought nor sold securities 
nor held securities on behalf of the payee as a nominee (i.e., in street 
name)), is a post-1983 brokerage account.
    (d) Rents, commissions, nonemployee compensation, certain fishing 
boat operators, and payment card and third party network transactions, 
etc.--Manner required for furnishing a taxpayer identification number. 
For accounts, contracts, or relationships subject to information 
reporting under section 6041 (relating to information reporting at 
source on rents, royalties, salaries, etc.), section 6041A(a) (relating 
to information reporting of payments for nonemployee services), section 
6050A (relating to information reporting by certain fishing boat 
operators), section 6050N (relating to information reporting of payments 
of royalties), or section 6050W (relating to information reporting for 
payment card and third party network transactions), the payee must 
furnish the payee's taxpayer identification number to the payor either 
orally or in writing. Except as provided in Sec.  31.3406(d)-5, the 
payee is not required to certify under penalties of perjury that the 
taxpayer identification number is correct regardless of when the 
account, contract, or relationship is established.

[T.D. 8637, 60 FR 66123, Dec. 21, 1995, as amended by T.D. 9496, 75 FR 
49835, Aug. 16, 2010]



Sec.  31.3406(d)-2  Payee certification failure.

    (a) Requirement to backup withhold. Withholding under section 
3406(a)(1)(D) applies to a reportable interest or dividend payment (as 
defined in section 3406(b)(2)) if, and only if, the payee fails to 
certify to the payor, under penalties of perjury, that the payee is not 
subject to withholding due to notified payee underreporting under 
section 3406(a)(1)(C). The period for which withholding applies is 
described in Sec.  31.3406(e)-1(e). See Sec.  31.3406(d)-3(a) for 
special rules when an account is established directly with, or an 
instrument is acquired directly from, the payor by electronic 
transmission or by mail. See Sec.  31.3406(c)-1(c)(3)(iv) for rules with 
respect to a payor's reliance on a payee certification for a new account 
following notified payee underreporting. See Sec.  31.3406(d)-4 for 
special rules relating to the acquisition of a readily tradable 
instrument through a broker. The certificate on which the certification 
should be made is described in Sec.  31.3406(h)-3.
    (b) Exceptions. Withholding under section 3406(a)(1)(D) and 
paragraph (a) of this section does not apply to reportable interest or 
dividend payments (as defined in section 3406(b)(2)) made--
    (1) With respect to a pre-1984 account (as defined in Sec.  
31.3406(d)-1(b)(1));
    (2) In a window transaction (as defined in Sec.  31.3406(b)(2)-
3(b));
    (3) With respect to a readily tradable instrument described in Sec.  
31.3406(d)-1(b)(2)(iv) or Sec.  31.3406(d)-4(a)(3); or
    (4) During the period and with respect to an account or readily 
tradable instrument described in Sec.  31.3406(d)-3.

[T.D. 8637, 60 FR 66125, Dec. 21, 1995]



Sec.  31.3406(d)-3  Special 30-day rules for certain reportable payments.

    (a) Accounts or readily tradable instruments acquired directly from 
the payor (including a broker who holds an instrument in street name) by 
electronic transmission or by mail. In the case of an account 
established directly with, or a readily tradable instrument acquired 
directly from, the payor by means of electronic transmission (i.e., 
telephone or wire instruction) or by mail, the payor may permit the 
payee to furnish the certifications required in Sec.  31.3406(d)-1(b)(3) 
(relating to certification that the payee's taxpayer identification 
number is correct) and Sec.  31.3406(d)-2 (relating to certification of 
notified payee underreporting) within 30 days after the establishment or

[[Page 290]]

acquisition without subjecting the account to withholding during the 30 
days. The preceding sentence applies only if the payee furnishes a 
taxpayer identification number to the payor at the time of the 
establishment or acquisition, and the payee does not withdraw more than 
69 percent of a reportable interest or dividend payment before the 
certifications are received within the 30 days. If the payee does not 
provide the required certifications within 30 days of the establishment 
or acquisition, the payor must withhold 31 percent of any reportable 
interest or dividend payments made to the account after its acquisition. 
For purposes of this section, an account or instrument is considered 
acquired directly from the payor if the instrument was acquired by the 
payee without the assistance of a broker or the instrument was acquired 
directly from a broker who holds the instrument as nominee for the payee 
(i.e., in street name) and who is considered a payor under Sec.  
31.3406(a)-2. For payments made after December 31, 1998, see Sec.  
1.6049-5(d)(2)(ii) of this chapter for the application of a 90-day grace 
period in lieu of the 30-day grace period described in this paragraph 
(a) if, at the beginning of the 90-day grace period, certain conditions 
are satisfied. If the grace period provisions of Sec.  1.6049-
5(d)(2)(ii) or Sec.  1.1441-1(b)(3)(iv) of this chapter are applied with 
respect to a new account, the grace period provisions of this paragraph 
(a) shall not apply to that account.
    (b) Sale of an instrument for a customer by electronic transmission 
or by mail. The special rules set forth in paragraph (a) of this section 
apply comparably with respect to certification of the taxpayer 
identification number for the sale of an instrument under section 6045 
(as described in Sec.  31.3406(b)(3)-2) through a post-1983 brokerage 
account (as described in Sec.  31.3406(d)-1(c)(2)) for a customer by 
electronic transmission or by mail. However, the 30-day rules may apply 
only if the payee furnishes the payee's taxpayer identification number 
before the sale occurs. For purposes of applying the 30-day rules under 
this paragraph (b), a payee's reinvestment of the gross proceeds of the 
sale into other instruments constitutes a withdrawal.
    (c) Application to foreign payees. The rules of paragraphs (a) and 
(b) of this section also apply to a payee from whom the payor is 
required to obtain a Form W-8 (or an acceptable substitute) or other 
evidence of foreign status (pursuant to relevant regulations under an 
applicable Internal Revenue Code section without regard to the 
requirement to furnish a taxpayer identifying number, and the 
certifications described in Sec. Sec.  31.3406(d)-1(b)(3) and 
31.3406(d)-2), provided the payee represents orally or otherwise, before 
or at the time of the acquisition or sale of the instrument or the 
establishment of the account, that the payee is not a United States 
citizen or resident. The 30-day rules described in paragraph (a) or (b) 
of this section may apply only if the payee does not qualify for, or the 
payor does not apply, the 90-day grace period described in Sec.  1.6049-
5(d)(2)(ii) or Sec.  1.1441-1(b)(3)(iv) of this chapter.

[T.D. 8637, 60 FR 66125, Dec. 21, 1995, as amended by T.D. 8734, 62 FR 
53493, Oct. 14, 1997]



Sec.  31.3406(d)-4  Special rules for readily tradable instruments 
acquired through a broker.

    (a) Readily tradable instruments acquired through post-1983 
brokerage accounts with a broker who is not a payor--(1) In general. If 
a readily tradable instrument is acquired through a post-1983 brokerage 
account (as defined in Sec.  31.3406(d)-1(c)(2)) and the broker is not a 
broker holding a security (including stock) for a customer in street 
name, the broker must--
    (i) Obtain once with respect to each account the certifications 
described in Sec.  31.3406(d)-2(a) and Sec.  31.3406(d)-1(b)(3) and 
(c)(2) from the payee (relating to certification regarding payee 
underreporting and taxpayer identification number, respectively);
    (ii) Furnish the payee's taxpayer identification number to the 
payor; and
    (iii) Notify the payor to impose withholding if the payee fails to 
make either of the required certifications to the broker or if the 
broker has been notified by the Internal Revenue Service

[[Page 291]]

before the acquisition of the instrument that the payee is subject to 
withholding due to notified payee underreporting under section 
3406(a)(1)(C) or that the payee is subject to withholding because the 
payee's taxpayer identification number is incorrect under section 
3406(a)(1)(B) (as described in Sec.  31.3406(d)-5).
    (2) Additional requirements. The broker must give the information 
required by paragraphs (a)(1) (ii) and (iii) of this section to the 
payor with the transfer instructions for the acquisition (including 
account registration instructions transmitted by a broker in the case of 
acquisitions of shares in a mutual fund). A notice including the 
information described in paragraph (b)(1) of this section fulfills the 
broker's requirement to give notice to the payor. Once the broker 
transmits the transfer instructions containing the information required 
by this section, the broker has no further responsibility to obtain a 
missing taxpayer identification number or missing certification or to 
provide additional notices to the payee or payor with respect to the 
acquisition of the instrument. Upon receiving the notice from a broker, 
the payor must impose withholding on the account pursuant to Sec.  
31.3406(a)-1.
    (3) Transactions entered into through a brokerage account that is 
not a post-1983 brokerage account. If a broker acquires readily tradable 
instruments for a payee through an account (with the broker) that is not 
a post-1983 brokerage account (as defined in Sec.  31.3406(d)-1(c)(1)), 
and the broker is not the payor of the instruments, the broker must 
furnish the payee's taxpayer identification number to the payor. In 
addition, if the broker has been notified by the Internal Revenue 
Service that the payee is subject to withholding under section 3406 
either because of an incorrect taxpayer identification number or due to 
notified payee underreporting as described in section 3406(a)(1) (B) or 
(C), respectively, the broker must notify the payor of the instrument to 
impose withholding with respect to that payee and transmit the 
information in the manner described in this paragraph (a). After a payor 
receives a notice from a broker pursuant to section 3406(d)(2)(B) and 
this paragraph (a), the payor must impose withholding on any accounts of 
the payee paying reportable interest or dividends as defined in section 
3406(b)(2) in accordance with Sec.  31.3406(a)-1.
    (4) Payor must notify payee--(i) Failure to provide certifications. 
If a payor is notified by a broker, as required in paragraph (a)(1) of 
this section, that a payee is subject to withholding because the payee 
failed to provide the certifications, as described in Sec.  31.3406(d)-
2(a) and Sec.  31.3406(d)-1(b)(3) and (c)(2), and the payor has not 
received the certifications from the payee, then the payor must notify 
the payee that withholding has started (or will start) no later than 15 
days after the payor makes the first payment to the payee that is 
subject to withholding under section 3406. A notice that contains the 
information described in paragraph (b)(2) of this section satisfies the 
payor's requirement to give notice to the payee. If the broker notifies 
the payor that the payee failed to make a required certification and the 
payor has received the certification from the payee, the payor may 
disregard the notice from the broker.
    (ii) Notified payee underreporting and incorrect taxpayer 
identification number. The payor must notify the payee under this 
section if the Internal Revenue Service or a broker notifies the payor 
to withhold either because of an incorrect taxpayer identification 
number under section 3406(a)(1)(B) (as described in Sec.  31.3406(d)-5) 
or due to notified payee underreporting under section 3406(a)(1)(C) (as 
described in Sec.  31.3406(c)-1). If a payor is notified by the Internal 
Revenue Service or a broker with respect to a readily tradable 
instrument, the payor may not ignore the notice even if the payee 
previously provided the payee's taxpayer identification number under 
penalties of perjury to the payor and even if the payee certified to the 
payor that the payee is not subject to backup withholding due to a 
notified payee underreporting. See Sec.  31.3406(d)-5(c) (1) and (2) and 
(f)(2) for notice requirements under section 3406(a)(1)(B) due to an 
incorrect taxpayer identification number. See Sec.  31.3406(c)-1(c)(2) 
for notice requirements under section 3406(a)(1)(C) due to notified 
payee underreporting.

[[Page 292]]

    (b) Notices--(1) Form of notice by broker to payor. A broker who is 
required under paragraphs (a)(1)(iii) and (2) of this section to notify 
the payor with respect to a readily tradable instrument may notify the 
payor in connection with the transfer instructions by means of magnetic 
media, machine readable document, or any other medium, provided that the 
notice includes the following information--
    (i) The payee's name, address, and taxpayer identification number 
(if provided to the broker); and
    (ii) A statement that the payee is subject to withholding under 
section 3406(a)(1) (A), (B), (C), or (D) of the Internal Revenue Code, 
whichever section applies; and
    (iii) When applicable, a statement that the broker was notified by 
the Internal Revenue Service that the payee is subject to withholding 
under section 3406(a)(1)(B) or (C).
    (2) Form of notice by payor to payee. A payor who is required to 
notify a payee that the payee is subject to withholding must provide 
notice that is substantially similar to the following--
    (i) For a notification concerning a failure to provide a taxpayer 
identification number in the required manner under section 3406(a)(1)(A) 
or a failure to make the following certification described in section 
3406(a)(1)(D):

    Recently, you purchased (identify security acquired). Because of the 
existence of one or more of the following conditions, payments of 
interest, dividends, and other reportable amounts that are made to you 
will be subject to withholding of tax at a 31 percent rate: (specify the 
condition or conditions, described below, that are applicable)
    (1) You failed to provide a taxpayer identification number, or 
failed to provide this number under penalties of perjury, in connection 
with the purchase of the acquired security. (An individual's taxpayer 
identification number is his or her social security number.)
    (2) You failed to certify, under penalties of perjury, that you are 
not subject to withholding due to notified payee underreporting as 
required under section 3406(a)(1)(D) of the Internal Revenue Code.
    If condition (1) applies, you may stop withholding by providing your 
taxpayer identification number on the enclosed Form W-9, signing the 
form, and returning it to us. If you do not have a taxpayer 
identification number, but have applied (or will soon apply) for one, 
you may so indicate on the Form W-9. Withholding may apply during the 
60-day period you are waiting for your taxpayer identification number. 
You must provide us with your taxpayer identification number promptly 
after you receive it in order to avoid withholding after the end of the 
60-day period or to stop withholding if it has already begun. Certain 
persons, described on the enclosed Form W-9, are exempt from 
withholding. Follow the instructions on that form if applicable to you.
    If condition (2) applies, you may stop withholding by certifying on 
the enclosed Form W-9 that you are not subject to withholding due to 
notified payee underreporting, signing the form, and returning it to us.
    If more than one condition applies, you must remove all applicable 
conditions to stop withholding.
    Please address any questions concerning this notice to: [Insert 
payor identifying information].
    (Do not address questions to the broker who purchased the securities 
for you.)

    (ii) For the form of the notice concerning imposition of withholding 
due to an incorrect taxpayer identification number, see Sec.  
31.3406(d)-5 (d)(2) and (g)(2).
    (iii) For the form of the notice concerning the imposition of 
withholding due to notified payee underreporting, see Sec.  31.3406(c)-
1(d)(2).
    (c) Payor's reliance on information from broker--(1) In general. A 
payor of an instrument acquired by a payee through a broker may rely on 
the information that the payor receives from the broker pursuant to 
paragraphs (a) and (b) of this section.
    (2) Amount subject to backup withholding. The payor is required to 
withhold under section 3406 depending on the payor's customary method of 
making payment on an instrument or instruments owned by a payee. If it 
is the practice of a payor to combine in one account all readily 
tradable instruments of the same issue owned by a payee and if only 
certain of those instruments are subject to withholding, the payor must 
withhold on the aggregate payment made with respect to all the 
instruments in the account. Otherwise, the payor must withhold on the 
payment made on the instrument or instruments with respect to which the 
payee is subject to withholding.

[T.D. 8637, 60 FR 66125, Dec. 21, 1995; 61 FR 11307, Mar. 20, 1996; 61 
FR 12135, Mar. 25, 1996; T.D. 9010, 67 FR 48760, July 26, 2002]

[[Page 293]]



Sec.  31.3406(d)-5  Backup withholding when the Service or a broker notifies
the payor to withhold because the payee's taxpayer identification number is 
incorrect.

    (a) Overview. Backup withholding under section 3406(a)(1)(B) applies 
to any reportable payment made with respect to an account of a payee if 
the Internal Revenue Service or a broker notifies a payor under 
paragraph (c)(1) or (2) of this section that the payee's name and 
taxpayer identification number combination (name/TIN combination) is 
incorrect and the payor is required under paragraph (c)(3) of this 
section to identify that account as having the same name/TIN 
combination. After receiving a notice from the Internal Revenue Service 
or a broker under paragraph (c)(1) or (2) of this section and 
identifying an account as having the incorrect name/TIN combination 
under paragraph (c)(3) of this section, the payor must notify the payee 
in accordance with paragraph (d) of this section. In addition, under 
paragraph (e) of this section, the payor must backup withhold on all 
reportable payments made to such account after the close of the 30th 
business day after the date that the payor receives the notice and on or 
before the close of the 30th calendar day after the date that the payor 
receives from the payee the certification required under paragraph (f) 
of this section. Under paragraph (g) of this section, if a payor 
receives 2 notices from the Internal Revenue Service or broker within 3 
calendar years with respect to a payee's account, the payor must notify 
the payee in accordance with paragraph (g)(2) (rather than paragraph 
(d)) of this section. In addition, the payor must backup withhold on all 
reportable payments made with respect to the account after the close of 
the 30th business day after the date that the payor receives the second 
notice and on or before the 30th calendar day after the date that the 
payor receives notification from the Social Security Administration (or 
the Internal Revenue Service) validating a name/TIN combination for the 
account. Paragraph (h) of this section requires a payor to use a 
corrected name/TIN combination on subsequent information returns.
    (b) Definitions and special rules--(1) Definition of incorrect name/
TIN combination. An incorrect name/TIN combination is a combination of a 
name and taxpayer identification number provided on an information 
return with respect to which the Internal Revenue Service determines 
that the taxpayer identification number provided is not assigned under 
section 6109 to the name provided.
    (2) Definition of account. The term ``account'' means any account, 
instrument, or other relationship with the payor.
    (3) Definition of business day. The term ``business day'' means any 
day other than a Saturday, Sunday, or legal holiday (within the meaning 
of section 7503).
    (4) Certain exceptions--(i) In general. This section does not apply 
with respect to any notice received under paragraph (c)(1) or (2) of 
this section with respect to payments that--
    (A) Were made to a fiduciary or nominee account; or
    (B) Were not reportable payments (for example, because the payments 
were made to an exempt recipient).

See Sec.  301.6724-1(f)(3) of this chapter for certain solicitation 
rules applicable after receipt of a notice under paragraph (c)(1) or (2) 
of this section with respect to a fiduciary or nominee account.
    (ii) Definition of fiduciary or nominee account. A fiduciary or 
nominee account is an account with respect to which at least one person 
named in the registration is identified as acting in the capacity as 
nominee or as administrator, conservator, custodian, receiver, tutor, 
curator, committee, executor, guardian, trustee, or other fiduciary 
capacity recognized under governing law.
    (c) Notice regarding an incorrect name/TIN combination--(1) In 
general. If the Internal Revenue Service notifies a payor that a payee's 
name/TIN combination is incorrect and that the payor must commence 
backup withholding as required on reportable payments made with respect 
to accounts of the payee with the same name/TIN combination, the payor 
must--
    (i) Identify under paragraph (c)(3) of this section any account or 
accounts of

[[Page 294]]

the payee having the same name/TIN combination;
    (ii) Except as provided in paragraph (g) of this section, notify the 
payee and backup withhold on reportable payments made to the account or 
accounts under the rules of paragraphs (d), (e), and (f) of this 
section.

This paragraph (c)(1) also applies if the payor receives notice from a 
broker under paragraph (c)(2) of this section.
    (2) Additional requirements for payors that are also brokers--(i) In 
general. A broker must notify the payor of an instrument of the 
information required under paragraph (c)(2)(ii) of this section, if--
    (A) The broker (in its capacity as a payor) receives a notice from 
the Internal Revenue Service under paragraph (c)(1) of this section that 
a payee's name/TIN combination is incorrect and is required to identify 
an account of the payee pursuant to paragraph (c)(3) of this section as 
having the name/TIN combination;
    (B) The payee acquires through the same account with the broker a 
readily tradable instrument with respect to which the broker is not the 
payor; and
    (C) The acquisition of such instrument occurs after the close of the 
30th business day after the date that the broker receives that notice 
(or on any earlier date that the broker chooses to begin applying this 
paragraph (c)(2)).

For purposes of this paragraph (c)(2)(i), with respect to notices under 
paragraph (c)(1) of this section received on or after September 1, 1992, 
an acquisition includes a transfer of an instrument out of street name 
into the name of the registered owner, i.e., the payee.
    (ii) Required information. The information required to be provided 
under this paragraph (c)(2)(ii) is:
    (A) The fact that the broker was notified by the Internal Revenue 
Service that the payee furnished an incorrect name/TIN combination;
    (B) The incorrect name/TIN combination; and
    (C) The fact that the named payee is subject to backup withholding 
under section 3406(a)(1)(B).

The broker is required to provide this information to the payor of the 
instrument in connection with the transfer instructions for the 
acquisition.
    (iii) Termination of obligation to provide information. The 
obligation of a broker to provide information to payors under this 
paragraph (c)(2) terminates simultaneously with the termination of the 
broker's obligation to backup withhold (in its capacity as payor) on 
reportable payments to the account.
    (3) Payor identification of the account or accounts of the payee 
that have the incorrect taxpayer identification number--(i) In general. 
If an account number or designation is provided in the notice received 
under paragraph (c)(1) of this section, the payor need only identify any 
account or accounts corresponding to that number or designation that has 
the same name/TIN combination provided in the notice. If no account 
number or designation is provided in the notice received under paragraph 
(c)(1) of this section, the payor must identify, using reasonable care, 
all accounts of the payee having the same name/TIN combination provided 
in the notice. If a payor receives notice from a broker under paragraph 
(c)(2) of this section with respect to the acquisition of a readily 
tradable instrument, the payor is not required to identify any other 
account of the payee.
    (ii) Reasonable care where no account number or designation is 
provided. A payor who satisfies the following two-part facts-and-
circumstances test will be considered to have exercised reasonable care 
for purposes of this paragraph (c)(3).
    (A) Part one of the test is satisfied if a payor searches for 
accounts of the payee on the computer or other recordkeeping system that 
the payor can reasonably associate with the information return that 
generated the notice under paragraph (c)(1) of this section. For 
example, a payor who maintains separate computer or recordkeeping 
systems for different product lines will have identified and used the 
appropriate system if the payor searches for accounts of the payee on 
the computer or recordkeeping system that contains the product line for 
the type of payments reported on the information return. A payor with 
the same product line on several nonintegrated computer or record 
systems will have identified and used the appropriate system if the

[[Page 295]]

payor searches for accounts of the payee on any computer or record 
system that the payor otherwise can reasonably associate with the 
information return.
    (B) Part two of the test is satisfied if the payor inputs the name/
TIN combination provided on the notice from the Internal Revenue Service 
under paragraph (c)(1) of this section into the system that is described 
in paragraph (c)(3)(ii)(A) of this section. If the system of a payor 
cannot utilize the name/TIN combination, the payor must input 
appropriate data or criteria, as determined by the capability of the 
payor's computer or recordkeeping system.
    (iii) No identification if error is caused by payor. A payor may 
treat an account as not having the incorrect name/TIN combination if the 
error resulted because the name or taxpayer identification number on 
such account is not the name or taxpayer identification number that was 
provided to the payor. This may occur, for example, where a payor 
transposes numbers in the taxpayer identification number when 
incorporating it into the payor's business records.
    (4) Special rules for joint accounts--(i) In general. In the case of 
a joint account, the relevant name/TIN combination for purposes of this 
section is the name/TIN combination used for information reporting 
purposes.
    (ii) Transitional rule. With respect to notices received under 
paragraph (c) (1) or (2) of this section prior to September 1, 1993, a 
payor may treat the name/TIN combination of the first person on a joint 
account as the relevant name/TIN combination, unless that person is an 
exempt foreign person and the account registration includes names of 
persons who are not foreign persons.
    (iii) Optional rule where names are switched. A payor may backup 
withhold under this section on reportable payments made to a joint 
account if the order of the names (or taxpayer identification numbers) 
on the account is merely changed subsequent to receipt of a notice under 
paragraph (c) (1) or (2) of this section, provided that the name of the 
person to which the incorrect name/TIN combination originally applies 
remains on the account.
    (5) Date of receipt. For purposes of this section, the date set 
forth on the notice from the Internal Revenue Service or broker under 
paragraph (c) (1) or (2) of this section is considered to be the date of 
receipt of the notice by the payor. However, if the payor demonstrates 
to the satisfaction of the Internal Revenue Service that the date of 
actual receipt of the notice is later than the date on the notice, the 
actual date of receipt is controlling.
    (d) Notice from payors of backup withholding due to an incorrect 
name/TIN combination--(1) In general. Except as provided in paragraph 
(g) of this section, if a payor receives notice under paragraph (c)(1) 
or (2) of this section and is required to identify an account as having 
the incorrect name/TIN combination under paragraph (c)(3) of this 
section, the payor must send a copy of the notice (or an acceptable 
substitute notice) to the payee of the account in accordance with the 
procedures of paragraph (d)(2) of this section.
    (2) Procedures--(i) In general. The notice that a payor must send to 
a payee under paragraph (d)(1) of this section must comply with such 
procedural requirements as the Internal Revenue Service provides in the 
Internal Revenue Bulletin such as to form and manner of delivery. A 
payor must send the notice to the payee within 15 business days after 
the date that the payor receives the notice from the Internal Revenue 
Service or a broker under paragraph (c)(1) or (2) of this section.
    (ii) Two or more notices for an account for the same year or 
received in the same year. A payor who receives, under the same payor 
taxpayer identification number, two or more notices under paragraph 
(c)(1) or (2) of this section with respect to the same payee's account 
for the same year, or in the same calendar year, need only send one 
notice to the payee under this section.
    (e) Period during which backup withholding is required due to 
notification of an incorrect name/TIN combination--(1) In general. 
Except as provided in paragraph (g) of this section, if a payor receives 
a notice under paragraph (c)(1) or (2) of this section and is required 
to identify an account as having the same name/TIN combination under 
paragraph (c)(3) of this section, the payor

[[Page 296]]

must impose backup withholding on all reportable payments made with 
respect to the account after the close of the 30th business day after 
the date the payor receives that notice and on or before the close of 
the 30th calendar day after the day the payor receives from the payee 
the certification required under paragraph (f) of this section.
    (2) Grace periods--(i) Starting backup withholding. A payor may, on 
an account-by-account basis or in general, choose to begin backup 
withholding under this paragraph (e) at any time during the 30-business-
day period described in paragraph (e)(1) of this section.
    (ii) Stopping backup withholding. A payor may, on an account-by-
account basis or in general, choose to stop backup withholding under 
this paragraph (e) at any time within 30 calendar days after the payor 
receives from the payee the certification required under paragraph (f) 
of this section.
    (3) Dormant accounts. The requirement that a payor backup withhold 
under this paragraph (e) on reportable payments made with respect to an 
account terminates no later than the close of the third calendar year 
ending after the later of--
    (i) The date that the last reportable payment was made to that 
account; or
    (ii) The date that the payor received the notice under paragraph 
(c)(1) or (2) of this section.
    (f) Manner required for payee to furnish certified taxpayer 
identification number. (1) Except as provided in paragraph (g) of this 
section, in order to prevent backup withholding under paragraph (e) of 
this section from starting, or to stop it once it has begun, a payee 
with respect to whom the payor has been notified under paragraph (c)(1) 
or (2) that the payee's name/TIN combination is incorrect is required on 
Form W-9 (or an acceptable substitute form) to--
    (i) Provide the payee's name and taxpayer identification number; and
    (ii) Certify, under penalties of perjury, that the taxpayer 
identification number being provided is correct.
    (2) The certification must be made even if the account is a pre-1984 
account and even if the payment to the account is a reportable payment 
other than interest, dividends, patronage dividends, original issue 
discount, or proceeds of a sale of a security or commodity. In order to 
prevent backup withholding under paragraph (e) of this section from 
starting or to stop it once it has begun, a payee is not required to 
certify, under penalties of perjury, that the payee is not subject to 
backup withholding due to notified payee underreporting under section 
3406(a)(1)(C). With respect to notices received under paragraph (c)(1) 
or (2) of this section on or after September 1, 1993, the requirements 
of this paragraph (f) are not satisfied if a payee provides only an 
awaiting TIN certification. As a result, a payor must not fail to begin 
backup withholding under paragraph (e) of this section solely because 
the payee provided an awaiting TIN certification, or stop it once it has 
begun solely because the payee provided an awaiting TIN certification.
    (g) Receipt of two notices within a 3-year period--(1) In general. 
If a payor receives notification under paragraph (c)(1) or (2) of this 
section twice within 3 calendar years, and in each case the payor is 
required to identify the same account as having the incorrect name/TIN 
combination, the payor must--
    (i) Disregard any future certifications (described in paragraph (f) 
of this section) furnished by the payee with respect to the account 
until the payor receives notice from the Social Security Administration 
(or the Internal Revenue Service) validating a name/TIN combination 
under paragraph (g)(5) of this section;
    (ii) Send the notice described in paragraph (g)(2) of this section 
to the payee (and not the notice required under paragraph (d) of this 
section) within 15 business days after the date that the payor receives 
the second notice; and
    (iii) Impose backup withholding on the account for the period 
described in paragraph (g)(3) of this section.

The payor must maintain sufficient records to determine whether the 
payor has received notices under paragraph (c) (1) or (2) of this 
section twice within 3 calendar years with respect to the same account.
    (2) Notice to payee who has provided two incorrect name/TIN 
combinations

[[Page 297]]

within 3 calendar years. The notice to the payee required by paragraph 
(g)(1) of this section must comply with such procedural requirements as 
the Internal Revenue Service provides in the Internal Revenue Bulletin 
such as to form and manner of delivery.
    (3) Period during which backup withholding is required due to a 
second notice of an incorrect name/taxpayer identification combination 
within 3 calendar years--(i) In general. If paragraph (g)(1) of this 
section applies, the payor must backup withhold on all reportable 
payments made with respect to the account of the payee after the close 
of the 30th business day after the date that the payor receives the 
second notice under paragraph (c) (1) or (2) of this section and on or 
before the close of the 30th calendar day after the date that the payor 
receives notice from the Social Security Administration (or the Internal 
Revenue Service) validating a name/TIN combination under paragraph 
(g)(5) of this section for the account. However, a payor may choose not 
to commence backup withholding under this paragraph (g) until January 1, 
1992.
    (ii) Grace periods--(A) Starting backup withholding. A payor may, on 
an account-by-account basis or in general, choose to begin backup 
withholding under this paragraph (g) at any time during the 30-business-
day period described in paragraph (g)(3)(i) of this section.
    (B) Stopping backup withholding. A payor may, on an account-by-
account basis or in general, choose to stop backup withholding under 
this paragraph (g) at any time within 30 calendar days after the date 
the payor receives notice from the Social Security Administration (or 
the Internal Revenue Service) validating a name/TIN combination under 
paragraph (g)(5) of this section for the account.
    (iii) Dormant accounts. The requirement that a payor backup withhold 
under this paragraph (g) on reportable payments made with respect to an 
account terminates no later than the close of the third calendar year 
ending after the later of--
    (A) The date that the last reportable payment was made to that 
account; or
    (B) The date that the payor received the second notice under 
paragraph (c) (1) or (2) of this section.
    (4) Receipt of two notices for the same year or in the same calendar 
year. A payor who receives, under the same payor taxpayer identification 
number, two or more notices under paragraph (c)(1) or (2) of this 
section with respect to the same payee's account for the same year, or 
in the same calendar year, must treat such notices as one notice for 
purposes of this paragraph (g).
    (5) Notification from the Social Security Administration (or the 
Internal Revenue Service) validating a name/TIN combination. The Social 
Security Administration (or the Internal Revenue Service) will notify a 
payor after it validates a name/TIN combination that the payee provides 
for an account to which paragraph (g)(1) of this section applies. 
Notification from the Social Security Administration (or the Internal 
Revenue Service) validating a name/TIN combination satisfies the 
requirements of this paragraph (g)(5) only if it complies with such 
procedural requirements as the Internal Revenue Service provides in the 
Internal Revenue Bulletin such as to form and manner of delivery. In 
order to obtain notification from the Social Security Administration (or 
the Internal Revenue Service) validating a name/TIN combination for an 
account, a payee who receives notice from a payor under paragraph (g)(2) 
of this section should follow such procedures as the Internal Revenue 
Service provides in the Internal Revenue Bulletin.
    (h) Payor must use newly provided certified number. If a payor 
receives a certification under paragraph (f) of this section or a 
notification under paragraph (g)(5) of this section for an account, the 
payor must use the name/TIN combination provided on such certification 
or notification on information returns for the account for which the due 
date (without regard to extensions) is more than 30 calendar days after 
the date that the payor receives the certification or notification. A 
payor who uses that name/TIN combination on the first such information 
return satisfies the requirement of section 3406(h)(9) to provide this 
information to the Internal Revenue Service. If

[[Page 298]]

the payor is not required to file any information returns with respect 
to the account after the date that the payor receives the certification 
or notification, a payor is deemed to satisfy the requirements of 
section 3406(h)(9).
    (i) Effective date. Except as otherwise provided in this section, 
the provisions of this section are effective with respect to notices 
received on or after September 1, 1990, under paragraph (c) (1) or (2) 
of this section.
    (j) Examples. The application of the provisions of this section may 
be illustrated by the following examples:

    Example 1. D opened an account with Bank O prior to 1984 and 
furnished a taxpayer identification number to O at the time he opened 
the account. O pays interest on the account at the end of each calendar 
month, and the account is a pre-1984 account. On October 1, 1990, the 
Internal Revenue Service notifies Bank O that the name/TIN combination 
provided by D is incorrect. O timely notifies D as required in paragraph 
(d)(1) of this section. O does not receive the certification required 
under paragraph (f) of this section from D. O is required to backup 
withhold 20 percent of all reportable payments made after November 14, 
1990 (which is 30 business days after the date the Internal Revenue 
Service notified O). Therefore, O is not required to backup withhold on 
the reportable payment made on October 31, 1990, but is required to 
backup withhold on the reportable payment made on November 30, 1990. O 
is required to continue to backup withhold under section 3406(a)(1)(B) 
until O receives the certification required under paragraph (f) of this 
section from D (or, if earlier, until backup withholding terminates 
under paragraph (e)(3) of this section).
    Example 2. Assume the same facts as in Example 1 except that D 
furnishes a new taxpayer identification number to O on November 1, 1990, 
but does not certify, under penalties of perjury, that it is his correct 
taxpayer identification number as required under paragraph (f) of this 
section. Even though the account is a pre-1984 account, O is required to 
withhold 20 percent of all reportable payments made after November 14, 
1990 (which is 30 business days after the date the Internal Revenue 
Service notified O), and before the date O receives the certification 
required under paragraph (f) of this section from D.
    Example 3. Assume the same facts as in Example 2 except that D 
provides O with the certification required under paragraph (f) of this 
section on November 10, 1990. D elects pursuant to paragraph (e)(2)(ii) 
of this section to treat the certification as received on November 20, 
1990. Even though D did not provide the certification to O within 30 
business days after the Internal Revenue Service notified O that D 
provided an incorrect taxpayer identification number, O is not required 
to backup withhold under section 3406(a)(1)(B) because O did not make 
any reportable payment to D after 30 business days after notification of 
an incorrect name/TIN combination and before O received D's 
certification under paragraph (f) of this section (or, if earlier, until 
backup withholding terminates under paragraph (e)(3) of this section).
    Example 4. Individual F has two post-1983 accounts with Bank R that 
pay reportable interest: a savings account and a money market account. 
The money market account was opened in 1986, and the savings account was 
opened on February 1, 1991. R treats each of these accounts as a 
separate account on its books and records for business purposes. On 
October 1, 1990, the Internal Revenue Service notified R pursuant to 
paragraph (c)(1) of this section that F furnished an incorrect name/TIN 
combination with respect to the money market account. R timely sends F 
the notice required under paragraph (d) of this section and receives the 
certification required under paragraph (f) of this section from F on 
November 1, 1990. On October 1, 1991, the Internal Revenue Service again 
notifies R that F furnished an incorrect name/TIN combination with 
respect to the money market account. Further, R determines from its 
business records that two notifications of an incorrect name/TIN 
combination have been received with respect to the money market account 
within 3 calendar years. R must send F the notice required under 
paragraph (g)(2) of this section and must commence backup withholding on 
reportable interest paid on the money market account pursuant to 
paragraph (g)(3) of this section after November 14, 1991, which is 30 
business days after R received the second notice. R must continue to 
backup withhold under paragraph (g) of this section on the money market 
account until R receives notification from the Social Security 
Administration as described in paragraph (g)(5) of this section (or, if 
earlier, until backup withholding terminates under paragraph (g)(3)(iii) 
of this section). R is not required to backup withhold on the savings 
account unless and until it receives notice under paragraph (c) (1) or 
(2) of this section with respect to the savings account.

[T.D. 8409, 57 FR 13031, Apr. 15, 1992, as amended by T.D. 9055, 68 FR 
22595, Apr. 29, 2003]

[[Page 299]]



Sec.  31.3406(e)-1  Period during which backup withholding is required.

    (a) In general. A payor must withhold under section 3406 at a rate 
of 31 percent on any reportable payment (as defined in section 3406(b)) 
made to a payee during the period described in this section 
(irrespective of the number of conditions for imposing withholding under 
section 3406 that exist with respect to the payee). A payor must 
continue to withhold under section 3406 until no condition for imposing 
backup withholding exists with respect to the payee.
    (b) Failure to furnish a taxpayer identification number in the 
manner required--(1) Start withholding. A payor is required to withhold 
under section 3406(a)(1)(A) at a rate of 31 percent on any reportable 
payment (as defined in section 3406(b)) at the time the payor pays the 
reportable payment (as described in Sec.  31.3406(a)-4) to a payee if--
    (i) The payor has not received the payee's taxpayer identification 
number in the manner required in Sec.  31.3406(d)-1; or
    (ii) The payor has received notice from a broker (as required in 
Sec.  31.3406(d)-4(a)(1)(iii)) with respect to a readily tradable 
instrument that the payee did not furnish a taxpayer identification 
number to the broker in the manner required in Sec.  31.3406(d)-1 and 
the payor has not received the taxpayer identification number from the 
payee in this manner.
    (2) Stop withholding. The payor must stop withholding under section 
3406(a)(1)(A) within 30 days after the payor receives--
    (i) The payee's taxpayer identification number in the manner 
required under Sec.  31.3406(d)-1; or
    (ii) A statement, in such form and containing such information as is 
required under applicable regulations, that the payee is not a United 
States person.
    (c) Notification of an incorrect taxpayer identification number. See 
Sec.  31.3406(d)-5(e) and (g)(3) for the period for which withholding is 
required in the case of notification of an incorrect taxpayer 
identification number.
    (d) Notified payee underreporting. See Sec.  31.3406(c)-1(e) for the 
period for which withholding is required in the case of notified payee 
underreporting.
    (e) Payee certification failure--(1) Start withholding. A payor is 
required to withhold under section 3406(a)(1)(D) at a rate of 31 percent 
on any reportable interest or dividend payment (as defined in section 
3406(b)(2)) at the time the payor pays such reportable interest or 
dividend payment (as described in Sec.  31.3406(a)-4) to a payee if--
    (i) The payor has not received from the payee the certification 
required in Sec.  31.3406(d)-2; or
    (ii) The payor has received notice from a broker (as required in 
Sec.  31.3406(d)-4(a)(1)(iii)) with respect to a readily tradable 
instrument that the payee did not make the required certification and 
the payor has not received the required certification from the payee.
    (2) Stop withholding. The payor must stop withholding under section 
3406(a)(1)(D) on any reportable interest or dividend payment within 30 
days after the payor receives the certification from the payee in the 
manner required by Sec.  31.3406(d)-2.
    (f) Rule for determining when the payor receives a taxpayer 
identification number or certificate from a payee. In determining 
whether a payee has failed to provide a taxpayer identification number 
or any certification to a payor (including a Form W-8 or substitute 
form), a payor is required to process the taxpayer identification number 
or certification within 30 days after the payor receives the taxpayer 
identification number or certification from the payee or in certain 
cases, from a broker. Thus, the payor may take up to 30 days to treat 
the taxpayer identification number or a certificate as having been 
received.

[T.D. 8637, 60 FR 66127, Dec. 21, 1995]



Sec.  31.3406(f)-1  Confidentiality of information.

    (a) Confidentiality and liability for violation. Pursuant to section 
3406(f) no person may use any information obtained under section 3406 
for any purpose except for the purpose of complying with the 
requirements of section 3406 or for purposes permitted under section 
6103 (subject to the safeguards of section 6103). See section 7431 for

[[Page 300]]

civil damages for violating the confidential use of the information 
(subject to an exception for good faith).
    (b) Permissible use of information--(1) In general. A payor or 
broker may transmit information on a Form W-9, Form W-8, or other 
acceptable form relating to withholding to the department, institution, 
or firm (or to any employee therein) responsible for withholding or 
processing of taxpayer identification numbers, certifications described 
in Sec.  31.3406(h)-3, or other substitute forms. In addition, a broker 
may notify the payor with respect to a readily tradable instrument of 
the requirement to withhold and the condition or conditions for imposing 
withholding (as described in Sec.  31.3406(d)-4) that exist with respect 
to the payee. A payor or broker may, without violating the Internal 
Revenue Code, close an account of, refuse to open an account for, issue 
an instrument to, or redeem an instrument for, a person solely because 
the person fails to furnish the person's taxpayer identification number 
or documentation of foreign status in the manner required in Sec.  
31.3406(d)-1 and Sec.  31.3406(g)-1, respectively. A payor who closes an 
account of a payee in the calendar year in which the account was opened 
and during which no taxpayer identification number or evidence of 
foreign status was provided for that account will be presumed in the 
absence of evidence to the contrary to have closed the account without 
violating section 3406(f) even though the payee is subject to backup 
withholding under section 3406(a)(1)(A). A payor, except as provided in 
Sec. Sec.  31.3406(d)-3 and 31.3406(g)-3, may not prohibit a payee who 
fails to furnish the payee's taxpayer identification number in the 
manner required in Sec.  31.3406(d)-1 from withdrawing any funds in the 
account.
    (2) Window transactions. In the case of a window transaction (as 
defined in Sec.  31.3406(b)(2)-3(b)), a payor may, without violating the 
Internal Revenue Code, refuse to redeem or may refuse to make payment if 
the payee fails to provide a taxpayer identification number regardless 
of when the obligation was issued or acquired.
    (c) Specific restrictions on the use of information. Except as 
provided in paragraph (b) of this section, a payor or broker is not 
permitted to--
    (1) Close an account (or instrument) of a payee solely because that 
payee (or the account of a payee) is subject to withholding under 
section 3406(a)(1) (A), (B), (C), or (D);
    (2) Refuse to open an account or to issue an instrument if the 
person fails to certify, under penalties of perjury, that the person is 
not subject to withholding under section 3406(a)(1)(C) (relating to 
notified payee underreporting);
    (3) Use information obtained under section 3406 (including a payee's 
failure or inability to certify that the payee is not subject to 
withholding due to notified payee underreporting or the fact that the 
account is subject to withholding), surcharge an account (i.e., charge 
an account more than the fee charged a similar account that was not 
subject to withholding under section 3406), or use that information to 
determine whether to open or close an account, whether to issue or 
redeem an instrument, or whether to extend credit to the payee.

[T.D. 8637, 60 FR 66127, Dec. 21, 1995]



Sec.  31.3406(g)-1  Exception for payments to certain payees and certain
other payments.

    (a) Exempt recipients--(1) In general. A payor of any reportable 
payment (as defined in section 3406(b)) must not withhold under section 
3406 if the payee is--
    (i) An organization exempt from taxation under section 501(a) or an 
individual retirement account;
    (ii) The United States or any wholly owned agency or instrumentality 
thereof;
    (iii) A state, the District of Columbia, a possession of the United 
States, any political subdivision of any of the foregoing, or any wholly 
owned agency or instrumentality of any one or more of the foregoing;
    (iv) A foreign government, a political subdivision of a foreign 
government, or any wholly owned agency or instrumentality of any one or 
more of the foregoing (as defined in regulations under section 892); or

[[Page 301]]

    (v) An international organization or any wholly owned agency or 
instrumentality thereof (as defined in section 7701(a)(18)).
    (2) Nonexclusive list. Paragraph (a)(1) of this section does not 
prescribe an exclusive list of payees that are exempt from information 
reporting and also are exempt from withholding under section 3406.
    (b) Determination of whether a person is described in paragraph 
(a)(1) of this section. The determination of whether a person is a payee 
described in paragraph (a)(1) of this section must be made as provided 
in the applicable provisions of section 6049 and the regulations issued 
thereunder. A payor, even if permitted to treat a person as an exempt 
recipient without requiring a certificate under the provisions of 
section 6049, may require a payee, otherwise not required to file a 
certificate regarding its exempt status, to file a certificate and may 
treat a payee who fails to file the certificate as a person who is not 
an exempt recipient. See Sec.  31.3406(h)-3 for a description of the 
Form W-9 or a substitute form prescribed under section 3406 for claiming 
exempt status.
    (c) Prepaid or advance premium life-insurance contracts. A payor of 
a reportable payment (as defined in section 3406(b)(1)) may, but is not 
required to, withhold under section 3406 on reportable payments made 
from January 1, 1984, to December 31, 1996, on prepaid or advance 
premium life-insurance contracts to a payee who is the owner for tax 
purposes of the prepaid or advance premium life-insurance contract. For 
purposes of this exception from backup withholding, a prepaid or advance 
premium life-insurance contract is one entered into on or before June 
30, 1984, by the payee and under which the increment in value of the 
prepaid or advance premium is used for the payment of premiums during 
the period in which the exception from backup withholding applies.
    (d) Reportable payments made to nonresident alien individuals. A 
payment of interest to a nonresident alien individual that is described 
in Sec.  1.6049-(8)(a) of this chapter is not subject to withholding 
under section 3406 if the payor may treat the payee as a foreign 
beneficial owner or foreign payee under the rules of Sec.  1.6049-
5(b)(12). (For interest paid to a Canadian nonresident alien individual 
on or before December 31, 2012, see paragraph (d) of this section as in 
effect and contained in 26 CFR part 1 revised April 1, 2000.)
    (e) Certain reportable payments made outside the United States by 
foreign persons, foreign offices of United States banks and brokers, and 
others. For reportable payments made after June 30, 2014, a payor is not 
required to backup withhold under section 3406 on a reportable payment 
that is paid and received outside the United States (as defined in Sec.  
1.6049-4(f)(16)) with respect to an offshore obligation (as defined in 
Sec.  1.6049-5(c)(1)) or on gross proceeds from a sale effected outside 
the United States (as defined in Sec.  1.6045-1(g)(3)(iii)), unless the 
payor has actual knowledge that the payee is a United States person. 
Further, no backup withholding is required on a reportable payment of an 
amount already withheld upon by a participating FFI (as defined in Sec.  
1.1471-1(b)(91)) or another payor in accordance with the withholding 
provisions under chapter 3 or 4 of the Code and the regulations under 
those chapters even if the payee is a known U.S. person. For example, a 
participating FFI is not required to backup withhold on a reportable 
payment allocable to its chapter 4 withholding rate pool (as defined in 
Sec.  1.6049-4(f)(5)) of recalcitrant account holders (as described in 
Sec.  1.6049-4(f)(11)), if withholding was applied to the payment 
(either by the participating FFI or another payor) pursuant to Sec.  
1.1471-4(b) or Sec.  1.1471-2(a). For rules applicable to notional 
principal contracts, see Sec.  1.6041-1(d)(5) of this chapter. For rules 
applicable to reportable payments made before July 1, 2014, see this 
paragraph (e) as in effect and contained in 26 CFR part 1 revised April 
1, 2013.)
    (f) Effective/applicability date. This section applies on or after 
January 6, 2017. (For payments made after June 30, 2014, and before 
January 6, 2017, see

[[Page 302]]

this section as in effect and contained in 26 CFR part 1, revised April 
1, 2016).

[T.D. 8637, 60 FR 66128, Dec. 21, 1995, as amended by T.D. 8664, 61 FR 
17574, Apr. 22, 1996; T.D. 8734, 62 FR 53493, Oct. 14, 1997; T.D. 8804, 
63 FR 72189, Dec. 31, 1998; T.D. 8856, 64 FR 73412, Dec. 30, 1999; T.D. 
9136, 69 FR 41941, July 13, 2004; T.D. 9584, 77 FR 23395, Apr. 19, 2012; 
T.D. 9658, 79 FR 12808, Mar. 6, 2014; T.D. 9699, 79 FR 63812, Oct. 27, 
2014; T.D. 9808, 82 FR 2121, Jan. 6, 2017]



Sec.  31.3406(g)-2  Exception for reportable payment for which withholding
is otherwise required.

    (a) In general. A payor of a reportable payment (as defined in 
section 3406(b)) must not withhold under section 3406 if the payment is 
subject to withholding under any other provision of the Internal Revenue 
Code.
    (b) Payment of wages. A payor who is required to make an information 
return under section 6041 with respect to a payment of wages (as defined 
in section 3401) because, e.g., the employee makes a certification under 
section 3402(n) (relating to employees incurring no income tax 
liability), must not withhold under section 3406 on those wages.
    (c) Distribution from a pension, annuity, or other plan of deferred 
compensation. An amount reportable under section 6047, such as a 
designated distribution under section 3405, is not a reportable payment 
subject to withholding under section 3406. See section 3406(b). 
Designated distributions not subject to withholding under section 3406 
include--
    (1) Distributions from a pension, annuity, profit-sharing, stock 
bonus plan, or other plan deferring the receipt of compensation;
    (2) Distributions from an individual retirement account or annuity;
    (3) Distributions from an owner-employee plan; and
    (4) Certain surrenders of life insurance contracts.
    (d) Gambling winnings--(1) In general. A payor of a reportable 
gambling winning must not withhold under section 3406 if tax is required 
to be withheld from the gambling winning under section 3402(q) (relating 
to the extension of withholding to certain gambling winnings). If the 
reportable gambling winning is not required to be withheld upon under 
section 3402(q), withholding under section 3406 applies to the gambling 
winning if, and only if, the payee does not furnish a taxpayer 
identification number to the payor. Section 31.3406(b)(3)-1(b)(3) does 
not apply to a reportable gambling winning. The payor of a reportable 
gambling winning is not required to aggregate all such winnings made to 
a payee during a calendar year, nor is the payor required to determine 
whether an information return was required to be made with respect to 
the payee for the preceding year.
    (2) Definition of a reportable gambling winning and determination of 
amount subject to backup withholding. For purposes of withholding under 
section 3406, a reportable gambling winning is any gambling winning 
subject to information reporting under section 6041. A gambling winning 
(other than a winning from bingo, keno, or slot machines) is a 
reportable gambling winning only if the amount paid with respect to the 
wager is $600 or more and if the proceeds are at least 300 times as 
large as the amount wagered. See Sec.  1.6041-10 of this chapter to 
determine whether a winning from bingo, keno, or slot machines is a 
reportable gambling winning and thus subject to withholding under 
section 3406. The amount of a reportable gambling winning is--
    (i) The amount paid with respect to the amount of the wager reduced, 
at the option of the payer; by
    (ii) The amount of the wager.
    (3) Special rules. For special rules for determining the amount of 
the wager in a wagering transaction with respect to horse racing, dog 
racing, and jai alai, or amounts paid with respect to identical wagers, 
see Sec.  31.3402(q)-1(c).
    (e) Certain real estate transactions. A real estate reporting person 
(the so-called broker) as defined in section 6045(e)(2) must not 
withhold under section 3406 on a payment made with respect to a real 
estate transaction that is subject to reporting under sections 6045 (a) 
and (e) and Sec.  1.6045-4 of this chapter.
    (f) Certain payments after an acquisition of accounts or 
instruments. A payor who acquires pre-1984 accounts or instruments 
described in Sec.  31.3406(d)-1(b)(2)(iv) for which the payor does not

[[Page 303]]

have a taxpayer identification number or has an obviously incorrect 
taxpayer identification number as defined in Sec.  31.3406(h)-1(b)(2) 
must start withholding under section 3406(a)(1)(A) and Sec.  31.3406(d)-
1 on those accounts or instruments no later than sixty days following 
the date of the payor's acquisition of those accounts or instruments.
    (g) Certain gross proceeds. No withholding under section 3406 is 
required with respect to any portion of the original issue discount on 
an instrument or security that is subject to withholding under section 
3406 as reportable gross proceeds of such instrument or security under 
section 6045.
    (h) Applicability date. The rules apply to reportable gambling 
winnings paid with respect to a winning event that occurs after November 
13, 2017. For rules that apply to payments made with respect to a 
winning event on or before that date, see Sec.  31.3406(g)-2 as 
contained in 26 CFR part 31, revised April 1, 2017.

[T.D. 8637, 60 FR 66128, Dec. 21, 1995, as amended by T.D. 9524, 76 FR 
26601, May 9, 2011; T.D. 9586, 77 FR 24611, Apr. 25, 2012; T.D. 9807, 81 
FR 96380, Dec. 30, 2016; T.D. 9824, 82 FR 44929, Sept. 27, 2017]



Sec.  31.3406(g)-3  Exemption while payee is waiting for a taxpayer
identification number.

    (a) In general--(1) Backup withholding not required for 60 days. If 
a payor has received an awaiting-TIN certificate from a payee with 
respect to an account or instrument receiving reportable interest or 
dividends as described in section 3406(b)(2), the payor must exempt the 
payee from withholding under section 3406(a)(1)(A) during the 60-day 
exemption period to the extent and in the manner described in either 
paragraph (a) (2) or (3) of this section. The 60-day exemption period 
means the 60-consecutive-day period beginning with the day the payor 
receives the awaiting-TIN certificate. The payor must withhold under 
section 3406 beginning after the 60-day exemption period if the payor 
has not received a taxpayer identification number from the payee in the 
manner required in Sec.  31.3406(d)-1. Regardless of whether the payee 
provides an awaiting-TIN certificate to a payor, the payor is required 
to withhold under section 3406(a)(1)(D) and Sec.  31.3406(d)-2 on 
reportable interest or dividend payments as described in Sec.  
31.3406(d)-2 if the payee fails to certify, under penalties of perjury, 
that the payee is not subject to withholding due to notified payee 
underreporting as required in section 3406(a)(1)(D) and Sec.  
31.3406(d)-2.
    (2) Reserve method. A payor must not withhold under section 3406 
during the 60-day exemption period unless the payee (or a joint payee in 
the case of a joint account) desires to make a withdrawal of more than 
$500 of either principal or interest from the account in any single 
transaction during the period. If a payee (or a joint payee) desires to 
make a withdrawal of more than $500 during the 60-day exemption period, 
the payor is required under section 3406 to withhold 31 percent of all 
reportable payments made during the period and at the time of withdrawal 
unless the payee reserves 31 percent of all reportable payments made to 
the account during the period.
    (3) Alternative rule; 7-day grace period--(i) In general. A payor 
who receives an awaiting-TIN certificate may elect, on a payee-by-payee 
basis or in general, to exempt reportable interest or dividend payments 
to a payee from withholding under section 3406 applying the rules in 
paragraph (a)(3) (ii) or (iii) of this section.
    (ii) Withholding on withdrawals. Under this paragraph (a)(3)(ii), a 
payor must obtain a certified taxpayer identification number from the 
payee within 60 days after the date that the payor receives the 
awaiting-TIN certification. In addition, the payor must withhold under 
section 3406 on any withdrawals made after the close of 7 business days 
after the date the awaiting-TIN certification is received and before the 
earlier of the date that the payor receives a certified taxpayer 
identification number from the payee, the date the account is closed (in 
which case the payor must withhold on any reportable payment made at the 
time the account or relationship is closed), or the date withholding 
under section 3406 starts on all reportable payments made to the 
account, instrument, or relationship. All cash withdrawals in an amount 
up to the reportable payments made from

[[Page 304]]

the day after the date of receipt of the awaiting-TIN certification to 
the date of withdrawal are treated as reportable payments.
    (iii) Withholding regardless of withdrawals. Under this paragraph 
(a)(3)(iii), a payor must start withholding under section 3406 on the 
account not later than 7 business days after the date the payor receives 
the awaiting-TIN certification on reportable payments thereafter made to 
the account (whether or not the payee makes a cash withdrawal). The 
payor must withhold under section 3406 until the earlier of the date the 
payor receives a certified taxpayer identification number from the 
payee, the date the account is closed, or the date withholding under 
section 3406 starts on all reportable payments made to the account, 
instrument, or relationship. The payor must obtain a certified taxpayer 
identification number from the payee within 60 days after the date that 
the payor receives the awaiting-TIN certificate or undertake a mailing 
each year soliciting the certified taxpayer identification number from 
the payee until the earlier of the calendar year that the certified 
taxpayer identification number is received, or the calendar year in 
which the account is closed. However, if the account is closed in 
December of a calendar year, the mailing must be made after the account 
is closed and before January 31 of the subsequent calendar year.
    (b) Special rule for readily tradable instruments. The 60-day 
awaiting-TIN exemption described in paragraph (a)(1) of this section 
applies to payments made with respect to readily tradable instruments 
only if the payee provides an awaiting-TIN certificate directly to the 
payor. If a broker acquires a readily tradable instrument through a 
post-1983 brokerage account (as described in Sec.  31.3406(d)-1(c)(2)) 
for a payee who has no taxpayer identification number, the broker must 
advise the payor as required in Sec.  31.3406(d)-4(a)(1) that the payee 
failed to provide a taxpayer identification number under penalties of 
perjury, regardless of whether the payee provides an awaiting-TIN 
certificate to the broker. Once a payor is notified by a broker that a 
payee failed to provide a taxpayer identification number in the required 
manner, or that the payee is subject to withholding under section 
3406(a)(1) (B) or (C), the payor must impose withholding under section 
3406 for the appropriate period described in Sec.  31.3406(e)-1.
    (c) Exceptions--(1) In general. The 60-day awaiting-TIN exemption 
described in paragraph (a) of this section does not apply to--
    (i) Window transactions (as defined in Sec.  31.3406(b)(2)-3(b));
    (ii) Redemptions of bearer obligations that are subject to reporting 
under section 6045; or
    (iii) Other amounts that are subject to reporting under section 6045 
(except as described in paragraph (c)(2) of this section).
    (2) Special rule for amounts subject to reporting under section 6045 
other than proceeds of redemptions of bearer obligations. If a broker's 
customer does not provide a taxpayer identification number to the 
broker, and the broker effects a sale that is subject to reporting under 
section 6045 (other than a redemption of a bearer obligation), Sec.  
31.3406(d)-3(b) applies, whether or not the sale is pursuant to an 
instruction by electronic transmission, provided the customer furnishes 
an awaiting-TIN certificate to the broker before the sale. For purposes 
of this paragraph (c)(2), the 30-day period provided in Sec.  
31.3406(d)-3(b) is a 60-day period.
    (d) Awaiting-TIN certificate. A payee qualifies for the 60-day 
awaiting-TIN exemption provided in paragraph (a) of this section if the 
payee furnishes a written statement to the payor, signed under penalties 
of perjury, that the payee has not been issued a taxpayer identification 
number, that the payee has applied for a taxpayer identification number 
or intends to apply for a number in the near future, and that the payee 
understands that if the payee does not provide a number to the payor 
within 60 days, the payor is required under section 3406 to withhold 31 
percent of any reportable payment thereafter made to the payee until the 
payor receives a number, and 31 percent of a withdrawal to the extent of 
reportable payments made to the payee during the 60-day period, as 
described in paragraph (a) of this section. Language that is 
substantially similar to the

[[Page 305]]

awaiting-TIN certification on Form W-9 will satisfy the requirements of 
this paragraph (d).
    (e) Form for awaiting-TIN certificate. A payor may use Form W-9 for 
the awaiting-TIN certificate, or a payor may include language that is 
substantially similar to the awaiting-TIN certification on Form W-9 in 
any other document of the payor. See Sec.  31.3406(h)-3, which provides 
that Form W-9 is the prescribed form but permits use of substitute 
forms, and specifies the length of time the payor is required to retain 
the form. If Form W-9 is used, the payee should write ``Applied For'' in 
the space reserved for the taxpayer identification number.

[T.D. 8637, 60 FR 66129, Dec. 21, 1995]



Sec.  31.3406(h)-1  Definitions.

    (a) In general. For purposes of section 3406 and the regulations 
thereunder, the definitions of this section apply.
    (b) Taxpayer identification number--(1) In general. Taxpayer 
identification number means the identifying number assigned to a person 
under section 6109 (relating to identifying numbers, generally a nine-
digit social security number for an individual and a nine-digit employer 
identification number for a nonindividual, e.g., a corporation, 
partnership, trust, or estate). An obviously incorrect number is not 
considered a taxpayer identification number. See Sec.  31.6011(b)-2 and 
Sec.  301.6109-1 of this chapter for provisions relating to obtaining a 
taxpayer identification number.
    (2) Obviously incorrect number. Obviously incorrect number means a 
number that does not contain nine digits or a number that includes an 
alpha character as one of the nine digits.
    (c) Broker. Broker is defined in section 6045(c)(1) and Sec.  
1.6045-1(a)(1) of this chapter. If there could be more than one broker 
with respect to any acquisition, only the broker having the closest 
contact (as determined under 1.6045-1(c)(3)(iii) and (iv) of this 
chapter) with the payee is treated as a broker. In the case of any 
instrument, the term broker does not include any person who is the payor 
with respect to the instrument as described in Sec.  31.3406(a)-2.
    (d) Readily tradable instrument. Readily tradable instrument means--
    (1) Any instrument that is part of an issue any portion of which is 
traded on an established securities market (within the meaning of 
section 453(f)(5)); or
    (2) Any instrument that is regularly quoted by brokers or dealers 
making a market.
    (e) Day. Day means a calendar day unless specified otherwise under 
any section of the regulations under section 3406. For example, see 
Sec. Sec.  31.3406(d)-5(a) and 31.3406(g)-3(a)(2).
    (f) Business day. Business day means any day other than a Saturday, 
Sunday, or legal holiday (within the meaning of section 7503).

[T.D. 8637, 60 FR 66130, Dec. 21, 1995; 61 FR 12135, Mar. 25, 1996, as 
amended by T.D. 9010, 67 FR 48760, July 26, 2002]



Sec.  31.3406(h)-2  Special rules.

    (a) Joint accounts--(1) Relevant name and taxpayer identification 
number combination. For purposes of identifying the account subject to 
withholding under sections 3406(a)(1) (B) and (C), the relevant name and 
taxpayer identification number combination is that which is used for 
information reporting purposes.
    (2) Optional rule for accounts subject to backup withholding under 
section 3406(a)(1) (B) or (C) where the names are switched. See Sec.  
31.3406(d)-5(c)(4)(iii) under which a payor may withhold under section 
3406(a)(1)(B) as required even though the names or taxpayer 
identification numbers on the account have been switched. The rules 
under Sec.  31.3406(d)-5(c)(4)(iii) may be applied comparably by a payor 
who is required to withhold under section 3406(a)(1)(C).
    (3) Joint foreign payees--(i) In general. If the relevant payee 
listed on a jointly owned account or instrument provides a Form W-8 or 
documentary evidence described in Sec.  1.1441-1(e)(1)(ii) regarding its 
foreign status, withholding under section 3406 applies unless every 
joint payee provides the statement regarding foreign status (under the 
provisions of chapters 3 or 61 of the Internal Revenue Code and the 
regulations under those provisions); any one of the joint owners who has 
not established foreign

[[Page 306]]

status provides a taxpayer identification number to the payor in the 
manner required in Sec. Sec.  31.3406(d)-1 through 31.3406(d)-5; or, in 
the case of a withholdable payment (as defined in Sec.  1.6049-
4(f)(15)), any joint payee does not appear to be an individual as 
described in Sec.  1.1471-3(f)(7). See Sec.  1.6049-5(d)(2)(iii) of this 
chapter for corresponding joint payees provisions.
    (ii) Information reporting on an account including foreign payees. 
If any one of the joint payees who has not established foreign status 
provides a taxpayer identification number under paragraph (a)(3)(i)(B) 
of this section, that number is the taxpayer identification number that 
is required to be furnished for purposes of information reporting and 
withholding under section 3406.
    (b) Backup withholding from an alternative source--(1) In general. A 
payor may not withhold under section 3406 from a source maintained by 
the payor other than the source with respect to which there exists a 
liability to withhold under section 3406 with respect to the payee. See 
section 3403 and Sec.  31.3403-1, which provide that the payor is liable 
for the amount required to be withheld regardless of whether the payor 
withholds.
    (2) Exceptions for payments made in property--(i) Backup withholding 
from alternative source. In the case of a payment that is made in 
property (other than money), the payor must withhold under section 3406, 
31 percent of the fair market value of the property determined 
immediately before or on the date of payment. The payor may withhold 
under section 3406 from the principal amount being deposited with the 
payor or from another source maintained by the payee with the payor. The 
source from which the tax is withheld under section 3406 must be payable 
to at least one of the persons listed on the account subject to 
withholding. If the account or source is not payable exclusively to the 
same person or persons listed on the account subject to withholding 
under section 3406, then the payor must obtain a written statement from 
all other persons to whom the account or source is payable authorizing 
the payor to withhold under section 3406 from the alternative account or 
source. A payor that elects to withhold under section 3406 from an 
alternative source may determine the account or source from which the 
tax is to be withheld, or may allow the payee to designate the 
alternative source. A payee may not, however, require a payor to 
withhold under section 3406 from a specific alternative source. See 
Sec.  31.3402(q)-1(d), Example 5, for methods of withholding on prizes, 
awards, and gambling winnings paid in property other than cash.
    (ii) Deferral of withholding. If the payor cannot locate, using 
reasonable care (following procedures substantially similar to those set 
forth in Sec.  31.3406(d)-5(c)(3)(ii) (A) and (B)), an alternative 
source of cash from which the payor may satisfy its withholding 
obligation pursuant to paragraph (b)(2)(i) of this section, the payor 
may defer its obligation to withhold under section 3406, except for 
reportable payments of property made in connection with prizes, awards, 
or gambling winnings, until the earlier of--
    (A) The date the payor makes a cash payment to the account subject 
to withholding under section 3406 or cash is otherwise deposited in the 
account in a sufficient amount to satisfy the obligation in full; or
    (B) The close of the fourth calendar year after the obligation 
arose.
    (iii) Barter exchanges. In the case of a barter exchange that issues 
scrip to, or credits the account of, a member or client of the exchange 
in payment for property or services, the barter exchange may withhold 
under section 3406 from--
    (A) The scrip or credit, if converted to cash in order to satisfy 
the deposit requirements of section 6302 and Sec.  31.6302-4; or
    (B) Any other source maintained by the exchange for the member or 
client in the manner described in paragraph (b)(2) of this section.
    (c) Trusts. Withholding under section 3406 applies to reportable 
payments made to a trust if any of the conditions for imposing 
withholding under section 3406 apply to the trust. Generally, a trust is 
not a payor and will not be required to withhold under section 3406 on 
reportable payments that it makes to its beneficiary who is subject to

[[Page 307]]

withholding under section 3406. The preceding sentence does not apply, 
however, to a grantor trustdescribed in Sec.  31.3406(a)-2(b)(1) or (2), 
which is treated as a payor. The trustee of a trust described in this 
paragraph (c) may certify that the trust's taxpayer identification 
number is correct and that the trust is not subject to withholding due 
to notified payee underreporting, without regard to the status of the 
beneficiaries of the trust.
    (d) Adjustment of prior withholding by middlemen. A middleman payor 
(as defined in Sec.  31.3406(a)-2(b) or in the section on information 
reporting to which the payment relates) who receives a payment from 
which tax has been erroneously withheld under section 3406 may seek a 
refund of the tax withheld by the payor from whom the middleman payor 
received the payment (referred to as the ``upstream payor''). 
Alternatively, the middleman payor may obtain a refund of the tax by 
claiming a credit for the amount of tax withheld by the upstream payor 
against the deposit of any tax imposed by this chapter which the 
middleman payor is required to withhold and deposit (as described in 
section 6413 and Sec.  31.6413(a)-2). In either case, the middleman 
payor must pay or credit the gross amount of the payment (including the 
tax withheld) to its payee as though it had received the gross amount of 
the payment from the upstream payor and must withhold under section 3406 
only if one of the conditions for imposing backup withholding exists 
with respect to its payee. If its payee is not subject to withholding 
under section 3406, the payor must pay or credit the full amount of the 
payment to the payee, unless, with respect to payments made after 
December 31, 2000, the payor chooses to apply prior withholding under 
section 3406 to an amount required to be withheld under another section 
of the Internal Revenue Code (such as under section 1441) to the extent 
permitted under procedures prescribed by the Internal Revenue Service 
(see Sec.  601.601(d)(2) of this chapter). See Sec.  31.6413(a)-3 
regarding repayment by a payor of tax erroneously collected from a 
payee.
    (e) Conversion of amounts paid in foreign currency into United 
States dollars--(1) Convertible foreign currency. If a payment is made 
in a currency other than the United States dollar, the amount subject to 
withholding under section 3406 is determined by applying the statutory 
rate of backup withholding to the foreign currency payment and 
converting the amount withheld into United States dollars on the date of 
payment at the spot rate (as defined in Sec.  1.988-1(d)(1) of this 
chapter) or pursuant to a reasonable spot rate convention. For example, 
a withholding agent may use a month-end spot rate or a monthly average 
spot rate. A spot rate convention must be used consistently with respect 
to all non-dollar amounts withheld and from year to year. Such 
convention cannot be changed without the consent of the Commissioner.
    (2) Nonconvertible foreign currency. [Reserved]
    (f) Coordination with other sections. For purposes of section 31, 
chapter 24 (other than section 3402(n)) of subtitle C of the Internal 
Revenue Code (relating to employment taxes and collection of income tax 
at source) and so much of subtitle F (other than section 7205) of the 
Internal Revenue Code (relating to procedure and administration) as 
relates to this chapter, and the regulations thereunder--
    (1) An amount required to be withheld under section 3406 must be 
treated as a tax required to be withheld under section 3402;
    (2) An amount withheld under section 3406 must be treated as an 
amount withheld under section 3402;
    (3) An amount withheld under section 3406 must be deposited as 
required under Sec.  31.6302-4;
    (4) Wages includes the gross amount of any reportable payment (as 
defined in section 3406(b)) except for purposes of section 6014 
(relating to an election by the taxpayer not to compute the tax on his 
annual return);
    (5) Employee includes a payee of any reportable payment; and
    (6) Employer includes a payor who is required to withhold the tax 
under section 3406 (as defined in Sec.  31.3406(a)-2) with respect to 
any reportable payment (as defined in section 3406(b)).
    (g) Tax liabilities and penalties. A payor is subject to the same 
civil and criminal penalties for failing to impose

[[Page 308]]

withholding under section 3406 as an employer who fails to withhold on a 
payment of wages. In addition, a broker may be subject to the penalty 
under section 6705 (failure of a broker to provide notice to a payor).
    (h) To whom payor is liable for amount withheld. A payor is not 
liable to any person for any amount withheld under section 3406. A payor 
is liable only to the United States for an amount that is required to be 
withheld as provided in Sec.  31.3403-1.
    (i) Effective/applicability date. This section applies to payments 
made on or after January 6, 2017. (For payments made after June 30, 
2014, and before January 6, 2017, see this section as in effect and 
contained in 26 CFR part 1, revised April 1, 2016.)

[T.D. 8637, 60 FR 66130, Dec. 21, 1995; 61 FR 11307, Mar. 20, 1996, as 
amended by T.D. 8734, 62 FR 53493, Oct. 14, 1997; T.D. 8804, 63 FR 
72189, Dec. 31, 1998; T.D. 8856, 64 FR 73412, Dec. 30, 1999; T.D. 9010, 
67 FR 48760, July 26, 2002; T.D. 9658, 79 FR 12809, Mar. 6, 2014; T.D. 
9808, 82 FR 2121, Jan. 6, 2017]



Sec.  31.3406(h)-3  Certificates.

    (a) Prescribed form to furnish information under penalties of 
perjury--(1) In general. Except as provided in paragraph (c) of this 
section, the Form W-9 is the form prescribed under section 3406 on which 
a payee that is a U.S. person certifies, under penalties of perjury, 
that--
    (i) The taxpayer identification number furnished to the payor is 
correct (as required in Sec.  31.3406(d)-1 and Sec.  31.3406(d)-5);
    (ii) The payee is not subject to withholding due to notified payee 
underreporting (as required in Sec.  31.3406(d)-2);
    (iii) The payee is an exempt recipient (as described in Sec.  
31.3406(g)-1); or
    (iv) The payee is awaiting receipt of a taxpayer identification 
number (as described in Sec.  31.3406(g)-3).
    (2) Use of a single or multiple Forms W-9 for accounts of the same 
payee. A valid Form W-9 must include the name and taxpayer 
identification number of the payee. Except as provided in paragraph (b) 
of this section, the payee must sign under penalties of perjury and date 
the Form W-9 in order to satisfy the requirements of this section. A 
payor or broker may require a payee to furnish a separate Form W-9 for 
each obligation, deposit, certificate, share, membership, contract, or 
other instrument, or one Form W-9 for all the payee's obligations or 
relationships with the payor or broker. In addition, a payee of a mutual 
fund that has a common investment advisor or common principal 
underwriter with other mutual funds (within the same family of funds) 
may be permitted, in the discretion of the mutual fund, to provide one 
Form W-9 with respect to shares acquired or owned in any of the funds.
    (b) Prescribed form to furnish a noncertified taxpayer 
identification number. With respect to accounts or other relationships 
where the payee is not required to certify, under penalties of perjury, 
that the taxpayer identification number being furnished is correct, the 
payor or broker may obtain the taxpayer identification number orally or 
may use Form W-9, a substitute form, or any other document, but the 
payee is not required to sign the form.
    (c) Forms prepared by payors or brokers--(1) Substitute forms; in 
general. A payor or broker may prepare and use a form that contains 
provisions that are substantially similar to those of the official Form 
W-9. A payor or broker may use any document relating to the transaction, 
such as the signature card for an account, so long as the certifications 
are clearly set forth. A payor or broker who uses a substitute form may 
furnish orally or in writing the instructions for the Form W-9 that 
relate to the account. A payor or broker may refuse to accept 
certifications (including the official Form W-9) that are not made on 
the form or forms provided by the payor or broker. A payor or broker may 
refuse to accept a certification provided by a payee only if the payor 
or broker furnishes the payee with an acceptable form immediately upon 
receipt of an unacceptable form or within 5 business days of receipt of 
an unacceptable form. An acceptable form for this purpose must contain a 
notice that the payor or broker has refused to accept the form submitted 
by the payee and that the payee must submit the acceptable form provided 
by the payor in order for the payee not to be subject to withholding 
under section 3406. If the payor or broker requires the

[[Page 309]]

payee to furnish a form for each account of the payee, the payor or 
broker is not required to furnish an acceptable form until the payee 
furnishes the payor or broker with the payee's account numbers. A payor 
or broker may use separate substitute forms to have a payee certify 
under penalties of perjury that--
    (i) The payee's taxpayer identification number is correct; and
    (ii) The payee is not subject to withholding under section 3406 due 
to notified payee underreporting.
    (2) Form for exempt recipient. A payor or broker may use a 
substitute form for the payee to certify, under penalties of perjury, 
that the payee is an exempt recipient (described in Sec.  31.3406(g)-1 
or described in the respective reporting section), provided the form 
contains provisions that are substantially similar to those of the 
official Form W-9 relating to exempt recipients. A certificate must be 
prepared in accordance with the instructions applicable to exempt 
recipients on Form W-9, and must set forth fully and clearly the data 
called for therein. If a payor will treat the payee as an exempt 
recipient only if the payee files a certificate as to its exempt status, 
the certificate is valid only if it contains the payee's taxpayer 
identification number. Thus, a payee must include the payee's taxpayer 
identification number on a certificate that a payor requires to be made 
in order to treat the payee as an exempt recipient.
    (d) Special rule for brokers. A broker may act as the payee's agent 
for purposes of furnishing a taxpayer identification number or 
certification to a payor with respect to any readily tradable instrument 
(as defined in Sec.  31.3406(h)-1(d)) provided the payee provides a 
taxpayer identification number on Form W-9 or other acceptable 
substitute form to the broker. The payor may rely on a taxpayer 
identification number provided by the broker unless certification is 
required (as described in Sec.  31.3406(d)-4) and the broker notifies 
the payor that the number was not certified.
    (e) Reasonable reliance on certificate--(1) In general. A payor is 
not liable for the tax imposed under section 3406 if the payor's failure 
to deduct and withhold the tax is due to reasonable reliance, as defined 
in paragraph (e)(2) of this section, on a Form W-9 (or other acceptable 
substitute) required by this section.
    (2) Circumstances establishing reasonable reliance. For purposes of 
paragraph (e)(1) of this section, a payor can reasonably rely on a Form 
W-9 (or other acceptable substitute) unless--
    (i) The form does not contain the name and taxpayer identification 
number of the payee (or does not state, in lieu of a taxpayer 
identification number, that the payee is awaiting receipt of a taxpayer 
identification number (i.e., an awaiting-TIN certificate));
    (ii) The form is not signed and dated by the payee;
    (iii) The form does not contain the statement, when required, that 
the payee is not subject to withholding due to notified payee 
underreporting;
    (iv) The payee has deleted the jurat or other similar provisions by 
which the payee certifies or affirms the correctness of the statements 
contained on the form; or
    (v) For purposes of section 3406(a)(1)(C), the payor is required to 
subject the account to which the form relates to withholding under 
section 3406(a)(1)(C) under the circumstances described in Sec.  
31.3406(c)-1(c)(3)(iii).
    (f) Who may sign certificate--(1) In general. A Form W-9 or other 
acceptable substitute form may be signed by any person who is authorized 
to sign a declaration under penalties of perjury on behalf of the payee 
as provided in section 6061 and the regulations thereunder (relating to 
who may sign generally for an individual, which includes certain agents 
who may sign returns and other documents), section 6062 and the 
regulations thereunder (relating to who may sign corporate returns), and 
section 6063 and the regulations thereunder (relating to who may sign 
partnership returns).
    (2) Notified payee underreporting. A payee who has not been notified 
that he is subject to withholding under section 3406(a)(1)(C) as a 
result of notified payee underreporting may make the certification 
related to notified payee underreporting. In addition, a payee who was 
subject to withholding under section 3406(a)(1)(C) due to notified

[[Page 310]]

payee underreporting may certify that he is not subject to withholding 
under section 3406(a)(1)(C) due to notified payee underreporting if the 
Internal Revenue Service has provided the payee with written 
certification that withholding under section 3406(a)(1)(C) due to 
notified payee underreporting has terminated.
    (g) Retention of certificates--(1) Accounts or instruments that are 
not pre-1984 accounts and brokerage relationships that are post-1983 
brokerage accounts. With respect to an account or instrument that is not 
a pre-1984 account (as described in Sec.  31.3406(d)-1(b)(3)), or with 
respect to a brokerage relationship that is a post-1983 brokerage 
account (as described in Sec.  31.3406(d)-1(c)(2)), a payor or broker 
who receives a Form W-9 or other acceptable substitute form related to 
withholding under section 3406 must retain the form in its records for 3 
years from the date the account is opened or the instrument is 
purchased. The form may be retained on microfilm or microfiche.
    (2) Accounts or instruments that are pre-1984 accounts and brokerage 
relationships that are not post-1983 brokerage accounts. With respect to 
a pre-1984 account (as described in Sec.  31.3406(d)-1(b)(1)) or with 
respect to a brokerage relationship that is not a post-1983 brokerage 
account (as described in Sec.  31.3406(d)-1(c)(1)), a payor or broker is 
not required to retain any Form W-9 or other acceptable substitute form. 
If, however, the payor or broker requires the payee to file only one 
Form W-9 or substitute form for all accounts or instruments of the 
payee, the payor or broker must retain the single form in the manner and 
for the period of time described in paragraph (g)(1) of this section if 
that form relates to any account or instrument that is not a pre-1984 
account or relates to a post-1983 brokerage account. If a payee has 
certified that the payee is an exempt recipient described in Sec.  
31.3406(g)-1, the payor or broker must retain the form unless the payor 
or broker can establish the existence of procedures that are reasonably 
calculated to ensure that a payee who has so certified is accurately 
identified in the payor's or broker's records.
    (h) Cross references. For the requirement to file an information 
return (and furnish the related statement) with respect to a reportable 
payment, particularly if that payment has been subject to withholding 
under section 3406, see subtitle F, chapter 61, subparts B and C of the 
Internal Revenue Code. See Sec.  31.6302-4 for the requirement to 
deposit amounts withheld under section 3406 on either a monthly or semi-
weekly basis. See Sec.  31.6011(a)-4(b) for the requirement to file Form 
945, Annual Return of Withheld Federal Income Tax, to reflect amounts 
withheld under section 3406. See Sec.  31.6071(a)-1 for the time for 
filing the Form 945.

[T.D. 8637, 60 FR 66131, Dec. 21, 1995, as amended by T.D. 8881, 65 FR 
32212, May 22, 2000]



Sec.  31.3406(i)-1  Effective date.

    Sections 31.3406-0 through 31.3406(i)-1 (except Sec. Sec.  
31.3406(d)-5 and 31.3406(g)-1(c) and except for international 
transactions) are effective after December 31, 1996, and, optionally, 
for reportable payments made and transactions occurring on or after 
December 21, 1995. For the effective date of Sec.  31.3406(d)-5, see 
Sec.  31.3406(d)-5(i). Section 31.3406(g)-1(c) is effective before 
January 1, 1997. See Sec. Sec.  35a.9999-0T through 35a.9999-5 of this 
chapter for rules that apply to international transactions after 
December 31, 1996.

[T.D. 8637, 60 FR 66133, Dec. 21, 1995]



Sec.  31.3406(j)-1  Taxpayer Identification Number (TIN) matching program.

    (a) The matching program. Under section 3406(i), the Commissioner 
has the authority to establish Taxpayer Identification Number (TIN) 
matching programs. The Commissioner may prescribe in a revenue procedure 
(see Sec.  601.601(d)(2) of this chapter) or other appropriate guidance 
the scope and the terms and conditions of participating in any TIN 
matching program. In general, under a matching program, prior to filing 
information returns with respect to reportable payments as defined in 
section 3406(b)(1), a payor of those reportable payments who is entitled 
to participate in the matching program may contact the Internal Revenue 
Service (IRS) with respect to the

[[Page 311]]

TIN furnished by a payee who has received or is likely to receive a 
reportable payment. The IRS will inform the payor whether or not a name/
TIN combination furnished by the payee matches a name/TIN combination 
maintained in the data base utilized for the particular matching 
program. For purposes of this section, the term payor includes an agent 
designated by the payor to participate in TIN matching on the payor's 
behalf.
    (b) Notice of incorrect TIN. No matching details received by a payor 
through a matching program will constitute a notice regarding an 
incorrect name/TIN combination under Sec.  31.3406(d)-5(c) for purposes 
of imposing backup withholding under section 3406(a)(1)(B).
    (c) Application of section 3406(f). The provisions of section 
3406(f), relating to confidentiality of information, apply to any 
matching details received by a payor through the matching program. A 
payor may not take into account any such matching details in determining 
whether to open or close an account with a payee.
    (d) Reasonable cause. The IRS will not use either a payor's decision 
not to participate in an available TIN matching program or the results 
received by a payor from participation in a TIN matching program 
implemented under the authority of this section as a basis to assert 
that the payor lacks reasonable cause under section 6724(a) for the 
failure to file an information return under section 6721 or to furnish a 
correct payee statement under section 6722. If the establishment of 
reasonable cause may be relevant to a substantial number of the 
participants in a TIN matching program implemented under the authority 
of this section, the extent to which, if any, a payor may establish 
reasonable cause by participating in the TIN matching program will be 
set forth in the guidance establishing the program.
    (e) Definition of account. Account means any account, instrument, or 
other relationship with a payor and with respect to which a payor has 
made or is likely to make a reportable payment as defined in section 
3406(b)(1).
    (f) Effective date. The last sentence in paragraph (a) of this 
section is applicable on January 31, 2003. All other provisions of this 
section are applicable on and after June 18, 1997.

[T.D. 8721, 62 FR 33009, June 18, 1997, as amended by T.D. 9041, 68 FR 
4923, Jan. 31, 2003; T.D. 9136, 69 FR 41942, July 13, 2004]



 Subpart F_General Provisions Relating to Employment Taxes (Chapter 25, 
                     Internal Revenue Code of 1954)



Sec.  31.3501(a)-1T  Question and answer relating to the time employers
must collect and pay the taxes on noncash fringe benefits (Temporary).

    The following questions and answers relate to the time employers 
must collect and pay the taxes imposed by subtitle C on noncash fringe 
benefits:
    Q-1: If a noncash fringe benefit constitutes ``wages'' under section 
3121(a), 3306(b), or 3401(a), or constitutes ``compensation'' under 
section 3231(e), when must an employer collect and pay the taxes imposed 
by Subtitle C?
    A-1: For purposes of an employer's liability to collect and pay the 
taxes imposed by Subtitle C, an employer may deem such fringe benefit to 
be paid at any time on or after the date on which it is provided, as 
long as such date is on or before the last day of the calendar quarter 
in which such benefit is provided. An employer may consider the benefit 
to be provided in two or more parts for purposes of the preceding 
sentence. For example, if a fringe benefit with a fair market value of 
$1,000 is provided on January 1, 1985, the employer could deem $500 paid 
on February 28, 1985 and $500 paid on March 31, 1985.
    With respect to noncash fringe benefits provided during the first 
calendar quarter of 1985, a special rule applies. Such benefits may be 
deemed paid at any time on or after the date on which they are provided 
as long as the date they are deemed paid is on or before the last day of 
the second calendar quarter of 1985.
    In addition, for purposes of Sec.  31.6302(c)-1(a)(1)(i), the term 
``tax'' does not include the employer tax under section 3111 with 
respect to noncash fringe benefits which are deemed by the employer to 
be paid on the last day of any calendar quarter.

[[Page 312]]

For purposes of the first sentence of Sec.  31.6302(c)-2(a)(1), the 
phrase ``employer tax imposed after December 31, 1983, under section 
3221 (a) and (b)'' will not include any such employer tax with respect 
to noncash fringe benefits which are deemed by the employer to be paid 
on the last day of the quarter; provided that for purposes of deposits 
required under Sec.  31.6302(c)-1(a)(1)(v), such first sentence applies 
to such noncash fringe benefits.
    Notwithstanding anything in this section to the contrary, if an 
employer in fact withholds, the amount withheld is subject to the 
general deposit rules.
    The manner in which and the time at which the employer withholds 
amounts from the wages of an employee to pay the taxes imposed under 
section 3101, 3201, and/or 3402 will generally be left to be determined 
by the employer and the employee. Any delay in withholding, however, 
does not affect the employer's obligation upon the filing of an 
employment tax return, to pay amounts which would be due under this 
subtitle if the employer had withheld, with respect to noncash fringe 
benefits, the amount which would have been required to be withheld if 
such noncash fringe benefits had been paid in cash on the date the 
benefits were deemed paid. However, if such amounts are not withheld 
from the wages of an employee within a reasonable period after payment 
of the taxes by the employer, payment by the employer may be deemed 
additional compensation of the employee.
    Q-2: Are any fringe benefits excepted from the rules contained in Q/
A-1 of this section?
    A-2: Yes. The rules contained in Q/A-1 of this section do not apply 
to the transfer of personal property (both tangible and intangible) of a 
kind held for investment or to the transfer of real property. 
Accordingly, an employer is liable for the collection and payment of 
taxes imposed by this subtitle when such property is transferred. For 
example, stock transferred in connection with the performance of 
services is paid, for purposes of this subtitle C, on the date the stock 
is transferred, i.e., on the date the stock vests pursuant to section 83 
(absent a section 83(b) election).
    Q-3: What is an example of the application of the rules contained in 
Q/A-1 of this section with respect to obligations under Chapters 21 and 
24 of subtitle C?
    A-3: All of employer A's employees received $100 in cash as wages 
each week from A. In addition, during a calendar quarter, each such 
employee receives noncash fringe benefits, the fair market value of 
which is $500. A deems all such noncash fringe beneftis to be paid on 
the last day of the quarter. As of the end of the quarter, no amount has 
been withheld from the employee's wages with respect to such noncash 
fringe benefits, and A has ``undeposited taxes'' (within the meaning of 
Sec.  31.6302(c)-1(a)(1)(i)) of more than $3,000 attributable to amounts 
actually withheld under section 3102 or section 3402 or due under 
section 3111 with respect to cash wages of A's employees. The amount 
which A must deposit within 3 banking days after the end of the quarter 
will be determined without regard to the noncash fringe benefits deemed 
paid on the last day of the quarter.
    During the month following the quarter, A withholds from its 
employees with respect to the noncash fringe benefits deemed paid on the 
last day of the quarter. As A withholds amounts, such amounts become 
``taxes'' subject to Sec.  31.6302(c)-1(a)(1)(i). If, as of the date of 
filing of the return for the period which includes the last day of the 
quarter, A has not deposited all amounts with respect to the quarter 
which are due under section 3111 or which would have been due had A 
withheld, under sections 3102 and 3402, with respect to noncash fringe 
benefits, the amount which would have been required to be withheld had 
such benefits been paid in cash, A shall pay the balance with its 
return. A must make such payment regardless of whether, at the time the 
return is filed, he has actually withheld all amounts which he would 
have been required to withhold had such benefits been paid in cash.
    Q-4: If an employee is provided with a noncash fringe benefit and 
separates from service before the benefit is deemed paid by the 
employer, is the employer liable for the taxes imposed by subtitle C?

[[Page 313]]

    A-4: Yes. The employer's liability is unaffected by his ability to 
collect the tax from the former employer.
    Q-5: If an entity other than the employer provides a noncash fringe 
benefit to an employee, is that entity considered the employer of such 
employee with respect to such noncash fringe benefit for any purposes of 
subtitle C?
    A-5: The provision of noncash fringe benefits by an entity to an 
employee of another employer does not make such entity the employer of 
such employee with respect to such noncash fringe benefit for any 
purpose of subtitle C, so long as such noncash fringe benefits are 
incidental to the provision of wages by the employer to such employee. 
For example, if two unrelated airlines, A and B, enter into a reciprocal 
agreement where by the parents of employees of both airlines are 
entitled to free flights on both airlines, the fact that A is providing 
a noncash fringe benefit to the employees of B generally will not make A 
the employer of such employees for purposes of subtitle C.
    Q-6: Do special rules apply to the provision of taxable noncash 
fringe benefits by a nonemployer under a reciprocal agreement with the 
employee's employer?
    A-6: If the provision of taxable noncash fringe benefits meets the 
requirements of Q/A-5 of this section, the nonemployer provider of the 
benefits is not required to withhold. The employer must take the steps 
necessary to obtain the relevant information from the provider of the 
benefits in order to enable the employer to satisfy, in a timely manner, 
its obligations under subtitle C to collect and pay taxes with respect 
to the noncash fringe benefits provided by the nonemployer.
    Q-7: For purposes of subtitle C, how is the fair market value of an 
employer-provided automobile or other road vehicle during any time 
period to be determined?
    A-7: The value of the availability of an employer-provided 
automobile or other road vehicle must be determined under the rules 
provided in ;Sec. Sec.  1.61-21 and 1.132-1 of this chapter. (For 
purposes of this section, the terms ``automobile'' and ``road vehicle'' 
have the meaning given those terms in Sec.  1.61-21). For example, 
assume that an employee adopts the special rule provided in Sec.  1.61-
21 and that the Annual Lease Value, as defined in Sec.  1.61-21, of an 
automobile or other road vehicle is $2,100. The automobile or other road 
vehicle is provided to employee A on January 1, 1985. As of March 31, A 
had driven the automobile or other road vehicle 1,000 personal miles and 
3,000 miles in the course of his employer's business. For the quarter, A 
would have had wages of $131.25 attributable to his personal use of the 
automobile or other road vehicle computed by subtracting a $393.75 
working condition fringe from $525 ($2,100 divided by 4). See section 
132(d) and Sec.  1.132-1T. During the second quarter of 1985, A drives 
the automobile or other road vehicle only 1,000 miles, all of which are 
personal. In order to calculate the value of the wages provided to A in 
the second quarter in the form of the availability of the employer-
provided automobile or other road vehicle, first A's employer calculates 
the Annual Lease Value attributable to the first six months of 1985 
which is $1,050 ($2,100 divided by 2). Second, A's employer calculates 
the working condition fringe exclusion which is $630 ($1,050 multiplied 
by a fraction the numerator of which is A's business mileage (3,000 
miles) and the denominator of which is A's total mileage (5,000 miles)). 
The calculations result in a total inclusion of $420 ($1,050--$630). 
From the total inclusion of $420, the wages provided in the first 
quarter, $131.25, are subtracted, leaving $288.75 as the wages 
includible in the second quarter attributable to the availability to A 
of the employer-provided automobile or other road vehicle.
    Q-8: May an employer treat any part of the Annual Lease Value or 
Daily Lease Value (as defined in 1.61-21 of this chapter ), or the fair 
market value if the special rule of 1.61-21 of this chapter is not or 
cannot be used, of an automobile or other road vehicle made available to 
an employee as includible in the employee's gross income without regard 
to whether the employee has used the automobile or other road vehicle in 
the employer's business?

[[Page 314]]

    A-8: No, except as otherwise provided in this Q/A-8, an employer may 
not include any amount in an employee's income with respect to an 
employer-provided automobile or other road vehicle unless such inclusion 
is based on:
    (a) Records or a statement submitted by an employee that contain the 
business and total mileage for the period beginning on January 1, 1985, 
and ending on the last day of the employer's taxable year that began in 
1984, or
    (b) Records that satisfy the employer's ``adequate contemporaneous 
record'' requirement under section 274(d)(4) and the regulations 
thereunder for the employer's taxable years beginning after December 31, 
1984.

For example, an employer who is subject to (b) of this Q/A-8 may rely on 
a statement submitted by the employee indicating for the period the 
number of miles driven by the employee in the employer's business and 
the total number of miles driven by the employee unless the employer 
knows or has reason to know the statement submitted is not based on 
``adequate contemporaneous records''. (For purposes of this section, if 
a road vehicle is available to any person and such availability would be 
taxable to an employee, miles driven by that person will be considered 
miles driven by the employee).
    Notwithstanding the preceding paragraph of this Q/A-8, an employer 
may include in an employee's income the value of the availability of an 
employer-provided road vehicle, calculated without regard to a working 
condition fringe exclusion based on business mileage if one of the 
conditions listed in Sec.  1.274-6T(f)(1) is satisfied with respect to 
the relevant period.
    In addition, the employer must, before including any amount in an 
employee's income with respect to an employer-provided road vehicle, 
take into account other working condition fringe exclusions, such as the 
security exclusion discussed in Sec.  1.132-1T. If proper calculation of 
an exclusion requires information from the employee and the employee 
does not respond within a reasonable period of time to a request for 
that information or produces information which the employer knows or has 
reason to know is not accurate, the employer may disregard such 
exclusion in reporting the employee's gross income.
    Q-8a: May an employer withhold amounts attributable to noncash 
fringe benefits on the basis of average wages as permitted under section 
3402(h)(1)?
    A-8a: In general, yes. In estimating wages under section 
3402(h)(1)(A), however, the employer must take into account estimated 
business use of the benefit (such as an employer-provided road vehicle). 
In no event, however, may the amount reported by the employer as 
``wages'' for any employee for any quarter be based on an estimation. 
However, the rules in Q/A-1 of this section regarding permissible delays 
in actual withholding apply.
    Q-9: If an employee purchases any property or service from an 
employer at a discount and the discount is not excludable under section 
132 and any applicable regulations thereunder, when is the noncash 
fringe benefit provided?
    A-9: Such property or service is provided at the time that ownership 
is transferred, in the case of property, or the time service is 
rendered, in the case of services. This will be true regardless of when 
the employee pays for such property or service or the date payment is 
due or the rate of interest charged prior to payment. The time at which 
ownership of the property is transferred must be determined under 
general tax principles.
    Q-10: What rules apply with respect to the treatment of the payment 
of any noncash fringe benefit as the payment of supplemental wages under 
section 3402?
    A-10: An employer may treat the payment of any noncash fringe 
benefit as the payment of supplemental wages. Thus, if noncash fringe 
benefits are provided and tax has been withheld from the employee's 
regular wages, the employer may determine the tax to be withheld with 
respect to such noncash fringe benefits by using a flat percentage rate 
of 20 percent, without allowance for exemptions and without reference to 
any regular payment of wages. For example, assume that during a calendar 
quarter A receives from his employer a taxable noncash fringe benefit 
with a fair market value of $1,000. If the requirements specified

[[Page 315]]

above are satisfied, A's employer may determine the tax to be withheld 
with respect to such benefit by using a flat percentage rate of 20 
percent. The employer may also determine the tax to be withheld with 
respect to such benefit by use of the method described in Sec.  31.3402 
(g)-1(a)(2).

(Approved by the Office of Management and Budget under control numbers 
1545-0074 and 1545-0907)

[T.D. 8004, 50 FR 756, Jan. 7, 1985, as amended by T.D. 8009, 50 FR 
7046, Feb. 20, 1985; T.D. 9849, 84 FR 9238, Mar. 14, 2019]



Sec.  31.3502-1  Nondeductibility of taxes in computing taxable income.

    For provisions relating to the nondeductibility, in computing 
taxable income under subtitle A, of the taxes imposed by sections 3101, 
3201, and 3211, and of the tax deducted and withheld under chapter 24, 
see Sec. Sec.  1.164-2 and 1.275-1 of this chapter (Income Tax 
Regulations). For provisions relating to the credit allowable to the 
recipient of the income in respect of the tax deducted and withheld 
under chapter 24, see Sec.  1.31-1 of this chapter (Income Tax 
Regulations).

[T.D. 6780, 29 FR 18148, Dec. 22, 1964]



Sec.  31.3503-1  Tax under chapter 21 or 22 paid under wrong chapter.

    If, for any period, an amount is paid as tax--
    (a) Under chapter 21 or corresponding provisions of prior law by a 
person who is not liable for tax for such period under such chapter or 
prior law, but who is liable for tax for such period under chapter 22 or 
corresponding provisions of prior law, or
    (b) Under chapter 22 or corresponding provisions of prior law by a 
person who is not liable for tax for such period under such chapter or 
prior law, but who is liable for tax for such period under chapter 21 or 
corresponding provisions of prior law,

the amount so paid shall be credited against the tax for which such 
person is liable and the balance, if any, shall be refunded. Each claim 
for refund or credit under this section shall be made on Form 843 and in 
accordance with Sec.  31.6402(a)-2 and the applicable provisions of 
section 6402(a) and the regulations thereunder in Part 301 of this 
chapter (Regulations on Procedure and Administration).



Sec.  31.3504-1  Designation of agent by application.

    (a) In general. In the event wages as defined in chapter 21 or 24 of 
the Internal Revenue Code (Code), or compensation as defined in chapter 
22 of the Code, of an employee or group of employees, employed by one or 
more employers, is paid by a fiduciary, agent, or other person 
(``agent''), or if that agent has the control, receipt, custody, or 
disposal of (collectively ``pays'') wages or compensation, the Internal 
Revenue Service may, subject to the terms and conditions as it deems 
proper, authorize that agent to perform the acts required of the 
employer or employers under those provisions of the Code and the 
regulations that apply, for purposes of the taxes imposed by the chapter 
or chapters, with respect to wages or compensation paid by the agent. If 
the agent is authorized by the Internal Revenue Service to perform such 
acts, all provisions of law (including penalties) and of the regulations 
applicable to an employer with respect to such acts shall be applicable 
to the agent. However, each employer for whom the agent acts shall 
remain subject to all provisions of law (including penalties) and of the 
regulations applicable to an employer with respect to such acts. Any 
application to authorize an agent to perform such acts, signed by the 
agent and the employer, shall be made on the form prescribed by the 
Internal Revenue Service and shall be filed with the Internal Revenue 
Service as prescribed in the instructions to the form and other 
applicable guidance.
    (b) Special rule for home care service recipients. (1) In general. 
In the event an agent is authorized pursuant to paragraph (a) of this 
section to perform the acts required of an employer under chapters 21 or 
24 on behalf of one or more home care service recipients, as defined in 
paragraph (b)(3) of this section, the Internal Revenue Service may 
authorize that agent to perform the acts as are required of employers 
for purposes of the tax imposed by chapter 23 of the Code with respect 
to wages

[[Page 316]]

paid by the agent for home care services, as defined in paragraph (b)(2) 
of this section, rendered to the home care service recipient. If the 
agent is authorized by the Internal Revenue Service to perform such 
acts, all provisions of law (including penalties) and of the regulations 
applicable to an employer in respect of such acts shall be applicable to 
the agent. However, each employer for whom the agent acts shall remain 
subject to all provisions of law (including penalties) and of the 
regulations applicable to an employer with respect to such acts.
    (2) Home care services. For purposes of this section, the term home 
care services includes health care and personal attendant care services 
rendered to the home care service recipient.
    (3) Home care service recipient. For purposes of this section, the 
term home care service recipient means any individual who receives home 
care services, as defined in paragraph (b)(2) of this section, while 
enrolled, and for the remainder of the calendar year after ceasing to be 
enrolled, in a program administered by a Federal, state, or local 
government agency that provides Federal, state, or local government 
funds, to pay, in whole or in part, for home care services for that 
individual.
    (c) Effective/applicability dates. An authorization under paragraph 
(a) in effect prior to December 12, 2013 continues to be in effect after 
that date. Paragraph (b) of this section applies to wages paid on or 
after January 1, 2014. However, pursuant to section 7805(b), taxpayers 
may rely on paragraph (b) of this section for all taxable years for 
which a valid designation is in effect under paragraph (a) of this 
section.

[T.D. 9649, 78 FR 75474, Dec. 12, 2013]



Sec.  31.3504-2  Designation of payor to perform acts of an employer.

    (a) In general. A person (as defined in section 7701(a)(1)) that 
pays wages or compensation (``payor'') to the individual(s) performing 
services for any client pursuant to a service agreement, except as 
provided in paragraph (d) of this section, is designated to perform the 
acts required of an employer with respect to the wages or compensation 
paid. For purposes of this section the term wages has the same meaning 
as the term wages has for purposes of chapters 21, 23, and 24, and the 
term compensation has the same meaning as the term compensation has for 
purposes of chapter 22. This section is not applicable if the payor has 
been authorized as an agent of the employer under Sec.  31.3504-1.
    (b) Definitions--(1) Client. The term client means an individual or 
entity that enters into a service agreement with the payor.
    (2) Service agreement. (i) The term service agreement means an 
agreement pursuant to which the payor--
    (A) Asserts it is the employer (or ``co-employer'') of the 
individual(s) performing services for the client;
    (B) Pays wages or compensation to the individual(s) for services the 
individual(s) perform for the client; and
    (C) Assumes responsibility to collect, report, and pay, or assumes 
liability for, any taxes applicable under subtitle C of the Code with 
respect to the wages or compensation paid by the payor to the 
individual(s) performing services for the client.
    (ii) For purposes of paragraph (b)(2)(i)(A) of this section, the 
payor may implicitly or explicitly assert it is the employer (or ``co-
employer'') of the individual(s) performing services for the client, 
including by agreeing to--
    (A) Recruit and hire employees for the client or assign employees as 
permanent or temporary members of the client's work force, or 
participate with the client in these actions;
    (B) Hire the client's employees as its own and then provide them 
back to the client to perform services for the client; or
    (C) File employment tax returns using its own employer 
identification number that include wages or compensation paid to the 
individual(s) performing services for the client.
    (c) Effects of designation. If a payor is designated to perform the 
acts required of an employer under this section then the following rules 
apply--
    (1) A payor must perform the acts required of an employer under each 
applicable chapter of the Code and the relevant regulations with respect 
to the wages or compensation paid by such payor. All provisions of law 
(including penalties) and the regulations

[[Page 317]]

applicable to the employer are applicable to the payor so designated 
with respect to the wages or compensation paid by the payor; and
    (2) Each employer for whom the payor is designated remains subject 
to all provisions of law (including penalties) and of the regulations 
applicable to an employer.
    (d) Exceptions. A payor is not designated to perform the acts 
required of an employer under this section for any wages or compensation 
paid by the payor to the individual(s) performing services for a client 
if--
    (1) The wages or compensation are reported on a return filed under 
the client's employer identification number (as defined in section 6109 
and the applicable regulations);
    (2) The payor is a common paymaster under sections 3121(s) or 
3231(i);
    (3) The payor is the employer of the individual(s) (including an 
employer within the meaning of section 3401(d)(1)); or
    (4) The payor is treated as an employer under section 3121(a)(2)(A).
    (e) Examples. The following examples illustrate the application of 
this section:
    (1) Example 1. Corporation P enters into an agreement with Employer, 
effective January 1, 2015. Under the agreement, Corporation P hires the 
Employer's employees as its own employees and provides them back to 
Employer to perform services for Employer. Corporation P also assumes 
responsibility to make payment of the individuals' wages and for the 
collection, reporting, and payment of applicable taxes. For all pay 
periods in 2015, Employer provides Corporation P with an amount equal to 
the gross payroll (that is, wage and tax amounts) of the individuals, 
and Corporation P pays wages (less the applicable withholding) to the 
individuals performing services for Employer. Corporation P also reports 
the wage and tax amounts on Form 941, Employer's QUARTERLY Federal Tax 
Return, filed for each quarter of 2015 under Corporation P's employer 
identification number. Corporation P is not a common paymaster, the 
employer of the individuals (including an employer within the meaning of 
section 3401(d)(1)), or treated as the employer of the individual under 
section 3121(a)(2)(A). Corporation P is designated to perform the acts 
of an employer with respect to all of the wages Corporation P paid to 
the individuals performing services for Employer for all quarters of 
2015. Employer and Corporation P are each subject to all provisions of 
law (including penalties) applicable in respect of employers for all 
quarters of 2015 with respect to such wages.
    (2) Example 2. Same facts as Example 1, except that Corporation P 
only reports the wage and tax amounts on Form 941, Employer's QUARTERLY 
Federal Tax Return, filed for the 1st and 2nd quarters of 2015. Neither 
Corporation P nor Employer files returns for the 3rd and 4th quarters of 
2015. Corporation P is designated to perform the acts of an employer 
with respect to all of the wages Corporation P paid to the individuals 
performing services for Employer for all quarters of 2015. Employer and 
Corporation P are each subject to all provisions of law (including 
penalties) applicable in respect of employers for all quarters of 2015 
with respect to such wages.
    (3) Example 3. Same facts as Example 1, except that neither 
Corporation P nor Employer reports the wage and tax amounts on Form 941, 
Employer's QUARTERLY Federal Tax Return, for any quarter of 2015. 
Corporation P is designated to perform the acts of an employer with 
respect to all of the wages Corporation P paid to the individuals 
performing services for Employer for all quarters of 2015. Employer and 
Corporation P are each subject to all provisions of law (including 
penalties) applicable in respect of employers for all quarters of 2015 
with respect to such wages.
    (4) Example 4. Same facts as Example 1, except that Employer 
provides only net payroll (that is, wages less tax amounts) to 
Corporation P for each pay period. Corporation P is designated to 
perform the acts of an employer with respect to all of the wages 
Corporation P paid to the individuals performing services for Employer 
for all quarters of 2015. Employer and Corporation P are each subject to 
all provisions of law (including penalties) applicable in respect of 
employers for all

[[Page 318]]

quarters of 2015 with respect to such wages.
    (5) Example 5. Same facts as Example 1, except that after 
Corporation P reports the wage and tax amounts on Form 941, Employer's 
QUARTERLY Federal Tax Return, filed for each quarter of 2015 under 
Corporation P's employer identification number, Corporation P files a 
claim for refund of the employment taxes it paid for each quarter of 
2015 that are related to wages Corporation P paid to the individuals 
performing services for Employer. The basis for Corporation P's refund 
claim is that Corporation P is not the employer of the individuals that 
performed services for Employer. Corporation P is designated to perform 
the acts of an employer with respect to all of the wages Corporation P 
paid to the individuals performing services for Employer for all 
quarters of 2015. Accordingly, Corporation P is not entitled to a 
refund. Employer and Corporation P are each subject to all provisions of 
law (including penalties) applicable in respect of employers for all 
quarters of 2015 with respect to such wages.
    (6) Example 6. Corporation S enters into an agreement with Employer, 
effective January 1, 2015. Under the agreement, Corporation S provides 
payroll services, including payment of wages to individuals performing 
services for Employer, and assumes responsibility for the collection, 
reporting, and payment of applicable taxes. For all pay periods in 2015, 
Employer provides Corporation S with an amount equal to the gross 
payroll (that is, wage and tax amounts) of the individuals, and 
Corporation S pays wages (less the applicable withholding) to the 
individuals performing services for Employer. Corporation S also reports 
the wage and tax amounts on Form 941, Employer's QUARTERLY Federal Tax 
Return, filed for each quarter of 2015 under Employer's employer 
identification number. Corporation S is not designated to perform the 
acts of an employer with respect to all of the wages Corporation S paid 
to the individuals performing services for Employer for all quarters of 
2015. Corporation S did not assert it was the employer and filed Forms 
941 using Employer's employer identification number. Accordingly, 
Corporation S is not liable for the applicable employment taxes under 
this section. Employer remains subject to all provisions of law 
(including penalties) applicable in respect of employers for all 
quarters of 2015 with respect to such wages.
    (7) Example 7. Corporation T enters into a consulting agreement with 
Manufacturer effective January 1, 2015, to provide consulting services 
to Manufacturer. Corporation T is responsible to pay wages to the 
individuals providing the consulting services to Manufacturer and to 
collect, report, and pay the applicable taxes. Corporation T has the 
right to direct and control the individuals as to when and how to 
perform the consulting services and, thus, is the common law employer of 
the individuals providing the consulting services. Corporation T is not 
designated to perform the acts of an employer with respect to all of the 
wages Corporation T pays to individuals providing consulting services to 
Manufacturer. However, as the common law employer of the individuals, 
Corporation T is subject to all provisions of law (including penalties) 
applicable in respect of employers with respect to such wages.
    (8) Example 8. On January 1, 2015, Corporation U enters into an 
agreement with Employer for Employer to farm Corporation U's property. 
Under the agreement, Corporation U and Employer agree to split the 
proceeds of the sale of the products grown on the property. Employer 
hires workers to assist it with the farming. Employer has the right to 
direct and control the workers as to when and how to perform the 
services and, thus, is the common law employer of the workers. However, 
Employer is unable to pay the workers until after the products are sold. 
Therefore, Corporation U pays wages to the workers and deducts this 
amount from Employer's share of the profits. Corporation U controls the 
payment of wages within the meaning of section 3401(d)(1). Corporation U 
is not designated to perform the acts of an employer with respect to all 
of the wages Corporation U paid to workers providing services for 
Employer. However, as the section 3401(d)(1) employer of the workers 
performing services for Employer, Corporation U is subject to all

[[Page 319]]

provisions of law (including penalties) applicable in respect of 
employers with respect to such wages.
    (9) Example 9. Corporation V and Employer execute and submit a Form 
2678, Employer/Payer Appointment of Agent, to the Service, requesting 
approval to authorize Corporation V to report, deposit, and pay taxes 
with respect to wages it pays, as agent of Employer for purposes of Form 
941, Employer's QUARTERLY Federal Tax Return. The Form 2678 is approved 
by the Service and effective for all quarters of 2015. Accordingly, 
Corporation V reports the wages it pays to individuals performing 
services for Employer and related tax amounts on Form 941 and Schedule R 
(Form 941), Allocation Schedule for Aggregate Form 941 Filers, filed for 
each quarter of 2015 under Corporation V's employer identification 
number. Corporation V is not designated under this section to perform 
the acts of an employer with respect to all of the wages Corporation V 
paid to the individuals performing services for Employer for all 
quarters of 2015. However, as an agent authorized under Sec.  31.3504-
1(a), Corporation V is subject to all provisions of law (including 
penalties) applicable in respect of employers for all quarters of 2015 
with respect to such wages. Employer also remains subject to all 
provisions of law (including penalties) applicable in respect of 
employers for all quarters of 2015 with respect to such wages.
    (f) Effective/applicability date. These final regulations are 
effective for wages or compensation paid by a payor in quarters 
beginning on or after March 31, 2014.

[T.D. 9662, 79 FR 17862, Mar. 31, 2014, as amended at 79 FR 31219, June 
2, 2014]



Sec.  31.3505-1  Liability of third parties paying or providing for wages.

    (a) Personal liability in case of direct payment of wages--(1) In 
general. A lender, surety, or other person--
    (i) Who is not an employer for purposes of section 3102 (relating to 
deduction of tax from wages under the Federal Insurance Contributions 
Act), section 3202 (relating to deduction of tax from compensation under 
the Railroad Retirement Tax Act), or section 3402 (relating to deduction 
of income tax from wages) with respect to an employee or group of 
employees, and
    (ii) Who pays wages on or after January 1, 1967, directly to such 
employee or group of employees, employed by one or more employers, or to 
an agent on behalf of such employee or employees,

shall be liable in his own person and estate for payment to the United 
States of an amount equal to the sum of the taxes required to be 
deducted and withheld from those wages by the employer under subtitle C 
of the Code and interest from the due date of the employer's return 
relating to such taxes for the period in which the wages are paid.
    (2) Example. The provisions of this paragraph may be illustrated by 
the following example:

    Example. Pursuant to a wage claim of $200, A, a surety company, paid 
a net amount of $158 to B, an employee of the X Construction Company. 
This was done in accordance with A's payment bond covering a private 
construction job on which B was an employee. If X Construction Company 
fails to make timely payment or deposit of $42.00, the amount of tax 
required by subtitle C of the Code to be deducted and withheld from, a 
$200 wage payment to B, A becomes personally liable for $42.00 (i.e., an 
amount equal to the unpaid taxes), plus interest upon this amount from 
the due date of X's return.

    (b) Personal liability where funds are supplied--(1) In general. A 
lender, surety, or other person who--
    (i) Advances funds to or for the account of an employer for the 
specific purpose of paying wages of the employees of that employer, and
    (ii) At the time the funds are advanced, has actual notice or 
knowledge (within the meaning of section 6323(i)(1)) that the employer 
does not intend to, or will not be able to, make timely payment or 
deposit of the amounts of tax required by subtitle C of the Code to be 
deducted and withheld by the employer from those wages,

shall be liable in his own person and estate for payment to the United 
States of an amount equal to the sum of the taxes which are required by 
subtitle C of the Code to be deducted and withheld from wages paid on or 
after January 1, 1967, and which are not paid over to the United States 
by the employer, and interest from the due date of the

[[Page 320]]

employer's return relating to such taxes. However, the liability of the 
lender, surety, or other person shall not exceed 25 percent of the 
amount supplied by him for the payment of wages. The preceding sentence 
and the second sentence of section 3505(b) limit the liability of a 
lender, surety, or other person arising solely by reason of section 
3505, and they do not limit the liability which the lender, surety or 
other person may incur to the United States as a third-party beneficiary 
of an agreement between the lender, surety, or other person and the 
employer. The liability of a lender, surety, or other person does not 
include penalties imposed on the taxpayer.
    (2) Examples. The provisions of this paragraph may be illustrated by 
the following examples:

    Example 1. D, a savings and loan association, advances $10,000 to Y 
for the specific purpose of paying the net wages of Y's employees. D 
advances those funds with knowledge that Y will not be able to make 
timely payment of the taxes required to be deducted and withheld from 
these wages by subtitle C of the Code, Y uses the $10,000 to pay the net 
wages of his employees but fails to remit withholding taxes under 
subtitle C in the amount of $2,600. D's liability, under this section, 
is limited to $2,500, 25 percent of the amount supplied for the payment 
of wages to Y's employees.
    Example 2. E, a loan company, advances $15,000 to F, a contractor, 
for the specific purpose of paying $20,000 of net wages due to F's 
employees. E advances those funds with knowledge that F will not be able 
to make timely payment of the taxes required to be deducted and withheld 
from these wages by subtitle C of the Code. F applies $5,000 of its own 
funds toward payment of these wages. The amount of tax required to be 
deducted and withheld from the gross wages is $4,500. The limitation 
applicable to E's liability is $3,750 (25 percent of $15,000). However, 
because E furnished only a portion of the total net wages, E is liable 
for $3,375 of the taxes required to be deducted and withheld ($4,500 x 
$15,000/$20,000).

    (3) Ordinary working capital loan. The provisions of section 3505(b) 
do not apply in the case of an ordinary working capital loan made to an 
employer, even though the person supplying the funds knows that part of 
the funds advanced may be used to make wage payments in the ordinary 
course of business. Generally, an ordinary working capital loan is a 
loan which is made to enable the borrower to meet current obligations as 
they arise. The person supplying the funds is not obligated to determine 
the specific use of an ordinary working capital loan or the ability of 
the employer to pay the amounts of tax required by subtitle C of the 
Code to be deducted and withheld. However, section 3505(b) is applicable 
where the person supplying the funds has actual notice or knowledge 
(within the meaning of section 6323(i)(1)) at the time of the advance 
that the funds, or a portion thereof, are to be used specifically to pay 
net wages, whether or not the written agreement under which the funds 
are advanced states a different purpose. Whether or not a lender has 
actual notice or knowledge that the funds are to be used to pay net 
wages, or merely that the funds may be so used, depends upon the facts 
and circumstances of each case. For example, a lender, who has actual 
notice or knowledge that the withheld taxes will not be paid, will be 
deemed to have actual notice or knowledge that the funds are to be used 
specifically to pay net wages where substantially all of the employer's 
ordinary operating expenses consist of salaries and wages even though 
fund for other incidental operating expenses may be supplied pursuant to 
an agreement described as a working capital loan agreement.
    (c) Definition of other person--(1) In general. As used in this 
section, the term ``other person'' means any person who directly pays 
the wages or supplies funds for the specific purpose of paying the wages 
of an employee or group of employees of another employer. It does not 
include a person acting only as agent of the employer or as agent of the 
employees.
    (2) Examples. The provisions of this paragraph may be illustrated by 
the following examples:

    Example 1. Pursuant to an agreement between L, a labor union, and M, 
an employer, M makes monthly vacation payments (of a sum equal to a 
certain percentage of the remuneration paid to each union member 
employed by M during the previous month) to a union administered pool 
plan under which each employee's rights are fully vested and 
nonforfeitable from the time the money is paid by M. Vacation allowances 
are accumulated by the plan and distributed to eligible employees during 
their vacations. L, acting

[[Page 321]]

merely as a conduit with respect to these payments, would incur no 
liability under section 3505.
    Example 2. N, a construction company, maintains a payroll account 
with the O Bank in which N deposits its own funds. Pursuant to an 
automated payroll service agreement between N and O, O prepares payroll 
checks and earnings statements for each of N's employees reflecting the 
net pay due each such employee. These checks are delivered to N for 
signature. After the checks are signed, O distributes them directly to 
N's employees on the regularly scheduled pay day. O, acting only in the 
capacity of a disbursing agent of N's funds, would incur no liability 
under section 3505 with respect to these payroll distributions. However, 
O may incur liability under section 3505 in the capacity of a lender if 
it supplies the funds for the payment of wages.

    (d) Payment of taxes and interest--(1) Procedure for payment. A 
lender, surety, or other person may satisfy the personal liability 
imposed upon him by section 3505 by executing Form 4219 and filing it, 
accompanied by payment of the amount of tax and interest due the United 
States, in accordance with the instructions for the form. In the event 
that the lender, surety, or other person does not satisfy the liability 
imposed by section 3505, the United States may collect the liability by 
appropriate civil proceedings commenced within 10 years after assessment 
of the tax against the employer.
    (2) Effect of payment--(i) In general. A person paying the amounts 
of tax required to be deducted and withheld by subtitle C of the Code as 
a result of section 3505 and this section is not required to pay the 
employer's portion of the payroll taxes upon those wages, or file an 
employer's tax return with respect to those wages, or furnish annual 
wage and tax statements to the employees.
    (ii) Amounts paid by a lender, surety, or other person. Any amounts 
paid by the lender, surety, or other person to the United States 
pursuant to this section shall be credited against the liability of the 
employer on whose behalf those payments are made and shall also reduce 
the total liability imposed upon the lender, surety, or other person 
under section 3505 and this section.
    (iii) Amounts paid by the employer. Any amounts paid to the United 
States by an employer and applied to his liability under subtitle C of 
the Code shall reduce the total liability imposed upon that employer by 
subtitle C. Such payments will also reduce the liability imposed upon a 
lender, surety, or other person under section 3505 except that such 
liability shall not be reduced by any portion of an employer's payment 
applied against the employer's liability under subtitle C which is in 
excess of the total liability imposed upon the lender, surety, or other 
person under section 3505. For example, if a lender supplies $1,000 to 
an employer for the payment of net wages, upon which $300 withholding 
tax liability is imposed, a part-payment of $25 by the employer which is 
applied to this liability would reduce the employer's total liability 
under subtitle C of the Code by that amount, but the liability imposed 
upon the lender by section 3505(b) in an amount equal to the withholding 
tax liability of the employer, which is limited to 25 percent of the 
amount supplied by him, would remain $250. However, if the employer 
makes another payment of $200 which is applied to his liability for the 
withholding taxes, the lender's liability under section 3505 
attributable to the withholding taxes is reduced by $175 ($225 less $50 
(the amount by which the employer's liability exceeds the lender's 
liability after application of the limitation)). Thus, after the second 
payment by the employer, the lender's liability under section 3505(b) is 
$75 ($250 less $175), plus interest due on the underpayment for the 
period of underpayment, to a maximum of $250, 25 percent of the funds 
supplied.
    (3) Extensions of the period for collection. Prior to the expiration 
of the 10-year period for collection after assessment against the 
employer, the lender, surety, or other third party may agree in writing 
with the district director, service center director, or compliance 
center director to extend the 10-year period for collection. The period 
so agreed upon may be extended by subsequent agreements in writing made 
before the expiration of the period previously agreed upon. If any 
timely proceeding in court for the collection of the tax and any 
applicable interest is commenced, the period during which such tax and 
interest may be collected

[[Page 322]]

shall be extended and shall not expire until the liability for the tax 
(or a judgment against the lender, surety, or other third party arising 
from such liability) is satisfied or becomes unenforceable.
    (e) Returns required by employers and statements for employees. This 
section does not relieve the employer of the responsibilities imposed 
upon him to file the returns and supply the receipts and statements 
required under subchapter A, Chapter 61 of the Code (relating to returns 
and records).
    (f) Time when liability arises. The liability under section 3505 and 
this section of a lender, surety, or other person paying or supplying 
funds for the payment of wages is incurred on the last day prescribed 
for the filing of the employer's Federal employment tax return 
(determined without regard to any extension of time) in respect of such 
wages.
    (g) Effective date. These regulations are effective on August 1, 
1995.

[T.D. 7430, 41 FR 35175, Aug. 20, 1976, as amended by T.D. 8604, 60 FR 
39110, Aug. 1, 1995]



Sec.  31.3506-1  Companion sitting placement services.

    (a) Definitions--(1) Companion sitting placement service. For 
purposes of this section, the term ``companion sitting placement 
service'' means a person (whether or not an individual) engaged in the 
trade or business of placing sitters with individuals who wish to avail 
themselves of the sitters' services.
    (2) Sitters. For purposes of this section, the term ``sitters'' 
means individuals who furnish personal attendance, companionship, or 
household care services to children or to individuals who are elderly or 
disabled.
    (b) General rule. For purposes of subtitle C of the Internal Revenue 
Code of 1954 (relating to employment taxes), a companion sitting 
placement service shall not be treated as the employer of its sitters, 
and the sitters shall not be treated as the employees of the placement 
service. However, the rule of the preceding sentence shall apply only if 
the companion sitting placement service neither pays nor receives 
(directly or through an agent) the salary or wages of the sitters, but 
is compensated, if at all, on a fee basis by the sitters or the 
individuals for whom the sitting is performed.
    (c) Individuals deemed self-employed. Any individual who, by reason 
of this section, is deemed not to be the employee of a companion sitting 
placement service shall be deemed to be self-employed for purposes of 
the tax on self-employment income (see sections 1401-1403 and the 
regulations thereunder in Part 1 of this chapter (Income Tax 
Regulations)).
    (d) Scope of rules. The rules of this section operate only to remove 
sitters and companion sitting placement services from the employee-
employer relationship when, under Sec. Sec.  31.3121(d)-1 and 
31.3121(d)-2, that relationship would otherwise exist. Thus, if, under 
Sec. Sec.  31.3121(d)-1 and 31.3121(d)-2, a sitter is considered to be 
the employee of the individual for whom the sitting is performed rather 
than the employee of the companion sitting placement service, this 
section has no effect upon that employee-employer relationship.
    (e) Examples. The provisions of this section may be illustrated by 
the following examples:

    Example 1. X is an agency that places babysitters with individuals 
who desire babysitting services. X furnishes all the sitters with an 
instruction manual regarding their conduct and appearance, requires them 
to file semimonthly reports, and determines the total fee to be charged 
the individual for whom the sitting is performed. Individuals who need a 
babysitter contact the agency, are informed of the charges, and, if 
agreement is reached, a sitter is sent to perform the services. The 
sitter collects the entire amount of the charges and remits a percentage 
to X as a fee for the placement. X is a companion sitting placement 
service within the meaning of paragraph (a)(1) of this section. 
Therefore, since the agency does not actually pay or receive the wages 
of the sitters, X is not treated as the employer of the sitters for 
purposes of this subtitle. The sitters are deemed to be self-employed 
for the purpose of the tax imposed by section 1401.
    Example 2. Assume the same facts as in example 1, except that the 
individual for whom the sitting is performed pays to X the entire amount 
of the charges. X retains a percentage and pays the difference to the 
sitter. Since X actually receives and pays the wages of the sitters, X 
is the employer of the sitters.
    Example 3. As a service to the community a neighborhood association 
maintains a list

[[Page 323]]

of individuals who are available to babysit. Parents in need of a sitter 
contact the association and are provided with a list of names and 
telephone numbers. The association charges no fee for the service and 
takes no action other than compiling the list of sitters and making it 
available to members of the community. Issues such as hours of work, 
amount of payment, and the method by which the services are performed 
are all resolved between the sitter and parent. A, a parent, used the 
list to hire B to sit for A's child. B performs the services four days a 
week in A's home and follows specific instructions given by A. Under 
Sec.  31.3121(d)-1, B is the employee of A rather than the employee of 
the neighborhood association. Consequently, this section does not apply 
and B remains the employee of A.

    (f) Effective date. This section shall apply to remuneration 
received after December 31, 1974.

(Secs. 3506 and 7805 of the Internal Revenue Code of 1954; 91 Stat. 1356 
(26 U.S.C. 3506); 68A Stat. 917 (26 U.S.C. 7805))

[T.D. 7691, 45 FR 24129, Apr. 9, 1980]



Sec.  31.3507-1  Advance payments of earned income credit.

    (a) General rule--(1) In general. Every employer paying wages after 
June 30, 1979, to an employee with respect to whom an earned income 
credit advance payment certificate is in effect must, at the time of 
paying the wages, also pay the employee the advance earned income credit 
amount of that employee. For the purposes of applying this section and 
Sec.  31.3507-2--
    (i) In the case of an individual who receives wages which are 
subject to income tax withholding, the term ``employee'' has the same 
meaning as set forth in section 3401(c) and the regulations thereunder, 
and the term ``wages'' has the same meaning as set forth in sections 
3401(a) and 3402(e) and the regulations under those sections; and
    (ii) In the case of an individual who does not receive wages which 
are subject to income tax withholding, but who receives wages which are 
subject to employee FICA taxes, the term ``employee'' has the same 
meaning as set forth in section 3121(d) and the regulations thereunder 
and the term ``wages'' has the same meaning as set forth in section 
3121(a) and the regulations thereunder.

An individual not having wages subject to either income tax withholding 
or employee FICA taxes is not entitled to advance payments of the earned 
income credit. Moreover, notwithstanding paragraph (a)(1)(i) and (ii) of 
this section, employers are not required to pay advance earned income 
credit amounts to agricultural workers paid on a daily basis. For this 
purpose an ``agricultural worker'' is an employee who performs 
``agricultural labor'', as that term is defined in section 3121(g) and 
the regulations thereunder.
    (2) Cross references. For determination of the advance earned income 
credit amount of an employee, see paragraph (b) of this section. For 
rules relating to the treatment of the payment of an employee's advance 
earned income credit amount as equivalent to payment by the employer of 
withholding and FICA taxes, see paragraph (c) of this section. For rules 
describing the earned income credit advance payment certificate, see 
Sec.  31.3507-2 (a) and (b). For rules relating to the employee's 
furnishing of the earned income credit advance payment certificate and 
the payroll periods for which the certificate is effective, see Sec.  
31.3507-2 (c) and (d).
    (b) Advance earned income credit amount. The advance earned income 
credit amount of an employee is determined, with respect to any payroll 
period, on the basis of the employee's wages from the employer for the 
period and in accordance with the advance amount tables prescribed by 
the Commissioner of Internal Revenue and then in effect for the payroll 
period. See, however, paragraph (c)(2) of this section. The advance 
amount paid is reflected on the employee's W-2 form as a separate item 
(and neither as a reduction of withholding nor an increase in 
compensation). For purposes of applying this section and Sec.  31.3507-
2, the term ``payroll period'' has the meaning set forth in section 
3401(b) and the regulations thereunder. As required by section 
3507(c)(2)(A), these advance amount tables must be similar in form to, 
and coordinated with, the tables prescribed under section 3402 (relating 
to income tax collected at the source). Sections 3507(c)(2)(B) and 
3507(c)(2)(C)

[[Page 324]]

provide, respectively, separate rules for the treatment in the advance 
amount tables of the advance earned income credit of the following two 
separate classes of employees:
    (1) Employees who are not married (within the meaning of section 
143), or employees whose spouses do not have an earned income credit 
advance payment certificate in effect; and
    (2) Employees whose spouses have an earned income credit advance 
payment certificate in effect.

If during the calendar year an employer has paid an employee amounts of 
earned income, within the meaning of section 43(c)(2)(A)(i), which in 
the aggregate equal or exceed $10,000, the employer need not make 
further payments of advance earned income credit to the employee during 
that calendar year.
    (c) Payment of advance earned income credit amount as payment of 
withholding and FICA taxes--(1) In general. (i) The provisions of this 
paragraph (c) apply for all purposes of the Internal Revenue Code of 
1954. Payments of advance earned income credit amounts pursuant to 
paragraph (a)(1) of this section do not constitute the payment of 
compensation. These payments by the employer are treated as made--
    (A) First, from the aggregate amount, with respect to all employees, 
required to be deducted and withheld for the payroll period under 
section 3401 (relating to income tax withholding);
    (B) Second, from the aggregate amount, with respect to all 
employees, required to be deducted for the payroll period under section 
3102 (relating to employee FICA taxes); and
    (C) Third, from the aggregate amount of the taxes imposed for the 
payroll period under section 3111 (relating to employer FICA taxes).

For purposes of the requirements of sections 3401, 3102, and 3111, as 
the case may be, and 6302, amounts equal to the advance earned income 
credit amounts paid to employees are treated as if paid to the Treasury 
Department on the day on which the wages (and advance amounts) are paid 
to the employees. The employer must report the payment and treatment of 
the advance amounts on the employer's Form 941, 941E, 942, or 943, as 
the case may be, in accordance with the applicable instructions.
    (ii) The provisions of paragraph (c)(1)(i) of this section may be 
illustrated by the following example:

    Example. Employer X has ten employees, each of whom is entitled to 
advance earned income credit payment of $10. The total of advance 
amounts paid by the employer to the ten employees for the payroll period 
is $100. The total of income tax withholding for the payroll period is 
$90. The total of employee FICA taxes for the payroll period is $61.30, 
and the total of employer FICA taxes for the payroll period is also 
$61.30. Under the rules of paragraph (c)(1)(i) of this section, the 
total of advance amounts paid to employees is treated as if X had paid 
the Treasury Department on the day X paid the employees' wages: first, 
the $90 aggregate amount of income tax withholding; and second, $10 of 
the aggregate amount of employee FICA tax. X remains liable only for 
$112.60 of the aggregate FICA tax [$51.30 + $61.30 = $112.60].

    (2) Advance payments exceeding taxes due. (i) if, for any payroll 
period, the aggregate amount of advance earned income credit amounts 
required to be paid by an employer under paragraph (a)(1) of this 
section exceeds the sum of the amounts for the payroll period referred 
to in paragraphs (c)(1)(i) (A) through (C) of this section, the employer 
reduces each advance amount paid for the payroll period by an amount 
which bears the same ratio to the excess of the advance amounts as the 
subject advance amount bears to the aggregate of advance amounts for the 
payroll period. However, this paragraph (c)(2) does not apply if the 
employer makes the election provided by paragraph (c)(3) of this 
section.
    (ii) The provisions of paragraph (c)(2) of this section may be 
illustrated by the following example.

    Example. Assume the same facts as the example in paragraph 
(c)(1)(ii) of this section, except that the employer is a state 
government which does not pay FICA taxes. Under these facts, the advance 
amounts would be $10 greater than the $90 total of income tax 
withholding for the payroll period. Assume 10 employees each receiving 
$10 in advance payments. Under the rule of this paragraph (c)(2), the 
employer X reduces the amount of the advance amount paid to each 
employer by \1/10\, computed as follows: $10/$100=\1/10\. This is the 
same result as would be obtained by reducing the advance payment of $10 
for each

[[Page 325]]

of the ten employees by one-tenth 10/100 of the $10 excess or $1.00.

    (3) Election to treat excess amounts as advance tax payment. In lieu 
of reducing advance payments under paragraph (c)(2) of this section, an 
employer may elect under this paragraph (c)(3) to pay in full all 
advance earned income credit amounts. However, if no election is made, 
the employer is required to reduce advance amounts paid in accordance 
with paragraph (c)(2) of this section. The election, if made, applies to 
all advance earned income credit amounts required to be paid for the 
payroll period. The employer reflects the election on the employer's 
Form 941, 941E, 942, or 943 as the case may be, and must specify (with 
supporting computations) the amount of the excess of advance amounts 
paid and the payroll period to which the excess relates. Separate 
elections may be made for separate payroll periods. The excess of 
advance amounts paid is treated as an advance payment by the employer of 
employment taxes described in paragraph (c)(3)(i) through (iii) of this 
section and due for the period reported on the Form 941, 941E, 942, or 
943 which includes the payroll period during which the excess amounts 
were paid. The amount of the excess advance payment is applied to the 
amounts of the employer's liability--
    (i) First, for income tax withholding due under section 3401 for the 
reporting period in which the payment is made;
    (ii) Second, for employee FICA taxes due under section 3102 for the 
reporting period in which the payment is made; and
    (iii) Third, for employer FICA taxes due under section 3111 for the 
reporting period in which the payment is made.

If the amount of the employment taxes (as described) for which the 
employer remains liable for the reporting period in which the excess 
payment is made is less than the excess payment, the employer may claim 
a refund of that portion of the excess amount paid which exceeds the 
employer's remaining liability for these taxes for the reporting period. 
This refund may be claimed, in the same manner as a refund of wage 
withholding taxes paid by the employer under section 3401, on the 
employer's Form 941, 941E, 942, or 943, as the case may be, for the 
reporting period. In the absence of a claim for refund, that portion of 
the excess amount will be applied by the Internal Revenue Service 
against the employer's liability for employment taxes reported on the 
employer's Form 941, 941E, 942, or 943, as the case may be, filed for 
the next reporting period.
    (4) Failure to make advance payments. The failure to pay an 
employee, at the time required by paragraph (a)(1) of this section, all 
or any part of an advance earned income credit amount as required by 
this section is treated, for all purposes including penalties, as a 
failure by the employer as of that time to deduct and withhold under 
chapter 24 of the Internal Revenue Code of 1954 an amount equal to the 
advance amount (or part thereof) not paid. This treatment applies to the 
failure to pay an advance amount to an eligible employee without regard 
to whether the employee is ultimately not entitled to claim the earned 
income credit (in full or in part) on a return for the year, so long as 
the employee has a valid earned income credit advance payment 
certificate in effect with the employer at the time when the wages were 
paid. If an employer fails to pay an advance earned income credit amount 
as required under this section, the advance amount will not be collected 
by the Internal Revenue Service from the employer if the employer has 
properly withheld and deposited all income taxes and FICA taxes 
applicable with respect to the employee. However, such amount may be 
collected if the employer has not properly withheld and deposited these 
taxes.

[T.D. 7766, 46 FR 10151, Feb. 2, 1981]



Sec.  31.3507-2  Earned income credit advance payment certificates.

    (a) Definition. For the purposes of this section and Sec.  31.3507-
1, an earned income credit advance payment certificate is a statement 
furnished by an employee to the employer which--
    (1) Certifies that the employee reasonably expects to be eligible to 
receive the earned income credit provided by section 43 for the 
employee's last taxable year under subtitle A of the Internal Revenue 
Code of 1954

[[Page 326]]

which begins in the calendar year in which the wages are paid:
    (2) Certifies that the employee does not have an earned income 
credit advance payment certificate in effect for the calendar year (in 
which the wages are paid) with respect to the payment of wages by 
another employer, and
    (3) States if the employee's spouse has an earned income credit 
advance payment certificate in effect with any employer. For the rule 
for determining if an employee's spouse has a certificate in effect, see 
paragraph (c)(3) of this section.
    (b) Form and content of earned income credit advance payment 
certificate--(1) In general. Form W-5 (Earned Income Credit Advance 
Payment Certificate) is the prescribed form for the earned income credit 
advance payment certificate. The Form W-5 must be prepared in accordance 
with the instructions applicable thereto and must set forth fully and 
clearly the data therein called for. In lieu of the prescribed form, a 
form the provisions of which are identical with those of the prescribed 
form may be used.
    (2) Invalid certificates. A Form W-5 does not meet the requirements 
of section 3507 or this section and is invalid if it is not completed or 
signed or contains an alteration or unauthorized addition (as defined in 
Sec.  31.3402(f)(5)-1(b) (1) and (2)). Any earned income credit advance 
payment certificate which the employee clearly indicates to be false by 
oral statement or written statement to the employer must be treated by 
the employer as a certificate which is invalid as of the date of the 
employee's statement. For purposes of the preceding sentence, the term 
``employer'' includes any individual authorized by the employer to 
receive earned income credit advance payment certificates or to make 
payroll distributions. If an employer receives from an employee an 
invalid certificate, the employer must consider it a nullity with 
respect to all payments of wages thereafter to the employee and must 
inform the employee of the certificate's invalidity. The employer is not 
required to ascertain whether any completed and signed earned income 
credit advance payment certificate is correct. However, the employer 
should inform the district director if the employer has reason to 
believe that the certificate contains any incorrect statement.
    (c) When earned income credit advance payment certificate takes 
effect--(1) No previous certificate. An earned income credit advance 
payment certificate furnished the employer where no previous certificate 
is or has been in effect with the employer for that employee for the 
calendar year takes effect with--
    (i) The date of the beginning of the first payroll period ending on 
or after the date on which the certificate is received by the employer;
    (ii) The date of the first payment of wages made without regard to a 
payroll period on or after the date on which the certificate is received 
by the employer; or
    (iii) The first day of the calendar year for which the certificate 
is furnished, if that day is later than the otherwise applicable 
effective date specified in paragraph (c)(1)(i) or (ii) of this section.
    (2) Previous certificate. Except as otherwise provided in this 
paragraph (c)(2), an earned income credit advance payment certificate 
furnished the employer where a previous certificate is or has been in 
effect with the employer for that employee for the calendar year takes 
effect on the date of the first payment of wages made on or after the 
first status determination date (as defined in paragraph (c)(4) of this 
section) occurring at least thirty days after the date on which the 
certificate is received by the employer. However, if the employer so 
chooses, the employer may treat the certificate as effective on the date 
of any payment of wages made on or after the date on which the 
certificate is received by the employer (without regard to any status 
determination date).
    (3) Certificate of spouse. For the sole purpose of applying 
paragraph (a)(3) of this section, in determining if a certificate is in 
effect with respect to an employee's spouse, the spouse's certificate is 
treated as then in effect if the spouse's certificate will be or is 
reasonably expected to be in effect on the first status determination 
date following the date on which the employer receives the employee's 
certificate.

[[Page 327]]

    (4) Status determination date. For the purposes of this section, the 
term ``status determination date'' means January 1, May 1, July 1, and 
October 1 of each year.
    (d) Period during which certificate remains in effect; change of 
status--(1) Period certificate remains in effect. An earned income 
credit advance payment certificate which takes effect during a calendar 
year continues in effect with respect to the employee only during that 
calendar year and until revoked by the employee or until another 
certificate takes effect. See paragraphs (d)(2) and (c)(2) of this 
section.
    (2) Change of status--(i) Revocation of certificate. If, after an 
employee has furnished an earned income credit advance payment 
certificate--
    (A) The employee no longer wishes to receive advance earned income 
credit payments; or
    (B) There has been a change of circumstances which has the effect of 
either making the employee ineligible for the earned income credit for 
the taxable year or causing a certificate to be in effect for the 
employee's spouse, then the employee must revoke the certificate 
previously furnished by furnishing the employer a new certificate (Form 
W-5 or identical form) in revocation of the earlier certificate. 
Depending upon the nature of the change of circumstances, the employer 
may be required, pursuant to the new certificate, to pay further advance 
earned income credit amounts to the employee (but in different amounts 
than previously paid to the employee). The Form W-5 (or identical form) 
must be prepared in accordance with the instructions applicable thereto 
and must set forth fully and clearly the data therein called for. In the 
case of revocation due to change of circumstances, the new certificate 
in revocation must be delivered to the employer within ten days after 
the employee first learns of the change of circumstances. The new 
certificate is effective under the rules provided in paragraph (c)(2) of 
this section for later certificates. A new certificate furnished by an 
employee which is invalid within the meaning of paragraph (b)(2) of this 
section is considered a nullity with respect to all payments of wages 
thereafter to the employee. The prior certificate of the employee 
remains in effect, unless the employee clearly indicates by an oral or 
written statement to the employer that the prior certificate is invalid. 
See paragraph (b)(2) of this section.

The employer is not required to ascertain whether any employee has 
experienced a change of circumstances described in subdivision (i)(B) of 
this paragraph which necessitates the employee's furnishing a new 
certificate. However, the employer should inform the district director 
if the employer has reason to believe than an employee has experienced a 
change of circumstances as described if the employee does not deliver a 
new certificate to the employer within the ten day period.
    (ii) Change in spouse's certificate. If, after an employee has 
furnished an earned income credit advance payment certificate stating 
that a certificate is in effect for the spouse of the employee, the 
certificate of the spouse is no longer in effect, the employee may 
furnish the employer with a new certificate which reflects this change 
of circumstances.

[T.D. 7766, 46 FR 10152, Feb. 2, 1981]



Sec.  31.3511-1  Certified professional employer organization.

    (a) Treatment as employer--(1) In general. For purposes of the 
federal employment taxes and other obligations imposed under chapters 21 
through 25 of subtitle C of the Internal Revenue Code (federal 
employment taxes), a certified professional employer organization (CPEO) 
(as defined in Sec.  301.7705-1(b)(1) of this chapter) is treated as the 
employer of any covered employee (as defined in Sec.  301.7705-1(b)(5) 
of this chapter), but only with respect to remuneration remitted by the 
CPEO to the covered employee.
    (2) Work site employee. In the case of a covered employee who is a 
work site employee (as defined in Sec.  301.7705-1(b)(17) of this 
chapter) of the customer, no person other than the CPEO is treated as 
the employer of the work site employee with respect to the customer for 
purposes of federal employment taxes imposed on remuneration

[[Page 328]]

remitted by the CPEO to the work site employee.
    (3) Non-work site covered employee. In the case of a covered 
employee who is not a work site employee, a person other than the CPEO 
is also treated as an employer of the employee for purposes of federal 
employment taxes imposed on remuneration remitted by the CPEO to the 
employee if such person is determined to be an employer of the employee 
without regard to the application of this paragraph (a) and section 
3511.
    (b) Exemptions, exclusions, definitions, and other rules--(1) In 
general. Solely for purposes of federal employment taxes imposed on 
remuneration remitted by a CPEO to a covered employee, the application 
of exemptions, exclusions, definitions, and other rules that are based 
on the type of employer is presumed to be based on the type of employer 
of the customer of the CPEO for whom the covered employee performs 
services. If a covered employee performs services for more than one 
customer of the CPEO during the calendar year, the presumption described 
in the previous sentence applies separately to remuneration remitted by 
the CPEO to the covered employee for services performed with respect to 
each such customer.
    (2) Presumption rebutted. The presumption set forth in paragraph 
(b)(1) of this section may be rebutted if either the Commissioner 
determines, or the CPEO demonstrates by clear and convincing evidence, 
that the relationship between the customer and the covered employee is 
not the legal relationship of employer and employee as set forth in 
Sec.  31.3401(c)-1. If such a determination or demonstration is made, 
then, with respect to remuneration remitted by a CPEO to a covered 
employee, the application of exemptions, exclusions, definitions, and 
other rules that are based on the type of employer will be based on the 
type of employer of the person determined by the Commissioner or 
demonstrated by the CPEO to be the common law employer of the covered 
employee in accordance with Sec.  31.3401(c)-1.
    (3) No inference from presumption. The presumption set forth in 
paragraph (b)(1) of this section does not create any inference with 
respect to the determination of who is an employer or employee or 
whether the legal relationship of employer and employee exists for 
federal tax purposes or for purposes of any other provision of law 
(other than for paragraph (b)(1) of this section).
    (c) Annual wage limitation, contribution base, and withholding 
threshold--(1) CPEO has separate taxable wage base, contribution base, 
and withholding threshold. For purposes of applying the annual wage 
limitations under sections 3121(a)(1) and 3306(b)(1) (relating to the 
Federal Insurance Contributions Act and the Federal Unemployment Tax 
Act, respectively), the contribution base under section 3231(e)(2) 
(relating to the Railroad Retirement Tax Act), and the withholding 
threshold under section 3102(f)(1) (relating to the Additional Medicare 
Tax), remuneration received by a covered employee from a CPEO for 
performing services for a customer of the CPEO within any calendar year 
is subject to a separate annual wage limitation, contribution base, and 
withholding threshold that are each computed without regard to any 
remuneration received by the covered employee during the calendar year 
from any other employer (including, if applicable, remuneration received 
directly from the customer receiving services from the employee). 
Notwithstanding the preceding sentence, a CPEO is treated as a successor 
or predecessor employer for purposes of the annual wage limitations and 
contribution base upon entering into or terminating a CPEO contract (as 
defined in Sec.  301.7705-1(b)(3) of this chapter) with respect to a 
work site employee, as described in paragraph (d) of this section.
    (2) Performance of services for more than one customer. If, during a 
calendar year, a covered employee receives remuneration from a CPEO for 
services performed by the covered employee for more than one customer of 
the CPEO, the annual wage limitation, contribution base, and withholding 
threshold do not apply to the aggregate remuneration received by the 
covered employee from the CPEO for services performed for all such 
customers. Rather, the annual wage limitation, contribution base, and 
withholding threshold apply

[[Page 329]]

separately to the remuneration received by the covered employee from the 
CPEO with respect to services performed for each customer.
    (d) Successor employer status--(1) In general. For purposes of 
sections 3121(a)(1), 3231(e)(2)(C), and 3306(b)(1), a CPEO and its 
customer are treated as--
    (i) A successor and predecessor employer, respectively, upon 
entering into a CPEO contract with respect to a work site employee who 
is performing services for the customer; and
    (ii) A predecessor and successor employer, respectively, upon 
termination of the CPEO contract between the CPEO and the customer with 
respect to the work site employee who is performing services for the 
customer.
    (2) Non-work site covered employee. A CPEO entering into a CPEO 
contract with a customer during a calendar quarter with respect to a 
covered employee who is not a work site employee at any time during that 
calendar quarter will not be treated as a successor employer (and the 
customer will not be treated as a predecessor employer) for purposes of 
paragraph (d)(1)(i) of this section regardless of whether, during the 
term of the CPEO contract, the covered employee subsequently becomes a 
work site employee. Similarly, a CPEO terminating a CPEO contract with a 
customer during a calendar quarter with respect to a covered employee 
who is not a work site employee at any time during that calendar quarter 
will not be treated as a predecessor employer (and the customer will not 
be treated as a successor employer) for purposes of paragraph (d)(1)(ii) 
of this section regardless of whether, during the term of the CPEO 
contract, the covered employee had previously been a work site employee.
    (e) Treatment of credits--(1) In general. For purposes of the 
credits specified in paragraph (e)(2) of this section--
    (i) The credit with respect to a work site employee performing 
services for a customer applies to the customer, not to the CPEO; and
    (ii) In computing the credit, the customer, and not the CPEO, is to 
take into account wages and federal employment taxes paid by the CPEO 
with respect to the work site employee and for which the CPEO receives 
payment from the customer.
    (2) Credits specified. A credit is specified in this paragraph (e) 
if such credit is allowed under--
    (i) Section 41 (credit for increasing research activity);
    (ii) Section 45A (Indian employment credit);
    (iii) Section 45B (credit for portion of employer social security 
taxes paid with respect to employee cash tips);
    (iv) Section 45C (clinical testing expenses for certain drugs for 
rare diseases or conditions);
    (v) Section 45R (employee health insurance expenses for small 
employers);
    (vi) Section 45S (employer credit for paid family and medical 
leave);
    (vii) Section 51 (work opportunity credit);
    (viii) Section 1396 (empowerment zone employment credit);
    (ix) Statutory employee retention credits that are similar to the 
employee retention credit in section 1400R and that provide disaster 
relief to employers in designated disaster areas; and
    (x) Any other section specified by the Commissioner in further 
guidance (as defined in Sec.  301.7705-1(b)(8) of this chapter).
    (f) Section not applicable to related customers, self-employed 
individuals, and other circumstances. This section does not apply--
    (1) In the case of any customer that--
    (i) Has a relationship to a CPEO described in section 267(b) 
(including, by cross-reference, section 267(f)) or section 707(b), 
except that ``10 percent'' shall be substituted for ``50 percent'' 
wherever it appears in such sections; or
    (ii) Has commenced a CPEO contract with the CPEO but such 
commencement has not been reported to the IRS as described in paragraph 
(g)(3)(i) of this section; or
    (2) To remuneration paid by a CPEO to any self-employed individual 
(as defined in Sec.  301.7705-1(b)(14) of this chapter) in that 
capacity;
    (3) To any CPEO contract that a CPEO enters into while its 
certification has been suspended by the IRS; or

[[Page 330]]

    (4) To any CPEO whose certification has been revoked or voluntarily 
terminated for periods after the effective date of revocation or 
voluntary termination.
    (g) Reporting and recordkeeping--(1) Reporting and recordkeeping for 
employers. A CPEO that is treated as an employer of a covered employee 
pursuant to paragraph (a) of this section must meet all reporting and 
recordkeeping requirements described in subtitle F of the Code that are 
applicable to employers in a manner consistent with such treatment.
    (2) Reporting on magnetic media--(i) In general. A CPEO must file on 
magnetic media any Form 940, ``Employer's Annual Federal Unemployment 
(FUTA) Tax Return,'' Form 941, ``Employer's QUARTERLY Federal Tax 
Return,'' and Form 943, ``Employer's Annual Federal Tax Return for 
Agricultural Employees,'' and all required accompanying schedules, as 
well as such other returns, schedules, and other required forms and 
documents as is required by further guidance.
    (ii) Waiver. The Commissioner may waive the requirements of this 
paragraph (g)(2) in case of undue economic hardship (including economic 
hardship resulting from temporary software and technological issues). 
The principal factor in determining hardship will be the amount, if any, 
by which the cost of filing the return, schedule, or other required form 
or document on magnetic media in accordance with this paragraph (g)(2) 
exceeds the cost of filing on or by other media. A request for a waiver 
must be made in accordance with applicable guidance. The waiver must 
specify the type of filing (that is, the name of the form or schedule) 
and the period to which it applies. In addition, the waiver will be 
subject to such terms and conditions regarding the method of filing as 
may be prescribed by the Commissioner in further guidance.
    (iii) Magnetic media. The term magnetic media means any magnetic 
media permitted under applicable guidance. These generally include 
electronic filing, as well as other media specifically permitted under 
the applicable guidance.
    (3) Reporting to the IRS by CPEOs. A CPEO must report the following 
to the IRS in such time and manner, and including such information, as 
the Commissioner may prescribe in further guidance:
    (i) The commencement or termination of any CPEO contract (as defined 
in Sec.  301.7705-1(b)(3) of this chapter) with a customer, or any 
service agreement as described in Sec.  31.3504-2(b)(2) with a client, 
and the name and employer identification number (EIN) of such customer 
or client.
    (ii) With any Form 940, Form 941, and Form 943 that it files, all 
required schedules, including, but not limited to, the applicable 
Schedule R (or any successor form), containing such information as the 
Commissioner may require about each of its customers under a CPEO 
contract (as defined in Sec.  301.7705-1(b)(3) of this chapter) and each 
of its clients under a service agreement (as described in Sec.  31.3504-
2(b)(2)). A CPEO must file Form 940, Form 941, and Form 943, along with 
all required schedules, on magnetic media, unless the CPEO is granted a 
waiver by the Commissioner in accordance with paragraph (g)(2)(ii) of 
this section.
    (iii) A periodic verification that it continues to meet the 
requirements of Sec.  301.7705-2 of this chapter, as described in Sec.  
301.7705-2(j).
    (iv) Any change that materially affects the continuing accuracy of 
any agreement or information that was previously made or provided by the 
CPEO to the IRS, as described in Sec.  301.7705-2(k) of this chapter.
    (v) A copy of its audited financial statements and an opinion of a 
certified public accountant regarding such financial statements, as 
described in Sec.  301.7705-2(e)(1) of this chapter.
    (vi) The quarterly statements, assertions, and attestations 
regarding those assertions described in Sec.  301.7705-2(f)(1) of this 
chapter.
    (vii) Any information the IRS determines is necessary to promote 
compliance with respect to the credits described in paragraph (e)(2) of 
this section and provided in section 3302.
    (viii) Any other information the Commissioner may prescribe in 
further guidance.

[[Page 331]]

    (4) Reporting to customers by CPEOs. A CPEO must meet the following 
reporting requirements with respect to its customers in such time and 
manner, and including such information, as the Commissioner may 
prescribe in further guidance:
    (i) Provide each of its customers with the information necessary for 
the customer to claim the credits described in paragraph (e)(2) of this 
section.
    (ii) Notify any customer if its CPEO contract has been transferred 
to another person (or if another person will report, withhold, or pay, 
under such other person's EIN, any applicable federal employment taxes 
with respect to the wages of any individuals covered by its CPEO 
contract) and provide the customer with the name and EIN of such other 
person.
    (iii) If the CPEO's certification is suspended or revoked as 
described in Sec.  301.7705-2(n) of this chapter, notify each of its 
current customers of such suspension or revocation.
    (iv) If any covered employees are not, or cease to be, work site 
employees because they perform services at a location at which the 85 
percent threshold described in Sec.  301.7705-1(b)(17) of this chapter 
is not met, notify the customer that it may also be liable for federal 
employment taxes imposed on remuneration remitted by the CPEO to such 
covered employees, as described in paragraph (a)(3) of this section.
    (5) Information and agreements in any contract or agreement between 
a CPEO and a customer or client. Any CPEO contract (as defined in Sec.  
301.7705-1(b)(3) of this chapter) between a CPEO and a customer or 
service agreement described in Sec.  31.3504-2(b)(2) between a CPEO and 
a client must--
    (i) In the case of a contract that is a CPEO contract--
    (A) Contain the name and EIN of the CPEO reporting, withholding, and 
paying any applicable federal employment taxes with respect to any 
remuneration paid to individuals covered by the contract or agreement;
    (B) Require the CPEO to provide to the customer the notices and 
information required by paragraph (g)(4) of this section;
    (C) Describe the information that the CPEO will provide that is 
necessary for the customer to claim the credits specified in paragraph 
(e)(2) of this section; and
    (D) Require the CPEO to notify the customer that the customer may 
also be liable for federal employment taxes on remuneration remitted by 
the CPEO to covered employees if the work sites at which they perform 
services do not (or ever cease to) meet the 85 percent threshold 
described in Sec.  301.7705-1(b)(17) of this chapter; and
    (ii) In the case of a service agreement described in Sec.  31.3504-
2(b)(2) that is not a CPEO contract (and thus the individuals covered by 
that contract are not covered employees), or if this section does not 
apply to the contract under paragraph (f) of this section, notify, or be 
accompanied by a notification to, the client that the service agreement 
or contract is not covered by section 3511 and does not alter the 
client's liability for federal employment taxes on remuneration remitted 
by the CPEO to the employees covered by the service agreement or 
contract.
    (h) Penalties and additions to tax--(1) In general. A CPEO that is 
treated as an employer of a covered employee under this section and that 
is required to meet the reporting requirements of an employer is subject 
to the same penalties and additions to tax as an employer with respect 
to such reporting requirements, including, but not limited to, penalties 
and additions to tax under sections 6651, 6656, 6672, 6721, 6722, and 
6723.
    (2) Failures to timely make reports required under section 3511. 
CPEOs are subject to penalty under section 6652(n) with respect to 
reports required to be made to the IRS in paragraphs (g)(1) and (3) of 
this section and reports required to be made to customers in paragraph 
(g)(4) of this section.
    (3) Failures to attach Schedule R. A CPEO is subject to penalty 
under section 6652(n) for failure to attach Schedule R (or successor 
form) to Forms 941, 940, or 943 as required by paragraph (g)(3)(ii) of 
this section. A CPEO is also subject to penalty under section 6723 for 
failure to include the EIN of each customer on Schedule R of Form 941, 
940, or 943. See Sec.  301.6723-1 of this chapter for the application of 
the section

[[Page 332]]

6723 penalty in the case of multiple failures on a single document.
    (4) Failures to file on magnetic media. With respect to the 
requirement in paragraph (g)(3)(ii) of this section that a CPEO must 
file Forms 940, 941, and 943, along with all required schedules, on 
magnetic media, a failure to file on magnetic media does not constitute 
a failure to file for purposes of section 6651(a)(1) nor does it 
constitute a failure to make a report for purposes of section 6652(n). 
Rather, the requirement to file Forms 940, 941, and 943 on magnetic 
media is a condition of maintaining certification as a CPEO.
    (i) Applicability date. The rules in this section apply on and after 
May 3, 2019.

[T.D. 9869, 84 FR 24379, May 28, 2019]



Subpart G_Administrative Provisions of Special Application to Employment 
Taxes (Selected Provisions of Subtitle F, Internal Revenue Code of 1954)



Sec.  31.6001-1  Records in general.

    (a) Form of records. The records required by the regulations in this 
part shall be kept accurately, but no particular form is required for 
keeping the records. Such forms and systems of accounting shall be used 
as will enable the district director to ascertain whether liability for 
tax is incurred and, if so, the amount thereof.
    (b) Copies of returns, schedules, and statements. Every person who 
is required, by the regulations in this part or by instructions 
applicable to any form prescribed thereunder, to keep any copy of any 
return, schedule, statement, or other document, shall keep such copy as 
a part of his records.
    (c) Records of claimants. Any person (including an employee) who, 
pursuant to the regulations in this part, claims a refund, credit or 
abatement, shall keep a complete and detailed record with respect to the 
tax, interest, addition to the tax, additional amount, or assessable 
penalty to which the claim relates. Such record shall include any 
records required of the claimant by paragraph (b) of this section and by 
Sec. Sec.  31.6001-2 to 31.6001-5, inclusive, which relate to the claim.
    (d) Records of employees. While not mandatory (except in the case of 
claims), it is advisable for each employee to keep permanent, accurate 
records showing the name and address of each employer for whom he 
performs services as an employee, the dates of beginning and termination 
of such services, the information with respect to himself which is 
required by the regulations in this subpart to be kept by employers, and 
the statements furnished in accordance with the provisions of Sec.  
31.6051-1.
    (e) Place and period for keeping records. (1) All records required 
by the regulations in this part shall be kept, by the person required to 
keep them, at one or more convenient and safe locations accessible to 
internal revenue officers, and shall at all times be available for 
inspection by such officers.
    (2) Except as otherwise provided in the following sentence, every 
person required by the regulations in this part to keep records in 
respect of a tax (whether or not such person incurs liability for such 
tax) shall maintain such records for at least four years after the due 
date of such tax for the return period to which the records relate, or 
the date such tax is paid, whichever is the later. The records of 
claimants required by paragraph (c) of this section shall be maintained 
for a period of at least four years after the date the claim is filed.
    (f) Cross reference. See Sec. Sec.  31.6001-2 to 31.6001-5, 
inclusive, for additional records required with respect to the Federal 
Insurance Contributions Act, the Railroad Retirement Tax Act, the 
Federal Unemployment Tax act, and the collection of income tax at source 
on wages, respectively.



Sec.  31.6001-2  Additional records under Federal Insurance Contributions Act.

    (a) In general. (1) Every employer liable for tax under the Federal 
Insurance Contributions Act shall keep records of all remuneration, 
whether in cash or in a medium other than cash, paid to his employees 
after 1954 for services (other than agricultural labor which constitutes 
or is deemed to constitute employment, domestic service in a private 
home of the employer, or service not in

[[Page 333]]

the course of the employer's trade or business) performed for him after 
1936. Such records shall show with respect to each employee receiving 
such remuneration--
    (i) The name, address, and account number of the employee and such 
additional information with respect to the employee as is required by 
paragraph (c) of Sec.  31.6011(b)-2 when the employee does not advise 
the employer what his account number and name are as shown on an account 
number card issued to the employee by the Social Security 
Administration.
    (ii) The total amount and date of each payment of remuneration 
(including any sum withheld therefrom as tax or for any other reason) 
and the period of services covered by such payment.
    (iii) The amount of each such remuneration payment which constitutes 
wages subject to tax. See Sec. Sec.  31.3121(a)-1 to 31.3121(a)(12)-1, 
inclusive.
    (iv) The amount of employee tax, or any amount equivalent to 
employee tax, collected with respect to such payment, and, if collected 
at a time other than the time such payment was made, the date collected. 
See paragraph (b) of Sec.  31.3102-1 for provisions relating to 
collection of amounts equivalent to employee tax.
    (v) If the total remuneration payment (paragraph (a)(1)(ii) of this 
section) and the amount thereof which is taxable (paragraph (a)(1)(iii) 
of this section) are not equal, the reason therefor.
    (2) Every employer shall keep records of the details of each 
adjustment or settlement of taxes under the Federal Insurance 
Contributions Act made pursuant to the regulations in this part. The 
employer shall keep as a part of his records a copy of each statement 
furnished pursuant to paragraph (c) of Sec.  31.6011(a)-1.
    (3) Every employer shall keep records of all remuneration in the 
form of tips received by his employees after 1965 in the course of their 
employment and reported to him pursuant to section 6053(a). The employer 
shall keep as part of his records employee statements of tips furnished 
him pursuant to section 6053(a) (unless the information disclosed by 
such statements is recorded on another document retained by the employer 
pursuant to paragraph (a)(1) of this section) and copies of employer 
statements furnished employees pursuant to section 6053(b).
    (b) Agricultural labor, domestic service, and service not in the 
course of employer's trade or business. (1) Every employer who pays cash 
remuneration after 1954 for the performance for him after 1950 of 
agricultural labor which constitutes or is deemed to constitute 
employment, of domestic service in a private home of the employer not on 
a farm operated for profit, or of service not in the course of his trade 
or business shall keep records of all such cash remuneration with 
respect to which he incurs, or expects to incur, liability for the taxes 
imposed by the Federal Insurance Contributions Act, or with respect to 
which amounts equivalent to employee tax are deducted pursuant to 
section 3102(a). See Sec. Sec.  31.3101-3, 31.3111-3, and 31.3121(a)-2 
for provisions relating, respectively, to the liability for employee tax 
which is incurred when wages are received, the liability for employer 
tax which is incurred when wages are paid, and the time when wages are 
paid and received. Such records shall show with respect to each employee 
receiving such cash remuneration--
    (i) The name of the employee.
    (ii) The account number of each employee to whom wages for such 
services are paid within the meaning of Sec.  31.3121(a)-2, and such 
additional information as is required by paragraph (c) of Sec.  
31.6011(b)-2 when the employee does not advise the employer what his 
account number and name are as shown on an account number card issued to 
the employee by the Social Security Administration.
    (iii) The amount of such cash remuneration paid to the employee 
(including any sum withheld therefrom as tax or for any other reason) 
for agricultural labor which constitutes or is deemed to constitute 
employment, for domestic service in a private home of the employer not 
on a farm operated for profit, or for service not in the course of the 
employer's trade or business; the calendar month in which such cash 
remuneration was paid; and the character of the services for which such 
cash remuneration was paid.

[[Page 334]]

When the employer incurs liability for the taxes imposed by the Federal 
Insurance Contributions Act with respect to any such cash remuneration 
which he did not previously expect would be subject to the taxes, the 
amount of any such cash remuneration not previously made a matter of 
record shall be determined by the employer to the best of his knowledge 
and belief.
    (iv) The amount of employee tax, or any amount equivalent to 
employee tax, collected with respect to such cash remuneration and the 
calendar month in which collected. See paragraph (b) of Sec.  31.3102-1 
for provisions relating to collection of amounts equivalent to employee 
tax.
    (v) To the extent material to a determination of tax liability, the 
number of days during each calendar year after 1956 on which 
agricultural labor which constitutes or is deemed to constitute 
employment is performed by the employee for cash remuneration computed 
on a time basis.
    (2) Every person to whom a ``crew leader'', as that term is defined 
in section 3121(i), furnishes individuals for the performance of 
agricultural labor after December 31, 1958, shall keep records of the 
name; permanent mailing address, or if none, present address; and 
identification number, if any, of such ``crew leader''.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 7001, 34 FR 
1003, Jan. 23, 1969]



Sec.  31.6001-3  Additional records under Railroad Retirement Tax Act.

    (a) Records of employers. (1) Every employer liable for tax under 
the Railroad Retirement Tax Act shall keep records of all remuneration 
(whether in money or in something which may be used in lieu of money), 
other than tips, paid to his employees after 1954 for services rendered 
to him (including ``time lost'') after 1954. Such records shall show 
with respect to each employee--
    (i) The name and address of the employee.
    (ii) The total amount and date of each payment of remuneration to 
the employee (including any sum withheld therefrom as tax or for any 
other reason) and the period of service (including any period of absence 
from active service) covered by such payment.
    (iii) The amount of such remuneration payment with respect to which 
the tax is imposed.
    (iv) The amount of employee tax collected with respect to such 
payment, and, if collected at a time other than the time such payment 
was made, the date collected.
    (v) If the total payment of remuneration (paragraph (a)(1)(ii) of 
this section) and the amount thereof with respect to which the tax is 
imposed (paragraph (a)(1)(iii) of this section) are not equal, the 
reason therefor.
    (2) The employer shall keep records of the details of each 
adjustment or settlement of taxes under the Railroad Retirement Tax Act 
made pursuant to the regulations in this part.
    (b) Records of employee representatives. Every individual liable for 
employee representative tax under the Railroad Retirement Tax Act shall 
keep records of all remuneration (whether in money or in something which 
may be used in lieu of money) paid to him after 1954 for services 
rendered (including ``time lost'') by him as an employee representative 
after 1954. Such records shall show--
    (1) The name and address of each employee organization employing 
him.
    (2) The total amount and date of each payment of remuneration for 
services rendered as an employee representative (including any sum 
withheld therefrom as tax or for any other reason) and the period of 
service (including any period of absence from active service) covered by 
such payment.
    (3) The amount of such remuneration payment with respect to which 
the employee representative tax is imposed.
    (4) If the total payment of remuneration (paragraph (a)(2) of this 
section) and the amount thereof with respect to which the employee 
representative tax is imposed (paragraph (a)(3) of this section) are not 
equal, the reason therefor.



Sec.  31.6001-4  Additional records under Federal Unemployment Tax Act.

    (a) Records of employers. Every employer liable for tax under the 
Federal Unemployment Tax Act for any calendar year shall, with respect 
to each

[[Page 335]]

such year, keep such records as are necessary to establish--
    (1) The total amount of remuneration (including any sum withheld 
therefrom as tax or for any other reason) paid to his employees during 
the calendar year for services performed after 1938.
    (2) The amount of such remuneration which constitutes wages subject 
to the tax. See Sec.  31.3306(b)-1 through Sec.  31.3306(b)(8)-1.
    (3) The amount of contributions paid by him into each State 
unemployment fund, with respect to services subject to the law of such 
State, showing separately (i) payments made and neither deducted nor to 
be deducted from the remuneration of his employees, and (ii) payments 
made and deducted or to be deducted from the remuneration of his 
employees.
    (4) The information required to be shown on the prescribed return 
and the extent to which the employer is liable for the tax.
    (5) If the total remuneration paid (paragraph (a)(1) of this 
section) and the amount thereof which is subject to the tax (paragraph 
(a)(2) of this section) are not equal, the reason therefor.
    (6) To the extent material to a determination of tax liability, the 
dates, in each calendar quarter, on which each employee performed 
services not in the course of the employer's trade or business, and the 
amount of cash remuneration paid at any time for such services performed 
within such quarter See Sec.  31.3306(c)(3)-1.

The term ``remuneration,'' as used in this paragraph, includes all 
payments whether in cash or in a medium other than cash, except that the 
term does not include payments in a medium other than cash for services 
not in the course of the employer's trade or business. See Sec.  
31.3306(b)(7)-1.
    (b) Records of persons who are not employers. Any person who employs 
individuals in employment (see Sec. Sec.  31.3306(c)-1 to 31.3306(c)-3, 
inclusive) during any calendar year but who considers that he is not an 
employer subject to the tax (see Sec.  31.3306(a)-1) shall, with respect 
to each such year, be prepared to establish by proper records 
(including, where necessary, records of the number of employees employed 
each day) that he is not an employer subject to the tax.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6658, 28 FR 
6642, June 27, 1963]



Sec.  31.6001-5  Additional records in connection with collection of income
tax at source on wages.

    (a) Every employer required under section 3402 to deduct and 
withhold income tax upon the wages of employees shall keep records of 
all remuneration paid to (including tips reported by) such employees. 
Such records shall show with respect to each employee--
    (1) The name and address of the employee, and after December 31, 
1962, the account number of the employee.
    (2) The total amount and date of each payment of remuneration 
(including any sum withheld therefrom as tax or for any other reason) 
and the period of services covered by such payment.
    (3) The amount of such remuneration payment which constitutes wages 
subject to withholding.
    (4) The amount of tax collected with respect to such remuneration 
payment, and, if collected at a time other than the time such payment 
was made, the date collected.
    (5) If the total remuneration payment (paragraph (a)(2) of this 
section) and the amount thereof which is taxable (paragraph (a)(3) of 
this section) are not equal, the reason therefor.
    (6) Copies of any statements furnished by the employee pursuant to 
paragraph (b)(12) of Sec.  31.3401(a)-1 (relating to permanent residents 
of the Virgin Islands).
    (7) Copies of any statements furnished by the employee pursuant to 
Sec. Sec.  31.3401(a)(6)-1 and 31.3401(a)(7)-1, relating to nonresident 
alien individuals.
    (8) Copies of any statements furnished by the employee pursuant to 
Sec.  31.3401(a)(8)(A)-1 (relating to residence or physical presence in 
a foreign country).
    (9) Copies of any statements furnished by the employee pursuant to 
Sec.  31.3401(a)(8)(C)-1 (relating to citizens resident in Puerto Rico).
    (10) The fair market value and date of each payment of noncash 
remuneration, made to an employee after August 9, 1955, for services 
performed as a

[[Page 336]]

retail commission salesman, with respect to which no income tax is 
withheld by reason of Sec.  31.3402(j)-1.
    (11) [Reserved]
    (12) In the case of the employer for whom services are performed, 
with respect to payments made directly by him after December 31, 1955, 
under an accident or health plan (as defined in section 105 and the 
regulations thereunder)--
    (i) The beginning and ending dates of each period of absence from 
work for which any such payment was made; and
    (ii) Sufficient information to establish the amount and weekly rate 
of each such payment.
    (13) The withholding exemption certificates (Forms W-4 and W-4E) 
filed with the employer by the employee.
    (14) The agreement, if any, between the employer and the employee 
for the withholding of additional amounts of tax pursuant to Sec.  
31.3402(i)-1.
    (15) To the extent material to a determination of tax liability, the 
dates, in each calendar quarter, on which the employee performed 
services not in the course of the employer's trade or business, and the 
amount of cash remuneration paid at any time for such services performed 
within such quarter. (See Sec.  31.3401(a)(4)-1.)
    (16) In the case of tips received by an employee after 1965 in the 
course of his employment, copies of any statements furnished by the 
employee pursuant to section 6053(a) unless the information disclosed by 
such statements is recorded on another document retained by the employer 
pursuant to the provisions of this paragraph.
    (17) Any request of an employee under section 3402(h)(3) and Sec.  
31.3402 (h)(3)-1 to have the amount of tax to be withheld from his wages 
computed on the basis of his cumulative wages, and any notice of 
revocation thereof.

The term ``remuneration,'' as used in this paragraph, includes all 
payments whether in cash or in a medium other than cash, except that the 
term does not include payments in a medium other than cash for services 
not in the course of the employer's trade or business, and does not 
include tips received by an employee in any medium other than cash or in 
cash if such tips amount to less than $20 for any calendar month. See 
Sec. Sec.  31.3401(a)(11)-1 and 31.3401(a)(16)-1, respectively.
    (b) The employer shall keep records of the details of each 
adjustment or settlement of income tax withheld under section 3402 made 
pursuant to the regulations in this part.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6606, 27 FR 
8516, Aug. 25, 1962; T.D. 6908, 31 FR 16776, Dec. 31, 1966; T.D. 7001, 
34 FR 1003, Jan. 23, 1969; T.D. 7048, 35 FR 10292, June 24, 1970; T.D. 
7053, 35 FR 11628, July 21, 1970; T.D. 7888, 48 FR 17588, Apr. 25, 1983]



Sec.  31.6001-6  Notice by district director requiring returns, statements,
or the keeping of records.

    The district director may require any person, by notice served upon 
him, to make such returns, render such statements, or keep such specific 
records as will enable the district director to determine whether or not 
such person is liable for any of the taxes to which the regulations in 
this part have application.



Sec.  31.6011-4  Requirement of statement disclosing participation in certain
transactions by taxpayers.

    (a) In general. If a transaction is identified as a listed 
transaction or a transaction of interest as defined in Sec.  1.6011-4 of 
this chapter by the Commissioner in published guidance (see Sec.  
601.601(d)(2)(ii)(b) of this chapter), and the listed transaction or 
transaction of interest involves an employment tax under chapters 21 
through 25 of subtitle C of the Internal Revenue Code, the transaction 
must be disclosed in the manner stated in such published guidance.
    (b) Effective/applicability date. This section applies to listed 
transactions entered into on or after January 1, 2003. This section 
applies to transactions of interest entered into on or after November 2, 
2006.

[T.D. 9350, 72 FR 43154, Aug. 3, 2007]



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

    (a) Requirement--(1) In general. Except as otherwise provided in 
paragraphs (a)(3) and (a)(5) of this section and in Sec.  31.6011(a)-5 
every employer is required

[[Page 337]]

to make a return for the first calendar quarter in which the employer 
pays wages, other than wages for agricultural labor, subject to the tax 
imposed by the Federal Insurance Contributions Act, and is required to 
make a return for each subsequent calendar quarter (whether or not wages 
are paid therein) until the employer 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 paragraphs (a)(3), (a)(4), and (a)(5) of this 
section, Form 941, ``Employer's QUARTERLY Federal Tax Return,'' is the 
form prescribed for making the return required by this paragraph (a)(1). 
Such return shall not include wages for agricultural labor required to 
be reported on any return prescribed by paragraph (a)(2) of this 
section. 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).
    (2) Employers of agricultural workers. Every employer who pays wages 
for agricultural labor with respect to taxes imposed by the Federal 
Insurance Contributions Act must make a return for the first calendar 
year in which the employer pays such wages and for each subsequent 
calendar year (whether or not wages are paid) until the employer has 
filed a final return in accordance with Sec.  31.6011(a)-6. Form 943, 
``Employer's Annual Federal Tax Return for Agricultural Employees,'' is 
the form prescribed for making the annual return required by this 
section, except that, if the employer's principal place of business is 
in Puerto Rico, or if the employer has employees who are subject to 
income tax withholding for Puerto Rico, the return must be made on Form 
943-PR, ``Planilla para la Declaraci[oacute]n ANUAL de la 
Contribuci[oacute]n Federal del Patrono de Empleados Agr[iacute]colas.'' 
However, Form 943 is the form prescribed for making such return in the 
case of every employer of agricultural workers who is required pursuant 
to Sec.  31.6011(a)-4 to make a return of income tax withheld from 
wages.
    (3) Employers of domestic workers. Schedule H (Form 1040), 
``Household Employment Taxes,'' is the form prescribed for use by every 
employer in making a return as required under paragraph (a)(1) of this 
section in respect of wages, as defined in the Federal Insurance 
Contributions Act, paid by the employer in any calendar year for 
domestic service as defined in section 3510. Schedule H (Form 1040) is 
generally filed as an attachment to an income tax return; however, if 
the employer does not otherwise have an obligation to file an income tax 
return, Schedule H (Form 1040) may be filed as a separate return. If, 
however, the employer is required under paragraph (a)(1) of this section 
to make a return on Form 941, ``Employer's QUARTERLY Federal Tax 
Return,'' or under paragraph (a)(2) of this section to make a return on 
Form 943, ``Employer's Annual Federal Tax Return For Agricultural 
Employees,'' or under paragraph (a)(5) of this section to make a return 
on Form 944, ``Employer's ANNUAL Federal Tax Return,'' the employer may 
choose instead to report wages with respect to domestic workers on such 
Form 941, Form 943, or Form 944. If such wages are included on Form 941, 
Form 943, or Form 944, the employer must also include Federal 
unemployment tax for the employee(s) on Form 940, ``Employer's Annual 
Federal Unemployment (FUTA) Tax Return,'' under the provisions of Sec.  
31.6011(a)-3.
    (4) Employers in Puerto Rico, the U.S. Virgin Islands, Guam, 
American Samoa, or the Commonwealth of the Northern Mariana Islands. 
Except as otherwise provided in paragraph (a)(5), Form 941-PR, 
``Planilla para la Declaracion Federal TRIMESTRAL del Patrono,'' is the 
form prescribed for use in making the return required under paragraph 
(a)(1) of this section in the case of every employer whose principal 
place of business is in Puerto Rico, or if the employer has employees 
who are subject to income tax withholding for Puerto Rico. Except as 
otherwise provided in paragraph (a)(5), Form 941-SS, ``Employer's 
QUARTERLY Federal Tax Return (American Samoa, Guam, the Commonwealth of 
the Northern Mariana Islands, and the U.S. Virgin Islands),'' is the 
form prescribed for use in making the return required under paragraph 
(a)(1) of this section in the case of every employer whose principal

[[Page 338]]

place of business is in the U.S. Virgin Islands, Guam, American Samoa, 
or the Commonwealth of the Northern Mariana Islands, or if the employer 
has employees who are subject to income tax withholding for these U.S. 
possessions. Form 941 (or Form 944, as described under paragraph (a)(5) 
of this section, if the IRS notified the employer that Form 944 must be 
filed in lieu of Form 941) is the form prescribed for making the return 
in the case of every employer who is required pursuant to Sec.  
31.6011(a)-4 to make a return of income tax withheld from wages.
    (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 
(or Form 941-SS or Form 941-PR under paragraph (a)(4) of this section) 
to make a return as required by paragraph (a)(1) of this section. Upon 
proper request by the employer, the IRS will notify employers in writing 
of their qualification for the Employers' Annual Federal Tax Program 
(Form 944). 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. 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--
    (A) Paragraph (a)(2) of this section to make a return on Form 943, 
``Employer's Annual Federal Tax Return for Agricultural Employees''; or
    (B) Paragraph (a)(3) of this section to make a return on Schedule H 
(Form 1040), ``Household Employment Taxes.''
    (ii) Requests to opt in or opt out of the Employers' Annual Federal 
Tax Program (Form 944). The IRS has established procedures in Revenue 
Procedure 2009-51 published in the Internal Revenue Bulletin for 
employers to follow to request to participate in the Employers' Annual 
Federal Tax Program (Form 944) (to opt in) and to request to be removed 
from the Employers' Annual Federal Tax Program (Form 944) after becoming 
a participant in order to file Forms 941 instead (to opt out). The IRS 
will notify employers that their filing requirements have changed to 
Form 944 or Forms 941. Employers must follow the procedures in Revenue 
Procedure 2009-51 or its successor to request to opt in or opt out of 
the Employers' Annual Federal Tax Program (Form 944).
    (b) When to report wages. Wages with respect to which taxes are 
imposed by the Federal Insurance contributions Act shall be reported in 
the return of such taxes required under this section or Sec.  
31.6011(a)-5 for the return period in which they are actually paid 
unless they were constructively paid in a prior return period, in which 
case such wages shall be reported only in the return for such prior 
period. However, if such wages are deemed to be paid in a later return 
period, they shall be reported only in the return for such later period. 
See Sec.  31.3121(a)-2 relating to the time when wages are paid or 
deemed to be paid.
    (c) Adjustments and refunds. For rules applicable to adjustments and 
refunds of employment taxes, see sections 6205, 6402, 6413, and 6414, 
and the applicable regulations.
    (d) Returns by employees in respect of tips. If--
    (1) An employee, during a calendar year, is paid wages in the form 
of tips which are subject to the tax under section 3101, and
    (2) Any portion of the tax under section 3101 in respect of such 
wages cannot be collected by the employer from wages (exclusive of tips) 
of such employee or from funds turned over by the employee to the 
employer,

the employee shall make a return for the calendar year in respect of the 
employee tax not collected by the employer. Except as otherwise provided 
in this subparagraph, the return shall be made on Form 1040. The form to 
be used by residents of the Virgin Islands, Guam, or American Samoa is 
Form 1040SS. In the case of a resident of Puerto Rico who is not 
required to make a return of income under section 6012(a), the form to 
be used is Form 1040SS, except that Form 1040PR shall be used if it is 
furnished by the Internal Revenue Service to such resident for use in 
lieu of Form 1040SS.

[[Page 339]]

    (e) Time and place for filing returns. For provisions relating to 
the time and place for filing returns, see Sec. Sec.  31.6071 (a)-1 and 
31.6091-1, respectively.
    (f) Wages paid in nonconvertible foreign currency. For provisions 
relating to returns filed by certain employers who pay wages in 
nonconvertible foreign currency, see Sec.  301.6316-7 of this chapter 
(Regulations on Procedure and Administration).
    (g) Returns by employees in respect of Additional Medicare Tax. An 
employee who is paid wages, as defined in section 3121(a), subject to 
the tax under section 3101(b)(2) (Additional Medicare Tax), must make a 
return for the taxable year in respect of such tax. The return shall be 
made on Form 1040, ``U.S. Individual Income Tax Return.'' The form to be 
used by residents of the U.S. Virgin Islands, Guam, American Samoa, or 
the Northern Mariana Islands is Form 1040-SS, ``U.S. Self-Employment Tax 
Return (Including Additional Child Tax Credit for Bona Fide Residents of 
Puerto Rico).'' The form to be used by residents of Puerto Rico is 
either Form 1040-SS or Form 1040-PR, ``Planilla para la 
Declaraci[oacute]n de la Contribuci[oacute]n Federal sobre el Trabajo 
por Cuenta Propia (Incluyendo el Cr[eacute]dito Tributario Adicional por 
Hijos para Residentes Bona Fide de Puerto Rico).''
    (h) Effective/applicability dates. Paragraphs (a)(1) and (a)(5)(i) 
of this section apply to taxable years beginning on or after December 
30, 2008. Paragraph (a)(4) of this section applies to taxable years 
beginning on or after January 1, 2012. Paragraph (a)(5)(ii) of this 
section applies to taxable years beginning on or after January 1, 2010. 
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 as in effect prior to December 30, 2008. The rules of 
paragraph (a)(4) of this section that apply to taxable years beginning 
before January 1, 2012, are contained in Sec.  31.6011(a)-1 as in effect 
prior to January 1, 2012. The rules of paragraph (a)(5)(ii) of this 
section that apply to taxable years beginning before January 1, 2010, 
but on or after December 30, 2008, are contained in Sec.  31.6011(a)-1T 
as in effect on or after December 30, 2008. 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 as in effect 
prior to December 30, 2008. Paragraph (g) of this section applies to 
taxable years beginning on or after November 29, 2013.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 7001, 34 FR 
1004, Jan. 23, 1969; T.D. 7001, 34 FR 1826, Feb. 7, 1969; T.D. 7200, 37 
FR 16544, Aug. 16, 1972; T.D. 7351, 40 FR 17144, Apr. 17, 1975; T.D. 
7396, 41 FR 1903, Jan. 13, 1976; T.D. 9239, 71 FR 14, Jan. 3, 2006; T.D. 
9405, 73 FR 37375, July 1, 2008; T.D. 9440, 73 FR 79357, Dec. 29, 2008; 
T.D. 9566, 76 FR 77674, Dec. 14, 2011; T.D. 9645, 78 FR 71473, Nov. 29, 
2013; T.D. 9645, 79 FR 4623, Jan. 29, 2014]



Sec.  31.6011(a)-2  Returns under Railroad Retirement Tax Act.

    (a) Requirement--(1) Employers. Every employer shall make a return 
for the first return period after 1954 within which compensation taxable 
under the Railroad Retirement Tax Act is paid to his employee or 
employees for services rendered after 1954, and for each subsequent 
return period (whether or not taxable compensation is paid therein) 
until he has filed a final return in accordance with Sec.  31.6011(a)-6. 
For calendar years after 1975, the return period shall be the calendar 
year; for calendar years prior to 1976, the return period shall be the 
calendar quarter. Form CT-1 is the form prescribed for making the return 
required under this paragraph. One original and a duplicate of each 
return on Form CT-1 shall be filed with the director of the service 
center.
    (2) Employee representatives. Every employee representative shall 
make a return for the first calendar quarter after 1954 within which he 
is paid taxable compensation for services rendered after 1954 as an 
employee representative, and for each subsequent calendar quarter 
(whether or not he is paid taxable compensation therein) until he has 
filed a final return in accordance with Sec.  31.6011(a)-6. Form CT-2 is 
the form prescribed for making the return required under this 
subparagraph. One original and a duplicate of each return on Form CT-2 
shall be filed with the director of the service center.
    (b) When to report compensation--(1) In general. Except as otherwise 
provided in subparagraph (2) of this paragraph,

[[Page 340]]

compensation taxable under the Railroad Retirement Tax Act shall be 
reported in the return required under this section for the period in 
which it is deemed, under paragraph (d) of Sec.  31.3231(e)-1 to be 
paid, unless under such section the compensation may be deemed to be 
paid in more than one return period, in which case it shall be reported 
only in the return for the first return period in which it is deemed to 
be paid.
    (2) Pre-1976 returns of employers required by State law to pay 
compensation on weekly basis--(i) In general. If any employer is 
required by the laws of any State to pay compensation weekly in any 
calendar year prior to 1976, the return of tax with respect to such 
compensation may, at the election of such employer, cover all payroll 
weeks which, or the major part of which, fall within the period for 
which a return of tax is required by paragraph (a)(1) of this section. 
This provision shall not apply, however, to any payroll week which falls 
in two calendar years. Any employer who elects to file a return as 
provided in this subparagraph shall notify the district director in 
writing of such election and shall include therein a statement setting 
forth the facts which entitle him to make the election. Such notice 
shall be in duplicate and shall be attached to the original and 
duplicate of the return for the first period to which such election 
applies. Any election so made shall be binding upon the employer with 
respect to all returns subsequently made by him until the director of 
the service center authorizes or directs the employer to make a return 
on a different basis. For the purpose of determining the time when 
compensation is deemed to be paid in accordance with paragraph (d) of 
Sec.  31.3231(e)-1 and of determining the due date of a return in 
accordance with paragraph (b) of Sec.  31.6071(a)-1, the calendar month 
following the period covered by the return of an employer making such 
election is the same calendar month which would be determinative for 
such purposes if the employer had not made the election.
    (ii) Prior elections. An election made by an employer, pursuant to 
the provisions of 26 CFR (1939) 410.501(b) (Regulations 100) or of 26 
CFR (1939) 411.601 (b) (Regulations 114), which is in force and effect 
at the time the employer makes his first return under this section shall 
satisfy the requirements of paragraph (b)(2)(i) of this section with 
respect to the making of an election and shall be binding upon the 
employer with respect to all returns made by him under this section 
until the director of the service center authorizes or directs the 
employer to make a return on a different basis.
    (iii) Example. Employer X is required by State law to pay his 
employees within 6 days after the compensation is earned. In compliance 
with the State law, employer X, for services rendered to him for the 
payroll week of June 27 to July 2, 1955, pays his employees on the last-
named date. June 1955 is the last month of a period for which a return 
of tax is required by paragraph (a)(1) of this section. Employer X may 
elect to include in the return required by paragraph (a)(1) of this 
section for the period April 1 to June 30, 1955, the compensation paid 
to his employees for the payroll week of June 27 to July 2, 1955, 
inclusive, although the compensation for July 1 and 2 falls within 
another period for which a return is required by paragraph (a)(1) of 
this section. If, in this example, the payroll week ended on July 5, 
1955, the compensation paid for the payroll week of June 29 to July 5 
would be included in the return period in which July falls although the 
compensation earned for June 29 and 30 fell in a prior return period 
under the general rule.
    (c) Time and place for filing returns. For provisions relating to 
the time and place for filing returns, see Sec. Sec.  31.6071 (a)-1 and 
31.6091-1, respectively.
    (d) Returns by employees and employee representatives in respect of 
Additional Medicare Tax. An employee or employee representative who is 
paid compensation, as defined in section 3231(e), subject to the tax 
under sections 3201(a) (as calculated under section 3101(b)(2)) or 
section 3211(a) (as calculated under section 3101(b)(2)) (Additional 
Medicare Tax), must make a return for the taxable year in respect of 
such tax. The return shall be made on Form 1040, ``U.S. Individual 
Income Tax Return.'' The form to be used by residents of the U.S. Virgin 
Islands,

[[Page 341]]

Guam, American Samoa, or the Northern Mariana Islands is Form 1040-SS, 
``U.S. Self-Employment Tax Return (Including Additional Child Tax Credit 
for Bona Fide Residents of Puerto Rico).'' The form to be used by 
residents of Puerto Rico is either Form 1040-SS or Form 1040-PR, 
``Planilla para la Declaraci[oacute]n de la Contribuci[oacute]n Federal 
sobre el Trabajo por Cuenta Propia (Incluyendo el Cr[eacute]dito 
Tributario Adicional por Hijos para Residentes Bona Fide de Puerto 
Rico).''
    (e) Effective/applicability date. Paragraph (d) of this section 
applies to taxable years beginning on or after November 29, 2013.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as 
amended by T.D. 7396, 41 FR 1903, Jan. 13, 1976; T.D. 9645, 78 FR 71473, 
Nov. 29, 2013]



Sec.  31.6011(a)-3  Returns under Federal Unemployment Tax Act.

    (a) Requirement. Every person shall make a return of tax under the 
Federal Unemployment Tax Act for each calendar year with respect to 
which he is an employer as defined in Sec.  31.3306(a)-1. Except as 
otherwise provided in Sec.  31.6011 (a)-8, Form 940 is the form 
prescribed for use in making the return.
    (b) When to report wages. Wages taxable under the Federal 
Unemployment Tax Act shall be reported in the return required under this 
section for the return period in which they are actually paid unless 
they were constructively paid in a prior return period, in which case 
such wages shall be reported only in the return for such prior period.
    (c) Time and place for filing returns. For provisons relating to the 
time and place for filing returns, see Sec. Sec.  31.6071 (a)-1 and 
31.6091-1, respectively.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 7200, 37 FR 
16544, Aug. 16, 1972]



Sec.  31.6011(a)-3A  Returns of the railroad unemployment repayment tax.

    (a) Requirement--(1) Employers. Every rail employer (as defined in 
section 3323(a) and section 1 of the Railroad Unemployment Insurance 
Act) shall make a return of the tax imposed by section 3321(a) (relating 
to the railroad unemployment repayment tax) for each taxable period (as 
defined in section 3322(a)) with respect to the total rail wages (as 
defined in section 3323(b)) paid by the rail employer during the taxable 
period. Form CT-1 is the form prescribed for use in making the return. 
One original and a duplicate of each return on Form CT-1 shall be filed 
with the director of the service center as designated in the 
instructions to Form CT-1. Rail wages taxable under section 3321(a) 
shall be reported in the return required under this section for the 
return period in which they are actually paid unless they were 
constructively paid in a prior return period, in which case such wages 
shall be reported only in the return for such prior period.
    (2) Employee representatives. Each employee representative (as 
defined in section 3323(d)(2) and section 1 of the Railroad Unemployment 
Insurance Act) shall make a return of the tax imposed by section 3321(b) 
on the rail wages paid to him (as determined under section 3321(b)(2)) 
during each calendar quarter within a taxable period. Form CT-2 is the 
form prescribed for use in making the return. One original and a 
duplicate of each return on Form CT-2 shall be filed with the director 
of the service center as designated in the instructions to Form CT-2. 
Rail wages taxable under section 3321(b) shall be reported in the return 
required under this section for the return period in which they are 
actually paid unless they were constructively paid in a prior return 
period, in which case such wages shall be reported only in the return 
for such prior period.
    (b) Time and place for filing returns. For provisions relating to 
the time and place for filing returns, see Sec.  31.6071(a)-1A and Sec.  
31.6091-1, respectively.

[T.D. 8105, 51 FR 40168, Nov. 5, 1986. Redesignated and amended at T.D. 
8227, 53 FR 34736, Sept. 8, 1988]



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

    (a) Withheld from wages--(1) In general. Except as otherwise 
provided in paragraphs (a)(2), (a)(3), (a)(4), and (b) of this section, 
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

[[Page 342]]

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 paragraphs (a)(2), (a)(3), 
(a)(4), and (b) of this section, 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).
    (2) Wages paid for domestic service. Schedule H (Form 1040), 
``Household Employment Taxes,'' is the form prescribed for making the 
return required under paragraph (a)(1) of this section with respect to 
income tax withheld, pursuant to an agreement under section 3402(p), 
from wages paid for domestic service as defined in section 3510. 
Schedule H (Form 1040) is generally filed as an attachment to an income 
tax return; however, if the employer does not otherwise have an 
obligation to file an income tax return, Schedule H (Form 1040) may be 
filed as a separate return. The preceding sentence shall not apply in 
the case of an employer who has chosen under Sec.  31.6011(a)-1(a)(3) to 
use Form 941, ``Employer's QUARTERLY Federal Tax Return,'' Form 943, 
``Employer's Annual Tax Return for Agricultural Employees,'' or Form 
944, ``Employer's ANNUAL Federal Tax Return,'' as the return with 
respect to such payments for purposes of the Federal Insurance 
Contributions Act. For the requirements relating for Schedule H (Form 
1040) with respect to qualified State individual income taxes, see Sec.  
301.6361-1(d)(3)(iv).
    (3) Wages paid for agricultural labor. Every person shall make a 
return of income tax withheld, pursuant to an agreement under section 
3402(p), from wages paid for agricultural labor for the first calendar 
year in which he is required (by reason of such agreement) to deduct and 
withhold such tax and for each subsequent calendar year (whether or not 
wages for agricultural labor are paid therein) until he has filed a 
final return in accordance with Sec.  31.6011 (a)-6. Form 943 is the 
form prescribed for making the return required under this subparagraph. 
For the requirements relating to Form 943 with respect to qualified 
State individual income taxes, see paragraph (d)(3)(iv) of Sec.  
301.6361-1.
    (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 IRS will notify employers 
in writing of their qualification for the Employers' Annual Federal Tax 
Program (Form 944). 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. 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--
    (A) Paragraph (a)(3) of this section to make a return on Form 943, 
``Employer's Annual Federal Tax Return for Agricultural Employees''; or
    (B) Paragraph (a)(2) of this section to make a return on Schedule H 
(Form 1040), ``Household Employment Taxes.''
    (ii) Request to opt in or opt out of the Employers' Annual Federal 
Tax Program (Form 944). The IRS established procedures in Revenue 
Procedure 2009-51 published in the Internal Revenue Bulletin for 
employers to follow to request to participate in the Employers' Annual 
Federal Tax Program (Form 944) (to opt in) and to request to be removed 
from the Employers' Annual Federal Tax Program (Form 944) after becoming 
a participant in order to file Forms 941 instead (to opt out). The IRS 
will notify employers that their filing requirements have changed to 
Form 944 or Forms 941. Employers must follow the procedures in Revenue 
Procedure 2009-51 or its successor to opt in or opt out of the 
Employers' Annual Federal Tax Program (Form 944).
    (b) Withheld from nonpayroll payments. Every person required to 
withhold tax from nonpayroll payments for calendar

[[Page 343]]

year 1994 must make a return for calendar year 1994 and for any 
subsequent calendar year in which the person is required to withhold 
such tax until the person makes a final return in accordance with Sec.  
31.6011(a)-6. Every person not required to withhold tax from nonpayroll 
payments for calendar year 1994 must make a return for the first 
calendar year after 1994 in which the person is required to withhold 
such tax and for any subsequent calendar year in which the person is 
required to withhold such tax until the person makes a final return in 
accordance with Sec.  31.6011(a)-6. Form 945, Annual Return of Withheld 
Federal Income Tax, is the form prescribed for making the return 
required under this paragraph (b). Nonpayroll payments are--
    (1) Certain gambling winnings subject to withholding under section 
3402(q);
    (2) Retirement pay for services in the Armed Forces of the United 
States subject to withholding under section 3402;
    (3) Certain annuities as described in section 3402(o)(1)(B);
    (4) Pensions, annuities, IRAs, and certain other deferred income 
subject to withholding under section 3405; and
    (5) Reportable payments subject to backup withholding under section 
3406.
    (c) Time and place for filing returns. For provisions relating to 
the time and place for filing returns, see Sec. Sec.  31.6071 (a)-1 and 
31.6091-1, respectively.
    (d) Effective/applicability dates. Paragraphs (a)(1) and (a)(4)(i) 
of this section apply to taxable years beginning on or after December 
30, 2008. Paragraph (a)(4)(ii) of this section applies to taxable years 
beginning on or after January 1, 2010. 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 as in effect prior to December 
30, 2008. The rules of paragraph (a)(4)(ii) of this section that apply 
to taxable years beginning before January 1, 2010, but on or after 
December 30, 2008, are contained in Sec.  31.6011(a)-4T as in effect on 
or after December 30, 2008. 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 as in effect prior to December 30, 
2008.

(86 Stat. 944, 26 U.S.C. 6364; and 68A Stat. 917, 26 U.S.C. 7805; 68A 
Stat. 747, 26 U.S.C. 6051)

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 7096, 36 FR 
5217, Mar. 18, 1971; T.D. 7200, 37 FR 16544, Aug. 16, 1972; T.D. 7577, 
43 FR 59359, Dec. 20, 1978; T.D. 7580, 43 FR 60159, Dec. 26, 1978; T.D. 
8504, 58 FR 68035, Dec. 23, 1993; T.D. 8624, 60 FR 53510, Oct. 16, 1995; 
T.D. 8672, 61 FR 27008, May 30, 1996; T.D. 9239, 71 FR 14, Jan. 3, 2006; 
T.D. 9405, 73 FR 37375, July 1, 2008; T.D. 9440, 79358, Dec. 29, 2008; 
T.D. 9524, 76 FR 26602, May 9, 2011; T.D. 9566, 76 FR 77675, Dec. 14, 
2011; T.D. 9586, 77 FR 24611, Apr. 25, 2012]



Sec.  31.6011(a)-5  Monthly returns.

    (a) In general--(1) Requirement. The provisions of this section are 
applicable in respect of the taxes reportable on returns required 
pursuant to Sec.  31.6011(a)-1 or Sec.  31.6011(a)-4. An employer (or 
other person) who is required by Sec.  31.6011(a)-1 or Sec.  31.6011(a)-
4 to make quarterly or annual returns on any such form shall, in lieu of 
making such quarterly or annual returns, make returns of such taxes in 
accordance with the provisions of this section if the employer is so 
notified in writing by the IRS. Every employer (or other person) 
notified by the IRS shall make a return for the calendar month in which 
the notice is received, for each of the prior calendar months in the 
return period, and for each calendar month afterwards (whether or not 
wages are paid in any such month) until the employer has filed a final 
return or is required to make quarterly or annual returns pursuant to 
notification as provided in paragraph (a)(2) of this section. Each 
return required under this section shall be made on the form prescribed 
for making the return which would otherwise be required of the employer 
(or other person) under the provisions of Sec.  31.6011(a)-1 or Sec.  
31.6011(a)-4, except that, if some other form is furnished by the IRS 
for use in lieu of such prescribed form, the return shall be made on 
such other prescribed form. The IRS may notify any employer (or other 
person)--
    (i) Who by reason of notification as provided in Sec.  301.7512-1, 
is required to comply with the provisions of such Sec.  301.7512-1; or
    (ii) Who failed to--

[[Page 344]]

    (A) Make any return required pursuant to Sec.  31.6011(a)-1 or Sec.  
31.6011(a)-4;
    (B) Pay tax reportable on any such form; or
    (C) Deposit any such tax as required under the provisions of Sec.  
31.6302-1.
    (2) Termination of requirement. The IRS, in its discretion, may 
notify the employer in writing that the employer shall discontinue the 
filing of monthly returns under this section. If the employer is so 
notified, the IRS will provide the employer with instructions for filing 
the final monthly return. Afterwards, the employer shall make quarterly 
or annual returns in accordance with the provisions of Sec.  31.6011(a)-
1 or Sec.  31.6011(a)-4.
    (b) Information returns on Form W-3 and Social Security 
Administration copies of Form W-2. See Sec.  31.6051-2 for requirements 
with respect to information returns on Form W-3 and Social Security 
Administration copies of Form W-2.
    (c) Time and place for filing returns. For provisions relating to 
the time and place for filing returns, see Sec. Sec.  31.6071 (a)-1 and 
31.6091-1, respectively.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as 
amended by T.D. 7351, 40 FR 17145, Apr. 17, 1975; T.D. 7580, 43 FR 
60154, Dec. 26, 1978; T.D. 8637, 60 FR 66133, Dec. 21, 1995; T.D. 9061, 
68 FR 34799, June 11, 2003; T.D. 9405, 73 FR 37375, July 1, 2008]



Sec.  31.6011(a)-6  Final returns.

    (a) In general--(1) Federal Insurance Contributions Act; income tax 
withheld from wages and nonpayroll payments. An employer (or other 
person) who is required to make a return on a particular form pursuant 
to Sec.  31.6011(a)-1, Sec.  31.6011(a)-4, or Sec.  31.6011(a)-5, and 
who in any return period ceases to pay wages or nonpayroll payments in 
respect of which he is required to make a return on that form, must make 
the return for the period as a final return. Each return made as a final 
return shall be marked ``Final return'' by the person filing the return. 
Every such person filing a final return (other than a final return on 
Form 942 or Form 943) must furnish information showing the date of the 
last payment of wages (as defined in section 3121(a) or section 
3401(a)), and, if appropriate, the date of the last payment of 
nonpayroll payments defined in Sec.  31.6011(a)-4(b). An employer (other 
than an employer making returns on Form 942) who has only temporarily 
ceased to pay wages, because of seasonal activities or for other 
reasons, shall not make a final return but shall continue to file 
returns. If (i) for any return period an employer makes a final return 
on a particular form, and (ii) after the close of such period the 
employer pays wages, as defined in section 3121(a) or section 3401(a), 
in respect of which the same or a different return form is prescribed, 
such employer shall make returns on the appropriate return form. For 
example, if an employer who has filed a final return on Form 941 pays 
wages only for domestic service in his private home not on a farm 
operated for profit, the employer is required to make returns on Form 
942 in respect of such wages.
    (2) Railroad Retirement Tax Act--(i) Form CT-1. An employer required 
to make returns on Form CT-1 who in any return period ceases to pay 
taxable compensation shall make the return on Form CT-1 for such period 
as a final return. Such return shall be marked ``Final return'' by the 
person filing the return, and such person shall furnish information 
showing the date of the last payment of taxable compensation. An 
employer who has only temporarily ceased to pay taxable compensation 
shall continue to file returns on Form CT-1.
    (ii) Form CT-2. An employee representative required to make returns 
on Form CT-2 who in any calendar quarter ceases to be paid taxable 
compensation for services as an employee representative shall make the 
return on Form CT-2 for such quarter as a final return. Such return 
shall be marked ``Final return'' by the person filing the return, and 
such person shall furnish information showing the date of the last 
payment of taxable compensation. An employee representative who only 
temporarily ceases to be paid taxable compensation for services as an 
employee representative shall continue to file returns on Form CT-2.
    (3) Federal Unemployment Tax Act. An employer required to make a 
return on Form 940 for a calendar year in which he ceases to be an 
employer, as defined

[[Page 345]]

in Sec.  31.3306(a)-1, because of the discontinuance, sale, or other 
transfer of his business, shall make such return as a final return. Such 
return shall be marked ``Final return'' by the person filing the return.
    (b) Statement to accompany final return. There shall be executed as 
a part of each final return, except in the case of a final return on 
Form 942, a statement showing the address at which the records required 
by the regulations in this part will be kept, the name of the person 
keeping such records, and, if the business of an employer has been sold 
or otherwise transferred to another person, the name and address of such 
person and the date on which such sale or other transfer took place. If 
no such sale or transfer occurred or the employer does not know the name 
of the person to whom the business was sold or transferred, that fact 
should be included in the statement. Such statement shall include any 
information required by this section as to the date of the last payment 
of wages or compensation. If the statement is executed as a part of a 
final return on Form CT-1 or Form CT-2, such statement shall be 
furnished in duplicate.
    (c) Time and place for filing returns. For provisions relating to 
the time and place for filing returns, see Sec. Sec.  31.6071 (a)-1 and 
31.6091-1, respectively.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as 
amended by T.D. 7396, 41 FR 1904, Jan. 14, 1976; T.D. 8637, 60 FR 66133, 
Dec. 21, 1995]



Sec.  31.6011(a)-7  Execution of returns.

    (a) In general. Each return required under the regulations in this 
part, together with any prescribed copies or supporting data, shall be 
filled in and disposed of in accordance with the forms, instructions, 
and regulations applicable thereto. The return shall be carefully 
prepared so as fully and accurately to set forth the data required to be 
furnished therein. Returns which have not been so prepared will not be 
accepted as meeting the requirements of the regulations in this part. 
The return may be made by an agent in the name of the person required to 
make the return if an acceptable power of attorney is filed with the 
internal revenue office with which such person is required to file his 
returns and if such return includes all taxes required to be reported by 
such person on such return for the period covered by the return. Only 
one return on any one prescribed form for a return period shall be filed 
by or for a taxpayer. Any supplemental return made on such form in 
accordance with Sec.  31.6205-1 shall constitute a part of the return 
which it supplements. Except as may be provided under procedures 
authorized by the Commissioner with respect ot taxes imposed by the 
Railroad Retirement Tax Act, consolidated returns of two or more 
employers are not permitted, as for example, returns of a parent and a 
subsidiary corporation. For provisions relating to the filing of returns 
of the taxes imposed by the Federal Insurance Contributions Act and of 
income tax withheld under section 3402 in the case of governmental 
employers see Sec. Sec.  31.3122 and 31.3404-1.
    (b) Use of prescribed forms--(1) In general. Copies of the 
prescribed return forms will so far as possible be regularly furnished 
taxpayers by the Internal Revenue Service. A taxpayer will not be 
excused from making a return, however, by the fact that no return form 
has been furnished to him. Taxpayers not supplied with the proper forms 
should make application therefor to an internal revenue office in ample 
time to have their returns prepared, verified, and filed on or before 
the due date with the internal revenue office with which they are 
required to file their returns. See Sec. Sec.  31.6071 (a)-1 and 
31.6091-1, relating, respectively, to the time and place for filing 
returns. In the absence of a prescribed return form, a statement made by 
a taxpayer disclosing the aggregate amount of wages or compensation 
reportable on such form for the period in respect of which a return is 
required and the amount of taxes due may be accepted as a tentative 
return. If filed within the prescribed time, the statement so made will 
relieve the taxpayer from liability for the addition to tax imposed for 
the delinquent filing of the return, provided that without unnecessary 
delay such tentative return is supplemented by a return made on the 
proper form. For additions to the tax in case of failure to file a 
return within the

[[Page 346]]

prescribed time, see the provisions of Sec.  301.6651-1 of this chapter 
(Regulations on Procedure and Administration).

In any case where the use of Form W-2 is required from the purpose of 
making a return or reporting information, such requirement may be 
satisfied by submitting the information required by such form on 
magnetic tape or by other media, provided that the prior consent of the 
Commissioner of Social Security (or other authorized officer or employee 
thereof has been obtained.
    (c) Signing and verification. For provisions relating to the signing 
of returns, see Sec.  31.6061-1. For provisions relating to the 
verifying of returns, see Sec.  31.6065(a)-1.
    (d) Reporting of identifying numbers. For provisions relating to the 
reporting of identifying number on returns required under the 
regulations in this part, see Sec.  31.6109-1.

(68A Stat. 747, 26 U.S.C. 6051; and 68A Stat. 917, 26 U.S.C. 7805)

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6606, 27 FR 
8516, Aug. 25, 1962; T.D. 6883, 31 FR 6590, May 3, 1966; T.D. 7276, 38 
FR 11345, May 7, 1973; T.D. 7396, 41 FR 1904, Jan. 13, 1976; T.D. 7580, 
43 FR 60159, Dec. 26, 1978]



Sec.  31.6011(a)-8  Composite return in lieu of specified form.

    The Commissioner may authorize the use, at the option of the 
employer, of a composite return in lieu of any form specified in this 
part for use by an employer, subject to such conditions, limitations, 
and special rules governing the preparation, execution, filing, and 
correction thereof as the Commissioner may deem appropriate. Such 
composite return shall consist of a form prescribed ty the Commissioner 
and an attachment or attachments of magnetic tape or other approved 
media. Notwithstanding any provisions in this part to the contrary, a 
single form and attachment may comprise the returns of more than one 
employer. To the extent that the use of a compsoite return has been 
authorized by the Commissioner, references in this part to a specific 
form for use by the employer shall be deemed to refer also to a 
composite return under this section.

[T.D. 7200, 37 FR 16544, Aug. 16, 1972]



Sec.  31.6011(a)-9  Instructions to forms control as to which form is
to be used.

    Notwithstanding provisions in this part which specify the use of a 
particular form for a return or other document required by this part, 
the use of a different form may be required by the latter form's 
instructions. In such case, the latter form shall be completed in 
accordance with its instructions.

[T.D. 7351, 40 FR 17145, Apr. 17, 1975]



Sec.  31.6011 (a)-10  Instructions to forms may waive filing requirement
in case of no liability tax returns.

    Notwithstanding provisions in this part which require that a tax 
return be filed, the instructions to the form on which a return of tax 
is otherwise required by this part to be made may waive such requirement 
with respect to a particular class or classes of no liability tax 
returns. Returns in a class for which such requirement has been so 
waived need not be made.
    This Treasury decision is not adverse to any taxpayer. For this 
reason, it is found unnecessary to issue this Treasury decision with 
notice and public procedure under subsection (b) of section 553 of title 
5 of the United States Code or subject to the effective date limitation 
of subsection (d) of that section.

[T.D. 8229, 53 FR 35811, Sept. 15, 1988]



Sec.  31.6011(b)-1  Employers' identification numbers.

    (a) Requirement of application--(1) In general--(i) Before October 
1, 1962. Except as provided in paragraph (b) of this section, every 
employer who on any day after December 31, 1954, and before October 1, 
1962, has in his employ one or more individuals in employment for wages 
subject to the taxes imposed by the Federal Insurance Contributions Act, 
but who prior to such day neither has been assigned an identification 
number nor has applied therefor, shall make an application on Form SS-4 
for an identification number.
    (ii) On or after October 1, 1962. Except as provided in paragraph 
(b) of this section, every employer who on any day

[[Page 347]]

after September 30, 1962, has in his employ one or more individuals in 
employment for wages which are subject to the taxes imposed by the 
Federal Insurance Contributions act or which are subject to the 
withholding of income tax from wages under section 3402, but who prior 
to such day neither has been assigned an identification number nor has 
applied therefor, shall make an application on Form SS-4 for an 
identification number.
    (iii) Method of application. The application, together with any 
supplementary statement, shall be prepared in accordance with the form, 
instructions, and regulations applicable thereto, and shall set forth 
fully and clearly the data therein called for. Form SS-4 may be obtained 
from any district director or director of a service center or any 
district office of the Social Security Administration. The application 
shall be filed with the internal revenue officer designated in the 
instructions applicable to Form SS-4, or with the nearest district 
office of the Social Security Administration. The application shall be 
signed by (a) the individual, if the employer is an individual; (b) the 
president, vice president, or other principal officer, if the employer 
is a corporation; (c) a responsible and duly authorized member or 
officer having knowledge of its affairs, if the employer is a 
partnership or other unincorporated organization; or (d) the fiduciary, 
if the employer is a trust or estate. An identification number will be 
assigned to the employer in due course upon the basis of the information 
reported on the application required under this section.
    (2) Time for filing Form SS-4. The application for an identification 
number shall be filed on or before the seventh day after the first 
payment of wages to which reference is made in paragraph (a)(1) of this 
section. For provisions relating to the time when wages are paid, see 
Sec.  31.3121(a)-2 and paragraph (b) of Sec.  31.3402(a)-1.
    (b) Employers who are assigned identification numbers without 
application. An identification number may be assigned, without 
application by the employer, in the case of an employer who has in his 
employ only employees who are engaged exclusively in the performance of 
domestic service in his private home not on a farm operated for profit 
(see Sec.  31.3121(a)(7)-1. If an identification number is so assigned, 
the employer is not required to make an application on Form SS-4 for the 
number.
    (c) Crew leaders. Any person who, as a crew leader within the 
meaning of section 3121(o), furnishes individuals to perform 
agricultural labor for another person shall, on or before the first date 
on which he furnishes such individuals to perform such labor for such 
other person, advise such other person of his name; permanent mailing 
address, or if none, present address; and identification number, if any.
    (d) Use of identification number. The identification number assigned 
to an employer (other than a household employer referred to in paragraph 
(b) of this section) shall be shown in the employer's records, and shall 
be shown in his claims to the extent required by the applicable forms, 
regulations, and instructions. For provisions relating to the inclusion 
of identification numbers in returns, statements on Form W-2, and 
depositary receipts, see Sec.  31.6109-1.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6606, 27 FR 
8517, Aug. 25, 1962; T.D. 7012, 34 FR 7693, May 15, 1969]



Sec.  31.6011(b)-2  Employees' account numbers.

    (a) Requirement of application--(1) In general--(i) Before November 
1, 1962. Every employee who on any day after December 31, 1954, and 
before November 1, 1962, is in employment for wages subject to the taxes 
imposed by the Federal Insurance Contributions Act, but who prior to 
such day has neither secured an account number nor made application 
therefor, shall make an application on Form SS-5 for an account number.
    (ii) On or after November 1, 1962. Every employee who on any day 
after October 31, 1962, is in employment for wages which are subject to 
the taxes imposed by the Federal Insurance Contributions Act or which 
are subject to the withholding of income tax from wages under section 
3402 but who prior to such day has neither secured an account number nor 
made application therefore, shall make an application on Form SS-5 for 
an account number.

[[Page 348]]

    (iii) Method of application. The application shall be prepared in 
accordance with the form, instructions, and regulations applicable 
thereto, and shall set forth fully and clearly the data therein called 
for. The employee shall file the application with any district office of 
the Social Security Administration or, if the employee is not working 
within the United States, with the district office of the Social 
Security Administration at Baltimore, Maryland. Form SS-5 may be 
obtained from any district office of the Social Security Administration 
or from any district director. An account number will be assigned to the 
employee by the Social Security Administration in due course upon the 
basis of information reported on the application required under this 
section. A card showing the name and account number of the employee to 
whom an account number has been assigned will be furnished to the 
employee by the Social Security administration.
    (2) Time for filing Form SS-5. The application shall be filed on or 
before the seventh day after the occurrence of the first day of 
employment to which reference is made in paragraph (a)(1) of this 
section, unless the employee leaves the employ of his employer before 
such seventh day, in which case the application shall be filed on or 
before the date on which the employee leaves the employ of his employer.
    (3) Changes and corrections. Any employee may have his account 
number changed at any time by applying to a district office of the 
Social Security Administration and showing good reasons for a change. 
With that exception, only one account number will be assigned to an 
employee. Any employee whose name is changed by marriage or otherwise, 
or who has stated incorrect information on Form SS-5, should report such 
change or correction to a district office of the Social Security 
Administration Copies of the form for making such reports may be 
obtained from any district office of the administration.
    (b) Duties of employee with respect to his account number--(1) 
Information to be furnished to employer. An employee shall, on the day 
on which he enters the employ of any employer for wages, comply with the 
provisions of paragraph (b)(1)(i), (ii), (iii), or (iv) of this section, 
except that, if the employee's services for the employer consist solely 
of agricultural labor, domestic service in a private home of the 
employer not on a farm operated for profit, or service not in the course 
of the employer's trade or business, the employee shall comply with such 
provisions on the first day on which wages are paid to him by such 
employer, within the meaning of Sec.  31.3121(a)-2.
    (i) Employee who has account number card. If the employee has been 
issued an account number card by the Social Security Administration and 
has the card available, the employee shall show it to the employer.
    (ii) Employee who has number but card not available. If the employee 
does not have available the account number card issued to him by the 
Social Security Administration but knows what his account number is, and 
what his name is, exactly as shown on such card, the employee shall 
advise the employer of such number and name. Care must be exercised that 
the employer is correctly advised of such number and name.
    (iii) Employee who has receipt acknowledging application. If the 
employee does not have an account number card but has available a 
receipt issued to him by an office of the Social Security Administration 
acknowledging that an application for an account number has been 
received, the employee shall show such receipt to the employer.
    (iv) Employee who is unable to furnish number or receipt. If an 
employee is unable to comply with the requirement of paragraph 
(b)(1)(i), (ii), or (iii) of this section, the employee shall furnish to 
the employer a statement in writing, signed by the employee, setting 
forth the date of the statement, the employee's full name, present 
address, date and place of birth, father's full name, mother's full name 
before marriage, and the employee's sex, including a statement as to 
whether the employee has previously filed an application on Form SS-5 
and, if so, the date and place of such filing. The information required 
by this subdivision shall be furnished on Form SS-5, if a copy of Form 
SS-5 is available. The furnishing

[[Page 349]]

of such a Form SS-5 or other statement by the employee to the employer 
does not relieve the employee of his obligation to make an application 
on Form SS-5 and file it with a district office of the Social Security 
Administration as required by paragraph (a) of this section. The 
foregoing provisions of this subdivision are not applicable to an 
employee engaged exclusively in the performance of domestic service in a 
private home of his employer not on a farm operated for profit, or in 
the performance of agricultural labor, if the services are performed for 
an employer other than an employer required to file returns of the taxes 
imposed by the Federal Insurance Contributions Act with the office of 
the United States Internal Revenue Service in Puerto Rico. However, such 
employee shall advise the employer of his full name and present address.

For provisions relating to the duties of an employer when furnished the 
information required by paragraph (b)(1) (i), (ii), (iii), or (iv) of 
this section, see paragraph (c) of this section.
    (2) Additional information to be furnished by employee to employer. 
Every employee who, on the day on which he is required to comply with 
paragraph (b)(1)(i), (ii), (iii), or (iv) of this section, has an 
account number card but for any reason does not show such card to the 
employer on such day shall promptly thereafter show the card to the 
employer. An employee who does not have an account number card on such 
day shall, upon receipt of an account number card from the Social 
Security Administration, promptly show such card to the employer, if he 
is still in the employ of that employer. If the employee has left the 
employ of the employer when the employee receives an account number card 
from the Social Security Administration, he shall promptly advise the 
employer of his account number and name exactly as shown on such card. 
The account number originally assigned to an employee (or the number as 
changed in accordance with paragraph (a)(3) of this section) shall be 
used by the employee as required by this paragraph even though he enters 
the employ of other employers.
    (3) Furnishing of account number by employee to employer. See Sec.  
31.6109-1 for additional provisions relating to the furnishing of an 
account number by the employee to his employer.
    (c) Duties of employer with respect to employees' account numbers--
(1) Employee who shows account number. Upon being shown the account 
number card issued to an employee by the Social Security administration, 
the employer shall enter the account number and name, exactly as shown 
on the card, in the employer's records, returns, statements for 
employees, and claims to the extent required by the applicable forms, 
regulations, and instructions.
    (2) Employee who does not show account number card. With respect to 
an employee who, on the day on which he is required to comply with 
paragraph (b)(1)(i), (ii), (iii), or (iv) of this section, does not show 
the employer an account number card issued to the employee by the Social 
Security Administration, the employer shall request such employee to 
show him such card. If the card is not shown, the employer shall comply 
with the applicable provisions of paragraph (c)(1)(i), (ii), (iii), 
(iv), or (v) of this section:
    (i) Employee who has not applied for account number. If the employee 
has not been assigned an account number and has not made application 
therefor with a district office of the Social Security Administration, 
the employer shall inform the employee of his duties under this section.
    (ii) Employee who has account number. If the employee advises the 
employer of his number and name as shown on his account number card, as 
provided in paragraph (b)(1)(ii) of this section, the employer shall 
enter such number and name in his records.
    (iii) Employee who has receipt for application. If the employee 
shows the employer, as provided in paragraph (b)(1)(iii) of this 
section, a receipt issued to him by an office of the Social Security 
Administration acknowledging that an application for an account number 
has been received from the employee, the employer shall enter in his 
records with respect to such employee the name and address of the 
employee exactly as shown on the receipt, the expiration date of the 
receipt, and

[[Page 350]]

the address of the issuing office. The receipt shall be retained by the 
employee.
    (iv) Employee who furnishes Form SS-5 or statement. If the employee 
furnishes information to the employer as provided in paragraph 
(b)(1)(iv) of this section, the employer shall retain such information 
for use as provided in paragraph (c)(3)(ii) of this section.
    (v) Household or agricultural employees. If the employee advises the 
employer of his full name and present address in accordance with those 
provisions of paragraph (b)(1)(iv) of this section which are applicable 
in the case of employees engaged exclusively in the performance of 
domestic service in a private home of the employer not on a farm 
operated for profit, or agricultural labor, the employer shall enter 
such name and address in his records.
    (3) Account number unknown when return is filed. In any case in 
which the employee's account number is for any reason unknown to the 
employer at the time the employer's return is filed for any return 
period with respect to which the employer is required to report the 
wages paid to such employee--
    (i) If employee has shown receipt for application. If the employee 
has shown to the employer, as provided in paragraph (b)(1)(iii) of this 
section, a receipt issued to him by an office of the Social Security 
Administration acknowledging that an application for an account number 
has been received from the employee, the employer shall enter on the 
return, with the entry with respect to the employee, the name and 
address of the employee exactly as shown on the receipt, the expiration 
date of the receipt, and the address of the issuing office.
    (ii) If employee furnished Form SS-5 or statement. If the employee 
has furnished information to the employer as provided in paragraph 
(b)(1)(iv) of this section, the employer shall prepare a copy of the 
Form SS-5 or statement furnished by the employee and attach the copy to 
the return.
    (iii) If employee did not furnish receipt, Form SS-5, or statement. 
If neither paragraph (c)(3)(i) nor (ii) of this section is applicable, 
the employer shall, except as provided in paragraph (c)(4) of this 
section, attach to the return a Form SS-5 or statement, signed by the 
employer, setting forth as fully and clearly as practicable the 
employee's full name, his present or last known address, date and place 
of birth, father's full name, mother's full name before marriage, the 
employee's sex, and a statement as to whether an application for an 
account number has previously been filed by the employee and, if so, the 
date and place of such filing. The employer shall also insert in such 
Form SS-5 or statement an explanation of why he has not secured from the 
employee the information referred to in paragraph (b)(1)(iv) of this 
section and shall insert the word ``Employer'' as part of his signature.
    (4) Household or agricultural employees. The provisions of paragraph 
(c)(3)(iii) of this section are not applicable with respect to an 
employee engaged exclusively in the performance of domestic service in a 
private home of his employer not on a farm operated for profit, or in 
the performance of agricultural labor, if the services are performed for 
an employer other than an employer required to file returns of the taxes 
imposed by the Federal Insurance Contributions Act with the office of 
the United States Internal Revenue Service in Puerto Rico. If any such 
employee has not furnished to the employer the information required by 
paragraph (b) (1) (i), (ii), or (iii) of this section prior to the time 
the employer's return is filed for any return period with respect to 
which the employer is required to report wages paid to such employee, 
the employer shall enter the word ``Unknown'' in the account number 
column of the return and (i) file with the return a statement showing 
the employee's full name and present or last known address, or (ii) 
enter such address on the return form immediately below the name of the 
employee.
    (5) Where to obtain Form SS-5. Employers may obtain copies of Form 
SS-5 from any district office of the Social Security Administration or 
from any district director.
    (6) Prospective employees. While not mandatory, it is suggested that 
the employer advise any prospective employee who does not have an 
account

[[Page 351]]

number of the requirements of paragraphs (a) and (b) of this section.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6606, 27 FR 
8517, Aug. 25, 1962]



Sec.  31.6051-1  Statements for employees.

    (a) Requirement if wages are subject to withholding of income tax--
(1) General rule. (i) Every employer, as defined in section 3401(d), 
required to deduct and withhold from an employee a tax under section 
3402, or who would have been required to deduct and withhold a tax under 
section 3402 (determined without regard to section 3402(n)) if the 
employee had claimed no more than one withholding exemption, shall 
furnish to each such employee, in respect of the remuneration paid by 
such employer to such employee during the calendar year, the tax return 
copy and the employee's copy of a statement on Form W-2. For example, if 
the wage bracket method of withholding provided in section 3402(c)(1) is 
used, a statement on Form W-2 must be furnished to each employee whose 
wages during any payroll period are equal to or in excess of the 
smallest wage from which tax must be withheld in the case of an employee 
claiming one exemption. If the percentage method is used, a statement on 
Form W-2 must be furnished to each employee whose wages during any 
payroll period, reduced by the amount of one withholding exemption, are 
equal to or in excess of the smallest amount of wages from which tax 
must be withheld. See section 3402 (a) and (b) and the regulations 
thereunder. See paragraph (d) of this section for provisions relating to 
the time for furnishing the statement required by this subparagraph. See 
paragraph (f) of this section for an exception for employers filing 
composite returns from the requirement that statements for employees be 
on Form W-2. For the requirements relating to Form W-2 with respect to 
qualified State individual income taxes, see paragraphs (d)(3)(ii) of 
Sec.  301.6361-1 of this chapter (regulations on Procedure and 
Administration). Each statement on Form W-2 shall show the following:
    (A) The name, address, and identification number of the employer.
    (B) The name, address, and social security number of the employee, 
which may be truncated to appear in the form of an IRS truncated 
taxpayer identification number (TTIN) on copies of Forms W-2 that are 
furnished to the employee (for provisions relating to the use of TTINs, 
see Sec.  301.6109-4 of this chapter (Procedure and Administration 
Regulations)), if wages as defined in section 3121(a) have been paid or 
if the Form W-2 is required to be furnished to the employee,
    (C) The total amount of wages as defined in section 3401(a),
    (D) The total amount deducted and withheld as tax under section 
3402,
    (E) The total amount of wages as defined in section 3121(a),
    (F) The total amount of employee tax under section 3101 deducted and 
withheld (increased by any adjustment in the calendar year for 
overcollection, or decreased by any adjustment in such year for 
undercollection, of such tax during any prior year) and the proportion 
thereof (expressed either as a dollar amount, as a percentage of the 
total amount of wages as defined in section 3121(a), or as a percentage 
of the total amount of employee tax under section 3101) withheld as tax 
under section 3101(b) for financing the cost of hospital insurance 
benefits,
    (G) Such information relating to coverage the employee has earned 
under the Federal Insurance Contributions act, as may be required by 
Form W-2 or its instructions, and
    (H) The total amount paid to the employee under section 3507 
(relating to advance payment of earned income credit).
    (ii) Payments made in 1955 under a wage continuation plan shall be 
reported on Form W-2 to the extent, and in the manner, provided in 
paragraph (b)(8)(i) of Sec.  31.3401(a)-1.
    (iii) In the case of statements furnished by the employer for whom 
services are performed, with respect to wages paid after December 31, 
1955, ``the total amount of wages as defined in section 3401(a)'', as 
used in section 6051(a)(3), shall include all payments made directly by 
such employer under

[[Page 352]]

a wage continuation plan which constitute wages in accordance with 
paragraph (b)(8)(ii)(a) of Sec.  31.3401(a)-1, without regard to whether 
tax has been withheld on such amounts.
    (iv) Form W-2 is not required in respect of any wage continuation 
payment made to an employee by or on behalf of a person who is not the 
employer for whom the employee performs services but who is regarded as 
an employer under section 340(d)(1). See paragraph (b)(8) of Sec.  
31.3401(a)-1.
    (v) In the case of remuneration paid for service described in 
section 3121(m), relating to service in the uniformed services, 
performed after 1956, ``wages as defined in section 3121(a)'', as used 
in section 6051(a) (2) and (5), shall be determined in accordance with 
section 3121(i)(2) and section 3122.
    (vi) In the case of remuneration in the form of tips received by an 
employee in the course of his employment, the amounts required to be 
shown by paragraphs (3) and (5) of section 6051(a) (see paragraph 
(a)(1)(i) (c) and (e) of this section) shall include only such tips as 
are reported by the employee to the employer in a written statement 
furnished to the employer pursuant to section 6053(a).
    (2) Statements for members of the Armed Forces of the United States. 
Section 6051(b) contains certain special provisions which are applicable 
in the case of members of the Armed Forces of the United States in 
active service. In such case, Form W-2 shall be furnished to each such 
member of the Armed Forces if any tax has been withheld under section 
3402 during the calendar year from the remuneration of such member or if 
any of the remuneration paid during the calendar year for such active 
service is includible under chapter 1 of the Code in the gross income of 
such member. Form W-2, in the case of such member, shall show, as ``the 
total amount of wages as defined in section 3401(a)'' as used in section 
6051(a)(3), the amount of the remuneration paid during the calendar year 
which is not excluded under chapter 1 from the gross income of such 
member, whether or not such remuneration constitutes wages as defined in 
section 3401(a) and whether or not paid for such active service.
    (3) Undelivered statements for employees. The Internal Revenue 
Service copy and the employee's copy of each withholding statement for 
the calendar year which the employer is required to furnish to the 
employee and which after reasonable effort he is unable to deliver to 
the employee shall be retained by the employer for the 4-year period 
prescribed in paragraph (e)(2) of Sec.  31.6001-1.
    (b) Requirement if wages are not subject to withholding of income 
tax--(1) General rule. If during the calendar year an employer pays to 
an employee wages subject to the employee tax imposed by section 3101, 
but not subject to income tax withholding under section 3402, the 
employer shall furnish to such employee the tax return copy and the 
employee's copy of a statement on Form W-2 for such calendar year. Such 
statement shall show the following:
    (i) The name and address of the employer,
    (ii) The name, address, and social security number of the employee, 
which may be truncated to appear in the form of a TTIN on copies of 
Forms W-2 that are furnished to the employee (for provisions relating to 
the use of TTINs, see Sec.  301.6109-4 of this chapter),
    (iii) The total amount of wages as defined in section 3121(a),
    (iv) The total amount of employee tax deducted and withheld from 
such wages (increased by any adjustment in such year for overcollection, 
or decreased by any adjustment in such year for undercollection, of 
employee tax during any prior year) and the proportion thereof 
(expressed either as a dollar amount, as a percentage of the total 
amount of wages as defined in section 3121(a), or as a percentage of the 
total amount of employee tax under section 3101) withheld as tax under 
section 3101(b) for financing the cost of hospital insurance benefits, 
and
    (v) Such information relating to coverage the employee has earned 
under the Federal Insurance Contributions Act, as may be required by 
Form W-2 or its instructions, and
    (vi) The total amount paid to the employee under section 3507 
(relating to advance payment of earned income credit).

[[Page 353]]


See paragraph (d) of this section for provisions relating to the time 
for furnishing the statement required by this paragraph.
    (2) Uniformed services. In the case of remuneration paid for service 
described in section 3121(m), relating to service in the uniformed 
services, performed after 1956, ``wages as defined in section 3121(a)'', 
as used in section 6051(a)(5), shall be determined in accordance with 
section 3121(i)(2) and section 3122.
    (c) Correction of statements--(1) Federal Insurance Contributions 
Act. If (i) the amount of employee tax under section 3101 deducted and 
withheld in the calendar year from the wages, as defined in section 
3121(a), paid during such year was less or greater than the tax imposed 
by section 3101 on such wages by reason of the adjustment in such year 
of an overcollection or undercollection of the tax in any prior year, or 
(ii) regardless of the reason for the error or the method of its 
correction, the amount of wages as defined in section 3121(a), or tax 
under section 3101, entered on a statement furnished pursuant to this 
section to an employee for a prior year was incorrect, a corrected 
statement for such prior year reflecting the adjustment or the correct 
data shall be furnished to the employee. Such statement shall be marked 
``Corrected by Employer''.
    (2) Income tax withholding. A corrected statement shall be furnished 
to the employee with respect to a prior calendar year (i) to show the 
correct amount of wages, as defined in section 3401(a), paid during the 
prior calendar year if the amount of such wages entered on a statement 
furnished to the employee for such prior year is incorrect, or (ii) to 
show the amount actually deducted and withheld as tax under section 3402 
if such amount is less or greater than the amount entered as tax 
withheld on the statement furnished the employee for such prior year. 
Such statement shall be indicated as corrected.
    (3) Cross reference. For provisions relating to the disposition of 
the Internal Revenue Service copy of a corrected statement, see 
paragraph (b)(2) of Sec.  31.6011(a)-4 and paragraph (b) of Sec.  
31.6051-2.
    (d) Time for furnishing statements--(1)(i) In general. Each 
statement required by this section for a calendar year and each 
corrected statement required for the year shall be furnished to the 
employee on or before January 31 of the year succeeding such calendar 
year. If an employee's employment is terminated before the close of such 
calendar year, the employer, at his option, shall furnish the statement 
to the employee at any time after the termination but no later than 
January 31 of the year succeeding such calendar year. However, if an 
employee whose employment is terminated before the close of such 
calendar year requests the employer to furnish him the statement at an 
earlier time, and if there is no reasonable expectation on the part of 
both employer and employee of further employment during the calendar 
year, then the employer shall furnish the statement to the employee on 
or before the later of the 30th day after the day of the request or the 
30th day after the day on which the last payment of wages is made. For 
provisions relating to the filing of the Internal Revenue Service copies 
of the statement, see Sec.  31.6051-2.
    (ii) Expedited furnishing--(A) General rule. If an employer is 
required to make a final return under Sec.  31.6011(a)-6(a)(1) (relating 
to the final return for Federal Insurance Contributions Act taxes and 
income tax withholding from wages) on Form 941, or a variation thereof, 
the employer must furnish the statement required by this section on or 
before the date required for filing the final return. See Sec.  
31.6071(a)-1(a)(1). However, if the final return under Sec.  31.6011(a)-
6(a)(1) is a monthly return, as described in Sec.  31.6011(a)-5, the 
employer must furnish the statement required by this section on or 
before the last day of the month in which the final return is required 
to be filed. See Sec.  31.6071(a)-1(a)(2). Except as provided in 
paragraph (d)(2)(i) of this section, in no event may an employer furnish 
the statement required by this section later than January 31 of the year 
succeeding the calendar year to which it relates. The requirements set 
forth in this paragraph (d)(1)(ii) do not apply to employers with 
respect to employees whose wages are for domestic service in the private

[[Page 354]]

home of the employer. See Sec.  31.6011(a)-1(a)(3).
    (B) Requests by employees. An employer is not permitted to furnish a 
statement pursuant to the provisions of the third sentence of paragraph 
(d)(1)(i) of this section (relating to written requests by terminated 
employees for Form W-2) at a time later than that required by the 
provisions of paragraph (d)(1)(ii)(A) of this section.
    (2) Extensions of time--(i) In general (a) The Director, Martinsburg 
Computing Center, may grant an extension of time in which to furnish to 
employees the statements required by this section. A request may be made 
by a letter to the Director, Martinsburg Computing Center. The request 
must contain:
    (1) The employer's name and address;
    (2) The employer's taxpayer identification number;
    (3) The type of return (i.e., Form W-2); and
    (4) A concise statement of the reasons for requesting the extension.
    (b) The application must be mailed or delivered on or before the 
applicable due date prescribed in paragraph (d)(1) of this section for 
furnishing the statements required by this section.
    (c) In any case in which an employer is unable, by reason of 
illness, absence, or other good cause, to sign a request for an 
extension, any person standing in close personal or business 
relationship to the employer may sign the request on his behalf, and 
shall be considered as a duly authorized agent for this purpose, 
provided the request sets forth a reason for a signature other than the 
employer's and the relationship existing between the employer and the 
signer. For provisions relating to extensions of time for filing the 
Social Security Administration copies of the statement, see Sec.  
31.6081(a)-1(a)(2).
    (ii) Automatic Extension of Time. The Commissioner may, in 
appropriate cases, publish procedures for automatic extensions of time 
to furnish Forms W-2 where the employer is required to furnish the Form 
W-2 on an expedited basis.
    (e) Reporting of reimbursements of or payments of expenses of moving 
from one residence to another residence after July 23, 1971. Every 
employer who after July 23, 1971, makes reimbursement to, or payment to 
(other than direct cash reimbursement), an employee for his expenses of 
moving from one residence to another residence which is includable in 
gross income under section 82 shall furnish to the best of his ability 
to such employee information sufficient to assist the employee in the 
computation of any deduction allowable under section 217 with respect to 
such reimbursement or payment. The information required under this 
paragraph may be furnished on Form 4782 provided by the Internal Revenue 
Service or may be furnished on forms provided by the employer so long as 
the employee receives the same information he would have received had he 
been furnished with a completed Form 4782. The information shall include 
the amount of the reimbursement or payment and whether the reimbursement 
or payment was made directly to a third party for the benefit of an 
employee or furnished in kind to the employee. In addition, information 
shall be furnished as to whether the reimbursement or payment represents 
and expense described in subparagraphs (A) through (E) of section 
217(b)(1), and if so, the amount and nature of the expenses described in 
each such subparagraph. The information described in this paragraph 
shall be furnished at the same time or before the written statement 
required by section 6051(a) is furnished in respect of the calendar year 
for which the information provided under this paragraph is required. The 
information required under this paragraph shall be provided for the 
taxable year in which the payment or reimbursement is received by the 
employee. For determining the taxable year in which a payment or 
reimbursement is received, see section 82 and Sec.  1.82-1.
    (f) Statements with respect to compensation, as defined in the 
Railroad Retirement Tax Act--(1) Notification of possible credit or 
refund. With respect to compensation (as defined in section 3231(e)), 
every employer (as defined in section 3231(a)) who is required to deduct 
and withhold from an employee (as defined in section 3231(b)) a tax 
under section 3201, shall include on or with the statement required to 
be furnished to such employee under section

[[Page 355]]

6051(a), a notice concerning the provisions of this title with respect 
to the allowance of a credit or refund of the tax on wages imposed by 
section 3101(b) and the tax on compensation imposed by section 3201 or 
3211, which is treated as a tax on wages imposed by section 3101(b).
    (2) Information to be supplied to employees upon request. With 
respect to compensation (as defined in section 3231(e)), every employer 
(as defined in section 3231(a)) who is required to deduct and withhold 
tax under section 3201 from an employee (as defined in section 3231(b)) 
who has also received wages during such year subject to the tax imposed 
by section 3101(b), shall upon request of such employee furnish to him 
or her a written statement showing--
    (i) The total amount of compensation with respect to which the tax 
imposed by section 3101(b) was deducted;
    (ii) The total amount of employee tax under section 3201 deducted 
and withheld (increased by any adjustment in the calendar year for 
overcollection, or decreased by any adjustment in such year for 
undercollection, of such tax during any prior year); and
    (iii) The proportion thereof (expressed either as a dollar amount, 
or a percentage of the total amount of compensation as defined in 
section 3231(e), or as a percentage of the total amount of employee tax 
under section 3201) withheld as tax under section 3201 for financing the 
cost of hospital insurance benefits.
    (g) Employers filing composite returns. Every employer who files a 
composite return pursuant to Sec.  31.6011(a)-8 shall furnish to his 
employees the statements required under this section, except that in 
lieu of Form W-2 the statements may be in any form which is suitable for 
retention by the employee and which contains all information required to 
be shown on Form W-2.
    (h) Statements with respect to the refundable earned income credit--
(1) In general. In respect of remuneration paid in any calendar year 
beginning after December 31, 1986, for services performed after December 
31, 1986, every employer shall furnish Notice 797 (You May be Eligible 
for a Refund on Your Federal Income Tax Return Because of the Earned 
Income Credit (EIC)), or a written statement that contains an exact 
reproduction of the wording contained in Notice 797, to each employee 
with respect to whom the employer paid wages (within the meaning of 
section 3401(a)) during the calendar year and who did not have any 
income tax withheld by the employer during the calendar year. 
Notwithstanding the preceding sentence, no such statement need be 
furnished to an employee who claimed exemption from withholding pursuant 
to section 3402(n) for the calendar year.
    (2) Time for furnishing statement. The statement required by this 
paragraph (h) for a calendar year shall be furnished--
    (i) In the case of an employee who is required to be furnished a 
Form W-2, Wage and Tax Statement, for the calendar year, within one week 
of (before or after) the date that the employee is furnished a timely 
Form W-2 for the calendar year (or, if a Form W-2 is not so furnished, 
on or before the date by which it is required to be furnished); and
    (ii) In the case of an employee who is not required to be furnished 
a Form W-2 for the calendar year, on or before February 7 of the year 
succeeding the calendar year.
    (3) Manner of furnishing statement. If an employee is furnished a 
Form W-2 in a timely manner, the statement required by this paragraph 
(h) may be furnished with the employee's Form W-2. Any statement not so 
furnished shall be furnished by direct, personal delivery to the 
employee or by first class mail addressed to the employee at his or her 
current or last known address. For purposes of the preceding sentence, 
direct, personal delivery means hand delivery to the employee. Thus, for 
example, an employer does not meet the requirements of this paragraph 
(h) if the statement is sent through inter-office mail or is posted on a 
bulletin board.
    (i) Cross references. For provisions relating to the penalties 
provided for the willful furnishing of a false or fraudulent statement, 
or for the willful failure to furnish a statement, see

[[Page 356]]

Sec.  31.6674-1 and section 7204. For additional provisions relating to 
the inclusion of identification numbers and account numbers in 
statements on Form W-2, see Sec. Sec.  31.6109-1 and 31.6109-4. For the 
penalties applicable to information returns and payee statements, see 
sections 6721 through 6724 and the regulations in part 301 under 
sections 6721 through 6724.
    (j) Electronic furnishing of statements--(1) In general. A person 
required by section 6051 to furnish a written statement on Form W-2 
(furnisher) to the individual to whom it is required to be furnished 
(recipient) may furnish the Form W-2 in an electronic format in lieu of 
a paper format. A furnisher who meets the requirements of paragraphs 
(j)(2) through (6) of this section is treated as furnishing the Form W-2 
in a timely manner.
    (2) Consent--(i) In general. The recipient must have affirmatively 
consented to receive the Form W-2 in an electronic format. The consent 
may be made electronically in any manner that reasonably demonstrates 
that the recipient can access the Form W-2 in the electronic format in 
which it will be furnished to the recipient. Alternatively, the consent 
may be made in a paper document if it is confirmed electronically.
    (ii) Withdrawal of consent. The consent requirement of this 
paragraph (j)(2) is not satisfied if the recipient withdraws the consent 
and the withdrawal takes effect before the statement is furnished. The 
furnisher may provide that a withdrawal of consent takes effect either 
on the date it is received by the furnisher or on a subsequent date. The 
furnisher may also provide that a request for a paper statement will be 
treated as a withdrawal of consent.
    (iii) Change in hardware or software requirements. If a change in 
hardware or software required to access the Form W-2 creates a material 
risk that the recipient will not be able to access the Form W-2, the 
furnisher must, prior to changing the hardware or software, provide the 
recipient with a notice. The notice must describe the revised hardware 
and software required to access the Form W-2 and inform the recipient 
that a new consent to receive the Form W-2 in the revised electronic 
format must be provided to the furnisher. After implementing the revised 
hardware and software, the furnisher must obtain from the recipient, in 
the manner described in paragraph (j)(2)(i) of this section, a new 
consent or confirmation of consent to receive the Form W-2 
electronically.
    (iv) Examples. The following examples illustrate the rules of this 
paragraph (j)(2):

    Example 1. Furnisher F sends Recipient R a letter stating that R may 
consent to receive Form W-2 electronically on a Web site instead of in a 
paper format. The letter contains instructions explaining how to consent 
to receive Form W-2 electronically by accessing the Web site, 
downloading the consent document, completing the consent document and e-
mailing the completed consent back to F. The consent document posted on 
the Web site uses the same electronic format that F will use for the 
electronically furnished Form W-2. R reads the instructions and submits 
the consent in the manner provided in the instructions. R has consented 
to receive the statements electronically in the manner described in 
paragraph (j)(2)(i) of this section.
    Example 2. Furnisher F sends Recipient R an e-mail stating that R 
may consent to receive Form W-2 electronically instead of in a paper 
format. The e-mail contains an attachment instructing R how to consent 
to receive Form W-2 electronically. The e-mail attachment uses the same 
electronic format that F will use for the electronically furnished Form 
W-2. R opens the attachment, reads the instructions, and submits the 
consent in the manner provided in the instructions. R has consented to 
receive Form W-2 electronically in the manner described in paragraph 
(j)(2)(i) of this section.
    Example 3. Furnisher F posts a notice on its Web site stating that 
Recipient R may receive Form W-2 electronically instead of in a paper 
format. The Web site contains instructions on how R may access a secure 
Web page and consent to receive the statements electronically. By 
accessing the secure Web page and giving consent, R has consented to 
receive Form W-2 electronically in the manner described in paragraph 
(j)(2)(i) of this section.

    (3) Required disclosures--(i) In general. Prior to, or at the time 
of, a recipient's consent, the furnisher must provide to the recipient a 
clear and conspicuous disclosure statement containing each of the 
disclosures described in paragraphs (j)(3)(ii) through (viii) of this 
section.

[[Page 357]]

    (ii) Paper statement. The recipient must be informed that the Form 
W-2 will be furnished on paper if the recipient does not consent to 
receive it electronically.
    (iii) Scope and duration of consent. The recipient must be informed 
of the scope and duration of the consent. For example, the recipient 
must be informed whether the consent applies to each Form W-2 required 
to be furnished after the consent is given until it is withdrawn in the 
manner described in paragraph (j)(3)(v)(A) of this section or only to 
the first Form W-2 required to be furnished following the date on which 
the consent is given.
    (iv) Post-consent request for a paper statement. The recipient must 
be informed of any procedure for obtaining a paper copy of the 
recipient's statement after giving the consent described in paragraph 
(j)(2)(i) of this section and whether a request for a paper statement 
will be treated as a withdrawal of consent.
    (v) Withdrawal of consent. The recipient must be informed that--
    (A) The recipient may withdraw a consent by writing (electronically 
or on paper) to the person or department whose name, mailing address, 
telephone number, and e-mail address is provided in the disclosure 
statement;
    (B) The furnisher will confirm the withdrawal and the date on which 
it takes effect in writing (either electronically or on paper); and
    (C) A withdrawal of consent does not apply to a statement that was 
furnished electronically in the manner described in this paragraph (j) 
before the date on which the withdrawal of consent takes effect.
    (vi) Notice of termination. The recipient must be informed of the 
conditions under which a furnisher will cease furnishing statements 
electronically to the recipient (for example, termination of the 
recipient's employment with furnisher-employer).
    (vii) Updating information. The recipient must be informed of the 
procedures for updating the information needed by the furnisher to 
contact the recipient. The furnisher must inform the recipient of any 
change in the furnisher's contact information.
    (viii) Hardware and software requirements. The recipient must be 
provided with a description of the hardware and software required to 
access, print, and retain the Form W-2, and the date when the Form W-2 
will no longer be available on the Web site. The recipient must be 
informed that the Form W-2 may be required to be printed and attached to 
a Federal, State, or local income tax return.
    (4) Format. The electronic version of the Form W-2 must contain all 
required information and comply with applicable revenue procedures 
relating to substitute statements to recipients.
    (5) Notice--(i) In general. If the statement is furnished on a Web 
site, the furnisher must notify the recipient that the statement is 
posted on a Web site. The notice may be delivered by mail, electronic 
mail, or in person. The notice must provide instructions on how to 
access and print the statement. The notice must include the following 
statement in capital letters, ``IMPORTANT TAX RETURN DOCUMENT 
AVAILABLE.'' If the notice is provided by electronic mail, the foregoing 
statement must be on the subject line of the electronic mail.
    (ii) Undeliverable electronic address. If an electronic notice 
described in paragraph (j)(5)(i) of this section is returned as 
undeliverable, and the correct electronic address cannot be obtained 
from the furnisher's records or from the recipient, then the furnisher 
must furnish the notice by mail or in person within 30 days after the 
electronic notice is returned.
    (iii) Corrected Form W-2. If the furnisher has corrected a 
recipient's Form W-2 that was furnished electronically, the furnisher 
must furnish the corrected Form W-2 to the recipient electronically. If 
the recipient's Form W-2 was furnished through a Web site posting and 
the furnisher has corrected the Form W-2, the furnisher must notify the 
recipient that it has posted the corrected Form W-2 on the Web site 
within 30 days of such posting in the manner described in paragraph 
(j)(5)(i) of this section. The corrected Form W-2 or the notice must be 
furnished by mail or in person if--
    (A) An electronic notice of the Web site posting of an original Form 
W-2 or

[[Page 358]]

the corrected Form W-2 was returned as undeliverable; and
    (B) The recipient has not provided a new e-mail address.
    (6) Access period. Forms W-2 furnished on a Web site must be 
retained on the Web site through October 15 of the year following the 
calendar year to which the Forms W-2 relate (or the first business day 
after October 15, if October 15 falls on a Saturday, Sunday, or legal 
holiday). The furnisher must maintain access to corrected Forms W-2 that 
are posted on the Web site through October 15 of the year following the 
calendar year to which the Forms W-2 relate (or the first business day 
after such October 15, if October 15 falls on a Saturday, Sunday, or 
legal holiday) or the date 90 days after the corrected forms are posted, 
whichever is later.
    (7) Paper statements after withdrawal of consent. If a recipient 
withdraws consent to receive a statement electronically and the 
withdrawal takes effect before the statement is furnished 
electronically, a paper statement must be furnished. A paper statement 
furnished after the statement due date under this paragraph (j)(7) will 
be considered timely if furnished within 30 days after the date the 
withdrawal of consent is received by the furnisher.
    (k) Applicability date. This section is applicable for statements 
required to be furnished under section 6051 after December 31, 2020.

(86 Stat. 944, 26 U.S.C. 6364; 68A Stat. 917, 26 U.S.C. 7805; 68A Stat. 
747, 26 U.S.C. 6051(c))

[T.D. 6516, 25 FR 13032, Dec. 20, 1960]

    Editorial Note: For Federal Register citations affecting Sec.  
31.6051-1, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.  31.6051-2  Information returns on Form W-3 and Social Security
Administration copies of Forms W-2.

    (a) In general. Every employer who is required to make a return of 
tax under Sec.  31.6011(a)-1 (relating to returns under the Federal 
Insurance Contributions Act), Sec.  31.6011(a)-4 (relating to returns of 
income tax withheld from wages), or Sec.  31.6011(a)-5 (relating to 
monthly returns) for a calendar year or any period therein, shall file 
the Social Security Administration copy of each Form W-2 required under 
Sec.  31.6051-1 to be furnished by the employer with respect to wages 
paid during the calendar year. An employer may not truncate an 
employee's social security number to appear in the form of an IRS 
truncated taxpayer identification number (TTIN) on copies of Forms W-2 
filed with the Social Security Administration. Each Form W-2 and the 
transmittal Form W-3 shall together constitute an information return to 
be filed with the Social Security Administration as indicated on the 
instructions to such forms. For the requirement to submit the 
information on Form W-2 on magnetic media, see section 6011(e) and Sec.  
301.6011-2 of this chapter (Procedure and Administration Regulations).
    (b) Corrected returns. The Social Security Administration copies of 
corrected Forms W-2 (or magnetic tape or other approved media) for 
employees for the calendar year shall be submitted with Form W-3 (or 
Form 4804), on or before the date on which information returns for the 
period in which the correction is made would be due under paragraph 
(a)(3)(ii) of Sec.  31.6071(a)-1, to the Social Security Administration 
office with which Forms W-2 are required to be filed.
    (c) Cross references. For provisions relating to the time for filing 
the information returns required by this section and to extensions of 
the time for filing, see sections 6071 and 6081 and the regulations in 
this part under sections 6071 and 6081. For the penalties applicable to 
information returns and payee statements, see sections 6721 through 6724 
and the regulations in part 301 under sections 6721 through 6724.
    (d) Applicability date. This section is applicable for statements 
required to be filed under section 6051 July 3, 2019.

(68A Stat. 747, 26 U.S.C. 6051; 68A Stat. 917, 26 U.S.C. 7805)

[T.D. 7351, 40 FR 17145, Apr. 17, 1975, as amended by T.D. 7580, 43 FR 
60160, Dec. 26, 1978; T.D. 8155, 52 FR 34357, Sept. 10, 1987; T.D. 8344, 
56 FR 15042, Apr. 15, 1991; T.D. 8636, 60 FR 66141, Dec. 21, 1995; T.D. 
9061, 68 FR 34799, June 11, 2003; T.D. 9861, 84 FR 31720, July 3, 2019]

[[Page 359]]



Sec.  31.6051-3  Statements required in case of sick pay paid by third
parties.

    (a) Statements required from payor. (1) Every payor of sick pay 
shall furnish to the employer of the payee of the sick pay a written 
statement. The written statement must contain the following information:
    (i) The name and, if there is withholding from sick pay under 
section 3402(o) and the regulations in this part under section 3402(o), 
the social security account number of the payee (the payee's social 
security number may not be truncated to appear in the form of an IRS 
truncated taxpayer identification number (TTIN)),
    (ii) The total amount of sick pay paid to the payee during the 
calendar year, and
    (iii) The total amount (if any) deducted and withheld from sick pay 
under section 3402(o) and the regulations thereunder.


The statement must be furnished to the employer on or before January 15 
of the year following the calendar year in which any sick pay was paid.
    (2) These reporting requirements are in lieu of the requirements of 
sections 6051(a) (relating to written statements for employees) and 6041 
(relating to information returns). Statements required to be furnished 
by this paragraph shall be treated as statements required under section 
6051 to be furnished to employees for purposes of sections 6674 
(relating to fraudulent statement or failure to furnish statement to 
employee) and 7204 (relating to fraudulent statement or failure to make 
statement to employees).
    (3) A multiemployer plan paying sick pay pursuant to a collectively 
bargained agreement may furnish the statement required to be furnished 
by this paragraph, which shall include the total amount of sick pay paid 
to the employee under the plan regardless of the identity or number of 
employers for whom the employee worked during the calendar year under 
the plan, to one of the following:
    (i) The employer for whom the employee worked the most hours during 
the calendar year for which the statement is to be furnished,
    (ii) The employer for whom the employee first worked during such 
year,
    (iii) The employer for whom the employee last worked during such 
year,
    (iv) The employer for whom the employee worked immediately preceding 
his absence for which sick pay was paid,
    (v) The employer for whom the employee worked immediately following 
his absence for which sick pay was paid,
    (vi) The employer designated through the operation of a specific 
clause of the collective bargaining agreement, or
    (vii) The employer designated through the operation of a specific 
system of designation chosen by the payor.
    (b) Information required to be furnished by employer. Every employer 
of a payee of sick pay who receives a statement under paragraph (a) from 
a payor of sick pay shall furnish to each payee of sick pay a written 
statement, which must be furnished on Form W-2. The written statement 
must contain the following information:
    (1) All of the information required to be furnished under paragraph 
(a) of this section, but the employer may truncate the payee's social 
security number to appear in the form of a TTIN on copies of Forms W-2 
that are furnished to the payee (for provisions relating to the use of 
TTINs, see Sec.  301.6109-4 of this chapter (Procedure and 
Administration Regulations)).
    (2) The name, the address, and the Employer Identification Number 
(EIN) of the employer,
    (3) The words ``sick pay'', which shall be written in the box 
labelled ``Employer's use'', and
    (4) If any portion of the sick pay is excludable from gross income 
under section 104(a)(3), the amount of the portion which is not so 
excludable and of the portion which is so excludable. Only sick pay 
payments includable in gross income shall be reported in the box 
labelled ``Wages, tips, other compensation'' on Form W-2. Any amount 
excludable from gross income under section 104(a)(3) shall be reported 
in the box labelled ``Employer's use'' on Form W-2 and any amount so 
reported shall be described as ``Nontaxable''. The information required 
to be furnished by

[[Page 360]]

this paragraph may be furnished either on the same Form W-2 that is 
required to be furnished under section 6051(a) or on a separate Form W-
2. To the extent practicable, this statement should be furnished to the 
payee along with the statement (if any) required under section 6051(a) 
(relating to written statements for employees). The statement must be 
furnished to the payee on or before January 31 of the year following the 
calendar year in which any sick pay was paid. The employer shall file 
copy A of Form W-2 and Form W-3 with the Social Security Administration 
in accordance with section 6051(d) (relating to statements to constitute 
information returns) and the regulations thereunder.
    (c) Optional rule. The payor and the employer may at their option 
enter into an agency agreement valid under local law whereby the 
employer designates the payor to be the employer's agent for purposes of 
fulfilling the requirements of this section. This agreement must specify 
what portion, if any, of the sick pay is excludable from gross income 
under section 104(a)(3). If they enter into such an agreement, the payor 
shall not provide the statement required by paragraph (a) but shall 
instead furnish statements that meet all of the requirements of 
paragraph (b), except that the agreement must provide that the payor 
will furnish the statements with the payor's, rather than the employer's 
name, address, and Employer Identification Number (EIN) if ``Sick Pay 
Statement Furnished under an Agency Agreement with Your Employer'' 
appears in the box labelled ``Employer's Use'' on Form W-2. Paragraph 
(a)(2) remains applicable to statements furnished under this paragraph. 
In the case of sick pay paid under a multiemployer plan pursuant to a 
collectively bargained agreement, an amendment to either the 
multiemployer plan or the collectively bargained agreement designating 
the payor to be the employers' agent for purposes of fulfilling the 
requirements of this section shall be deemed an agency agreement that 
fulfills the requirements of the first sentence of this paragraph.
    (d) Definitions. For purposes of this section, the terms ``payor'', 
``payee'', and ``sick pay'' shall have the same meaning as ascribed 
thereto in section 3402(o) and the regulations thereunder. For purposes 
of this section, the term ``employer'' shall have the same meaning as 
ascribed thereto in section 3401(d) and the regulations thereunder, 
except that the term ``employer'' shall not include the payor for 
purposes of this section.
    (e) Additional requirements. (1) Statements furnished to payees 
under this section must also comply with all requirements of section 
6051 (c) and (d) and the regulations thereunder.
    (2) The provisions of Sec.  1.9101-1 (relating to permission to 
submit information required by certain returns and statements on 
magnetic tape) shall be applicable to the information required by this 
section to be furnished on Form W-2 if the employer properly complies 
with those provisions.
    (3) The provisions of section 6109 (relating to identifying numbers) 
and the regulations in this part and part 301 under section 6109 shall 
be applicable to Form W-2 and to any payee of sick pay to whom a 
statement on Form W-2 is required by this section to be furnished. The 
employer must include the social security number of the payee on all 
copies of Forms W-2. The employer may truncate the payee's social 
security number to appear in the form of a TTIN on copies of Forms W-2 
that are furnished to the payee. For provisions relating to the use of 
TTINs, see Sec.  301.6109-4 of this chapter.
    (f) Applicability date. This section is applicable for statements 
required to be furnished under section 6051 after December 31, 2020.

(Secs. 3402(o), 7805, Internal Revenue Code of 1954 (94 Stat. 3495, (26 
U.S.C. 3402(o)); 68A Stat. 917 (26 U.S.C. 7805))

[T.D. 7814, 47 FR 11277, Mar. 16, 1982, as amended by T.D. 9861, 84 FR 
31720, July 3, 2019]



Sec.  31.6051-4  Statement required in case of backup withholding.

    (a) Statements required from payor. Every payor of any reportable 
payment (as defined in section 3406(b)(1)) who is required to deduct and 
withhold tax under section 3406 must furnish to the payee a written 
statement containing

[[Page 361]]

the information required by paragraph (c) of this section.
    (b) Prescribed form. The prescribed form for the statement required 
by this section is Form 1099. In the case of any reportable interest or 
dividend payment as defined in section 3406(b)(2), the prescribed form 
is the Form 1099 required in Sec.  1.6042-4 of this chapter (relating to 
payments of dividends), Sec.  1.6044-5 of this chapter (relating to 
payments of patronage dividends), or Sec.  1.6049-6(e) of this chapter 
(relating to payments of interest or original issue discount). 
Statements required to be furnished by this section will be treated as 
statements required by the respective sections with respect to any 
reportable payment, except that the statement required under this 
section must include the amount of tax withheld under section 3406. In 
no event will a statement be required under this section if a statement 
with the same information is required to be furnished to the recipient 
under another section.
    (c) Information required. Each statement on Form 1099 must show the 
following:
    (1) The name, address, and taxpayer identification number of the 
person receiving any reportable payment;
    (2) Except as provided in the prescribed form or instructions, the 
amount subject to reporting under section 6041, 6041A(a), 6042, 6044, 
6045, 6049, 6050A, 6050N, or 6050W whether or not the amount of the 
reportable payment is less than the amount for which an information 
return is required or, if tax is withheld under section 3406, the amount 
of the payment withheld upon;
    (3) The amount of tax deducted and withheld under section 3406;
    (4) The name and address of the person filing the form;
    (5) A legend stating that such amount is being reported to the 
Internal Revenue Service; and
    (6) Such other information as is required by the form.
    (d) Time for furnishing statements. The statement must be furnished 
to the payee no later than January 31 of the year following the calendar 
year in which the payment was made. However, for a statement required to 
be furnished after December 31, 2008, the February 15 due date under 
section 6045 applies to the statement if the statement reports tax 
withheld from a payment reportable under section 6045 or is furnished in 
a consolidated reporting statement under section 6045. See Sec. Sec.  
1.6045-1(k)(3), 1.6045-2(d)(2), 1.6045-3(e)(2), 1.6045-4(m)(3), and 
1.6045-5(a)(3)(ii) of this chapter.
    (e) Aggregation. The payor or broker may combine the information 
required to be shown under this section with information required to be 
shown under another section even if they do not relate to the same type 
of reportable payment.

[T.D. 8637, 60 FR 66133, Dec. 21, 1995, as amended by T.D. 9496, 75 FR 
49835, Aug. 16, 2010; T.D. 9504, 75 FR 64103, Oct. 18, 2010]



Sec.  31.6053-1  Report of tips by employee to employer.

    (a) Requirement that tips be reported--(1) In general. An employee 
who receives, in the course of employment by an employer, tips that 
constitute wages as defined in section 3121(a) or section 3401, or 
compensation as defined in section 3231(e), must furnish to the employer 
a statement, or statements, disclosing the total amount of the tips 
received by the employee in the course of employment by the employer. 
Tips received by an employee in a calendar month in the course of 
employment by an employer that are required to be reported to the 
employer must be reported on or before the 10th day of the following 
month. For example, tips received by an employee in January 2000 are 
required to be reported by the employee to the employer on or before 
February 10, 2000.
    (2) Cross references. For provisions relating to the treatment of 
tips as wages for purposes of the Federal Insurance Contributions Act 
(FICA) tax under sections 3101 and 3111, see sections 3102(c), 
3121(a)(12), and 3121(q) and Sec. Sec.  31.3102-3 and 31.3121(a)(12)-1. 
For provisions relating to the treatment of tips as wages for purposes 
of the tax under section 3402 (income tax withholding), see sections 
3401(a)(16), 3401(f), and 3402(k) and Sec. Sec.  31.3401(a)(16)-1, 
31.3401(f)-1, and 31.3402(k)-1. For provisions relating to the treatment 
of tips as compensation for purposes of the Railroad Retirement Tax Act 
(RRTA)

[[Page 362]]

tax under sections 3201 and 3201, see section 3231(e) and Sec.  
31.3231(e)-1(a).
    (b) Statement for use in reporting tips--(1) In general. The 
statement described in paragraph (a) of this section can be provided on 
paper or transmitted electronically. The statement must be signed by the 
employee and must disclose:
    (i) The name, address, and social security number of the employee.
    (ii) The name and address of the employer.
    (iii) The period for which, and the date on which, the statement is 
furnished. If the statement is for a period of less than 1 calendar 
month, the beginning and ending dates of the period must be included 
(for example, January 1 through January 8, 1998).
    (iv) The total amount of tips received by the employee during the 
period covered by the statement which are required to be reported to the 
employer (see paragraph (a) of this section).
    (2) Form of statement--(i) In general. No particular form is 
prescribed for use in furnishing the statement required by this section. 
The statement may be furnished on paper or transmitted electronically. 
An electronic system and all tip statements generated by that system 
must meet the requirements of paragraph (d) of this section. If the 
employer does not provide any other means for the employee to report 
tips, the employee may use Form 4070, ``Employee's Report of Tips to 
Employer.''
    (ii) Single-purpose forms. A statement may be furnished on an 
employer-provided form. The form may be on paper or in electronic form. 
An employer that provides a paper form must make blank copies of the 
form readily available to all tipped employees. Any form, whether paper 
or electronic, provided by an employer for use by its tipped employees 
solely to report tips must meet all the requirements of paragraph (b)(1) 
of this section.
    (iii) Regularly used forms. Instead of requiring that tips be 
reported as described in paragraph (b)(2)(ii) of this section on a 
special form used solely for tip reporting, an employer may prescribe 
regularly used forms for use by employees in reporting tips. A regularly 
used form may be on paper or in electronic form (such as a time card or 
report), must meet the requirements of paragraph (b)(1) (iii) and (iv) 
of this section, must contain identifying information that will ensure 
accurate identification of the employee by the employer, and is 
permitted to be used only if the employer furnishes the employee a 
statement suitable for retention showing the amount of tips reported by 
the employee for the period. The employer statement may be furnished 
when the employee reports the tips, when wages are first paid following 
the reporting of tips by the employee, or within a short time after the 
wages are paid. The employer may meet this requirement, for example, 
through the use of a payroll check stub or other payroll document 
regularly furnished (if not less frequent than monthly) by the employer 
to the employee showing gross pay and deductions.
    (c) Period covered by, and due date of, tip statement--(1) In 
general. A tip statement furnished by an employee to an employer may not 
cover a period greater than 1 calendar month. An employer may, however, 
require the submission of a statement in respect of a specified period 
of time, for example, on a weekly or biweekly basis, regular payroll 
period, etc. An employer may specify, subject to the limitation in 
paragraph (a) of this section, the time within which, or the date on 
which, the statement for a specified period of time should be submitted 
by the employee. For example, a statement covering a payroll period may 
be required to be submitted on the first (or second) day following the 
close of the payroll period. A statement submitted by an employee after 
the date specified by the employer for its submission nevertheless is a 
statement furnished pursuant to section 6053(a) and this section if it 
is submitted to the employer on or before the 10th day following the 
month in which the tips were received.
    (2) Termination of employment. If an employee's employment 
terminates, the employee must furnish a tip statement to the employer 
when the employee ceases to perform services for the employer. A 
statement submitted by an employee after the date on which

[[Page 363]]

the employee ceases to perform services for the employer is a statement 
furnished pursuant to section 6053(a) and this section if the statement 
is submitted to the employer on or before the earlier of the day on 
which the final wage payment is made by the employer to the employee or 
the 10th day following the month in which the tips were received.
    (d) Requirements for electronic systems--(1) In general. The 
electronic system must ensure that the information received is the 
information transmitted by the employee and must document all occasions 
of access that result in the transmission of a tip statement. In 
addition, the design and operation of the electronic system, including 
access procedures, must make it reasonably certain that the person 
accessing the system and transmitting the statement is the employee 
identified in the statement transmitted.
    (2) Same information as on paper statement. The electronic tip 
statement must provide the employer with all the information required by 
paragraph (b)(1) of this section.
    (3) Signature. The electronic tip statement must be signed by the 
employee. The electronic signature must identify the employee 
transmitting the electronic tip statement and must authenticate and 
verify the transmission. For this purpose, the terms authenticate and 
verify have the same meanings as they do when applied to a written 
signature on a paper tip statement. Any form of electronic signature 
that satisfies the foregoing requirements is permissible.
    (4) Copies of electronic tip statements. Upon request by the 
Internal Revenue Service (IRS), the employer must supply the IRS with a 
hard copy of the electronic tip statement and a statement that, to the 
best of the employer's knowledge, the electronic tip statement was filed 
by the named employee. The hard copy of the electronic tip statement 
must provide the information required by paragraph (b)(1) of this 
section, but need not be a facsimile of Form 4070 or any employer-
designed form.
    (5) Record retention. The record retention requirements applicable 
to automatic data processing systems also apply to electronic tip 
reporting systems.
    (6) Effective date. The provisions pertaining to electronic systems 
and electronic tip reports are applicable as of December 13, 2000. 
However, employers may apply these provisions to earlier periods.

[T.D. 7001, 34 FR 1004, Jan. 23, 1969, as amended by T.D. 8910, 65 FR 
77819, Dec. 13, 2000]



Sec.  31.6053-2  Employer statement of uncollected employee tax.

    (a) Requirement that statement be furnished. If--
    (1) The amount of the employee tax imposed by section 3101 in 
respect of tips reported by an employee to his employer pursuant to 
section 6053(a) (see Sec.  31.6053-1) exceeds
    (2) The amount of employee tax imposed by section 3101 in respect of 
such tips which can be collected by the employer from wages (exclusive 
of tips) of such employee or from funds furnished to the employer by the 
employee,

the employer shall furnish to the employee a statement showing the 
amount of the excess. For provisions relating to the collection of, and 
liability for, employee tax on tips, see Sec.  31.3102-3.
    (b) Form of statement. Form W-2 is the form prescribed for use in 
furnishing the statement required by paragraph (a) of this section, 
except that if an employer files a composite return pursuant to Sec.  
31.6011(a)-8 he may furnish to the employee, in lieu of Form W-2, a 
statement containing the required information in a form suitable for 
retention by the employee. A statement is required under this section in 
respect of an excess referred to in paragraph (a) of this section, even 
though the employer may not be required to furnish a statement to the 
employee under Sec.  31.6051. Provisions applicable to the furnishing of 
a statement under Sec.  31.6051 shall be applicable to statements under 
this section.
    (c) Excess to be shown on statement. If there is an excess in 
respect of the tips reported by an employee in two or more statements 
furnished pursuant to section 6053(a), only the total excess for the 
period covered by the employer

[[Page 364]]

statement shall be shown on such statement.

[T.D. 7001, 34 FR 1005, Jan. 23, 1969, as amended by T.D. 7351, 40 FR 
17145, Apr. 17, 1975]



Sec.  31.6053-3  Reporting by certain large food or beverage establishments
with respect to tips.

    (a) Information return by an employer with respect to tips--(1) In 
general. An employer shall file a separate information return for each 
calendar year (as defined in paragraph (j)(14) of this section) with 
respect to each large food or beverage establishment (as defined in 
paragraph (j)(7) of this section) in which such employer has employees. 
The information return shall contain the following:
    (i) The employer's name, address, and employer identification 
number;
    (ii) The establishment's name, address, and identification number 
(see paragraph (a)(5) of this section);
    (iii) The aggregate gross receipts (other than nonallocable 
receipts) of the establishment from the provision of food or beverages;
    (iv) The aggregate amount of charge receipts (other than 
nonallocable receipts) on which there were charged tips;
    (v) The aggregate amount of charged tips shown on such charge 
receipts;
    (vi) The aggregate amount of tips actually received by food or 
beverage employees of the establishment during the calendar year and 
reported to the employer under section 6053(a) (see paragraph (j)(15) of 
this section);
    (vii) The aggregate amount the employer is required to report under 
section 6051 and the regulations thereunder with respect to service 
charges of less than 10 percent.
    (viii) The name and social security number of each employee of the 
establishment during the calendar year to whom an allocation was made 
under section 6053(c)(3) and paragraph (d) of this section and the 
amount of such allocation.
    (2) Calendar year 1983 information return. In the case of the 1983 
calendar year information return, the information required by paragraphs 
(a)(1)(iii) through (viii) of this section shall be reported for the 
period beginning with the first payroll period ending on or after April 
1, 1983, and ending with the end of the 1983 calendar year. See 
paragraph (c) of this section relating to information required for the 
first quarter of 1983.
    (3) Prescribed form. The return required by this paragraph shall be 
made on Form 8027 with the transmittal form being Form 8027T. The 
information required by paragraph (a)(1)(viii) of this section may be 
provided by attaching to Form 8027 photocopies of each employee's W-2 
for whom an allocation was made. A copy of any written good faith 
agreements applicable to a given calendar year (see paragraph (e) of 
this section) shall be attached to Form 8027 for such calendar year.
    (4) Time and place for filing. The information return required by 
this paragraph (a) shall be filed on or before the last day of February 
(March 31 if filed electronically) of the year following the calendar 
year for which the return is made with the Internal Revenue Service 
Center specified by the Form 8027 or its instructions. See section 
6652(a) relating to the penalty for failure to file this information 
return.
    (5) Large food or beverage establishment identification number. Each 
large food or beverage establishment shall have a unique identification 
number to be included on Form 8027 and any employer's application 
pursuant to paragraph (h) of this section. If an identification number 
is changed for any reason, for example if the establishment becomes a 
different ``type'' of establishment as described in paragraph (a)(5)(ii) 
of this section, or if the employer identification number changes, the 
employer shall notify the Service by including both the old and new 
identification numbers on the Form 8027 filed for the year in which the 
identification number was changed. An establishment identification 
number shall be determined as follows:
    (i) The first nine digits shall be the employer's identification 
number (EIN).
    (ii) The next digit shall identify the type of large food or 
beverage establishment, with the categories as follows:
    (A) The number ``1'' signifies an establishment that serves evening 
meals

[[Page 365]]

only (with or without alcoholic beverages).
    (B) The number ``2'' signifies an establishment that serves evening 
meals and other meals (with or without alcoholic beverages).
    (C) The number ``3'' signifies an establishment that serves only 
meals other than evening meals (with or without alcoholic beverages).
    (D) The number ``4'' signifies an establishment that serves food, if 
at all, as only an incidental part of the business of serving alcoholic 
beverages.
    (iii) The last five digits are to differentiate between multiple 
establishments reporting under the same EIN number. For this purpose, 
the employer shall assign each establishment reporting under such 
employer's EIN number a unique five digit number. For example, each 
establishment could be assigned a unique number by beginning with 
``00001'' and progressing in numerical sequence (i.e., ``00002'', 
``00003'', ``00004'', ``00005'') until each establishment has been 
assigned a number.
    (6) Definitions. See paragraph (j) of this section for definitions 
of various terms used in this section.
    (b) Employer statement to employees--(1) In general. The employer 
shall furnish to each employee to whom an amount is allocated under 
section 6053(c)(3) and paragraph (d) of this section a written statement 
for each calendar year containing the following information:
    (i) The employer's name and address;
    (ii) The name of the employee;
    (iii) The aggregate amount allocated to the employee for the 
calendar year.
    (2) Prescribed form. The written statement required by this 
paragraph shall be made on Form W-2.
    (3) Time and manner for furnishing the statement. The written 
statement required by this paragraph shall be due at the same time and 
shall be furnished in the same manner as the statement required to be 
furnished under section 6051. See section 6678 relating to the penalty 
for failure to file this statement.
    (4) Employee's request for an early W-2. If an employee's employment 
is terminated prior to the end of a calendar year and the employee 
requests an early W-2 under section 6051 and Sec.  31.6051-1(d), a tip 
allocation under section 6053(c) is not required to be shown on such 
early W-2. However, the employer may include on such early W-2 the 
employee's actual tip allocation under section 6053(c), if known, or a 
good faith estimate of such allocation. A good faith estimate of an 
allocation shall be signified by placing the word ``estimate'' next to 
the allocation on the employee's copy of the early W-2. An amended W-2 
must be furnished to each employee to whom an amount is allocated under 
section 6053(c), during January of the calendar year following the 
calendar year for which the statement is made, if there is no tip 
allocation on the early W-2 or if the estimated allocation is found to 
vary from the actual allocation by more than 5 percent of the amount of 
the actual allocation.
    (5) Employee reporting of tip income. Regardless of whether an 
employee receives an allocation under section 6053(c) and Sec.  31.6053-
3, the employee is required to report as income on his or her Federal 
income tax return all tips received. For tips received before October 1, 
1985, an employee must be able to substantiate the amount of reported 
tip income as provided in section 6001 and the regulations thereunder, 
For tips received on or after October 1, 1985, an employee must be able 
to substantiate the amount of reported tip income as provided in Sec.  
31.6053-4. The Internal Revenue Service may determine that a tipped 
employee received a larger amount of tip income than is reflected by the 
employee's allocation.
    (c) First quarter report of 1983--(1) In general. For the period 
beginning with the first day of calendar year 1983, and ending on the 
last day of the last payroll period ending before April 1, 1983, an 
employer must file an information return for each large food or beverage 
establishment that was a large food or beverage establishment on January 
1, 1983, that contains the information required by paragraph (a)(1)(i)-
(vii) of this section for such period.
    (2) Prescribed form. The information return required by this 
paragraph shall be made on Form 8027. The returns for the first calendar 
quarter of 1983 and for calendar year 1983 may be incorporated onto a 
single Form 8027 but

[[Page 366]]

must separately set forth the required information for each of the two 
return periods.
    (3) Time and place for filing. The time and place for filing the 
information return required by this paragraph shall be the same as for 
the calendar year 1983 information return. See paragraph (a)(4) of this 
section.
    (d) Allocation of excess of 8 percent of gross receipts over the 
aggregate amount of reported tips--(1) In general. An employer that 
operates a large food or beverage establishment shall allocate (as tips 
for purposes of the requirements of section 6053(c) among tipped 
employees at such establishment performing services during any payroll 
period an amount equal to the excess of:
    (i) Eight percent of the gross receipts (other than nonallocable 
receipts) of such establishment for the payroll period, over
    (ii) The aggregate amount of tips reported by employees at such 
establishment to the employer under section 6053(a) for such period. For 
this purpose, if an employee reports under section 6053(a) on the basis 
of a period other than a payroll period such employee may specify what 
portion of his or her reported tips are attributable to a given payroll 
period when reporting tips to the employer under section 6053(a). In the 
absence of any specification by the employee, the employer shall 
allocate the amount of tips reported by an employee to a given payroll 
period either:
    (A) By multiplying the aggregate amount of those reported tips by a 
fraction, the numerator of which is the gross receipts attributable to 
the tipped employee for the payroll period and the denominator of which 
is the gross receipts attributable to the employee for the entire tip 
reporting period; or
    (B) By multiplying the aggregate amount of those reported tips by a 
fraction, the numerator of which is the hours worked by the employee 
during the payroll period and the denominator of which is the total 
hours worked by the employee during the entire tip reporting period.

With respect to each establishment, the employer shall choose the method 
described in either paragraph (d)(1)(ii)(A) or paragraph (d)(1)(ii)(B) 
of this section for a calendar year and apply such method consistently 
in making all allocations required by the preceding sentence. If an 
employee is employed in more than one of an employer's food or beverage 
operations, such employee may specify what portion of his or her 
reported tips are attributable to a given operation when reporting tips 
to the employer under section 6053(a). In the absence of any 
specification by the employee, the employer shall allocate the amount of 
tips reported by the employee to a given food or beverage operation in a 
manner similar to that provided above for allocation of tips among 
payroll periods. The employer shall choose the method described in 
either paragraph (d)(1)(ii)(A) or paragraph (d)(1)(ii)(B) of this 
section for a calendar year and apply such method consistently in making 
all allocations required by the preceding sentence.
    (2) Employer not liable to employees for allocations. An employer 
who makes allocations (as tips for purposes of the requirements of 
section 6053(c) and this section) among such employer's employees in 
accordance with paragraph (d) and either paragraph (e) or (f) of this 
section shall not be liable to any employee if any amount is improperly 
allocated. However, if an employee's total tip allocations for a 
calendar year as reported on Form W-2 varies from the correct allocation 
amount by more than 5 percent of the correct allocation amount, the 
employer shall adjust such employee's allocation. If such an adjustment 
of an employee's allocation is required, the employer shall also review 
all tips allocations made to other employees in the same establishment 
to assure that the error did not distort other allocated amounts by more 
than 5 percent. Any adjustments made for variances of more than 5 
percent shall be reflected in amended W-2's issued to the affected 
employees. Tip allocations made under this section shall have no effect 
on the withholding responsibilities of the employer under subtitle C of 
the Code. Withholding on tips is authorized only with respect to amounts 
of tips reported to employers by employees under section 6053(a).

[[Page 367]]

    (e) Allocation pursuant to a good faith agreement. The amount 
determined under paragraph (d)(2) of this section for each payroll 
period must be allocated among tipped employees providing services 
during such payroll period either on the basis of a good faith agreement 
described in this paragraph, or, if there is no good faith agreement 
applicable with respect to the payroll period on the basis of the 
allocation method provided in paragraph (f) of this section. A good 
faith agreement is a written agreement consented to by the employer and 
at least two-thirds of the members of each occupational category of 
tipped employees (e.g., waiters, busboys, maitre d's) employed in the 
large food or beverage establishment at the time the agreement is 
adopted which:
    (1) Provides for the allocation of the amount described in paragraph 
(d)(1) among tipped employees in a manner that, in combination with the 
tips reported by such employees under section 6053(a), will reflect a 
good faith approximation of the actual distribution of tip income among 
such tipped employees;
    (2) Is effective prospectively beginning with the first day of a 
payroll period that begins after the date of adoption, but in no event 
later than the first day of the succeeding calendar year. However, a 
good faith agreement may be effective for calendar year 1983 if adopted 
on or before December 31, 1983.
    (3) Is adopted at a time when there are tipped employees employed by 
the employer in each occupational category of tipped employees (e.g., 
waiters, busboys, maitre d's) which would be affected by the agreement; 
and
    (4) May be revoked prospectively by a written instrumnent adopted by 
a least two-thirds of the tipped employees who are employed in the 
establishment in occupational categories affected by the agreement at 
the time of the revocation. A revocation of an agreement shall be 
effective only at the beginning of a payroll period.
    (f) Allocation method to be used in the absence of a good faith 
agreement. (1) In a case in which there is no good faith agreement in 
effect and the aggregate amount of tips reported pursuant to section 
6053(a) with respect to a payroll period is less than 8 percent of the 
establishment's gross receipts for the payroll period, the employer 
shall allocate the difference as tips for purposes of section 6053(c) as 
provided in this paragraph. No allocations shall be made to indirectly 
tipped employees. An allocation shall be made to each directly tipped 
employee performing services for the establishment who has a reporting 
shortfall (as determined under paragraph (f)(1)(v) of this section) for 
the payroll period. The amount of each allocation shall be determined in 
the following manner:
    (i) Multiply the amount of the establishment's gross receipts for 
the payroll period by 8 percent (0.08).
    (ii) Determine the aggregate amount of tips reported for the payroll 
period by indirectly tipped employees.
    (iii) Subtract from the amount determined under paragraph (f)(1)(i) 
the aggregate amount of tips reported by indirectly tipped employees as 
determined under paragraph (f)(1)(ii) of this section. The excess is the 
directly tipped employees' aggregate share of 8 percent of the gross 
receipts of the establishment for the payroll period.
    (iv) For each directly tipped employee, multiply the amount 
determined under paragraph (f)(1)(iii) of this section by a fraction, 
the numerator of which is the amount of gross receipts of the 
establishment for the payroll period that is attributable to the 
employee and the denominator of which is the aggregate amount of gross 
receipts for the payroll period that is attributable to all directly 
tipped employees. The product is each directly tipped employee's share 
of 8 percent of the gross receipts of the establishment for the payroll 
period. The employer may determine the fraction described in the first 
sentence of this subparagraph by substituting for the numerator the 
number of hours worked by the directly tipped employee during the 
payroll period and by substituting for the denominator the number of 
hours worked by all directly tipped employees during the payroll period. 
For payroll periods beginning after December 31, 1986, the method of 
allocation described in the preceding sentence may

[[Page 368]]

be used only by an employer that employs less than the equivalent of 25 
full-time employees (as defined in paragraph (j)(19) of this section) at 
the establishment during the payroll period.
    (v) For each directly tipped employee, determine the excess, if any, 
of the amount determined under paragraph (f)(1)(iv) of this section over 
the amount reported as tips by the employee for the payroll period 
pursuant to section 6053(a). Such excess, if any, is the employee's 
shortfall for the payroll period.
    (vi) Subtract from the amount determined under paragraph (f)(1)(i) 
of this section the aggregate amount of tips reported pursuant to 
section 6053(a) by all directly and indirectly tipped employees for the 
payroll period. The excess is the amount to be allocated as tips among 
directly tipped employees who had a shortfall for the payroll period as 
determined under paragraph (f)(1)(v) of this section.
    (vii) For each directly tipped employee who had a shortfall for the 
payroll period, multiply the amount determined under paragraph 
(f)(1)(vi) of this section by a fraction, the numerator of which is the 
amount of such employee's shortfall (determined under paragraph 
(f)(1)(v) of this section and the denominator of which is the aggregate 
of all shortfalls for the payroll period for all directly tipped 
employees. The product is the employee's allocation for the payroll 
period.
    (2) The provisions of this paragraph may be illustrated by the 
following examples:

    Example 1. X is a large food or beverage establishment that has 
chosen to make tip allocations using its actual payroll period and gross 
receipts attributable to employees. X had gross receipts for a payroll 
period of $100,000 and tips reported for the payroll period of $6,200. 
Directly tipped employees reported $5,700 while indirectly tipped 
employees reported $500.

------------------------------------------------------------------------
                                                        Gross
                                                      receipts
              Directly tipped employees                  for      Tips
                                                       payroll  reported
                                                       period
------------------------------------------------------------------------
A...................................................    18,000     1,080
B...................................................    16,000       880
C...................................................    23,000     1,810
D...................................................    17,000       800
E...................................................    12,000       450
F...................................................    14,000       680
                                                     -------------------
  Total.............................................   100,000     5,700
------------------------------------------------------------------------

    The allocation computations would be as follows:
    (1) $100,000 (gross receipts) x 0.08 = $8,000.
    (2) Tips reported by indirectly tipped employees = $500.
    (3) $8,000-$500 (indirect employees tips) = $7,500.
    (4)

----------------------------------------------------------------------------------------------------------------
                                                                     Directly
                                                                      tipped                            Employee
                     Directly tipped employees                       share of   x   Gross receipts   =  share of
                                                                       8 pct            ratio             8 pct
                                                                       gross                              gross
----------------------------------------------------------------------------------------------------------------
A..................................................................    $7,500  ..   18,000/100,000  ..     1,350
B..................................................................     7,500  ..   16,000/100,000  ..     1,200
C..................................................................     7,500  ..   23,000/100,000  ..     1,725
D..................................................................     7,500  ..   17,000/100,000  ..     1,275
E..................................................................     7,500  ..   12,000/100,000  ..       900
F..................................................................     7,500  ..   14,000/100,000  ..     1,050
                                                                    --------------------------------------------
      Total........................................................  ........  ..  ...............  ..     7,500
----------------------------------------------------------------------------------------------------------------

    (5)

------------------------------------------------------------------------
                                   Employee
                                   share of        Tips         Employee
    Directly tipped employees        8 pct    -  reported   =  shortfall
                                     gross
------------------------------------------------------------------------
A................................    $1,350  ..    $1,080  ..      $270
B................................     1,200  ..       880  ..       320
C................................     1,725  ..     1,810  ..  .........
D................................     1,275  ..       800  ..       475
E................................       900  ..       450  ..       450
F................................     1,050  ..       680  ..       370
                                  --------------------------------------
      Total shortfall............  ........  ..  ........  ..     1,885
------------------------------------------------------------------------

    Since employee C has no reporting shortfall there is no allocation 
to C.
    (6) $8,000-6,200 (total tips reported) = $1,800 (amount allocable 
among shortfall employees).
    (7)

------------------------------------------------------------------------
                               Allocable       Shortfall       Amount of
     Shortfall employees         amount    x     ratio     =  allocation
------------------------------------------------------------------------
A............................    $1,800   ..    270/1885  ..       $258
B............................     1,800   ..    320/1885  ..        306
D............................     1,800   ..    475/1885  ..        454
E............................     1,800   ..    450/1885  ..        430
F............................     1,800   ..    370/1885  ..        353
------------------------------------------------------------------------

    Example 2. Assume the same facts as in example 1 except that the 
employer uses employee hours worked to calculate tip allocations.

[[Page 369]]



------------------------------------------------------------------------
                                                        Hours
                                                       worked
              Directly tipped employees                  in       Tips
                                                       payroll  reported
                                                       period
------------------------------------------------------------------------
A...................................................        40    $1,080
B...................................................        35       880
C...................................................        45     1,810
D...................................................        40       800
E...................................................        15       450
F...................................................        25       680
                                                     -------------------
   Total............................................       200    $5,700
------------------------------------------------------------------------

    The allocation computations would be as follows:
    (1) $100,000 (gross receipts) x 0.08 = $8,000
    (2) Tips reported by indirectly tipped employees = $500
    (3) $8,000-$500 (indirect employees tips) = $7,500
    (4)

------------------------------------------------------------------------
                                     Directly
                                      tipped        Hours       Employee
     Directly tipped employees       share of   x   worked   =  share of
                                       8 pct        ratio         8 pct
                                       gross                      gross
------------------------------------------------------------------------
A..................................    $7,500  ..   40/200  ..    $1,500
B..................................     7,500  ..   35/200  ..     1,313
C..................................     7,500  ..   45/200  ..     1,688
D..................................     7,500  ..   40/200  ..     1,500
E..................................     7,500  ..   15/200  ..       563
F..................................     7,500  ..   25/200  ..       938
------------------------------------------------------------------------

    (5)

------------------------------------------------------------------------
                                   Employee
                                   share of        Tips         Employee
    Directly tipped employees        8 pct    -  reported   =  shortfall
                                     gross
------------------------------------------------------------------------
A................................    $1,500  ..    $1,080  ..      $420
B................................     1,313  ..       880  ..       433
C................................     1,688  ..     1,810  ..  .........
D................................     1,500  ..       800  ..       700
E................................       563  ..       450  ..       113
F................................       938  ..       680  ..       258
                                  --------------------------------------
      Total shortfall............  ........  ..  ........  ..    $1,924
------------------------------------------------------------------------

    Since employee C has no reporting shortfall there is no allocation 
to C.
    (6) $8,000-6,200 (total tips reported) = $1,800 (amount allocable 
among shortfall employees).
    (7)

------------------------------------------------------------------------
                                Allocable      Shortfall       Amount of
      Shortfall employees         amount    x    ratio     =  allocation
------------------------------------------------------------------------
A.............................    $1,800   ..  420/1,924  ..      $393
B.............................     1,800   ..  433/1,924  ..       405
D.............................     1,800   ..  700/1,924  ..       655
E.............................     1,800   ..  113/1,924  ..       106
F.............................     1,800   ..  258/1,924  ..       241
------------------------------------------------------------------------

    Example 3. X is a large food or beverage establishment that has 
chosen to make tip allocations using a calendar year period. X had gross 
receipts for a calendar year of $2,000,000 and tips reported for the 
calendar year of $176,000. The amount to be allocated as tips is equal 
to the excess of 8 percent of the gross receipts of the establishment 
for the calendar year over the aggregate amount of tips reported by the 
employees of the establishment to the employer under section 6053(a) for 
the calendar year. Because the reported tips for the year ($176,000) are 
in excess of 8 percent of the gross receipts ($2,000,000 x .08 = 
$160,000), no tip allocations are made to the employees of this 
establishment for the calendar year.
    Example 4. X is a large food or beverage establishment that has 
chosen to make tip allocations using a calendar year period and gross 
receipts attributable to employees. X had gross receipts for a calendar 
year of $1,500,000 and tips reported for the calendar year of $110,000. 
Directly tipped employees reported $94,000 while indirectly tipped 
employees reported $16,000.

------------------------------------------------------------------------
                                                       Gross
                                                     receipts
             Directly tipped employees                  for       Tips
                                                     calendar   reported
                                                       year
------------------------------------------------------------------------
A.................................................     260,000   $18,600
B.................................................     240,000    14,600
C.................................................     380,000    31,200
D.................................................     260,000    13,000
E.................................................     160,000     6,000
F.................................................     200,000    10,600
                                                   ---------------------
      Total.......................................  $1,500,000   $94,000
------------------------------------------------------------------------

    The allocation computations are as follows:
    (1) $1,500,000 (gross receipts) x 0.08 = $120,000.
    (2) Tips reported by indirectly tipped employees = $16,000.
    (3) $120,000-16,000 (indirect employees tips) = $104,000.
    (4)

----------------------------------------------------------------------------------------------------------------
                                                                   Directly
                                                                    tipped                              Employee
                    Directly tipped employees                      share of   X    Gross receipts    =  share of
                                                                    8 pct.             ratio             8 pct.
                                                                    gross                                 gross
----------------------------------------------------------------------------------------------------------------
A...............................................................   $104,000  ..  260,000/1,500,000  ..   $18,027
B...............................................................    104,000  ..  240,000/1,500,000  ..    16,640
C...............................................................    104,000  ..  380,000/1,500,000  ..    26,347
D...............................................................    104,000  ..  260,000/1,500,000  ..    18,027
E...............................................................    104,000  ..  160,000/1,500,000  ..    11,093
F...............................................................    104,000  ..  200,000/1,500,000  ..    13,867
----------------------------------------------------------------------------------------------------------------

    (5)

------------------------------------------------------------------------
                                   Employee
                                   share of        Tips         Employee
    Directly tipped employees       8 pct.    -  reported   =  shortfall
                                     gross
------------------------------------------------------------------------
A................................    18,027  ..    18,600  ..  .........
B................................    16,640  ..    14,600  ..     2,040
C................................    26,347  ..    31,200  ..  .........
D................................    18,027  ..    13,000  ..     5,027

[[Page 370]]

 
E................................    11,093  ..     6,000  ..     5,093
F................................    13,867  ..    10,600  ..     3,267
                                  --------------------------------------
      Total shortfall............  ........  ..  ........  ..    15,427
------------------------------------------------------------------------

    Since employees A and C do not have a reporting shortfall there are 
no allocations to them.
    (6) $120,000-110,000 (total tips reported) = $10,000 (amount 
allocable among shortfall employees).
    (7)

----------------------------------------------------------------------------------------------------------------
                                                                     Allocable        Shortfall        Amount of
                        Shortfall employees                            amount    x      ratio      =  allocation
----------------------------------------------------------------------------------------------------------------
B..................................................................    10,000   ..  2,040/15,427  ..     $1,322
D..................................................................    10,000   ..  5,027/15,427  ..      3,259
E..................................................................    10,000   ..  5,093/15,427  ..      3,301
F..................................................................    10,000   ..  3,267/15,427  ..      2,118
                                                                    --------------------------------------------
      Total........................................................  .........  ..  ............  ..    $10,000
----------------------------------------------------------------------------------------------------------------

    Example 5. Assume the same facts as in example 4 except that the 
employer has chosen the employee hours worked method of computing tip 
allocations, the calendar year gross receipts were $1,000,000, and the 
tips reported for the calendar year were $74,000. Directly tipped 
employees reported $70,000 while indirectly tipped employees reported 
$4,000.

------------------------------------------------------------------------
                                                        Hours
                                                       worked
              Directly tipped employees                in the     Tips
                                                      calendar  reported
                                                        year
------------------------------------------------------------------------
A...................................................    2,000    $11,800
B...................................................    1,750      9,800
C...................................................    2,250     15,100
D...................................................    2,000      9,000
E...................................................      750      4,500
F...................................................    1,250      7,800
G...................................................      490      3,200
H...................................................      510      2,800
I...................................................      200        800
J...................................................    1,000      5,200
                                                     -------------------
  Total.............................................   12,200    $70,000
------------------------------------------------------------------------

    The allocation computations would be as follows:
    (1) $1,000,000 (gross receipts) x 0.08 = $80,000.
    (2) Tips reported by indirectly tipped employees = $4,000.
    (3) $80,000 - $4,000 (indirect employee tips) = $76,000.
    (4)

------------------------------------------------------------------------
                                Directly
                                 tipped                         Employee
   Directly tipped employees    share of   x  Hours worked   =  share of
                                 8 pct.           ratio          8 pct.
                                  gross                           gross
------------------------------------------------------------------------
A.............................   $76,000  ..  2,000/12,200  ..   $12,459
B.............................    76,000  ..  1,750/12,200  ..    10,902
C.............................    76,000  ..  2,250/12,200  ..    14,016
D.............................    76,000  ..  2,000/12,200  ..    12,459
E.............................    76,000  ..    750/12,200  ..     4,672
F.............................    76,000  ..  1,250/12,200  ..     7,787
G.............................    76,000  ..    490/12,200  ..     3,052
H.............................    76,000  ..    510/12,200  ..     3,177
I.............................    76,000  ..    200/12,200  ..     1,246
J.............................    76,000  ..  1,000/12,200  ..     6,230
                               -----------------------------------------
      Total...................  ........  ..  ............  ..   $76,000
------------------------------------------------------------------------

    (5)

------------------------------------------------------------------------
                                  Employee
                                  share of         Tips         Employee
   Directly tipped employees       8 pct.    -   reported   =  shortfall
                                   gross
------------------------------------------------------------------------
A..............................     12,459  ..     11,800  ..       $659
B..............................     10,902  ..      9,800  ..      1,102
C..............................     14,016  ..     15,100  ..  .........
D..............................     12,459  ..      9,000  ..      3,459
E..............................      4,672  ..      4,500  ..        172
F..............................      7,787  ..      7,800  ..  .........
G..............................      3,052  ..      3,200  ..  .........
H..............................      3,177  ..      2,800  ..        377
I..............................      1,246  ..        800  ..        446
J..............................      6,230  ..      5,200  ..      1,030
                                ----------------------------------------
      Total shortfall..........  .........  ..  .........  ..     $7,245
------------------------------------------------------------------------

    Since employees C, F, and G have no reporting shortfalls, there are 
no allocations made to them.
    (6) $80,000 - 74,000 (total tips reported) = $6,000.
    (7)

------------------------------------------------------------------------
                               Allocable       Shortfall       Amount of
     Shortfall employees         amount    x     ratio     =  allocation
------------------------------------------------------------------------
A............................    $6,000   ..   659/7,245  ..       $546
B............................     6,000   ..      1,102/  ..        913
                                                   7,245
D............................     6,000   ..      3,459/  ..      2,865
                                                   7,245
E............................     6,000   ..   172/7,245  ..        142
H............................     6,000   ..   377/7,245  ..        312
I............................     6,000   ..   446/7,245  ..        369
J............................     6,000   ..      1,030/  ..        853
                                                   7,245
                              ------------------------------------------
      Total..................  .........  ..  ..........  ..     $6,000
------------------------------------------------------------------------

    (g) Period of allocation. In applying paragraphs (d), (e), (f), and 
(h)(3) of this section an employer may substitute the calendar year or 
any period that results from a reasonable division of a calendar year 
for the term ``payroll period'' each place it appears in such 
paragraphs. If an employer makes such a substitution with respect to a 
large

[[Page 371]]

food or beverage establishment the substituted period shall be stated on 
Form 8027 for such large food or beverage establishment and shall be 
effective for such employer's large food or beverage establishment for 
the entire calendar year.
    (h) Lowering the percentage to be used--(1) In general. On and after 
July 18, 1984, an employer or a majority of the employees (as defined in 
paragraph (h)(2)(iii) of this section) of an employer may petition the 
district director for the internal revenue district in which the 
employer's establishment is located to have the percentage of gross 
receipts that is used to determine the amount to be allocated under 
section 6053(c)(3)(A) and paragraph (d) of Sec.  31.6053-3 reduced from 
8 percent to the percentage that the petitioning employer or employees 
believe to be the actual percentage of the amount of the establishment's 
gross receipts that reflects the amount of tips. The district director 
may thereafter reduce the percentage of gross receipts used to determine 
the amount to be so allocated to the percentage that the district 
director determines to be the proper estimate of the actual percentage 
of gross receipts constituting tips. The district director, however, may 
not reduce the percentage below 2 percent. For the rules in effect prior 
to July 18, 1984, see 26 CFR 31.6053-3(h) (Rev. as of April 1, 1984).
    (2) Time and manner for petition to have percentage reduced--(i) In 
general. The petition shall be in writing and shall include sufficient 
information to allow the district director to estimate with reasonable 
accuracy the actual tip rate of the establishment. For example, such 
information might include the charged tip rate, the type of 
establishment, menu prices, the location of the establishment, the 
amount of ``self-service'' required, the days and hours open for 
business, and whether the customer receives the check from or pays the 
server for the meal.
    (ii) Employer petitions. In the case of employer-originated 
petitions, the employer has the burden of supplying sufficient 
information to allow the district director to estimate with reasonable 
accuracy the actual tip rate of the establishment. The employer also 
shall attach to the petition copies of Form 8027 (if any) filed for the 
establishment for the 3 years preceding calendar years.
    (iii) Employee petitions. (A) In the case of employee-originated 
petitions, a majority of the employees of an establishment must consent 
to the petition. A majority for purposes of this paragraph is more than 
one-half of all the directly tipped employees (within the meaning of 
paragraph (j)(12) of this section) employed by the establishment at the 
time the petition is filed. In the case of a single petition for certain 
multi-establishment employers (see paragraph (h)(4) of this section), 
more than one-half of the aggregate directly tipped employees (at the 
time the petition is filed) of the establishments covered by the 
petition must consent. The petition filed with the district director 
must state the total number of directly tipped employees employed by the 
establishment (or establishments) and the number of the directly tipped 
employees consenting to the petition.
    (B) The petitioning employees have the burden of supplying 
sufficient information to allow the district director to estimate with 
reasonable accuracy the actual tip rate of the establishment to the 
extent they possess such information. If the employer possesses relevant 
information, the employer must provide such information to the district 
director upon the request of the petitioning employees or district 
director. Employees who file a petition under this paragraph must 
promptly notify their employer of the petition. Promptly upon receipt of 
such notification, their employer must submit to the district director 
copies of the Form 8027 (if any) filed for the establishment for the 3 
immediately preceding calendar years. Any information supplied by the 
employer during the petitioning process constitutes return information 
(as defined in section 6103(b)(2)) which shall not be disclosed by the 
Internal Revenue Service (except as provided in section 6103) to any 
employees of the employer or to representatives of such employees.
    (3) Effective date for reduced percentage. The district director 
shall determine the term for which the reduced percentage is to be 
effective. At the

[[Page 372]]

end of such term, the reduced percentage shall cease to apply unless 
previously extended by the district director for the district in which 
the large food or beverage establishment is located. In no event shall 
the reduced percentage be applied to payroll periods before the date the 
petition described in paragraph (h)(2) of this section is filed unless 
the establishment is a new business (as described in paragraph (i) of 
Sec.  31.6053-3). In the case of a new business or a petition for 
reduction filed prior to September 30, 1983, the district director may 
allow the approved reduced percentage to be applied retroactively to the 
first day of the calendar year of the petition. Until such time as the 
employer is notified in writing by the district director of approval of 
a reduction, the employer must continue to use 8 percent of gross 
receipts for purposes of complying with section 6053(c) and this 
section.
    (4) Single petition for certain multi-establishment employers. An 
employer (including a single employer as defined in section 52 (a) or 
(b)) or a majority of the employees of such employer may use a single 
petition for two or more of the employer's establishments if such 
establishments are essentially the same type of business, the 
petitioning employer or employees have made a good faith determination 
that the tip rates at such establishments are essentially the same, and 
the establishments are located in the same internal revenue region. 
Single petitions shall include the names and locations of the 
establishments for which a reduction is requested and the information 
required by paragraph (h)(2) of this section for a typical 
establishment. A single petition for multi-establishments located within 
an internal revenue region shall be filed with the district director for 
the internal revenue district in which the greatest number of the 
establishments included in the petition are located. If there is an 
equal number of establishments located in two or more internal revenue 
districts the employer or employees petitioning may choose the district 
to which the petition is sent.
    (i) Application of reporting requirements to new businesses--(1) In 
general. A food or beverage operation is a new business if the employer 
of the operation did not operate any food or beverage operations during 
the preceding calendar year. An employer will not be considered to have 
operated a food or beverage operation during a calendar year if each 
food or beverage operation of the employer was operated for less than 
one calendar month during such year. In a calendar year in which a food 
or beverage operation is a new business, the determination of whether 
the operation is a large food or beverage establishment shall be made as 
provided in paragraph (i)(2) of this section and the employer shall 
comply with section 6053(c) and this section as provided in paragraph 
(i)(3) of this section.
    (2) Determination of status as a large food or beverage 
establishment. A food or beverage operation shall be considered a large 
food or beverage establishment during the calendar year in which it is a 
new business if the average number of hours worked per business day by 
all employees of the employer at the new business during each of any two 
consecutive calendar months of the calendar year, computed in the manner 
provided in the second sentence of paragraph (j)(9) of this section, is 
greater than 80 hours.
    (3) New business compliance under section 6053(c). A new business 
that is determined to be a large food or beverage establishment under 
paragraph (i)(2) of this section shall comply with section 6053(c) and 
this section beginning with the first payroll period that begins after 
the first period of two consecutive calendar months described in 
paragraph (i)(2) of this section.
    (j) Definitions. For purposes of section 6053(c) and this section:
    (1) Gross receipts. Gross receipts shall include all receipts (other 
than nonallocable receipts), from the provision of food or beverages by 
a large food or beverage establishment from cash sales, charge receipts 
(including charged tips only to the extent the cash sales amount has 
been reduced due to the employer paying cash to tipped employees for 
charged tips due them), charges to a hotel room (excluding tips charged 
to a hotel room only to the extent that the employer's accounting 
procedures allow such tips to be segregated out and excluding

[[Page 373]]

charges that are otherwise included in charge receipts), and the retail 
value of complimentary food or beverages (as defined in paragraph 
(j)(16) of this section) served to customers. Gross receipts shall not 
include state or local taxes. In the case of a trade or business that 
does not charge separately for the provision of food or beverages (i.e., 
a trade or business that provides other goods or services along with 
food or beverages for a combined price, such as a ``package deal'' for 
food and lodging), the employer shall make a good faith estimate of the 
gross receipts attributable to the provision of the food or beverages 
that reflects the cost to the employer of providing the food or 
beverages plus a reasonable profit factor.
    (2) Gross receipts attributable to a directly tipped employee. Gross 
receipts attributable to a directly tipped employee are those gross 
receipts (as defined in paragraph (j)(1) of this section) from the 
provision of food or beverages to customers with respect to which the 
employee provided services. For example, if a directly tipped employee's 
name is on every check given to customers for whom the employee has 
provided services, the gross receipts attributable to such employee 
could be determined by aggregating the amounts of all checks bearing 
that employee's name (other than amounts from nonallocable receipts).
    (3) Nonallocable receipts. Nonallocable receipts are receipts which 
are attributable to carryout sales or to services with respect to which 
a service charge of 10 percent or more is added. Carryout sales are 
sales of food or beverages for consumption off the premises of the 
establishment. Room service is not a carryout sale. If an 
establishment's accounting system does not segregate receipts from 
carryout sales from the establishment's other receipts, receipts from 
carryout sales may be determined as an estimated percentage of total 
receipts. The applicable percentage shall be determined in good faith by 
the employer on the basis of generally accepted accounting practices, 
including but not limited to, surveys of carryout sales as a percentage 
of gross sales. An employer may rely upon estimates as to carryout sales 
which are established in good faith between the employer and state or 
local governments for purposes of state or local taxation.
    (4) Charge receipts. Charge receipts shall include credit card 
charges and charges under any other credit arrangement (e.g., house 
charges, city ledger, and charge arrangements to country club members). 
Charges to a hotel room may be excluded from charge receipts if such 
exclusion is consistent with the employer's normal accounting practices 
and the employer applies such exclusion consistently for a given large 
food or beverage establishment. Otherwise, charges to a hotel room shall 
be included in charge receipts.
    (5) Charged tips. A tip included on a charge receipt is a charged 
tip.
    (6) Food or beverage operation. A ``food or beverage operation'' is 
any business activity which provides food or beverages for consumption 
on the premises (other than ``fast food'' operations). If an employer 
conducts activities that provide food or beverages at more than one 
location, the activity at each separate location shall be considered to 
be a separate food or beverage operation, Each activity conducted within 
a single building shall be considered to be conducted at a separate 
location if the customers of the activity, while being provided with 
food or beverages, occupy an area separate from that occupied by 
customers of other activities and the gross receipts of the activity are 
recorded separately from the gross receipts of other activities. For 
example, a gourmet restaurant, a coffee shop, and a cocktail lounge in a 
hotel would each be treated as a separate food or beverage operation if 
gross receipts from each activity are recorded separately. In addition, 
an employer may treat different activities conducted in the identical 
place at different times as separate food or beverage operations if the 
gross receipts of the activities at each time are recorded separately. 
For example, a restaurant may record the gross receipts from its 
cafeteria style lunch operation separately from the gross receipts of 
its full service food or beverage operations.
    (7) Large food or beverage establishment. A food or beverage 
operation is a ``large food or beverage establishment'' if:

[[Page 374]]

    (i) The employer at the food or beverage operation normally employed 
more than 10 employees on a typical business day during the preceding 
calendar year, and
    (ii) The tipping of food or beverage employees of the food or 
beverage operation is customary. Generally, tipping would not be 
considered customary for a cafeteria style operation (as defined in 
paragraph (j)(18) of this section) or for a food or beverage operation 
where at least 95 percent of its total sales are nonallocable receipts, 
within the meaning of paragraph (j)(3) of this section, by reason of the 
addition of a service charge of 10 percent or more. Total sales shall 
include only gross receipts (as defined in paragraph (j)(1) of this 
section) and nonallocable receipts (other than carryout receipts) from 
the provision of food or beverages. In the case of an operation such as 
a restaurant that is a cafeteria style operation at lunch and that has 
full service with tipping customary at dinner, the entire operation is 
generally a large food or beverage establishment if the employer meets 
the 10-employee test. However, if the gross receipts of the cafeteria 
style operation at lunch are recorded separately from the dinner 
operation gross receipts the employer may treat the dinner operation as 
a large food or beverage establishment and the lunch operation as a 
separate food or beverage operation that is not a large food or beverage 
establishment due to the fact that tipping is not considered customary 
for cafeteria style operations.
    (8) Employee. The term ``employee'' has the same meaning as in 
section 3401(c) and Sec.  31.3401(c)-1.
    (9) More than 10 employees on a typical business day. An employer 
shall be considered to have normally employed more than 10 employees on 
a typical business day during a calendar year if one-half of the sum of 
the average number of employee hours worked per business day during the 
calendar month in which the aggregate gross receipts from food or 
beverage operations were the greatest plus the average number of 
employee hours worked per business day during the calendar month in 
which the aggregate gross receipts from food or beverage operations were 
the least, is greater than 80 hours. The average number of employee 
hours worked per business day during a month shall be computed by 
dividing the total number of hours worked during the month by all 
employees of the employer who are employed in a food or beverage 
operation by the average of the number of days during the month that 
each food or beverage operation at which such employees worked was open 
for business. If an employer operates both a food or beverage operation 
and a nonfood or beverage operation, and one or more of his or her 
employees work for both operations, the employer may make a good faith 
estimate of the number of hours such employees worked for each operation 
in a given month. Similarly, in cases where one or more of an employer's 
employees work for more than one of such employer's food or beverage 
operations, a good faith estimate may be made of the number of hours 
such employees worked for each operation in a given month. For purposes 
of this subparagraph, employees who are employed in a food or beverage 
operation include all employees of the operation, not just food or 
beverage employees. The employees of an employer shall include all 
employees at all food or beverage operations who, along with the 
employees of such employer, would be treated as employees of a single 
employer under section 52 (a) or (b) (as in effect on September 3, 1982) 
and the regulations thereunder. For example, if an employer at a food or 
beverage operation is a member of a controlled group of corporations, 
then all employees of all corporations which are members of such 
controlled group of corporations shall be treated as employed by each 
such employer for purposes of this paragraph. However, an individual who 
owns 50 percent or more in value of the stock of a corporation operating 
an establishment shall not be treated as an employee of any 
establishment owned by the corporation.
    (10) Food or beverage employee. A ``food or beverage employee'' is 
an employee who provides services in connection with the provision of 
food or beverages. Such employees include, but are not limited to, 
waiters, waitresses, busboys, bartenders, persons in charge of seating 
(such as a hostess, maitre d'

[[Page 375]]

or dining room captain), wine stewards, cooks, and kitchen help. 
Examples of employees who are not food or beverage employees include, 
but are not limited to, coat check persons, bellhops, and doormen.
    (11) Tipped employee. A ``tipped employee'' of a food or beverage 
operation is an employee who is a food or beverage employee that 
customarily receives tip income from employment at that operation. An 
employee who occasionally receives small amounts of tip income is not a 
tipped employee. Generally, an employee who receives less than $20 per 
month in tip income would not be considered as customarily receiving tip 
income.
    (12) Directly tipped employee. A ``directly tipped employee'' is any 
tipped employee who receives tips directly from customers, including an 
employee who after receiving tips directly from customers turns all the 
tips over to a tip pool. Examples of directly tipped employees are 
waiters, waitresses, and bartenders.
    (13) Indirectly tipped employee. An ``indirectly tipped employee'' 
is a tipped employee who does not normally receive tips directly from 
customers. Examples of indirectly tipped employees are busboys, service 
bartenders and cooks. An employee, such as a maitre d', who receives 
tips both directly from customers and indirectly through tip splitting 
or tip pooling shall be treated as a directly tipped employee.
    (14) Calendar year. The term ``calendar year'' shall mean either the 
period from January 1 through December 31 or the period that begins with 
the first day of the first payroll period ending on or after January 1 
and ends with the last day of the last payroll period ending in December 
of the same year. With respect to any establishment, the employer shall 
choose one of these two descriptions and apply it consistently.
    (15) Tips reported for a specified period. Tips reported to an 
employer for a specified period under section 6053(a) are those tips 
actually received by an employee during such period without regard to 
the time when the tips are reported to the employer. Thus, if an 
employee reports to the employer in calendar year 1984 tips the employee 
actually received in calendar year 1983, the amount of tips actually 
received in calendar year 1983 must be included by the employer when 
making such information returns, statements and allocations required 
under section 6053(c) and this section for calendar year 1983.
    (16) Complimentary food or beverages. Food or beverages served to 
customers without charge are complimentary if:
    (i) Tipping for the provision of such food or beverages is customary 
at the establishment, and
    (ii) Such food or beverages are provided in connection with an 
activity that is engaged in for profit and whose receipts would not be 
included in gross receipts as defined in paragraph (j)(1) of this 
section but for this subparagraph and are not nonallocable receipts 
which are attributable to services with respect to which a service 
charge of 10 percent or more is added.

For example, the retail values of complimentary hors d'oeuvres served at 
a bar or a complimentary dessert served to a regular patron of a 
restaurant would not be included in gross receipts because the receipts 
of the bar or restaurant would be included in gross receipts as defined 
in paragraph (j)(1) of this section. The retail value of a complimentary 
fruit basket placed in a hotel room generally would not be included in 
gross receipts because tipping for the provision of such items is not 
customary. The retail value of complimentary drinks served to customers 
in a gambling casino would be included in gross receipts because tipping 
for the provision of such items is customary, the gambling casino is an 
activity engaged in for profit, and the gambling receipts of the casino 
would not be included in gross receipts as defined in paragraph (j)(1) 
of this section except for this subparagraph.
    (17) Fast food operation. An operation is a ``fast food'' operation 
only if its customers order, pick up, and pay for food or beverages at a 
counter, window, etc., and then carry the food or beverages to another 
location (either on or off the premises of such activities).
    (18) Cafeteria style operation. The term ``cafeteria style'' 
operation means a food or beverage operation which is primarily self-
service and in which the total cost of food or beverages selected

[[Page 376]]

by a customer is paid prior to the customer's being seated or is stated 
on a check provided to the customer prior to the customer's being seated 
and is paid by the customer to a cashier. Generally, operations are 
primarily self-service if food or beverages are ordered or selected by a 
customer at one location and carried by the customer from such location 
to the customer's seat. For example, cafeteria lines, buffets, and 
smorgasbords are primarily self-service. If, after a customer is seated, 
a food or beverage employee delivers items such as an item that required 
additional preparation after being selected by the customer, condiments, 
beverages, or refills at no additional cost to the customer, a food or 
beverage operation's status as primarily self-service would not be 
affected.
    (19) Less than the equivalent of 25 full-time employees. For 
purposes of paragraph (f)(1)(iv) of this section, an employer shall be 
considered to employ less than the equivalent of 25 full-time employees 
at an establishment during a payroll period (as defined in section 
3401(b) and the regulations thereunder) if the average number of 
employee hours worked per business day during a payroll period is less 
than 200 hours. The average number of employee hours worked per business 
day during a payroll period shall be computed by dividing the total 
number of hours worked during the period by all employees of the 
employer who are employed in a food or beverage operation by the average 
of the number of days during the period that each food or beverage 
operation at which such employees worked was open for business. If an 
employer operates both a food or beverage operation and a nonfood or 
beverage operation, and one or more of his employees work for both 
operations, the employer may make a good faith estimate of the number of 
hours such employees worked for each operation in a given payroll 
period. Similarly, in cases where one or more of an employer's employees 
work for more than one of such employer's food or beverage operations, a 
good faith estimate may be made of the number of hours such employees 
worked for each operation in a given payroll period. If there is more 
than one payroll period for the establishment, the payroll period which 
is used for the greatest number of employees shall be the payroll period 
for purposes of this paragraph (j)(19). For purposes of this paragraph 
(j)(19), employees who are employed in a food or beverage operation 
include all employees of the operation, not just food or beverage 
employees. The employees of an employer shall include all employees at 
all food or beverage operations who, along with the employees of such 
employer, would be treated as employees of a single employer under 
section 52 (a) or (b) (as in effect on September 3, 1982) and the 
regulations thereunder. For example, if an employer at a food or 
beverage operation is a member of a controlled group of corporations, 
then all employees of all corporations which are members of such 
controlled group of corporations shall be treated as employed by each 
such employer for purposes of this paragraph.
    (k) Permission to submit information on magnetic tape. For rules 
relating to permission to submit the information required by section 
6053(c) and this section on magnetic tape of other media, see Sec.  
31.6011 (a)-8.
    (l) Recordkeeping requirements. An employer shall keep records 
sufficient to substantiate any information returns, employer statements 
to employees, applications, or tip allocations made pursuant to section 
6053(c) and this section. The records required by this paragraph shall 
be retained for 3 years after the due date of the return or statement to 
which they pertain.
    (m) Food or beverage operations outside the United States. Employers 
at food or beverage operations outside the United States (as defined in 
section 7701(a)(9)) are not subject to the reporting requirements under 
section 6053(c) and this section.
    (n) Effective date. This section is effective for calendar year 1983 
and thereafter.

(96 Stat. 603, 26 U.S.C. 6053(c); 68A Stat. 917, 26 U.S.C. 7805)

[T.D. 7906, 48 FR 36809, Aug. 15, 1983; 48 FR 40518, Sept. 8, 1983, as 
amended by T.D. 8039, 50 FR 29965, July 23, 1985; T.D. 8141, 52 FR 
21511, June 8, 1987; T.D. 8895, 65 FR 50408, Aug. 18, 2000]

[[Page 377]]



Sec.  31.6053-4  Substantiation requirements for tipped employees.

    (a) Substantiation of tip income--(1) In general. An employee shall 
maintain sufficient evidence to establish the amount of tip income 
received by the employee during a taxable year. A daily record 
maintained by the employee (as described in paragraph (a)(2) of this 
section) shall constitute sufficient evidence. If the employee does not 
maintain a daily record, other evidence of the amount of tip income 
received during the year, such as documentary evidence (as described in 
paragraph (a)(3) of this section), shall constitute sufficient evidence, 
but only if such other evidence is as credible and as reliable as a 
daily record. The Commissioner may by revenue ruling, procedure or other 
guidance of general applicability provide for other methods of 
demonstrating evidence of tip income. However, notwithstanding any other 
provision of this paragraph (a) (1), a daily record or other evidence 
that is as credible and as reliable as a daily record may not be 
sufficient evidence if there are facts or circumstances which indicate 
that the employee received a larger amount of tip income. Moreover, oral 
statements of the employee, without corroboration, cannot constitute 
sufficient evidence.
    (2) Daily record. The daily record shall state the employee's name 
and address, the employer's name, and the establishment's name. The 
daily record shall show for each work day the amount of cash tips and 
charge tips received directly from customers or from other employees, 
and the amount of tips, if any, paid out to other employees through tip 
sharing, tip pooling or other arrangements and the names of such 
employees. The record shall also show the date that each entry is made. 
Form 4070A, Employee's Daily Record of Tips, may be used to maintain 
such daily record. In addition, an electronic system maintained by the 
employer that collects substantially similar information as Form 4070A 
may be used to maintain such daily record, provided the employee 
receives and maintains a paper copy of the daily record. The daily 
record of tips received by an employee shall be prepared and maintained 
in such manner that each entry is made on or near the date the tip 
income is received. A daily record made on or near the date the tip 
income is received has a high degree of credibility not present with 
respect to a record prepared subsequent thereto when generally there is 
a lack of accurate recall. An entry is made ``near the date the tip 
income is received'' if the required information with respect to tips 
received and paid out by the employee for the day is recorded at a time 
when the employee has full present knowledge of those receipts and 
payments.
    (3) Documentary evidence. Documentary evidence consists of copies of 
any documents that contain (i) amounts that were added to a check by 
customers as a tip and paid over to the employee or (ii) amounts that 
were paid by a customer for food or beverages with respect to which tips 
generally would be received by the employee. Examples of documentary 
evidence are copies of restaurant bills, credit card charges, or charges 
under any other arrangement (see Sec.  31.6053-3(j)(4)) containing 
amounts added by the customer as a tip.
    (b) Retention of records. Records maintained under this section 
shall be kept at all times available for inspection by authorized 
internal revenue officers or employees, and shall be retained so long as 
the contents thereof may become material in the administration of any 
internal revenue law.
    (c) Effective date. The substantiation requirements of this Sec.  
31.6053-4 shall be effective for tips received on or after October 1, 
1985. For the rules in effect prior to October 1, 1985, see section 6001 
and the regulations thereunder. Substantiation considered sufficient as 
provided in this Sec.  31.6053-4 will also be considered sufficient for 
tips received before October 1, 1985.

[T.D. 8141, 52 FR 21513, June 8, 1987, as amended by T.D. 8910, 65 FR 
77820, Dec. 13, 2000]



Sec.  31.6060-1  Reporting requirements for tax return preparers.

    (a) In general. A person that employs one or more tax return 
preparers to prepare a return or claim for refund of employment tax 
under chapters 21 through 25 of subtitle C of the Internal

[[Page 378]]

Revenue Code, other than for the person, at any time during a return 
period, shall satisfy the recordkeeping and inspection requirements in 
the manner stated in Sec.  1.6060-1 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed after December 31, 2008.

[T.D. 9436, 73 FR 78453, Dec. 22, 2008]



Sec.  31.6061-1  Signing of returns.

    Each return required under the regulations in this subpart shall, if 
signature is called for by the form or instructions relating to the 
return, be signed by (a) the individual, if the person required to make 
the return is an individual; (b) the president, vice president, or other 
principal officer, if the person required to make the return is a 
corporation; (c) a responsible and duly authorized member or officer 
having knowledge of its affairs, if the person required to make the 
return is a partnership or other unincorporated organization; or (d) the 
fiduciary, if the person required to make the return is a trust or 
estate. The return may be signed for the taxpayer by an agent who is 
duly authorized in accordance with Sec.  31.6011(a)-7 to make such 
return.



Sec.  31.6065(a)-1  Verification of returns or other documents.

    If a return, statement, or other document made under the regulations 
in this part is required by the regulations contained in this part, or 
the form and instructions issued with respect to such return, statement, 
or other document, to contain or be verified by a written declaration 
that it is made under the penalties of perjury, such return, statement, 
or other document shall be so verified by the person signing it.



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

    (a) Federal Insurance Contributions Act and income tax withheld from 
wages and from nonpayroll payments--(1) Quarterly or annual returns. 
Except as provided in paragraph (a)(4) of this section, each return 
required to be made under Sec.  31.6011(a)-1, 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.  31.6011(a)-4, 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. A return 
may be filed on or before the 10th day of the second calendar month 
following such period if timely deposits under section 6302(c) of the 
Code and the regulations have been made in full payment of such taxes 
due for the period.
    (2) Monthly tax returns. Each return in respect of the taxes imposed 
by the Federal Insurance Contributions Act or of income tax withheld 
which is required to be made under paragraph (a) of Sec.  31.6011(a)-5 
shall be filed on or before the fifteenth day of the first calendar 
month following the period for which it is made.
    (3) Information returns--(i) General rule. Each information return 
in respect of wages as defined in the Federal Insurance Contributions 
Act or of income tax withheld from wages as required under Sec.  
31.6051-2 must be filed on or before January 31 of the year following 
the calendar year for which it is made, except that, if a tax return 
under Sec.  31.6011(a)-5(a) is filed as a final return for a period 
ending prior to December 31, the information return must be filed on or 
before the last day of the first month following the period for which 
the tax return is filed.
    (ii) Expedited filing. If an employer who is required to make a 
return pursuant to Sec.  31.6011(a)-1 or Sec.  31.6011(a)-4 is required 
to make a final return on Form 941, or a variation thereof, under Sec.  
31.6011(a)-6(a)(1) (relating to the final return for Federal Insurance 
Contributions Act taxes and income tax withholding from wages), the 
return which is required to be made under Sec.  31.6051-2 must be filed 
on or before the last day of the first month following the period for 
which the final return is filed. The requirements set forth in this 
paragraph (a)(3)(ii) do not apply to employers with respect to employees 
whose wages are for domestic service in the private home of the 
employer. See Sec.  31.6011(a)-1(a)(3).
    (4) Employee returns under Federal Insurance Contributions Act. A 
return of employee tax under section 3101 required under paragraph (d) 
of

[[Page 379]]

Sec.  31.6011(a)-1 to be made by an individual for a calendar year on 
Form 1040 shall be filed on or before the due date of such individual's 
return of income (see Sec.  1.6012-1 of this chapter (Income Tax 
Regulations)) for the calendar year, or, if the individual makes his 
return of income on a fiscal year basis, on or before the due date of 
his return of income for the fiscal year beginning in the calendar year 
for which a return of employee tax is required. A return of employee tax 
under section 3101 required under paragraph (d) of Sec.  31.601(a)-1 to 
be made for a calendar year--
    (i) On Form 1040SS or Form 1040PR, or
    (ii) On Form 1040 by an individual who is not required to make a 
return of income for the calendar year or for a fiscal year beginning in 
such calendar year,

shall be filed on or before the 15th day of the fourth month following 
the close of the calendar year.
    (b) Railroad Retirement Tax Act. Each return of the taxes imposed by 
the Railroad Retirement Tax Act required to be made under Sec.  
31.6011(a)-2 shall be filed on or before the last day of the second 
calendar month following the period for which it is made.
    (c) Federal Unemployment Tax Act. Each return of the tax imposed by 
the Federal Unemployment Tax Act required to be made under Sec.  
31.6011(a)-3 shall be filed on or before the last day of the first 
calendar month following the period for which it is made. However, a 
return may be filed on or before the 10th day of the second calendar 
month following such period if timely deposits under section 6302(c) of 
the Code and the regulations thereunder have been made in full payment 
of such taxes due for the period.
    (d) Last day for filing. For provisions relating to the time for 
filing a return when the prescribed due date falls on Saturday, Sunday, 
or a legal holiday, see the provisions of Sec.  301.7503-1 of this 
chapter (Regulations on Procedure and Administration).
    (e) Late filing. For additions to the tax in case of failure to file 
a return within the prescribed time, see the provisions of Sec.  
301.6651-1 of this chapter (Regulations on Procedure and 
Administration).
    (f) Cross reference. For extensions of time for filing returns and 
other documents, see Sec.  31.6081(a)-1.
    (g) Applicability date. This section applies to returns filed on or 
after January 30, 2020. Section 31.6071(a)-1T (as contained in 26 CFR 
part 31, revised April 2019) applies to returns filed before January 30, 
2020.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6941, 32 FR 
18041, Dec. 16, 1967; T.D. 7001, 34 FR 1005, Jan. 23, 1969; T.D. 7078, 
35 FR 18525, Dec. 5, 1970; T.D. 7351, 40 FR 17146, Apr. 17, 1975; T.D. 
7953, 49 FR 19644, May 9, 1984; T.D. 8504, 58 FR 68035, Dec. 23, 1993; 
T.D. 8895, 65 FR 50408, Aug. 18, 2000; T.D. 8952, 66 FR 33832, June 26, 
2001; T.D. 9239, 71 FR 14, Jan. 3, 2006; T.D. 9507, 75 FR 75900, Dec. 7, 
2010; T.D. 9524, 76 FR 26602, May 9, 2011; T.D. 9566, 76 FR 77675, Dec. 
14, 2011; T.D. 9586, 77 FR 24612, Apr. 25, 2012; T.D. 9821, 82 FR 33448, 
July 20, 2017; T.D. 9892, 85 FR 5327, Jan. 30, 2020]



Sec.  31.6071(a)-1A  Time for filing returns with respect to the railroad
unemployment repayment tax.

    (a) In general. Each return of the taxes imposed under section 3321 
(a) and (b) required to be made under Sec.  31.6011(a)-3A shall be filed 
on or before the last day of the second calendar month following the 
period for which it is made.
    (b) Last day for filing. For provisions relating to the time for 
filing a return when the prescribed due date falls on Saturday, Sunday, 
or a legal holiday, see the provisions of Sec.  301.7503-1 of this 
chapter (Regulations on Procedure and Administration).
    (c) Late filing. For additions to the tax in the case of failure to 
file a return within the prescribed time, see the provisions of Sec.  
301.6651-1 of this chapter (Regulations on Procedure and 
Administration).

[T.D. 8105, 51 FR 40169, Nov. 5, 1986. Redesignated and amended at T.D. 
8227, 53 FR 34736, Sept. 8, 1988]



Sec.  31.6081(a)-1  Extensions of time for filing returns and other
documents.

    (a) Federal Insurance Contributions Act; income tax withheld from 
wages; and Railroad Retirement Tax Act--(1) In general. Except as 
otherwise provided in

[[Page 380]]

subparagraphs (2) and (3) of this paragraph, no extension of time for 
filing any return or other document required in respect of the Federal 
Insurance Contributions Act, income tax withheld from wages, or the 
Railroad Retirment Tax Act will be granted.
    (2) Information returns of employers on Forms W-2 and W-3--In 
general. The Commissioner may grant an extension of time in which to 
file the Social Security Administration copy of Forms W-2 and the 
accompanying transmittal form which constitutes an information return 
under Sec.  31.6051-2(a). For further guidance regarding extensions of 
time to file the Social Security Administration copy of Forms W-2 and W-
3, see Sec.  1.6081-8 of this chapter.
    (ii) Automatic Extension of Time. The Commissioner may, in 
appropriate cases, publish procedures for automatic extensions of time 
to file Forms W-2 where the employer is required to file the Form W-2 on 
an expedited basis.
    (b) Federal Unemployment Tax Act. The Commissioner may, upon 
application of the employer, grant a reasonable extension of time (not 
to exceed 90 days) in which to file any return required in respect of 
the Federal Unemployment Tax Act. Any application for an extension of 
time for filing the return shall be in writing, properly signed by the 
employer or his duly authorized agent. Except as provided in paragraph 
(b) of Sec.  301.6091-1 (relating to hand-carried documents), each 
application shall be addressed to the internal revenue officer with whom 
the employer will file the return. Each application shall contain a full 
recital of the reasons for requesting the extension, to aid such officer 
in determining the period of the extension, if any, which will be 
granted. Such a request in the form of a letter to such internal revenue 
officer will suffice as an application. The application shall be filed 
on or before the due date prescribed in paragraph (c) of Sec.  
31.6071(a)-1 for filing the return, or on or before the date prescribed 
for filing the return in any prior extension granted. An extension of 
time for filing a return does not operate to extend the time for payment 
of the tax or any part thereof.
    (c) Duly authorized agent. In any case in which an employer is 
unable, by reason of illness, absence, or other good cause, to sign a 
request for an extension, any person standing in close personal or 
business relationship to the employer may sign the request on his 
behalf, and shall be considered as a duly authorized agent for this 
purpose, provided the requests sets forth the reasons for a signature 
other than the employer's and the relationship existing between the 
employer and the signer.
    (d) Effective date. Paragraph (a)(2)(i) of this section applies to 
requests for extensions of time to file the Social Security 
Administration copy of Forms W-2 and W-3 due after December 7, 2004.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6950, 33 FR 
5358, Apr. 4, 1968; T.D. 7351, 40 FR 17146, Apr. 17, 1975; T.D. 9061, 68 
FR 34799, June 11, 2003; T.D. 9163, 69 FR 70549, 70550, Dec. 7, 2004]



Sec.  31.6091-1  Place for filing returns.

    (a) Persons other than corporations. Except as provided in paragraph 
(c) of this section, the return of a person other than a corporation 
shall be filed with any person assigned the responsibility to receive 
returns in the local Internal Revenue Service office that serves the 
principal place of business or legal residence of such person. If such 
person has no principal place of business or legal residence in any 
internal revenue district, the return shall be filed with the District 
Director at Baltimore, Maryland, except as provided in paragraph (c) of 
this section.
    (b) Corporations. The return of a corporation shall be filed with 
any person assigned the responsibility to receive returns in the local 
Internal Revenue Service office that serves the principal place of 
business or principal office or agency of the corporation, except as 
provided in paragraph (c) of this section.
    (c) Returns of taxpayers outside the United States. The return of a 
person (other than a corporation) outside the United States having no 
legal residence or principal place of business in the United States, or 
the return of a corporation having no principal place of business or 
principal office or agency in the United States, shall be filed with

[[Page 381]]

the Internal Revenue Service, Philadelphia, Pennsylvania 19255, or as 
otherwise directed in the applicable forms and instructions.
    (d) Returns filed with internal revenue service centers or Social 
Security Administration office. Notwithstanding paragraphs (a), (b), and 
(c) of this section, whenever instructions applicable to such returns 
provide that the returns shall be filed with an internal revenue service 
center or an office of the Social Security Administration, such returns 
shall be so filed in accordance with such instructions.
    (e) Hand-carried returns. Except as provided in subparagraph (3) of 
this paragraph, and notwithstanding paragraphs (1) and (2) of section 
6091(b) and paragraph (d) of this section--
    (1) Persons other than corporations. Returns of persons other than 
corporations which are filed by hand carrying shall be filed with any 
person assigned the responsibility to receive hand-carried returns in 
the local Internal Revenue Service office as provided in paragraph (a) 
of this section.
    (2) Corporations. Returns of corporations which are filed by hand 
carrying shall be filed with any person assigned the responsibility to 
receive hand-carried returns in the local Internal Revenue Service 
office as provided in paragraph (b) of this section.
    (3) Exceptions. This paragraph shall not apply to returns of--
    (i) Persons who have no legal residence, no principal place of 
business, nor principal office or agency served by a local Internal 
Revenue Service office,
    (ii) Citizens of the United States whose principal place of abode 
for the period with respect to which the return is filed is outside the 
United States,
    (iii) Persons who claim the benefits of section 911 (relating to 
earned income from sources without the United States), section 922 
(relating to special deduction for Western Hemisphere trade 
corporations), section 931 (relating to income from sources within 
possessions of the United States), section 933 (relating to income from 
sources within Puerto Rico), or section 941 (relating to the special 
deduction for China Trade Act corporations), and
    (iv) Nonresident alien persons and foreign corporations.
    (f) Permission to file in office other than required office. The 
Commissioner may permit the filing of any return required to be made 
under the regulations in this subpart in any local Internal Revenue 
Service office, notwithstanding the provisions of paragraphs (1), (2), 
and (4) of section 6091(b) and paragraphs (a), (b), (c), (d), and (e) of 
this section.
    (g) Returns of officers and employees of the Internal Revenue 
Service. The Commissioner may require any officer or employee of the 
Internal Revenue Service to file any return required of him under the 
regulations in this subpart in any local Internal Revenue Service office 
selected by the Commissioner, notwithstanding the provisions of 
paragraphs (1), (2), and (4) of section 6091(b) and paragraphs (a), (b), 
(c), (d), and (e) of this section.

(68A Stat. 747, 26 U.S.C. 6051; 68A Stat. 917, 26 U.S.C. 7805)

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6915, 32 FR 
5261, Mar. 29, 1967; T.D. 7495, 42 FR 33727, July 1, 1977; T.D. 7580, 43 
FR 60160, Dec. 26, 1978; T.D. 9156, 69 FR 55745, Sept. 16, 2004]



Sec.  31.6101-1  Period covered by returns.

    The period covered by any return required under the regulations in 
this subpart shall be as provided in those provisions of the regulations 
under which the return is required to be made. See Sec.  31.6011(a)-1, 
relating to returns of taxes under the Federal Insurance Contributions 
Act; Sec.  31.6011(a)-2, relating to returns of taxes under the Railroad 
Retirement Tax Act; Sec.  31.6011(a)-3, relating to returns of tax under 
the Federal Unemployment Tax Act; Sec.  31.6011(a)-4, relating to 
returns of income tax withheld under section 3402; and Sec.  31.6011 
(a)-5, relating to monthly returns of taxes under the Federal Insurance 
Contributions Act and of income tax withheld under section 3402.



Sec.  31.6107-1  Tax return preparer must furnish copy of return to taxpayer
and must retain a copy or record.

    (a) In general. A person who is a signing tax return preparer of any 
return or claim for refund of employment tax under chapters 21 through 
25 of subtitle C of the Internal Revenue Code shall furnish a completed 
copy of the return

[[Page 382]]

or claim for refund to the taxpayer and retain a completed copy or 
record in the manner stated in Sec.  1.6107-1 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed after December 31, 2008.

[T.D. 9436, 73 FR 78453, Dec. 22, 2008]



Sec.  31.6109-1  Supplying of identifying numbers.

    (a) In general. The returns, statements, and other documents 
required to be filed under this subchapter shall reflect such 
identifying numbers as are required by each return, statement, or 
document and its related instructions. See Sec.  301.6109-1 of this 
chapter (Regulations on Procedure and Administration).
    (b) Effective date. The provisions of this section are effective for 
information which must be furnished after April 15, 1974. See 26 CFR 
Sec.  31.6109-1 (revised as of April 1, 1973) for provisions with 
respect to information which must be furnished before April 16, 1974.

[39 FR 9946, Mar. 15, 1974]



Sec.  31.6109-2  Tax return preparers furnishing identifying numbers for
returns or claims for refund.

    (a) In general. Each employment tax return or claim for refund of 
employment tax under chapters 21 through 25 of subtitle C of the 
Internal Revenue Code prepared by one or more signing tax return 
preparers must include the identifying number of the preparer required 
by Sec.  1.6695-1(b) of this chapter to sign the return or claim for 
refund in the manner stated in Sec.  1.6109-2 of this chapter.
    (b) Effective/applicability date. Paragraph (a) of this section is 
applicable to returns and claims for refund filed after December 31, 
2008.

[T.D. 9436, 73 FR 78453, Dec. 22, 2008]



Sec.  31.6151-1  Time for paying tax.

    (a) In general. The tax required to be reported on each tax return 
required under this subpart is due and payable to the internal revenue 
officer with whom the return is filed at the time prescribed in Sec.  
31.6071(a)-1 for filing such return. See the applicable sections in Part 
301 of this chapter (Regulations on Procedure and Administration), for 
provisions relating to interest on underpayments, additions to tax, and 
penalties.
    (b) Cross references. For provisions relating to the use of 
authorized financial institutions in depositing the taxes, see 
Sec. Sec.  31.6302(c)-1, 31.6302(c)-2, and 31.6302(c)-3. For rules 
relating to the payment of taxes in nonconvertible foreign currency, see 
Sec.  301.6316-7 of this chapter (Regulations on Procedure and 
Administration).

[T.D. 6872, 31 FR 149, Jan. 6, 1966; T.D. 6915, 32 FR 5261, Mar. 29, 
1967; T.D. 7037, 35 FR 6709, Apr. 28, 1970; T.D. 7953, 49 FR 19644, May 
9, 1984; T.D. 8952, 66 FR 33832, June 26, 2001]



Sec.  31.6157-1  Cross reference.

    For provisions relating to the time and manner of depositing the tax 
imposed by section 3301, see the provisions of Sec.  31.6302(c)-3. For 
provisions relating to the time and manner of depositing the railroad 
unemployment repayment tax imposed by section 3321(a), see Sec.  
31.6302(c)-2A.

[T.D. 7037, 35 FR 6709, Apr. 28, 1970, as amended at T.D. 8227, 53 FR 
34736, Sept. 8, 1988]



Sec.  31.6161(a)(1)-1  Extensions of time for paying tax.

    No extension of time will be granted for payment of any of the taxes 
to which the regulations in this part have application.



Sec.  31.6205-1  Adjustments of underpayments.

    (a) In general. (1) An employer who has underreported and underpaid 
employee Federal Insurance Contributions Act (FICA) tax under section 
3101 or employer FICA tax under section 3111, employee Railroad 
Retirement Tax Act (RRTA) tax under section 3201 or employer RRTA tax 
under section 3221, or income tax required under section 3402 to be 
withheld, with respect to any payment of wages or compensation, shall 
correct such error as provided in this section. Such correction may 
constitute an interest-free adjustment as provided in paragraph (b) or 
(c) of this section.
    (2) No correction will be eligible for interest-free adjustment 
treatment if the failure to report relates to an issue

[[Page 383]]

that was raised in an examination of a prior return period or if the 
employer knowingly underreported its employment tax liability.
    (3) Every correction under this section of an underpayment of tax 
with respect to a payment of wages or compensation shall be made on the 
form prescribed by the IRS that corresponds to the return being 
corrected. The form, filed in accordance with this section and the 
instructions, will constitute an adjusted return for the return period 
being corrected.
    (4) Every adjusted return on which an underpayment is corrected 
pursuant to this section shall designate the return period in which the 
error was ascertained and the return period being corrected, explain in 
detail the grounds and facts relied upon to support the correction, and 
set forth such other information as may be required by the regulations 
in this section and by the instructions relating to the adjusted return.
    (5) For purposes of this section, an error is ascertained when the 
employer has sufficient knowledge of the error to be able to correct it.
    (6) No correction will be eligible for interest-free adjustment 
treatment pursuant to this section after the earlier of the following:
    (i) Receipt from the IRS of notice and demand for payment thereof 
based upon an assessment.
    (ii) Receipt from the IRS of a Notice of Determination of Worker 
Classification (Notice of Determination) in connection with such 
underpayment. Prior to receipt of a Notice of Determination, the 
taxpayer may, in lieu of making a payment, make a cash bond deposit that 
would have the effect of stopping the accrual of any interest, but would 
not deprive the taxpayer of its right to receive a Notice of 
Determination and to petition the Tax Court under section 7436.
    (7) Subject to the exceptions specified in paragraphs (a)(2) and 
(a)(6) of this section, Form 2504, ``Agreement and Collection of 
Additional Tax and Acceptance of Overassessment (Excise or Employment 
Tax),'' Form 2504-WC, ``Agreement to Assessment and Collection of 
Additional Tax and Acceptance of Overassessment in Worker Classification 
Cases (Employment Tax),'' and such other forms as may be prescribed by 
the IRS, constitute adjusted returns for purposes of this section.
    (8) For provisions related to furnishing employee statements and 
corrected employee statements reporting wages and withheld taxes, see 
sections 6041 and 6051 and Sec. Sec.  1.6041-2 and 31.6051-1. For 
provisions relating to filing information returns and corrected 
information returns reporting wages and withheld taxes, see sections 
6041 and 6051 and Sec. Sec.  1.6041-2 and 31.6051-2.
    (9) For the period of limitations upon assessment and collection of 
taxes, see Sec.  301.6501(a)-1.
    (b) Federal Insurance Contributions Act and Railroad Retirement Tax 
Act--(1) Undercollection ascertained before return is filed. If an 
employer collects less than the correct amount of employee FICA or RRTA 
tax from an employee with respect to a payment of wages or compensation, 
and if the employer ascertains the error before filing the return on 
which the employee tax with respect to such wages or compensation is 
required to be reported, the employer shall nevertheless report on the 
return and pay to the IRS the correct amount of employee tax. If the 
employer does not report the correct amount of tax in these 
circumstances, the employer may not later correct the error through an 
interest-free adjustment.
    (2) Error ascertained after return is filed. (i) If an employer 
files a return on which FICA tax or RRTA tax is required to be reported, 
and reports on the return less than the correct amount of employee or 
employer FICA or RRTA tax with respect to a payment of wages or 
compensation, and if the employer ascertains the error after filing the 
return, the employer shall correct the error through an interest-free 
adjustment as provided in this section, except as provided in paragraph 
(b)(4) of this section for Additional Medicare Tax. The employer shall 
adjust the underpayment of tax by reporting the additional amount due on 
an adjusted return for the return period in which the wages or 
compensation was paid, accompanied by a detailed explanation of

[[Page 384]]

the amount being reported on the adjusted return and any other 
information as may be required by this section and by the instructions 
relating to the adjusted return. The reporting of the underpayment on an 
adjusted return constitutes an adjustment within the meaning of this 
section only if the adjusted return is filed within the period of 
limitations for assessment for the return period being corrected, and by 
the due date for filing the return for the return period in which the 
error is ascertained. For purposes of the preceding sentence, the due 
date for filing the adjusted return is determined by reference to the 
return being corrected, without regard to the employer's current filing 
requirements. For example, an employer with a current annual filing 
requirement who is correcting an error on a previously filed quarterly 
return must file the adjusted return by the due date for filing a 
quarterly return for the quarter in which the error is ascertained. The 
amount of the underpayment adjusted in accordance with this section must 
be paid to the IRS by the time the adjusted return is filed. If an 
adjustment is reported pursuant to this section, but the amount of the 
adjustment is not paid when due, interest accrues from that date (see 
section 6601).
    (ii) If an employer files a return reporting FICA tax for a return 
period although the employer was required to file a return reporting 
RRTA tax, and if the employer ascertains the error after filing the 
return, the employer shall correct the error through an interest-free 
adjustment as provided in this section. However, if the employer also 
reported less than the correct amount of Additional Medicare Tax, the 
employer shall correct the underwithheld and underpaid Additional 
Medicare Tax in accordance with paragraph (b)(4) of this section. The 
employer shall adjust the underpayment of RRTA tax by reporting the 
correct amount of RRTA tax on an original return for reporting RRTA tax 
for the return period for which the incorrect return was filed, 
accompanied by an adjusted return corresponding to the incorrect return 
that was filed to correct the erroneously reported and paid FICA tax. 
The adjusted return must include a detailed explanation of the amounts 
being reported on the original return and the adjusted return and any 
other information as may be required by the regulations in this section 
and by the instructions relating to the adjusted return. The reporting 
of the correct amounts for the period constitutes an adjustment within 
the meaning of this section only if the returns are filed by the due 
date of the return for reporting the RRTA tax for the return period in 
which the error is ascertained. Pursuant to Sec.  31.3503-1, the amount 
of erroneously paid FICA tax will be credited against the underpaid RRTA 
tax. Any remaining underpayment of RRTA tax adjusted in accordance with 
this section must be paid to the IRS by the time the returns are filed 
in accordance with this paragraph. If an adjustment is reported pursuant 
to this section, but the amount of the remaining underpayment is not 
paid when due, interest accrues from that date (see section 6601).
    (iii) If an employer files a return reporting RRTA tax for a return 
period although the employer was required to file a return reporting 
FICA tax, and if the employer ascertains the error after filing the 
return, the employer shall correct the error through an interest-free 
adjustment as provided in this section. However, if the employer also 
reported less than the correct amount of Additional Medicare Tax, the 
employer shall correct the underwithheld and underpaid Additional 
Medicare Tax in accordance with paragraph (b)(4) of this section. The 
employer shall adjust the underpayment of FICA tax by reporting the 
correct amount of FICA tax on an original return for reporting FICA tax 
for the return period for which the incorrect return was filed (or an 
adjusted return for reporting the FICA tax if an original return was 
already filed for such return period to report the income tax required 
to be withheld under section 3402), accompanied by an adjusted return 
corresponding to the incorrect return that was filed to correct the 
erroneously reported and paid RRTA tax. The adjusted return(s) must 
include a detailed explanation of the amount being reported on the 
original return and/or

[[Page 385]]

the adjusted return(s) and any other information as may be required by 
the regulations in this section and by the instructions relating to the 
form. The reporting of the correct amounts for the period constitutes an 
adjustment within the meaning of this section only if the returns are 
filed by the due date of the return for reporting the FICA tax for the 
return period in which the error is ascertained. Pursuant to Sec.  
31.3503-1, the amount of erroneously paid RRTA tax will be credited 
against the underpaid FICA tax. Any remaining underpayment of FICA tax 
adjusted in accordance with this section must be paid to the IRS by the 
time the returns are filed in accordance with this paragraph 
(b)(2)(iii). If an adjustment is reported pursuant to this section, but 
the amount of the remaining underpayment is not paid when due, interest 
accrues from that date (see section 6601).
    (3) Return not filed because of failure to treat individual as 
employee. If an employer fails to file a return for a return period 
solely because the employer failed to treat any individuals properly as 
employees for the return period (and, therefore, failed to withhold and 
pay any employer or employee FICA or RRTA tax with respect to wages or 
compensation paid to the employees) and if the employer ascertains the 
error after the due date of the return, the employer shall correct the 
error through an interest-free adjustment as provided in this section. 
The employer shall report the amount due by filing an original return 
required to be filed to report the tax for the return period for which 
the employer failed to file a return, accompanied by an adjusted return 
as provided in the instructions to the adjusted return. The adjusted 
return must include a detailed explanation of the amount being reported 
on the original return and adjusted return and any other information as 
may be required by this section and by the instructions relating to the 
adjusted return. The reporting of the correct amount of tax for the 
return period constitutes an adjustment within the meaning of this 
section only if the original and adjusted returns are filed by the due 
date of the return for reporting such tax for the return period in which 
the error is ascertained. For purposes of the preceding sentence, the 
due date for filing the adjusted return is determined by reference to 
the return being corrected, without regard to the employer's current 
filing requirements. For example, an employer with a current annual 
filing requirement who is correcting an error on a previously filed 
quarterly return must file the adjusted return by the due date for 
filing a quarterly return for the quarter in which the error is 
ascertained. However, an adjustment of Additional Medicare Tax required 
to be withheld under section 3101(b)(2) or section 3201(a) may only be 
reported pursuant to this section if the error is ascertained within the 
same calendar year that the wages or compensation were paid to the 
employee, or if section 3509 applies to determine the amount of the 
underpayment, or if the adjustment is reported on a Form 2504 or Form 
2504-WC. See paragraph (b)(4) of this section. The amount of the 
underpayment adjusted in accordance with this section must be paid to 
the IRS by the time the returns are filed in accordance with this 
paragraph. If an adjustment is reported pursuant to this section, but 
the amount of the adjustment is not paid when due, interest accrues from 
that date (see section 6601).
    (4) Additional Medicare Tax. If an employer files a return on which 
FICA tax or RRTA tax is required to be reported, and reports on the 
return less than the correct amount of Additional Medicare Tax required 
to be withheld with respect to a payment of wages or compensation, and 
if the employer ascertains the error after filing the return, the 
employer shall correct the error through an interest-free adjustment as 
provided in this section. An adjustment of Additional Medicare Tax may 
only be reported pursuant to this paragraph (b)(4) if the error is 
ascertained within the same calendar year that the wages or compensation 
were paid to the employee, unless the underpayment is attributable to an 
administrative error (that is, an error involving the inaccurate 
reporting of the amount actually withheld), section 3509 applies to 
determine the amount of the underpayment, or the adjustment is reported 
on a Form 2504 or Form 2504-WC. The

[[Page 386]]

employer shall adjust the underpayment of Additional Medicare Tax by 
reporting the additional amount due on an adjusted return for the return 
period in which the wages or compensation were paid, accompanied by a 
detailed explanation of the amount being reported on the adjusted return 
and any other information as may be required by this section and by the 
instructions relating to the adjusted return. The reporting of the 
underpayment on an adjusted return constitutes an adjustment within the 
meaning of this section only if the adjusted return is filed within the 
period of limitations for assessment for the return period being 
corrected, and by the due date for filing the return for the return 
period in which the error is ascertained. For purposes of the preceding 
sentence, the due date for filing the adjusted return is determined by 
reference to the return being corrected, without regard to the 
employer's current filing requirements. For example, an employer with a 
current annual filing requirement who is correcting an error on a 
previously filed quarterly return must file the adjusted return by the 
due date for filing a quarterly return for the quarter in which the 
error is ascertained. The amount of the underpayment adjusted in 
accordance with this section must be paid to the IRS by the time the 
adjusted return is filed. If an adjustment is reported pursuant to this 
section, but the amount of the adjustment is not paid when due, interest 
accrues from that date (see section 6601).
    (c) Income tax required to be withheld from wages--(1) 
Undercollection ascertained before return is filed. If an employer 
collects less than the correct amount of income tax required to be 
withheld from wages under section 3402, and if the employer ascertains 
the error before filing the return on which the withheld tax is required 
to be reported, the employer shall nevertheless report on the return and 
pay to the IRS the correct amount of tax required to be withheld. If the 
employer does not report the correct amount of tax in these 
circumstances, the employer may not correct the error through an 
interest-free adjustment.
    (2) Error ascertained after return is filed. If an employer files a 
return on which income tax required to be withheld from wages is 
required to be reported and reports on the return less than the correct 
amount of income tax required to be withheld, and if the employer 
ascertains the error after filing the return, the employer shall correct 
the error through an interest-free adjustment as provided in this 
section. The employer shall adjust the underpayment of tax by reporting 
the additional amount due on an adjusted return for the return period in 
which the wages were paid, accompanied by a detailed explanation of the 
amount being reported on the adjusted return and any other information 
as may be required by this section and by the instructions relating to 
the adjusted return. The reporting of the underpayment on an adjusted 
return constitutes an adjustment within the meaning of this section only 
if the adjusted return is filed by the due date for filing the return 
for the return period in which the error is ascertained. For purposes of 
the preceding sentence, the due date for filing the adjusted return is 
determined by reference to the return being corrected, without regard to 
the employer's current filing requirements. For example, an employer 
with a current annual filing requirement who is correcting an error on a 
previously filed quarterly return must file the adjusted return by the 
due date for filing a quarterly return for the quarter in which the 
error is ascertained. However, an adjustment may only be reported 
pursuant to this section if the error is ascertained within the same 
calendar year that the wages to the employee were paid, unless the 
underpayment is attributable to an administrative error (that is, an 
error involving the inaccurate reporting of the amount actually 
withheld), section 3509 applies to determine the amount of the 
underpayment, or the adjustment is reported on a Form 2504 or Form 2504-
WC. The amount of the underpayment adjusted in accordance with this 
section must be paid to the IRS by the time the adjusted return is 
filed. If an adjustment is reported pursuant to this section, but the 
amount of the adjustment is not paid when due,

[[Page 387]]

interest accrues from that date (see section 6601).
    (3) Return not filed because of failure to treat individual as 
employee. If an employer fails to file a return for a return period 
solely because the employer failed to treat any individuals properly as 
employees for the return period (and, therefore, failed to withhold and 
pay any income tax required to be withheld from wages), the employer 
shall correct the error through an interest-free adjustment as provided 
in this section. The employer shall report the amount due by filing an 
original return for the return period for which the employer failed to 
file a return, accompanied by an adjusted return as provided in the 
instructions to the adjusted return. The adjusted return must include a 
detailed explanation of the amount being reported on the original and 
adjusted returns and any other information as may be required by this 
section and by the instructions relating to the adjusted return. The 
reporting of the correct amount of tax for the return period constitutes 
an adjustment within the meaning of this section only if the original 
and adjusted returns are filed by the due date of the return for 
reporting such tax for the return period in which the error is 
ascertained. For purposes of the preceding sentence, the due date for 
filing the adjusted return is determined by reference to the return 
being corrected, without regard to the employer's current filing 
requirements. For example, an employer with a current annual filing 
requirement who is correcting an error on a previously filed quarterly 
return must file the adjusted return by the due date for filing a 
quarterly return for the quarter in which the error is ascertained. 
However, an adjustment may only be reported pursuant to this section if 
the error is ascertained within the same calendar year that the wages to 
the employee were paid, or if section 3509 applies to determine the 
amount of the underpayment, or if the adjustment is reported on a Form 
2504 or Form 2504-WC. The amount of the underpayment adjusted in 
accordance with this section must be paid to the IRS by the time the 
returns are filed in accordance with this paragraph. If an adjustment is 
reported pursuant to this section, but the amount of the adjustment is 
not paid when due, interest accrues from that date (see section 6601).
    (d) Deductions from employee--(1) Federal Insurance Contributions 
Tax Act and Railroad Retirement Tax Act. If an employer collects less 
than the correct amount of employee FICA or RRTA tax from an employee 
with respect to a payment of wages or compensation, the employer must 
collect the amount of the undercollection by deducting the amount from 
remuneration of the employee, if any, paid after the employer ascertains 
the error. If an employer collects less than the correct amount of 
Additional Medicare Tax required to be withheld under section 3101(b)(2) 
or section 3201(a), the employer must collect the amount of the 
undercollection on or before the last day of the calendar year by 
deducting the amount from remuneration of the employee, if any, paid 
after the employer ascertains the error. Such deductions may be made 
even though the remuneration, for any reason, does not constitute wages 
or compensation. The correct amount of employee tax must be reported and 
paid, as provided in paragraph (b) of this section, whether or not the 
undercollection is corrected by a deduction made as prescribed in this 
paragraph (d)(1), and even if the deduction is made after the return on 
which the employee tax must be reported is due. If such a deduction is 
not made, the obligation of the employee to the employer with respect to 
the undercollection is a matter for settlement between the employee and 
the employer. If an employer makes an erroneous collection of employee 
tax from two or more of its employees, a separate settlement must be 
made with respect to each employee. An overcollection of employee tax 
from one employee may not be used to offset an undercollection of such 
tax from another employee. For provisions relating to the employer's 
liability for the tax, whether or not it collects the tax from the 
employee, see Sec. Sec.  31.3102-1(d), 31.3102-4(c), and 31.3202-1. This 
paragraph (d)(1) does not apply if section 3509 applies to determine the 
employer's liability.
    (2) Income tax required to be withheld from wages. If an employer 
collects less

[[Page 388]]

than the correct amount of income tax required to be withheld from wages 
during a calendar year, the employer must collect the amount of the 
undercollection on or before the last day of the year by deducting the 
amount from remuneration of the employee, if any, paid after the 
employer ascertains the error. Such deductions may be made even though 
the remuneration, for any reason, does not constitute wages. The correct 
amount of income tax must be reported and paid, as provided in paragraph 
(c) of this section, whether or not the undercollection is corrected by 
a deduction made as prescribed in this paragraph (d)(2), and even if the 
deduction is made after the return on which the tax must be reported is 
due. If such a deduction is not made, the obligation of the employee to 
the employer with respect to the undercollection is a matter for 
settlement between the employee and the employer within the calendar 
year. If an employer makes an erroneous collection of income tax from 
two or more of its employees, a separate settlement must be made with 
respect to each employee. An overcollection of income tax from one 
employee may not be used to offset an undercollection of such tax from 
another employee. For provisions relating to the employer's liability 
for the tax, whether or not it collects the tax from the employee, see 
Sec.  31.3403-1. For provisions relating to the employer's liability for 
an underpayment of tax unless the employer can show that the income tax 
against which the tax under section 3402 may be credited has been paid, 
see Sec.  31.3402(d)-1. This paragraph (d)(2) does not apply if section 
3509 applies to determine the employer's liability.
    (e) Effective/applicability date. Paragraphs (b) and (d) of this 
section apply to adjusted returns filed on or after November 29, 2013.

[T.D. 9405, 73 FR 37376, July 1, 2008, as amended by T.D. 9645, 78 FR 
71473, Nov. 29, 2013]



Sec.  31.6205-2  Adjustments of underpayments of hospital insurance taxes
that accrue after March 31, 1986, and before January 1, 1987, with respect 
to wages of State and local government employees.

    (a) Adjustments without interest. A State or local government 
employer who makes, or has made, an undercollection or underpayment of 
the hospital insurance taxes imposed by sections 3101(b) and 3111(b) 
that--
    (1) Are required to be paid by reason of section 3121(u)(2), and
    (2) Are required to be reported on returns due July 31, 1986, 
October 31, 1986, or February 2, 1987.

may make an adjustment without interest with respect to such taxes 
provided that all such taxes for the time period specified in paragraph 
(a)(2) (except for amounts that are subsequently paid pursuant to an 
interest-free adjustment under Sec.  31.6205-1) are paid on or before 
February 2, 1987.
    (b) Example. The application of the provisions of this section are 
illustrated by the following example:

    Example. A State or local government employer should have withheld 
and paid $100 dollars in hospital insurance taxes for the quarter 
beginning April 1, 1986, and ending June 30, 1986. The due date for the 
return and payment for that period is July 31, 1986. If the employer 
made the payment by February 2, 1987, then, under section 6601, interest 
is not assessable with respect to the underpayment of the hospital 
insurance taxes. If the employer did not make the payment by February 2, 
1987, the interest is assessable for the period from July 31, 1986, 
until the time of payment.

[T.D. 8156, 52 FR 33582, Sept. 4, 1987]



Sec.  31.6302-0  Table of contents.

    This section lists the table of contents for Sec. Sec.  31.6302-1 
through 31.6302-4.

  Sec.  31.6302-1 Deposit rules for taxes under the Federal Insurance 
           Contributions Act (FICA) and withheld income taxes.

    (a) Introduction.
    (b) Determination of status.
    (1) In general.
    (2) Monthly depositor.
    (i) In General.
    (ii) Special rule.
    (3) Semi-weekly depositor.
    (4) Lookback period.
    (i) In general.
    (ii) Adjustments and claims for refund.

[[Page 389]]

    (c) Deposit rules.
    (1) Monthly rule.
    (2) Semi-Weekly rule.
    (i) In general.
    (ii) Semi-weekly period spanning two return periods.
    (iii) Special rule for computing days.
    (3) Exception--One Day rule.
    (4) Deposits required only on business days.
    (5) Exception to the monthly and semi-weekly deposit rules for 
employers in the Employers' Annual Federal Tax Program (Form 944).
    (6) Extension of time to deposit for employers in the Employers' 
Annual Federal Tax Program (Form 944) during the preceding year.
    (7) Exception to the monthly and semi-weekly deposit rules for 
employers making interest-free adjustments.
    (d) Examples.

    Example 6. [Reserved]

    (e) Employment taxes defined.
    (f) Safe harbor/De Minimis rules.
    (1) Single deposit safe harbor.
    (2) Shortfall defined.
    (3) Shortfall make-up date.
    (i) Monthly rule.
    (ii) Semi-Weekly and One-Day rule.
    (4) De minimis rule.
    (i) De minimis deposit rules for quarterly and annual return periods 
beginning on 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.
    (5) Examples.

    Example 3. [Reserved]

    (g) Agricultural employers--Special rules.
    (1) In general.
    (2) Monthly depositor.
    (3) Semi-weekly depositor.
    (4) Lookback period.
    (i) In general.
    (ii) Adjustments and Claims for Refund.
    (5) Example.
    (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, 
and made before January 1, 2011.
    (iii) Deposits made after December 31, 2010.
    (iv) 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.
    (i) Time and manner of deposit.
    (1) General rules.
    (2) Payment of balance due.
    (3) Time deemed paid.
    (4) Procurement of FTD coupons.
    (5) Time deemed deposited.
    (6) Time deemed paid.
    (j) Voluntary payments by electronic funds transfer.
    (k) Special rules.
    (1) Notice exception.
    (2) Wages paid in nonconvertible foreign currency.
    (l) [Reserved]
    (m) Cross references.
    (1) Failure to deposit penalty.
    (2) Saturday, Sunday, or legal holiday.
    (n) Effective/applicability dates.
    (o) Effective/Applicability date.

Sec.  31.6302-2 Federal tax deposit rules for amounts withheld under the 
  Railroad Retirement Tax Act (R.R.T.A.) attributable to payments made 
                        after December 31, 1992.

    (a) General rule.
    (b) Separate application of deposit rules.
    (c) Modification of Monthly rule determination.
    (1) General rule.
    (2) Exception.
    (d) Effective/Applicability date.

Sec.  31.6302-3 Federal tax deposit rules for amounts withheld under the 
backup withholding requirements of Section 3406 for payments made after 
                           December 31, 1992.

    (a) General Rule.
    (b) Treatment of backup withholding amounts separately.
    (c) Example.

Sec.  31.6302-4 Deposit rules for withheld income taxes attributable to 
                            nonpayroll taxes.

[T.D. 8436, 57 FR 44102, Sept. 24, 1992, as amended by T.D. 9239, 71 FR 
14, Jan. 3, 2006; T.D. 9405, 73 FR 37379, July 1, 2008; T.D. 9440, 73 FR 
79358, Dec. 29, 2008; T.D. 9507, 75 FR 75901, Dec. 7, 2010; T.D. 9566, 
76 FR 77675, Dec. 14, 2011]



Sec.  31.6302-1  Deposit rules for taxes under the Federal Insurance
Contributions Act (FICA) and withheld income taxes.

    (a) Introduction. With respect to employment taxes attributable to 
payments made after December 31, 1992, an employer is either a monthly 
depositor or a semi-weekly depositor based on an annual determination. 
An employer

[[Page 390]]

must generally deposit employment taxes under one of two rules: the 
Monthly rule in paragraph (c)(1) of this section, or the Semi-Weekly 
rule in paragraph (c)(2) of this section. Various exceptions and safe 
harbors are provided. Paragraph (f) of this section provides certain 
safe harbors for employers who inadvertently fail to deposit the full 
amount of taxes. Paragraph (c)(3) of this section provides an overriding 
exception to the Monthly and Semi-Weekly rules where an employer has 
accumulated $100,000 or more of employment taxes. Paragraph (e) of this 
section provides the definition of employment taxes.
    (b) Determination of status--(1) In general. The determination of 
whether an employer is a monthly or semi-weekly depositor for a calendar 
year is based on an annual determination and generally depends upon the 
aggregate amount of employment taxes reported by the employer for the 
lookback period as defined in paragraph (b)(4) of this section.
    (2) Monthly depositor--(i) In general. An employer is a monthly 
depositor for the entire calendar year if the aggregate amount of 
employment taxes reported for the lookback period is $50,000 or less.
    (ii) Special rule. An employer ceases to be a monthly depositor on 
the first day after the employer is subject to the One-Day ($100,000) 
rule in paragraph (c)(3) of this section. At that time, the employer 
immediately becomes a semi-weekly depositor for the remainder of the 
calendar year and for the following calendar year.
    (3) Semi-weekly depositor. An employer is a semi-weekly depositor 
for the entire calendar year if the aggregate amount of employment taxes 
reported for the lookback period exceeds $50,000.
    (4) Lookback period--(i) In general. For employers who file Form 
941, ``Employer's QUARTERLY Federal Tax Return,'' (or any related 
Spanish-language returns or returns for U.S. possessions) 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 (or any related Spanish-language returns or 
returns for U.S. possessions) for 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) (Forms 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 Forms 941 or Form 944 even if the employer is required to file 
the other form 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. 
Prior period adjustments reported on Forms 941 or Form 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) Deposit rules--(1) Monthly rule. An employer that is a monthly 
depositor must deposit employment taxes accumulated with respect to 
payments made during a calendar month by electronic funds transfer by 
the 15th day of the following month. If the 15th day of the following 
month is a Saturday, Sunday, or legal holiday in the District of 
Columbia under section 7503, taxes will be treated as timely deposited 
if deposited on the next succeeding day

[[Page 391]]

which is not a Saturday, Sunday, or legal holiday.
    (2) Semi-Weekly rule--(i) In general. An employer that is a semi-
weekly depositor for a calendar year must deposit employment taxes by 
electronic funds transfer by the dates set forth below:

----------------------------------------------------------------------------------------------------------------
      Payment dates/semi-weekly periods                                   Deposit date
----------------------------------------------------------------------------------------------------------------
(A) Wednesday, Thursday and/or Friday........  On or before the following Wednesday.
(B) Saturday, Sunday, Monday and/or Tuesday..  On or before the following Friday.
----------------------------------------------------------------------------------------------------------------

    (ii) Semi-weekly period spanning two return periods. If the return 
period ends during a semi-weekly period in which an employer has two or 
more payment dates, two deposit obligations may exist. For example, if 
one quarterly return period ends on Thursday and a new quarterly return 
period begins on Friday, employment taxes from payments on Wednesday and 
Thursday are subject to one deposit obligation, and employment taxes 
from payments on Friday are subject to a separate deposit obligation. 
Two separate federal tax deposits are required.
    (iii) Special rule for computing days. Semi-weekly depositors have 
at least three business days following the close of the semi-weekly 
period by which to deposit employment taxes accumulated during the semi-
weekly period. Business days include every calendar day other than 
Saturdays, Sundays, or legal holidays in the District of Columbia under 
section 7503. If any of the three weekdays following the close of a 
semi-weekly period is a legal holiday, the employer has an additional 
day for each day that is a legal holiday by which to make the required 
deposit. For example, if the Monday following the close of a Wednesday 
to Friday semi-weekly period is Memorial Day, a legal holiday, the 
required deposit for the semi-weekly period is not due until the 
following Thursday rather than the following Wednesday.
    (3) Exception--One-Day rule. Notwithstanding paragraphs (c)(1) and 
(c)(2) of this section, if on any day within a deposit period (monthly 
or semi-weekly) an employer has accumulated $100,000 or more of 
employment taxes, those taxes must be deposited by electronic funds 
transfer in time to satisfy the tax obligation by the close of the next 
day. If the next day is a Saturday, Sunday, or legal holiday in the 
District of Columbia under section 7503, the taxes will be treated as 
timely deposited if deposited on the next succeeding day which is not a 
Saturday, Sunday, or legal holiday. For purposes of determining whether 
the $100,000 threshold is met--
    (i) A monthly depositor takes into account only those employment 
taxes accumulated in the calendar month in which the day occurs; and
    (ii) A semi-weekly depositor takes into account only those 
employment taxes accumulated in the Wednesday-Friday or Saturday-Tuesday 
semi-weekly period in which the day occurs.
    (4) Deposits required only on business days. No taxes are required 
to be deposited under this section on any day that is a Saturday, 
Sunday, or legal holiday. Deposits are required only on business days. 
Business days include every calendar day other than Saturdays, Sundays, 
or legal holidays. For purposes of this paragraph (c), legal holidays 
shall have the same meaning provided in section 7503. Pursuant to 
section 7503, the term legal holiday means a legal holiday in the 
District of Columbia. For purposes of this paragraph (c), the term 
``legal holiday'' does not include other Statewide legal holidays.
    (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 paragraphs (c)(1) and (c)(2) of this 
section 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)-1(a)(5) and 31.6011(a)-4(a)(4), will 
not qualify for this exception and

[[Page 392]]

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 Form 
941 instead for the current year will be deemed to have timely deposited 
its current year's January deposit obligation(s) under paragraphs (c)(1) 
through (c)(4) of this section if the employer deposits the amount of 
such deposit obligation(s) by March 15 of that year.
    (7) Exception to the monthly and semi-weekly deposit rules for 
employers making interest-free adjustments. An employer filing an 
adjusted return under Sec.  31.6205-1 to report taxes that were 
accumulated in a prior return period shall pay the amount of the 
adjustment by the time it files the adjusted return, and the amount 
timely paid will be deemed to have been timely deposited by the 
employer. The payment may be made by a check or money order with the 
adjusted return, by electronic funds transfer, or by other methods of 
payment as provided by the instructions relating to the adjusted return.
    (d) Examples. The provisions of paragraphs (a), (b) and (c) of this 
section are illustrated by the following examples:

    Example 1 Monthly depositor. (i) Determination of status. For 
calendar year 2011, Employer A determines its depositor status using the 
lookback period July 1, 2009 to June 30, 2010. For the four calendar 
quarters within this period, A reported aggregate employment tax 
liabilities of $42,000 on its quarterly Forms 941. Because the aggregate 
amount did not exceed $50,000, A is a monthly depositor for the entire 
calendar year 2011.
    (ii) Monthly rule. During December 2011, A (a monthly depositor) 
accumulates $3,500 in employment taxes. A has a $3,500 deposit 
obligation that must be satisfied by the 15th day of the following 
month. Since January 15, 2012, is a Sunday, and January 16, 2012, Dr. 
Martin Luther King, Jr.'s Birthday, is a legal holiday, A's deposit 
obligation will be satisfied if the deposit is made by electronic funds 
transfer by the next business day, January 17, 2012.
    Example 2 Semi-weekly depositor. (i) Determination of status. For 
the calendar year 2011, Employer B determines its depositor status using 
the lookback period July 1, 2009 to June 30, 2010. For the four calendar 
quarters within this period, B reported aggregate employment tax 
liabilities of $88,000 on its quarterly Forms 941. Because that amount 
exceeds $50,000, B is a semi-weekly depositor for the entire calendar 
year 2011.
    (ii) Semi-weekly rule. On Friday, January 7, 2011, B (a semi-weekly 
depositor) has a pay day on which it accumulates $4,000 in employment 
taxes. B has a $4,000 deposit obligation that must be satisfied by the 
following Wednesday, January 12, 2011.
    (iii) Deposit made within three business days. On Friday, January 
14, 2011, B (a semi-weekly depositor) has a pay day on which it 
accumulates $4,200 in employment taxes. Generally, B would have a 
required deposit obligation of employment taxes that must be satisfied 
by the following Wednesday, January 19, 2011. Because Monday, January 
17, 2011, is Dr. Martin Luther King, Jr.'s Birthday, a legal holiday, B 
has an additional day to make the required deposit. B has a $4,200 
deposit obligation that must be satisfied by the following Thursday, 
January 20, 2011.
    Example 3 One-Day rule. On Monday, January 10, 2011, Employer C 
accumulates $110,000 in employment taxes with respect to wages paid on 
that date. C has a deposit obligation of $110,000 that must be satisfied 
by the next business day. If C was not subject to the semi-weekly rule 
on January 10, 2011, C becomes subject to that rule as of January 11, 
2011. See paragraph (b)(2)(ii) of this section.
    Example 4 One-Day rule in combination with subsequent deposit 
obligation. Employer D is subject to the semi-weekly rule for calendar 
year 2011. On Monday, January 10, 2011, D accumulates $115,000 in 
employment taxes. D has a deposit obligation that must be satisfied by 
the next business day. On Tuesday, January 11, D accumulates an 
additional $30,000 in employment taxes. Although D has a $115,000 
deposit obligation incurred earlier in the semi-weekly period, D has an 
additional and separate deposit obligation of $30,000 on Tuesday that 
must be satisfied by the following Friday.
    Example 5 Legal Holidays. Employer E conducts business in State X. 
Wednesday, August 31, 2011, is a statewide legal holiday in State X 
which is not a legal holiday in the District of Columbia. On Friday, 
August 26, 2011, E (a semi-weekly depositor) has a pay day on which it 
accumulates $4,000 in employment taxes. E has a $4,000 deposit 
obligation that must be satisfied on or before the following Wednesday, 
August 31, 2011, notwithstanding that the day is a statewide legal 
holiday in State X.
    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

[[Page 393]]

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 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 February on March 15, 
2007. Pursuant to paragraph (c)(6) of this section, 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) Employment taxes defined. (1) For purposes of this section, the 
term ``employment taxes'' means--
    (i) The employee portion of the tax withheld under section 3102;
    (ii) The employer tax under section 3111;
    (iii) The income tax withheld under sections 3402 and 3405, except 
income tax withheld with respect to payments made after December 31, 
1993, on the following--
    (A) Certain gambling winnings under section 3402(q);
    (B) Retirement pay for service in the Armed Forces of the United 
States under section 3402;
    (C) Certain annuities described in section 3402(o)(1)(B); and
    (D) Pensions, annuities, IRAs, and certain other deferred income 
under section 3405; and
    (iv) The income tax withheld under section 3406, relating to backup 
withholding with respect to reportable payments made before January 1, 
1994.
    (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 or Sec.  31.6011(a)-5. In the case of employers 
paying advance earned income credit amounts for periods ending before 
January 1, 2011, 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) Safe harbor/De minimis rules--(1) Single deposit safe harbor. An 
employer will be considered to have satisfied its deposit obligation 
imposed by this section if--
    (i) The amount of any shortfall does not exceed the greater of $100 
or 2 percent of the amount of employment taxes required to be deposited; 
and
    (ii) The employer deposits the shortfall on or before the shortfall 
make-up date.
    (2) Shortfall defined. For purposes of this paragraph (f), the term 
``shortfall'' means the excess of the amount of employment taxes 
required to be deposited for the period over the amount deposited for 
the period. For this purpose, a period is either a monthly, semi-weekly 
or daily period.
    (3) Shortfall make-up date--(i) Monthly rule. A shortfall with 
respect to a deposit required under the Monthly rule must be deposited 
or remitted no later than the due date for the quarterly return, in 
accordance with the applicable form and instructions.
    (ii) Semi-Weekly rule and One-Day rule. A shortfall with respect to 
a deposit required under the Semi-Weekly rule or the One-Day rule must 
be deposited on or before the first Wednesday or Friday (whichever is 
earlier), falling on or after the 15th day of the month following the 
month in which the deposit was required to be made or, if earlier, the 
return due date for the return period.
    (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

[[Page 394]]

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 
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. The provisions of this paragraph (f) may be 
illustrated by the following examples:

    Example 1 Safe-harbor rule satisfied. On Monday, January 4, 1993, J 
(a semi-weekly depositor), pays wages and accumulates employment taxes. 
As required under this section, J makes a deposit on or before the 
following Friday, January 8, 1993, in the amount of $4,000. 
Subsequently, J determines that it was actually required to deposit 
$4,090 by Friday. J has a shortfall of $90. The $90 shortfall does not 
exceed the greater of $100 or 2% of the amount required to be deposited 
(2% of $4,090 = $81.80). Therefore, J satisfies the safe harbor of 
paragraph (f)(1) of this section as long as the $90 shortfall is 
deposited by the first deposit date (Wednesday or Friday) on or after 
the 15th day of the next month (in this case Wednesday, February 17, 
1993).
    Example 2 Safe-harbor rule not satisfied. The facts are the same as 
in Example 1 except that on Friday, January 8, 1993, J makes a deposit 
of $25,000, and later determines that it was actually required to 
deposit $26,000. Since the $1,000 shortfall ($26,000 less $25,000) 
exceeds $520 (the greater of $100 or 2% of the amount required to be 
deposited (2% of $26,000 = $520)), the safe harbor of paragraph (f)(1) 
of this section is not satisfied, and absent reasonable cause, J will be 
subject to a failure-to-deposit penalty under section 6656.
    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 first 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 second 
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 third 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, because 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, because 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

[[Page 395]]

(``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 paragraph (c)(3) of this 
section applies, or whether any safe harbor is applicable. In addition, 
Form 943 taxes and Form 941 or Form 944 taxes must be deposited 
separately. (See paragraph (b) of this section for rules for determining 
an agricultural employer's deposit status for Form 941 taxes). Whether 
an agricultural employer is a monthly or semi-weekly depositor of Form 
943 taxes is determined according to the rules of this paragraph (g).
    (2) Monthly depositor. An agricultural employer is a monthly 
depositor of Form 943 taxes for a calendar year if the amount of Form 
943 taxes accumulated in the lookback period (as defined in paragraph 
(g)(4) of this section) is $50,000 or less. An agricultural employer 
ceases to be a monthly depositor of Form 943 taxes on the first day 
after the employer is subject to the One-Day rule in paragraph (c)(3) of 
this section. At that time, the agricultural employer immediately 
becomes a semi-weekly depositor of Form 943 taxes for the remainder of 
the calendar year and the succeeding calendar year.
    (3) Semi-weekly depositor. An agricultural employer is a semi-weekly 
depositor of Form 943 taxes for a calendar year if the amount of Form 
943 taxes accumulated in the lookback period (as defined in paragraph 
(g)(4) of this section) exceeds $50,000.
    (4) Lookback period--(i) In general. For purposes of this paragraph 
(g), the lookback period for Form 943 taxes is the second calendar year 
preceding the current calendar year. For example, the lookback period 
for calendar year 1993 is calendar year 1991. New employers shall be 
treated as having employment tax liabilities of zero for any 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 amount of Form 943 taxes 
accumulated in 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 amount of Form 943 taxes 
accumulated in the lookback period. However, prior period adjustments 
reported on Form 943 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.
    (5) The following example illustrates the provisions of this 
section.

    Example. A, an agricultural employer, employs both farm workers and 
nonfarm workers (employees in its administrative offices). A's depositor 
status for calendar year 1993 for Form 941 taxes will be based upon its 
employment tax liabilities reported on Forms 941 for the third and 
fourth quarters of 1991 and the first and second quarters of 1992 (the 
period July 1 to June 30). A's depositor status for Form 943 taxes will 
be based upon its employment tax liability reported on its annual Form 
943 for calendar year 1991.

    (h) Time and manner of deposit--deposits required to be made by 
electronic funds transfer--(1) In general. Section 6302(h) requires the 
Secretary to prescribe such regulations as may be necessary for the 
development and implementation of an electronic funds transfer system to 
be used for the collection of the depository taxes as described in 
paragraph (h)(3) of this section. Section 6302(h)(2) provides a phase-in 
schedule that sets forth escalating minimum percentages of those 
depository taxes to be deposited by electronic funds transfer. This 
paragraph (h) prescribes the rules necessary for implementing an 
electronic funds transfer system for collection of depository taxes and 
for effecting an orderly and expeditious phase-in of that system.
    (2) Applicability of requirement--(i) Deposits for return periods 
beginning before January 1, 2000. (A) Taxpayers whose aggregate deposits 
of the taxes imposed by Chapters 21 (Federal Insurance Contributions 
Act), 22 (Railroad Retirement Tax Act), and 24 (Collection of Income Tax 
at Source on Wages) of the Internal Revenue Code during a 12-month 
determination period exceed the applicable threshold amount are required 
to deposit all depository taxes described in paragraph (h)(3) of this

[[Page 396]]

section by electronic funds transfer (as defined in paragraph (h)(4) of 
this section) unless exempted under paragraph (h)(5) of this section. If 
the applicable effective date is January 1, 1995, or January 1, 1996, 
the requirement to deposit by electronic funds transfer applies to all 
deposits required to be made on or after the applicable effective date. 
If the applicable effective date is July 1, 1997, the requirement to 
deposit by electronic funds transfer applies to all deposits required to 
be made on or after July 1, 1997 with respect to deposit obligations 
incurred for return periods beginning on or after January 1, 1997. If 
the applicable effective date is January 1, 1998, or thereafter, the 
requirement to deposit by electronic funds transfer applies to all 
deposits required to be made with respect to deposit obligations 
incurred for return periods beginning on or after the applicable 
effective date. In general, each applicable effective date has one 12-
month determination period. However, for the applicable effective date 
January 1, 1996, there are two determination periods. If the applicable 
threshold amount is exceeded in either of those determination periods, 
the taxpayer becomes subject to the requirement to deposit by electronic 
funds transfer, effective January 1, 1996. The threshold amounts, 
determination periods and applicable effective dates for purposes of 
this paragraph (h)(2)(i)(A) are as follows:

----------------------------------------------------------------------------------------------------------------
                                                                                           Applicable effective
        Threshold amount                           Determination period                            date
----------------------------------------------------------------------------------------------------------------
$78 million.....................  1-1-93 to 12-31-93...................................  Jan. 1, 1995.
$47 million.....................  1-1-93 to 12-31-93...................................  Jan. 1, 1996.
$47 million.....................  1-1-94 to 12-31-94...................................  Jan. 1, 1996.
$50 thousand....................  1-1-95 to 12-31-95...................................  July 1, 1997.
$50 thousand....................  1-1-96 to 12-31-96...................................  Jan. 1, 1998.
$50 thousand....................  1-1-97 to 12-31-97...................................  Jan. 1, 1999.
----------------------------------------------------------------------------------------------------------------

    (B) Unless exempted under paragraph (h)(5) of this section, a 
taxpayer that does not deposit any of the taxes imposed by chapters 21, 
22, and 24 during the applicable determination periods set forth in 
paragraph (h)(2)(i)(A) of this section, but that does make deposits of 
other depository taxes (as described in paragraph (h)(3) of this 
section), is nevertheless subject to the requirement to deposit by 
electronic funds transfer if the taxpayer's aggregate deposits of all 
depository taxes exceed the threshold amount set forth in this paragraph 
(h)(2)(i)(B) during an applicable 12-month determination period. This 
requirement to deposit by electronic funds transfer applies to all 
depository taxes due with respect to deposit obligations incurred for 
return periods beginning on or after the applicable effective date. The 
threshold amount, determination periods, and applicable effective dates 
for purposes of this paragraph (h)(2)(i)(B) are as follows:

----------------------------------------------------------------------------------------------------------------
                                                                                           Applicable effective
        Threshold amount                           Determination period                            date
----------------------------------------------------------------------------------------------------------------
$50 thousand....................  1-1-95 to 12-31-95...................................  Jan. 1, 1998.
$50 thousand....................  1-1-96 to 12-31-96...................................  Jan. 1, 1998.
$50 thousand....................  1-1-97 to 12-31-97...................................  Jan. 1, 1999.
----------------------------------------------------------------------------------------------------------------

    (C) This paragraph (h)(2)(i) applies only to deposits required to be 
made for return periods beginning before January 1, 2000. Thus, a 
taxpayer, including a taxpayer that is required under this paragraph 
(h)(2)(i) to make deposits by electronic funds transfer beginning in 
1999 or an earlier year, is not required to use electronic funds 
transfer to make deposits for return periods beginning after December 
31, 1999, unless deposits by electronic funds transfer are required 
under paragraph (h)(2)(ii) of this section.
    (ii) Deposits for return periods beginning after December 31, 1999, 
and made before January 1, 2011. Unless exempted under paragraph (h)(5) 
of this section,

[[Page 397]]

for deposits for return periods beginning after December 31, 1999, and 
made before January 1, 2011, a taxpayer that deposits more than $200,000 
of taxes described in paragraph (h)(3) of this section during a calendar 
year beginning after December 31, 1997, must use electronic funds 
transfer (as defined in paragraph (h)(4) of this section) to make all 
deposits of those taxes that are required to be made for return periods 
beginning after December 31 of the following year and must continue to 
deposit by electronic funds transfer in all succeeding years. As an 
example, a taxpayer that exceeds the $200,000 deposit threshold during 
calendar year 1998 is required to make deposits for return periods 
beginning in or after calendar year 2000 by electronic funds transfer.
    (iii) Deposits made after December 31, 2010. Unless exempted under 
paragraph (h)(5) of this section, a taxpayer that has a required tax 
deposit obligation described in paragraph (h)(3) of this section must 
use electronic funds transfer (as defined in paragraph (h)(4) of this 
section) to make all deposits of those taxes made after December 31, 
2010.
    (iv) Voluntary deposits. A taxpayer that is authorized to make 
payment of taxes with a return under regulations may voluntarily make a 
deposit by electronic funds transfer.
    (3) Taxes required to be deposited by electronic funds transfer. The 
requirement to deposit by electronic funds transfer under paragraph 
(h)(2) of this section applies to all the taxes required to be deposited 
under Sec. Sec.  1.6302-1, 1.6302-2, and 1.6302-3 of this chapter; 
Sec. Sec.  31.6302-1, 31.6302-2, 31.6302-3, 31.6302-4, and 31.6302(c)-3; 
and Sec.  40.6302(c)-1 of this chapter.
    (4) Definitions--(i) Electronic funds transfer. An electronic funds 
transfer is any transfer of depository taxes made in accordance with 
Revenue Procedure 97-33, (1997-30 I.R.B.), (see Sec.  601.601(d)(2) of 
this chapter), or in accordance with procedures subsequently prescribed 
by the Commissioner.
    (ii) Taxpayer. For purposes of this section, a taxpayer is any 
person required to deposit federal taxes, including not only 
individuals, but also any trust, estate, partnership, association, 
company or corporation.
    (5) Exemptions. If any categories of taxpayers are to be exempted 
from the requirement to deposit by electronic funds transfer, the 
Commissioner will identify those taxpayers by guidance published in the 
Internal Revenue Bulletin. (See Sec.  601.601(d)(2)(ii)(b) of this 
chapter.)
    (6) Separation of deposits. A deposit for one return period must be 
made separately from a deposit for another return period.
    (7) Payment of balance due. If the aggregate amount of taxes 
reportable on the applicable tax return for the return period exceeds 
the total amount deposited by the taxpayer with regard to the return 
period, then the balance due must be remitted in accordance with the 
applicable form and instructions.
    (8) Time deemed deposited. A deposit of taxes by electronic funds 
transfer will be deemed made when the amount is withdrawn from the 
taxpayer's account, provided the U.S. Government is the payee and the 
amount is not returned or reversed.
    (9) Time deemed paid. In general, an amount deposited under this 
paragraph (h) will be considered to be a payment of tax on the last day 
prescribed for filing the applicable return for the return period 
(determined without regard to any extension of time for filing the 
return) or, if later, at the time deemed deposited under paragraph 
(h)(8) of this section. In the case of the taxes imposed by chapters 21 
and 24 of the Internal Revenue Code, solely for purposes of section 6511 
and the regulations thereunder (relating to the period of limitation on 
credit or refund), if an amount is deposited prior to April 15th of the 
calendar year immediately succeeding the calendar year that includes the 
period for which the amount was deposited, the amount will be considered 
paid on April 15th.
    (i) Time and manner of remittance with a return--(1) General rules. 
A remittance required to be made by this section that is authorized to 
be made with a return under regulations and is made with a return must 
be made separately from a remittance required by any other section. 
Further, a remittance

[[Page 398]]

for a deposit period in one return period must be made separately from a 
remittance for a deposit period in another return period.
    (2) Payment of balance due. If the aggregate amount of taxes 
reportable on the return for the return period exceeds the total amount 
deposited by the employer with regard to the return period pursuant to 
this section, the balance due must be remitted in accordance with the 
applicable form and instructions.
    (3) Time deemed paid. In general, amounts remitted with a return 
under this section will be considered as paid on the date payment is 
received by the Internal Revenue Service at the place prescribed for 
filing by regulations or forms and instructions (or if section 7502(a) 
applies, by the date the payment is treated as received under section 
7502(a)), or on the last day prescribed for filing the return 
(determined without regard to any extension of time for filing the 
return), whichever is later. In the case of the taxes imposed by chapter 
21 and 24 of the Internal Revenue Code, solely for purposes of section 
6511 and the regulations thereunder (relating to the period of 
limitation on credit or refund), if an amount is remitted with a return 
under this section prior to April 15th of the calendar year immediately 
succeeding the calendar year that contains the period for which the 
amount was remitted, the amount will be considered paid on April 15th of 
the succeeding calendar year.
    (j) Voluntary payments by electronic funds transfer. Any person may 
voluntarily remit by electronic funds transfer any payment of tax 
imposed by subtitle C of the Internal Revenue Code. Such payment must be 
made in accordance with procedures prescribed by the Commissioner.
    (k) Special rules--(1) Notice exception. The provisions of this 
section are not applicable with respect to employment taxes for any 
month in which the employer receives notice that a return is required 
under Sec.  31.6011(a)-5 (or for any subsequent month for which such a 
return is required), if those taxes are also required to be deposited 
under the separate accounting procedures provided in Sec.  301.7512-1 of 
the Regulations on Procedure and Administration (which procedures are 
applicable if notification is given by the Commissioner of failure to 
comply with certain employment tax requirements). In cases in which a 
monthly return is required under Sec.  31.6011(a)-5 but the taxes are 
not required to be deposited under the separate accounting procedures 
provided in Sec.  301.7512-1, the provisions of this section shall apply 
except those provisions shall not authorize the deferral of any deposit 
to a date after the date on which the return is required to be filed.
    (2) Wages paid in nonconvertible foreign currency. The provisions of 
this section are not applicable with respect to wages paid in 
nonconvertible foreign currency pursuant to Sec.  301.6316-7.
    (l) [Reserved]
    (m) Cross references--(1) Failure to deposit penalty. For provisions 
relating to the penalty for failure to make a deposit within the 
prescribed time, see section 6656.
    (2) Saturday, Sunday, or legal holiday. For provisions relating to 
the time for performance of acts where the last day falls on Saturday, 
Sunday, or a legal holiday, see the provisions of Sec.  301.7503-1.
    (n) Effective/applicability dates. 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.  31.6302-1 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 as in effect prior to 
December 30, 2008. The rules of paragraphs (b)(4), (c)(5), (c)(6), (d) 
Example 6,

[[Page 399]]

(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 as 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 as in effect prior to January 1, 2006. 
The rules of paragraph (g) of this section eliminating use of Federal 
tax deposit coupons apply to deposits and payments made after December 
31, 2010.
    (o) Effective/applicability date. Paragraphs (c), (d) Examples 1 
through 5, (h)(2)(ii), (h)(2)(iii), (h)(2)(iv),(i)(1) and (i)(3) of this 
section apply to deposits and payments made after December 31, 2010.

[T.D. 8436, 57 FR 44102, Sept. 24, 1992; 57 FR 48724, Oct. 28, 1992, as 
amended by T.D. 8504, 58 FR 68035, Dec. 23, 1993; T.D. 8436, 59 FR 6218, 
Feb. 10, 1994; T.D. 8723, 62 FR 37493, July 14, 1997; T.D. 8771, 63 FR 
32736, June 16, 1998; T.D. 8822, 64 FR 32409, June 17, 1999; T.D. 8828, 
64 FR 37676, July 13, 1999; T.D. 8909, 65 FR 76153, Dec. 6, 2000; T.D. 
8946, 66 FR 28370, May 23, 2001; T.D. 8947, 66 FR 32542, June 15, 2001; 
T.D. 8952, 66 FR 33831, 33832, June 26, 2001; T.D. 9239, 71 FR 13, 15, 
Jan. 3, 2006; T.D. 9405, 73 FR 37379, July 1, 2008; T.D. 9440, 73 FR 
79359, Dec. 29, 2008; T.D. 9507, 75 FR 75901, Dec. 7, 2010; T.D. 9524, 
76 FR 26602, May 9, 2011; T.D. 9566, 76 FR 77676, Dec. 14, 2011; T.D. 
9586, 77 FR 24612, Apr. 25, 2012]



Sec.  31.6302-2  Deposit rules for taxes under the Railroad Retirement
Tax Act (RRTA).

    (a) General rule. Except as otherwise provided in this section, the 
rules of Sec.  31.6302-1 determine the time and manner of making 
deposits of employee tax withheld under section 3202 and employer tax 
imposed under sections 3221 (a) and (b) attributable to payments made 
after December 31, 1992. Railroad retirement taxes described in section 
3221(c) arising during the month must be deposited on or before the 
first date after the 15th day of the following month on which taxes are 
otherwise required to be deposited under Sec.  31.6302-1.
    (b) Separate application of deposit rules. A person who accumulates 
tax under sections 3202 or 3221 shall not take that tax into account for 
purposes of determining when taxes described in paragraph (e) of Sec.  
31.6302-1 must otherwise be deposited.
    (c) Modification of Monthly rule determination--(1) General rule. 
Except as otherwise provided in this section, any person is allowed to 
use the Monthly rule of Sec.  31.6302-1(c)(1) for an entire calendar 
year unless the amount of R.R.T.A. taxes required to be deposited under 
this section during the lookback period was more than $50,000. The 
lookback period is defined as the calendar year preceding the calendar 
year just ended. Thus, for purposes of determining if an R.R.T.A. 
employer qualifies to use the Monthly rule for calendar year 1993, a 
lookback must be made to calendar year 1991. New employers shall be 
treated as having employment tax liabilities of zero for any calendar 
year during which the employer did not exist.
    (2) Exception. An employer shall immediately cease to be allowed to 
use the Monthly rule after any day on which that employer is subject to 
the One-Day rule set forth in Sec.  31.6302-1(c)(3). Such employer 
immediately becomes subject to the Semi-Weekly rule of Sec.  31.6302-
1(c)(2) for the remainder of the calendar year and the following 
calendar year.
    (d) Effective/applicability date. This section applies to deposits 
and payments made after December 31, 2010.

[T.D. 8436, 57 FR 44105, Sept. 24, 1992, as amended by T.D. 9507, 75 FR 
75903, Dec. 7, 2010]



Sec.  31.6302-3  Federal tax deposit rules for amounts withheld under the
backup withholding requirements of section 3406 for payments made after
December 31, 1992.

    (a) General rule. The rules of Sec.  31.6302-1 shall apply to 
determine the time and manner of making deposits of amounts withheld 
under the backup withholding requirements of section 3406.
    (b) Treatment of backup withholding amounts separately. A taxpayer 
that withholds income tax under section 3406 with respect to reportable 
payments made after December 31, 1992, and before January 1, 1994, may, 
in accordance with the instructions provided with Form 941, deposit such 
tax under the rules of Sec.  31.6302-1 without

[[Page 400]]

taking into account the other taxes described in paragraph (e) of Sec.  
31.6302-1 for purposes of determining when tax withheld under section 
3406 must be deposited. A taxpayer that treats backup withholding 
amounts separately with respect to reportable payments made after 
December 31, 1992, and before January 1, 1994, shall not take tax 
withheld under section 3406 into account for purposes of determining 
when the other taxes described in paragraph (e) of Sec.  31.6302-1 must 
otherwise be deposited under that section. See Sec.  31.6302-4 for rules 
regarding the deposit of income tax withheld under section 3406 with 
respect to reportable payments made after December 31, 1993.
    (c) Example. The following example illustrates the provisions of 
this section.

    Example. For the last two calendar quarters of 1991 and the first 
two calendar quarters of 1992, Bank A reports employment taxes with 
respect to wages paid totalling in excess of $50,000. For the same four 
quarters, pursuant to section 3406, A withholds income tax with respect 
to dividend payments in an amount aggregating less than $50,000. For 
deposit and reporting purposes, A treated the backup withholding amounts 
separately from the employment taxes with respect to wages paid. 
Accordingly, for calendar year 1993, if A chooses to treat the items 
separately, A must use the Semi-Weekly rule of Sec.  31.6302-1(c)(2) to 
deposit taxes with respect to wages paid but may use the Monthly rule of 
Sec.  31.6302-1(c)(1) for the deposit of backup withholding amounts. If 
A chooses not to treat the items separately, the Semi-Weekly rule would 
apply to the combined amount of both the taxes with respect to wages 
paid and the backup withholding amounts.

[T.D. 8436, 57 FR 44106, Sept. 24, 1992, as amended by T.D. 8504, 58 FR 
68035, Dec. 23, 1993]



Sec.  31.6302-4  Deposit rules for withheld income taxes attributable to 
nonpayroll payments.

    (a) General rule. With respect to nonpayroll withheld taxes 
attributable to nonpayroll payments made after December 31, 1993, a 
taxpayer is either a monthly or a semi-weekly depositor based on an 
annual determination. Except as provided in this section, the rules of 
Sec.  31.6302-1 shall apply to determine the time and manner of making 
deposits of nonpayroll withheld taxes as though they were employment 
taxes. Paragraph (b) of this section defines nonpayroll withheld taxes. 
Paragraph (c) of this section provides rules for determining whether a 
taxpayer is a monthly or a semi-weekly depositor.
    (b) Nonpayroll withheld taxes defined. For purposes of this section, 
effective with respect to payments made after December 31, 1993, 
nonpayroll withheld taxes means--
    (1) Amounts withheld under section 3402(q), relating to withholding 
on certain gambling winnings;
    (2) Amounts withheld under section 3402 with respect to amounts paid 
as retirement pay for service in the Armed Forces of the United States;
    (3) Amounts withheld under section 3402(o)(1)(B), relating to 
certain annuities;
    (4) Annuities withheld under section 3405, relating to withholding 
on pensions, annuities, IRAs, and certain other deferred income; and
    (5) Amounts withheld under section 3406, relating to backup 
withholding with respect to reportable payments.
    (c) Determination of deposit status--(1) Rules for calendar years 
1994 and 1995. On January 1, 1994, a taxpayer's depositor status for 
nonpayroll withheld taxes is the same as the taxpayer's status on 
January 1, 1994, for taxes reported on Form 941 under Sec.  31.6302-1. A 
taxpayer generally retains that depositor status for nonpayroll withheld 
taxes for all of calendar years 1994 and 1995. However, a taxpayer that 
under this paragraph (c) is a monthly depositor for 1994 and 1995 will 
immediately lose that status and become a semi-weekly depositor of 
nonpayroll withheld taxes if the One-Day rule of Sec.  31.6302-1(c)(3) 
is triggered with respect to nonpayroll withheld taxes. See paragraph 
(d) of this section for a special rule regarding the application of the 
One-Day rule of Sec.  31.6302-1(c)(3) to nonpayroll withheld taxes.
    (2) Rules for calendar years after 1995--(i) In general. For 
calendar years after 1995, the determination of whether a taxpayer is a 
monthly or a semi-weekly depositor for a calendar year is based on an 
annual determination and generally depends on the aggregate amount of 
nonpayroll withheld taxes reported by the taxpayer for the

[[Page 401]]

lookback period as defined in paragraph (c)(2)(iv) of this section.
    (ii) Monthly depositor. A taxpayer is a monthly depositor of 
nonpayroll withheld taxes for a calendar year if the amount of 
nonpayroll withheld taxes accumulated in the lookback period (as defined 
in paragraph (c)(2)(iv) of this section) is $50,000 or less. A taxpayer 
ceases to be a monthly depositor of nonpayroll withheld taxes on the 
first day after the taxpayer is subject to the One-Day rule in Sec.  
31.6302-1(c)(3) with respect to nonpayroll withheld taxes. At that time, 
the taxpayer immediately becomes a semi-weekly depositor of nonpayroll 
withheld taxes for the remainder of the calendar year and the succeeding 
calendar year. See paragraph (d) of this section for a special rule 
regarding the application of the One-Day rule of Sec.  31.6302-1(c)(3) 
to nonpayroll withheld taxes.
    (iii) Semi-weekly depositor. A taxpayer is a semi-weekly depositor 
of nonpayroll withheld taxes for a calendar year if the amount of 
nonpayroll withheld taxes accumulated in the lookback period (as defined 
in paragraph (c)(2)(iv) of this section) exceeds $50,000.
    (iv) Lookback period. For purposes of this section, the lookback 
period for nonpayroll withheld taxes is the second calendar year 
preceding the current calendar year. For example, the lookback period 
for calendar year 1996 is calendar year 1994. A new taxpayer is treated 
as having nonpayroll withheld taxes of zero for any calendar year in 
which the taxpayer did not exist.
    (d) Special rules. A taxpayer must treat nonpayroll withheld taxes, 
which are reported on Form 945, ``Annual Return of Withheld Federal 
Income Tax,'' separately from taxes reportable on Form 941, ``Employer's 
QUARTERLY Federal Tax Return'' (or any other return, for example, Form 
943, ``Employer's Annual Federal Tax Return for Agricultural 
Employees''). Taxes reported on Form 945 and taxes reported on Form 941 
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, taxes reported on 
Form 945 and taxes reported on Form 941 must be deposited separately. 
(See paragraph (b) of Sec.  31.6302-1 for rules for determining an 
employer's deposit status for taxes reported on Form 941.) Taxes 
reported on Form 945 for one calendar year must be deposited separately 
from taxes reported on Form 945 for another calendar year.
    (e) Effective/applicability date. Section 31.6302-4(d) applies to 
deposits and payments made after December 31, 2010.

[T.D. 8504, 58 FR 68036, Dec. 23, 1993, as amended by T.D. 9507, 75 FR 
75903, Dec. 7, 2010; T.D. 9524, 76 FR 26602, May 9, 2011; T.D. 9586, 77 
FR 24612, Apr. 25, 2012]



Sec.  31.6302(b)-1  Method of collection.

    For provisions relating to collection by means of returns of the 
taxes imposed by chapter 21 (Federal Insurance Contributions Act), see 
Sec. Sec.  31.6011(a)-1 and 31.6011(a)-5.



Sec.  31.6302(c)-1  Use of Government depositories in connection with taxes
under Federal Insurance Contributions Act and income tax withheld for amounts 
attributable to payments made before January 1, 1993.

    (a) Requirement for calendar months beginning after December 31, 
1980, but before January 1, 1993--(1) In general. (i) In the case of a 
calendar month which begins after December 31, 1980, but before April 1, 
1991--
    (a) Except as provided in paragraph (b) of this section and 
hereinafter in this subdivision (i), if at the close of any calendar 
month the aggregate amount of undeposited taxes (as defined in paragraph 
(a)(1)(iii) of this section) is $500 or more, the employer shall deposit 
the undeposited taxes in a Federal Reserve bank or authorized financial 
institution (see paragraph (a)(3)(iii) of this section) within 15 
calendar days after the close of such calendar month.

However, this (a) of subdivision (i) shall not apply if the employer was 
required to make a deposit of taxes pursuant to (b) of this subdivision 
(i) with respect to an eighth-monthly period which occurred during the 
calendar month.
    (b) Except as provided in paragraph (b) of this section and except 
in the case of first-time 3-banking-day depositors, if at the close of 
any eighth-monthly period the aggregate amount

[[Page 402]]

of undeposited taxes is $3,000 or more, the employer shall deposit the 
undeposited taxes in a Federal Reserve bank or authorized financial 
institution within 3 banking days after the close of such eighth-monthly 
period. For purposes of determining the amount of undeposited taxes at 
the close of an eighth-monthly period, undeposited taxes with respect to 
wages paid during a prior eighth-monthly period shall not be taken into 
account if the employer has made a deposit with respect to such prior 
eighth-monthly period. An employer will be considered to have complied 
with the requirements of this paragraph (a)(1)(i)(b) for a deposit with 
respect to the close of an eighth-monthly period if--
    (1) His deposit is not less than 95 percent (90 percent before 
January 1, 1982) of the aggregate amount of the taxes with respect to 
wages paid during the period for which the deposit is made, and
    (2) If such eighth-monthly period occurs in a month other than the 
last month of a period for which a return is required to be filed 
(hereinafter in this subparagraph referred to as a return period), he 
deposits any underpayment with his first deposit which is otherwise 
required by this paragraph (a)(1)(i)(b) to be made after the 15th day of 
the following month.

For purposes of this paragraph (a)(1)(i)(b), a ``first-time 3-banking-
day depositor'' is an employer who establishes to the satisfaction of 
the Commissioner that he was not required (but for this exception) to 
make a deposit pursuant to this paragraph (a)(1)(i)(b) (or pursuant to 
paragraph (a)(1)(ii)(b) of this section) with respect to each period in 
any preceding month of the current calendar quarter and with respect to 
each period in the 4 calendar quarters preceding the current calendar 
quarter. An employer may in no event qualify as a ``first-time 3-
banking-day depositor'' with respect to any eighth-monthly period if the 
undeposited taxes at the close of that period are $10,000 or more.

The excess (if any) of a deposit over the actual taxes for a deposit 
period shall be applied in order of time to each of the employer's 
succeeding deposits with respect to the same return period, until 
exhausted, to the extent that the amount by which the taxes for a 
subsequent deposit period exceed the deposit for such subsequent deposit 
period. For purposes of this paragraph (a)(1)(i), ``eighth-monthly 
period'' means the first 3 days of a calendar month, the 4th day through 
the 7th day of a calendar month, the 8th day through the 11th day of a 
calendar month, the 12th day through the 15th day of a calendar month, 
the 16th day through the 19th day of a calendar month, the 20th day 
through the 22nd day of a calendar month, the 23rd day through the 25th 
day of a calendar month, or the portion of a calendar month following 
the 25th day of such month.
    (c) The periods within which taxes must be desposited under this 
section are determined, in the case of employers paying advance earned 
income credit amounts, by reference to the amount of taxes required to 
be deposited after reduction for advance amounts paid to employees.
    (ii) In the case of a calendar month which begins after March 31, 
1991, but before January 1, 1993--
    (a) Except as provided in Sec.  31.6302(c)-1(a)(1)(ii) (b) or (c), 
or Sec.  31.6302(c)-1(b), if with respect to any calendar month the 
aggregate amount of taxes (as defined in Sec.  31.6302(c)-1(a)(1)(iii)) 
accumulated with respect to wages paid is $500 or more, but less than 
$3,000, then the employer shall deposit that aggregate amount in a 
Federal Reserve bank or authorized financial institution within 15 
calendar days after the close of that calendar month. Taxes accumulated 
with respect to wages paid in a prior calendar month within the same 
return period shall not be taken into account in determining the 
aggregate amount of taxes accumulated if a deposit was required to be 
made under this section with respect to such tax amounts. Deposits made 
during the calendar month of taxes with respect to wages paid during 
that month do not reduce the aggregate amount of taxes accumulated for 
purposes of determining the deposit requirement (if any) for that month. 
However, this paragraph (a)(1)(ii)(a) shall not apply if the employer 
was required to make a deposit of taxes pursuant to paragraph 
(a)(1)(ii)(b) of this

[[Page 403]]

section with respect to an eighth-month period which occurred during the 
calendar month.

    Example 1. Employer A's aggregate amount of taxes accumulated with 
respect to wages paid in April 1991 is $800. Since that amount is in 
excess of $500, but less than $3,000, A must deposit the $800 in a 
Federal Reserve bank or authorized financial institution by May 15, 
1991.
    Example 2. Employer B's aggregate amount of taxes accumulated with 
respect to wages paid in April 1991 is $400. Since that amount is less 
than $500, B has no deposit obligation for the month of April. In May 
1991 B's aggregate amount of taxes accumulated with respect to wages 
paid during the month is $450. Since the $400 in taxes in April was not 
required to be deposited, that amount is taken into account in 
determining if a deposit is required for May. The aggregate amount of 
taxes accumulated with respect to wages paid for the two months is in 
excess of $500, thus requiring a deposit. Since June 15, 1991, is a 
Saturday, B must deposit the $850 in a Federal Reserve bank or 
authorized financial institution by Monday, June 17, 1991, pursuant to 
section 7503 of the Code.
    Example 3. The facts are the same as in Example 2 except that B 
deposits the $400 in taxes from April on May 15, 1991. Because the $400 
was not required to be deposited, that amount is taken into account in 
determining if a deposit obligation exists for May. Since the aggregate 
amount of taxes accumulated with respect to wages paid for the two 
months, $850, is in excess of $500, a deposit in the aggregate amount of 
$850 is required by Monday, June 17, 1991. Since $400 was previously 
deposited, B must deposit an additional $450 by June 17, 1991.
    Example 4. On Friday, April 5, 1991, a payroll date, Employer C 
accumulates $450 in taxes with respect to wages paid on that date. 
Although not required to do so, C deposits the $450 in an authorized 
depository. On Friday, April 19, 1991, C accumulates an additional $450 
in taxes with respect to wages paid. The aggregate amount of taxes 
accumulated with respect to wages paid during the calendar month is 
$900. C has a deposit obligation of $900 for the calendar month and must 
deposit an additional $450 in an authorized depository by May 15, 1991.

    (b) Except as provided in Sec.  31.6302(c)-1(a)(1)(ii)(c) or Sec.  
31.6302(c)-1(b), and except in the case of first-time 3-banking-day 
depositors (as defined in Sec.  31.6302(c)-1(a)(1)(i)(b)(2)), if with 
respect to any eighth-monthly period (as defined in Sec.  31.6302(c)-
1(a)(1)(i)(b)) the aggregate amount of taxes accumulated with respect to 
wages paid is $3,000 or more, but less than $100,000, the employer shall 
deposit that aggregate amount in a Federal Reserve bank or authorized 
financial institution within 3 banking days after the close of that 
eighth-monthly period. Taxes accumulated with respect to wages paid 
during a prior eighth-monthly period shall not be taken into account if 
a deposit was required to be made under this section with respect to 
such tax amounts. Deposits made during the eighth-monthly period of 
taxes with respect to wages paid during that eighth-monthly period do 
not reduce the aggregate amount of taxes accumulated for purposes of 
determining the deposit requirement (if any) for that eighth-monthly 
period. Solely for purposes of the examples in this paragraph 
(a)(1)(ii)(b) and paragraphs (a)(1)(ii)(c), (d), and (f) of this 
section, ``banking days'' are assumed to include all calendar days 
except Saturdays, Sundays, and Federal holidays.

    Example 1. For the eighth-monthly period April 1-3, 1991, Employer 
D's aggregate amount of taxes accumulated with respect to wages paid is 
$3,500. Since that amount is in excess of $3,000, but less than 
$100,000, D has a deposit obligation of $3,500 that must be satisfied by 
April 8, 1991, the third banking day after the close of the eighth-
monthly period.
    Example 2. For the eighth-monthly period April 1-3, 1991, Employer 
E's aggregate amount of taxes accumulated with respect to wages paid is 
$3,500. E has a deposit obligation of $3,500 that must be satisfied by 
April 8, 1991, three banking days after the close of the April 1-3 
eighth-monthly period. For the eighth-monthly period April 4-7, 1991, 
E's aggregate amount of taxes accumulated with respect to wages paid is 
$2,800. Since E was required to make a deposit for the April 1-3 eighth-
monthly period, that $3,500 amount is not taken into account in 
determining any obligations that arise in subsequent eighth-monthly 
periods. E does not have an eighth-monthly deposit obligation with 
respect to the April 4-7 period.
    Example 3. For the eighth-monthly period April 1-3, 1991, Employer 
F's aggregate amount of taxes accumulated with respect to wages paid is 
$2,800. Since that amount is less than $3,000, no deposit is required 
with respect to that eighth-monthly period. For the eighth-monthly 
period April 4-7, 1991, F's aggregate amount of taxes accumulated with 
respect to wages paid is $2,500. Since F was not required to deposit the 
$2,800 in taxes from the April 1-3 eighth-monthly period, that amount is 
taken into account in determining F's deposit obligation for the April 
4-

[[Page 404]]

7 eighth-monthly period. The aggregate amount of taxes accumulated for 
the two eighth-monthly periods is $5,300. F has a deposit obligation of 
$5,300 that must be satisfied by April 10, 1991, three banking days 
after the close of the April 4-7 eighth-monthly period.
    Example 4. The facts are the same as in Example 3 except that F 
deposits the $2,800 from the April 1-3 eighth-monthly period on April 4, 
1991. Because the $2,800 was not required to be deposited, that amount 
is taken into account in determining F's deposit obligation for the 
April 4-7 eighth-monthly period. The aggregate amount of taxes 
accumulated for the two eighth-monthly periods is $5,300. Since that 
amount is in excess of $3,000, a deposit obligation exists after the 
close of the April 4-7 eighth-monthly period. As $2,800 of that amount 
was previously deposited, F has a deposit obligation of $2,500 that must 
be satisfied by April 10, 1991, three banking days after the close of 
the April 4-7 eighth-monthly period.
    Example 5. On Friday, April 12, 1991, the beginning of an eighth-
monthly period (April 12-15), G accumulates $3,500 in taxes with respect 
to wages paid and deposits the $3,500 in an authorized depository on 
that date although a deposit of the $3,500 was not required to be made 
on that date. On Monday, April 15, 1991, the end of the April 12-15 
eighth-monthly period, G accumulates an additional $2,000 in taxes with 
respect to wages paid. The aggregate amount of taxes accumulated with 
respect to wages paid during the April 12-15 eighth-monthly period of 
$5,500. G has a deposit obligation for the eighth-monthly period of 
$5,500. Since $3,500 of that amount was previously deposited, G has a 
remaining deposit obligation of $2,000 that must be satisfied by 
Thursday, April 18, 1991, three banking days after the close of the 
eighth-monthly period.

    (c) If on any day within an eighth-monthly period the aggregate 
amount of taxes accumulated with respect to wages paid is $100,000 or 
more, the employer shall deposit that aggregate amount in a Federal 
Reserve bank or authorized financial institution on the first banking 
day after that day. Taxes accumulated with respect to wages paid prior 
to that day shall not be taken into account if a deposit was required 
under this section with respect to such tax amounts. Taxes deposited on 
any given day with respect to wages paid on that day do not reduce the 
aggregate amount of taxes accumulated on that day for purposes of 
determining the deposit requirement (if any) for that day.

    Example 1. On Thursday, April 4, 1991, the beginning of the April 4-
7 eighth-monthly period, Employer H accumulates $55,000 in taxes with 
respect to wages paid on that date. On Saturday, April 6, 1991, H 
accumulates an additional $50,000 in taxes with respect to wages paid. H 
has a deposit obligation of $105,000 that must be satisfied by Monday, 
April 8, the next banking day after Saturday, April 6.
    Example 2. On Friday, April 12, 1991, the beginning of the April 12-
15 eighth-monthly period, J accumulates $60,000 in taxes with respect to 
wages paid and deposits the $60,000 in an authorized depository on that 
date although a deposit of the $60,000 was not required to be made on 
that date. On Monday, April 15, 1991, the last day in the April 12-15 
eighth-monthly period, J accumulates an additional $50,000 in taxes with 
respect to wages paid. On Monday, April 15, the aggregate amount of 
taxes accumulated with respect to wages paid during the eighth-monthly 
period to date totals $110,000. J has a $110,000 deposit obligation that 
must be satisfied by the next banking day after the $100,000 threshold 
is reached. Since $60,000 of the $110,000 was already deposited, J has a 
remaining deposit obligation of $50,000 that must be satisfied by 
Tuesday, April 16, 1991, the next banking day following April 15th.
    Example 3. On Monday, April 1, 1991, Employer K accumulates $105,000 
in taxes with respect to wages paid on that date. On that same day, K 
deposits in an authorized depository $10,000 of the $105,000 
accumulated. K has a $105,000 deposit obligation that must be satisfied 
by the next banking day, April 2, 1991. The $10,000 deposited on April 1 
cannot be used to reduce the aggregate amount of accumulated taxes with 
respect to that date. K has a remaining deposit obligation of $95,000 
that must be satisfied by April 2, 1991.

    (d) If, with respect to any eighth-monthly period, an employer 
incurs an obligation to deposit in accordance with Sec.  31.6302(c)-
1(a)(1)(ii)(c), and later, within the same eighth-monthly period, 
accumulates with respect to wages paid taxes of $3,000 or more, but less 
than $100,000, an additional deposit is required in accordance with 
Sec.  31.6302(c)-1(a)(1)(ii)(b). However, if the amount of taxes is 
$100,000 or more, an additional deposit is required in accordance with 
Sec.  31.6302(c)-1(a)(1)(ii)(c).

    Example. On Tuesday, April 2, 1991, Employer L accumulates $110,000 
in aggregate taxes with respect to wages paid. In accordance with 
paragraph (a)(1)(ii)(c) of this section, L has a $110,000 deposit 
obligation that must be satisfied by Wednesday, April 3, 1991, the next 
banking day following April 2. On Wednesday, April 3, 1991, L 
accumulates an

[[Page 405]]

additional $10,000 in taxes with respect to wages paid that date. In 
accordance with paragraph (a)(1)(ii)(b) of this section, L now has an 
additional deposit obligation of $10,000 that must be satisfied by 
Monday, April 8, 1991, the 3rd banking day following the close of the 
April 1-3 eighth-monthly period. The obligation to deposit the $10,000 
is separate and distinct from the obligation to deposit the $110,000.

    (e) An employer will be considered to have satisfied the deposit 
obligation imposed by paragraphs (a)(1)(ii) (b), (c) and (d) of this 
section if--
    (1) The deposit that is made is not less than 95 percent of the 
aggregate amount of taxes accumulated with respect to wages paid during 
the period for which the deposit is made, and
    (2) If the eighth-monthly period (or, in the case of a deposit 
required under paragraph (a)(1)(ii)(c) of this section, the day on which 
the obligation arose) is in a month other than the last month of the 
return period, the employer deposits any remaining amount due with the 
first deposit otherwise required to be made after the fifteenth day of 
the following month. In the case of the last month of the return period, 
see Sec.  31.6302(c)-1(a)(1)(iv).
    (f) Any excess of a deposit over the actual taxes required to be 
deposited to date (overdeposit) during the return period shall be 
applied in order of time to each of the employer's succeeding deposit 
obligations within the same return period. In the determination of the 
aggregate amount of taxes accumulated with respect to wages paid in 
succeeding deposit periods, the overdeposit does not reduce the 
aggregate amount accumulated although the overdeposit is credited to the 
depositor's account.

    Example. Employer M's deposit obligation for the eighth-monthly 
period April 1-3, 1991, is $3,200. On April 8, 1991, three banking days 
after the close of the eighth-monthly period, M deposits $4,000 in an 
authorized depository, $800 in excess of the amount required to be 
deposited. During the eighth-monthly period April 4-7, 1991, M 
accumulates $3,750 in taxes with respect to wages paid during such 
period. Although the $800 overdeposit for the April 1-3 eighth-monthly 
period is credited to M's account, it may not be used to determine 
whether a deposit obligation exists for the April 4-7 eighth-monthly 
period. The two deposit obligations are separate and distinct. Since the 
amount of taxes accumulated with respect to the April 4-7 eighth-monthly 
period is an amount greater than $3,000, a deposit is required under 
paragraph (a)(1)(ii)(b) of this section within three banking days after 
the close of the period. M has a remaining deposit obligation of $2,950 
($3,750 accumulated less $800 overdeposit) that must be satisfied by 
April 10, 1991, three banking days after the close of the period.

    (g) The periods within which taxes must be deposited under this 
section are determined, in the case of employers paying advance earned 
income credit amounts, by reference to the amount of taxes required to 
be deposited after reduction for advance amounts paid to employees.
    (h) For purposes of this paragraph (a)(1)(ii), the term ``wages 
paid'' includes all amounts included in wages, e.g., under section 
3121(v) of the Code, regardless of whether they have actually been paid.
    (iii) As used in subdivisions (i) and (ii) of this subparagraph, the 
term ``taxes'' means--
    (a) The employee tax withheld under section 3102,
    (b) The employer tax under section 3111, and
    (c) The income tax withheld under section 3402, including amounts 
withheld with respect to qualified State individual income taxes,


Exclusive of taxes with respect to wages for domestic service in a 
private home of the employer or, if paid before April 1, 1971, wages for 
agricultural labor. In addition, with respect to wages paid after 
December 31, 1970, and before April 1, 1971, for agricultural labor, any 
taxes described in paragraph (a)(2)(ii) of this section which are not 
required under such subparagraph to be deposited, and any income tax 
(including qualified State individual income tax) withheld under section 
3402 with respect to such wages, shall be deemed to be ``taxes'' on and 
after April 1, 1971. For the requirements relating to the deposit and 
payment of withheld tax and with respect to qualified State individual 
income taxes, see paragraph (d)(3)(iii) of Sec.  301.6361-1 of this 
chapter (Regulations on Procedure and Administration).
    (iv) If the aggregate amount of taxes reportable on a return (other 
than a return on Form 942) for a return period

[[Page 406]]

exceeds the total amount deposited by the employer pursuant to paragraph 
(a)(1) (i) or (ii) of this section for such return period (a) by $500 or 
more in the case of a return period which ends after December 31, 1980, 
or (b) by more than $200 in the case of a return period which ends after 
December 31, 1970, and before January 1, 1981, the employer shall, on or 
before the last day of the first calendar month following the return 
period, deposit with a Federal Reserve bank or authorized financial 
institution an amount equal to the amount by which the taxes reportable 
on the return exceed the total deposits (if any) made pursuant to 
subdivision (i) or (ii) of this subparagraph for such period. As used in 
this subdivision, the term ``taxes'' shall have the meaning assigned to 
such term in subdivision (iii) of this subparagraph, except that the 
term shall include the taxes referred to in (a), (b), and (c) of such 
subdivision (iii) of this subparagraph with respect to any wages for 
domestic service in a private home of the employer which the employer 
elects to report on a quarterly return other than a quarterly return 
made on Form 942.
    (v) If the aggregate amount of taxes reportable on Form CT-1, the 
return relating to an employer's railroad retirement tax payments, for a 
return period exceeds the total amount deposited by the employer 
pursuant to paragraph (a)(1)(i) of this section for such return period 
by $100 or more, the employer shall, on or before the last day of the 
second calendar month following the return period, deposit with a 
Federal Reserve bank or authorized financial institution an amount equal 
to the amount by which the taxes reportable on Form CT-1 exceed the 
total deposits (if any) of such taxes made pursuant to subdivision (i) 
of this subparagraph for such period.
    (2) Depositary forms--(i) In general. A deposit required to be made 
by this section shall be made separately from a deposit required by any 
other section. An employer may make one, or more than one, remittance of 
the amount required to be deposited. However, a deposit for a period in 
one calendar quarter shall be made separately from any deposit for a 
period in another calendar quarter. An amount of tax which is not 
required to be deposited may nevertheless be deposited if the employer 
so desires.
    (ii) Deposits. Each remittance of amounts required to be deposited 
under paragraph (a)(1) of this section shall be accompanied by a Federal 
Tax Deposit form. Such form shall be prepared in accordance with the 
instructions applicable thereto. The remittance, together with the 
Federal Tax Deposit form, shall be forwarded to a financial institution 
authorized as a depositary for Federal taxes in accordance with 31 CFR 
Part 214 or, at the election of the employer, to a Federal Reserve bank. 
For procedures governing the deposit of Federal taxes at a Federal 
Reserve bank, see 31 CFR Part 214.7. The timeliness of the deposit will 
be determined by the date stamped on the Federal Tax Deposit form by the 
Federal Reserve bank or the authorized financial institution or, if 
section 7502(e) applies, by the date the deposit is treated as received 
under section 7502(e). Each employer making deposits under this section 
shall report on the return, for the period with respect to which such 
deposits are made, information regarding such deposits according to the 
instructions that apply to such return and pay at that time (or deposit 
by the due date of such return) the balance, if any, of the taxes due 
for such period.
    (iii) Time deemed paid. In general, amounts deposited under 
subdivision (ii) of this subparagraph shall be considered as paid on the 
last day prescribed for filing the return in respect of such tax 
(determined without regard to any extension of time for filing such 
return), or at the time deposited, whichever is later. For purposes of 
section 6511 and the regulations thereunder, relating to period of 
limitation on credit or refund, if an amount is so deposited prior to 
April 15th of a calendar year immediately succeeding the calendar year 
which contains the period for which such amount was so deposited, such 
amount shall be considered as paid on such April 15th.
    (3) Procurement of prescribed form. Copies of the Federal Tax 
Deposit form will so far as possible be furnished employers. An employer 
will not be excused from making a deposit, however,

[[Page 407]]

by the fact that no form has been furnished to it. An employer not 
supplied with the Federal Tax Deposit form should make application 
therefor in ample time to make the required deposits within the time 
prescribed. The employer may secure the form or additional forms by 
application therefor; such application shall supply the employer's name, 
identification number, address, and the taxable period to which the 
deposits will relate.
    (b) Exceptions--(1) Monthly returns. The provisions of this section 
are not applicable with respect to taxes for the month in which the 
employer receives notice that returns are required under Sec.  31.6011 
(a)-5 (or for any subsequent month for which such a return is required), 
if those taxes are also required to be deposited under the separate 
accounting procedures provided in Sec.  301.7512-1 of this chapter 
(Regulations on Procedure and Administration) (which procedures are 
applicable if notification is given of failure to comply with certain 
employment tax requirements). In cases in which a monthly return is 
required under Sec.  31.6011 (a)-5 but the taxes are not required to be 
deposited under the separate accounting procedures provided in Sec.  
301.7512-1, the provisions of this section shall apply except that 
paragraph (a)(1)(iv) shall not authorize the deferral of any deposit to 
a date after the date on which the return is required to be filed.
    (2) Wages paid in nonconvertible foreign currency. The provisions of 
this section are not applicable with respect to taxes paid in 
nonconvertible foreign currency pursuant to Sec.  301.6316-7 of this 
chapter (Regulations on Procedure and Administration).

(68A Stat. 775, 917; 26 U.S.C. 6302, 7805; secs. 6302 (c) and 7805 of 
the Internal Revenue Code of 1954; 68A Stat. 775, 26 U.S.C. 6302 (c); 
68A Stat. 917; 26 U.S.C. 7805)

[T.D. 6516, 25 FR 13032, Dec. 20, 1960]

    Editorial Note: For Federal Register citations affecting Sec.  
31.6302(c)-1, see the List of CFR Sections Affected, which appears in 
the Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.  31.6302(c)-2  Use of Government depositories in connection with
employee and employer taxes under Railroad Retirement Tax Act for amounts
attributable to payments made before January 1, 1993.

    (a) Requirement--(1) In general: after 1983 and before April 1, 
1991. In the case of a calendar month which begins after December 31, 
1983, and before April 1, 1991, if, at a time prescribed under Sec.  
31.6302(c)-1(a)(1) (i) or (v) for the deposit of undeposited taxes, the 
aggregate amount of undeposited employee tax withheld after December 31, 
1983, and before April 1, 1991, under section 3202 and employer tax 
imposed after December 31, 1983, and before April 1, 1991, under section 
3221(a) and (b) equals an amount required to be deposited under Sec.  
31.6302(c)-1(a)(1) (i) or (v) the employer shall deposit the undeposited 
railroad retirement taxes described in sections 3202 and 3221 at such 
time in the manner prescribed in Sec.  31.6302(c)-1(a)(1) (i) or (v) 
(except that undeposited railroad retirement taxes described in section 
3221 (c) shall in no case be required to be deposited earlier than the 
first day on which a deposit is otherwise required by Sec.  31.6302(c)-
1(a)(1)(i) to be made after the 15th day of the month following the 
month in which the section 3221 (c) tax arises).

Notwithstanding the preceding sentence, and notwithstanding subdivision 
(v) of Sec.  31.6302 (c)-1 (a) (1), if, for the calendar year prior to 
the calendar year preceding the current calendar year, the aggregate 
amount of taxes imposed under sections 3202 and 3221 with respect to an 
employer equalled or exceeded $1 million, such employer shall deposit 
his undeposited railroad retirement taxes required to be deposited for 
the current calendar year in accordance with Revenue Procedure 83-90, 
1983-52 I.R.B. 18, (relating to transfers by wire to the Treasury).
    (2) In general: After March 31, 1991 and before January 1, 1993. In 
the case of a calendar month which begins after March 31, 1991, if, at a 
time prescribed under Sec.  31.6302(c)-1(a)(1)(ii) or (v) for the 
deposit of accumulated taxes, the aggregate amount of accumulated 
employee tax withheld after March 31, 1991, under section 3202 and 
employer tax imposed after March 31, 1991, under

[[Page 408]]

section 3221(a) and (b) equals an amount required to be deposited under 
Sec.  31.6302(c)-1(a)(1)(ii) or (v), the employer shall deposit the 
accumulated railroad retirement taxes described in sections 3202 and 
3221 at the time and in the manner prescribed in Sec.  31.6302(c)-
1(a)(1)(ii) or (v) (except that accumulated railroad retirement taxes 
described in section 3221(c) shall in no case be required to be 
deposited earlier than the first day on which a deposit is otherwise 
required by Sec.  31.6302(c)-1(a)(1)(ii) to be made after the 15th day 
of the month following the month in which the section 3221(c) tax 
arises). Notwithstanding the preceding sentence, and notwithstanding 
Sec.  31.6302(c)-1(a)(1)(v), if, for the calendar year prior to the 
calendar year preceding the current calendar year, the aggregate amount 
of taxes imposed under sections 3202 and 3221 with respect to an 
employer equalled or exceeded $1 million, such employer shall deposit 
the aggregate amount of railroad retirement taxes required to be 
deposited for the current calendar year in accordance with Revenue 
Procedure 83-90, 1983-2 C.B. 615 (relating to transfers by wire to the 
Treasury).
    (3) Special requirement. If an employer files a return on Form CT-1 
for a return period beginning before January 1, 1984, and the taxes 
shown thereon exceed by more than $100 the total amount deposited by him 
pursuant to paragraph (a)(1) of this section for such return period the 
employer shall, on or before the last day of the second calendar month 
following the period for which the return is filed, deposit with a 
Federal Reserve bank or authorized financial institution an amount equal 
to the amount by which the taxes shown on the return exceed the total 
deposits (if any) made pursuant to paragraph (a)(1) of this section for 
such return period.
    (b) Depositary forms--(1) In general. A deposit required to be made 
by this section shall be made separately from a deposit required by any 
other section. An employer may make one, or more than one remittance of 
the amount required to be deposited. An amount of tax which is not 
required to be deposited may nevertheless be deposited if the employer 
so desires. If the aggregate amount of the taxes deposited is in excess 
of the taxes shown on the return, a credit or refund may be obtained; 
and in the event the excess is applied as a credit against such taxes 
for a subsequent return period, the employer shall reduce the amount of 
one or more of the deposits otherwise required for such subsequent 
return period by the amount of such credit.
    (2) Deposits. Each remittance of amounts required to be deposited 
shall be accompanied by a Federal Tax Deposit form which shall be 
prepared in accordance with the instructions applicable thereto. Except 
as provided in paragraph (a)(1) or (a)(2) of this section, the 
remittance, together with the form, shall be forwarded to a financial 
institution authorized as a depositary for Federal taxes in accordance 
with 31 CFR part 214 or, at the election of the employer, to a Federal 
Reserve bank. For procedures governing the deposit of Federal taxes at a 
Federal Reserve bank, see 31 CFR part 214.7. The timeliness of the 
deposit will be determined by the date stamped on the Federal Tax 
Deposit form by the Federal Reserve bank or the authorized financial 
institution or, if section 7502(e) applies, by the date the deposit is 
treated as received under section 7502(e). Each employer making deposits 
under this section shall report on the return, for the period with 
respect to which such deposits are made, information regarding such 
deposits according to the instructions that apply to such return and pay 
at that time (or deposit by the due date of such return) the balance, if 
any, of the taxes due for such period.
    (3) Time deemed paid. In general, amounts deposited under 
subparagraph (2) of this paragraph shall be considered as paid on the 
last day prescribed for filing the return in respect of such tax 
(determined without regard to any extension of time for filing such 
return), or at the time deposited, whichever is later. For purposes of 
section 6511 and the regulations thereunder, relating to period of 
limitation on credit or refund, if an amount is so deposited prior to 
April 15th of a calendar year immediately succeeding the calendar year 
in which occurs the period for which such amount was so deposited,

[[Page 409]]

such amount shall be considered as paid on such April 15th.
    (c) Procurement of prescribed form. Copies of the Federal Tax 
Deposit form will so far as possible be furnished employers. An employer 
will not be excused from making a deposit, however, by the fact that no 
form has been furnished to it. An employer not supplied with the form 
should make application therefor in ample time to make the required 
deposits within the time prescribed. The employer may secure the form or 
additional forms by applying therefor and supplying its name, 
identification number, address, and the taxable period to which the 
deposits will relate. Copies of the Federal Tax Deposit form may be 
secured by application therefor.

(Secs. 6302 (c) and 7805 of the Internal Revenue Code of 1954 (68A Stat. 
775, 26 U.S.C. 6302 (c); 68A Stat. 917; 26 U.S.C. 7805)

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6941, 32 FR 
18041, Dec. 16, 1967; T.D. 6957, 33 FR 8272, June 4, 1968; T.D. 7419, 41 
FR 19632, May 13, 1976; T.D. 7931, 48 FR 57274, Dec. 29, 1983; T.D. 
7953, 49 FR 19645, May 9, 1984; T.D. 8341, 56 FR 13403, Apr. 2, 1991; 
T.D. 8436, 57 FR 44106, Sept. 24, 1992; T.D. 9239, 71 FR 13, Jan. 3, 
2006]



Sec.  31.6302(c)-3  Deposit rules for taxes under the Federal Unemployment
Tax Act.

    (a) Requirement--(1) In general. Except as provided in paragraph 
(a)(2) of this section, every person that, by reason of the provisions 
of section 6157, computes the tax imposed by section 3301 on a quarterly 
or other time period basis shall--
    (i) If the person is described in section (a)(1) of section 6157, 
deposit the amount of such tax by the last day of the first calendar 
month following the close of each of the first three calendar quarters 
in the calendar year; or
    (ii) If the person is other than a person described in section 
(a)(1) of section 6157, deposit the amount of such tax by the last day 
of the first calendar month following the close of--
    (a) The period beginning with the first day of the calendar year and 
ending with the last day of the calendar quarter (excluding the last 
calendar quarter) in which such person becomes an employer (as defined 
in section 3306(a)), and
    (b) The third calendar quarter of such year, if the period specified 
in (a) of this subdivision includes only the first two calendar quarters 
of the calendar year.
    (2) Special rule where accumulated amount does not exceed $500. The 
provisions of paragraph (a)(1) of this section shall not apply with 
respect to any period described therein if the amount of the tax imposed 
by section 3301 for such period (as computed under section 6157) plus 
amounts not deposited for prior periods does not exceed $500 ($100 in 
the case of periods ending on or before December 31, 2004). Thus, an 
employer shall not be required to make a deposit for a period unless his 
tax for such period plus tax not deposited for prior periods exceeds 
$500.
    (b) Manner of deposit--(1) In general. A deposit required to be made 
by an employer under this section shall be made separately from a 
deposit required by any other section. An employer may make one, or more 
than one, remittance of the amount required to be deposited. An employer 
that is not required to deposit an amount of tax by this section may 
nevertheless voluntarily make that deposit. For the requirement to 
deposit tax under the Federal Unemployment Tax Act by electronic funds 
transfer, see Sec.  31.6302-1(h).
    (2) Time deemed paid. For the time an amount deposited by electronic 
funds transfer is deemed paid, see Sec.  31.6302-1(h)(9). For the time 
an amount remitted with a return is deemed paid, see Sec.  31.6302-
1(i)(3).
    (c) Effective/applicability date. This section applies to deposits 
and payments made after December 31, 2010.

[T.D. 7037, 35 FR 6709, Apr. 28, 1970; 35 FR 7070, May 5, 1970, as 
amended by T.D. 7062, 35 FR 14840, Sept. 24, 1970; T.D. 7953, 49 FR 
19645, May 9, 1984; 49 FR 25239, June 20, 1984; T.D. 8723, 62 FR 37494, 
July 14, 1997; T.D. 8952, 66 FR 33831, 33832, June 26, 2001; T.D. 9162, 
69 FR 69820, Dec. 1, 2004; T.D. 9239, 71 FR 13, Jan. 3, 2006; T.D. 9507, 
75 FR 75903, Dec. 7, 2010]



Sec.  31.6302(c)-4  Cross references.

    (a) Failure to deposit. For provisions relating to the penalty for 
failure to make a deposit within the prescribed time, see section 6656.

[[Page 410]]

    (b) Saturday, Sunday, or legal holiday. For provisions relating to 
the time for performance of acts where the last day falls on Saturday, 
Sunday, or a legal holiday, see the provisions of Sec.  301.7503-1 of 
this chapter (Regulations on Procedure and Administration).

[T.D. 6516, 25 FR 13032, Dec. 20, 1960. Redesignated by T.D. 7037, 35 FR 
6709, Apr. 28, 1970, as amended by T.D. 8947, 66 FR 32542, June 15, 
2001]



Sec.  31.6361-1  Collection and administration of qualified State individual
income taxes.

    Except as otherwise provided in Sec. Sec.  301.6361-1 to 301.6385-2, 
inclusive, of this chapter (Regulations on Procedure and 
Administration), the provisions of this part under subtitle F or chapter 
24 of the Internal Revenue Code of 1954 relating to the collection and 
administration of the taxes imposed by chapter 1 of such Code on the 
incomes of individuals (or relating to civil or criminal sanctions with 
respect to such collection and administration) shall apply to the 
collection and administration of qualified State individual income taxes 
(as defined in section 6362 of such Code and the regulations thereunder) 
as if such taxes were imposed by chapter 1 of chapter 24.

(86 Stat. 944, 26 U.S.C. 6364; and 68A Stat. 917, 26 U.S.C. 7805)

[T.D. 7577, 43 FR 59360, Dec. 20, 1978]



Sec.  31.6402(a)-1  Credits or refunds.

    (a) In general. For regulations under section 6402 of special 
application to credits or refunds of employment taxes, see Sec. Sec.  
31.6402(a)-2, 31.6402(a)-3, and 31.6414-1. For regulations under section 
6402 of general application to credits or refunds, see Sec. Sec.  
301.6402-1 and 301.6402-2. For provisions relating to adjustments 
without interest of overpayments of taxes under the Federal Insurance 
Contributions Act or the Railroad Retirement Tax Act or income tax 
withholding, see Sec. Sec.  31.6413(a)-1 and 31.6413(a)-2.
    (b) Period of limitation. For the period of limitation upon credit 
or refund of taxes imposed by the Internal Revenue Code of 1954, see 
Sec.  301.6511(a)-1 of this chapter (Regulations on Procedure and 
Administration). For the period of limitation upon credit or refund of 
any tax imposed by the Internal Revenue Code of 1939, see the 
regulations applicable with respect to such tax.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 9405, 73 FR 
37379, July 1, 2008]



Sec.  31.6402(a)-2  Credit or refund of tax under Federal Insurance
Contributions Act or Railroad Retirement Tax Act.

    (a) Claim by person who paid tax to IRS--(1) In general. (i) Except 
as provided in paragraph (a)(1)(iii) of this section, any person may 
file a claim for credit or refund for an overpayment (except to the 
extent that the overpayment must be credited pursuant to Sec.  31.3503-
1) if the person paid to the Internal Revenue Service (IRS) more than 
the correct amount of employee Federal Insurance Contributions Act 
(FICA) tax under section 3101 or employer FICA tax under section 3111, 
employee Railroad Retirement Tax Act (RRTA) tax under section 3201, 
employee representative RRTA tax under section 3211, or employer RRTA 
tax under section 3221, or interest, addition to the tax, additional 
amount, or penalty with respect to any such tax.
    (ii) Except as provided in paragraph (a)(1)(iii) of this section, 
the claim for credit or refund must be made in the manner and subject to 
the conditions stated in this section. The claim for credit or refund 
must be filed on the form prescribed by the IRS and must designate the 
return period to which the claim relates, explain in detail the grounds 
and facts relied upon to support the claim, and set forth such other 
information as may be required by this section and by the instructions 
relating to the form used to make such claim. No refund or credit 
pursuant to this section for employer tax will be allowed unless the 
employer has first repaid or reimbursed its employee or has secured the 
employee's consent to the allowance of the claim for refund and includes 
a claim for the refund of such employee tax. However, this requirement 
does not apply to the extent that the taxes were not withheld from the 
employee or, after the employer makes

[[Page 411]]

reasonable efforts to repay or reimburse the employee or secure the 
employee's consent, the employer cannot locate the employee or the 
employee will not provide consent. No refund or credit of employee FICA 
or RRTA tax overcollected in an earlier year will be allowed if the 
employee has claimed a refund or credit of the amount of the 
overcollection which has not been rejected or if the employee has taken 
the amount of such tax into account in claiming a credit against or 
refund of the employee's income tax, including instances in which the 
employee has included an overcollection of employee FICA or RRTA tax in 
computing a special refund (see Sec.  31.6413(c)-1).
    (iii) Additional Medicare Tax. No refund or credit to the employer 
will be allowed for the amount of any overpayment of Additional Medicare 
Tax imposed under section 3101(b)(2) or section 3201(a) (as calculated 
under section 3101(b)(2)), which the employer deducted or withheld from 
an employee.
    (iv) For adjustments without interest of overpayments of FICA or 
RRTA taxes, including Additional Medicare Tax, see Sec.  31.6413(a)-2.
    (v) For corrections of FICA and RRTA tax paid under the wrong 
chapter, see Sec.  31.6205-1(b)(2)(ii) and (b)(2)(iii) and Sec.  
31.3503-1.
    (vi) For provisions related to furnishing employee statements and 
corrected employee statements reporting wages and withheld taxes, see 
sections 6041 and 6051 and Sec. Sec.  1.6041-2 and 31.6051-1. For 
provisions relating to filing information returns and corrected 
information returns reporting wages and withheld taxes, see sections 
6041 and 6051 and Sec. Sec.  1.6041-2 and 31.6051-2.
    (vii) For the period of limitations on credit or refund of taxes, 
see Sec.  301.6511(a)-1.
    (2) Statements supporting employer's claims for employee tax. (i) 
Every employer who files a claim for refund or credit of employee FICA 
tax under section 3101 or employee RRTA tax under section 3201 collected 
from an employee must certify as part of the claim process that the 
employer has repaid or reimbursed the tax to its employee or has secured 
the employee's written consent to allowance of the filing of the claim 
for refund except to the extent that the taxes were not withheld from 
the employee. The employer must retain as part of its records the 
written receipt of the employee showing the date and amount of the 
repayment, evidence of reimbursement, or the written consent of the 
employee, whichever is used in support of the claim.
    (ii) Every employer who files a claim for refund or credit of 
employee FICA tax under section 3101 or employee RRTA tax under section 
3201 collected from an employee in a calendar year prior to the year in 
which the credit or refund is claimed, also must certify as part of the 
claim process that the employer has obtained the employee's written 
statement that the employee has not claimed refund or credit of the 
amount of the overcollection, or if so, such claim has been rejected, 
and that the employee will not claim refund or credit of the amount. The 
employer must retain the employee's written statement as part of the 
employer's records.
    (b) Claim by employee--(1) In general. Except as provided in (b)(3) 
of this section, if more than the correct amount of employee tax under 
section 3101 or section 3201 is collected by an employer from an 
employee and paid to the IRS, the employee may file a claim for refund 
of the overpayment if--
    (i) The employee does not receive repayment or reimbursement in any 
manner from the employer and does not authorize the employer to file a 
claim and receive refund or credit,
    (ii) The overcollection cannot be corrected under Sec.  31.3503-1, 
and
    (iii) In the case of overpaid employee social security tax due to 
having received wages or compensation from multiple employers, the 
employee has not taken the overcollection into account in claiming a 
credit against, or refund of, his or her income tax, or if so, such 
claim has been rejected. See Sec.  31.6413(c)-1.
    (2) Statements supporting employee's claim. (i) Except as provided 
in (b)(3) of this section, each employee who makes a claim under 
paragraph (b)(1) of this section shall submit with such claim a 
statement setting forth (a) the extent, if any, to which the employer 
has repaid or reimbursed the employee in any

[[Page 412]]

manner for the overcollection, and (b) the amount, if any, of credit or 
refund of such overpayment claimed by the employer or authorized by the 
employee to be claimed by the employer. The employee shall obtain such 
statement, if possible, from the employer, who should include in such 
statement the fact that it is made in support of a claim against the 
United States to be filed by the employee for refund of employee tax 
paid by such employer to the IRS. If the employer's statement is not 
submitted with the claim, the employee shall make the statement to the 
best of his or her knowledge and belief, and shall include therein an 
explanation of his or her inability to obtain the statement from the 
employer.
    (ii) Except as provided in paragraph (b)(3) of this section, each 
individual who makes a claim under paragraph (b)(1) of this section also 
shall submit with such claim a statement setting forth whether the 
individual has taken the amount of the overcollection into account in 
claiming a credit against, or refund of, his or her income tax, and the 
amount, if any, so claimed (see Sec.  31.6413(c)-1).
    (3) Additional Medicare Tax. (i) If more than the correct amount of 
Additional Medicare Tax under section 3101(b)(2) or section 3201(a) (as 
calculated under section 3101(b)(2)), is collected by an employer from 
an employee and paid to the IRS, the employee may file a claim for 
refund of the overpayment and receive a refund or credit if the 
overcollection cannot be corrected under Sec.  31.3503-1 and if the 
employee has not received repayment or reimbursement from the employer 
in the context of an interest-free adjustment. The claim for refund 
shall be made on Form 1040, ``U.S. Individual Income Tax Return,'' by 
taking the overcollection into account in claiming a credit against, or 
refund of, tax. The form to be used by residents of the U.S. Virgin 
Islands, Guam, American Samoa, or the Northern Mariana Islands is Form 
1040-SS, ``U.S. Self-Employment Tax Return (Including Additional Child 
Tax Credit for Bona Fide Residents of Puerto Rico).'' The form to be 
used by residents of Puerto Rico is either Form 1040-SS or Form 1040-PR, 
``Planilla para la Declaraci[oacute]n de la Contribuci[oacute]n Federal 
sobre el Trabajo por Cuenta Propia (Incluyendo el Cr[eacute]dito 
Tributario Adicional por Hijos para Residentes Bona Fide de Puerto 
Rico).'' The employee may not authorize the employer to claim the credit 
or refund for the employee. See Sec.  31.6402(a)-2(a)(1)(iii).
    (ii) In the case of an overpayment of Additional Medicare Tax under 
section 3101(b)(2) or section 3201(a) for a taxable year of an 
individual for which a Form 1040 (or other applicable return in the Form 
1040 series) has been filed, a claim for refund shall be made by the 
individual on Form 1040X, ``Amended U.S. Individual Income Tax Return.''
    (c) Effective/applicability date. This section applies to claims for 
refund filed on or after November 29, 2013.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 9405, 73 FR 
37379, July 1, 2008; T.D. 9645, 78 FR 71474, Nov. 29, 2013]



Sec.  31.6402(a)-3  Refund of Federal unemployment tax.

    Any person who pays to the district director more than the correct 
amount of--
    (a) Tax under section 3301 of the Federal Unemployment Tax Act or a 
corresponding provision of prior law, or
    (b) Interest, addition to the tax, additional amount, or penalty 
with respect to such tax,

may file a claim for refund of the overpayment, in the manner and 
subject to the conditions stated in Sec.  301.6402-2 of this chapter 
(Regulations on Procedure and Administration). See Sec.  31.6413(d) and 
the corresponding section of prior law for provisions which bar the 
allowance or payment of interest on the amount of any refund based on 
credit allowable for contributions paid under the unemployment 
compensation law of a State.



Sec.  31.6404(a)-1  Abatements.

    For regulations under section 6404 of general application to the 
abatement of taxes, see Sec.  301.6404-1 of this chapter (Regulations on 
Procedure and Administration). Every claim filed by an employer for 
abatement of employee tax under section 3101 or section 3201, or a 
corresponding provision of prior law,

[[Page 413]]

shall be made in the manner and subject to the conditions stated in 
paragraphs (a) (2) and (c) of Sec.  31.6402(a)-2, as if the claim for 
abatement were a claim for refund.



Sec.  31.6413(a)-1  Repayment or reimbursement by employer of tax 
erroneously collected from employee.

    (a) Federal Insurance Contributions Act and Railroad Retirement Tax 
Act--(1) Overcollection ascertained before return is filed. (i) If an 
employer during any return period collects from an employee more than 
the correct amount of employee Federal Insurance Contributions Act 
(FICA) tax under section 3101 or employee Railroad Retirement Tax Act 
(RRTA) tax under section 3201, and if the employer ascertains the error 
before filing the return on which the employee tax is required to be 
reported, repays or reimburses the amount of the overcollection to the 
employee before filing the return for such return period, and obtains 
and keeps as part of its records the written receipt of the employee 
showing the date and amount of the repayment or evidence of 
reimbursement, the employer shall not report on any return or pay to the 
IRS the amount of the overcollection.
    (ii) Any overcollection not repaid or reimbursed to the employee as 
provided in paragraph (a)(1)(i) of this section shall be reported and 
paid to the IRS on the return for reporting such tax for the return 
period in which the overcollection is made. However, the reporting and 
payment of the overcollection may subsequently be treated as an 
overpayment error ascertained after the return is filed for purposes of 
paragraph (a)(2) of this section.
    (iii) For purposes of this paragraph (a)(1), an error is ascertained 
when the employer has sufficient knowledge of the error to be able to 
correct it.
    (2) Error ascertained after return is filed. (i) Except as provided 
in paragraph (a)(2)(ii) of this section, if an employer files a return 
for a return period on which FICA tax or RRTA tax is reported, collects 
from an employee and pays to the IRS more than the correct amount of the 
employee FICA or RRTA tax, and if the employer ascertains the error 
after filing the return and within the applicable period of limitations 
on credit or refund, the employer shall repay or reimburse the employee 
in the amount of the overcollection prior to the expiration of such 
limitations period. However, this paragraph (a)(2) does not apply to the 
extent that, after reasonable efforts, the employer cannot locate the 
employee, or the employee does not provide the employer with the written 
statement required by Sec.  31.6413(a)-1(a)(2)(iv). This paragraph 
(a)(2) has no application in any case in which an overcollection is made 
the subject of a claim by the employer for refund or credit under the 
procedure provided in Sec.  31.6402(a)-2.
    (ii) If an employer files a return for a return period on which 
Additional Medicare Tax under section 3101(b)(2) or section 3201(a) is 
reported, collects from an employee and pays to the IRS more than the 
correct amount of Additional Medicare Tax required to be withheld from 
wages or compensation, and if the employer ascertains the error after 
filing the return but before the end of the calendar year in which the 
wages or compensation were paid, the employer shall repay or reimburse 
the employee in the amount of the overcollection prior to the end of the 
calendar year. However, this paragraph does not apply to the extent 
that, after reasonable efforts, the employer cannot locate the employee.
    (iii) If the employer repays the amount of the overcollection to an 
employee, the employer shall obtain and keep as part of its records the 
written receipt of the employee, showing the date and amount of the 
repayment.
    (iv) If the employer reimburses the amount of the overcollection to 
an employee, the employer shall keep as part of its records evidence of 
reimbursement. However, for purposes of overcollected Additional 
Medicare Tax under section 3101(b)(2) or section 3201(a), the employer 
shall reimburse the employee by applying the amount of the 
overcollection against the employee FICA or RRTA tax which attaches to 
wages or compensation paid by the employer to the employee in the 
calendar year in which the overcollection is made. The employer shall 
reimburse the employee by applying the amount of the overcollection 
against the employee FICA or RRTA tax which attaches to wages

[[Page 414]]

or compensation paid by the employer to the employee prior to the 
expiration of the applicable period of limitations on credit or refund. 
If the amount of the overcollection exceeds the amount so applied 
against such employee tax, the excess amount shall be repaid to the 
employee as required by this section.
    (v) If, in any calendar year, an employer repays or reimburses an 
employee in the amount of an overcollection of employee FICA or RRTA tax 
that was collected from the employee in a prior calendar year, the 
employer shall obtain from the employee and keep as part of its records 
a written statement that the employee has not claimed refund or credit 
of the amount of the overcollection, or if so, such claim has been 
rejected, and that the employee will not claim refund or credit of such 
amount. For this purpose, a claim for refund or credit by the employee 
includes instances in which the employee has included an overcollection 
of employee FICA or RRTA tax in computing a special refund (see Sec.  
31.6413(c)-1). This paragraph (a)(2)(v) does not apply for purposes of 
overcollected Additional Medicare Tax under section 3101(b)(2) or 
section 3201(a) which must be repaid or reimbursed to the employee in 
the calendar year in which the overcollection is made.
    (vi) For purposes of this paragraph (a)(2), an error is ascertained 
when the employer has sufficient knowledge of the error to be able to 
correct it.
    (vii) For the period of limitations on credit or refund of taxes, 
see Sec.  301.6511(a)-1.
    (viii) For corrections of FICA and RRTA tax paid under the wrong 
chapter, see Sec.  31.6205-1(b)(2)(ii) and (iii) and Sec.  31.3503-1.
    (b) Income tax withheld from wages--(1) Overcollection ascertained 
before return is filed. (i) If an employer during any return period 
collects from an employee more than the correct amount of tax required 
to be withheld from wages under section 3402, and if the employer 
ascertains the error before filing the return on which such tax is 
required to be reported, repays or reimburses the amount of the 
overcollection to the employee before filing the return for such return 
period and before the end of the calendar year in which the 
overcollection was made, and obtains and keeps as part of its records 
the written receipt of the employee showing the date and amount of the 
repayment or evidence of reimbursement, the employer shall not report on 
any return or pay to the IRS the amount of the overcollection.
    (ii) Any overcollection not repaid or reimbursed to the employee as 
provided in paragraph (b)(1)(i) of this section shall be reported and 
paid to the IRS on the return for reporting such tax for the return 
period in which the overcollection is made. However, the reporting and 
payment of the overcollection may subsequently be treated as an 
overpayment error ascertained after the return is filed for purposes of 
paragraph (b)(2) of this section.
    (iii) For purposes of this paragraph (b)(1), an error is ascertained 
when the employer has sufficient knowledge of the error to be able to 
correct it.
    (2) Error ascertained after return is filed. (i) If an employer 
files a return for a return period on which tax required to be withheld 
from wages is reported, collects from an employee and pays to the IRS 
more than the correct amount of the tax required to be withheld from 
wages, and if the employer ascertains the error after filing the return 
but before the end of the calendar year in which the wages were paid, 
the employer shall repay or reimburse the employee in the amount of the 
overcollection prior to the end of the calendar year. However, this 
paragraph does not apply to the extent that, after reasonable efforts, 
the employer cannot locate the employee.
    (ii) If the employer repays the amount of the overcollection to an 
employee, the employer shall obtain and keep as part of its records the 
written receipt of the employee, showing the date and amount of the 
repayment.
    (iii) If the employer reimburses the amount of the overcollection to 
an employee, the employer shall keep as part of its records evidence of 
reimbursement. The employer shall reimburse the employee by applying the 
amount of the overcollection against the tax under section 3402, which 
otherwise would be required to be withheld from

[[Page 415]]

wages paid by the employer to the employee in the calendar year in which 
the overcollection is made. If the amount of the overcollection exceeds 
the amount so applied against such tax, the excess amount shall be 
repaid to the employee as required by this section.
    (iv) For purposes of this paragraph (b)(2), an error is ascertained 
when the employer has sufficient knowledge of the error to be able to 
correct it.
    (c) Effective/applicability date. Paragraph (a) of this section 
applies to adjusted returns filed on or after November 29, 2013.

[T.D. 9405, 73 FR 37380, July 1, 2008, as amended by T.D. 9645, 78 FR 
71475, Nov. 29, 2013]



Sec.  31.6413(a)-2  Adjustments of overpayments.

    (a) In general. (1) An employer who has overcollected or overpaid 
employee Federal Insurance Contributions Act (FICA) tax under section 
3101 or employer FICA tax under section 3111, employee Railroad 
Retirement Tax (RRTA) tax under section 3201 or employer RRTA tax under 
section 3221, or income tax required under section 3402 to be withheld, 
and has repaid or reimbursed the amount of the overcollection of such 
tax to the employee, shall correct such error as provided in this 
section. However, this section only applies to overcollected or overpaid 
Additional Medicare Tax under section 3101(b)(2) or section 3201(a) if 
the employer has repaid or reimbursed the amount of the overcollection 
of such tax to the employee in the year in which the overcollection was 
made. Such correction may constitute an interest-free adjustment as 
provided in paragraph (b) or (c) of this section.
    (2) Every correction under this section of an overpayment of tax 
shall be made on the form prescribed by the IRS that corresponds to the 
return being corrected. The form, filed in accordance with this section 
and the instructions, will constitute an adjusted return for the return 
period being corrected.
    (3) Every adjusted return on which an overpayment is corrected 
pursuant to this section shall certify that the employer has repaid or 
reimbursed its employee, except where taxes were not withheld from the 
employee or where, after reasonable efforts, the employer cannot locate 
the employee. Every adjusted return shall designate the return period in 
which the error was ascertained and the return period being corrected, 
explain in detail the grounds and facts relied upon to support the 
correction, and set forth such other information as may be required by 
this section and Sec.  31.6413(a)-1 and by the instructions relating to 
the adjusted return. Every adjusted return, filed by an employer, for 
overpayment of employee FICA tax under section 3101 or employee RRTA tax 
under section 3201 collected from an employee in a calendar year prior 
to the year in which the adjusted return is filed, must also certify 
that the employer has obtained the employee's written statement that the 
employee has not claimed refund or credit of the amount of the 
overcollection, or if so, such claim has been rejected, and that the 
employee will not claim refund or credit of the amount.
    (4) For purposes of this section, an error is ascertained when the 
employer has sufficient knowledge of the error to be able to correct it.
    (5) For provisions related to furnishing employee statements and 
corrected employee statements reporting wages and withheld taxes, see 
sections 6041 and 6051 and Sec. Sec.  1.6041-2 and 31.6051-1. For 
provisions relating to filing information returns and corrected 
information returns reporting wages and withheld taxes, see sections 
6041 and 6051 and Sec. Sec.  1.6041-2 and 31.6051-2.
    (b) Federal Insurance Contributions Act and Railroad Retirement Tax 
Act--(1) Overcollection ascertained before return is filed. If an 
employer collects more than the correct amount of employee FICA or RRTA 
tax from an employee, and if the employer ascertains the error before 
filing the return on which the employee tax with respect to such wages 
or compensation is required to be reported, and repays or reimburses the 
employee under Sec.  31.6413(a)-1(a)(1), the employer shall not report 
on any return or pay to the IRS the amount of the overcollection. If the 
employer does not repay or reimburse the amount of the overcollection 
under Sec.  31.6413(a)-1(a)(1) before filing the return, the employer 
must report the

[[Page 416]]

amount of the overcollection on the return. However, the payment of the 
overcollection may subsequently be treated as an overpayment error 
ascertained after the return is filed for purposes of paragraph (b)(2) 
of this section.
    (2) Error ascertained after return is filed--(i) Employee tax. If an 
employer files a return for a return period on which FICA tax or RRTA 
tax is required to be reported and reports on the return more than the 
correct amount of employee FICA or RRTA tax, and if the employer 
ascertains the error after filing the return, and repays or reimburses 
the employee the amount of the overcollection of employee tax, as 
provided in Sec.  31.6413(a)-1(a)(2), the employer may correct the error 
through an interest-free adjustment as provided in this section. The 
employer shall adjust the overpayment of tax by reporting the 
overpayment on an adjusted return for the return period in which the 
wages or compensation was paid, accompanied by a detailed explanation of 
the amount being reported on the adjusted return as required by 
paragraph (a)(3) of this section. However, for purposes of Additional 
Medicare Tax under section 3101(b)(2) or section 3201(a), if the amount 
of the overcollection is not repaid or reimbursed to the employee under 
Sec.  31.6413(a)-1(a)(2)(ii), there is no overpayment to be adjusted 
under this section and the employer may only adjust an overpayment of 
such tax attributable to an administrative error, that is, an error 
involving the inaccurate reporting of the amount withheld, pursuant to 
this section. Except as provided in paragraph (d) of this section, the 
reporting of the overpayment on an adjusted return constitutes an 
adjustment within the meaning of this section only if the adjusted 
return is filed before the expiration of the period of limitations on 
credit or refund. The employer shall take the adjusted amount as a 
credit towards payment of employment tax liabilities for the return 
period in which the adjusted return is filed unless the IRS notifies the 
employer that the adjustment is not permitted under paragraph (d) of 
this section.
    (ii) Employer tax. If an employer files a return for a return period 
on which FICA or RRTA tax is required to be reported and reports on the 
return more than the correct amount of employer FICA or RRTA tax, and if 
the employer ascertains the error after filing the return, the employer 
may correct the error through an interest-free adjustment as provided in 
this section. The employer must first repay or reimburse the employee 
the amount of any overcollection of employee tax, if any, as required by 
Sec.  31.6413(a)-1(a)(2), before making the adjustment for the employer 
tax. The employer shall adjust the overpayment of tax by reporting the 
overpayment on an adjusted return for the return period in which the 
wages or compensation was paid, accompanied by a detailed explanation of 
the amount being reported on the adjusted return as required by 
paragraph (a)(3) of this section. Except as provided in paragraph (d) of 
this section, the reporting of the overpayment on an adjusted return 
constitutes an adjustment within the meaning of this section only if the 
adjusted return is filed before the expiration of the period of 
limitations on credit or refund. The employer shall take the adjusted 
amount as a credit towards payment of employment tax liabilities for the 
return period in which the adjusted return is filed unless the IRS 
notifies the employer that the adjustment is not permitted under 
paragraph (d) of this section.
    (c) Income tax withheld from wages--(1) Overcollection ascertained 
before return is filed. If an employer collects more than the correct 
amount of income tax required to be withheld from wages, and if the 
employer ascertains the error before filing the return on which the tax 
is required to be reported, and repays or reimburses the employee under 
Sec.  31.6413(a)-1(b)(1), the employer shall not report on any return or 
pay to the IRS the amount of the overcollection. If the employer does 
not repay or reimburse the amount of the overcollection under Sec.  
31.6413(a)-1(b)(1) before filing the return, the employer must report 
the amount of the overcollection on the return. However, the reporting 
and payment of the overcollection may

[[Page 417]]

subsequently be treated as an overpayment error ascertained after the 
return is filed for purposes of paragraph (c)(2) of this section.
    (2) Error ascertained after return is filed. If an employer files a 
return for a return period on which income tax required to be withheld 
from wages is required to be reported and reports on the return more 
than the correct amount of income tax required to be withheld, and if 
the employer ascertains the error after filing the return, and repays or 
reimburses the employee in the amount of the overcollection as provided 
in Sec.  31.6413(a)-1(b)(2), the employer may correct the error through 
an interest-free adjustment as provided in this section. The employer 
shall adjust the overpayment of tax by reporting the overpayment on an 
adjusted return for the return period in which the wages were paid, 
accompanied by a detailed explanation of the amount being reported on 
the adjusted return as required in paragraph (a)(3) of this section. 
Except as provided in paragraph (d) of this section, the reporting of 
the overpayment on an adjusted return constitutes an adjustment within 
the meaning of this section. If the amount of the overcollection is not 
repaid or reimbursed to the employee under Sec.  31.6413(a)-1(b)(2), 
there is no overpayment to be adjusted under this section. However, the 
employer may adjust an overpayment of tax attributable to an 
administrative error, that is, an error involving the inaccurate 
reporting of the amount withheld, pursuant to this section. The employer 
shall take the adjusted amount as a credit towards payment of employment 
tax liabilities for the return period in which the adjusted return is 
filed unless the IRS notifies the employer that the adjustment is not 
permitted under paragraph (d) of this section.
    (d) Adjustments not permitted--(1) In general. If an adjustment 
cannot be made, a claim for refund or credit may be filed in accordance 
with Sec.  31.6402(a)-2 or Sec.  31.6414-1.
    (2) 90-day exception. No adjustment in respect of an overpayment may 
be made if the overpayment relates to a return period for which the 
period of limitations on credit or refund of such overpayment will 
expire within 90 days of filing the adjusted return.
    (3) No adjustment after claim for refund filed. No adjustment in 
respect of an overpayment may be made after the filing of a claim for 
credit or refund of such overpayment under Sec.  31.6402(a)-2.
    (4) No adjustment after IRS notification. No adjustment may be made 
upon notification by the IRS that the adjustment is not permitted.
    (e) Effective/applicability date. Paragraphs (a) and (b) of this 
section apply to adjusted returns filed on or after November 29, 2013.

[T.D. 9405, 73 FR 37381, July 1, 2008, as amended by T.D. 9645, 78 FR 
71475, Nov. 29, 2013; T.D. 9645, 79 FR 4623, Jan. 29, 2014]



Sec.  31.6413(a)-3  Repayment by payor of tax erroneously collected 
from payee.

    (a) In general--(1) Erroneous withholding under section 3406 of the 
Internal Revenue Code. If a payor or broker withholds under section 3406 
from a payee in error or withholds more than the proper amount of the 
tax under section 3406, the payor or broker may refund the amount 
erroneously withheld as provided in section 6413 and this section. A 
payor or broker will be considered to have withheld erroneously under 
section 3406 only if the amount is withheld because of an error by the 
payor or broker (e.g., an error in flagging or identifying an account 
that is subject to withholding under section 3406). The payor or broker 
may, in its discretion, treat the amount withheld as an amount 
erroneously withheld and refund it to the payee if--
    (i) The payor or broker requires a payee described in Sec.  
31.3406(g)-1(a) or described in a provision of the Internal Revenue Code 
requiring the reporting of a payment subject to withholding under 
section 3406 to certify that it is an exempt recipient, the payee fails 
to make the required certification, and the payor or broker subsequently 
withholds under section 3406 from a payment to the payee;
    (ii) The payor or broker does not require the payee to certify 
concerning its exempt status and the payor or broker withholds under 
section 3406;
    (iii) The payor or broker withholds under section 3406 from a payee 
after

[[Page 418]]

the payee provides a taxpayer identification number or required 
certification (including the documentation described in Sec.  1.1441-
1(e)(1)(ii), 1.6045-1(g)(3), or 1.6049-5(c) of this chapter) to the 
payor, but before the payor or broker treats the number or required 
certification as having been received under Sec.  31.3406(e)-1(b); or
    (iv) The amount is withheld because a payor imposed backup 
withholding on a payment made to a person because the payee failed to 
furnish the documentation described in Sec.  1.1441-1(e)(1)(ii) of this 
chapter and the payee subsequently furnishes, completes, or corrects the 
documentation. The documentation must be furnished, completed, or 
corrected prior to the end of the calendar year in which the payment is 
made and prior to the time the payor furnishes a Form 1099 to the payee 
with respect to the payment for which the withholding erroneously 
occurred.
    (2) For purposes of paragraph (a)(1) of this section (other than 
erroneous withholding occurring under the circumstances described in 
paragraph (a)(1)(iv) of this section), if a payor or broker withholds 
because the payor or broker has not received a taxpayer identifying 
number or required certification and the payee subsequently provides a 
taxpayer identifying number or a required certification to the payor, 
the payor or broker may not refund the amount to the payee.
    (b) Refunding amounts erroneously withheld--(1) Time and manner. If 
a payor or broker withholds under section 3406 from a payee in error 
(including withholding more than the correct amount, as described in 
paragraph (a) of this section), the payor or broker may refund the 
amount erroneously withheld to the payee if the refund is made prior to 
the end of the calendar year and prior to the time the payor or broker 
furnishes a Form 1099 to the payee with respect to the payment for which 
the erroneous withholding occurred. If the amount of the erroneous 
withholding is refunded to the payee, the payor or broker must--
    (i) Keep as part of its records a receipt showing the date and 
amount of refund and must provide a copy of the receipt to the payee (a 
canceled check or an entry in a statement is sufficient, provided that 
the check or statement contains a specific notation that it is a refund 
of tax erroneously withheld);
    (ii) Not report on a Form 1099 as tax withheld any amount which the 
payor or broker has refunded to a payee; and
    (iii) Not deposit the amount erroneously withheld if the payor or 
broker has not deposited the amount of the tax prior to the time that 
the refund is made to the payee.
    (2) Adjustment after the deposit of the tax--(i) In general. Except 
as provided in paragraph (b)(2)(ii) of this section, if the amount 
erroneously withheld has been deposited prior to the time that the 
refund is made to the payee, the payor or broker may adjust any 
subsequent deposit of the tax collected under chapter 24 of the Internal 
Revenue Code that the payor or broker is required to make in the amount 
of the tax that has been refunded to the payee.
    (ii) Erroneous withholding from a payee that is a foreign person. 
Where a payor withholds in error from a payee that is a nonresident 
alien or foreign person, as described in paragraph (a)(1)(iv) of this 
section, the payor may refund some or all of the amount subject to 
backup withholding under section 3406. A refund may be paid in 
accordance with the requirements of this paragraph (b)(2)(ii) where the 
documentation is furnished, completed, or corrected prior to the end of 
the calendar year in which the payment is made and prior to the time the 
payor furnishes a Form 1099 to the payee with respect to the payment for 
which the withholding erroneously occurred. The amount of the refund 
will be the amount erroneously withheld less the amount of tax required 
to be withheld, if any, under chapter 3 of the Internal Revenue Code and 
the regulations under that chapter. With respect to the amount of the 
payment to the foreign person and the amount of tax required to be 
withheld under chapter 3 of the Internal Revenue Code (and the 
regulations thereunder), returns must be

[[Page 419]]

made in accordance with the requirements of Sec.  1.1461-1 (b) and (c) 
of this chapter.

[T.D. 8637, 60 FR 66133, Dec. 21, 1995, as amended by T.D. 8734, 62 FR 
53494, Oct. 14, 1997]



Sec.  31.6413(b)-1  Overpayments of certain employment taxes.

    For provisions relating to the adjustment of overpayments of tax 
imposed by section 3101, 3111, 3201, 3221, or 3402, see Sec.  
31.6413(a)-2. For provisions relating to refunds of tax imposed by 
section 3101, 3111, 3201, or 3221, see Sec. Sec.  31.6402(a)-1 and 
31.6402(a)-2. For provisions relating to refunds of tax imposed by 
section 3402, see Sec. Sec.  31.6402(a)-1 and 31.6414-1.



Sec.  31.6413(c)-1  Special refunds.

    (a) Who may make claims--(1) In general. (i) If an employee receives 
wages, as defined in section 3121(a), from two or more employers in any 
calendar year:
    (a) After 1954 and before 1959 in excess of $4,200,
    (b) After 1958 and before 1966 in excess of $4,800,
    (c) After 1965 and before 1968 in excess of $6,600,
    (d) After 1967 and before 1972 in excess of $7,800,
    (e) After 1971 and before 1973 in excess of $9,000,
    (f) After 1972 and before 1974 in excess of $10,800,
    (g) After 1973 and before 1975 in excess of $13,200, or
    (h) After 1974 in excess of the contribution and benefit base (as 
determined under section 230 of the Social Security Act) which is 
effective with respect to such year,


the employee shall be entitled to a special refund of the amount, if 
any, by which the employee tax imposed by section 3101 with respect to 
such wages and deducted therefrom (whether or not paid) exceeds the 
employee tax with respect to the amount specified in (a) through (h) of 
this subdivision for the calendar year in question. Employee tax imposed 
by section 3101 with respect to tips reported by an employee to his 
employer and collected by the employer from funds turned over by the 
employee to the employer (see section 3102(c)) shall be treated, for 
purposes of this paragraph, as employee tax deducted from wages received 
by the employee. If the employee is required to file an income tax 
return for such calendar year (or for his last taxable year beginning in 
such calendar year) he may obtain the benefit of the special refund only 
by claiming credit as provided in Sec.  1.31-2 of this chapter (Income 
Tax Regulations).
    (ii) The application of this subparagraph may be illustrated by the 
following examples:

    Example 1. Employee A in the calendar year 1968 receives taxable 
wages in the amount of $5,000 from each of his employers, B, C, and D, 
for services performed during such year (or at any time after 1936), or 
a total of $15,000. Employee tax (computed at 4.4 percent, the aggregate 
employee tax rate in effect in 1968) is deducted from A's wages in the 
amount of $220 by B and $220 by C, or a total of $440. Employer D pays 
employee tax in the amount of $220 without deducting such tax from A's 
wages. The employee tax with respect to the first $7,800 of such wages 
is $343.20. A is entitled to a special refund of $96.80 ($440 minus 
$343.20). The $5,000 of wages received from employer D and the $220 of 
employee tax paid with respect thereto have no bearing in computing A's 
special refund since such tax was not deducted from his wages.
    Example 2. Employee E in the calendar year 1968 performs services 
for employers F and G, for which E is entitled to wages of $7,800 from 
each employer, or a total of $15,600. On account of such services, E in 
1967 received an advance payment of $1,800 of wages from F; and in 1968, 
receives wages in the amount of $6,000 from F and $7,800 from G. 
Employee tax was deducted as follows: In 1967, $79.20 ($1,800 x 4.4 
percent, the aggregate employee tax rate in effect in 1967) by employer 
F; and in 1968, $264.00 ($6,000 x 4.4 percent, the aggregate employee 
tax rate in effect in 1968) by employer F, and $343.20 ($7,800 x 4.4 
percent) by employer G. Thus, E in the calendar year 1968 received 
$13,800 in wages from which $607.20 of employee tax was deducted. The 
amount of employee tax with respect to the first $7,800 of such wages 
received in 1968 is $343.20. E is entitled to a special refund of 
$264.00 ($607.20 minus $343.20). The $1,800 advance of wages received in 
1967 from F, and the $79.20 of employee tax with respect thereto, have 
no bearing in computing E's special refund for 1968, because the wages 
were not received in 1968. Such amounts could not form the basis for a 
special refund unless E during 1967 received from F and at least one 
more employer wages totaling more than $6,600.


[[Page 420]]


    (2) Federal employees. For purposes of special refunds of employee 
tax, each head of a Federal agency or of a wholly owned instrumentality 
of the United States who makes a return pursuant to section 3122 (and 
each agent designated by a head of a Federal agency or instrumentality 
who makes a return pursuant to such section) is considered a separate 
employer. For such purposes, the term ``wages'' includes the amount 
which each such head (or agent) determines to constitute wages paid an 
employee, but not in excess of the amount specified in paragraph 
(a)(1)(i) (a) through (h) of this section for the calendar year in 
question. For example, if wages received by an employee during calendar 
year 1974 are reportable by two or more agents of one or more Federal 
agencies and the amount of such wages is in excess of $13,200 the 
employee shall be entitled to a special refund of the amount, if any, by 
which the employee tax imposed with respect to such wages and deducted 
therefrom exceeds the employee tax with respect to the first $13,200 of 
such wages. Moreover, if an employee receives wages during any calendar 
year from an agency or wholly owned instrumentality of the United States 
and from one or more other employers, either private or governmental, 
the total amount of such wages shall be taken into account for purposes 
of the special refund provisions.
    (3) State employees. For purposes of special refunds of employee 
tax, the term ``wages'' includes such remuneration for services covered 
by an agreement made pursuant to section 218 of the Social Security Act, 
relating to voluntary agreements for coverage of employees of State and 
local governments, as would be wages if such services constituted 
employment (see Sec.  31.3121(a)-1, relating to wages); the term 
``employer'' includes a State or any political subdivision thereof, or 
any instrumentality of any one or more of the foregoing; and the term 
``tax'' or ``tax imposed by section 3101'' includes an amount equivalent 
to the employee tax which would be imposed by section 3101 if such 
services constituted employment. The provisions of paragraph (a)(1) of 
this section are applicable whether or not any amount deducted from an 
employee's remuneration as a result of an agreement made pursuant to 
section 218 of the Social Security Act has been paid pursuant to such 
agreement. Thus, the special refund provisions are applicable to amounts 
equivalent to employee tax deducted from employees' remuneration by 
States, political subdivisions, or instrumentalities by reason of 
agreements made under section 218 of the Social Security Act. Moreover, 
if during any calendar year an employee receives remuneration for 
services covered by such an agreement and during the same calendar year 
receives wages from one or more other employers, either private or 
governmental, the total amount of such remuneration and wages shall be 
taken into account for purposes of the special refund provisions.
    (4) Employees of certain foreign corporations. For purposes of 
special refunds of employee tax, the term ``wages'' includes such 
remuneration for services covered by an agreement made pursuant to 
section 3121(l), relating to agreements for coverage of employees of 
certain foreign corporations, as would be wages if such services 
constituted employment (see Sec.  31.3121(a)-1, relating to wages); the 
term ``employer'' includes any domestic corporation which has entered 
into an agreement pursuant to section 3121(l); and the term ``tax'' or 
``tax imposed by section 3101'' includes, in the case of services 
covered by an agreement entered into pursuant to section 3121(l), an 
amount equivalent to the employee tax which would be imposed by section 
3101 if such services constituted employment. The provisions of 
paragraph (a)(1) of this section are applicable whether or not any 
amount deducted from the employee's remuneration by reason of such 
agreement has been paid to the district director. Thus, the special 
refund provisions are applicable to amounts equivalent to employee tax 
deducted from employees' remuneration by reason of agreements made under 
section 3121(l). A domestic corporation which enters into an agreement 
pursuant to section 3121(l) shall, for purposes of this paragraph, be 
considered an employer in its capacity as a party to such agreement 
separate and

[[Page 421]]

distinct from its identity as an employer employing individuals on its 
own account (see section 3121(l)(9)). If during any calendar year an 
employee receives remuneration for services covered by such an agreement 
and during the same calendar year receives wages for services in 
employment, the total amount of such remuneration and wages shall be 
taken into account for purposes of the special refund provisions. For 
provisions relating to agreements entered into under section 3121(l), 
see the regulations in part 36 of this chapter (Regulations on Contract 
Coverage of Employees of Foreign Subsidiaries).
    (5) Governmental employees in American Samoa. For purposes of 
special refunds of employee tax, the Governor of American Samoa and each 
agent designated by him who makes a return pursuant to section 3125(b) 
(see Sec.  31.3125) is considered a separate employer. For such 
purposes, the term ``wages'' includes the amount which the Governor (or 
any agent) determines to constitute wages paid an employee, but not in 
excess of the amount specified in paragraph (a)(1)(i) (a) through (h) of 
this section for the calendar year in question. For example, if wages 
received by an employee during calendar year 1974 are reportable by two 
or more agents pursuant to section 3125(b) and the total amount of such 
wages is in excess of $13,200, the employee shall be entitled to a 
special refund of the amount, if any, by which the employee tax imposed 
with respect to such wages and deducted therefrom exceeds the employee 
tax with respect to the first $13,200 of such wages. Moreover, if an 
employee receives wages during any calendar year from the Government of 
American Samoa, from a political subdivision thereof, or from any 
wholly-owned instrumentality of such government or political subdivision 
and from one or more other employers, either private or governmental, 
the total amount of such wages shall be taken into account for purposes 
of the special refund provisions.
    (6) Governmental employees in the District of Columbia. For purposes 
of special refunds of employee tax, the Commissioner of the District of 
Columbia (or, prior to the transfer of functions pursuant to 
Reorganization Plan No. 3 of 1967 (81 Stat. 948), the Commissioners of 
the District of Columbia) and each agent designated by him who makes a 
return pursuant to section 3125(c) (see Sec.  31.3125) is considered a 
separate employer. For such purposes, the term ``wages'' includes the 
amount which the Commissioner (or any agent) determines to constitute 
wages paid an employee, but not in excess of the amount specified in 
paragraph (a)(1)(i) (a) through (h) of this section for the calendar 
year in question. For example, if wages received by an employee during 
calendar year 1974 are reportable by two or more agents pursuant to 
section 3125(c) and the total amount of such wages is in excess of 
$13,200 the employee shall be entitled to a special refund of the 
amount, if any, by which the employee tax imposed with respect to such 
wages and deducted therefrom exceeds the employee tax imposed with 
respect to such wages and deducted therefrom exceeds the employee tax 
with respect to the first $13,200 of such wages. Moreover, if an 
employee receives wages during any calendar year from the Government of 
the District of Columbia or from a wholly-owned instrumentality thereof 
and from one or more other employers, either private or governmental, 
the total amount of such wages shall be taken into account for purposes 
of the special refund provisions.
    (b) Claims for special refund--(1) In general. An employee who is 
entitled to a special refund under section 6413(c) may claim such refund 
under the provisions of this section only if the employee is not 
entitled to claim the amount thereof as a credit against income tax as 
provided in Sec.  1.31-2 of this chapter (Income Tax Regulations). Each 
claim under this section shall be made with respect to wages received 
within one calendar year (regardless of the year or years after 1936 
during which the services were performed for which such wages are 
received), and shall be filed after the close of such year.
    (2) Form of claim. Each claim for special refund under this section 
shall be made on Form 843, in accordance with the regulations in this 
subpart and the instructions relating to such form. In

[[Page 422]]

the case of a claim filed prior to April 15, 1968, the claim shall be 
filed with the district director for the internal revenue district in 
which the employee resides or, if the employee does not reside in any 
internal revenue district, with the District Director, Baltimore, Md. 
21202. Except as provided in paragraph (b) of Sec.  301.6091-1 (relating 
to hand-carried documents), in the case of a claim filed after April 14, 
1968, the claim shall be filed with the service center serving such 
internal revenue district. However, in the case of an employee who does 
not reside in any internal revenue district and who is outside the 
United States, the claim shall be filed with the Director of 
International Operations, U.S. Internal Revenue Service, Washington, 
D.C. 20225, unless the employee resides in Puerto Rico or the Virgin 
Islands, in which case the claim shall be filed with the Director of 
International Operations, U.S. Internal Revenue Service, Hato Rey, P.R. 
00917. The claim shall include the employee's account number and the 
following information with respect to each employer from whom he 
received wages during the calendar year: (i) The name and address of 
such employer, (ii) the amount of wages received during the calendar 
year to which the claim relates, and (iii) the amount of employee tax 
collected by the employer from the employee with respect to such wages. 
Other information may be required but should be submitted only upon 
request.
    (3) Period of limitation. For the period of limitation upon special 
refund of employee tax imposed by section 3101, see Sec.  301.6511(a)-1 
of this chapter (Regulations on Procedure and Administration).
    (c) Special refunds with respect to compensation as defined in the 
Railroad Retirement Tax Act--(1) In general. In the case of any 
individual who, during any calendar year after 1967, receives wages (as 
defined by section 3121(a)) from one or more employers and also receives 
compensation (as defined by section 3231(e)) which is subject to the tax 
imposed on employees by section 3201 or the tax imposed on employee 
representatives by section 3211 such compensation shall, solely for 
purposes of applying section 6413(c)(1) and this section with respect to 
the hospital insurance tax imposed by section 3101(b), be treated as 
wages (as defined by section 3121(a)) received from an employer with 
respect to which the hospital insurance tax imposed by section 3101(b) 
was deducted. For purposes of this section, compensation received shall 
be determined under the principles provided in chapter 22 of the Code 
and the regulations thereunder (see section 3231(e) and Sec.  
31.3231(e)-1). Therefore, compensation paid for time lost shall be 
deemed earned and received for purposes of this section in the month in 
which such time is lost, and compensation which is earned during the 
period for which a return of taxes under chapter 22 is required to be 
made and which is payable during the calendar month following such 
period shall be deemed to have been received for purposes of this 
section during such period only. Further, compensation is deemed to have 
been earned and received when an employee or employee representative 
performs services for which he is paid, or for which there is a present 
or future obligation to pay, regardless of the time at which payment is 
made or deemed to be made.
    (2) Example. The application of this paragraph may be illustrated by 
the following example.

    Example. Employee A rendered services to X during 1973 for which he 
was paid compensation at the monthly rate of $650 which was taxable 
under the Railroad Retirement Tax Act. A was paid $550 by X in January 
1973 which was earned and deemed received in December 1972 and $650 in 
January of 1974 which was earned and deemed received in December of 
1973. A also earned and received wages in 1973 from employer Y, which 
were subject to the employee tax under the Federal Insurance 
Contributions Act, in the amount of $6,000. A paid hospital insurance 
tax on $13,800 ($7,800 compensation from X including $650 earned and 
deemed received in December 1973 but paid in January 1974 and not 
including $550 paid in January 1973 but earned and deemed received in 
December 1972, $6,000 compensation from Y) received or deemed received 
or earned in 1973. For purposes of the hospital insurance tax imposed by 
section 3101(b), these amounts are all wages received from an employer 
in 1973. Therefore, A is entitled to a special refund

[[Page 423]]

for 1973 under section 6413(c) and this section of $30 (1.0% x $13,800 - 
1.0% x $10,800).

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6950, 33 FR 
5359, Apr. 4, 1968; T.D. 6983, 33 FR 18020, Dec. 4, 1968; T.D. 7374, 40 
FR 30954, July 24, 1975; T.D. 7374, 69 FR 57639, Sept. 27, 2004]



Sec.  31.6414-1  Credit or refund of income tax withheld from wages.

    (a) In general. (1) Any employer who pays to the IRS more than the 
correct amount of income tax required to be withheld from wages under 
section 3402 or interest, addition to the tax, additional amount, or 
penalty with respect to such tax, may file a claim for refund of the 
overpayment in the manner and subject to the conditions stated in this 
section on the form prescribed by the IRS. The claim for refund must 
designate the return period to which the claim relates, explain in 
detail the grounds and facts relied upon to support the claim, and set 
forth such other information as may be required by the regulations in 
this section and by the instructions relating to the form used to make 
such claim. No refund to the employer will be allowed under this section 
for the amount of any overpayment of tax which the employer deducted or 
withheld from an employee.
    (2) For provisions related to furnishing employee statements and 
corrected employee statements reporting wages and withheld taxes, see 
sections 6041 and 6051 and Sec. Sec.  1.6041-2 and 31.6051-1. For 
provisions relating to filing information returns and corrected 
information returns reporting wages and withheld taxes, see sections 
6041 and 6051 and Sec. Sec.  1.6041-2 and 31.6051-2.
    (3) For interest-free adjustments of overpayments of income tax 
withheld from wages, see Sec.  31.6413(a)-2.
    (b) Period of limitation. For the period of limitation upon credit 
or refund of taxes imposed by the Internal Revenue Code of 1954, see 
Sec.  301.6511(a)-1 of this chapter (Regulations on Procedure and 
Administration). For the period of limitation upon credit or refund of 
any tax imposed by the Internal Revenue Code of 1939, see the 
regulations applicable with respect to such tax.

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 9405, 73 FR 
37382, July 1, 2008]



Sec.  31.6652(c)-1  Failure of employee to report tips for purposes of the
Federal Insurance Contributions Act.

    (a) In general. In the case of failure by an employee to furnish, 
pursuant to the provisions of section 6053(a), to his employer a report 
of tips received by him in the course of his employment, which 
constitute wages (as defined in section 3121(a)), there shall be paid by 
the employee, in addition to the tax imposed by section 3101 with 
respect to the amount of tips which he so failed to report, an amount 
equal to 50 percent of such tax. The additional amount imposed for such 
failure shall be paid in the same manner as tax upon notice and demand 
by the district director.
    (b) Reasonable cause. Payment of an amount equal to 50 percent of 
the tax imposed by section 3101 with respect to the tips which the 
employee failed to report will not be required if it is established to 
the satisfaction of the district director or the director of the 
regional service center that such failure was due to reasonable cause 
and not due to willful neglect. An affirmative showing of reasonable 
cause must be made in the form of a written statement, containing a 
declaration that it is made under the penalties of perjury, setting 
forth all the facts alleged as a reasonable cause. An employee's 
reluctance to disclose to his employer the amount of tips received by 
him will not establish that the employee's failure to report tips to his 
employer was due to reasonable cause and not due to willful neglect.

[T.D. 7001, 34 FR 1005, Jan. 23, 1969]



Sec.  31.6674-1  Penalties for fraudulent statement or failure to furnish 
statement.

    Any person required to furnish a statement to an employee under the 
provisions of section 6051 or 6053(b) is subject to a civil penalty for 
willful failure to furnish such statement in the manner, at the time, 
and showing the information required under such section (or Sec.  
31.6051-1 or Sec.  31.6053-2), or for willfully furnishing a false or 
fraudulent statement to an employee. The penalty for each such violation 
is $50, which shall be assessed and collected in the same manner as the 
tax imposed on

[[Page 424]]

employers under the Federal Insurance Contributions Act. See section 
7204 for criminal penalty.

[T.D. 7001, 34 FR 1006, Jan. 23, 1969]



Sec.  31.6682-1  False information with respect to withholding.

    (a) Civil penalty. If any individual makes a statement under section 
3402 (relating to income tax collected at source) which results in a 
lesser amount of income tax actually deducted and withheld than is 
properly allowable under section 3402 and, at the time the statement was 
made, there was no reasonable basis for the statement, the individual 
shall pay a penalty of $500 for the statement. There was a reasonable 
basis for a statement of the number of exemptions an individual claimed 
on a Form W-4, if the individual properly completed the Form W-4 by 
taking into account only allowable amounts for items which are allowable 
and by computing the number of exemptions in accordance with the 
instructions on the Form W-4. This penalty is in addition to any 
criminal penalty provided by law. This penalty may be assessed at any 
time after the statement is made, until the expiration of the applicable 
statute of limitations.
    (b) Deficiency procedures not to apply. The civil penalty imposed by 
section 6682 may be assessed and collected without regard to the 
deficiency procedures provided by Subchapter B of Chapter 63 of the 
Code.

[T.D. 7963, 49 FR 28706, July 16, 1984]



Sec.  31.6694-1  Section 6694 penalties applicable to tax return preparer.

    (a) In general. For general definitions regarding section 6694 
penalties applicable to preparers of employment tax returns or claims 
for refund of employment tax under chapters 21 through 25 of subtitle C 
of the Internal Revenue Code, see Sec.  1.6694-1 of this chapter.
    (b) Effective/applicability date. Paragraph (a) of this section is 
applicable to returns and claims for refund filed, and advice provided, 
after December 31, 2008.

[T.D. 9436, 73 FR 78453, Dec. 22, 2008, as amended by T.D. 9436, 74 FR 
5105, Jan. 29, 2009]



Sec.  31.6694-2  Penalties for understatement due to an unreasonable
position.

    (a) In general. A person who is a tax return preparer of any return 
or claim for refund of employment tax under chapters 21 through 25 of 
subtitle C of the Internal Revenue Code (Code) shall be subject to 
penalties under section 6694(a) of the Code in the manner stated in 
Sec.  1.6694-2 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78454, Dec. 22, 2008]



Sec.  31.6694-3  Penalty for understatement due to willful, reckless, or
intentional conduct.

    (a) In general. A person who is a tax return preparer of any return 
or claim for refund of employment tax under chapters 21 through 25 of 
subtitle C of the Internal Revenue Code (Code) shall be subject to 
penalties under section 6694(b) of the Code in the manner stated in 
Sec.  1.6694-3 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78454, Dec. 22, 2008, as amended by T.D. 9436, 74 FR 
5105, Jan. 29, 2009]



Sec.  31.6694-4  Extension of period of collection when tax return preparer
pays 15 percent of a penalty for understatement of taxpayer's liability
and certain other procedural matters.

    (a) In general. For rules relating to the extension of period of 
collection when a tax return preparer who prepared a return or claim for 
refund for employment tax under chapters 21 through 25 of subtitle C of 
the Internal Revenue Code pays 15 percent of a penalty for 
understatement of taxpayer's liability and procedural matters relating 
to the investigation, assessment and collection of the penalties under 
section 6694(a) and (b), the rules under Sec.  1.6694-4 of this chapter 
will apply.
    (b) Effective/applicability date. This section is applicable to 
returns and

[[Page 425]]

claims for refund filed, and advice provided, after December 31, 2008.

[T.D. 9436, 73 FR 78454, Dec. 22, 2008]



Sec.  31.6695-1  Other assessable penalties with respect to the preparation
of tax returns for other persons.

    (a) In general. A person who is a tax return preparer of any return 
or claim for refund of employment tax under chapters 21 through 25 of 
subtitle C of the Internal Revenue Code (Code) shall be subject to 
penalties for failure to furnish a copy to the taxpayer under section 
6695(a) of the Code, failure to sign the return under section 6695(b) of 
the Code, failure to furnish an identification number under section 
6695(c) of the Code, failure to retain a copy or list under section 
6695(d) of the Code, failure to file a correct information return under 
section 6695(e) of the Code, and negotiation of a check under section 
6695(f) of the Code, in the manner stated in Sec.  1.6695-1 of this 
chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed after December 31, 2008.

[T.D. 9436, 73 FR 78454, Dec. 22, 2008]



Sec.  31.6696-1  Claims for credit or refund by tax return preparers.

    (a) In general. For rules for claims for credit or refund by a tax 
return preparer who prepared a return or claim for refund for employment 
tax under chapters 21 through 25 of subtitle C of the Internal Revenue 
Code, the rules under Sec.  1.6696-1 of this chapter will apply.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78454, Dec. 22, 2008]



Sec.  31.7701-1  Tax return preparer.

    (a) In general. For the definition of a tax return preparer, see 
Sec.  301.7701-15 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78454, Dec. 22, 2008]



Sec.  31.7701-2  Definitions; spouse, husband and wife, husband, wife, marriage.

    (a) In general. For the definition of the terms spouse, husband and 
wife, husband, wife, and marriage, see Sec.  301.7701-18 of this 
chapter.
    (b) Applicability date. The rules of this section apply to taxable 
years ending on or after September 2, 2016.

[T.D. 9785, 81 FR 60616, Sept. 2, 2016]



Sec.  31.7805-1  Promulgation of regulations.

    In pursuance of section 7805 of the Internal Revenue Code of 1954, 
the foregoing regulations are hereby prescribed. (See Sec.  31.0-3 of 
subpart A of the regulations in this part relating to the scope of the 
regulations.)



PART 32_TEMPORARY EMPLOYMENT TAX REGULATIONS UNDER THE ACT OF 
DECEMBER 29, 1981 (PUB. L. 97 123)--Table of Contents



Sec.
32.1 Social security taxes with respect to payments on account of 
          sickness or accident disability.
32.2 Railroad retirement taxes with respect to payments on account of 
          sickness or accident disability.

    Authority: 95 Stat. 1662 and 1663, 26 U.S.C. 3121(a) and 3231(e)(4); 
68A Stat. 917, 26 U.S.C. 7805.



Sec.  32.1  Social security taxes with respect to payments on account of
sickness or accident disability.

    (a) General rule. The amount of any payment on or after January 1, 
1982, made to, or on behalf of, an employee or any of his dependents on 
account of sickness or accident disability is not excluded from the term 
wages as defined in section 3121(a)(2)(A) unless such payment is--
    (1) Received under a workmen's compensation law (as defined in Sec.  
31.3121(a)(2)-1(d)(3) for payments made on or after December 15, 2005), 
or
    (2) Made by a third party pursuant to a contractual agreement 
between the employer and third party entered into prior to December 14, 
1981, but then only if--

[[Page 426]]

    (i) The third party's coverage for that employee's group ceases 
prior to March 1, 1982,
    (ii) No third party payment is made to such employee under that 
contract after February 28, 1982, and
    (iii) The cessation of the third party's coverage for that 
employee's group indefinitely terminates the contractual relationship 
between the third party and the employer as to sickness and accident 
disability benefits for that employee's group.

See section 3121(a)(4) and Sec.  31.3121(a)(4)-1 for the exclusion from 
the term ``wages'' of any payment on account of sickness or accident 
disability made after the expiration of 6 calendar months following the 
last calendar month in which the employee worked.
    (b) Examples. The application of the provisions of subparagraph (2) 
of paragraph (a) may be illustrated by the following examples:

    Example 1. Company Q enters into a contract on August 31, 1981, with 
Insurance Company R to provide sickness and accident disability payments 
to Q's employees. The contract expires on February 28, 1982. On March 1, 
1982, Q enters into a new contract with R to provide sickness and 
accident disability payments to Q's employees. Payments made by R 
pursuant to the contract expiring February 28, 1982, are included in 
``wages'' as defined in section 3121(a)(2)(B).
    Example 2. Company S enters into a contract on November 15, 1981, 
with Insurance Company T to provide sickness and accident disability 
payments to S's employees. The contract expires on February 15, 1982, 
and is not renewed. A, one of S's employees, has been receiving sickness 
payments from T since December 1, 1981. T makes its final payment to A 
on February 22, 1982. The payments made by T to A pursuant to its 
contract with S are not included in ``wages'' as defined in section 
3121(a)(2)(B).

    (c) Workmen's compensation laws. (1) For purposes of paragraph 
(a)(1) of this section, a payment made under a workmen's compensation 
law does not include a payment made pursuant to a State temporary 
disability insurance law.
    (2) If an employee receives a payment on account of sickness or 
accident disability which is not made under a workmen's compensation law 
and which must be repaid if the employee receives a workmen's 
compensation award with respect to the same period of absence from work, 
such payment is not excluded from the term ``wages'' as defined in 
section 3121(a)(2)(B).
    (d) Sickness or accident disability. For purposes of paragraph (a) 
of this section, a payment made on account of sickness or accident 
disability includes any payment for personal injuries or sickness 
includible in gross income under section 105(a) and the regulations 
thereunder and thus does not include--
    (1) Any amount which is expended for medical care as described in 
section 105(b) and Sec.  1.105-2,
    (2) Any payment which is unrelated to absence from work as described 
in section 105(c) and Sec.  1.105-3, or
    (3) Any payment or a portion thereof which is attributable to a 
contribution by the employee as determined in paragraphs (d) and (e) of 
Sec.  1.105-1.

A payment made on account of sickness or accident disability does not 
include any payment which is excludable from gross income under section 
104(a) (2), (4), or (5).

An employee who elects to reduce his compensation or to forgo an 
increase in his compensation under a salary reduction agreement with an 
employer will not be deemed to have made employee contributions to the 
sickness or accident disability plan or system if the employee is not 
subject to income or social security taxes on the reduction in 
compensation.

A tax which is paid by an employee to fund a State temporary disability 
insurance program is considered a contribution by the employee for 
purposes of paragraph (d)(3) of this section.
    (e) Payments by third parties. (1) Any third party making a payment 
on account of sickness or accident disability which payment is not 
excluded from the term ``wages'' under paragraph (a) of this section 
shall be treated as the employer with respect to such wages, except as 
provided in subparagraphs (2) and (3) of this paragraph. Accordingly, 
such third party must withhold from such payment the tax imposed on the 
employee by section 3101, pay the tax imposed on employers by section 
3111, deposit such taxes pursuant to section 6302 and Sec.  31.6302(c)-
1(a), and provide

[[Page 427]]

the receipts required by section 6051 and Sec. Sec.  31.6051-1 and 
31.6051-2.
    (2) If any third party who is treated as the employer solely by 
reason of the applicability of subparagraph (1) of this paragraph 
promptly--
    (i) Withholds the tax imposed on the employee by section 3101,
    (ii) Deposits such tax pursuant to section 6302 and Sec.  
31.6302(c)-1(a), and
    (iii) Notifies the employer for whom services are normally rendered 
of the amount of the wages paid on which tax was withheld and deposited,

then the employer (and not the third party) shall be required to pay the 
tax imposed by section 3111 and to comply with the requirements of 
section 6051 and Sec. Sec.  31.6051-1 and 31.6051-2 with respect to the 
wages. For purposes of subdivision (ii) of this subparagraph, the taxes 
described in subdivision (i) shall be treated by the third party as if 
included in the term ``taxes'' as defined in Sec.  31.6302(c)-
1(a)(1)(iii). For purposes of subdivision (iii) of this subparagraph, 
the notice must be provided by the third party within the time required 
for the deposit of the tax under subdivision (ii) of this subparagraph. 
For the purpose of providing the notice, the rules of section 7502(a), 
relating to timely mailing being treated as timely filing, shall apply. 
The employer, if notified pursuant to subdivision (iii) of this 
subparagraph by a third party who has complied with the requirements of 
subdivisions (i) and (ii) of this subparagraph, must deposit the tax 
imposed by section 3111 in accordance with Sec.  31.6302(c)-1(a). For 
purposes of Sec.  31.6302(c)-1(a)(1)(iii)(b), with respect to the 
employer for whom services are normally rendered the term ``taxes'' 
shall not include any tax imposed on employers by section 3111 that is 
required to be paid by a third party under subparagraph (1) of this 
paragraph until the employer receives notification from the third party 
under subdivision (iii) of this subparagraph (2).
    (3) A third party making a payment on account of sickness or 
accident disability to an employee as agent for the employer or making 
such a payment directly to the employer shall not be treated as the 
employer under subparagraph (1) with respect to such payment unless the 
agency agreement so provides. The determining factor as to whether a 
third party is an agent of the employer is whether the third party bears 
any insurance risk. If the third party bears no insurance risk and is 
reimbursed on a cost plus fee basis, the third party is an agent of the 
employer even if the third party is responsible for making 
determinations of the eligibility of individual employees of the 
employer for payments on account of sickness or accident disability. If 
the third party is paid an insurance premium and not reimbursed on a 
cost plus fee basis, the third party is not an agent of the employer, 
but the third party is treated as the employer as provided in 
subparagraph (1) of this paragraph (e).
    (4) In order to avoid overpayment of taxes which would result from 
paying taxes--
    (i) On remuneration which exceeds the annual contribution and 
benefit base (as described in section 3121(a)(1)),
    (ii) With respect to a period of time which exceeds the 6-calendar-
month period described in section 3121(a)(4), or
    (iii) On a payment or a portion thereof which is attributable to a 
contribution by the employee,

the third party may request information from the employer as to the 
total wages earned by the employee for the calendar year in which the 
third party is making payments, as to the last date on which the 
employee worked for the employer during such year, and as to the amount 
of any contribution by the employee. Except if the third party has 
reason not to believe any information supplied by the employer as the 
result of a request made pursuant to the preceding sentence, the third 
party may rely on such information in complying with the requirements of 
subparagraphs (1) and (2) of this paragraph (e). The third party may not 
rely on representations of the employee as to the information which may 
be requested of the employer in complying with the requirements of 
subparagraphs (1) and (2) of this paragraph (e).
    (5) The application of the provisions of this paragraph may be 
illustrated by the following examples:

    Example 1. Pursuant to an agreement with Company U, Insurance 
Company V makes

[[Page 428]]

payments on account of sickness or accident disability to U's employees. 
Such payments are not made under a workmen's compensation law. U 
reimburses V for all such payments and pays V a fee for its expenses of 
administering the payments. V is not treated as the employer with 
respect to such payments.
    Example 2. Pursuant to an agreement with Company W, Insurance 
Company X indemnifies W for the amount of any payments which W must make 
to an employee on account of sickness or accident disability. Such 
payments are not made under a workmen's compensation law. X makes its 
indemnity payments directly to W. W makes the payments to its employees. 
X is not treated as the employer with respect to such payments.
    Example 3. Pursuant to an agreement with Company Y (which is not an 
agency agreement described in subparagraph (3) of this Sec.  32.1(e)), 
Insurance Company Z makes payments on account of sickness or accident 
disability to Y's employees. Such payments are not made under a 
workmen's compensation law. Z does not notify Y of the amount of such 
payments. Z is treated as the employer with respect to such payments.

    (f) Penalties and interest on payments made from January 1, 1982, to 
June 30 1982. No penalty under section 6656(a) or interest under section 
6601 will be assessed for the failure to make timely payments to the tax 
imposed by section 3101 or section 3111 on payments made on account of 
sickness or accident disability, which payments of tax are made after 
December 31, 1981, and before July 1, 1982, to the extent that the 
failure is due to reasonable cause and not willful neglect.
    (g) Special rules. (1) For purposes of subdivision (iii) of 
paragraph (e)(2), the last employer for whom the employee worked prior 
to becoming sick or disabled or for whom the employee was working at the 
time he became sick or disabled shall be deemed to be the employer for 
whom services are normally rendered, provided that such employer made 
contributions on behalf of such employee to the plan or system under 
which the employee is being paid.
    (2) The application of the provisions of subparagraph (1) of this 
paragraph (g) may be illustrated by the following examples:

    Example 1. B is employed by Company M. B becomes sick and is absent 
from work for 3 months. While B is absent from work, he receives sick 
pay from Insurance Company N pursuant to a plan established by M and to 
which M has made contributions on behalf of B. M is the employer for 
whom services are normally rendered by B.
    Example 2. C is employed by Company O and is also employed on a 
part-time basis by Company Q. C becomes sick while at work at Q's place 
of business. C is absent from work for 3 months. While C is absent from 
work he receives sick pay from Insurance Company P pursuant to a plan 
established by O and to which O has made contributions on behalf of C. O 
is the employer for whom services are normally rendered by C.
    Example 3. D is a member of a labor union whose members receive 
health and welfare benefit payments from a trust fund which is supported 
by the contributions of the various employers who employ the labor 
union's members. D has been employed by Company R for 4 days when he 
becomes sick and is absent from work for 3 months. While D is absent 
form work he receives sick pay from his union's trust fund to which R 
has made contributions on D's behalf. R is the employer for whom 
services are normally rendered by D.

    (3) For purposes of paragraph (e) of this section, in the case of 
payments on account of sickness or accident disability made to employees 
by a third party insurer pursuant to a contract of insurance with a 
multiemployer plan which is obligated to make payments on account of 
sickness or accident disability to such employees pursuant to a 
collectively bargained agreement, if the third party insurer making the 
payments complies with the requirements of subdivisions (i) and (ii) of 
subparagraph (2) of paragraph (e) and notifies the plan of the amount of 
wages paid on which tax was withheld and deposited within the time 
required for notification of the employer under subparagraph (2) of 
paragraph (e), then the plan (and not the third party insurer) shall be 
required to pay the tax imposed by section 3111 and to comply with the 
requirements of section 6051 and Sec. Sec.  31.6051-1 and 31.6051-2 with 
respect to such payments unless, within 6 business days of the receipt 
of such notification, the plan notifies the employer for whom services 
are normally rendered of the amount of the wages on which tax was 
withheld and deposited. If the plan provides such notice to the 
employer, the employer (and not the plan) shall be required to pay the 
tax imposed by section 3111 and to comply with the requirements of 
section 6051

[[Page 429]]

and Sec. Sec.  31.6051-1 and 31.6051-2 with respect to the wages.

[T.D. 7823, 47 FR 29225, July 6, 1982, as amended by T.D. 7867, 48 FR 
793, Jan. 7, 1983; T.D. 9233, 70 FR 74199, Dec. 15, 2005]



Sec.  32.2  Railroad retirement taxes with respect to payments on account
of sickness or accident disability.

    (a) General rule. Notwithstanding the provisions of Sec.  
31.3231(e)-1(a)(3)(i), the amount of any payment on or after January 1, 
1982, made to, or on behalf of, an employee or any of his dependents on 
account of sickness or accident disability is not excluded from the term 
``compensation'' as defined in section 3231(e)(1) (for purposes of 
applying sections 3201(b) and 3221(b) (and so much of section 3211(a) as 
relates to the rates of the taxes imposed by sections 3101 and 3111)) 
unless such payment is--
    (1) Received under a workmen's compensation law,
    (2) Received as a benefit under the Railroad Retirement Act of 1974,
    (3) Made after the expiration of 6 calendar months following the 
last calendar month in which such employee worked,
    (4) Made by a third party pursuant to a contractual agreement 
between the employer and third party entered into prior to December 14, 
1981, but then only if--
    (i) The third party's coverage for that employee's group ceases 
prior to March 1, 1982,
    (ii) No third party payment is made to such employee under that 
contract after February 28, 1982, and
    (iii) The cessation of the third party's coverage for that 
employee's group terminates indefinitely the contractual relationship 
between the third party and the employer as to sickness and accident 
disability benefits for that employee's group; or
    (5) Made under section 2(a) of the Railroad Unemployment Insurance 
Act for days of sickness, to the extent that such sickness (as 
determined in accordance with standards prescribed by the Railroad 
Retirement Board) is the result of on-the-job injury.

The 6-calendar-month provision described in subparagraph (3) of this 
paragraph shall be applied in a manner comparable to the 6-calendar-
month provision described in Sec.  31.3121(a)(4)-1.
    (b) Examples. The application of the provisions of subparagraph (4) 
of paragraph (a) may be illustrated by the following examples:

    Example 1. Company Q enters into a contract on August 31, 1981, with 
Insurance Company R to provide sickness and accident disability payments 
to Q's employees. The contract expires on February 28, 1982. On March 1, 
1982, Q enters into a new contract with R to provide sickness and 
accident disability payments to Q's employees. Payments made by R 
pursuant to the contract expiring February 28, 1982, are included in 
``compensation'' as defined in section 3231(e)(1).
    Example 2. Company S enters into a contract on November 15, 1981 
with Insurance Company T to provide sickness and accident disability 
payments to S's employees. The contract expires on February 15, 1982, 
and is not renewed. A, one of S's employees, has been receiving sickness 
payments from T since December 1, 1981. T makes its final payment to A 
on February 22, 1982. The payments made by T to A pursuant to its 
contract with S are not included in ``compensation'' as defined in 
section 3231(e)(1).

    (c) Workmen's compensation laws. (1) For purposes of paragraph 
(a)(1) of this section, a payment made under a workmen's compensation 
law does not include a payment made pursuant to a State temporary 
disability insurance law.
    (2) If an employee receives a payment on account of sickness or 
accident disability which is not excluded from the term ``compensation'' 
under paragraph (a) (1) or (2) of this section and which must be repaid 
if the employee receives a workmen's compensation award with respect to 
the same period of absence from work, such payment is not excluded from 
the term ``compensation'' as defined in section 3231(e)(1).
    (d) Sickness or accident disability. For purposes of paragraph (a) 
of this section, a payment made on account of sickness or accident 
disability includes any payment for personal injuries or sickness 
includible in gross income under section 105(a) and the regulations 
thereunder and thus does not include--
    (1) Any amount which is expended for medical care as described in 
section 105(b) and Sec.  1.105-2,

[[Page 430]]

    (2) Any payment which is unrelated to absence from work as described 
in section 105(c) and Sec.  1.105-3, or
    (3) Any payment or a portion thereof which is attributable to a 
contribution by the employee as determined in paragraphs (d) and (e) of 
Sec.  1.105-1.

A payment made on account of sickness or accident disability does not 
include any payment which is excludable from gross income under section 
104(a) (4) or (5).
    An employee who elects to reduce his compensation or to forgo an 
increase in his compensation under a salary reduction agreement with an 
employer will not be deemed to have made employee contributions to the 
sickness or accident disability plan or system if the employee is not 
subject to income or railroad retirement taxes on the reduction in 
compensation.
    A tax which is paid by an employee to fund a State temporary 
disability insurance program is considered a contribution by the 
employee for purposes of paragraph (d)(3) of this section.
    (e) Payments by third parties. (1) Any third party making a payment 
on account of sickness or accident disability which payment is not 
excluded from the term ``compensation'' under paragraph (a) of this 
section shall be treated as the employer with respect to such 
compensation, except as provided in subparagraphs (2) and (3) of this 
paragraph. Accordingly, such third party must withhold from such payment 
the tax imposed on the employee by section 3201 and the tax imposed on 
the employee representative by section 3211, if applicable, pay the tax 
imposed on employers by section 3221, deposit such taxes pursuant to 
section 6302 and Sec.  31.6302(c)-2(a), and provide the receipts 
required by section 6051 and Sec. Sec.  31.6051-1 and 31.6051-2.
    (2) If any third party who is treated as the employer solely by 
reason of the applicability of subparagraph (1) of this paragraph 
promptly--
    (i) Withholds the tax imposed on the employee by section 3201 and 
the tax imposed on the employee representative by section 3211, if 
applicable,
    (ii) Deposits such tax pursuant to section 6302 and Sec.  
31.6302(c)-2(a), and
    (iii) Notifies the employer for whom services are normally rendered 
of the amount of the compensation paid on which tax was withheld and 
deposited,

then the employer (and not the third party) shall be required to pay the 
tax imposed by section 3221 and to comply with the requirements of 
section 6051 and Sec. Sec.  31.6051-1 and 31.6051-2 with respect to the 
compensation. For purposes of subdivision (ii) of this subparagraph, the 
tax described in subdivision (i) shall be treated by the third party as 
if included in the employee tax described in Sec.  31.6302(c)-
2(a)(1)(i). For purposes of subdivision (iii) of this subparagraph, the 
notice must be provided by the third party within the time required for 
the deposit of the tax under subdivision (ii) of this subparagraph. For 
the purpose of providing the notice, the rules of section 7502(a), 
relating to timely mailing being treated as timely filing, shall apply. 
The employer, if notified pursuant to subdivision (iii) of this 
subparagraph by a third party who has complied with the requirements of 
subdivisions (i) and (ii) of this subparagraph, must deposit the tax 
imposed by section 3221 in accordance with Sec.  31.6302(c)-(2)(a). For 
purposes of Sec.  31.6302(c)-2(a)(1)(ii), with respect to the employer 
for whom services are normally rendered the term ``taxes'' shall not 
include any tax imposed on employers by section 3111 that is required to 
be paid by a third party under subparagraph (1) of this paragraph until 
the employer receives notification from the third party under 
subdivision (iii) of this subparagraph (2).
    (3) A third party making a payment on account of sickness or 
accident disability to an employee as agent for the employer or making 
such a payment directly to the employer shall not be treated as the 
employer under subparagraph (1) with respect to such payment unless the 
agency agreement so provides. The determining factor as to whether a 
third party is an agent of the employer is whether the third party bears 
any insurance risk. If the third party bears no insurance risk and is 
reimbursed on a cost plus fee basis, the third party is an agent of the 
employer even if the third party is responsible for making 
determinations of the eligibility of individual employees of the 
employer for payments on account of

[[Page 431]]

sickness or accident disability. If the third party is paid an insurance 
premium and not reimbursed on a cost plus fee basis, the third party is 
not an agent of the employer, but the third party is treated as the 
employer as provided in paragraph (1) of this paragraph (e).
    (4) In order to avoid overpayment of taxes which would result from 
paying taxes--
    (i) On remuneration which exceeds one-twelfth of the annual 
contribution and benefit base (as described in section 3121(a)(1)) each 
month,
    (ii) With respect to a period of time which exceeds the 6-calendar-
month period described in subparagraph (3) of paragraph (a) of this 
section, or
    (iii) On a payment or a portion thereof which is attributable to a 
contribution by the employee,

the third party may request information from the employer as to the 
total wages earned by the employee for the calendar month in which the 
third party is making payments, as to the last date on which the 
employee worked for the employer, and as to the amount of any 
contribution by the employee. Except if the third party has reason not 
to believe any information supplied by the employer as the result of a 
request made pursuant to the preceding sentence, the third party may 
rely on such information in complying with the requirements of 
subparagraphs (1) and (2) of this paragraph (e). The third party may not 
rely on representations of the employee as to the information which may 
be requested of the employer in complying with the requirements of 
subparagraphs (1) and (2) of this paragraph (e).
    (5) The application of the provisions of this paragraph (e) may be 
illustrated by the following examples:

    Example 1. Pursuant to an agreement with Company U, Insurance 
Company V makes payments on account of sickness or accident disability 
to U's employees. Such payments are not made under a workmen's 
compensation law, the Railroad Retirement Act of 1974, or the Railroad 
Unemployment Insurance Act for days of sickness. U reimburses V for all 
such payments and pays V a fee for its expenses of administering the 
payments. V is not treated as the employer with respect to such 
payments.
    Example 2. Pursuant to an agreement with Company W, Insurance 
Company X indemnifies W for the amount of any payments which X must make 
to an employee on account of sickness or accident disability. Such 
payments are not made under a workmen's compensation law, the Railroad 
Retirement Act of 1974, or the Railroad Unemployment Insurance Act for 
days of sickness. X makes its indemnity payments directly to W. W makes 
the payments to its employees. X is not treated as the employer with 
respect to such payments.
    Example 3. Pursuant to an agreement with Company Y (which is not an 
agency agreement described in subparagraph (3) of this Sec.  32.2(e)), 
Insurance Company Z makes payments on account of sickness or accident 
disability to Y's employees. Such payments are not made under a 
workmen's compensation law, the Railroad Retirement Act of 1974, or the 
Railroad Unemployment Insurance Act for days of sickness. Z does not 
notify Y of the amount of such payments. Z is treated as the employer 
with respect to such payments.

    (f) Penalties and interest on payments made from January 1, 1982 to 
June 30, 1982. No penalty under section 6656(a) or interest under 
section 6601 will be assessed for the failure to make timely payments of 
the tax imposed by section 3201, 3211, or 3221 on payments made on 
account of sickness or accident disability, which payments of tax are 
made after December 31, 1981, and before July 1, 1982, to the extent 
that the failure is due to reasonable cause and not willful neglect.
    (g) Special rules. (1) For purposes of subdivision (iii) of 
paragraph (e)(2), the last employer for whom the employee worked prior 
to becoming sick or disabled or for whom the employee was working at the 
time he became sick or disabled shall be deemed to be the employer for 
whom services are normally rendered, provided that such employer made 
contributions on behalf of such employee to the plan or system under 
which the employee is being paid.
    (2) The application of the provisions of subparagraph (1) of this 
paragraph (g) may be illustrated by the following examples:

    Example 1. B is employed by Company M. B becomes sick and is absent 
from work for 3 months. While B is absent from work, he receives sick 
pay from Insurance Company N pursuant to a plan established by M and to 
which M has made contributions on behalf of B. M is the employer for 
whom services are normally rendered by B.

[[Page 432]]

    Example 2. C is employed by Company O and is also employed on a 
part-time basis by Company Q. C becomes sick while at work at Qs place 
of business. C is absent from work for 3 months. While C is absent from 
work, he receives sick pay from Insurance Company P pursuant to a plan 
established by O and to which O has made contributions on behalf of C. O 
is the employer for whom services are normally rendered by C.
    Example 3. D is a member of a labor union whose members receive 
health and welfare benefit payments from a trust fund which is supported 
by the contributions of the various employers who employ the labor 
union's members. D has been employed by Company R for 4 days when he 
becomes sick and is absent from work for 3 months. While D is absent 
from work he receives sick pay from his union's trust fund to which R 
has made contributions on D's behalf. R is the employer for whom 
services are normally rendered by D.

    (3) For purposes of paragraph (e) of this section, in the case of 
payments on account of sickness or accident disability made to employees 
by a third party insurer pursuant to a contract of insurance with a 
multiemployer plan which is obligated to make payments on account of 
sickness or accident disability to such employees pursuant to a 
collectively bargained agreement, if the third party insurer making the 
payments complies with the requirements of subdivisions (i) and (ii) of 
subparagraph (2) of paragraph (e) and notifies the plan of the amount of 
compensation paid on which tax was withheld and deposited within the 
time required for notification of the employer under subparagraph (2) of 
paragraph (e), then the plan (and not the third party insurer) shall be 
required to pay the tax imposed by section 3221 and to comply with the 
requirements of section 6051 and Sec. Sec.  31.6051-1 and 31.6051-2 with 
respect to such payments unless, within 6 business days of the receipt 
of such notification, the plan notifies the employer for whom services 
are normally rendered of the amount of the compenation on which tax was 
withheld and deposited. If the plan provides such notice to the 
employer, the employer (and not the plan) shall be required to pay the 
tax imposed by section 3221 and to comply with the requirements of 
section 6051 and Sec. Sec.  31.6051-1 and 31.6051-2 with respect to the 
compensation.

[T.D. 7823, 47 FR 29225, July 6, 1982, as amended by T.D. 7867, 48 FR 
793, Jan. 7, 1983]

                           PART 34 [RESERVED]



PART 35_EMPLOYMENT TAX AND COLLECTION OF INCOME TAX AT SOURCE REGULATIONS
UNDER THE TAX EQUITY AND FISCAL RESPONSIBILITY ACT OF 1982--Table of Contents



Sec.
35.3405-1 Questions and answers relating to withholding on pensions, 
          annuities, and certain other deferred income.
35.3405-1T Questions and answers relating to withholding on pensions, 
          annuities, and certain other deferred income (temporary 
          regulations).

    Authority: 26 U.S.C. 6047(e), 7805; 68A Stat. 917; 96 Stat. 625; 
Public Law 97-248 (96 Stat. 623).
    Section 35.3405-1 also issued under 26 U.S.C. 3405(e)(10)(B)(iii).
    Section 35.3405-1T also issued under 26 U.S.C. 3405(e)(10)(B)(iii).



Sec.  35.3405-1  Questions and answers relating to withholding on pensions,
annuities, and certain other deferred income.

    The following questions and answers relate to withholding on 
pensions, annuities, and other deferred income under section 3405 of the 
Internal Revenue Code of 1986, as added by section 334 of the Tax Equity 
and Fiscal Responsibility Tax Act of 1982 (Public Law 97-248) (TEFRA).
    a-1 through d-34 [Reserved]. For further guidance, see Sec.  
35.3405-1T.
    d-35. Q. Through what medium may a payor provide the notice required 
under section 3405 to a payee?
    A. A payor may provide the notice required under section 3405 
(including the abbreviated notice described in d-27 of Sec.  35.3405-1T 
and the annual notice described in d-31 of Sec.  35.3405-1T) to a payee 
on a written paper document.

[[Page 433]]

However, see Sec.  1.401(a)-21 of this chapter for rules permitting the 
use of electronic media to provide applicable notices to recipients with 
respect to retirement plans and individual retirement plans.

[T.D. 8873, 65 FR 6007, Feb. 8, 2000; 65 FR 17149, Mar. 31, 2000, as 
amended by T.D. 9294, 71 FR 61877, Oct. 20, 2006]



Sec.  35.3405-1T  Questions and answers relating to withholding on pensions,
annuities, and certain other deferred income (temporary regulations).

    The following questions and answers relate to withholding on 
pensions, annuities, and other deferred income under section 3405 of the 
Internal Revenue Code of 1954, as added by section 334 of the Tax Equity 
and Fiscal Responsibility Tax Act of 1982 (Pub. L. 97-248) (TEFRA):

    a. In general.
    b. Periodic payments.
    c. Nonperiodic distributions.
    d. Notice and election procedures.
    e. Reporting and recordkeeping.

                              a. In general

    a-1. Q. How did TEFRA change the law on withholding requirements for 
pensions, annuities, and other deferred income?
    A. TEFRA amended the Internal Revenue Code to impose withholding 
requirements on designated distributions paid after December 31, 1982. 
Further, although under prior law individuals could elect to have 
Federal income tax withheld from certain pension and annuity payments, 
TEFRA requires withholding on all designated distributions unless the 
payee elects not to have withholding apply.
    a-2. Q. What type of payment is a designated distribution that is 
subject to the new withholding rules?
    A. A designated distribution is any distribution or payment from or 
under an employer deferred compensation plan, an individual retirement 
plan (as defined in section 7701(a)(37)), or a commercial annuity. 
However, a designated distribution does not include any portion of a 
distribution which it is reasonable to believe is not includible in the 
gross income of the payee. For rules concerning when it is reasonable to 
believe that all or part of a distribution is not includible in the 
gross income of the recipient, see questions a-24 through a-33. In 
addition, a payment or distribution that is treated as wages under 
section 3401(a) is not a designated distribution subject to the new 
withholding rules. For examples of these payments, see questions a-18 
through a-23.
    a-3 Q. What is an employer deferred compensation plan for purposes 
of the new withholding rules?
    A. An employer deferred compensation plan is any pension, annuity, 
profit-sharing, stock bonus, or other plan that defers the receipt of 
compensation.
    a-4. Q. What is a commercial annuity for purposes of the new 
withholding rules?
    A. A commercial annuity is an annuity, endowment, or life insurance 
contract issued by an insurance company licensed to do business under 
the laws of any State. See, also, question f-21.
    a-5. Q. When does the new law take effect?
    A. In general, withholding is required on any designated 
distribution made after December 31, 1982. In the case of periodic 
payments beginning before January 1, 1983, the first payment after 
December 31, 1982 is treated as the first periodic payment for purposes 
of the withholding requirements. The Secretary has authority to delay 
(but not beyond June 30, 1983) the application of these withholding 
provisions to any payor if the payor can establish that it is impossible 
to comply with these provisions without undue hardship. Additionally, no 
penalty will be imposed for failure to withhold on periodic payments if 
the failure occurs before July 1, 1983, and if a good faith attempt is 
made to comply.
    Procedures for requesting a delay in implementation of the 
withholding provisions are under consideration.
    a-6. Q. What effect does the new law have on the old law provisions 
relating to withholding of tax from annuity payments by request?
    A. If payment is part of a designated distribution, the rules of 
section 3402(o) (relating to voluntary withholding on certain payments) 
do not apply. Therefore, a payee receiving amounts that are subject to 
withholding under the

[[Page 434]]

new provisions described in this regulation may not choose to use the 
voluntary withholding system of section 3402(o) with respect to those 
amounts. Also, if a payee had a fixed amount withheld by request, a 
different amount will probably be withheld when the new provisions take 
effect unless the rule provided in question a-7 applies. However, 
section 3402(o) will continue to apply to annuity payments that are not 
designated distributions, to sick pay, and to supplemental unemployment 
benefits.
    a-7. Q. If a recipient of a pension or annuity has previously 
elected voluntary withholding under section 3402(o), is the Form W-4P 
effective for withholding on payments after December 31, 1982?
    A. Yes, if the plan administrator or payor wishes to honor it; the 
Form W-4P can be treated by the plan administrator or payor as an 
election to withhold the flat dollar amount specified on the form if the 
payee, is notified of his right to elect out of withholding and if he is 
notified that his previously filed W-4P will remain effective unless he 
elects out of withholding or files a new withholding certificate. If 
these requirements are met the plan administrator or payor may treat the 
Form W-4P as a voluntary withholding agreement under section 3402(p). 
See, also, section 3402(i). These amounts withheld should be reported in 
the same manner as amounts withheld under section 3405.
    a-8. Q. What amount of Federal income tax will be withheld from 
designated distributions?
    A. The amount to be withheld by any payor (or, in certain cases, a 
plan administrator) depends upon whether the payment is a periodic 
payment, a nonperiodic distribution other than a qualified total 
distribution, or a qualified total distribution. However, the maximum 
amount to be withheld cannot exceed the sum of the amount of money and 
the fair market value of property (other than employer securities as 
defined in section 402(a)(3)) received in the distribution.
    a-9. Q. What is a periodic payment?
    A. A periodic payment is an annuity or similar periodic payment 
whether paid by a licensed life insurance company, a financial 
institution, or a plan. The term ``annuity'' means a series of payments 
payable over a period greater than one year and taxable under section 72 
as amounts received as an annuity, whether or not the payments are 
variable in amount.
    a-10. [Reserved]
    a-11. Q. How will Federal income tax be withheld from a ``qualified 
total distribution?''
    A. A ``qualified total distribution'' means any designated 
distribution which it is reasonable to believe is made within one 
taxable year of the payee, is made from or under a qualified plan 
described in section 401(a) or section 403(a), and consists of the 
balance to the credit of the employee under the plans. For additional 
questions and answers concerning qualified total distributions, see part 
c. The amount to be withheld on qualified total distributions will be 
determined under tables prescribed by the Secretary that approximate the 
tax that would be imposed under section 402(e) if the payee elected to 
treat the distribution as a lump sum distribution within the meaning of 
section 402(e)(4)(A). See, in this respect, question c-8.
    a-12. Q. What amount of Federal income tax will be withheld from a 
designated distribution that is not a periodic payment or a qualified 
total distribution?
    A. If a designated distribution is not a periodic payment or a 
qualified total distribution, the amount to be withheld is computed by 
multiplying the amount of the designated distribution by 10 percent.
    a-13. Q. Who must withhold?
    A. Generally, the payor of a designated distribution must withhold, 
and is liable for payment of, the tax required to be withheld. However, 
in the case of a distribution from a plan described in section 401(a) 
(relating to pension, profit-sharing, and stock bonus plans), section 
403(a) (relating to certain annuity plans), or section 301(d) of the Tax 
Reduction Act of 1975 (relating to certain employee stock ownership 
plans, sometimes called ``TRASOP's''), the plan administrator must 
withhold, and is liable for payment of, the withheld tax unless he 
directs the payor to withhold the tax and

[[Page 435]]

furnishes the payor with any information that may be required by the 
Secretary in forms or regulations. This provision applies to qualified 
plans as well as once qualified plans that are no longer qualified. For 
a description of the material that the plan administrator must furnish 
to the payor, see question e-3.
    a-14. Q. Who is a plan administrator?
    A. Under section 414(g), the plan administrator is the person 
specifically designated as the plan administrator by the terms of the 
plan or trust. If the plan or trust does not specifically designate the 
plan administrator (as provided in Sec.  1.414(g)-1(a) of the Income Tax 
Regulations), then the plan administrator is generally determined as 
follows:
    (1) In the case of a plan maintained by a single employer, the 
employer is the plan administrator.
    (2) In the case of a plan maintained by two or more employers or 
jointly by one or more employers and one or more employee organizations, 
the association, committee, joint board of trustees, or other similar 
group of representatives who maintain the plan is the plan 
administrator.
    (3) In the case in which (1) or (2) does not apply, the person 
actually responsible for the control, disposition, or management of the 
assets is the plan administrator.
    a-15. Q. If a bank trustee, regulated investment company, or 
insurance company makes a periodic payment to a payee solely at the 
direction of an employer sponsored individual retirement account (IRA), 
is the bank trustee, regulated investment company or insurance company a 
payor subject to the pension withholding provisions?
    A. Yes. the term ``payor'' generally means the person actually 
paying the annuity or other payment (even if the person is acting as an 
agent). Because this is not a payment from a plan described in section 
401(a) or 403(a), responsibility for withholding is on the bank trustee, 
regulated investment company, or insurance company and not on the 
employer who sponsors the account.
    a-16. Q. If a bank trustee transfers plan funds to the employer who 
sponsors a plan described in section 401(a) and the employer makes the 
designated distributions, is the employer a payor?
    A. Yes. The employer is a payor because it acts as an agent for the 
bank trustee. Even though the plan administrator has transferred 
liability to the bank trustee under section 3405(c)(2), the transfer of 
funds to the employer does not relieve the bank trustee of its liability 
for withholding because the rule on transfer of liability only applies 
to plan administrators. Therefore, if the employer fails to withhold on 
designated distributions, either the employer or the bank trustee may be 
liable for failure to withhold. Note, however, that the plan 
administrator could transfer liability for withholding to the employer 
as payor under section 3405(c)(2). See, in this respect, questions e-2 
and e-3.
    a-17. Q. Do the withholding provisions apply to annuities paid from 
an employer deferred compensation plan, an individual retirement plan, 
or a commercial annuity to the surviving spouse or other beneficiary of 
a deceased payee?
    A. Yes.
    a-18. Q. Do these withholding provisions apply to designated 
distributions under all nonqualified employer deferred compensation 
plans?
    A. No. The withholding provisions relating to pensions and annuities 
do not apply to any amounts that are wages without regard to these 
provisions. Wages to which the general wage withholding rules apply mean 
any remuneration paid by an employer for services performed by an 
employee unless the amount paid falls within one of the exceptions of 
section 3401(a). For example, wages do not include remuneration paid to, 
or on behalf of, an employee or beneficiary from or to a trust qualified 
under section 401(a) and tax-exempt under section 501(a). There is no 
exception for contributions to, or benefits paid from, some nonqualified 
plans. In general, any contributions to, or benefits from, a 
nonqualified plan that are taxable under section 83 are subject to wage 
withholding at the time that they are includible in the recipient's 
gross income.
    a-19. Q. Do these withholding provisions apply to designated 
distributions from a bond purchase plan described in section 405(a)?

[[Page 436]]

    A. Yes. Although a bond purchase plan is not a qualified plan, 
section 3402(a) does not apply to contributions to, or distributions 
from, such a plan. Therefore, designated distributions from a bond 
purchase plan are subject to the new withholding rules of section 3405. 
Similarly, the new withholding rules apply to designated distributions 
of an individual retirement bond described in section 409 or from an 
annuity plan described in section 403(a). For purposes of the 
withholding provisions of section 3405, a designated distribution from a 
bond purchase plan described in section 405(a) or an individual 
retirement bond described in section 409 occurs when an individual 
redeems a bond.
    a-20. Q. Do these withholding provisions apply to designated 
distributions from a tax-sheltered annuity described in section 403(b)?
    A. Yes. Section 31.3401(a)-1(b)(1)(i) of the Employment Tax 
Regulations provides that there is no withholding required under the 
wage withholding provisions to the extent that any amounts are taxable 
under the rules of section 72 or 403. Because designated distributions 
are not subject to the general wage withholding provisions, the new 
provisions of section 3405 apply to these designated distributions.
    a-21. Q. An employer maintains a nonqualified deferred compensation 
plan such as a supplemental executive retirement (``top hat'') plan. 
Payments under the plan are made in the form of a single sum payment at 
retirement. Amounts paid at retirement are includible in income as 
compensation in the year received. Must the payor withhold on these 
amounts according to the rules in section 3405?
    A. No. Section 3405(d)(1)(B)(i) provides that a designated 
distribution on which withholding is required does not include amounts 
that are wages without regard to the rules of section 3405. Therefore, 
withholding on payments that are includible in income as compensation 
are based on the rules for withholding on wages contained in section 
3402.
    a-22. Q. Do the withholding provisions of section 3405 apply to a 
retirement plan maintained by a State or local government on behalf of 
its employees?
    A. Yes. A retirement plan maintained by a State or local government 
on behalf of its employees is a plan that defers the receipt of 
compensation. The fact that a plan deferring the receipt of compensation 
is maintained by a governmental unit does not make the withholding 
provisions inapplicable. Thus, annuity payments and other distributions 
under the Federal Civil Service Retirement System or under the plan of 
any State or municipality are subject to withholding.
    a-23. Q. Are payments from a state or local plan of deferred 
compensation described in section 457 subject to the withholding 
requirements of section 3405?
    A. No. Amounts paid from a plan described in section 457 are paid 
from a plan that defers the receipt of compensation. However, amounts 
paid from a deferred compensation plan described in section 457 are 
wages under section 3401(a). Therefore, the general wage withholding 
rules, not the special rules of section 3405, apply to these payments.
    a-24. Q. An individual retires and begins receiving periodic 
payments under a commercial annuity contract that was distributed to him 
from a contributory qualified plan. The insurance company is the payor 
and is liable for withholding because the plan administrator has 
transferred liability under the rules of section 3405(c)(2). Must the 
payor determine whether the employee's investment in the contract is 
recoverable within three years?
    A. Yes. Under section 72(d), if the annuity payments during the 
first three years equal or exceed the amount contributed by the employee 
to the plan, no amounts are includible in income until the employee's 
contributions are recovered. Because the application of section 72(d) 
may affect the extent to which it is reasonable to believe that amounts 
are not includible in income and, therefore, not subject to withholding, 
the payor must determine whether section 72(d) applies to the annuity 
payments. As a general rule, the information necessary to determine the 
employee's investment in the contract must be provided to the payor by 
the plan administrator. See, however, questions a-27 and a-33.
    a-25. Q. If the payor in question a-24 determines that the 
employee's investment

[[Page 437]]

in the contract is not recoverable within 3 years, must the payor 
compute the exclusion ratio under section 72(b) to calculate the amount 
of each payment that is not includible in gross income?
    A. Yes. The operation of section 72(b) affects the extent to which 
it is reasonable to believe that amounts are not includible in gross 
income. Therefore, the payor must compute the exclusion ratio to 
determine what portion of each payment is subject to withholding under 
section 3405. As a general rule, the information necessary to determine 
the employee's exclusion ratio must be provided to the payor by the plan 
administrator. See, however, questions a-27 and a-33.
    a-26. Q. In questions a-24 and a-25, may the payor (i.e., the 
insurance company) rely on the information furnished by the plan 
administrator to determine the amounts that are includible in gross 
income?
    A. In the absence of information to the contrary supplied by the 
payee, the payor may rely on the information furnished by the plan 
administrator. See, with respect to the plan administrator's duty to 
report to the payor, questions e-2 and e-3.
    a-27. Q. What is the result in questions a-24 and a-25 if the plan 
administrator fails to provide the payor with any information concerning 
the amount of employee contributions?
    A. Until the earlier of December 31, 1983, or the date on which the 
plan administrator provides the payor with information concerning the 
amount of employee contributions, it is reasonable for the payor to 
assume that the employee's investment in the annuity contract is zero 
unless the payor has independent specific knowledge of the amount of 
employee contributions. Additionally, if the payee notifies the payor of 
the amount of employee contributions, the payor must compute the taxable 
portion of the payment based on the information supplied by the payee. 
If the plan administrator fails to provide the payor with this 
information on or before December 31, 1983, the plan administrator will 
be liable for failure to withhold and pay the tax due. See questions e-2 
through e-5 for rules on the plan administrator's ability to transfer 
liability for withholding to the payor. See also question a-33 with 
respect to the plan administrator's failure to provide the necessary 
information prior to December 31, 1983.
    a-28. Q. If a beneficiary receives the balance to the credit of an 
employee from an annuity described in section 403(b) on account of the 
employee's death, is it reasonable to believe that the $5,000 death 
benefit exclusion of section 101(b) is not includible in gross income?
    A. Yes. Although the amount of the death benefit exclusion allowable 
may be limited by section 101(b)(2)(B)(iii), the payor, for withholding 
purposes, may use the maximum death benefit exclusion ($5,000) in 
computing the amount of the distribution that is subject to withholding. 
See also, in this respect, question c-3.
    a-29. Q. What is the appropriate treatment of a distribution 
(whether periodic or nonperiodic) that includes employer securities?
    A. Employer securities are significant in the calculation of amounts 
subject to withholding in two respects. First, the maximum amount to be 
withheld cannot exceed the sum of the amount of money plus the fair 
market value of property received, except employer securities. In other 
words, a payor will not be forced to dispose of employer securities in 
order to meet withholding tax liability. Thus, for example, if an 
individual receives a distribution from a stock bonus plan that includes 
$1,000 worth of employer stock and $5 in cash for payment of fractional 
shares of stock, all of the cash, but none of the stock, may be retained 
by the payor to satisfy the withholding obligation. Second, under 
certain circumstances, the net unrealized appreciation in employer 
securities is not includible in gross income. See, in this respect, the 
rules of sections 402(a)(1) and 402(e)(4)(J).
    a-30. Q. Is it reasonable to believe that all net unrealized 
appreciation from employer securities is not includible in gross income 
in the case of a qualified total distribution?
    A. Yes. Although a qualified total distribution may include a 
distribution that is not a lump sum distribution, it is reasonable to 
believe that all net unrealized appreciation from employer

[[Page 438]]

securities is not includible in gross income.
    a-31. Q. Is it reasonable to believe that a distribution is not 
includible in gross income if the distribution consists of employee 
contributions from a plan described in section 401(a) and the amount 
distributed is not specifically designated as accumulated deductible 
employee contributions?
    A. Yes. Employee contributions to a plan described in section 401(a) 
are not deductible from gross income when contributed unless they are 
deductible employee contributions under section 72(o)(5). Unless the 
payor has specific knowledge that employee contributions distributed 
from a plan described in section 401(a) are accumulated deductible 
employee contributions, it is reasonable to assume that the amounts are 
excludible from gross income in the year when received.
    a-32. Q. In the case of disability payments paid under a 
noncontributory plan to a disability retiree who has not attained age 
65, is it reasonable to believe that all amounts paid to the payee are 
includible in gross income?
    A. Yes. Whether or not all or part of the disability payments paid 
under a noncontributory plan to a permanently disabled retiree who has 
not attained age 65 are includible in gross income depends on the 
adjusted gross income of the taxpayer and on whether the taxpayer is 
permanently and totally disabled. In this situation, it is reasonable 
for the payor to assume that all amounts paid to the payee are 
includible in gross income unless the payor has specific independent 
knowledge that all or part of the periodic payments are not includible 
in gross income. Additionally, if the payee notifies the payor of the 
amount excludible from gross income, the payor must compute the taxable 
portion of the payment based on information provided by the payee.
    a-33. Q. In the case of a periodic payment, is it reasonable to 
believe that all amounts paid to the payee are includible in gross 
income?
    A. Yes. As an alternative to the general rule that a designated 
distribution does not include amounts which it is reasonable to believe 
are not includible in gross income, the payor of any periodic payment 
may assume that the entire amount of the payment is includible in gross 
income. The wage withholding tables must be used without adjustment for 
the fact that Federal income tax is being withheld on the gross amount. 
If the payor uses this alternative method of calculating the amount of 
the designated distribution, he must include with the notice of the 
election not to have withholding apply the following additional 
statements:
    (1) Tax will be withheld on the gross amount of the payment even 
though the payee may be receiving amounts that are not subject to 
withholding because they are excludible from gross income;
    (2) This withholding procedure may result in excess withholding on 
the payment; and
    (3) The payee may adjust the allowances claimed on the withholding 
certificate if he wants a lesser amount withheld from each payment or he 
may provide the payor with the information necessary to calculate the 
taxable portion of each payment.
    This alternative will not apply to periodic payments made after the 
earlier of December 31, 1983, or the date on which the plan 
administrator supplies the payor with the information necessary to 
calculate the taxable portion of the distribution.
    See, also, questions e-3, e-4, and e-5.
    a-34. Q. May the payor rely on a plan administrator's computation of 
the amount to be withheld?
    A. Yes. Although the plan administrator is not required to compute 
the amount to be withheld in order to transfer liability for withholding 
to the payor, the plan administrator may provide such information to the 
payor, and the payor may rely on such computations unless the payor 
knows or has reason to know that the computations are incorrect.
    a-35. Q. Under the plans of certain States, individuals may receive 
payments from more than one retirement system, such as payments from the 
state's teacher's retirement plan and from the state's regular 
retirement plan. Must these payments be aggregated for purposes of 
providing a single notice and election to a payee or for purposes of 
determining whether the floor on withholding tax (i.e.,

[[Page 439]]

$5,400 for a married individual claiming three allowances) has been 
reached?
    A. No. However, if it is feasible to aggregate payments under more 
than one retirement system, the payor is permitted to do so for these 
purposes.
    a-36. Q. If a payment is made by one check to more than one 
beneficiary, such as a surviving spouse and a minor child, how is the 
amount to be withheld computed?
    A. The payor may compute the withholding on a payment made by one 
check to more than one beneficiary as if the payment were made to only 
one beneficiary. In this case, the payor must base withholding for the 
total amount of the designated distribution on the withholding 
certificate of the payee to whom the election was sent.
    Alternatively, if each payee files a withholding certificate and the 
payor knows the amount of the payment of which each payee is entitled, 
the payor may determine the amount to be withheld with respect to each 
payee. If the payor does not know the amount of the payment to which 
each payee is entitled, he may treat the payment as being made pro-rata 
to each payee. If only one withholding certificate is received, the 
payor must base withholding for the total amount of the designated 
distribution on the withholding certificate of one of the payees, such 
as the surviving spouse's certificate. Thus, if notice of the election 
not to have withholding apply is supplied to each payee at the times 
required in section 3405(c) (10) and only one payee makes the election 
or files a certificate, the payor must assume that the election or 
filing was made by the payee on behalf of the other payees.
    a-37. Q. If a payor makes an error in computing the amount of a 
designated distribution that is subject to withholding, must the payor 
make a retroactive correction of the error?
    A. No, provided the error was a reasonable one. Thus, if a payor 
either underwithholds or overwithholds because the amount of the 
designated distribution (i.e., the taxable portion of the payment) was 
incorrectly calculated, no retroactive make-up is required if one of the 
following applies: (1) The payor reasonably relied on information 
furnished by the plan administrator (including the computation of the 
amount to be withheld), (2) the payor relied on a payee's 
representations on the withholding certificate, (3) the payor reasonably 
relied on the rules of this regulation, or (4) the payor made a 
mathematical error in computations. However, if the amount of the 
designated distribution is correctly computed, but the payor makes an 
error in applying the withholding tables, the normal rules concerning 
failure to withhold and pay the tax will apply.

                   b. Withholding on Periodic Payments

    b-1. Q. Is the payor of periodic payments required to aggregate such 
payments with a payee's compensation to determine the amount of tax to 
be withheld under section 3405(a)(1)?
    A. No. Although the payor must withhold from any periodic payment 
the amount that has to be withheld if the payment were a payment of 
wages by an employer to an employee for a payroll period, the amount to 
be withheld under section 3405(a)(1) is calculated separately of any 
amounts that actually are wages to the payee for the same period.
    b-2. Q. Can either the percentage method (section 3402(b)) or the 
wage bracket method (section 3402(c)) be used to determine the 
withholding liability on a periodic payment?
    A. Yes. Withholding on a periodic payment is accomplished by 
treating the payment as if it were wages. Therefore, unless the employee 
has elected not to have withholding apply, any method of withholding 
that is an appropriate method for withholding on wages is also an 
appropriate method for withholding on periodic payments. Refer to the 
Employer's Tax Guide (Circular E) and Publication 493, Alternative Tax 
Withholding Methods and Tables for the general procedures on 
withholding, deposit, payment, and reporting of Federal income tax 
withheld. Note, however, that any specific procedures contained in this 
regulation take precedence over any contrary rules in Circular E and 
Publication 493.
    b-3. [Reserved]
    b-4. [Reserved]
    b-5. Q. May a payor determine whether payments to an individual are 
subject to

[[Page 440]]

withholding based on the amount of the first periodic payment for the 
year?
    A. No. Periodic payments can vary during a calendar year because of 
make-up of past due payments, variable rates of payments, or cost-of-
living adjustments, so that withholding based on the first payment 
within a year may be an inaccurate measure of withholding on total 
payments for the year. Therefore, the amount to be withheld is 
determined each payment period in the same manner as applies to 
withholding on wages. See, in this respect, Circular E and the 
regulations under section 3402.
    b-6. Q. If a payment period is specified as by the terms of a 
commercial annuity contract, must this period be used as the appropriate 
period for determining the amount to be withheld?
    A. Yes. Similarly, if the payment period is designated in a plan 
administrator's report or on an individual retirement account payout 
schedule agreed to by payor and payee, this period must be used as the 
appropriate payment period.
    b-7. Q. If the payor received no report from the plan administrator 
or beneficiary concerning the payment period, but knows the frequency of 
payments, can the known frequency be used as the appropriate payment 
period?
    A. Yes. However, if no report is received and the payor has no 
knowledge of the frequency of payments, then he must treat the 
distribution as a nonperiodic distribution. Therefore, a distribution 
cannot be a periodic payment unless the frequency of payments is known. 
See, in this respect, questions b-8 and c-2. For rules concerning the 
plan administrator's failure to provide this information, see questions 
e-2 and e-3.
    b-8. Q. If a payee receives a one-time payment that is a make-up 
payment resulting from an insurance company's incorrect calculation of a 
monthly annuity amount, is the one-time payment part of a series of 
periodic payments?
    A. Yes. Because the one-time payment is a catch-up of prior amounts 
due as periodic payments, it is treated as part of a series of periodic 
payments. These payments are treated for withholding purposes in a 
manner similar to the treatment of supplemental wage payments in Sec.  
31.3402(g)-1 of the Employment Tax Regulations.

               c. Withholding on Nonperiodic Distributions

    c-1. Q. Must an individual receive a lump-sum distribution within 
the meaning of section 402(e)(4) to have a qualified total distribution?
    A. No. A ``qualified total distribution'' is any distribution that 
(i) is a designated distribution, (ii) is reasonable to believe is made 
within one taxable year of the recipient, (iii) is made under a plan 
described in section 401(a) or 403(a), and (iv) consists of the balance 
to the credit of the employee under such plan. Thus, a distribution from 
a plan described in section 401(a) that does not meet the requirements 
(such as the minimum 5-year period of participation in section 
402(e)(4)(H)) for a lump sum distribution within the meaning of section 
402(e)(4) may still be a qualified total distribution for purposes of 
withholding.
    c-2. Q. If a class year plan permits annual withdrawal of 
participants' vested amounts, are these withdrawals considered periodic 
payments?
    A. No. A class year plan is a plan under which amounts contributed 
by an employer for a year become vested a number of years (e.g., five 
years) after the year in which the amounts are contributed. Generally, 
class year plans permit withdrawals each year of amounts that have 
vested during the year. However, these distributions are not made with 
respect to an established frequency of payments, so the withdrawals must 
be treated as nonperiodic distributions, subject to withholding at the 
10 percent rate.
    c-3. Q. If a beneficiary receives the balance to the credit of a 
payee from an annuity contract on account of the payee's death, is this 
final payment a nonperiodic distribution?
    A. Yes. The lump sum death benefit in this situation is a one-time 
payment that cannot be characterized as a periodic payment. The payment 
may be a qualified total distribution if the requirements of section 
3405(c)(4) are satisfied, but otherwise it will be treated as a 
nonperiodic distribution other than a qualified total distribution.

[[Page 441]]

    c-4. Q. Is it permissible to assume that an individual is a calendar 
year taxpayer for purposes of determining whether a distribution is a 
``qualified total distribution?''
    A. Yes, unless the payor or plan administrator has reason to believe 
that the payee is not a calendar year taxpayer. The payor or plan 
administrator has reason to believe that the payee is not a calendar 
year taxpayer if the payee tells the payor or plan administrator that he 
is not a calendar year taxpayer.
    c-5. Q. Is a distribution of accumulated deductible employee 
contributions with earnings that is paid on account of an employee's 
separation from service treated as a qualified total distribution?
    A. Yes. As long as the other requirements for a qualified total 
distribution are met, a distribution of accumulated deductible employee 
contributions with earnings is eligible for withholding at the rate 
applicable to qualified total distributions even though the distribution 
could never be a lump sum distribution. Because accumulated deductible 
employee contributions are treated separately in determining whether a 
distribution is a qualified total distribution, the answer would be the 
same even if the recipient received none (or a portion) of the vested 
employer contributions in his account.
    c-6. Q. What is meant by the ``balance to the credit'' of an 
employee under a plan described in section 401(a) or 403(a)?
    A. In general, the balance to the credit of an employee includes any 
amount credited to the employee under the plan on the date the 
distribution commences. The balance to the credit of an employee 
includes an amount credited after the date the distribution commences if 
it is attributable to services performed before that date or is 
attributable to earnings on an amount credited to the employee before 
that date. Additionally, the balance to the credit of an employee 
includes any amount payable as an annuity with respect to the employee 
under the plan. Amounts that have been placed in a separate account for 
the funding of medical benefits under section 401(h) or amounts that are 
forfeitable under the plan are not included in the balance to the credit 
of an employee. Finally, accumulated deductible employee contributions 
(within the meaning of section 72(o)(5)(B)) are not included in the 
balance to the credit of an employee for the purposes of determining 
whether a distribution is a ``qualified total distribution.''
    c-7. Q. Can a payor rely on a plan administrator's report in 
determining whether a distribution consists of the balance to the credit 
of an employee under a plan?
    A. Yes. If the plan administrator does not inform the payor that the 
distribution consists of the balance to the credit of the employee, the 
payor may not assume that the distribution is a qualified total 
distribution and must treat the distribution as a nonperiodic 
distribution that is not a qualified total distribution. However, the 
payor may rely on the payee's representations that a distribution does 
consist of the balance to the credit of the employee under the plan.
    c-8. Q. What table must be used to calculate the amount to be 
withheld from a ``qualified total distribution?''
    A. The table to be used for withholding on ``qualified total 
distributions'' will be published by the Secretary in the near future.

                    d. Notice and Election Procedures

    d-1. Q. May a payee elect not to have Federal income tax withheld 
from a designated distribution?
    A. Yes. Withholding is not required on any periodic payment or 
nonperiodic distribution if the payee elects not to have withholding 
apply. If the payee makes this election, it is effective until revoked. 
The payor is required to provide each payee with notice of the right to 
elect not to have withholding apply and of the right to revoke the 
election.
    d-2. Q. In the case of a designated distribution made on account of 
the death of an employee, who makes the election not to have withholding 
apply?
    A. The election may be made by the beneficiary of plan benefits 
specified by the decedent in accordance with plan procedures or, if 
there is no designated beneficiary, by the beneficiary specified under 
the terms of the plan. If there is not a designated beneficiary and the 
terms of the plan do not specify a beneficiary, then the election may

[[Page 442]]

be made by the executor or the personal representative of the decedent.
    d-3. Q. Who is required to provide notice to the payee of the 
payee's right not to have withholding apply?
    A. Section 3405(d)(10)(B) requires the payor to provide notice to 
the payee of the payee's right to elect not to have withholding apply. 
Thus, even if the plan administrator has failed to transfer liability 
for withholding to the payor, the payor must provide notice to the 
payees.
    d-4. Q. When must notice of the right to elect not to have 
withholding apply be given for periodic payments?
    A. In the case of periodic payments, notice of the election must be 
provided not earlier than six months before the first payment and not 
later than when making the first payment. However, even if notice is 
provided at a date before the first payment,notice must also be given 
when making the first payment. Thereafter, notice must be provided at 
least once each calendar year of the right to make the election and to 
revoke the election.
    d-5. Q. Must notice of the right to elect not to have withholding 
apply be provided to those payees whose annual payments are less than 
$5,400?
    A. Yes. However, under the statute, notice is only required to be 
provided when making the first payment. Therefore, a payor may provide 
notice to a payee with annual payments less than $5,400 by indicating to 
the payee when making the first payment that no Federal income tax will 
be withheld unless the payee chooses to have withholding apply by filing 
a withholding certificate, if the payor also provides information 
concerning where a withholding certificate may be obtained.
    d-6. Q. Must notice of the right to elect not to have withholding 
apply be provided in the same manner to all payees?
    A. No. If the payor provides notice to all payees when making the 
first payment, the payor may, in addition, provide earlier notice as 
provided in section 3405(d)(10)(B)(i)(I) to selected groups of payees, 
such as those payees whose annual payments are over $5,400.
    d-7. Q. Must notice be attached to the first payment to satisfy the 
requirement that notice be provided ``when making'' the first payment?
    A. No. Because many payees utilize electronic funds transfer to 
deposit their pension or annuity checks, notice does not have to be 
attached physically to the check.
    d-8. Q. If a payee utilizes electronic funds transfer and notice is 
mailed directly to the payee at the same time the check is issued, is 
the notice requirement satisfied even though the payee receives the 
notice fifteen days after the check is deposited?
    A. Yes. Although it is desirable that the notice reach the payee 
immediately prior to or concurrent with receipt of the check, the notice 
requirement is deemed to be satisfied if the payee receives the notice 
within 15 days before or after receipt of the first payment.
    d-9. Q. When is the payor required to notify the payee of his right 
to elect not to have withholding apply to a nonperiodic distribution?
    A. Section 3405(d)(10)(B)(ii) requires that notice must be provided 
to the payee at the time of a nonperiodic distribution. Since notice 
provided at the time of the distribution could result in delay of 
receipt of the benefit check if the payee elects out of withholding, 
notice for nonperiodic distributions should be given not earlier than 
six months prior to the distribution and not later than the time that 
will give the payee reasonable time to elect not to have withholding 
apply and to reply to the payor with the election information. What is 
reasonable time depends upon the facts and circumstances of each case.
    d-10. Q. What is a ``reasonable time'' for notice with respect to a 
nonperiodic distribution from a qualified plan?
    A. The ``reasonable time'' requirement is satisfied with respect to 
a nonperiodic distribution if the notice is included in the basic claim 
for benefits application that is provided to the participant by the plan 
administrator.
    d-11. Q. If the payor of a periodic payment provides notice of the 
election not to have withholding apply within the time specified by 
section 3405(d)(10)(B)(i)(I), may the payor specify a time prior to 
distribution by which the election must be made?
    A. Yes. The election not to have withholding apply is generally 
given

[[Page 443]]

effect as provided in section 3402(f)(3) for a certificate filed to 
replace an existing certificate. However, the payor may require that the 
election is made up to 30 days before the first payment to be effective 
for the first payment. See question b-3.
    d-12. Q. If the payor of a nonperiodic distribution provides notice 
of the election not to have withholding apply within a reasonable time 
prior to the distribution, may the payor specify a time prior to 
distribution by which the election must be made?
    A. No. The payee has the right to make or revoke an election at any 
time prior to the distribution. Therefore, the payor may place a 
deadline on the time to elect without delaying payment of the 
distribution, but must accept any election or revocation made up to the 
time of distribution.
    d-13. Q. What is a ``reasonable time'' for notice with respect to a 
distribution from an individual retirement account?
    A. A payor may provide notice of the election not to have 
withholding apply at the time the beneficiary requests a withdrawal from 
his individual retirement account. This rule also applies to 
distributions from bank sponsored prototype plans and other plans that 
permit withdrawals on request.
    d-14. Q. If notice is provided to a payee prior to the first payment 
of a periodic payment, why must it also be provided at the time of the 
first payment or distribution?
    A. Section 3405(d)(10)(B)(i)(II) of the Internal Revenue Code 
requires such notice. In addition, because the payee has the right to 
make an election or to revoke a prior election at any time prior to the 
beginning of the payment period, notice must be provided when making the 
first payment in order to offer the payee ample opportunity to make or 
revoke an election not to have withholding apply even if the election 
will not be effective until later payments.
    d-15. Q. If a payee who has been receiving periodic payments is 
rehired by the same employer, has his benefits suspended, and then 
recommences receiving periodic payments, must notice again be provided 
to the payee?
    A. Yes. Upon recommencement of benefits, the first payment 
thereafter is treated as the first payment for purposes of the notice 
requirements.
    d-16. Q. Must a payor provide notice if it is reasonable to believe 
that the entire amount payable is excludible from the payee's gross 
income?
    A. No. Amounts which it is reasonable to believe are not includible 
in gross income are not designated distributions. Therefore, no notice 
is required of the ability to elect not to have withholding apply.
    d-17. Q. If the payor of a periodic payment under a qualified plan 
knows that an employee's investment in an annuity contract will be 
recovered within three years, must he provide notice of the right to 
elect out of withholding at the time the first payment is made?
    A. No. The first payment is not a designated distribution, and, 
therefore, is not a periodic payment subject to the notice requirements 
of section 3405(d)(10)(B)(i). There is no withholding obligation until 
the employee's investment in the contract is recovered because those 
amounts that equal the investment in the contract are not includible in 
gross income and, therefore, are not designated distributions. 
Therefore, the first payment after the employee's investment in the 
contract is recouped is the first payment for purposes of the notice 
requirements.
    d-18. Q. What information concerning the election not to have 
withholding apply must be provided by the payor to the payee?
    A. Notice to a payee must contain the following information:
    (1) Notice of the payee's right to elect not to have withholding 
apply to any payment or distribution and how to make that election,
    (2) Notice of the payee's right to revoke such an election at any 
time and a statement that the election remains effective until revoked,
    (3) A statement to advise payees that penalties may be incurred 
under the estimated tax payment rules if the payments of estimated tax 
are not adequate and sufficient tax is not withheld from the payment or 
distribution.
    In the event that the payor does not know what part of a 
distribution is includible in gross income and treats these payments as 
provided in question

[[Page 444]]

a-33, the following additional statements must be included with the 
notice:
    (1) Tax will be withheld on the gross amount of the payment even 
though the payee may be receiving amounts that are not subject to 
withholding because they are excludible from gross income,
    (2) This withholding procedure may result in excess withholding on 
the payment, and
    (3) The payee may adjust his allowances claimed on the withholding 
certificate if he wants a lesser amount withheld from each payment or he 
may provide the payor with the information necessary to calculate the 
taxable portion of each payment.
    d-19. Q. Is there any information that, although not required, it is 
desirable to include in the notice to payees?
    A. It is desirable to include a statement in the notice to payees 
that the election not to have withholding apply is prospective only and 
that any election made after a payment or distribution to the payee is 
not an election with respect to that payment or distribution.
    d-20. Q. May the plan administrator provide the notice to payees on 
behalf of the payor?
    A. The plan administrator may provide notice on behalf of the payor. 
However, the payor has sole responsibility for providing this notice 
whether or not the plan administrator has shifted liability for 
withholding to the payor, and if the plan administrator fails to provide 
adequate notice, the payor is responsible.
    d-21. Q. Is there a sample notice that can be used to satisfy the 
notice requirement for periodic payments?
    A. Yes. Any payor who uses the following sample notice is deemed to 
satisfy the notice requirement if notice is timely provided:

               Notice of Withholding on Periodic Payments

    Beginning on January 1, 1983, the [pension] OR [annuity] payments 
you receive from the [insert name of plan or company] will be subject to 
Federal income tax withholding unless you elect not to have withholding 
apply. Withholding will only apply to the portion of your [pension] OR 
[annuity] payment that is already included in your income subject to 
Federal income tax and will be like wage withholding. Thus, there will 
be no withholding on the return of your own nondeductible contributions 
to the [plan] OR [contract].
    You may elect not to have withholding apply to your [pension] OR 
[annuity] payments by returning the signed and dated election [manner 
may be specified] to [insert name and address]. Your election will 
remain in effect until you revoke it. You may revoke your election at 
any time by returning the signed and dated revocation to [insert 
appropriate name or address]. Any election or revocation will be 
effective no later than the January 1, May 1, July 1, or October 1 after 
it is received, so long as it is received at least 30 days before that 
date. You may make and revoke elections not to have withholding apply as 
often as you wish. Additional elections may be obtained from [insert 
name and address].
    If you do not return the election by [insert date], Federal income 
tax will be withheld from the taxable portion of your [pension] OR 
[annuity] payments as if you were a married individual claiming three 
withholding allowances. As a result, no Federal income tax will be 
withheld if the taxable portion of your annual [pension] OR [annuity] 
payments are less than $5,400.
    If you elect not to have withholding apply to your [pension] OR 
[annuity] payments, or if you do not have enough Federal income tax 
withheld from your [pension] OR [annuity] payments, you may be 
responsible for payment of estimated tax. You may incur penalties under 
the estimated tax rules if your withholding and estimated tax payments 
are not sufficient.

    d-22. Q. Is there sample language that may be used to elect not to 
have withholding apply or to revoke a prior election not to have 
withholding apply?
    A. Yes. A payee may elect not to have withholding apply or revoke a 
prior election in any manner that clearly shows the payee's intent. The 
following language would suffice:

              Election for Recipients of Periodic Payments

    Instructions: Check Box A if you do not want any Federal income tax 
withheld from your [pension] OR [annuity]. Check Box B to revoke an 
election not to have withholding apply. Return the signed and dated 
election to [insert name and address].
    Even if you elect not to have Federal income tax withheld, you are 
liable for payment of Federal income tax on the taxable portion of your 
[pension] OR [annuity]. You also may be subject to tax penalties under 
the estimated tax payment rules if your payments of estimated tax and 
withholding, if any, are not adequate.

[[Page 445]]

    A [ballot] I do not want to have Federal income tax withheld from my 
[pension] OR [annuity].
    B [ballot] I want to have Federal income tax withheld from my 
[pension] OR [annuity].
Signed:_________________________________________________________________
 (Name)
Date:___________________________________________________________________
    Return your completed election to: [insert name and address]

    d-23. Q. May the payee's election be combined with a withholding 
certificate?
    A. Yes. The payor may provide a single statement for the payee to 
fill out and return that would enable the payee to elect not to have 
withholding apply or to revoke a previous election and, at the same 
time, would enable the payee to claim the number of withholding 
allowances and, also, the dollar amount the payee wants withheld.
    d-24. Q. Will a notice mailed to the last known address of the payee 
fulfill the notice requirement of section 3405(d)(10)(B)?
    A. Yes.
    d-25. Q. Is there a sample notice that can be used to satisfy the 
notice requirement for nonperiodic distribution?
    A. Yes. Any payor who uses the following sample notice is deemed to 
satisfy the notice requirement if notice is timely provided:

 Notice of Withholding on Distributions or Withdrawals From Annuities, 
    IRA's, Pension, Profit Sharing, Stock Bonus, and Other Deferred 
                           Compensation Plans

    The [distributions] OR [withdrawals] you receive from the [insert 
name of plan or company] are subject to Federal income tax withholding 
unless you elect not to have withholding apply. Withholding will only 
apply to the portion of your [distribution] OR [withdrawal] that is 
included in your income subject to Federal income tax. Thus, for 
example, there will be no withholding on the return of your own 
nondeductible contributions to the [plan] OR [contract].
    You may elect not to have withholding apply to your [distribution] 
OR [withdrawal] payments by signing and dating the attached election and 
returning it [manner may be specified] to [insert name and address].
    If you do not return the election by [insert date] receipt of your 
payments may be delayed. If you do not respond by the date your 
[distribution] OR [withdrawal] is scheduled to begin, Federal income tax 
will be withheld from the taxable portion of your [distribution] OR 
[withdrawal]. [Insert information on rates if desired].
    If you elect not to have withholding apply to your [distribution] OR 
[withdrawal] payments, or if you do not have enough Federal income tax 
withheld from your [distribution] OR [withdrawal], you may be 
responsible for payment of estimated tax. You may incur penalties under 
the estimated tax rules if your withholding and estimated tax payments 
are not sufficient.

    d-26. Q. Is there sample language that may be used for payees of 
nonperiodic distributions to elect not to have withholding apply?
    A. Yes. A payee of a nonperiodic distribution may elect not to have 
withholding apply in any manner that clearly shows the payee's intent. 
The following language would suffice:

               Election For Payees of Nonperiodic Payments

    Instructions: If you do not want any Federal income tax withheld 
from your [distribution] OR [withdrawal], sign and date this election 
and return it to [insert name and address].
    Even if you elect not to have Federal income tax withheld, you are 
liable for payment of Federal income tax on the taxable portion of your 
[distribution] OR [withdrawal]. You also may be subject to tax penalties 
under the estimated tax payment rules if your payments of estimated tax 
and withholding, if any, are not adequate.
    I do not want to have Federal income tax withheld from my 
[distribution] OR [withdrawal].
Signed:_________________________________________________________________
 (Name)
Date:___________________________________________________________________
    Return your completed election to: [insert name and address]

    d-27. Q. If the payor provides notice prior to making the first 
payment, can an abbreviated notice be used to satisfy the notice 
requirement of section 3405(d)(10)(B)(i)(II)?
    A. Yes. It is permissible to provide with the payment a statement 
that the payee has the right to elect out of withholding. For example, 
the following sample notice could be used to satisfy the notice 
requirement if the payor has provided notice previously:
    If Federal income taxes have been withheld from the [pension] OR 
[annuity] payments you are receiving and if you do not wish to have 
taxes withheld, you should notify [insert name and address]. However, if 
you elect not to have withholding apply to your [pension] OR [annuity] 
payments, or if you do not have enough Federal income tax

[[Page 446]]

withheld from your [pension] OR [annuity] payment, you may be 
responsible for payment of estimated tax. You may incur penalties under 
the estimated tax rules if your withholding and estimated tax payments 
are not sufficient.
    If Federal income taxes are not being withheld from your [pension] 
OR [annuity] payment because you have elected not to have withholding 
apply and if you wish to revoke that election and have Federal income 
taxes withheld from your [pension] OR [annuity] payments, you should 
notify [insert name and address].
    d-28. Q. Must an employee who receives a distribution from a plan 
described in section 401(a) that includes amounts attributable to 
employer contributions and to accumulated deductible employee 
contributions make two elections not to have withholding apply?
    A. No. Although accumulated deductible employee contributions are 
treated separately in determining whether a distribution is a qualified 
total distribution, an employee needs to make only one election not to 
have withholding apply to any distributions occurring at the same time 
from or under the same plan. However, the plan administrator could 
require the employee to make separate elections with respect to the 
distributions.
    d-29. Q. If the administrator of a plan described in section 401(a) 
makes a qualified total distribution to an employee out of funds 
contained in two or more trusts, must the employee make a separate 
election not to have withholding apply with respect to the distribution 
from each trust?
    A. No. The fact that a plan may use several trusts does not 
eliminate treatment of the distribution as a single qualified total 
distribution for which only one election is necessary.
    d-30. Q. Is it permissible to provide notice to persons already in 
pay status on January 1, 1983, in a newsletter of the plan 
administrator?
    a. Yes, provided that this notice is received by the payee within 15 
days of the payee's receipt of the first periodic payment after December 
31, 1982, and such notice provides the means to make an election and 
instructions for electing not to have withholding apply. It is desirable 
that payees be afforded the maximum opportunity to make the election 
provided by section 3405(a)(2). Payors are encouraged to give payees 
notice of their election opportunities at least 30 days before the first 
periodic payment after December 31, 1982.
    d-31. Q. Is it permissible to provide the annual notice required by 
section 3405(d)(10)(B)(i)(III) on January 1, 1984, December 31, 1985, 
and January 1, 1986?
    A. No. The annual notice required by section 3405(d)(10)(B)(i)(III) 
should be provided at approximately the same time each calendar year.
    d-32. Q. Under what circumstances may an election made with respect 
to a nonperiodic distribution apply to subsequent distributions?
    A. Generally, any election not to have withholding apply to a 
nonperiodic distribution may apply to any subsequent payment or 
distribution from or under the same plan or arrangement. However, the 
payor must still provide notice of the election and revocation 
procedures upon each subsequent distribution and must include the 
statement concerning liability for payment of estimated tax if the payee 
does not have withholding applied.
    d-33. Q. How may a payee who intends to make a qualifying rollover 
(as defined in section 402(a)(5) or section 408(d)(3)) of a distribution 
elect not to have Federal income tax withheld from the distribution?
    A. The payee may elect not to have withholding apply by making the 
election on the form provided by the payor. Alternatively, if the payee 
directs the payor to pay over the distribution to a qualified plan or an 
individual retirement account, the payor may treat this direction as an 
election not to have withholding apply.
    d-34. Q. If a payee claims more than 14 withholding allowances on a 
withholding certificate, must the payor remit a copy of the withholding 
certificate to the Internal Revenue Service?
    A. No. Because a payee may, at any time, elect out of withholding, 
the rules of Sec.  31.3402(f)(2)-1(g) of the Employment Tax Regulations 
do not apply. Therefore, a payee may claim more than 14 allowances and 
the payor need not remit the withholding certificate to the Internal 
Revenue Service.

[[Page 447]]

                     e. Reporting and Recordkeeping

    e-1. Q. If designated distributions are made from or under a plan 
described in section 401(a), who has responsibility for making the 
returns and reports required by section 6047(e)?
    A. Generally, the plan administrator, as defined in section 414(g), 
is responsible for maintaining the records and making the reports 
required by section 6047(e). However, if the plan administrator fails to 
keep the required records and make the required reports, the employer 
maintaining the plan is responsible for the reports and returns.
    e-2. Q. How may a plan administrator of a plan described in section 
401(a) or 403(a) transfer his duty to withhold to a payor?
    A. A plan administrator of a plan described in section 401(a) or 
403(a) may transfer the liability for withholding by (1) directing the 
payor in writing to withhold the tax and (2) providing the payor with 
any required information. This direction is presumed to remain in effect 
until the plan administrator revokes it in writing.
    e-3. Q. What information must the plan administrator provide to the 
payor in order to transfer his liability for withholding?
    A. The general rule is that the plan administrator must provide the 
payor with all information necessary to compute correctly the 
withholding tax liability. To satisfy this requirement, the plan 
administrator must explicitly inform the payor of the information that 
would be reportable on the Form W-2P or 1099R or that such information 
is not applicable to a particular payee or to any payments under the 
plan. For example, if the plan administrator is silent with respect to 
any employee contributions, he has not satisfied his reporting 
obligation even if there are no employee contributions to the plan. 
Thus, the plan administrator is expected to provide the payor with the 
following minimum information:
    (1) The name, address, and social security number of the payee and 
the payee's spouse or other beneficiary if applicable,
    (2) The existence and amount of any employee contributions,
    (3) The amount of accumulated deductible employee contributions, if 
any,
    (4) The payee's cost basis in any employer securities and the 
current fair market value of the securities,
    (5) The existence and amount of any premiums paid for the current 
cost of life insurance that were previously includible in income,
    (6) A statement of the reason (e.g., death, disability, retirement) 
for the payment or distribution,
    (7) The date on which payments commence and the amount and frequency 
of payments,
    (8) The age of the payee and of the payee's spouse or designated 
beneficiary if applicable, and
    (9) Any other information required by Form W-2P or 1099R.
    If, prior to December 31, 1983, the plan administrator fails to 
provide the payor with the information required in items (2) through (5) 
the payor is liable for withholding. However, the payor may withhold on 
the payment as if all amounts are includible in gross income. See 
question a-33.
    e-4. Q. If, after December 31, 1983, the plan administrator does not 
notify the payor of the amount of employee contributions with respect to 
one payee, has withholding liability shifted to the payor?
    A. Yes. The plan administrator satisfies the requirements of 
question e-3 as to the information that must be supplied to the payor so 
long as the failure to provide the required information occurs on an 
infrequent basis or the plan administrator informs the payor in writing 
that he has made a good faith effort to supply all the required 
information but the amount of employee contributions as to a particular 
payee is unavailable.
    e-5. Q. If, after December 31, 1983, the plan administrator fails to 
supply the payor with any information concerning the existence or amount 
of any employee contributions, has withholding liability shifted to the 
payor?
    A. No. The plan administrator has not satisfied his reporting 
obligation as required in question e-3 as to employee contributions even 
if there are no employee contributions unless he affirmatively states 
that there are no employee contributions or states that the

[[Page 448]]

reporting of this item is not applicable in determining the payee's tax 
liability.
    e-6. Q. Is it permissible to satisfy the requirements of section 
6047(e) by maintaining records necessary to provide the information 
contained on Form W-2P and 1099R?
    A. Section 6047(e) will be satisfied if, in addition to the 
information necessary to complete Forms W-2P and 1099R, the following 
information is maintained:
    (1) Payee's date of birth (if known), and date of spouse's or 
designated beneficiary's birth (if applicable and known);
    (2) Plan administrator's name, address, and employer identification 
number (EIN);
    (3) Plan's name and identification number and sponsor's name, 
address, and EIN; and
    (4) Date on which payments commence and amount and frequency of 
payments.
    e-7. Q. If the interim method of withholding on periodic payments 
(i.e., withholding on the gross amount) is used, must the employer, plan 
administrator, or issuer of any contract still maintain the information 
required by Form W-2P?
    A. Yes. Even if this interim method is used, the recipient must be 
provided with the information that will enable him to determine his tax 
liability and adjust his claimed exemptions or claim a credit or refund.
    e-8. What events trigger the reporting requirements of section 
6047(e)?
    A. Reporting is required any time there is a designated distribution 
to which section 3405 applies. Therefore, the old law rule that 
distributions of less than $600 per year do not require reporting no 
longer applies. Additionally, an exchange of insurance contracts under 
which any designated distribution (including a tax-free exchange under 
section 1035) may be made is a reportable event even though a designated 
distribution does not occur. To insure proper reporting when a 
designated distribution is made under the new contract, it is 
anticipated that the issuer of the contract to be exchanged will provide 
the information necessary to compute the amount to be withheld to the 
policyholder and to the issuer of the new contract.
    e-9. Q. Will the reporting requirement be satisfied if Form W-2P or 
Form 1099R is filed?
    A. Yes. In the absence of other forms or regulations, the reporting 
requirement is satisfied if Form W-2P or Form 1099R is filed with 
respect to each payee.
    e-10. Q. How should the payor or plan administrator remit payments 
of amounts withheld under section 3405?
    A. The payor or plan administrator must deposit the amount withheld 
under section 3405 an authorized financial institution in accordance 
with the provisions of Sec.  31.6302(c)-1(a)(1)(i) of the Procedure and 
Administration Regulations, which provides the procedures for depositing 
employment taxes. For purposes of applying these procedures to amounts 
withheld under section 3405, the term ``taxes'' as defined in Sec.  
31.6302(c)-1(a)(1)(iii) includes the income tax withheld under section 
3405 with respect to designated distributions. A payor or plan 
administrator who remits these amounts in accordance with those rules 
must report the amounts deposited on the same Form 941 or 941E, 
whichever is appropriate, that he uses to report the employment taxes he 
had deposited under Sec.  31.6302(c)-1(a)(1)(i).

                                f. Other

    f-1. Q. If a plan administrator or other payor distributes property 
other than cash to payees, is it permissible to use the value of the 
property as of the last preceding valuation date to determine the amount 
of Federal income tax that must be withheld from each distribution?
    A. Yes. In many situations, the plan administrator or payor will not 
be able to determine the value of property to be distributed as of the 
date of distribution without delaying payment to the payee. In these 
cases, the plan administrator or payor may determine the value of the 
property to be distributed as of the last preceding valuation date prior 
to the date of distribution, as long as the valuation is made at least 
once each year. If the most recent valuation date occurred within the 90 
days immediately preceding the date of

[[Page 449]]

distribution, the next most recent valuation date may be used.
    f-2. Q. How is withholding accomplished if a payee receives only 
property other than employer securities?
    A. A payor or plan administrator must satisfy the obligation to 
withhold on distributions of property other than employer securities 
even if this requires selling all or part of the property and 
distributing the cash remaining after Federal income tax is withheld. 
However, the payor or plan administrator may instead permit the payee to 
remit to the payor or plan administrator sufficient cash to satisfy the 
withholding obligation. Additionally, if a distribution of property 
other than cash includes property that is not includible in a designated 
distribution, such as the distribution of U.S. Savings Bonds or an 
annuity contract, such property need not be sold or redeemed to meet any 
withholding obligation.
    f-3. Q. If a designated distribution includes cash and property 
other than employer securities, is it permissible to satisfy the 
withholding obligation with respect to the entire distribution by using 
the cash distributed, provided the cash distributed is sufficient to 
satisfy the withholding obligation?
    A. Yes, as long as there is sufficient cash to satisfy the 
withholding obligation for the entire distribution. There is no 
requirement that tax be withheld from each type of property in portion 
to its value.
    f-4. Q. If a loan from a qualified plan is treated as a distribution 
under section 72(p), is the amount of the loan subject to withholding 
under section 3405?
    A. Yes. If, and to the extent that, the loan is treated as a 
distribution when made, withholding is accomplished by withholding tax 
from the amount of the loan that is treated as a distribution. Thus, for 
example, if a loan of $12,000 that must be repaid within 5 years is made 
to a common law employee with a vested account balance of $5,000, $2,000 
is treated as a distribution under section 72(p), and the payor or plan 
administrator must withhold tax from the $2,000.
    f-5. Q. Is a loan that is treated as a distribution under section 
72(p) a nonperiodic distribution other than a qualified total 
distribution?
    A. Yes.
    f-6. Q. Must a payor or plan administrator withhold tax on a 
nonperiodic distribution (including a qualified total distribution) if 
the amount of the distribution is less than $200?
    A. No. However, all amounts received within one taxable year of the 
payee from the payor or plan administrator under the same plan or 
arrangement must be aggregated for purposes of determining whether the 
$200 floor is reached. If the payor or plan administrator does not know 
at the time a first payment of $200 or less is made whether there will 
be additional payments during the year for which aggregation is 
required, the payor or plan administrator need not withhold from the 
first payment. If distributions are made within one taxable year under 
more than one plan of an employer, the plan administrator or payor may, 
but need not, aggregate the distributions for purposes of determining 
whether the $200 floor is reached.
    f-7. Q. If a nonperiodic distribution (including a qualified total 
distribution) to a payee will be less than $200, must the payor provide 
notice to the payee of the right to elect not to have withholding apply?
    A. No.
    f-8. Q. How is withholding accomplished if a qualified total 
distribution is paid in installments during one taxable year of the 
payee?
    A. Withholding can be accomplished on a qualified total distribution 
that is paid in installments within one taxable year by either one of 
the following methods:
    Under Option 1, the tax on the first installment is calculated under 
the qualified total distribution table. The tax on each subsequent 
installment is calculated by finding the tax under the table on the 
cumulative amount of the installments for the year and subtracting the 
amount of tax already withheld from the tax due with respect to the 
cumulative amount of the installments.
    Under Option 2, the payor or plan administrator can withhold the tax 
on all installments except the final installment at a 10 percent rate. 
The tax on the final installment may be calculated by finding the tax 
under the

[[Page 450]]

qualified total distribution table on the cumulative amount of the 
installments for the year and subtracting the amount of tax already 
withheld from the installments. Option 2 may be used even if the amount 
of the tax that should be withheld from the final installment under the 
qualified total distribution tables exceeds the amount of the final 
installment. The plan administrator or payor will not be subject to 
penalties under section 6651 with respect to the difference between the 
tax that should have been withheld from the final installment under the 
qualified total distribution tables and the amount of the final 
installment.
    The effect of these alternatives is illustrated by the following 
example:

    An individual receives within one taxable year the balance to his 
credit under a plan described in section 401(a) or 403(a). The balance 
to his credit is paid in three installments of $1,000, $10,000, and 
$60,000. The amount of tax to be withheld from the installments may be 
calculated under Option 1 or Option 2.
    Option 1--Withholding on each installment computed by finding tax 
under qualified total distribution tables on the cumulative amount of 
the distribution and subtracting the tax already withheld.

I.:
  1. Amount of installment 1..................................    $1,000
  2. Withholding obligation on installment 1..................        50
II.:
  1. Amount of installments 1 and 2...........................    11,000
  2. Withholding obligation on installments 1 and 2...........       550
  3. Withholding paid on installment 1........................        50
  4. Withholding obligation on installment 2 (2 minus 3)......       500
III.:
  1. Amount of installments 1, 2, and 3.......................    71,000
  2. Withholding obligation on installments 1, 2, and 3.......     9,580
  3. Withholding paid on installments 1 and 2.................       550
  4. Withholding obligation on installment 3 (2 minus 3)......     9,030
                                                               ---------
   Total withholding obligation...............................     9,580
 

    Option 2--Withholding computed by withholding at 10 percent rate for 
all but the final installment. Withholding on the final installment 
computed by finding tax under qualified total distribution table for the 
cumulative amount of the distribution and subtracting the amount of tax 
already withheld:

I.:
  1. Amount of installment 1..................................    $1,000
  2. Withholding obligation on installment 1..................       100
II.:
  1. Amount of installment 2..................................    10,000
  2. Withholding obligation on installment 2..................     1,000
III.:
  1. Amount of installments 1, 2, and 3.......................    71,000
  2. Withholding obligation on installments 1, 2, and 3.......     9,580
  3. Withholding paid on installments 1 and 2.................     1,100
  4. Withholding obligation on installment 3 (2 minus 3)......     8,480
                                                               ---------
   Total withholding obligation...............................     9,580
 

    f-9. Q. A plan described in section 401 (a) invests in life 
insurance contracts for its participants. Each year the current cost of 
the life insurance element (PS 58 cost) is taxable to the participants 
under section 72. Is withholding required on this amount even though 
there is no amount actually distributed to the participant?
    A. No. Because the PS 58 costs are not distributed or deemed to be 
distributed, they are not designated distributions for which withholding 
is required.
    f-10. Q. The plan administrator or payor of a plan described in 
section 401 (a) has been properly reporting distributions on a multiple 
contract basis for purposes of section 72. How should the plan 
administrator or payor determine the amount of each payment that is 
includible in gross income for withholding purposes?
    A. In the absence of revenue rulings or regulations to the contrary, 
the plan administrator or payor of a plan that properly reports 
distributions on a multiple contract basis should use that method to 
determine the taxable portion of a payment for withholding purposes.
    f-11. Q. The plan administrator or payor of a plan described in 
section 401 (a) has been reporting distributions on a multiple contract 
basis for purposes of section 72 and has properly switched to the single 
contract method for reporting distributions. How should the plan 
administrator or payor determine the amount of each payment that is 
includible in gross income for withholding purposes?
    A. If a plan has properly switched from the multiple contract basis 
to the single contract basis for reporting distributions, the plan 
administrator or payor may assume that all amounts prior to the year of 
switch were reported by the payees on a multiple contract basis. 
Therefore, for example, in the case of an individual whose annuity 
payments have not commenced prior to the date of the switch to a single 
contract basis, the payee's investment in the contract can be assumed to 
have been recovered on a multiple contract basis prior to the year of 
the switch

[[Page 451]]

and on a single contract basis thereafter for purposes of determining 
the amount of each payment that is includible in gross income for 
withholding purposes. This rule applies even though payees may have 
amended their income tax returns for prior years to report all payments 
on a single contract basis.
    f-12. Q. If a plan that makes payments subject to the withholding 
and notice requirements of section 3405 makes separate payments to the 
same individual as a retired participant and as a surviving spouse of a 
retired participant, must the two payments be aggregated for withholding 
purposes?
    A. No, unless the payor wishes to aggregate them.
    f-13. Q. An insurance company makes payments under certain variable 
annuity contracts. The Investment Company Act of 1940 (section 22(e)) 
applies to these variable annuity contracts and requires that the 
insurance company make a pay-out within 7 days after a payee requests a 
withdrawal from his contract. Under these circumstances, how may notice 
be provided to a payee of his right to elect out of withholding for a 
nonperiodic distribution?
    A. In this situation, the insurance company has only seven days in 
which to notify a payee of his right to elect out of withholding. It is 
not feasible for the insurance company to secure an election in writing 
unless the payee supplies the written election at the time he requests a 
withdrawal. Therefore, the notice and election can be provided in the 
following manner: (1) The insurance company may mail a notice to a payee 
on the day the request for withdrawal is received and (2) the notice may 
specify that unless the payee calls the company at a toll-free telephone 
number supplied on the notice within seven days of the date the request 
was received, the company will withhold from the distribution. Notice 
provided in this manner is deemed to satisfy the ``reasonable time'' 
requirement of question d-9. Insurance companies that encounter this 
problem are encouraged to supply an election form to a payee at the time 
an annuity contract is purchased. If a payee supplies an election with 
the request for withdrawal, notice still must be given but the insurance 
company may honor the election received if no other communication is 
received after notice is provided to the payee.
    f-14. Q. If an individual receives periodic payments from two or 
more plans of one member of a controlled group of corporations, separate 
periodic payments from two members of a controlled group of corporations 
out of one plan, or periodic payments from separate plans of two members 
of a controlled group, must the periodic payments be aggregated for 
withholding purposes?
    A. No, unless the plan administrator or payor wishes to aggregate 
the payments. Section 414(b) does not require that plans of a controlled 
group of corporations be aggregated for withholding purposes. The same 
rule applies to a group of trades or businesses under common control or 
an affiliated service group described in section 414 (c) or (m).
    f-15. Q. How is withholding applied to a designated distribution 
from an individual retirement account (IRA) described in section 408(a) 
that is payable upon demand even though payments are scheduled to be 
made over a period certain greater than one year?
    A. Distributions from IRAs that are payable upon demand are not 
periodic payments taxable under section 72 because they do not 
constitute annuity contracts within the meaning of section 408(d)(2). 
Therefore, designated distributions from an IRA that are payable upon 
demand are treated as nonperiodic distributions subject to withholding 
at the 10% rate even if the distributions are paid over a period 
certain.
    f-16. Q. Under the rules of section 72, a portion of certain 
payments that may vary because of investment experience, cost of living 
indices, or similar criteria is treated as not received as an annuity. 
For withholding purposes, must these amounts be treated as nonperiodic 
distributions even though part of each payment is a periodic payment?
    A. No. For withholding purposes, amounts will be considered periodic 
payments even though a portion of each payment is treated as an amount 
not received as an annuity under Sec.  1.72-2(b)(3) of the Income Tax 
Regulations.

[[Page 452]]

    f-17. Q. Is the payor of distributions under a funded nonqualified 
deferred compensation plan that are payable as an annuity and taxable 
under section 72 required to withhold under section 3405?
    A. Yes. Section 31.3401(a)-1(b)(1)(i) of the Employment Tax 
Regulations provides that any amounts received as an annuity and taxable 
under section 72 are excepted from the general definition of wages. 
Therefore, to the extent that section 402(b) requires that distributions 
from nonqualified plans which are received as an annuity are taxable 
under the rules of section 72, section 3405 will apply. See, however, 
question a-18 for the rules relating to distributions from a 
nonqualified deferred compensation plan that are taxable under section 
83. Therefore, whether the payor or plan administrator of a nonqualified 
plan is required to withhold under section 3402 or section 3405 depends 
upon what section of the Code governs the taxation of amounts 
contributed or distributed.
    f-18. Q. Are amounts paid in connection with a partial or complete 
surrender or upon the maturity or endowment of a commercial annuity 
subject to the new withholding rules?
    A. Yes. Amounts paid in connection with a partial or complete 
surrender or upon the maturity or endowment of a commercial annuity are 
subject to the new withholding rules to the extent that they are 
designated distributions. Thus, withholding is required on the complete 
or partial surrender of an annuity, life insurance or endowment contract 
to the extent they are designated distributions.
    f-19. Q. Are amounts paid in connection with a partial surrender of 
a commercial annuity periodic payments?
    A. Generally, no. Unless the amount paid in connection with the 
partial surrender is one of a series of payments payable over a period 
of greater than one year and taxable under section 72 as an amount 
received as an annuity, the amount paid is not a periodic payment.
    f-20. Q. Are amounts paid in connection with a partial or complete 
surrender of an annuity contract subject to the new withholding rules?
    A. Yes. Amounts paid in connection with a partial or complete 
surrender of an annuity contract are subject to the new withholding 
rules to the extent that they are designated distributions.
    f-21. Q. Is it reasonable to believe that amounts distributed in 
connection with a commercial annuity that was acquired on or before 
August 13, 1982, or are otherwise described in section 72(e)(5), which 
are not treated as amounts received as an annuity under section 72, will 
not be includible in the gross income of the recipient?
    A. Generally, yes. Under the rules of section 72(e) prior to the 
passage of TEFRA, amounts not received as an annuity were not taxable 
until the investment in the contract was recovered. Thus, for 
distributions that are not received as an annuity under a commercial 
annuity contract acquired on or before August 13, 1982, it is reasonable 
to believe that amounts distributed are not includible in the payee's 
gross income to the extent they represent unrecovered investment in the 
contract. The special transitional rule of question a-33, available for 
plan administrators, may be used until December 31, 1983, by payors of 
commercial annuities who lack records with regard to the payee's 
unrecovered investment in the contract.
    f-22. Q. For commercial annuity contracts entered into after August 
13, 1982, which are not described in section 72(e)(5), is it reasonable 
to believe that amounts distributed, which are not amounts received as 
an annuity under section 72, are not includible in gross income?
    A. Generally, no. TEFRA amended section 72(e) to provide that 
amounts not received as an annuity will be includible in gross income 
until all earnings or other amounts that are not part of the investment 
in the contract have been distributed. Thus, it is not reasonable to 
believe that amounts distributed in connection with a commercial annuity 
contract entered into after August 13, 1982, are excludible from gross 
income until all earnings or other amounts that are not part of the 
investment in the contract have been distributed. This new rule does not 
apply to distributions from commercial annuities described in section 
72(e)(5). Question f-21 provides the proper rule

[[Page 453]]

with respect to distributions from commercial annuities described in 
section 72(e)(5).
    f-23. Q. Is it reasonable to believe that amounts involved solely in 
connection with an exchange of commercial annuities under section 1035 
of the Code will not be includible in the gross income of the recipient?
    A. Yes. Designated distributions include only amounts that it is 
reasonable to believe are includible in the gross income of the 
recipient. In the case of a commercial annuity exchange under section 
1035 in which no cash or other property is exchanged, it is reasonable 
to believe that no portion is includible in the gross income of a 
recipient. An annuity exchange includes an exchange of annuity, 
endowment, or life insurance contracts issued by a life insurance 
company licensed to do business under the laws of any State. Thus, such 
exchanges are not subject to the withholding rules of section 3405. 
However, see question e-8 concerning recordkeeping requirements with 
respect to the nontaxable exchange of commercial annuity contracts under 
section 1035.
    f-24. Q. Is it reasonable to believe that amounts distributed in 
connection with a surrender of a life insurance or endowment contract, 
or in connection with an exchange of life insurance or endowment 
contracts in which cash or other property is distributed, will not be 
includible in gross income?
    A. Generally, no. Amounts distributed in connection with the 
surrender of a life insurance or endowment contract, or in connection 
with an exchange of life insurance or endowment contracts in which cash 
or other property is distributed are includible in income to the extent 
that the amount received exceeds the policyholder's investment in the 
contract. However, if a life insurance or endowment contract issued 
before August 13, 1982, is surrendered within ten years of the date of 
its issuance, or is exchanged within ten years of the date of its 
issuance, the payor may assume that no amounts are includible in the 
gross income of the policyholder if the cash or other property received 
by the policyholder in connection with the surrender or exchange of the 
life insurance or endowment contract does not exceed $10,000. If a life 
insurance or endowment contract issued before August 13, 1982, is 
surrendered or exchanged ten years or more after the date of its 
issuance, the payor may assume that no amounts are includible in the 
gross income of the policyholder if the cash or other property received 
by the policyholder in connection with the surrender or exchange of the 
life insurance or endowment contract does not exceed $5,000. If the 
payor utilizes the special rule in the two preceding sentences, the 
payor must notify the policyholder, at the time described in question d-
4, that all or part of the amount distributed may be includible in the 
policyholder's gross income. See question f-23 for additional rules 
concerning certain exchanges of annuity contracts.
    f-25. Q. Do the requirements of section 3405(d)(10), relating to the 
time at which notice must be provided, also apply to the time at which 
an election out of withholding may be made?
    A. Generally, yes. For example, an individual may not at 
commencement of employment execute an election out of withholding to be 
honored by a plan administrator or payor when the individual terminates 
employment and receives a distribution from a deferred compensation 
plan. See, however, question f-13 for a special rule applicable to 
certain annuity contracts.
    f-26. Q. If a payor provided notice prior to January 1, 1983, but 
failed to include all of the information required by question d-18, may 
the abbreviated notice of question d-27 be supplied when making the 
first payment?
    A. Yes, as long as the abbreviated notice contains all of the 
information required by question d-18 that was not supplied with the 
earlier notice.
    f-27. Q. When must notice of the right to elect not to have 
withholding apply be given as to designated distributions from an 
individual retirement account (IRA) described in section 408(a) that is 
payable on demand even though payments are scheduled to be made over a 
period greater than one year?
    A. Under question f-15, designated distributions from an IRA that 
are payable upon demand are treated as nonperiodic distributions subject 
to withholding at the 10 percent rate even

[[Page 454]]

if the distributions are paid over a certain period. Section 
3405(d)(10)(B)(i) requires the payor of a nonperiodic distribution to 
transmit to the payee notice, at the time of the distribution or at such 
earlier time as may be provided in regulations, of the right to elect 
not to have withholding apply. If distributions from an IRA have begun 
and are scheduled to be made at quarterly or more frequent intervals, 
then, in lieu of providing a notice at the time of each distribution, 
the payor may furnish a blanket notice applicable to all such 
distributions that are expected to be made to the payee from the account 
during a calendar year. Such a blanket notice must be furnished at a 
reasonable time before the first payment made in the calendar year to 
which the notice relates, except that a blanket notice relating to 
distributions from an IRA during 1983 may be made by the later of 
October 1, 1983, or the date of the first designated distribution from 
the IRA.

                           g. Delay Procedures

    g-1. Q. When does the new law take effect?
    A. In general, withholding is required on any designated 
distributions made after December 31, 1982.
    g-2. Q. Is there a penalty for failure to withhold under section 
3405 on designated distributions made after December 31, 1982?
    A. Yes. In general, section 6651 governs the failure to file a 
return and to withhold tax under section 3405.
    g-3. Q. Are there any circumstances under which the withholding and 
notice requirements of section 3405 may be delayed to a date later than 
January 1, 1983?
    A. Yes. The Secretary has authority to delay, but not beyond June 
30, 1983, the application of these withholding provisions to any payor 
or plan administrator if the payor or plan administrator can establish 
that he is unable to comply with these provisions without undue 
hardship.
    g-4. Q. Under what circumstances may a payor or plan administrator 
who is experiencing undue hardship in complying with section 3405 delay 
implementation of the notice and withholding requirements?
    A. For those payors and plan administrators who experience undue 
hardship in complying with the provisions of section 3405, the 
withholding and notice requirements of section 3405 may be delayed so 
long as undue hardship exists up to July 1, 1983.
    g-5. Q. Must approval be obtained from the Internal Revenue Service 
to be entitled to the delay referred to in question g-4 if the delay 
will be no later than April 1, 1983?
    A. No. If a payor or plan administrator can establish that undue 
hardship would result if required to comply with the provisions of this 
section before April 1, 1983, prior approval from the Internal Revenue 
Service is not required and should not be requested. For purposes of 
this delay up to April 1, 1983, undue hardship will be presumed to 
exist, in the absence of bad faith, as long as the payor or plan 
administrator can establish that at least one of the conditions listed 
in question g-6 is present. The payor or plan administrator should 
prepare and retain a statement of undue hardship as described in 
question g-9 and should maintain any documents necessary to support the 
representations made in that statement.
    g-6. Q. What constitutes undue hardship?
    A. For purposes of these delay procedures, the term ``undue 
hardship'' generally means more than an inconvenience or increased costs 
to the payor or plan administrator. In the case of a payor or plan 
administrator who complies with the notice and withholding requirements 
of section 3405 on or before April 1, 1983, undue hardship will be 
presumed to exist if one or more of the following conditions is present:
    (1) The payor or plan administrator encounters significant delay or 
other substantial difficulty in obtaining authorization for funds to 
develop forms, to mail notices, to process responses, to develop new 
computer programs, or to obtain and train personnel to implement 
withholding.
    (2) The payor or plan administrator incurs substantial increases in 
unbudgeted costs to develop forms, to mail notices, to process 
responses, to develop new computer programs, or to obtain and train 
personnel.

[[Page 455]]

    (3) There is difficulty in obtaining trained personnel, including 
professional or semi-professional individuals, whose skills are 
necessary to implement withholding.
    (4) Training new or present employees or hiring new employees to 
implement withholding would cause substantially increased costs or would 
disrupt the payor's or plan administrator's operations, and such 
disruption or increased costs would not occur if withholding were 
implemented at a later date.
    (5) Plan benefits change due to a collective bargaining agreement 
concluded between October 1, 1982, and April 1, 1983.
    (6) A payor who provided notice prior to January 1, 1983, receives a 
substantial number of inquiries from payees. These inquiries indicate 
the payees' lack of understanding of the new withholding provisions and 
the payor cannot answer all questions and receive responses by January 
1, 1983.
    (7) The payor or plan administrator is unable to implement 
withholding on account of the occurrence of an event, such as fire, 
flood, earthquake, explosion, or strike, beyond the control of the payor 
or plan administrator.
    (8) The payor or plan administrator is scheduled to install a new 
data processing hardware package or system between December 1, 1982, and 
July 1, 1983, that will be used for the process of pension withholding.
    An examble of a circumstance not considered as resulting in undue 
hardship would be changes in the withholding tables effective July 1, 
1983.
    The following examples illustrate situations in which an undue 
hardship that will permit delay in implementation of the notice and 
withholding provisions exists:

    Example 1. A is the payor and plan administrator of a deferred 
compensation plan that is the subject of a collective bargaining 
agreement. The collectively bargained plan has fewer than 100 
participants receiving annuity payments. All of A's available budget is 
scheduled to be used to pay plan benefits and administrative costs, and 
no funds are available to implement the new withholding requirements. A 
must obtain authorization to expend funds to implement withholding. 
Meetings at which A can obtain such authorization are held August 1 and 
February 1 of each year. After obtaining authorization on February 1, 
1983, A will need to develop and mail withholding notices and elections, 
process responses and determine the amount to be withheld from each 
payee's annuity payment. A can implement withholding on April 1, 1983, 
without substantially disrupting its operations, but earlier 
implementation would disrupt its normal operations. Under these facts, A 
experiences undue hardship until at least April 1, 1983, as a result of 
the circumstances described in items (1) and (4) of question g-6.
    Example 2. B, a bank, is a payor of pensions and annuities under 
plans described in section 401(a). The plan administrators of all these 
plans have transferred liability to B for withholding under section 
3405. After T.D. 7839, relating to withholding from pensions, annuities 
and other deferred income, was published in the Federal Register on 
October 14, 1982, B determines that the withholding provisions can be 
implemented before April 1, 1983, on a reasonaable schedule, without 
substantial increases in costs or disruption of daily bank operations, 
according to the following schedule:
    (a) B's counsel analyzes regulations and reports requirements to 
operations personnel; operations personnel develop new Forms, which are 
reviewed and revised by management and legal personnel; new forms are 
printed; personnel begin reprogramming computers, 8 weeks (Dec 9, 1982).
    (b) Forms distributed to branch offices, 1 week (Dec 16, 1982).
    (c) Forms mailed to payees, 1 week (Dec 23, 1982).
    (d) Time allowed for response to mailing of notices, answering 
questions, mailing follow-up notices to payees, 6 weeks (Feb 3, 1983).
    (e) Withholding calculated and entered into payment system, 6 weeks 
(Mar 17, 1983).
    Total: 22 weeks.
    Implementation is scheduled to begin March 17, 1983. Implementation 
prior to March 17, 1983, would substantially increase costs and would 
disrupt B's operations.
    Under these facts, B experiences undue hardship under item (4) of 
question g-6, up to March 17, 1983, the scheduled date of 
implementation.

    g-7. Q. If a payor or plan administrator qualifies for the delay 
described in question g-5, is there a procedure for requesting an 
additional delay up to July 1, 1983?
    A. Yes. However, any request made for this additional delay will be 
considered on a case-by-case basis. It is anticipated these requests 
will be carefully scrutinized and generally will be granted only in 
circumstances where the payor or plan administrator can reasonably 
expect that more than one of the conditions described in question

[[Page 456]]

g-6 will exist on or after April 1, 1983, and up to July 1, 1983.
    g-8. Q. How may a payor or plan administrator request this 
additional delay of up to 3 months for undue hardship?
    A. The payor or plan administrator may request an additional delay 
of up to 3 months by filing in duplicate a written statement of undue 
hardship signed under penalties of perjury with the director of the 
service center where the payor or plan administrator files Form 941 or 
Form 941E. This written request must state on the envelope and at the 
top of the letter ``PENSION WITHHOLDING: Undue Hardship'' and must 
include all the information required in a statement of undue hardship as 
described in question g-9.
    g-9. Q. What information must the statement of undue hardship 
include?
    A. The statement of undue hardship must include the following 
information:
    (1) The name, address, and taxpayer indentification number of the 
payor or plan administrator.
    (2) A complete statement of the facts upon which the payor is 
relying to show why a delay beyond April 1, 1983, is warranted. This 
statement must include as many of the conditions of undue hardship 
listed in question g-6 as pertain to the payor or plan administrator.
    (3) A schedule or plan of implementation showing dates on which the 
payor will implement the provisions of this section, with no date later 
than July 1, 1983. This schedule should provide a complete timetable 
that includes such items as development of forms, mailing of notices, 
time for responses, programming computers, and calculation of 
withholding.
    (4) An explanation of the steps taken which demonstrate the payor's 
or plan administrator's good faith attempt to comply with these notice 
and withholding requirements.
    g-10. Q. When must the plan administrator or payor file this request 
for delay and statement of undue hardship?
    A. Payors or plan administrators must file the statement of undue 
hardship on or before March 1, 1983. However, no request for delay may 
be filed with the Internal Revenue Service before January 1, 1983.
    g-11. Q. Who must request the delay?
    A. The delay should be requested by the payor or plan administrator 
who is actually liable for withholding. Therefore, generally the payor 
should request the delay. However, in the case of a distribution from a 
plan described in section 401(a), section 403(a), or section 301(d) of 
the Tax Reduction Act of 1975, the plan administrator is liable for 
withholding and should request the delay unless the plan administrator 
has transferred liability for withholding to the payor under section 
3405(c).
    g-12. Q. If a plan administrator has not yet transferred liability 
for withholding under section 3405(c) or has inadequately transferred 
liability, and the payor requests a delay, will the request for delay be 
treated as if the plan administrator had requested it?
    A. Yes.
    g-13. Q. If a plan administrator and a payor both file requests for 
delay and statements of undue hardship with respect to the same plan, 
will there be two separate three-month extensions?
    A. No. A request for delay will delay the effective date only up to 
three months and in no case will it extend it past July 1, 1983.
    g-14. Q. What are the consequences for failure to file the request 
for delay and statement of undue hardship in a timely manner?
    A. If the request for delay and statement of undue hardship are not 
filed in a timely manner, the payor or plan administrator will not be 
entitled to any delay beyond the delay to which he may be entitled under 
question g-5. This rule will not apply in the case of an event such as 
strike, fire, flood, earthquake, or explosion that occurs after March 1, 
1983, if compliance with the withholding provisions would have been 
possible absent the occurrence of the event.
    g-15. Q. Will a payor or plan administrator receive a response from 
the Internal Revenue Service as to whether a delay after April 1, 1983, 
has been granted?
    A. Yes. Since these requests for delay will be reviewed on a case-
by-case basis, the payor or plan administrator will receive a response 
by April 1, 1983, as to whether or not a requested delay has been 
granted. If the request for

[[Page 457]]

delay is denied by the director of the service center, the payor or plan 
administrator is required to begin withholding by the later of April 1, 
1983, or 10 days from the date on the response. No penalties will be 
imposed under section 6651 for failure to withhold between April 1, 
1983, and the day 10 days from the date on the response.
    g-16. Q. If the director of the service center grants a delay up to 
July 1, 1983, must the payor or plan administrator retain a copy of the 
response from the Internal Revenue Service?
    A. Yes. In addition, the payor or plan administrator must attach a 
copy of the response to the first Form 941 or 941E filed after the 
response is received.
    g-17. Q. If a plan administrator or payor begins withholding before 
April 1, 1983, or July 1, 1983, can the payee request a refund from the 
plan administrator or payor of the amounts withheld?
    A. No. Because plan administrators and payors are required to comply 
with the withholding and notice requirements as soon as they no longer 
experience undue hardship, they cannot refund any amounts withheld to a 
payee, except as provided in the regulations under section 6413 (in the 
case of a mistake by the payor or plan administrator).
    g-18. Q. If a payor or plan administrator properly files the 
statement of undue hardship and receives a delay as provided in question 
g-7, will withholding from payments made after the delay period be 
required to make up for amounts that would have been withheld if there 
had been no delay granted?
    A. No. No catch-up withholding is required for plan administrators 
or payors who are entitled to a delay up to April 1, 1983, as provided 
in question g-5 or granted a delay up to July 1, 1983, as provided in 
question g-7. However, if a payor or plan administrator who is entitled 
to a delay up to April 1, 1983, as provided in question g-5, is not 
granted a delay up to July 1, 1983, but is unable to implement 
withholding until July 1, 1983, despite a good faith effort to comply, 
no penalties will be imposed under section 6651 if the payor or plan 
administrator withholds between July 1, 1983, and December 31, 1983, 
both the amounts required to be withheld during that period and the 
amounts that should have been withheld between April 1, 1983, and June 
30, 1983.
    g-19. Q. If a payor or plan administrator does not receive and is 
not otherwise entitled to a delay under these regulations, will 
withholding from future payments be required to make up for amounts that 
would have been withheld if there had been no delay?
    A. Yes, to the extent possible. An example of a situation in which a 
payor or plan administrator would not be able to withhold enough from 
subsequent payments to satisfy pre-July 1, 1983, withholding obligations 
is one where the recipient of a single life annuity died on July 1, 
1983, before the payor or plan administrator began to withhold income 
tax from the annuity. In addition, a payor or plan administrator would 
not be able to satisfy the pre-July 1, 1983, withholding requirements if 
the payee elects out of withholding before all of the make-up 
withholding has been accomplished.
    g-20. Q. What are the consequences if the payor or plan 
administrator cannot establish undue hardship and does not comply on 
January 1, 1983?
    A. In general, if the payor or plan administrator cannot establish 
undue hardship and fails to withhold beginning January 1, 1983, the 
payor or plan administrator will be liable for the tax that should have 
been withheld and, in addition, the penalties provided in section 6651 
will apply. However, the payor or plan administrator will not be liable 
for penalties for failure to file a return and for failure to pay the 
tax if a good faith effort is made to comply, and if, to the extent 
possible, withholding from post-implementation payments is sufficient to 
satisfy the pre-implementation withholding obligation. Whether the payor 
or plan administrator has made a good faith effort to comply depends on 
the facts and circumstances of each case. The facts and circumstances 
that will be considered include, but are not limited to, those 
conditions listed in question g-6.
    g-21. Q. If a payor or plan administrator is required to make up 
amounts that should have been withheld, must he

[[Page 458]]

withhold from the first subsequent payment the entire amount that should 
have been previously withheld?
    A. No. A payor or plan administrator may withhold a proportional 
amount out of each subsequent payment made before January 1, 1984.
    g-22. Q. Will the notice requirements of section 3405 apply before 
July 1, 1983, with respect to recipients of periodic payments that total 
less than $5400 per year?
    A. No.
    g-23. Q. Will the notice and withholding requirements of section 
3405 apply before July 1, 1983, with respect to payments to nonresident 
alien individuals?
    A. No.
    g-24. Q. Does a payor or plan administrator who requested a delay 
prior to the publication of these procedures in the Federal Register 
need to resubmit the request in light of these procedures?
    A. Yes. In order to be entitled to a delay, payors and plan 
adminstrators must follow the procedures required by these temporary 
regulations.
    g-25. Q. Will the notice and withholding requirements of section 
3405 apply before January 1, 1984, with respect to the exchange or 
complete or partial surrender of a commercial annuity under which the 
recipient had not irrevocably chosen, prior to January 1, 1984, to 
receive payments in the form of an annuity?
    A. In the case of the exchange or complete or partial surrender of a 
commercial annuity under which the recipient had not irrevocably chosen, 
prior to January 1, 1984, to receive payments in the form of an annuity, 
the application of the notice and withholding provisions of this section 
may be delayed, so long as undue hardship exists, up to January 1, 1984. 
Prior approval from the Internal Revenue Service is not required for 
such delay, and should not be requested. For purposes of this delay, 
undue hardship will be presumed to exist, in the absence of bad faith, 
so long as the payor can establish that at least one of the conditions 
in question g-6 is present. The payor should prepare and retain a 
statement of undue hardship as described in question g-9 and should 
maintain any documents necessary to support the representations made in 
that statement.

[T.D. 7839, 47 FR 45868, Oct. 14, 1982; 47 FR 47241, Oct. 25, 1982, as 
amended by T.D. 7858, 47 FR 54066, Dec. 1, 1982; 47 FR 57021, Dec. 22, 
1982; T.D. 7904, 48 FR 35091, Aug. 3, 1983; 48 FR 36449, Aug. 11, 1983. 
Redesignated by T.D. 8873, 65 FR 6007, Feb. 8, 2000, as amended by T.D. 
8952, 66 FR 33832, June 26, 2001; T.D. 9920, 85 FR 61816, Oct. 1, 2020]



PART 35a_TEMPORARY EMPLOYMENT TAX REGULATIONS UNDER THE INTEREST AND
DIVIDEND TAX COMPLIANCE ACT OF 1983--Table of Contents



    Authority: 26 U.S.C. 7805; Sec.  35a.3406-2 also issued under 26 
U.S.C. 3406(c)(3)(D) and 3406(i).



Sec.  35a.3406-2  Imposition of backup withholding for notified payee
underreporting of reportable interest or dividend payments.

    (a) Requirement that a payor backup withhold due to a notified payee 
underreporting--(1) In general. Except as otherwise provided in 
paragraph (a)(5) of this section, backup withholding under section 
3406(a)(1)(C) applies to any reportable interest or dividend payment (as 
defined in section 3406(b)(2) and paragraph (a)(4) of this section) made 
to a payee, if the Internal Revenue Service or a broker (as defined in 
section 3406(h)(5) and paragraph (a)(7) of this section and pursuant to 
section 3406(d)(2)(B)(ii)(III)) notifies a payor (as defined in section 
3406(h)(4) and in paragraph (a)(6) of this section) that the payee is 
subject to backup withholding due to a notified payee underreporting (as 
defined in paragraph (a)(2) of this section). The payor is required 
under section 3406(c)(4) and paragraph (c)(1) of this section to inform 
the payee that backup withholding under section 3406(a)(1)(C) has begun. 
The requirements for the notice that a payor must send to a payee are 
set forth in paragraph (c) (2) and (3) of this section. The period for 
which backup withholding is required due to a notified payee 
underreporting is described in section 3406(e)(3)(A) and in paragraph 
(e) of this section. See section 3406(c)(3) and paragraph (g) of this 
section for the rules regarding how a payee may obtain a determination

[[Page 459]]

from the Internal Revenue Service that withholding under section 
3406(a)(1)(C) be stopped or not started.
    (2) Definition of notified payee underreporting. The term ``notified 
payee underreporting'' means that the Internal Revenue Service has--
    (i) Determined that there was a payee underreporting as defined in 
paragraph (a)(3) of this section,
    (ii) Mailed at least four notices to the payee (over a period of at 
least 120 days) with respect to the underreporting as prescribed in 
paragraph (f)(1) of this section, and
    (iii) Assessed any deficiency attributable to the underreporting in 
the case of any payee who has filed a return.
    (3) Definition of a payee underreporting. The term ``payee 
underreporting'' means that the Internal Revenue Service has determined, 
for a taxable year, that--
    (i) A payee failed to include in his return of tax under chapter 1 
of the Internal Revenue Code for such year any portion of a reportable 
interest or dividend payment required to be shown on such tax return, or
    (ii) A payee may be required to file a return for such year and to 
include a reportable interest or dividend payment in such return, but 
failed to file such return.


See paragraph (a)(5) of this section for certain payments to be taken 
into account in determining whether there is payee underreporting even 
though those payments may not be defined as reportable interest or 
dividend payments in paragraph (a)(4) of this section or even though 
backup withholding under section 3406(a)(1)(C) may not apply to such 
payments.
    (4) Definition of a reportable interest or dividend payment--(i) In 
general. See section 3406(b)(2), A-2 of Sec.  35a.9999-1, A-5 of Sec.  
35a.9999-3, and A-15 of Sec.  35a.9999-2 for the definition of 
reportable interest or dividend payment.
    (ii) Exceptions--(A) Patronage dividends. Patronage dividends are 
treated as reportable interest or dividend payments for purposes of 
backup withholding under section 3406(a)(1)(C) only if 50 percent or 
more of the reportable amount is paid in money or by qualified check (as 
defined in section 1388(c)(4)), and then only to the extent that the 
payment is in money or by qualified check. See the second paragraph in 
A-10 of Sec.  35a.9999-3 for an example of how this rule applies.
    (B) Window payments. Pursuant to section 3406(b)(7), window payments 
as defined in A-42 of Sec.  35a.9999-1 and A-9 of Sec.  35a.9999-2 are 
not treated as reportable interest or dividend payments for purposes of 
backup withholding under section 3406(a) (1)(C).
    (5) Reportable interest or dividend payments excluded from backup 
withholding. The following reportable interest or dividend payments are 
not subject to backup withholding:
    (i) Certain dividends. Certain dividend payments as defined in A-9 
of Sec.  35a.9999-3.
    (ii) Minimal payments. Minimal payments as defined in A-19 of Sec.  
36a.9999-2 if the payor elects not to impose backup withholding on such 
amounts.
    (iii) Original issue discount. Original issue discount as defined in 
section 1273, unless there is a payment in cash. See A-15 of Sec.  
35a.9999-2.
    (iv) Payments subject to other withholding. Payments already subject 
to withholding under another provision of the Internal Revenue Code.

Reportable minimal payments (to the extent reported on an information 
return), patronage dividends, original issue discount, and window 
payments shall be taken into account in determining whether 
underreporting (as defined in paragraph (a)(3) of this section) has 
occurred, even though those payments may not be defined as reportable 
interest or dividend payments under paragraph (a)(4) of this section or 
even though backup withholding under section 3406(a)(1)(C) may not apply 
to such payments.
    (6) Definition of payor. See section 3406(h)(4), A-41 of Sec.  
35a.9999-1, and A-1 of Sec.  35a.9999-3 for the definition of payor. The 
term payor includes a broker who holds an instrument in street name.
    (7) Definition of broker. See section 3406(h)(5) for the definition 
of broker.
    (b) Notice to payors and brokers regarding backup withholding--(1) 
Notice from the Internal Revenue Service. The Internal Revenue Service 
will notify--

[[Page 460]]

    (i) Payors to begin backup withholding on reportable interest or 
dividend payments due to a notified payee underreporting pursuant to 
section 3406(a)(1)(C); and
    (ii) Brokers pursuant to section 3406(c)(5) that a payee is subject 
to backup withholding under section 3406(a)(1)(C).
    (2) Notice from a broker. A broker who receives a notice from the 
Internal Revenue Service that a payee is subject to backup withholding 
due to a notified payee underreporting and through whom the payee 
subsequently acquires a readily tradable instrument (as defined in 
section 3406(h)(6)) with respect to which the broker is not the payor is 
required to notify the payor of that instrument that the payee is 
subject to backup withholding under section 3406(a)(1)(C) in the time 
and manner provided in A-41 of Sec.  35a.9999-1.
    (3) Accounts subject to backup withholding. (i) In general. After 
receiving notice from the Internal Revenue Service or from a broker, as 
provided in section 3406(d)(2)(B) and paragraphs (b) (1)(i) and (2) of 
this section, that a payee is subject to backup withholding under 
section 3406(a)(1)(C), payors are required to withhold 20 percent of all 
reportable interest or dividend payments subject to backup withholding 
made with respect to all accounts of the payee.
    (ii) Joint accounts. Payors are required to withhold on joint 
accounts if the payee subject to backup withholding under section 
3406(a)(1)(C) is the first person listed on the account at the time the 
payor receives the notice to begin backup withholding. Backup 
withholding shall continue to apply to reportable interest and dividend 
payments made to that account even if the order of the names on the 
account is subsequently changed, provided that the name of the payee 
subject to backup withholding remains on the account.
    (iii) Exception. Payors are not requied to withhold on reportable 
interest or dividend payments made with respect to an account of the 
payee that could not be located with reasonable care. The payor will be 
considered to have exercised reasonable care if the payor uses the name 
and taxpayer identification number (or names and taxpayer identification 
numbers if a joint return was filed by the payees) provided on the 
notice from the Internal Revenue Service or from a broker as prescribed 
in paragraphs (b) (1)(i) and (2) of this section and in certain 
circumstances identified in this paragraph (b)(3)(iii) any account 
numbers provided by the Internal Revenue Service in locating all 
accounts of a payee or payees. If a payee uses a different name on an 
account than the name stated on the notice from the Internal Revenue 
Service or from a broker (for instance, due to marriage or adoption) and 
the payor can associate both names with the payee using records kept in 
the ordinary course of business, the payor will be treated as exercising 
reasonable care if the payor uses both names to locate accounts of the 
payee. If the taxpayer identification number is not provided to the 
payor or broker by the Internal Revenue Service, or if the taxpayer 
identification number provided by the Internal Revenue Service does not 
match the taxpayer identification number of the payee on the records 
that the payor or broker maintains in the ordinary course of business, 
the payor or broker is required to use any account numbers provided by 
the Internal Revenue Service to identify the payee and the payee's 
taxpayer identification number. This information must be used by the 
payor to locate other accounts of the payee and by the broker to locate 
the payors with respect to whom the payee subsequently acquires a 
readily tradable instrument through that broker.
    (c) Notice from payors of backup withholding due to a payee 
underreporting--(1) In general. A payor is required under section 
3406(c)(4) to notify the payee in accordance with paragraph (c)(2) of 
this section that backup withholding has begun because of a notified 
payee underreporting. Payors who are notified by a broker that a payee 
is subject to backup withholding under section 3406(a)(1)(C) are also 
required to send the notice in accordance with paragraph (c)(2) of this 
section. As a result, the notice requirements provided in A-39 of Sec.  
35a.9999-1 and in the appendix to Sec.  35a.9999-2 shall not apply to 
those payors notified by a broker that a

[[Page 461]]

payee is subject to backup withholding under section 3406(a)(1)(C). The 
payor must send the notice required by paragraph (c)(2) of this section 
to the payee no later than 15 days after the date that the payor makes 
the first payment subject to backup withholding under section 
3406(a)(1)(C). The payor must send the notice of backup withholding by 
first-class mail to the payee at his last known address. Rules similar 
to the rules in A-17, A-18, A-19, and A-20 of Sec.  35a.9999-1 shall 
apply to the requirement to provide notice by first-class mail.
    (2) Form of the notice to the payee with respect to notified payee 
underreporting. The notice to the payee required by paragraph (c)(1) of 
this section must state--
    (i) That the Internal Revenue Service has given notice that the 
payee has underreported reportable interest or dividends;
    (ii) That, as a result of such underreporting, the payor is required 
under section 3406(a)(1)(C) of the Internal Revenue Code to withhold 20 
percent of reportable interest and dividend payments made to the payee 
no later than the close of the day 30 days after the date that the payor 
received the notice;
    (iii) The date that the payor received the notice to begin backup 
withholding under 3406(a)(1)(C);
    (iv) That the payee must obtain a determination from the Internal 
Revenue Service in order to stop the backup withholding under section 
3406(a)(1)(C); and
    (v) That while he is subject to backup withholding due to payee 
underreporting, the payee may not certify to a payor making reportable 
interest or dividend payments (or to a broker acquiring a readily 
tradable instrument for the payee) that he is not subject to backup 
withholding under section 3406(a)(1)(C). See section 3406(a)(1)(D) for 
the backup withholding rules with respect to a payee's failure to make 
the certification under section 3406(a)(1)(D).
    (3) Exceptions. A notice provided to a payee on or before April 23, 
1987, will be deemed to satisfy the provisions of paragraph (c)(2) of 
this section if it informs the payee that the payor has been instructed 
by the Internal Revenue Service to start backup withholding on 
reportable interest or dividend payments to the payee. If a payor who 
has started backup withholding due to notified payee underreporting on 
or before April 23, 1987, has not provided adequate notice to the payee 
on or before April 23, 1987, then the payor must provide notice to the 
payee in the manner prescribed in paragraph (c)(2) of this section by 
the date that is 45 days after April 23, 1987.
    (d) Notice to stop backup withholding--(1) In general. The Internal 
Revenue Service will provide written certification to the payee that 
backup withholding is to stop and will notify the payors who were 
contacted pursuant to paragraph (b) of this section to stop withholding 
after the Internal Revenue Service makes a determination under paragraph 
(g) of this section that backup withholding with respect to a payee 
should stop. The Internal Revenue Service will also notify the brokers 
who were contacted pursuant to paragraph (b) of this section that the 
payee is no longer subject to backup withholding under section 
3406(a)(1)(C) and that the brokers are no longer obligated to provide 
notices to payors under paragraph (b)(2) of this section. A broker who 
receives certification under this section from the Internal Revenue 
Service is not required to provide the certification to any payors to 
which the broker has previously provided the notice required under 
paragraph (b)(2).
    (2) Date notice to stop withholding will be provided--(i) 
Underreporting corrected or bona fide dispute. If the Internal Revenue 
Service makes a determination as set forth in paragraph (g)(1) (ii) or 
(iv) of this section during the 12-month period ending on October 15, of 
any calendar year, the Internal Revenue Service will provide the 
certification or notice required by paragraph (d)(1) of this section no 
later than December 1 of such calendar year.
    (ii) No underreporting or undue hardship. If the Internal Revenue 
Service makes a determination as set forth in paragraph (g)(1) (i) or 
(iii), the Internal Revenue Service will provide the notices required by 
paragraph (d)(1) of this paragraph no later than the 45th

[[Page 462]]

day after the day on which the Internal Revenue Service makes its 
determination.
    (e) Period during which withholding is required--(1) In general. 
Upon receiving notice from the Internal Revenue Service after April 23, 
1987, to begin backup withholding under section 3406(a)(1)(C) or 
notification from a broker stating that the payee is subject to backup 
withholding under section 3406(a)(1)(C), the payor must impose backup 
withholding on all reportable interest and dividend payments made to the 
payee during the period beginning after the close of the 30th day after 
the day on which the payor receives the notice provided in paragraph (b) 
(1)(i) or (2) of this section and ending as of the close of the day 
before the stop date (as described in paragraph (e)(2) of this section). 
Pursuant to section 3406(e)(5)(C), the payor may elect to begin backup 
withholding at any time during the 30-day period described in this 
paragraph.
    (2) Stop date--(i) Underreporting corrected or bona fide dispute. In 
the case of a determination that the underreporting has been corrected 
or that a bona fide dispute exists (as defined in paragraphs (g)(1)(ii) 
or (iv) of this section), the stop date is--
    (A) January 1 following the 12-month period ending on October 15th 
of any calendar year in which the determination has been made or, if 
later,
    (B) The day that is 30 days after the earlier of--
    (1) The date on which the payor receives written notification from 
the Internal Revenue Service (under paragraph (d)(2) of this section) 
that withholding is to stop; or
    (2) The date on which the payor receives a copy of the written 
certification provided to the payee by the Internal Revenue Service that 
withholding is to stop.
    (ii) No underreporting or undue hardship. In the case of a 
determination that no payee underreporting occurred or that an undue 
hardship exists or could exist (as defined in paragraph (g)(1)(i) or 
(iii) of this section), the stop date is that date specified in 
paragraph (e)(2)(i)(B) of this section.
    (iii) Payor election to shorten or eliminate grace period. The payor 
with respect to any payee may elect to determine the stop date without 
regard to the grace period provided in section 3406(e)(5)(B) (i.e., 
without regard to the words ``the day that is 30 days after'' in 
paragraph (e)(2)(i)(B) of this section) or by substituting a shorter 
grace period.
    (iv) Examples. The provisions of paragraph (e)(2)(i) may be 
illustrated by the following examples:

    Example 1. The Internal Revenue Service makes a determination by 
October 15, 1987, that any underreporting with respect to A has been 
corrected. X, a payor who has been notified to backup withhold on 
payments of interest to A due to notified payee underreporting, receives 
written notice from the Internal Revenue Service on December 1, 1987, 
informing X that A is no longer subject to backup withholding under 
section 3406(a)(1)(C) and that X must stop backup withholding as of the 
close of December 31, 1987, or if later, the earlier of the close of the 
day 30 days after receipt of the notice from the Internal Revenue 
Service or receipt of the copy of the written certification provided to 
the payee by the Internal Revenue Service. The stop date, as provided in 
paragraph (e)(2)(i)(A) of this section, is January 1, 1988, and the 
payor must stop backup withholding as of the close of December 31, 1987.
    Example 2. Assume the same facts as in Example 1 except that X, due 
to a change of address or for other reasons, does not receive the notice 
from the Internal Revenue Service to stop backup withholding until 
December 15, 1987. In addition, A does not provide X with a copy of the 
certification that was provided to A by the Internal Revenue Service 
until December 15, 1987. The stop date, as provided in paragraph 
(e)(2)(i)(B) of this section, is January 14, 1988 (30 days after 
December 15, 1987), because that date is later than January 1, 1988. 
However, if a payor elects pursuant to section 3406(e)(5)(C) and 
paragraph (e)(2)(iii) of this section to determine the stop date without 
regard to that 30-day grace period, the stop date is January 1, 1987.
    Example 3. Assume the same facts as in Example 2 except that on 
December 10, 1987 (rather than on December 15, 1987), A provides X with 
a copy of the certification from the Internal Revenue Service. The stop 
date, as provided in paragraph (e)(2)(i)(B) of this section, is January 
9, 1988 (30 days after December 10, 1987), because that date is earlier 
than January 14, 1988 (30 days after the day X received notice from the 
Internal Revenue Service), but later than January 1, 1988.

    (f) Notice to payees from the Internal Revenue Service--(1) Notice 
period. After the Internal Revenue Service determines that a payee 
underreporting exists as defined in paragraph (a)(3) of

[[Page 463]]

this section, the Internal Revenue Service, pursuant to section 
3406(c)(1)(B), will mail to the payee at least four notices over a 
period of at least 120 days (hereafter referred to as the ``notice 
period'') before payors and brokers will be notified that the payee is 
subject to backup withholding due to a notified payee underreporting as 
provided in paragraph (b)(1) of this section. The notices may be 
incorporated with other notices provided to the payee by the Internal 
Revenue Service.
    (2) Payee subject to withholding. After the Internal Revenue Service 
provides the notices described in paragraph (f)(1) of this section, the 
Internal Revenue Service will send the notices required by paragraph (b) 
of this section unless--
    (i) A payee obtains a determination under paragraph (g) of this 
section, or
    (ii) In the case of a payee who has filed a tax return, the Internal 
Revenue Service has not assessed the deficiency attributable to the 
underreporting.
    (3) Disclosure of names of payors and brokers. The Internal Revenue 
Service pursuant to section 3406(c)(5) may require a payee subject to 
backup withholding due to a notified payee underreporting to disclose 
the names of all of his payors of reportable interest or dividend 
payments and the names of all of the brokers with whom the payee has 
accounts which may involve reportable interest or dividend payments. To 
the extent required in the request from the Internal Revenue Service, 
the payee shall also provide his account numbers and other information 
necessary to identify the payee's accounts.
    (4) Backup withholding certification. Once a payee receives a final 
notice from the Internal Revenue Service notifying him that his 
reportable interest or dividend payments are subject to backup 
withholding due to notified payee underreporting under section 
3406(a)(1)(C), the payee shall not certify to any payor or broker, under 
penalties of perjury, that he is not subject to backup withholding under 
section 3406(a)(1)(C). See paragraph (k)(2) of this section for the 
penalties that will apply to a payee who makes a false certification. 
The payee may not make the certification until the payee receives the 
certification provided in paragraph (d)(1) of this section from the 
Internal Revenue Service advising the payee that he is no longer subject 
to backup withholding under section 3406(a)(1)(C) (as provided in A-33 
of Sec.  35a.9999-1). See A-37 of Sec.  35a.9999-1 for the rule 
applicable to a payor who makes reportable interest or dividend payments 
to a payee who fails to certify that he is not subject to backup 
withholding due to notified payee underreporting.
    (g) Determination by the Internal Revenue Service that backup 
withholding should not start or should be stopped--(1) In general. A 
payee may prevent backup withholding from starting or stop it once it 
has started if, for the taxable year with respect to which there is a 
notified payee underreporting and any other taxable payee--
    (i) Shows that there was no payee underreporting (as provided in 
paragraph (g)(2) of this section);
    (ii) Corrects any payee underreporting (as provided in paragraph 
(g)(3) of this section);
    (iii) Shows that backup withholding will cause or is causing an 
undue hardship (as defined in paragraph (g)(4) of this section) and that 
it is unlikely that the payee will underreport interest or dividend 
payments again; or
    (iv) Shows that a bona fide dispute exists as to whether any 
underreporting has occurred (as provided in paragraph (g)(5) of this 
section).
    (2) No underreporting. A payee may show that no underreporting of 
interest or dividends exists by presenting receipts or other 
satisfactory documentation to the Internal Revenue Service showing that 
all taxes relating to such payments were reported and paid timely or 
evidence showing that the payee did not have to file a return for the 
taxable year in question or that the underreporting determination is 
based upon a factual, clerical, or other mistake.
    (3) Correcting any payee underreporting--(i) Before issuance of a 
statutory notice of deficiency. Before a statutory notice of deficiency 
is issued to a payee pursuant to section 6212, the payee may correct 
underreporting by

[[Page 464]]

filing a return if one was not previously filed and paying taxes, 
penalties, and interest due with respect to any underreported interest 
or dividend payments.
    (ii) After issuance of a statutory notice of deficiency. After a 
statutory notice of deficiency is issued to a payee, the payee may 
correct underreporting at any time by filing a return if one was not 
previously filed and paying the entire deficiency and any other taxes 
including penalties and interest attributable to any payee 
underreporting of interest or dividend payments. Thus, for example, a 
payee may correct underreporting after assessment of a deficiency by 
paying the entire assessment with respect to that deficiency and any 
other taxes including penalties and interest attributable to any payee 
underreporting of interest or dividend payments for other taxable years.
    (4) Undue hardship. A determination of undue hardship will be based 
on the overall impact to the payee of having 20 percent of reportable 
interest and dividend payments withheld. Factors that will be considered 
in determining whether backup withholding causes undue hardship include, 
but are not limited to, the following:
    (i) Whether estimated tax payments, and other credits for current 
tax liabilities, or amounts withheld on employee wages or pensions, in 
addition to backup withholding, would cause significant over-
withholding;
    (ii) The payee's health, including the payee's ability to pay 
foreseeable medical expenses;
    (iii) The extent of the payee's reliance on interest and dividend 
payments to meet necessary living expenses and the existence, if any, of 
other sources of income;
    (iv) Whether other income of the payee is limited or fixed (e.g., 
social security, pension, and unearned income);
    (v) The payee's ability to sell or liquidate stocks, bonds, bank 
accounts, trust accounts, or other assets, and the consequences of doing 
so;
    (vi) Whether the payee reported and timely paid the most recent 
year's tax liability, including interest and dividend income; and
    (vii) Whether the payee has filed a bankruptcy petition with the 
United States Bankruptcy Court.

In addition to the above factors, the Internal Revenue Service must 
conclude that it is unlikely that any payee underreporting will occur 
again.
    (5) Bona fide dispute. The Internal Revenue Service may make a 
determination under this paragraph if there is a dispute between the 
payee and the Internal Revenue Service on a question of fact or law that 
is material to a determination under paragraph (g)(1)(i) and, based upon 
all the facts and circumstances, the Internal Revenue Service finds that 
the dispute is asserted in good faith by the payee and there is a 
reasonable basis for the payee's position. See the example provided in 
paragraph (j)(2)(ii) of this section for an illustration of this 
provision.
    (h) Requests for determinations--(1) In general. A payee may request 
a determination under one or more of the provisions of paragraph (g) of 
this section. Following its review of a request for a determination 
under paragraph (g) of this section, the Internal Revenue Service will 
either provide the payee with a written certification as prescribed in 
paragraph (d) of this section if the evidence presented warrants the 
requested determination or will provide the payee with a written notice 
informing him that a determination was not made.
    (2) Determinations made during the notice period. In general, if a 
determination is made during the notice period as defined in paragraph 
(f)(1) of this section, then the payee will not be subject to backup 
withholding due to a notified payee underreporting with respect to any 
taxable year for which a determination was made.
    (3) Determinations made after the notice period. If a determination 
is made after the notice period, as defined in paragraph (f)(1) of this 
section, the Internal Revenue Service will provide a notice to payors 
and brokers, and a certification to the payee as provided in paragraph 
(d)(1) of this section.
    (i) [Reserved]
    (j) Payees filing a joint return--(1) In general. For purposes of 
section 3406(a)(1)(C), if payee underreporting is found to exist with 
respect to a joint

[[Page 465]]

return filed by a husband and wife, then the provisions of this section 
shall apply to the payees collectively. As a result, both payees will be 
subject to backup withholding on accounts in their individual names as 
well as accounts in their joint names. Either or both payees may satisfy 
the criteria for a determination that no payee underreporting exists, 
that the underreporting has been corrected, or that a bona fide dispute 
exists (as provided in paragraphs (g)(1) (i), (ii), or (iv) of this 
section). Both payees, however, must satisfy the criteria for a 
determination that backup withholding will cause or is causing undue 
hardship (as provided in paragraph (g)(1)(iii) of this section).
    (2) Exceptions--(i) Innocent spouse. A spouse who files a joint 
return may obtain a determination that withholding should stop or not 
start with respect to payments made to his or her individual accounts, 
if the spouse--
    (A) Shows that he or she did not underreport income because he or 
she is an innocent spouse as described in section 6013(e), or
    (B) Shows that there is a bona fide dispute as to whether he or she 
is an innocent spouse and hence did not underreport income.
    (ii) Example. The provisions of paragraph (j)(2)(i) may be 
illustrated by the following example:

    Example. H and W filed a joint return in 1986 on which H failed to 
include $2,000 of interest income. In 1987, the Internal Revenue Service 
determined that a payee underreporting exists with respect to H and W 
for the 1986 tax year. After properly notifying H and W of the 
underreporting and assessing the tax, the Internal Revenue Service sent 
notices to payors to begin backup withholding on the joint and 
individual accounts of H and W and to brokers informing them that H and 
W are subject to backup withholding under section 3406(a)(1)(C) on their 
joint and individual accounts. W claims that she is an innocent spouse 
and requests a determination that she did not underreport interest or 
dividend income so that her individual accounts will not be subject to 
backup withholding.
    The Internal Revenue Service questions her status as an innocent 
spouse. If the Internal Revenue Service determines, based upon all the 
facts and circumstances, that there is a reasonable basis for W's claim 
to be an innocent spouse and that the claim is made in good faith, W 
will have a bona fide dispute with the Internal Revenue Service. 
Consequently, the individual accounts of W will not be subject to 
further backup withholding due to a notified payee underreporting as 
provided in paragraph (g)(5) of this section.
    The Internal Revenue Service will notify payors to stop backup 
withholding under section 3406(a)(1)(C) and brokers that W is no longer 
subject to backup withholding under section 3406(a)(1)(C) on W's 
individual accounts. Backup withholding will not restart on those 
accounts unless the Internal Revenue Service ultimately determines that 
W is not an innocent spouse. In that event the Internal Revenue Service 
will notify the payors to start backup withholding under section 
3406(a)(1)(C) and the brokers that W is subject to backup withholding 
under section 3406(a)(1)(C) with respect to the individual accounts of 
W.

    (iii) Divorced or legally separated payee. A payee who, at the time 
of the request for a determination under paragraph (g) of this section, 
is divorced or legally separated under state law may obtain a 
determination that undue hardship exists (or would exist) under 
paragraph (g)(1)(iii) of this section with respect to reportable 
interest and dividend payments made to his or her individual accounts if 
the divorced or legally separated payee satisfies the criteria for a 
determination under paragraph (g)(4) of this section.
    (k) Penalties--(1) Failure to withhold. See A-2 of Sec.  35a.9999-3 
for rules relating to penalties applicable to a payor who fails to 
withhold on reportable interest and dividend payments made to a payee 
subject to backup withholding.
    (2) False certification--(i) Criminal penalty under section 7205(b). 
If any individual willfully makes a false certification under section 
3406(d) (1) or (2), then that individual shall, in addition to any other 
penalty provided by law, upon conviction thereof, be fined not more than 
$1,000, or imprisoned not more than 1 year, or both.
    (ii) Civil penalty under section 6682--(A) In general. In addition 
to any criminal penalty provided by law, if any individual makes a 
statement under section 3406 which results in a decrease in the amounts 
deducted and withheld under chapter 24 of the Internal Revenue Code and, 
as of the time the statement was made, there was no reasonable basis for 
the statement, the individual shall pay a penalty of $500 for the 
statement. The penalty is due upon

[[Page 466]]

notice and demand and pursuant to section 6682 collection is not subject 
to the deficiency procedures of subchapter B of chapter 63 of the 
Internal Revenue Code. See section 6682.
    (B) Waiver of penalty. The payee may obtain a waiver (in whole or 
part) of the penalty imposed under section 6682(a) and paragraph 
(k)(2)(ii)(A) of this section if it is established to the satisfaction 
of the Internal Revenue Service that the taxes imposed under subtitle A 
of the Internal Revenue Code with respect to the payee for the taxable 
year in which the false certification was made are equal to or less than 
the sum of--
    (1) The credits against taxes allowed by part IV of subchapter A of 
chapter 1 of the Internal Revenue Code, and
    (2) The payments of estimated tax which are considered payments on 
account of such taxes.
    (C) Procedure for seeking a waiver. To request a waiver under 
section 6682(b) and paragraph (k)(2)(ii)(B) of this section, the payee 
must submit to the Internal Revenue Service a written statement with 
supporting documents to establish all the facts necessary in order to 
obtain the waiver. The statement must be signed by the person that 
otherwise would be subject to the penalty imposed by section 6682(a) and 
paragraph (k)(2)(ii)(A) of this section and must contain a declaration 
that it is made under penalties of perjury.
    (3) Delay of assessment. If a payee institutes or maintains a suit 
with the United States Tax Court primarily to delay assessment and the 
payee's position is frivolous or groundless, or the payee unreasonably 
failed to pursue available administrative remedies, the court may award 
up to $5,000 in damages under section 6673. The damages will be assessed 
against and collected from the payee in the same manner as the 
underlying tax.
    (l) Effective Date. This section is effective until December 31, 
1996.

[T.D. 8137, 52 FR 13432, Apr. 23, 1987, as amended at 60 FR 66134, Dec. 
21, 1995; 61 FR 11308, Mar. 20, 1996]



PART 36_CONTRACT COVERAGE OF EMPLOYEES OF FOREIGN SUBSIDIARIES-
-Table of Contents



Sec.
36.3121(l)-0 Introduction.
36.3121(l)(1)-1 Agreements entered into by domestic corporations with 
          respect to foreign subsidiaries.
36.3121(l)(1)-2 Amendment of agreement.
36.3121(l)(1)-3 Effect of agreement.
36.3121(l)(2)-1 Effective period of agreement.
36.3121(l)(3)-1 Termination of agreement by domestic corporation or by 
          reason of change in stock ownership.
36.3121(l)(4)-1 Termination of agreement by Commissioner.
36.3121(l)(5)-1 Effect of termination.
36.3121(l)(7)-1 Overpayments and underpayments.
36.3121(l)(8)-1 Definition of foreign subsidiary.
36.3121(l)(9)-1 Domestic corporation as separate entity.
36.3121(l)(10)-1 Requirements in respect of liability under agreement.
36.3121(l)(10)-2 Identification.
36.3121(l)(10)-3 Returns.
36.3121(l)(10)-4 Payment of amounts equivalent to tax.

    Authority: Secs. 3121, 7805, 68A Stat. 417, as amended, 917; 26 
U.S.C. 3121, 7805.

    Source: T.D. 6145, 20 FR 6577, Sept. 8, 1955; 25 FR 14021, Dec. 31, 
1960, unless otherwise noted.



Sec.  36.3121(l)-0  Introduction.

    (a) The regulations in this part deal with the circumstances under 
which a domestic corporation may enter into an agreement with the 
Internal Revenue Service for the purpose of extending the insurance 
system established by title II of the Social Security Act to certain 
services performed outside the United States by citizens of the United 
States as employees of a foreign subsidiary of the domestic corporation, 
and with the obligations of a domestic corporation which enters into 
such an agreement. The provisions of the Internal Revenue Code of 1954, 
as amended, to which the regulations in this part pertain are contained 
in section 3121(1). The liabilities assumed under an agreement entered 
into pursuant to such section are based on the remuneration for services 
covered by the agreement. Such agreement may not be effective prior to 
January 1, 1955.

[[Page 467]]

    (b) Although the obligations incurred under an agreement entered 
into pursuant to section 3121(1) of the Internal Revenue Code of 1954, 
as amended, must be distinguished from the obligations imposed on 
employers with respect to the taxes under the Federal Insurance 
Contributions Act, the two are similar in many respects. Accordingly, 
the regulations in this part are prescribed as a supplement to the 
regulations (26 CFR (1954), Part 31, Subpart B) relating to the employee 
tax and the employer tax imposed by the Federal Insurance Contributions 
Act. The terms used in the regulations in this part have the same 
meaning, unless otherwise provided, as when used in the regulations 
relating to the taxes imposed by such act.
    (c) The regulations in this part constitute Part 36 of title 26 of 
the Code of Federal Regulations. As used in the regulations in this 
part, the word ``Code'' means the Internal Revenue Code of 1954, as 
amended, and the term ``Federal Insurance Contributions Act'' means 
chapter 21 of such Code. All references to sections of law are 
references to the Code unless otherwise indicated. The number of each 
section of the regulations begins with 36 followed by a decimal point 
(36.). Numbers which do not begin with 36 followed by a decimal point 
are numbers of sections of law unless otherwise indicated. In 
identifying sections of regulations, the symbol ``Sec. '' is used.

[T.D. 6145, 25 FR 14021, Dec. 31, 1960, as amended by T.D. 7012, 34 FR 
7693, May 15, 1969; T.D. 7665, 45 FR 6090, Jan. 25, 1980]



Sec.  36.3121(l)(1)-1  Agreements entered into by domestic corporations
with respect to foreign subsidiaries.

    (a) In general. (1) Any domestic corporation having one or more 
foreign subsidiaries may request the Internal Revenue Service to enter 
into an agreement for the purpose of extending the Federal old-age, 
survivors, and disability insurance system established by title II of 
the Social Security Act to certain services performed outside the United 
States by all citizens of the United States who are employees of any 
such foreign subsidiary. See Sec.  36.3121(l)(8)-1, relating to the 
definition of foreign subsidiary. Except as provided in Sec.  
36.3121(l)(5)-1, relating to the effect of the termination of an 
agreement entered into pursuant to the provisions of section 3121(l), 
the Internal Revenue Service shall, at the request of a domestic 
corporation enter into such agreement on Form 2032 in any case where a 
Form 2032 is executed, and submitted by the domestic corporation in the 
manner prescribed in this section. A domestic corporation may not have 
in effect at the same moment of time more than one agreement on Form 
2032.
    (2) An agreement authorized in section 3121(l)(1) may not be made 
applicable to any services performed outside the United States which 
would not constitute employment, for purposes of the taxes imposed under 
the Federal Insurance Contributions Act, if the services were performed 
within the United States. Thus, such an agreement shall have no 
application with respect to any services performed outside the United 
States which, if performed within the United States, would be 
specifically excepted from employment under any of the numbered 
paragraphs of section 3121(b), or which, although not so excepted, would 
be deemed not to be employment by application of section 3121(c), 
relating to included and excluded services. Further, an agreement may 
not be made applicable with respect to any services performed outside 
the United States which constitute employment, as defined in section 
3121(b). Thus, an agreement may not be made applicable to services for 
any employer performed by any employee on or in connection with an 
American vessel or American aircraft when outside the United States, if 
(i) performed under a contract of service which is entered into within 
the United States or (ii) during the performance of which and while the 
employee is employed on the vessel or aircraft it touches at a port in 
the United States, because such services constitute employment as 
defined in section 3121(b). An agreement may not be made applicable to 
remuneration which would not constitute wages, as defined in section 
3121(a), even if the services to which such remuneration is attributable 
had constituted employment.

[[Page 468]]

    (3) The terms ``corporation'', ``domestic'', and ``foreign'', as 
used in the regulations in this part, have the meaning assigned by 
paragraphs (3), (4), and (5), respectively, of section 7701(a). Section 
701(a) (3), (4), and (5) provides as follows:

    Sec. 7701. Definitions. (a) When used in this title [Internal 
Revenue Code of 1954], where not otherwise distinctly expressed or 
manifestly incompatible with the intent thereof--

                                * * * * *

    (3) Corporation. The term ``corporation'' includes associations, 
joint-stock companies, and insurance companies.
    (4) Domestic. The term ``domestic'' when applied to a corporation * 
* * means created or organized in the United States or under the law of 
the United States or of any State or Territory.
    (5) Foreign. The term ``foreign'' when applied to a corporation * * 
* means a corporation * * * which is not domestic.

    (b) Form and contents of agreement. Form 2032 is the form prescribed 
for the agreement authorized in section 3121(l)(1). The agreement shall 
include provisions substantially as follows:
    (1) That the agreement shall apply to all services performed outside 
the United States by all citizens of the United States who are in the 
employ of the foreign subsidiary or subsidiaries to which the agreement 
is made applicable, but only to the extent that the remuneration paid 
each employee for such services would constitute wages if paid by one 
employer for services performed in the United States;
    (2) That the agreement shall not apply to any services which 
constitute employment within the meaning of section 3121;
    (3) That the agreement shall become effective on the first day of 
the calendar quarter in which the Form 2032 is signed by the district 
director or director of the service center or on the first day of the 
next succeeding calendar quarter, whichever is specified in the 
agreement;
    (4) That the domestic corporation will pay, as required by the 
regulations in this part, amounts equivalent to the sum of the taxes 
which would be imposed by sections 3101 and 3111, respectively, if the 
remuneration for the services covered by the agreement constituted 
wages;
    (5) That the domestic corporation will pay, in accordance with 
written notification and demand therefor to the domestic corporation, 
amounts equivalent to the interest, additions to the taxes, additional 
amounts, and penalties which would be applicable if the remuneration for 
services covered by the agreement constituted wages; and
    (6) That the domestic corporation will comply with all provisions of 
the regulations in this part.
    (c) Execution and filing of Form 2032. The request of any domestic 
corporation that the Internal Revenue Service enter into an agreement 
with the corporation on Form 2032 shall be signified by the corporation 
by executing and filing Form 2032 in triplicate. Such form shall be 
executed and filed in accordance with the regulations in this part and 
the instructions relating to the form. Each copy of the form shall be 
signed and dated by the officer of the corporation authorized to enter 
into the agreement, shall show the title of such officer, and shall have 
the corporate seal affixed thereto. A certified copy of the minutes of 
the meeting of the board of directors of the domestic corporation, or 
other evidence, showing the authority of such officer so to act shall 
accompany the form. Form 2032 executed and filed as provided in this 
paragraph shall be signed and dated by the district director or director 
of the service center and, upon such signing, the Form 2032 so executed 
and filed will constitute the agreement authorized in section 
3121(l)(1). The Internal Revenue Service will return one copy of the 
agreement to the domestic corporation, will transmit one copy of the 
Department of Health, Education, and Welfare, and will retain one copy 
(together with all related papers).

[T.D. 6145, 20 FR 6577, Sept. 8, 1955, as amended by T.D. 7012, 34 FR 
7693, May 15, 1969]



Sec.  36.3121(l)(1)-2  Amendment of agreement.

    (a) An agreement entered into by a domestic corporation as provided 
in Sec.  36.3121(l)(1)-1 may be amended so as to be made applicable, in 
the same manner and under the same conditions, with respect to any one 
or more of the

[[Page 469]]

foreign subsidiaries of the domestic corporation not previously named in 
the agreement. See Sec.  36.3121(l)(2)-1(b), relating to the effective 
period of an amendment of an agreement.
    (b) Form 2032 Supplement is the form prescribed for use in amending 
an agreement entered into by a domestic corporation as provided in Sec.  
36.3121(l)(1)-1.
    (c) A domestic corporation shall signify its desire to amend an 
agreement entered into by the corporation as provided in Sec.  
36.3121(l)(1)-1 by executing and filing Form 2032 Supplement in 
triplicate.
    (d) Form 2032 Supplement shall be executed and filed in the manner 
and in conformity with the requirements prescribed in the instructions 
relating to such form and in Sec.  36.3121(l)(1)-1(c) in respect of an 
agreement on Form 2032. Form 2032 Supplement executed and filed as 
provided in this paragraph shall be signed and dated by the district 
director or director of the service center, and, upon such signing, the 
Form 2032 Supplement so executed and filed will constitute an amendment 
of the agreement entered into on Form 2032. The Internal Revenue Service 
will return one copy of the amendment to the domestic corporation, will 
transmit one copy to the Department of Health, Education, and Welfare, 
and will retain one copy (together with all related papers).

[T.D. 6145, 25 FR 14021, Dec. 31, 1960, as amended by T.D. 7012, 34 FR 
7694, May 15, 1969]



Sec.  36.3121(l)(1)-3  Effect of agreement.

    (a) Liability for amounts equivalent to tax--(1) In general. A 
domestic corporation which has entered into an agreement (as provided in 
Sec.  36.3121(l)(1)-1, or any amendment thereof (as provided in Sec.  
36.3121(l)(1)-2, incurs liability under the agreement in respect of 
certain remuneration paid by each foreign subsidiary named in the 
agreement, or any amendment thereof. Liability is incurred in respect of 
the remuneration paid to all those employees of the foreign subsidiaries 
who are citizens of the United States and who perform services outside 
the United States (other than services which constitute employment) for 
the foreign subsidiaries. However, liability is incurred only with 
respect to that portion of such remuneration paid by the foreign 
subsidiary which is attributable to services performed during the period 
for which the agreement is in effect with respect to such subsidiary, 
and then only to the extent that the remuneration would constitute wages 
if the services to which the remuneration is attributable were performed 
in the United States. Liability with respect to such remuneration is 
incurred in an amount equivalent to the sum of the employee and employer 
taxes which would be imposed by sections 3101 and 3111, respectively, if 
such remuneration constituted wages. If an individual performs services 
for more than one of the foreign subsidiaries named in an agreement, 
including any amendment thereof, such services are regarded as being 
performed in the employ of a single employer for purposes of determining 
the amount of the remuneration for such services which would constitute 
wages if the services were performed in the United States. See Sec.  
36.3121(l)(9)-1, relating to the treatment of a domestic corporation as 
a separate entity in its capacity as a party to an agreement.
    (2) Examples. The application of paragraph (a)(1) of this section 
may be illustrated by the following examples:

    Example 1. P. a domestic corporation, has entered into an agreement 
as provided in Sec.  36.3121(l)(1)-1, effective with respect to services 
performed on and after January 1, 1955. Three foreign subsidiaries, S-1, 
S-2, and S-3 are named in the agreement. A, a citizen of the United 
States, is employed during 1955 by S-1, S-2, and S-3, for the 
performance outside the United States of services covered by the 
agreement. In 1955 A is paid remuneration of $2,500 for such services by 
each of the foreign subsidiaries. The circumstances are such that the 
entire $7,500 would constitute wages if the services has been performed 
in the United States. However, only $4,200 of such remuneration would 
constitute wages if the services had been performed in the United States 
for a single employer, and it is with respect to this amount only that P 
incurs liability under its agreement.
    Example 2. On August 1, 1955, P, the domestic corporation in the 
preceding example, amends its agreement to include therein its foreign 
subsidiary S-4. The amendment is in effect with respect to S-4 for the 
period beginning with October 1, 1955. B, a citizen of the United 
States, is employed by S-4

[[Page 470]]

throughout 1955 for the performance of services outside the United 
States. B is paid remuneration of $500 in each month of 1955 for these 
services. The circumstances are such that the first $4,200 of such 
remuneration would constitute wages if the services had been performed 
in the United States, and, except for the $4,200 limitation, the 
remainder of such remuneration would constitute wages if the services 
had been so performed. P incurs no liability with respect to 
remuneration paid B for services performed for S-4 prior to October 1, 
1955. However, P incurs liability under its agreement with respect to 
the $1,500 paid B in October, November, and December 1955, for services 
performed in these months. Since the remuneration paid to B for services 
performed during the first nine months of 1955 is not covered by the 
agreement, such remuneration is not taken into account in computing the 
$4,200 limitation or the liability under the agreement.
    Example 3. Assume the same facts as in example 2 except that B's 
services for S-4 during December 1955 are of a character which if 
performed within the United States would be excepted from employment. 
Accordingly, P incurs no liability under the agreement with respect to 
the $500.00 paid in December 1955 for such services.

    (3) Determination of liability. The amount of the liability referred 
to in paragraph (a)(1) of this section incurred by a domestic 
corporation for any period shall be determined in the same manner as 
liability for the employee tax and for the employer tax imposed by the 
Federal Insurance Contributions Act is determined, pursuant to 
regulations relating to the taxes under such act as in effect for the 
same period, with respect to wages paid by an employer to an employee.
    (b) Liability for amounts equivalent to interest or penalties. A 
domestic corporation which has entered into an agreement as provided in 
Sec.  36.3121(l)(1)-1 also incurs liability under the agreement for 
amounts equivalent to the amount of interest, additions to the taxes, 
additional amounts, and penalties which would be applicable if the 
remuneration for services covered by the agreement constituted wages.
    (c) Deductions from employees' remuneration. There is no obligation 
to deduct, or cause to be deducted, from the remuneration of any 
employee of a foreign subsidiary any part of the amount due from a 
domestic corporation under its agreement. Whether such deduction shall 
be made is a matter for settlement between the employee and the domestic 
corporation or such other person as may be concerned.
    (d) Cross reference. For other obligations of a domestic corporation 
under an agreement, see Sec.  36.3121(l)(1)-1.

[T.D. 6145, 20 FR 6577, Sept. 8, 1955, as amended by T.D. 6390, 24 FR 
4831, June 13, 1959]



Sec.  36.3121(l)(2)-1  Effective period of agreement.

    (a) In general. An agreement entered into as provided in Sec.  
36.3121(l) (1)-1 shall be in effect for the period beginning with the 
first day of the calendar quarter in which the agreement is signed by 
the district director or director of the service center, or the first 
day of the calendar quarter following the calendar quarter in which the 
agreement is signed by the district director or director of the service 
center, whichever is specified in the agreement. In no case, however, 
shall the agreement be effective for any calendar quarter which begins 
prior to January 1, 1955.
    (b) Amendment of agreement. If an amendment on Form 2032 Supplement 
(filed by a domestic corporation to include in its agreement services 
performed for a foreign subsidiary not previously named therein) is 
signed by the district director or director of the service center, 
within the quarter for which the agreement is first effective or within 
the first calendar month following such quarter, the agreement shall be 
effective with respect to the subsidiary named in the amendment as of 
the date such agreement first became effective. However, if the 
amendment is signed by the district director or director of the service 
center after the last day of the fourth month for which the agreement is 
in effect, such agreement shall be in effect with respect to the 
subsidiary named in the amendment for the period beginning with the 
first day of the calendar quarter following the calendar quarter in 
which the amendment is signed by the district director or director of 
the service center.

[T.D. 7012, 34 FR 7694, May 15, 1969]

[[Page 471]]



Sec.  36.3121(l)(3)-1  Termination of agreement by domestic corporation
or by reason of change in stock ownership.

    (a) Termination by domestic corporation. (1) A domestic corporation 
which has entered into an agreement under section 3121(l)(1) with 
respect to one or more of its foreign subsidiaries may terminate such 
agreement in part or in its entirety by giving (for calendar quarters 
beginning before 1969, to the district director for the internal revenue 
district in which is located the principal place of business in the 
United States of the domestic corporation; and for calendar quarters 
beginning after 1968, except as provided in paragraph (b) of Sec.  
301.6091-1 (relating to hand-carried documents) to the director of the 
service center serving such internal revenue district 2 years' advance 
notice in writing of its desire so to terminate the agreement at the end 
of a specified calendar quarter: Provided, That, at the time of the 
receipt of such notice by such internal revenue officer, the agreement 
has been in effect with respect to the subsidiary or subsidiaries 
covered by the notice for at least 8 years. The notice of termination 
shall be signed and dated and shall show (i) the title of the officer 
authorized to sign the notice, (ii) the name, address, and 
identification number of the domestic corporation, (iii) the internal 
revenue officer with whom the agreement was entered into, (iv) the name 
and address of each foreign subsidiary with respect to which the 
agreement is to be terminated, (v) the date on which the agreement 
became effective with respect to each such foreign subsidiary, and (vi) 
the date on which the agreement is to be terminated with respect to each 
such foreign subsidiary. The notice shall be submitted in duplicate and 
shall be accompanied by a certified copy of the minutes of the meeting 
of the board of directors of the domestic corporation, or other 
evidence, showing authorization for the notice of termination. No 
particular form is prescribed for the notice of termination. The 
Internal Revenue Service will transmit one copy of the notice of 
termination to the Department of Health, Education, and Welfare.
    (2) A notice of termination given by a domestic corporation in 
respect of any one or more of its foreign subsidiaries may be revoked by 
the corporation with respect to any such subsidiary or subsidiaries by 
giving, prior to the close of the calendar quarter specified in the 
notice of termination, written notice of revocation. The notice of 
revocation shall be filed with the internal revenue officer with whom 
the notice of termination was filed. Such notice of revocation shall be 
signed and dated and shall show (i) the title of the officer authorized 
to sign the notice of revocation, (ii) the name, address, and 
identification number of the domestic corporation, (iii) the name and 
address of each foreign subsidiary with respect to which the notice of 
termination is revoked, and (iv) the date of the notice of termination 
to be revoked. The notice shall be submitted in duplicate and shall be 
accompanied by a certified copy of the minutes of the meeting of the 
board of directors of the domestic corporation, or other evidence, 
showing authorization for the notice of revocation. No particular form 
is prescribed for the notice of revocation. The Internal Revenue Service 
will transmit one copy of the notice of revocation to the Department of 
Health, Education, and Welfare.
    (b) Termination by reason of change in stock ownership. (1) The 
period for which an agreement entered into by a domestic corporation as 
provided in Sec.  36.3121(l)(1)-1 is in effect with respect to a foreign 
corporation is automatically terminated at the end of the calendar 
quarter in which the foreign corporation ceases, at any time in such 
quarter, to be a foreign subsidiary of the domestic corporation. See 
Sec.  36.3121(l)(8)-1, relating to definition of foreign subsidiary.
    (2) A domestic corporation which has entered into an agreement as 
provided in Sec.  36.3121(l)(1)-1 shall furnish (for calendar quarters 
beginning before 1969, to the district director for the internal revenue 
district in which is located its principal place of business in the 
United States; and for calendar quarters beginning after 1968, except as 
provided in paragraph (b) of Sec.  301.6091-1 (relating to hand-carried 
documents) to

[[Page 472]]

the director of the service center serving such internal revenue 
district) written notification in the event that a foreign corporation 
named in the agreement, including any amendment thereof, as a foreign 
subsidiary of the domestic corporation ceases to be its foreign 
subsidiary. The written notification shall be furnished in duplicate on 
or before the last day of the first month following the close of the 
calendar quarter in which the foreign corporation ceases, at any time in 
such quarter, to be a foreign subsidiary of the domestic corporation. 
Such notification shall be signed and dated by the president or other 
principal officer of the domestic corporation. The written notification 
shall show (i) the title of the officer signing the notice, (ii) the 
name, address, and identification number of the domestic corporation, 
(iii) the internal revenue officer with whom the agreement was entered 
into, (iv) the date on which the agreement was entered into, (v) the 
name and address of the foreign corporation with respect to which the 
notification is furnished, and (vi) the date on which the foreign 
corporation ceased to be a foreign subsidiary of the domestic 
corporation. No particular form is prescribed for the written 
notification. The Internal Revenue Service will transmit one copy of the 
written notification to the Department of Health, Education, and 
Welfare.

[T.D. 6145, 25 FR 14021, Dec. 31, 1960, as amended by T.D. 7012, 34 FR 
7694, May 15, 1969]



Sec.  36.3121(l)(4)-1  Termination of agreement by Commissioner.

    (a) Notice of termination. The period for which an agreement entered 
into with a domestic corporation as provided in Sec.  36.3121(l)(1)-1 is 
in effect may be terminated by the Commissioner, with the prior 
concurrence of the Secretary of Health, Education, and Welfare, upon a 
finding by the Commissioner that the domestic corporation has failed to 
comply substantially with the terms of the agreement. The Commissioner 
shall give the corporation not less than 60 days' advance notice in 
writing that the period for which the agreement is in effect will 
terminate at the end of the calendar quarter specified in the notice of 
termination.
    (b) Revocation of notice of termination. A notice of termination 
given to a domestic corporation by the Commissioner may be revoked by 
the Commissioner, with the prior concurrence of the Secretary of Health, 
Education and Welfare by giving written notice of revocation to the 
corporation prior to the close of the calendar quarter specified in the 
notice of termination.



Sec.  36.3121(l)(5)-1  Effect of termination.

    (a) Termination of entire agreement. (1) If the effective period of 
an agreement entered into by a domestic corporation as provided in Sec.  
36.3121(l)(1)-1 is terminated by the domestic corporation, pursuant to 
Sec.  36.3121(l)(3)-1(a), with respect to all foreign subsidiaries named 
in the agreement, including any amendment thereof, an agreement may not 
again be entered into by the domestic corporation under the provisions 
of section 3121(l)(1).
    (2) If the effective period of an agreement entered into by a 
domestic corporation as provided in Sec.  36.3121(l)(1)-1 is terminated 
by the Commissioner, pursuant to Sec.  36.3121(l)(4)-1 (a), an agreement 
may not again be entered into by the domestic corporation under the 
provisions of section 3121(l)(1).
    (3) If the effective period of an agreement entered into by a 
domestic corporation as provided in Sec.  36.3121(l)(1)-1 is terminated 
automatically by reason of a change in stock ownership (see Sec.  
36.3121(l)(3)-1(b)) with respect to all foreign corporations named in 
the agreement, including any amendment thereof, a new agreement may be 
entered into by the domestic corporation, as provided in Sec.  
36.3121(l)(1)-1, with respect to any foreign corporation which is a 
foreign subsidiary of the domestic corporation.
    (b) Partial termination of agreement. (1) If the effective period of 
an agreement entered into by a domestic corporation as provided in Sec.  
36.3121(l)(1)-1 is terminated by the domestic corporation, pursuant to 
Sec.  36.3121(l)(3)-1(a), with respect to one or more foreign 
subsidiaries named in the agreement, including any amendment thereof, 
the period for which the agreement is in effect will continue with 
respect to any other

[[Page 473]]

foreign subsidiary or subsidiaries named in the agreement (or 
amendment). However, the agreement may not thereafter be amended to 
include any foreign subsidiary with respect to which the effective 
period of the agreement has been terminated.
    (2) If the effective period of an agreement entered into by a 
domestic corporation as provided in Sec.  36.3121(l)(1)-1 is terminated 
automatically by reason of a change in stock ownership (see Sec.  
36.3121(l)(3)-1(b)) with respect to a foreign corporation which has 
ceased to be a foreign subsidiary of the domestic corporation, but the 
period for which the agreement is in effect continues with respect to 
one or more other foreign subsidiaries, the agreement may not thereafter 
be amended to include such foreign corporation even though the foreign 
corporation may again become a foreign subsidiary of the domestic 
corporation.



Sec.  36.3121(l)(7)-1  Overpayments and underpayments.

    (a) Adjustments--(1) In general. Errors in the payment of amounts 
for which liability equivalent to the employee and employer taxes with 
respect to any payment of remuneration is incurred by a domestic 
corporation pursuant to its agreement are adjustable by the domestic 
corporation in certain cases without interest. However, not all 
corrections made under this section constitute adjustments within the 
meaning of the regulations in this part. The various situations in which 
such corrections constitute adjustments are set forth in paragraphs 
(a)(2) and (3) of this section. All corrections in respect of 
underpayments and all adjustments or credits in respect of overpayments 
made under this section must be reported on a return filed by the 
domestic corporation under the regulations in this part and not on a 
return filed with respect to the employee and employer taxes imposed by 
sections 3101 and 3111, respectively. Every return on which such a 
correction (by adjustment, credit, or otherwise) is reported pursuant to 
this section must have securely attached as a part thereof a statement 
explaining the error in respect of which the correction is made, 
designating the calendar quarter in which the error was ascertained, and 
setting forth such other information as would be required if the 
correction were in respect of an overpayment or underpayment of taxes 
under the Federal Insurance Contributions Act. An error is ascertained 
when the domestic corporation has sufficient knowledge of the error to 
be able to correct it. An underpayment may not be corrected under this 
section after receipt from the district director or director of the 
service center of written notification of the amount due and demand for 
payment thereof, but the amount shall be paid in accordance with such 
notification.
    (2) Underpayments. If a domestic corporation fails to report, on a 
return filed under the regulations in this part, all or any part of the 
amount for which liability equivalent to the employee and employer taxes 
is incurred under its agreement with respect to any payment of 
remuneration, the domestic corporation shall adjust the underpayment by 
reporting the additional amount due as an adjustment on a return or 
supplemental return filed on or before the last day on which the return 
for the return period in which the error is ascertained is required to 
be filed. The amount of each underpayment adjusted in accordance with 
this subparagraph shall be paid, without interest, at the time fixed for 
reporting the adjustment. If an adjustment is reported pursuant to this 
subparagraph but the amount thereof is not paid when due, interest 
thereafter accrues.
    (3) Overpayments. If a domestic corporation pays more than the 
amount for which liability equivalent to the employee and employer taxes 
is incurred under its agreement with respect to any payment of 
remuneration, the domestic corporation may correct the error, subject to 
the requirements and under the conditions stated in this paragraph, by 
deducting the amount of the overpayment from the amount of liability 
reported on a return filed by the domestic corporation, except that--
    (i) A correction may not be made in respect of any part of an 
overpayment which was collected from an individual by reason of the 
agreement unless the domestic corporation (a) has repaid the

[[Page 474]]

amount so collected to the individual, has secured the written receipt 
of the individual showing the date and amount of the repayment, and 
retains such receipt as a part of its records, or (b) has reimbursed the 
individual by reducing the amounts which otherwise should have been 
deducted from his remuneration by reason of the agreement; and
    (ii) A correction may not be made in one calendar year in respect of 
any part of an overpayment which was collected from an individual in a 
prior calendar year unless the domestic corporation has secured the 
written statement of the individual showing that he has not claimed and 
will not claim refund or credit of the amount so collected, and retains 
such receipt as a part of its records. See Sec.  31.6413(c)-1 of this 
chapter, relating to claims for special credit or refund.

The correction constitutes an adjustment under this subparagraph only if 
it is reported on the return for the period in which the error is 
ascertained or on the return for the next following period, and then 
only if the correction is reported within the statutory period of 
limitation upon refund or credit of overpayments of amounts due under 
the agreement. See paragraph (b)(2)(iii) of this section relating to 
such statutory period. A claim for credit or refund may be filed in 
accordance with the provisions of paragraph (b)(2) of this section for 
any overpayment of an amount due under the agreement which is not 
adjusted under this subparagraph.
    (b) Errors not adjustable--(1) Underpayments. If a domestic 
corporation fails to report all or any part of the amount for which 
liability equivalent to the employee and employer taxes is incurred 
under its agreement with respect to any payment of remuneration, and 
such underpayment is not reported as an adjustment within the time 
prescribed by paragraph (a)(2) of this section, the amount of such 
underpayment shall be reported on the domestic corporation's next 
return, or shall be reported immediately on a supplemental return for 
the return period in which such payment of remuneration was made. The 
reporting of an underpayment under this subparagraph does not constitute 
an adjustment without interest.
    (2) Overpayments. (i) If more than the correct amount due from a 
domestic corporation pursuant to its agreement (including the amount of 
any interest or addition) is paid and the amount of the overpayment is 
not adjusted under paragraph (a) (3) of this section, the domestic 
corporation may file a claim for refund or credit. Except as otherwise 
provided in this subparagraph, such claim shall be made in the same 
manner and subject to the same conditions as to allowance of the claim 
as would be the case if the claim were in respect of an overpayment of 
taxes under the Federal Insurance Contributions Act. Refund or credit of 
an amount erroneously paid by a domestic corporation under its agreement 
may be allowed only to the domestic corporation.
    (ii) Any claim filed under this subparagraph shall be plainly marked 
``Claim under section 3121(1).''
    (iii) No refund or credit of an overpayment of the amount due from a 
domestic corporation under its agreement will be allowed after the 
expiration of 2 years after the date of payment of such overpayment, 
except upon one or more of the grounds set forth in a claim filed prior 
to the expiration of such 2-year period.
    (c) Deductions from employees' remuneration. If a domestic 
corporation deducts, or causes to be deducted, from the remuneration of 
an individual for services covered by the agreement amounts which are 
more or less than the employee tax which would be deductible therefrom 
if such remuneration constituted wages, any repayment to the individual 
(except to the extent otherwise provided in this section), or further 
collection from the individual, in respect of such deduction is a matter 
for settlement between the individual and the domestic corporation or 
such other person as may be concerned.

[T.D. 6145, 25 FR 14021, Dec. 31, 1960, as amended by T.D. 7012, 34 FR 
7694, May 15, 1969]



Sec.  36.3121(l)(8)-1  Definition of foreign subsidiary.

    (a) Prior to August 1, 1956. (1) For the period January 1, 1955 to 
July 31, 1956, inclusive, a foreign corporation is a

[[Page 475]]

foreign subsidiary of a domestic corporation, within the meaning of the 
regulations in this part, if--
    (i) More than 50 percent of the voting stock of the foreign 
corporation is owned by the domestic corporation; or
    (ii) More than 50 percent of the voting stock of the foreign 
corporation is owned by a second foreign corporation and more than 50 
percent of the voting stock of the second foreign corporation is owned 
by the domestic corporation.
    (2) The application of subparagraph (1) of this paragraph may be 
illustrated by the following examples:

    Example 1. P, a domestic corporation, owns 51 percent of the voting 
stock of S-1, a foreign corporation. S-1 owns 51 percent of the voting 
stock of S-2, a foreign corporation. S-2 owns 51 percent of the voting 
stock of S-3, a foreign corporation. S-1 and S-2 are foreign 
subsidiaries of P for purposes of the regulations in this part. Since 
neither P nor S-1 owns more than 50 percent of the voting stock of S-3, 
S-3 is not a foreign subsidiary of P within the meaning of the 
regulations in this part.
    Example 2. Assume the same facts as those stated in example 1 except 
that 25 percent of the voting stock of S-2 is transferred by S-1 to P. P 
owns no other voting stock of S-2. Accordingly, after the transfer, P 
and S-1 together own more than 50 percent of the voting stock of S-2, 
but neither P nor S-1 alone owns more than 50 percent of such stock. S-2 
ceases to be a foreign subsidiary of P when such transfer is effected.

    (b) On or after August 1, 1956. (1) Beginning August 1, 1956, a 
foreign corporation is a foreign subsidiary of a domestic corporation, 
within the meaning of the regulations in this part, if--
    (i) Not less than 20 percent of the voting stock of the foreign 
corporation is owned by the domestic corporation; or
    (ii) More than 50 percent of the voting stock of the foreign 
corporation is owned by a second foreign corporation and not less than 
20 percent of the voting stock of the second foreign corporation is 
owned by the domestic corporation.
    (2) The application of subparagraph (1) of this paragraph may be 
illustrated by the following examples:

    Example 1. P, a domestic corporation owns 20 percent of the voting 
stock of S-1, a foreign corporation. S-1 is, therefore, a foreign 
subsidiary of P. S-1 owns 51 percent and P owns 15 percent of the voting 
stock of S-2, a foreign corporation. S-2 is also a foreign subsidiary of 
P, and this would be so even if P owned none of the voting stock of S-2. 
S-2 owns 51 percent, S-1 owns 39 percent, and P owns 10 percent of the 
voting stock of S-3, a foreign corporation. Since P owns less than 20 
percent of the voting stock of S-2 and less than 20 percent of the 
voting stock of S-3, and since S-1 owns not more than 50 percent of the 
voting stock of S-3, S-3 is not a foreign subsidiary of P within the 
meaning of the regulations in this part.
    Example 2. Assume the same facts as those stated in example 1 except 
that 4 percent of the voting stock of S-2 is transferred by S-1 to P. 
After, as well as before, the transfer of 66 percent of the voting stock 
of S-2 is owned by P and S-1 together. After the transfer, however, P 
owns less than 20 percent and S-1 owns not more than 50 percent of the 
voting stock of S-2. When such transfer is effected S-2 ceases to be a 
foreign subsidiary of P for purposes of the regulations in this part.

    (c) Transfer of stock ownership. The transfer of the voting stock of 
a foreign corporation which is a foreign subsidiary of a domestic 
corporation within the meaning of section 3121(l)(8) will not affect the 
status of the foreign corporation as such a foreign subsidiary if at all 
times either of the percentage tests stated in section 3121(l)(8), 
relating to ownership of the voting stock of such foreign corporation, 
is met.
    (d) Meaning of ``stock''. The term ``stock'', as used in the 
regulations in this part, has the meaning assigned by paragraph (7) of 
section 7701(a). Section 7701(a)(7) provides as follows:

    Sec. 7701. Definitions. (a) When used in this title [Internal 
Revenue Code of 1954], where not otherwise distinctly expressed or 
manifestly incompatible with the intent thereof--

                                * * * * *

    (7) Stock. The term ``stock'' includes shares in an association, 
joint-stock company, or insurance company.

[T.D. 6390, 24 FR 4831, June 13, 1959]



Sec.  36.3121(l)(9)-1  Domestic corporation as separate entity.

    A domestic corporation which enters into an agreement as provided in 
Sec.  36.3121(l)(1)-1 shall, for purposes of the regulations in this 
part and for purposes of section 6413(c)(2)(C), relating to special 
credits or refunds, be considered an employer in its capacity as a party 
to such agreement separate and

[[Page 476]]

apart from its identity as an employer incurring liability for the 
employee tax and employer tax on the wages of its own employees. Thus, 
if a citizen of the United States performs services in employment for 
the domestic corporation and at any time within the same calendar year 
performs services covered by the agreement as an employee of one or more 
foreign subsidiaries named therein, the limitation on wages provided in 
section 3121(a) (1) has application separately as to the wages for 
employment performed in the employ of the domestic corporation and as to 
the remuneration for services covered by the agreement performed in the 
employ of such foreign subsidiary or subsidiaries. All services covered 
by the agreement whether performed in the employ of one or more than one 
such foreign subsidiary are regarded for purposes of the wage limitation 
as having been performed in the employ of the domestic corporation in 
its separate capacity as a party to the agreement. Similarly, any 
remuneration for such services which, if the services were performed in 
the United States, would be excluded from wages unless a certain amount 
of such remuneration is paid by a single employer within a specified 
period (for example, remuneration for agricultural labor) is regarded, 
for purposes of determining whether the domestic corporation incurs 
liability under its agreement with respect to such remuneration, as 
having been paid by the domestic corporation in its separate capacity as 
a party to the agreement. All remuneration received by an employee for 
services covered by the agreement is deemed, for purposes of the special 
credit or refund provisions contained in section 6413(c), to have been 
received from the domestic corporation as an employer in its separate 
capacity as a party to the agreement.



Sec.  36.3121(l)(10)-1  Requirements in respect of liability under agreement.

    To the extent not inconsistent with, or otherwise provided in, the 
regulations in this part, the requirements and duties (relating to 
identification number, account numbers, wage information statements to 
employees, record keeping, etc.) imposed on an employer for any period 
with respect to the taxes imposed by the Federal Insurance Contributions 
Act are hereby made applicable to a domestic corporation with respect to 
its obligations and liabilities, for the same period, under an agreement 
entered into as provided in Sec.  36.3121(l)(1)-1.



Sec.  36.3121(l)(10)-2  Identification.

    (a) Domestic corporation. A domestic corporation which has secured, 
or is required to secure, an identification number as an employer having 
in its employ one or more individuals in employment for wages is not 
required to secure an identification number under the regulations in 
this part.
    (b) Employees. Every employee performing services covered by an 
agreement shall have the same duties in respect of an account number as 
would be the case if the employee were performing services in employment 
for the domestic corporation.



Sec.  36.3121(l)(10)-3  Returns.

    (a) The forms prescribed for use in making returns of the taxes 
imposed by the Federal Insurance Contributions Act (except any forms 
particularly prescribed for use by household employers or by employers 
filing returns in Puerto Rico) shall be used by a domestic corporation 
in making returns of its liability under an agreement entered into as 
provided in Sec.  36.3121(l)(1)-1. Returns of such liability shall be 
made separate and apart from any returns required of the domestic 
corporation in respect of the taxes imposed by the Federal Insurance 
Contributions Act. The domestic corporation shall plainly mark ``3121(l) 
Agreement'' at the top of each return, each detachable schedule thereof, 
and each paper or document constituting a part of the return, filed by 
the domestic corporation pursuant to the regulations in this part. 
Returns required under the regulations in this part shall be made by the 
domestic corporation as if all services covered by the agreement, 
whether performed in the employ of one or more than one foreign 
subsidiary, were performed in the employ of the domestic corporation as 
an employer in its separate capacity as a party to the agreement.
    (b) Each return required under the regulations in this part must be 
filed

[[Page 477]]

on or before the last day of the month following the period for which 
the return is made.

[T.D. 6145, 20 FR 6577, Sept. 8, 1955, as amended by T.D. 6390, 24 FR 
4832, June 13, 1959]



Sec.  36.3121(l)(10)-4  Payment of amounts equivalent to tax.

    A domestic corporation which has entered into an agreement as 
provided in Sec.  36.3121(l)(1)-1 is not required to make deposits with 
an authorized financial institution of any amount for which liability is 
incurred under its agreement.

[T.D. 6145, 20 FR 6577, Sept. 8, 1955; 25 FR 14021, Dec. 31, 1960, as 
amended by T.D. 7953, 49 FR 19646, May 9, 1984; T.D. 8952, 66 FR 33832, 
June 26, 2001]

                         PARTS 37	39 [RESERVED]

[[Page 479]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  Table of OMB control numbers
  List of CFR Sections Affected

[[Page 481]]



                    Table of CFR Titles and Chapters




                      (Revised as of April 1, 2022)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
       III  Administrative Conference of the United States (Parts 
                300--399)
        IV  Miscellaneous Agencies (Parts 400--599)
        VI  National Capital Planning Commission (Parts 600--699)

                    Title 2--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 2--199)
        II  Office of Management and Budget Guidance (Parts 200--
                299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300--
                399)
        IV  Department of Agriculture (Parts 400--499)
        VI  Department of State (Parts 600--699)
       VII  Agency for International Development (Parts 700--799)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
         X  Department of the Treasury (Parts 1000--1099)
        XI  Department of Defense (Parts 1100--1199)
       XII  Department of Transportation (Parts 1200--1299)
      XIII  Department of Commerce (Parts 1300--1399)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1800--1899)
        XX  United States Nuclear Regulatory Commission (Parts 
                2000--2099)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
     XXIII  Social Security Administration (Parts 2300--2399)
      XXIV  Department of Housing and Urban Development (Parts 
                2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)

[[Page 482]]

     XXVII  Small Business Administration (Parts 2700--2799)
    XXVIII  Department of Justice (Parts 2800--2899)
      XXIX  Department of Labor (Parts 2900--2999)
       XXX  Department of Homeland Security (Parts 3000--3099)
      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
     XXXIV  Department of Education (Parts 3400--3499)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
     XXXVI  Office of National Drug Control Policy, Executive 
                Office of the President (Parts 3600--3699)
    XXXVII  Peace Corps (Parts 3700--3799)
     LVIII  Election Assistance Commission (Parts 5800--5899)
       LIX  Gulf Coast Ecosystem Restoration Council (Parts 5900--
                5999)

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--199)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
        IV  Office of Personnel Management and Office of the 
                Director of National Intelligence (Parts 1400--
                1499)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Parts 2100--2199)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Parts 3200--
                3299)
     XXIII  Department of Energy (Parts 3300--3399)
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
       XXV  Department of the Interior (Parts 3500--3599)
      XXVI  Department of Defense (Parts 3600--3699)

[[Page 483]]

    XXVIII  Department of Justice (Parts 3800--3899)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  U.S. International Development Finance Corporation 
                (Parts 4300--4399)
     XXXIV  Securities and Exchange Commission (Parts 4400--4499)
      XXXV  Office of Personnel Management (Parts 4500--4599)
     XXXVI  Department of Homeland Security (Parts 4600--4699)
    XXXVII  Federal Election Commission (Parts 4700--4799)
        XL  Interstate Commerce Commission (Parts 5000--5099)
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
      XLII  Department of Labor (Parts 5200--5299)
     XLIII  National Science Foundation (Parts 5300--5399)
       XLV  Department of Health and Human Services (Parts 5500--
                5599)
      XLVI  Postal Rate Commission (Parts 5600--5699)
     XLVII  Federal Trade Commission (Parts 5700--5799)
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
      XLIX  Federal Labor Relations Authority (Parts 5900--5999)
         L  Department of Transportation (Parts 6000--6099)
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Parts 6400--6499)
        LV  National Endowment for the Arts (Parts 6500--6599)
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
      LVII  General Services Administration (Parts 6700--6799)
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
        LX  United States Postal Service (Parts 7000--7099)
       LXI  National Labor Relations Board (Parts 7100--7199)
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
     LXIII  Inter-American Foundation (Parts 7300--7399)
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
       LXX  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 8000--8099)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)
    LXXIII  Department of Agriculture (Parts 8300--8399)

[[Page 484]]

     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)
     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)
    LXXVII  Office of Management and Budget (Parts 8700--8799)
      LXXX  Federal Housing Finance Agency (Parts 9000--9099)
   LXXXIII  Special Inspector General for Afghanistan 
                Reconstruction (Parts 9300--9399)
    LXXXIV  Bureau of Consumer Financial Protection (Parts 9400--
                9499)
    LXXXVI  National Credit Union Administration (Parts 9600--
                9699)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
    XCVIII  Council of the Inspectors General on Integrity and 
                Efficiency (Parts 9800--9899)
      XCIX  Military Compensation and Retirement Modernization 
                Commission (Parts 9900--9999)
         C  National Council on Disability (Parts 10000--10049)
        CI  National Mediation Board (Parts 10100--10199)
       CII  U.S. Office of Special Counsel (Parts 10200--10299)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 1--199)
         X  Privacy and Civil Liberties Oversight Board (Parts 
                1000--1099)

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Agricultural Marketing Service (Federal Grain 
                Inspection Service, Fair Trade Practices Program), 
                Department of Agriculture (Parts 800--899)

[[Page 485]]

        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  [Reserved]
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  [Reserved]
       XXV  Office of Advocacy and Outreach, Department of 
                Agriculture (Parts 2500--2599)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy Policy and New Uses, Department of 
                Agriculture (Parts 2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  National Institute of Food and Agriculture (Parts 
                3400--3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

[[Page 486]]

         L  Rural Business-Cooperative Service, and Rural 
                Utilities Service, Department of Agriculture 
                (Parts 5000--5099)

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Agricultural Marketing Service (Fair Trade Practices 
                Program), Department of Agriculture (Parts 200--
                299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XIII  Nuclear Waste Technical Review Board (Parts 1300--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)
        II  Election Assistance Commission (Parts 9400--9499)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  [Reserved]
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  (Parts 900--999) [Reserved]
         X  Bureau of Consumer Financial Protection (Parts 1000--
                1099)

[[Page 487]]

        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XII  Federal Housing Finance Agency (Parts 1200--1299)
      XIII  Financial Stability Oversight Council (Parts 1300--
                1399)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
       XVI  Office of Financial Research, Department of the 
                Treasury (Parts 1600--1699)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--1199)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)

[[Page 488]]

      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  National Technical Information Service, Department of 
                Commerce (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
        XV  Office of the Under-Secretary for Economic Affairs, 
                Department of Commerce (Parts 1500--1599)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399) [Reserved]

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  U.S. Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  U.S. Immigration and Customs Enforcement, Department 
                of Homeland Security (Parts 400--599) [Reserved]

[[Page 489]]

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  United States Agency for Global Media (Parts 500--599)
       VII  U.S. International Development Finance Corporation 
                (Parts 700--799)
        IX  Foreign Service Grievance Board (Parts 900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
      XIII  Millennium Challenge Corporation (Parts 1300--1399)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

[[Page 490]]

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799) 
                [Reserved]
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XV  Emergency Mortgage Insurance and Loan Programs, 
                Department of Housing and Urban Development (Parts 
                2700--2799) [Reserved]

[[Page 491]]

        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
      XXIV  Board of Directors of the HOPE for Homeowners Program 
                (Parts 4000--4099) [Reserved]
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--899)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900--999)
        VI  Office of the Assistant Secretary, Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Parts 1200--1299)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--End)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--799)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)

[[Page 492]]

        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Bureau of Safety and Environmental Enforcement, 
                Department of the Interior (Parts 200--299)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
         V  Bureau of Ocean Energy Management, Department of the 
                Interior (Parts 500--599)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)
       XII  Office of Natural Resources Revenue, Department of the 
                Interior (Parts 1200--1299)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance

[[Page 493]]

         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of Investment Security, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)
         X  Financial Crimes Enforcement Network, Department of 
                the Treasury (Parts 1000--1099)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Department of Defense, Defense Logistics Agency (Parts 
                1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army, Department 
                of Defense (Parts 200--399)
        IV  Great Lakes St. Lawrence Seaway Development 
                Corporation, Department of Transportation (Parts 
                400--499)

[[Page 494]]

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Career, Technical, and Adult Education, 
                Department of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599) 
                [Reserved]
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799) 
                [Reserved]
            Subtitle C--Regulations Relating to Education
        XI  [Reserved]
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
        VI  [Reserved]
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Parts 1500--
                1599)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  U.S. Copyright Office, Library of Congress (Parts 
                200--299)

[[Page 495]]

       III  Copyright Royalty Board, Library of Congress (Parts 
                300--399)
        IV  National Institute of Standards and Technology, 
                Department of Commerce (Parts 400--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--199)
        II  Armed Forces Retirement Home (Parts 200--299)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Regulatory Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)
      VIII  Gulf Coast Ecosystem Restoration Council (Parts 1800--
                1899)
        IX  Federal Permitting Improvement Steering Council (Part 
                1900)

          Title 41--Public Contracts and Property Management

            Subtitle A--Federal Procurement Regulations System 
                [Note]
            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
   62--100  [Reserved]
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
  103--104  [Reserved]
       105  General Services Administration (Parts 105-1--105-999)

[[Page 496]]

       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
  129--200  [Reserved]
            Subtitle D--Federal Acquisition Supply Chain Security
       201  Federal Acquisition Security Council (Part 201)
            Subtitle E [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
   II--III  [Reserved]
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--699)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1099)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 400--999)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10099)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

[[Page 497]]

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
        IX  Denali Commission (Parts 900--999)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Administration for Children and Families, Department 
                of Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission of Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Parts 2300--2399)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

[[Page 498]]

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)
        IV  National Telecommunications and Information 
                Administration, Department of Commerce, and 
                National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 400--499)
         V  The First Responder Network Authority (Parts 500--599)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Defense Acquisition Regulations System, Department of 
                Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  Agency for International Development (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)

[[Page 499]]

        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199) [Reserved]
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399) 
                [Reserved]
        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  Civilian Board of Contract Appeals, General Services 
                Administration (Parts 6100--6199)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Pipeline and Hazardous Materials Safety 
                Administration, Department of Transportation 
                (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation (Parts 1400--1499) 
                [Reserved]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)

[[Page 500]]

        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

[[Page 501]]





           Alphabetical List of Agencies Appearing in the CFR




                      (Revised as of April 1, 2022)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Conference of the United States    1, III
Advisory Council on Historic Preservation         36, VIII
Advocacy and Outreach, Office of                  7, XXV
Afghanistan Reconstruction, Special Inspector     5, LXXXIII
     General for
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              2, VII; 22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, VIII, IX, X, XI; 9, 
                                                  II
Agricultural Research Service                     7, V
Agriculture, Department of                        2, IV; 5, LXXIII
  Advocacy and Outreach, Office of                7, XXV
  Agricultural Marketing Service                  7, I, VIII, IX, X, XI; 9, 
                                                  II
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Economic Research Service                       7, XXXVII
  Energy Policy and New Uses, Office of           2, IX; 7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  National Institute of Food and Agriculture      7, XXXIV
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force, Department of                          32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX
Architectural and Transportation Barriers         36, XI
   Compliance Board
[[Page 502]]

Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI; 38, II
Army, Department of                               32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase from People Who Are
  Federal Acquisition Regulation                  48, 19
Career, Technical, and Adult Education, Office    34, IV
     of
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chemical Safety and Hazard Investigation Board    40, VI
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X, XIII
Civil Rights, Commission on                       5, LXVIII; 45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce, Department of                           2, XIII; 44, IV; 50, VI
  Census Bureau                                   15, I
  Economic Affairs, Office of the Under-          15, XV
       Secretary for
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II; 37, IV
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Technical Information Service          15, XI
  National Telecommunications and Information     15, XXIII; 47, III, IV
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Secretary of Commerce, Office of                15, Subtitle A
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Financial Protection Bureau              5, LXXXIV; 12, X
Consumer Product Safety Commission                5, LXXI; 16, II
Copyright Royalty Board                           37, III
Corporation for National and Community Service    2, XXII; 45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Council of the Inspectors General on Integrity    5, XCVIII
     and Efficiency
Court Services and Offender Supervision Agency    5, LXX; 28, VIII
     for the District of Columbia
Customs and Border Protection                     19, I
Defense, Department of                            2, XI; 5, XXVI; 32, 
                                                  Subtitle A; 40, VII
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III; 
                                                  48, 51
  Defense Acquisition Regulations System          48, 2
  Defense Intelligence Agency                     32, I

[[Page 503]]

  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  National Imagery and Mapping Agency             32, I
  Navy, Department of                             32, VI; 48, 52
  Secretary of Defense, Office of                 2, XI; 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
Denali Commission                                 45, IX
Disability, National Council on                   5, C; 34, XII
District of Columbia, Court Services and          5, LXX; 28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Office of the Under-Secretary   15, XV
     for
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          2, XXXIV; 5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Career, Technical, and Adult Education, Office  34, IV
       of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
Educational Research and Improvement, Office of   34, VII
Election Assistance Commission                    2, LVIII; 11, II
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Policy, National Commission for        1, IV
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             2, IX; 5, XXIII; 10, II, 
                                                  III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   2, XV; 5, LIV; 40, I, IV, 
                                                  VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                2, Subtitle A; 5, III, 
                                                  LXXVII; 14, VI; 48, 99
  National Drug Control Policy, Office of         2, XXXVI; 21, III
  National Security Council                       32, XXI; 47, II
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           2, XXXV; 5, LII; 12, IV

[[Page 504]]

Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Acquisition Security Council              41, 201
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       5, XXXVII; 11, I
Federal Emergency Management Agency               44, I
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Agency                    5, LXXX; 12, XII
Federal Labor Relations Authority                 5, XIV, XLIX; 22, XIV
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Permitting Improvement Steering Council   40, IX
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Financial Crimes Enforcement Network              31, X
Financial Research Office                         12, XVI
Financial Stability Oversight Council             12, XIII
Fine Arts, Commission of                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102

[[Page 505]]

  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Accountability Office                  4, I
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Great Lakes St. Lawrence Seaway Development       33, IV
     Corporation
Gulf Coast Ecosystem Restoration Council          2, LIX; 40, VIII
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          2, III; 5, XLV; 45, 
                                                  Subtitle A
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X, XIII
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  2, XXX; 5, XXXVI; 6, I; 8, 
                                                  I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection                   19, I
  Federal Emergency Management Agency             44, I
  Human Resources Management and Labor Relations  5, XCVII
       Systems
  Immigration and Customs Enforcement Bureau      19, IV
  Transportation Security Administration          49, XII
HOPE for Homeowners Program, Board of Directors   24, XXIV
     of
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Housing and Urban Development, Department of      2, XXIV; 5, LXV; 24, 
                                                  Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Immigration and Customs Enforcement Bureau        19, IV
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Independent Counsel, Offices of                   28, VI
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
   Secretary
[[Page 506]]

Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII, XV
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior, Department of                           2, XIV
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Natural Resource Revenue, Office of             30, XII
  Ocean Energy Management, Bureau of              30, V
  Reclamation, Bureau of                          43, I
  Safety and Environmental Enforcement, Bureau    30, II
       of
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Development Finance Corporation,    5, XXXIII; 22, VII
     U.S.
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
Investment Security, Office of                    31, VIII
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice, Department of                            2, XXVIII; 5, XXVIII; 28, 
                                                  I, XI; 40, IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Independent Counsel, Offices of                 28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor, Department of                              2, XXIX; 5, XLII
  Benefits Review Board                           20, VII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Federal Acquisition Regulation                  48, 29

[[Page 507]]

  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I, VI
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Libraries and Information Science, National       45, XVII
     Commission on
Library of Congress                               36, VII
  Copyright Royalty Board                         37, III
  U.S. Copyright Office                           37, II
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II, LXIV
Micronesian Status Negotiations, Office for       32, XXVII
Military Compensation and Retirement              5, XCIX
     Modernization Commission
Millennium Challenge Corporation                  22, XIII
Mine Safety and Health Administration             30, I
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
Museum and Library Services, Institute of         2, XXXI
National Aeronautics and Space Administration     2, XVIII; 5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   2, XXII; 45, XII, XXV
National Archives and Records Administration      2, XXVI; 5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Capital Planning Commission              1, IV, VI
National Counterintelligence Center               32, XVIII
National Credit Union Administration              5, LXXXVI; 12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           2, XXXVI; 21, III
National Endowment for the Arts                   2, XXXII
National Endowment for the Humanities             2, XXXIII
National Foundation on the Arts and the           45, XI
     Humanities
National Geospatial-Intelligence Agency           32, I
National Highway Traffic Safety Administration    23, II, III; 47, VI; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute of Food and Agriculture        7, XXXIV
National Institute of Standards and Technology    15, II; 37, IV
National Intelligence, Office of Director of      5, IV; 32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV
National Mediation Board                          5, CI; 29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       2, XXV; 5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI; 47, II

[[Page 508]]

National Technical Information Service            15, XI
National Telecommunications and Information       15, XXIII; 47, III, IV, V
     Administration
National Transportation Safety Board              49, VIII
Natural Resource Revenue, Office of               30, XII
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy, Department of                               32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     2, XX; 5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Ocean Energy Management, Bureau of                30, V
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       2, XXXVII; 22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, IV, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
  Human Resources Management and Labor Relations  5, XCVII
       Systems, Department of Homeland Security
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Regulatory Commission                      5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Privacy and Civil Liberties Oversight Board       6, X
Procurement and Property Management, Office of    7, XXXII
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Contracts, Department of Labor             41, 50
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Utilities Service                           7, XVII, XVIII, XLII
Safety and Environmental Enforcement, Bureau of   30, II
Science and Technology Policy, Office of          32, XXIV; 47, II
Secret Service                                    31, IV
Securities and Exchange Commission                5, XXXIV; 17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    2, XXIII; 20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State, Department of                              2, VI; 22, I; 28, XI

[[Page 509]]

  Federal Acquisition Regulation                  48, 6
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Tennessee Valley Authority                        5, LXIX; 18, XIII
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     2, XII; 5, L
  Commercial Space Transportation                 14, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
Federal Acquisition Security Council              41, 201
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Great Lakes St. Lawrence Seaway Development     33, IV
       Corporation
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 47, IV; 49, V
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury, Department of the                       2, X; 5, XXI; 12, XV; 17, 
                                                  IV; 31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection                   19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Claims Collection Standards             31, IX
  Federal Law Enforcement Training Center         31, VII
  Financial Crimes Enforcement Network            31, X
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  Investment Security, Office of                  31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
Truman, Harry S. Scholarship Foundation           45, XVIII
United States Agency for Global Media             22, V
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
U.S. Copyright Office                             37, II
U.S. Office of Special Counsel                    5, CII
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs, Department of                   2, VIII; 38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I, VII
World Agricultural Outlook Board                  7, XXXVIII

[[Page 511]]







                      Table of OMB Control Numbers



The OMB control numbers for chapter I of title 26 were consolidated into 
Sec. Sec.  601.9000 and 602.101 at 50 FR 10221, Mar. 14, 1985. At 61 FR 
58008, Nov. 12, 1996, Sec.  601.9000 was removed. Section 602.101 is 
reprinted below for the convenience of the user.



PART 602_OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT--Table of Contents



    Authority: 26 U.S.C. 7805.



Sec.  602.101  OMB Control numbers.

    (a) Purpose. This part collects and displays the control numbers 
assigned to collections of information in Internal Revenue Service 
regulations by the Office of Management and Budget (OMB) under the 
Paperwork Reduction Act of 1980. The Internal Revenue Service intends 
that this part comply with the requirements of Sec. Sec.  1320.7(f), 
1320.12, 1320.13, and 1320.14 of 5 CFR part 1320 (OMB regulations 
implementing the Paperwork Reduction Act), for the display of control 
numbers assigned by OMB to collections of information in Internal 
Revenue Service regulations. This part does not display control numbers 
assigned by the Office of Management and Budget to collections of 
information of the Bureau of Alcohol, Tobacco, and Firearms.
    (b) Display.

------------------------------------------------------------------------
                                                             Current OMB
     CFR part or section where identified and described      control No.
------------------------------------------------------------------------
1.1(h)-1(e)................................................    1545-1654
1.25-1T....................................................    1545-0922
                                                               1545-0930
1.25-2T....................................................    1545-0922
                                                               1545-0930
1.25-3T....................................................    1545-0922
                                                               1545-0930
1.25-4T....................................................    1545-0922
1.25-5T....................................................    1545-0922
1.25-6T....................................................    1545-0922
1.25-7T....................................................    1545-0922
1.25-8T....................................................    1545-0922
1.25A-1....................................................    1545-1630
1.28-1.....................................................    1545-0619
1.31-2.....................................................    1545-0074
1.32-2.....................................................    1545-0074
1.32-3.....................................................    1545-1575
1.36B-5....................................................    1545-2232
1.37-1.....................................................    1545-0074
1.37-3.....................................................    1545-0074
1.41-2.....................................................    1545-0619
1.41-3.....................................................    1545-0619
1.41-4A....................................................    1545-0074
1.41-4 (b) and (c).........................................    1545-0074
1.41-8(b)..................................................    1545-1625
1.41-8(d)..................................................    1545-0732
1.41-9.....................................................    1545-0619
1.42-1T....................................................    1545-0984
                                                               1545-0988
1.42-5.....................................................    1545-1357
1.42-6.....................................................    1545-1102
1.42-8.....................................................    1545-1102
1.42-10....................................................    1545-1102
1.42-13....................................................    1545-1357
1.42-14....................................................    1545-1423
1.42-17....................................................    1545-1357
1.42-18....................................................    1545-2088
1.43-3(a)(3)...............................................    1545-1292
1.43-3(b)(3)...............................................    1545-1292
1.44B-1....................................................    1545-0219
1.45D-1....................................................    1545-1765
1.45G-1....................................................    1545-2031
1.46-1.....................................................    1545-0123
                                                               1545-0155
1.46-3.....................................................    1545-0155
1.46-4.....................................................    1545-0155
1.46-5.....................................................    1545-0155
1.46-6.....................................................    1545-0155
1.46-8.....................................................    1545-0155
1.46-9.....................................................    1545-0155
1.46-10....................................................    1545-0118
1.47-1.....................................................    1545-0155
                                                               1545-0166
1.47-3.....................................................    1545-0155
                                                               1545-0166
1.47-4.....................................................    1545-0123
1.47-5.....................................................    1545-0092
1.47-6.....................................................    1545-0099
1.48-3.....................................................    1545-0155
1.48-4.....................................................    1545-0155
                                                               1545-0808
1.48-5.....................................................    1545-0155
1.48-6.....................................................    1545-0155
1.48-12....................................................    1545-0155
                                                               1545-1783
1.50A-1....................................................    1545-0895
1.50A-2....................................................    1545-0895
1.50A-3....................................................    1545-0895
1.50A-4....................................................    1545-0895
1.50A-5....................................................    1545-0895
1.50A-6....................................................    1545-0895
1.50A-7....................................................    1545-0895
1.50B-1....................................................    1545-0895
1.50B-2....................................................    1545-0895
1.50B-3....................................................    1545-0895
1.50B-4....................................................    1545-0895

[[Page 512]]

 
1.50B-5....................................................    1545-0895
1.51-1.....................................................    1545-0219
                                                               1545-0241
                                                               1545-0244
                                                               1545-0797
1.52-2.....................................................    1545-0219
1.52-3.....................................................    1545-0219
1.56(g)-1..................................................    1545-1233
1.57-5.....................................................    1545-0227
1.58-1.....................................................    1545-0175
1.59-1.....................................................    1545-1903
1.61-2.....................................................    1545-0771
1.61-4.....................................................    1545-0187
1.61-15....................................................    1545-0074
1.62-2.....................................................    1545-1148
1.63-1.....................................................    1545-0074
1.66-4.....................................................    1545-1770
1.67-2T....................................................    1545-0110
1.67-3.....................................................    1545-1018
1.67-3T....................................................    1545-0118
1.71-1T....................................................    1545-0074
1.72-4.....................................................    1545-0074
1.72-6.....................................................    1545-0074
1.72-9.....................................................    1545-0074
1.72-17....................................................    1545-0074
1.72-17A...................................................    1545-0074
1.72-18....................................................    1545-0074
1.74-1.....................................................    1545-1100
1.79-2.....................................................    1545-0074
1.79-3.....................................................    1545-0074
1.83-2.....................................................    1545-0074
1.83-5.....................................................    1545-0074
1.83-6.....................................................    1545-1448
1.103-10...................................................    1545-0123
                                                               1545-0940
1.103A-2...................................................    1545-0720
1.105-4....................................................    1545-0074
1.105-5....................................................    1545-0074
1.105-6....................................................    1545-0074
1.108-4....................................................    1545-1539
1.108-5....................................................    1545-1421
1.108-7....................................................    1545-2155
1.108(i)-1.................................................    1545-2147
1.108(i)-2.................................................    1545-2147
1.110-1....................................................    1545-1661
1.117-5....................................................    1545-0869
1.118-2....................................................    1545-1639
1.119-1....................................................    1545-0067
1.120-3....................................................    1545-0057
1.121-1....................................................    1545-0072
1.121-2....................................................    1545-0072
1.121-3....................................................    1545-0072
1.121-4....................................................    1545-0072
                                                               1545-0091
1.121-5....................................................    1545-0072
1.127-2....................................................    1545-0768
1.132-2....................................................    1545-0771
1.132-5....................................................    1545-0771
1.132-9(b).................................................    1545-1676
1.141-1....................................................    1545-1451
1.141-12...................................................    1545-1451
1.142-2....................................................    1545-1451
1.142(f)(4)-1..............................................    1545-1730
1.148-0....................................................    1545-1098
1.148-1....................................................    1545-1098
1.148-2....................................................    1545-1098
                                                               1545-1347
1.148-3....................................................    1545-1098
                                                               1545-1347
1.148-4....................................................    1545-1098
                                                               1545-1347
1.148-5....................................................    1545-1098
                                                               1545-1490
1.148-6....................................................    1545-1098
                                                               1545-1451
1.148-7....................................................    1545-1098
                                                               1545-1347
1.148-8....................................................    1545-1098
1.148-11...................................................    1545-1098
                                                               1545-1347
1.149(e)-1.................................................    1545-0720
1.150-1....................................................    1545-1347
1.151-1....................................................    1545-0074
1.152-3....................................................    1545-0071
                                                               1545-1783
1.152-4....................................................    1545-0074
1.152-4T...................................................    1545-0074
1.162-1....................................................    1545-0139
1.162-2....................................................    1545-0139
1.162-3....................................................    1545-0139
1.162-4....................................................    1545-0139
1.162-5....................................................    1545-0139
1.162-6....................................................    1545-0139
1.162-7....................................................    1545-0139
1.162-8....................................................    1545-0139
1.162-9....................................................    1545-0139
1.162-10...................................................    1545-0139
1.162-11...................................................    1545-0139
1.162-12...................................................    1545-0139
1.162-13...................................................    1545-0139
1.162-14...................................................    1545-0139
1.162-15...................................................    1545-0139
1.162-16...................................................    1545-0139
1.162-17...................................................    1545-0139
1.162-18...................................................    1545-0139
1.162-19...................................................    1545-0139
1.162-20...................................................    1545-0139
1.162-24...................................................    1545-2115
1.162-27...................................................    1545-1466
1.163-5....................................................    1545-0786
                                                               1545-1132
1.163-8T...................................................    1545-0995
1.163-10T..................................................    1545-0074
1.163-13...................................................    1545-1491
1.163(d)-1.................................................    1545-1421
1.165-1....................................................    1545-0177
1.165-2....................................................    1545-0177
1.165-3....................................................    1545-0177
1.165-4....................................................    1545-0177
1.165-5....................................................    1545-0177
1.165-6....................................................    1545-0177
1.165-7....................................................    1545-0177
1.165-8....................................................    1545-0177
1.165-9....................................................    1545-0177
1.165-10...................................................    1545-0177
1.165-11...................................................    1545-0074
                                                               1545-0177
                                                               1545-0786
1.165-12...................................................    1545-0786
1.166-1....................................................    1545-0123
1.166-2....................................................    1545-1254
1.166-4....................................................    1545-0123
1.166-10...................................................    1545-0123
1.167(a)-5T................................................    1545-1021
1.167(a)-7.................................................    1545-0172
1.167(a)-11................................................    1545-0152
                                                               1545-0172
1.167(a)-12................................................    1545-0172
1.167(d)-1.................................................    1545-0172
1.167(e)-1.................................................    1545-0172
1.167(f)-11................................................    1545-0172
1.167(l)-1.................................................    1545-0172
1.168(d)-1.................................................    1545-1146
1.168(i)-1.................................................    1545-1331

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1.168-5....................................................    1545-0172
1.169-4....................................................    1545-0172
1.170-1....................................................    1545-0074
1.170-2....................................................    1545-0074
1.170-3....................................................    1545-0123
1.170A-1...................................................    1545-0074
1.170A-2...................................................    1545-0074
1.170A-4(A)(b).............................................    1545-0123
1.170A-8...................................................    1545-0074
1.170A-9...................................................    1545-0052
                                                               1545-0074
1.170A-11..................................................    1545-0074
                                                               1545-0123
                                                               1545-1868
1.170A-12..................................................    1545-0020
                                                               1545-0074
1.170A-13..................................................    1545-0074
                                                               1545-0754
                                                               1545-0908
                                                               1545-1431
1.170A-13(f)...............................................    1545-1464
1.170A-14..................................................    1545-0763
1.170A-15..................................................    1545-1953
1.170A-16..................................................    1545-1953
1.170A-17..................................................    1545-1953
1.170A-18..................................................    1545-1953
1.171-4....................................................    1545-1491
1.171-5....................................................    1545-1491
1.172-1....................................................    1545-0172
1.172-13...................................................    1545-0863
1.173-1....................................................    1545-0172
1.174-3....................................................    1545-0152
1.174-4....................................................    1545-0152
1.175-3....................................................    1545-0187
1.175-6....................................................    1545-0152
1.179-2....................................................    1545-1201
1.179-3....................................................    1545-1201
1.179-5....................................................    1545-0172
                                                               1545-1201
1.179B-1T..................................................    1545-2076
1.179C-1...................................................    1545-2103
1.179C-1T..................................................    1545-2103
1.180-2....................................................    1545-0074
1.181-1....................................................    1545-2059
1.181-2....................................................    1545-2059
1.181-3....................................................    1545-2059
1.182-6....................................................    1545-0074
1.183-1....................................................    1545-0195
1.183-2....................................................    1545-0195
1.183-3....................................................    1545-0195
1.183-4....................................................    1545-0195
1.190-3....................................................    1545-0074
1.194-2....................................................    1545-0735
1.194-4....................................................    1545-0735
1.195-1....................................................    1545-1582
1.197-1T...................................................    1545-1425
1.197-2....................................................    1545-1671
1.199-6....................................................    1545-1966
1.213-1....................................................    1545-0074
1.215-1T...................................................    1545-0074
1.217-2....................................................    1545-0182
1.243-3....................................................    1545-0123
1.243-4....................................................    1545-0123
1.243-5....................................................    1545-0123
1.248-1....................................................    1545-0172
1.261-1....................................................    1545-1041
1.263(a)-1.................................................    1545-2248
1.263(a)-3.................................................    1545-2248
1.263(a)-5.................................................    1545-1870
1.263(e)-1.................................................    1545-0123
1.263A-1...................................................    1545-0987
1.263A-1T..................................................    1545-0187
1.263A-2...................................................    1545-0987
1.263A-3...................................................    1545-0987
1.263A-8(b)(2)(iii)........................................    1545-1265
1.263A-9(d)(1).............................................    1545-1265
1.263A-9(f)(1)(ii).........................................    1545-1265
1.263A-9(f)(2)(iv).........................................    1545-1265
1.263A-9(g)(2)(iv)(C)......................................    1545-1265
1.263A-9(g)(3)(iv).........................................    1545-1265
1.265-1....................................................    1545-0074
1.265-2....................................................    1545-0123
1.266-1....................................................    1545-0123
1.267(f)-1.................................................    1545-0885
1.268-1....................................................    1545-0184
1.274-1....................................................    1545-0139
1.274-2....................................................    1545-0139
1.274-3....................................................    1545-0139
1.274-4....................................................    1545-0139
1.274-5....................................................    1545-0771
1.274-5A...................................................    1545-0139
                                                               1545-0771
1.274-5T...................................................    1545-0074
                                                               1545-0172
                                                               1545-0771
1.274-6....................................................    1545-0139
                                                               1545-0771
1.274-6T...................................................    1545-0074
                                                               1545-0771
1.274-7....................................................    1545-0139
1.274-8....................................................    1545-0139
1.279-6....................................................    1545-0123
1.280C-4...................................................    1545-1155
1.280F-3T..................................................    1545-0074
1.280G-1...................................................    1545-1851
1.281-4....................................................    1545-0123
1.302-4....................................................    1545-0074
1.305-3....................................................    1545-0123
1.305-5....................................................    1545-1438
1.307-2....................................................    1545-0074
1.312-15...................................................    1545-0172
1.316-1....................................................    1545-0123
1.331-1....................................................    1545-0074
1.332-4....................................................    1545-0123
1.332-6....................................................    1545-2019
1.336-2....................................................    1545-2125
1.336-4....................................................    1545-2125
1.337(d)-1.................................................    1545-1160
1.337(d)-2.................................................    1545-1160
                                                               1545-1774
1.337(d)-4.................................................    1545-1633
1.337(d)-5.................................................    1545-1672
1.337(d)-6.................................................    1545-1672
1.337(d)-7.................................................    1545-1672
1.338-2....................................................    1545-1658
1.338-5....................................................    1545-1658
1.338-10...................................................    1545-1658
1.338-11...................................................    1545-1990
1.338(h)(10)-1.............................................    1545-1658
1.338(i)-1.................................................    1545-1990
1.351-3....................................................    1545-2019
1.355-5....................................................    1545-2019
1.362-2....................................................    1545-0123
1.362-4....................................................    1545-2247
1.367(a)-1T................................................    1545-0026
1.367(a)-2T................................................    1545-0026
1.367(a)-3.................................................    1545-0026
                                                               1545-1478
1.367(a)-3T................................................    1545-2183
1.367(a)-6T................................................    1545-0026
1.367(a)-7.................................................    1545-2183
1.367(a)-7T................................................    1545-2183
1.367(a)-8.................................................    1545-1271
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                                                               1545-2183
1.367(b)-1.................................................    1545-1271
1.367(b)-3T................................................    1545-1666
1.367(d)-1T................................................    1545-0026
1.367(e)-1.................................................    1545-1487
1.367(e)-2.................................................    1545-1487
1.368-1....................................................    1545-1691
1.368-3....................................................    1545-2019
1.371-1....................................................    1545-0123
1.371-2....................................................    1545-0123
1.374-3....................................................    1545-0123
1.381(b)-1.................................................    1545-0123
1.381(c)(4)-1..............................................    1545-0123
                                                               1545-0152
                                                               1545-0879
1.381(c)(5)-1..............................................    1545-0123
                                                               1545-0152
1.381(c)(6)-1..............................................    1545-0123
                                                               1545-0152
1.381(c)(8)-1..............................................    1545-0123
1.381(c)(10)-1.............................................    1545-0123
1.381(c)(11)-1(k)..........................................    1545-0123
1.381(c)(13)-1.............................................    1545-0123
1.381(c)(17)-1.............................................    1545-0045
1.381(c)(22)-1.............................................    1545-1990
1.381(c)(25)-1.............................................    1545-0045
1.382-1T...................................................    1545-0123
1.382-2....................................................    1545-0123
1.382-2T...................................................    1545-0123
1.382-3....................................................    1545-1281
                                                               1545-1345
1.382-4....................................................    1545-1120
1.382-6....................................................    1545-1381
1.382-8....................................................    1545-1434
1.382-9....................................................    1545-1120
                                                               1545-1260
                                                               1545-1275
                                                               1545-1324
1.382-11...................................................    1545-2019
1.382-91...................................................    1545-1260
                                                               1545-1324
1.383-1....................................................    1545-0074
                                                               1545-1120
1.401-1....................................................    1545-0020
                                                               1545-0197
                                                               1545-0200
                                                               1545-0534
                                                               1545-0710
1.401(a)-11................................................    1545-0710
1.401(a)-20................................................    1545-0928
1.401(a)-31................................................    1545-1341
1.401(a)-50................................................    1545-0710
1.401(a)(9)-1..............................................    1545-1573
1.401(a)(9)-3..............................................    1545-1466
1.401(a)(9)-4..............................................    1545-1573
1.401(a)(9)-6..............................................    1545-2234
1.401(a)(31)-1.............................................    1545-1341
1.401(b)-1.................................................    1545-0197
1.401(f)-1.................................................    1545-0710
1.401(k)-1.................................................    1545-1039
                                                               1545-1069
                                                               1545-1669
                                                               1545-1930
1.401(k)-2.................................................    1545-1669
1.401(k)-3.................................................    1545-1669
1.401(k)-4.................................................    1545-1669
1.401(m)-3.................................................    1545-1699
1.401-14...................................................    1545-0710
1.402(c)-2.................................................    1545-1341
1.402(f)-1.................................................    1545-1341
                                                               1545-1632
1.402A-1...................................................    1545-1992
1.403(b)-1.................................................    1545-0710
1.403(b)-3.................................................    1545-0996
1.403(b)-7.................................................    1545-1341
1.403(b)-10................................................    1545-2068
1.404(a)-12................................................    1545-0710
1.404A-2...................................................    1545-0123
1.404A-6...................................................    1545-0123
1.408-2....................................................    1545-0390
1.408-5....................................................    1545-0747
1.408-6....................................................    1545-0203
                                                               1545-0390
1.408-7....................................................    1545-0119
1.408(q)-1.................................................    1545-1841
1.408A-2...................................................    1545-1616
1.408A-4...................................................    1545-1616
1.408A-5...................................................    1545-1616
1.408A-7...................................................    1545-1616
1.410(a)-2.................................................    1545-0710
1.410(d)-1.................................................    1545-0710
1.411(a)-11................................................    1545-1471
                                                               1545-1632
1.411(d)-4.................................................    1545-1545
1.411(d)-6.................................................    1545-1477
1.412(c)(1)-2..............................................    1545-0710
1.412(c)(2)-1..............................................    1545-0710
1.412(c)(3)-2..............................................    1545-0710
1.414(c)-5.................................................    1545-0797
1.414(r)-1.................................................    1545-1221
1.415-2....................................................    1545-0710
1.415-6....................................................    1545-0710
1.417(a)(3)-1..............................................    1545-0928
1.417(e)-1.................................................    1545-1471
                                                               1545-1724
1.417(e)-1T................................................    1545-1471
1.419A(f)(6)-1.............................................    1545-1795
1.422-1....................................................    1545-0820
1.430(f)-1.................................................    1545-2095
1.430(g)-1.................................................    1545-2095
1.430(h)(2)-1..............................................    1545-2095
1.432(e)(9)-1T.............................................    1545-2260
1.436-1....................................................    1545-2095
1.441-2....................................................    1545-1748
1.442-1....................................................    1545-0074
                                                               1545-0123
                                                               1545-0134
                                                               1545-0152
                                                               1545-0820
                                                               1545-1748
1.443-1....................................................    1545-0123
1.444-3T...................................................    1545-1036
1.444-4....................................................    1545-1591
1.446-1....................................................    1545-0074
                                                               1545-0152
1.446-4(d).................................................    1545-1412
1.448-1(g).................................................    1545-0152
1.448-1(h).................................................    1545-0152
1.448-1(i).................................................    1545-0152
1.448-2....................................................    1545-1855
1.448-2T...................................................    1545-0152
                                                               1545-1855
1.451-1....................................................    1545-0091
1.451-4....................................................    1545-0123
1.451-6....................................................    1545-0074
1.451-7....................................................    1545-0074
1.453-1....................................................    1545-0152
1.453-2....................................................    1545-0152
1.453-8....................................................    1545-0152
                                                               1545-0228
1.453A-1...................................................    1545-0152
                                                               1545-1134
1.453A-3...................................................    1545-0963
1.454-1....................................................    1545-0074

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1.455-2....................................................    1545-0152
1.455-6....................................................    1545-0123
1.456-2....................................................    1545-0123
1.456-6....................................................    1545-0123
1.456-7....................................................    1545-0123
1.457-8....................................................    1545-1580
1.458-1....................................................    1545-0879
1.458-2....................................................    1545-0152
1.460-1....................................................    1545-1650
1.460-6....................................................    1545-1031
                                                               1545-1572
                                                               1545-1732
1.461-1....................................................    1545-0074
1.461-2....................................................    1545-0096
1.461-4....................................................    1545-0917
1.461-5....................................................    1545-0917
1.463-1T...................................................    1545-0916
1.465-1T...................................................    1545-0712
1.466-1T...................................................    1545-0152
1.466-4....................................................    1545-0152
1.468A-3...................................................    1545-1269
                                                               1545-1378
                                                               1545-1511
1.468A-3(h), 1.468A-7, and 1.468A-8(d).....................    1545-2091
1.468A-4...................................................    1545-0954
1.468A-7...................................................    1545-0954
                                                               1545-1511
1.468A-8...................................................    1545-1269
1.468B-1...................................................    1545-1631
1.468B-1(j)................................................    1545-1299
1.468B-2(k)................................................    1545-1299
1.468B-2(l)................................................    1545-1299
1.468B-3(b)................................................    1545-1299
1.468B-3(e)................................................    1545-1299
1.468B-5(b)................................................    1545-1299
1.468B-9...................................................    1545-1631
1.469-1....................................................    1545-1008
1.469-2T...................................................    1545-0712
                                                               1545-1091
1.469-4T...................................................    1545-0985
                                                               1545-1037
1.469-7....................................................    1545-1244
1.471-2....................................................    1545-0123
1.471-5....................................................    1545-0123
1.471-6....................................................    1545-0123
1.471-8....................................................    1545-0123
1.471-11...................................................    1545-0123
                                                               1545-0152
1.472-1....................................................    1545-0042
                                                               1545-0152
1.472-2....................................................    1545-0152
1.472-3....................................................    1545-0042
1.472-5....................................................    1545-0152
1.472-8....................................................    1545-0028
                                                               1545-0042
                                                               1545-1767
1.475(a)-4.................................................    1545-1945
1.481-4....................................................    1545-0152
1.481-5....................................................    1545-0152
1.482-1....................................................    1545-1364
1.482-4....................................................    1545-1364
1.482-7....................................................    1545-1364
                                                               1545-1794
1.482-9(b).................................................    1545-2149
1.501(a)-1.................................................    1545-0056
                                                               1545-0057
1.501(c)(3)-1..............................................    1545-0056
1.501(c)(9)-5..............................................    1545-0047
1.501(c)(17)-3.............................................    1545-0047
1.501(e)-1.................................................    1545-0814
1.501(r)-3.................................................    1545-0047
1.501(r)-4.................................................    1545-0047
1.501(r)-6.................................................    1545-0047
1.503(c)-1.................................................    1545-0047
                                                               1545-0052
1.505(c)-1T................................................    1545-0916
1.506-1....................................................    1545-2268
1.507-1....................................................    1545-0052
1.507-2....................................................    1545-0052
1.508-1....................................................    1545-0052
                                                               1545-0056
1.509(a)-3.................................................    1545-0047
1.509(a)-4.................................................    1545-2157
1.509(a)-5.................................................    1545-0047
1.509(c)-1.................................................    1545-0052
1.512(a)-1.................................................    1545-0687
1.512(a)-4.................................................    1545-0047
                                                               1545-0687
1.521-1....................................................    1545-0051
                                                               1545-0058
1.527-2....................................................    1545-0129
1.527-5....................................................    1545-0129
1.527-6....................................................    1545-0129
1.527-9....................................................    1545-0129
1.528-8....................................................    1545-0127
1.529A-2...................................................    1545-2293
1.529A-5...................................................    1545-2262
1.529A-6...................................................    1545-2262
1.529A-7...................................................    1545-2262
1.533-2....................................................    1545-0123
1.534-2....................................................    1545-0123
1.542-3....................................................    1545-0123
1.545-2....................................................    1545-0123
1.545-3....................................................    1545-0123
1.547-2....................................................    1545-0045
                                                               1545-0123
1.547-3....................................................    1545-0123
1.561-1....................................................    1545-0044
1.561-2....................................................    1545-0123
1.562-3....................................................    1545-0123
1.563-2....................................................    1545-0123
1.564-1....................................................    1545-0123
1.565-1....................................................    1545-0043
                                                               1545-0123
1.565-2....................................................    1545-0043
1.565-3....................................................    1545-0043
1.565-5....................................................    1545-0043
1.565-6....................................................    1545-0043
1.585-1....................................................    1545-0123
1.585-3....................................................    1545-0123
1.585-8....................................................    1545-1290
1.597-2....................................................    1545-1300
1.597-4....................................................    1545-1300
1.597-6....................................................    1545-1300
1.597-7....................................................    1545-1300
1.611-2....................................................    1545-0099
1.611-3....................................................    1545-0007
                                                               1545-0099
                                                               1545-1784
1.612-4....................................................    1545-0074
1.612-5....................................................    1545-0099
1.613-3....................................................    1545-0099
1.613-4....................................................    1545-0099
1.613-6....................................................    1545-0099
1.613-7....................................................    1545-0099
1.613A-3...................................................    1545-0919
1.613A-3(e)................................................    1545-1251
1.613A-3(l)................................................    1545-0919
1.613A-5...................................................    1545-0099
1.613A-6...................................................    1545-0099
1.614-2....................................................    1545-0099
1.614-3....................................................    1545-0099
1.614-5....................................................    1545-0099
1.614-6....................................................    1545-0099

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1.614-8....................................................    1545-0099
1.617-1....................................................    1545-0099
1.617-3....................................................    1545-0099
1.617-4....................................................    1545-0099
1.631-1....................................................    1545-0007
1.631-2....................................................    1545-0007
1.641(b)-2.................................................    1545-0092
1.642(c)-1.................................................    1545-0092
1.642(c)-2.................................................    1545-0092
1.642(c)-5.................................................    1545-0074
1.642(c)-6.................................................    1545-0020
                                                               1545-0074
                                                               1545-0092
1.642(g)-1.................................................    1545-0092
1.642(i)-1.................................................    1545-0092
1.645-1....................................................    1545-1578
1.663(b)-2.................................................    1545-0092
1.664-1....................................................    1545-0196
1.664-1(a)(7)..............................................    1545-1536
1.664-1(c).................................................    1545-2101
1.664-2....................................................    1545-0196
1.664-3....................................................    1545-0196
1.664-4....................................................    1545-0020
                                                               1545-0196
1.665(a)-0A through
1.665(g)-2A................................................    1545-0192
1.666(d)-1A................................................    1545-0092
1.671-4....................................................    1545-1442
1.671-5....................................................    1545-1540
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1.706-4(f).................................................    1545-0123
1.707-3(c)(2)..............................................    1545-1243
1.707-5(a)(7)(ii)..........................................    1545-1243
1.707-6(c).................................................    1545-1243
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1.801-1....................................................    1545-0123
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1.804-4....................................................    1545-0128
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1.819-2....................................................    1545-0128
1.822-5....................................................    1545-1027
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1.848-2(h)(3)..............................................    1545-1287
1.848-2(i)(4)..............................................    1545-1287
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1.860E-2(a)(7).............................................    1545-1276
1.860E-2(b)(2).............................................    1545-1276
1.860G-2...................................................    1545-2110
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1.861-4....................................................    1545-1900
1.861-8....................................................    1545-0126
1.861-8(e)(6) and (g)......................................    1545-1224
1.861-9T...................................................    1545-0121
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1.861-18...................................................    1545-1594
1.863-1....................................................    1545-1476
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1.921-2....................................................    1545-0884
1.927(a)-1T................................................    1545-0935
1.927(d)-2T................................................    1545-0935
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1.1042-1T..................................................    1545-0916
1.1044(a)-1................................................    1545-1421
1.1045-1...................................................    1545-1893
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1.1092(b)-1T...............................................    1545-0644
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1.1092(b)-3T...............................................    1545-0644
1.1092(b)-4T...............................................    1545-0644
1.1092(b)-5T...............................................    1545-0644
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1.1244(e)-1................................................    1545-0123
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1.1248(f)-2................................................    1545-2183
1.1248(f)-3T...............................................    1545-2183
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1.1252-2...................................................    1545-0184
1.1254-1(c)(3).............................................    1545-1352
1.1254-4...................................................    1545-1493
1.1254-5(d)(2).............................................    1545-1352
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1.1272-3...................................................    1545-1353
1.1273-2(f)(9).............................................    1545-1353
1.1273-2(h)(2).............................................    1545-1353
1.1274-3(d)................................................    1545-1353
1.1274-5(b)................................................    1545-1353
1.1274A-1(c)...............................................    1545-1353
1.1275-2...................................................    1545-1450
1.1275-3...................................................    1545-0887
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1.1294-1T..................................................    1545-1002
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1.1311(a)-1................................................    1545-0074
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1.1366-1...................................................    1545-1613
1.1367-1(f)................................................    1545-1139
1.1368-1(f)(2).............................................    1545-1139
1.1368-1(f)(3).............................................    1545-1139
1.1368-1(f)(4).............................................    1545-1139
1.1368-1(g)(2).............................................    1545-1139
1.1374-1A..................................................    1545-0130
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1.1397E-1..................................................    1545-1908
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1.1402(a)-5................................................    1545-0074
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1.1402(a)-16...............................................    1545-0074
1.1402(b)-1................................................    1545-0171
1.1402(c)-2................................................    1545-0074
1.1402(e)(1)-1.............................................    1545-0074
1.1402(e)(2)-1.............................................    1545-0074
1.1402(e)-1A...............................................    1545-0168
1.1402(e)-2A...............................................    1545-0168
1.1402(e)-3A...............................................    1545-0168
1.1402(e)-4A...............................................    1545-0168
1.1402(e)-5A...............................................    1545-0168
1.1402(f)-1................................................    1545-0074
1.1402(h)-1................................................    1545-0064
1.1411-10(g)...............................................    1545-2227
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1.1502-77A.................................................    1545-0123
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1.1502-77B.................................................    1545-1699
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1.1502-95A.................................................    1545-1218
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1.1503-2A..................................................    1545-1083
1.1503(d)-1................................................    1545-1946
1.1503(d)-3................................................    1545-1946
1.1503(d)-4................................................    1545-1946
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1.1503(d)-6................................................    1545-1946
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1.6011-3...................................................    1545-0238
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1.6011-4...................................................    1545-1685
1.6012-1...................................................    1545-0067
                                                               1545-0074
                                                               1545-0085
                                                               1545-0089
                                                               1545-0675
1.6012-2...................................................    1545-0047
                                                               1545-0051
                                                               1545-0067
                                                               1545-0123
                                                               1545-0126
                                                               1545-0128
                                                               1545-0130
                                                               1545-0175
                                                               1545-0687
                                                               1545-0890
                                                               1545-1023
                                                               1545-1027
1.6012-3...................................................    1545-0047
                                                               1545-0067
                                                               1545-0092
                                                               1545-0196
                                                               1545-0687
1.6012-4...................................................    1545-0067
1.6012-5...................................................    1545-0067

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                                                               1545-0970
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1.6012-6...................................................    1545-0067
                                                               1545-0089
                                                               1545-0129
1.6013-1...................................................    1545-0074
1.6013-2...................................................    1545-0091
1.6013-6...................................................    1545-0074
1.6013-7...................................................    1545-0074
1.6015-5...................................................    1545-1719
1.6015(a)-1................................................    1545-0087
1.6015(b)-1................................................    1545-0087
1.6015(d)-1................................................    1545-0087
1.6015(e)-1................................................    1545-0087
1.6015(f)-1................................................    1545-0087
1.6015(g)-1................................................    1545-0087
1.6015(h)-1................................................    1545-0087
1.6015(i)-1................................................    1545-0087
1.6017-1...................................................    1545-0074
                                                               1545-0087
                                                               1545-0090
1.6031(a)-1................................................    1545-1583
1.6031(b)-1T...............................................    1545-0099
1.6031(c)-1T...............................................    1545-0099
1.6032-1...................................................    1545-0099
1.6033-2...................................................    1545-0047
                                                               1545-0049
                                                               1545-0052
                                                               1545-0092
                                                               1545-0687
                                                               1545-1150
                                                               1545-2117
1.6033-3...................................................    1545-0052
1.6034-1...................................................    1545-0092
                                                               1545-0094
1.6035-2...................................................    1545-0704
1.6037-1...................................................    1545-0130
                                                               1545-1023
1.6038-2...................................................    1545-1617
                                                               1545-2020
1.6038-3...................................................    1545-1617
1.6038A-2..................................................    1545-1191
1.6038A-3..................................................    1545-1191
                                                               1545-1440
1.6038B-1..................................................    1545-1617
                                                               1545-2183
1.6038B-1T.................................................    1545-0026
                                                               1545-2183
1.6038B-2..................................................    1545-1617
1.6039-2...................................................    1545-0820
1.6041-1...................................................    1545-0008
                                                               1545-0108
                                                               1545-0112
                                                               1545-0115
                                                               1545-0120
                                                               1545-0295
                                                               1545-0350
                                                               1545-0367
                                                               1545-0387
                                                               1545-0441
                                                               1545-0957
                                                               1545-1705
1.6041-2...................................................    1545-0008
                                                               1545-0119
                                                               1545-0350
                                                               1545-0441
                                                               1545-1729
1.6041-3...................................................    1545-1148
1.6041-4...................................................    1545-0115
                                                               1545-0295
                                                               1545-0367
                                                               1545-0387
                                                               1545-0957
1.6041-5...................................................    1545-0295
                                                               1545-0367
                                                               1545-0387
                                                               1545-0957
1.6041-6...................................................    1545-0008
                                                               1545-0115
1.6041-7...................................................    1545-0112
                                                               1545-0295
                                                               1545-0350
                                                               1545-0367
                                                               1545-0387
                                                               1545-0441
                                                               1545-0957
1.6042-1...................................................    1545-0110
1.6042-2...................................................    1545-0110
                                                               1545-0295
                                                               1545-0367
                                                               1545-0387
                                                               1545-0957
1.6042-3...................................................    1545-0295
                                                               1545-0367
                                                               1545-0387
                                                               1545-0957
1.6042-4...................................................    1545-0110
1.6043-1...................................................    1545-0041
1.6043-2...................................................    1545-0041
                                                               1545-0110
                                                               1545-0295
                                                               1545-0387
1.6043-3...................................................    1545-0047
1.6044-1...................................................    1545-0118
1.6044-2...................................................    1545-0118
1.6044-3...................................................    1545-0118
1.6044-4...................................................    1545-0118
1.6044-5...................................................    1545-0118
1.6045-1...................................................    1545-0715
                                                               1545-1705
1.6045-1(c)(3)(xi)(C)......................................    1545-2186
1.6045-1(n)(5).............................................    1545-2186
1.6045A-1..................................................    1545-2186
1.6045-2...................................................    1545-0115
1.6045-4...................................................    1545-1085
1.6046-1...................................................    1545-0704
                                                               1545-0794
                                                               1545-1317
1.6046-2...................................................    1545-0704
1.6046-3...................................................    1545-0704
1.6046A....................................................    1545-1646
1.6047-1...................................................    1545-0119
                                                               1545-0295
                                                               1545-0387
1.6047-2...................................................    1545-2234
1.6049-1...................................................    1545-0112
                                                               1545-0117
                                                               1545-0295
                                                               1545-0367
                                                               1545-0387
                                                               1545-0597
                                                               1545-0957
1.6049-2...................................................    1545-0117
1.6049-3...................................................    1545-0117
1.6049-4...................................................    1545-0096
                                                               1545-0112
                                                               1545-0117
                                                               1545-1018
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[[Page 521]]

 
1.6049-5...................................................    1545-0096
                                                               1545-0112
                                                               1545-0117
1.6049-6...................................................    1545-0096
1.6049-7...................................................    1545-1018
1.6050A-1..................................................    1545-0115
1.6050B-1..................................................    1545-0120
1.6050D-1..................................................    1545-0120
                                                               1545-0232
1.6050E-1..................................................    1545-0120
1.6050H-1..................................................    1545-0901
                                                               1545-1380
1.6050H-2..................................................    1545-0901
                                                               1545-1339
                                                               1545-1380
1.6050I-2..................................................    1545-1449
1.6050J-1T.................................................    1545-0877
1.6050K-1..................................................    1545-0941
1.6050S-1..................................................    1545-1678
1.6050S-2..................................................    1545-1729
1.6050S-3..................................................    1545-1678
1.6050S-4..................................................    1545-1729
1.6052-1...................................................    1545-0008
1.6052-2...................................................    1545-0008
1.6055-1...................................................    1545-2252
1.6055-2...................................................    1545-2252
1.6060-1...................................................    1545-0074
1.6060-1(a)(1).............................................    1545-1231
1.6061-1...................................................    1545-0123
1.6062-1...................................................    1545-0123
1.6063-1...................................................    1545-0123
1.6065-1...................................................    1545-0123
1.6071-1...................................................    1545-0123
                                                               1545-0810
1.6072-1...................................................    1545-0074
1.6072-2...................................................    1545-0123
                                                               1545-0807
1.6073-1...................................................    1545-0087
1.6073-2...................................................    1545-0087
1.6073-3...................................................    1545-0087
1.6073-4...................................................    1545-0087
1.6074-1...................................................    1545-0123
1.6074-2...................................................    1545-0123
1.6081-1...................................................    1545-0066
                                                               1545-0148
                                                               1545-0233
                                                               1545-1057
                                                               1545-1081
1.6081-2...................................................    1545-0148
                                                               1545-1036
                                                               1545-1054
1.6081-3...................................................    1545-0233
1.6081-4...................................................    1545-0188
                                                               1545-1479
1.6081-6...................................................    1545-0148
                                                               1545-1054
1.6081-7...................................................    1545-0148
                                                               1545-1054
1.6091-3...................................................    1545-0089
1.6107-1...................................................    1545-0074
                                                               1545-1231
1.6109-1...................................................    1545-0074
1.6109-2...................................................    1545-2176
1.6115-1...................................................    1545-1464
1.6151-1...................................................    1545-0074
1.6153-1...................................................    1545-0087
1.6153-4...................................................    1545-0087
1.6161-1...................................................    1545-0087
1.6162-1...................................................    1545-0087
1.6164-1...................................................    1545-0135
1.6164-2...................................................    1545-0135
1.6164-3...................................................    1545-0135
1.6164-5...................................................    1545-0135
1.6164-6...................................................    1545-0135
1.6164-7...................................................    1545-0135
1.6164-8...................................................    1545-0135
1.6164-9...................................................    1545-0135
1.6302-1...................................................    1545-0257
1.6302-2...................................................    1545-0098
                                                               1545-0257
1.6411-1...................................................    1545-0098
                                                               1545-0135
                                                               1545-0582
1.6411-2...................................................    1545-0098
                                                               1545-0582
1.6411-3...................................................    1545-0098
                                                               1545-0582
1.6411-4...................................................    1545-0582
1.6414-1...................................................    1545-0096
1.6425-1...................................................    1545-0170
1.6425-2...................................................    1545-0170
1.6425-3...................................................    1545-0170
1.6654-1...................................................    1545-0087
                                                               1545-0140
1.6654-2...................................................    1545-0087
1.6654-3...................................................    1545-0087
1.6655(e)-1................................................    1545-1421
1.6662-3(c)................................................    1545-0889
1.6662-4(e) and (f)........................................    1545-0889
1.6662-6...................................................    1545-1426
1.6694-1...................................................    1545-0074
1.6694-2...................................................    1545-0074
1.6694-2(c)................................................    1545-1231
1.6694-2(c)(3).............................................    1545-1231
1.6694-3(e)................................................    1545-1231
1.6695-1...................................................    1545-0074
                                                               1545-1385
1.6696-1...................................................    1545-0074
                                                               1545-0240
1.6851-1...................................................    1545-0086
                                                               1545-0138
1.6851-2...................................................    1545-0086
                                                               1545-0138
1.7476-1...................................................    1545-0197
1.7476-2...................................................    1545-0197
1.7519-2T..................................................    1545-1036
1.7520-1...................................................    1545-1343
1.7520-2...................................................    1545-1343
1.7520-3...................................................    1545-1343
1.7520-4...................................................    1545-1343
1.7701(l)-3................................................    1545-1642
1.7872-15..................................................    1545-1792
1.9100-1...................................................    1545-0074
1.9101-1...................................................    1545-0008
2.1-4......................................................    1545-0123
2.1-5......................................................    1545-0123
2.1-6......................................................    1545-0123
2.1-10.....................................................    1545-0123
2.1-11.....................................................    1545-0123
2.1-12.....................................................    1545-0123
2.1-13.....................................................    1545-0123
2.1-20.....................................................    1545-0123
2.1-22.....................................................    1545-0123
2.1-26.....................................................    1545-0123
3.2........................................................    1545-0123
4.954-1....................................................    1545-1068
4.954-2....................................................    1545-1068
5.6411-1...................................................    1545-0042
                                                               1545-0074
                                                               1545-0098
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[[Page 522]]

 
5c.44F-1...................................................    1545-0619
5c.128-1...................................................    1545-0123
5c.305-1...................................................    1545-0110
5c.442-1...................................................    1545-0152
5f.103-1...................................................    1545-0720
5f.6045-1..................................................    1545-0715
6a.103A-2..................................................    1545-0123
                                                               1545-0720
6a.103A-3..................................................    1545-0720
7.465-1....................................................    1545-0712
7.465-2....................................................    1545-0712
7.465-3....................................................    1545-0712
7.465-4....................................................    1545-0712
7.465-5....................................................    1545-0712
7.936-1....................................................    1545-0217
7.999-1....................................................    1545-0216
7.6039A-1..................................................    1545-0015
7.6041-1...................................................    1545-0115
11.410-1...................................................    1545-0710
11.412(c)-7................................................    1545-0710
11.412(c)-11...............................................    1545-0710
12.7.......................................................    1545-0190
12.8.......................................................    1545-0191
12.9.......................................................    1545-0195
14a.422A-1.................................................    1545-0123
15A.453-1..................................................    1545-0228
16A.126-2..................................................    1545-0074
16A.1255-1.................................................    1545-0184
16A.1255-2.................................................    1545-0184
18.1371-1..................................................    1545-0130
18.1378-1..................................................    1545-0130
18.1379-1..................................................    1545-0130
18.1379-2..................................................    1545-0130
20.2010-2..................................................    1545-0015
20.2011-1..................................................    1545-0015
20.2014-5..................................................    1545-0015
                                                               1545-0260
20.2014-6..................................................    1545-0015
20.2016-1..................................................    1545-0015
20.2031-2..................................................    1545-0015
20.2031-3..................................................    1545-0015
20.2031-4..................................................    1545-0015
20.2031-6..................................................    1545-0015
20.2031-7..................................................    1545-0020
20.2031-10.................................................    1545-0015
20.2032-1..................................................    1545-0015
20.2032A-3.................................................    1545-0015
20.2032A-4.................................................    1545-0015
20.2032A-8.................................................    1545-0015
20.2039-4..................................................    1545-0015
20.2051-1..................................................    1545-0015
20.2053-3..................................................    1545-0015
20.2053-9..................................................    1545-0015
20.2053-10.................................................    1545-0015
20.2055-1..................................................    1545-0015
20.2055-2..................................................    1545-0015
                                                               1545-0092
20.2055-3..................................................    1545-0015
20.2056(b)-4...............................................    1545-0015
20.2056(b)-7...............................................    1545-0015
                                                               1545-1612
20.2056A-2.................................................    1545-1443
20.2056A-3.................................................    1545-1360
20.2056A-4.................................................    1545-1360
20.2056A-10................................................    1545-1360
20.2106-1..................................................    1545-0015
20.2106-2..................................................    1545-0015
20.2204-1..................................................    1545-0015
20.2204-2..................................................    1545-0015
20.6001-1..................................................    1545-0015
20.6011-1..................................................    1545-0015
20.6018-1..................................................    1545-0015
                                                               1545-0531
20.6018-2..................................................    1545-0015
20.6018-3..................................................    1545-0015
20.6018-4..................................................    1545-0015
                                                               1545-0022
20.6036-2..................................................    1545-0015
20.6060-1(a)(1)............................................    1545-1231
20.6061-1..................................................    1545-0015
20.6065-1..................................................    1545-0015
20.6075-1..................................................    1545-0015
20.6081-1..................................................    1545-0015
                                                               1545-0181
                                                               1545-1707
20.6091-1..................................................    1545-0015
20.6107-1..................................................    1545-1231
20.6161-1..................................................    1545-0015
                                                               1545-0181
20.6161-2..................................................    1545-0015
                                                               1545-0181
20.6163-1..................................................    1545-0015
20.6166-1..................................................    1545-0181
20.6166A-1.................................................    1545-0015
20.6166A-3.................................................    1545-0015
20.6324A-1.................................................    1545-0754
20.7520-1..................................................    1545-1343
20.7520-2..................................................    1545-1343
20.7520-3..................................................    1545-1343
20.7520-4..................................................    1545-1343
22.0.......................................................    1545-0015
25.2511-2..................................................    1545-0020
25.2512-2..................................................    1545-0020
25.2512-3..................................................    1545-0020
25.2512-5..................................................    1545-0020
25.2512-9..................................................    1545-0020
25.2513-1..................................................    1545-0020
25.2513-2..................................................    1545-0020
                                                               1545-0021
25.2513-3..................................................    1545-0020
25.2518-2..................................................    1545-0959
25.2522(a)-1...............................................    1545-0196
25.2522(c)-3...............................................    1545-0020
                                                               1545-0196
25.2523(a)-1...............................................    1545-0020
                                                               1545-0196
25.2523(f)-1...............................................    1545-0015
25.2701-2..................................................    1545-1241
25.2701-4..................................................    1545-1241
25.2701-5..................................................    1545-1273
25.2702-5..................................................    1545-1485
25.2702-6..................................................    1545-1273
25.6001-1..................................................    1545-0020
                                                               1545-0022
25.6011-1..................................................    1545-0020
25.6019-1..................................................    1545-0020
25.6019-2..................................................    1545-0020
25.6019-3..................................................    1545-0020
25.6019-4..................................................    1545-0020
25.6060-1(a)(1)............................................    1545-1231
25.6061-1..................................................    1545-0020
25.6065-1..................................................    1545-0020
25.6075-1..................................................    1545-0020
25.6081-1..................................................    1545-0020
25.6091-1..................................................    1545-0020
25.6091-2..................................................    1545-0020
25.6107-1..................................................    1545-1231
25.6151-1..................................................    1545-0020
25.6161-1..................................................    1545-0020
25.7520-1..................................................    1545-1343
25.7520-2..................................................    1545-1343
25.7520-3..................................................    1545-1343
25.7520-4..................................................    1545-1343
26.2601-1..................................................    1545-0985

[[Page 523]]

 
26.2632-1..................................................    1545-0985
                                                               1545-1892
26.2642-1..................................................    1545-0985
26.2642-2..................................................    1545-0985
26.2642-3..................................................    1545-0985
26.2642-4..................................................    1545-0985
26.2642-6..................................................    1545-1902
26.2652-2..................................................    1545-0985
26.2654-1..................................................    1545-1902
26.2662-1..................................................    1545-0015
                                                               1545-0985
26.2662-2..................................................    1545-0985
26.6060-1(a)(1)............................................    1545-1231
26.6107-1..................................................    1545-1231
31.3102-3..................................................    1545-0029
                                                               1545-0059
                                                               1545-0065
31.3121(b)(19)-1...........................................    1545-0029
31.3121(d)-1...............................................    1545-0004
31.3121(i)-1...............................................    1545-0034
31.3121(r)-1...............................................    1545-0029
31.3121(s)-1...............................................    1545-0029
31.3121(v)(2)-1............................................    1545-1643
31.3302(a)-2...............................................    1545-0028
31.3302(a)-3...............................................    1545-0028
31.3302(b)-2...............................................    1545-0028
31.3302(e)-1...............................................    1545-0028
31.3306(c)(18)-1...........................................    1545-0029
31.3401(a)-1...............................................    1545-0029
31.3401(a)(6)..............................................    1545-1484
31.3401(a)(6)-1............................................    1545-0029
                                                               1545-0096
                                                               1545-0795
31.3401(a)(7)-1............................................    1545-0029
31.3401(a)(8)(A)-1 ........................................    1545-0029
                                                               1545-0666
31.3401(a)(8)(C)-1 ........................................    1545-0029
31.3401(a)(15)-1...........................................    1545-0182
31.3401(c)-1...............................................    1545-0004
31.3402(b)-1...............................................    1545-0010
31.3402(c)-1...............................................    1545-0010
31.3402(f)(1)-1............................................    1545-0010
31.3402(f)(2)-1............................................    1545-0010
                                                               1545-0410
31.3402(f)(3)-1............................................    1545-0010
31.3402(f)(4)-1............................................    1545-0010
31.3402(f)(4)-2............................................    1545-0010
31.3402(f)(5)-1............................................    1545-0010
                                                               1545-1435
31.3402(h)(1)-1............................................    1545-0029
31.3402(h)(3)-1............................................    1545-0010
                                                               1545-0029
31.3402(h)(4)-1............................................    1545-0010
31.3402(i)-(1).............................................    1545-0010
31.3402(i)-(2).............................................    1545-0010
31.3402(k)-1...............................................    1545-0065
31.3402(l)-(1).............................................    1545-0010
31.3402(m)-(1).............................................    1545-0010
31.3402(n)-(1).............................................    1545-0010
31.3402(o)-2...............................................    1545-0415
31.3402(o)-3...............................................    1545-0008
                                                               1545-0010
                                                               1545-0415
                                                               1545-0717
31.3402(p)-1...............................................    1545-0415
                                                               1545-0717
31.3402(q)-1...............................................    1545-0238
                                                               1545-0239
31.3404-1..................................................    1545-0029
31.3405(c)-1...............................................    1545-1341
31.3406(a)-1...............................................    1545-0112
31.3406(a)-2...............................................    1545-0112
31.3406(a)-3...............................................    1545-0112
31.3406(a)-4...............................................    1545-0112
31.3406(b)(2)-1............................................    1545-0112
31.3406(b)(2)-2............................................    1545-0112
31.3406(b)(2)-3............................................    1545-0112
31.3406(b)(2)-4............................................    1545-0112
31.3406(b)(2)-5............................................    1545-0112
31.3406(b)(3)-1............................................    1545-0112
31.3406(b)(3)-2............................................    1545-0112
31.3406(b)(3)-3............................................    1545-0112
31.3406(b)(3)-4............................................    1545-0112
31.3406(b)(4)-1............................................    1545-0112
31.3406(c)-1...............................................    1545-0112
31.3406(d)-1...............................................    1545-0112
31.3406(d)-2...............................................    1545-0112
31.3406(d)-3...............................................    1545-0112
31.3406(d)-4...............................................    1545-0112
31.3406(d)-5...............................................    1545-0112
31.3406(e)-1...............................................    1545-0112
31.3406(f)-1...............................................    1545-0112
31.3406(g)-1...............................................    1545-0096
                                                               1545-0112
                                                               1545-1819
31.3406(g)-2...............................................    1545-0112
31.3406(g)-3...............................................    1545-0112
31.3406(h)-1...............................................    1545-0112
31.3406(h)-2...............................................    1545-0112
31.3406(h)-3...............................................    1545-0112
31.3406(i)-1...............................................    1545-0112
31.3501(a)-1T..............................................    1545-0771
31.3503-1..................................................    1545-0024
31.3504-1..................................................    1545-0029
31.3511-1..................................................    1545-2266
31.6001-1..................................................    1545-0798
31.6001-2..................................................    1545-0034
                                                               1545-0798
31.6001-3..................................................    1545-0798
31.6001-4..................................................    1545-0028
31.6001-5..................................................    1545-0798
31.6001-6..................................................    1545-0029
                                                               1459-0798
31.6011(a)-1...............................................    1545-0029
                                                               1545-0034
                                                               1545-0035
                                                               1545-0059
                                                               1545-0074
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31.6011(a)-2...............................................    1545-0001
                                                               1545-0002
31.6011(a)-3...............................................    1545-0028
31.6011(a)-3A..............................................    1545-0955
31.6011(a)-4...............................................    1545-0034
                                                               1545-0035
                                                               1545-0718
                                                               1545-1413
                                                               1545-2097
31.6011(a)-5...............................................    1545-0028
                                                               1545-0718
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31.6011(a)-6...............................................    1545-0028
31.6011(a)-7...............................................    1545-0074
31.6011(a)-8...............................................    1545-0028
31.6011(a)-9...............................................    1545-0028
31.6011(a)-10..............................................    1545-0112
31.6011(b)-1...............................................    1545-0003
31.6011(b)-2...............................................    1545-0029
31.6051-1..................................................    1545-0008
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31.6051-2..................................................    1545-0008
31.6051-3..................................................    1545-0008
31.6053-1..................................................    1545-0029
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31.6053-2..................................................    1545-0008
31.6053-3..................................................    1545-0065
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31.6053-4..................................................    1545-0065
                                                               1545-1603
31.6060-1(a)(1)............................................    1545-1231
31.6065(a)-1...............................................    1545-0029
31.6071(a)-1...............................................    1545-0001
                                                               1545-0028
                                                               1545-0029
31.6071(a)-1A..............................................    1545-0955
31.6081(a)-1...............................................    1545-0008
                                                               1545-0028
31.6091-1..................................................    1545-0028
                                                               1545-0029
31.6107-1..................................................    1545-1231
31.6157-1..................................................    1545-0955
31.6205-1..................................................    1545-0029
                                                               1545-2097
31.6301(c)-1AT.............................................    1545-0035
                                                               1545-0112
                                                               1545-0257
31.6302-1..................................................    1545-1413
31.6302-2..................................................    1545-1413
31.6302-3..................................................    1545-1413
31.6302-4..................................................    1545-1413
31.6302(c)-2...............................................    1545-0001
                                                               1545-0257
31.6302(c)-2A..............................................    1545-0955
31.6302(c)-3...............................................    1545-0257
31.6402(a)-2...............................................    1545-0256
                                                               1545-2097
31.6413(a)-1...............................................    1545-0029
                                                               1545-2097
31.6413(a)-2...............................................    1545-0029
                                                               1545-0256
                                                               1545-2097
31.6413(c)-1...............................................    1545-0029
                                                               1545-0171
31.6414-1..................................................    1545-0029
                                                               1545-2097
32.1.......................................................    1545-0029
                                                               1545-0415
32.2.......................................................    1545-0029
35a.3406-2.................................................    1545-0112
35a.9999-5.................................................    1545-0029
36.3121(l)(1)-1............................................    1545-0137
36.3121(l)(1)-2............................................    1545-0137
36.3121(l)(3)-1............................................    1545-0123
36.3121(1)(7)-1............................................    1545-0123
36.3121(1)(10)-1...........................................    1545-0029
36.3121(1)(10)-3...........................................    1545-0029
36.3121(1)(10)-4...........................................    1545-0257
40.6060-1(a)(1)............................................    1545-1231
40.6107-1..................................................    1545-1231
40.6302(c)-3(b)(2)(ii).....................................    1545-1296
40.6302(c)-3(b)(2)(iii)....................................    1545-1296
40.6302(c)-3(e)............................................    1545-1296
40.6302(c)-3(f)(2)(ii).....................................    1545-1296
41.4481-1..................................................    1545-0143
41.4481-2..................................................    1545-0143
41.4483-3..................................................    1545-0143
41.6001-1..................................................    1545-0143
41.6001-2..................................................    1545-0143
41.6001-3..................................................    1545-0143
41.6060-1(a)(1)............................................    1545-1231
41.6071(a)-1...............................................    1545-0143
41.6081(a)-1...............................................    1545-0143
41.6091-1..................................................    1545-0143
41.6107-1..................................................    1545-1231
41.6109-1..................................................    1545-0143
41.6151(a)-1...............................................    1545-0143
41.6156-1..................................................    1545-0143
41.6161(a)(1)-1............................................    1545-0143
44.4401-1..................................................    1545-0235
44.4403-1..................................................    1545-0235
44.4412-1..................................................    1545-0236
44.4901-1..................................................    1545-0236
44.4905-1..................................................    1545-0236
44.4905-2..................................................    1545-0236
44.6001-1..................................................    1545-0235
44.6011(a)-1...............................................    1545-0235
                                                               1545-0236
44.6060-1(a)(1)............................................    1545-1231
44.6071-1..................................................    1545-0235
44.6091-1..................................................    1545-0235
44.6107-1..................................................    1545-1231
44.6151-1..................................................    1545-0235
44.6419-1..................................................    1545-0235
44.6419-2..................................................    1545-0235
46.4371-4..................................................    1545-0023
46.4374-1..................................................    1545-0023
46.4375-1..................................................    1545-2238
46.4376-1..................................................    1545-2238
46.4701-1..................................................    1545-0023
                                                               1545-0257
48.4041-4..................................................    1545-0023
48.4041-5..................................................    1545-0023
48.4041-6..................................................    1545-0023
48.4041-7..................................................    1545-0023
48.4041-9..................................................    1545-0023
48.4041-10.................................................    1545-0023
48.4041-11.................................................    1545-0023
48.4041-12.................................................    1545-0023
48.4041-13.................................................    1545-0023
48.4041-19.................................................    1545-0023
48.4041-20.................................................    1545-0023
48.4041-21.................................................    1545-1270
48.4042-2..................................................    1545-0023
48.4052-1..................................................    1545-1418
48.4061(a)-1...............................................    1545-0023
48.4061(a)-2...............................................    1545-0023
48.4061(b)-3...............................................    1545-0023
48.4064-1..................................................    1545-0014
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48.4071-1..................................................    1545-0023
48.4073-1..................................................    1545-0023
48.4073-3..................................................    1545-0023
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48.4081-2..................................................    1545-1270
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48.4081-3..................................................    1545-1270
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48.4081-4(b)(2)(ii)........................................    1545-1270
48.4081-4(b)(3)(i).........................................    1545-1270
48.4081-4(c)...............................................    1545-1270
48.4081-6(c)(1)(ii)........................................    1545-1270
48.4081-7..................................................    1545-1270
                                                               1545-1418
48.4082-1T.................................................    1545-1418
48.4082-2..................................................    1545-1418
48.4082-6..................................................    1545-1418
48.4082-7..................................................    1545-1418
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48.4101-2..................................................    1545-1418
48.4161(a)-1...............................................    1545-0723
48.4161(a)-2...............................................    1545-0723
48.4161(a)-3...............................................    1545-0723
48.4161(b)-1...............................................    1545-0723
48.4216(a)-2...............................................    1545-0023
48.4216(a)-3...............................................    1545-0023
48.4216(c)-1...............................................    1545-0023
48.4221-1..................................................    1545-0023
48.4221-2..................................................    1545-0023
48.4221-3..................................................    1545-0023
48.4221-4..................................................    1545-0023
48.4221-5..................................................    1545-0023
48.4221-6..................................................    1545-0023
48.4221-7..................................................    1545-0023
48.4222(a)-1...............................................    1545-0014
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48.4223-1..................................................    1545-0023
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48.6302(c)-1...............................................    1545-0023
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48.6412-1..................................................    1545-0723
48.6416(a)-1...............................................    1545-0023
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48.6416(a)-2...............................................    1545-0723
48.6416(a)-3...............................................    1545-0723
48.6416(b)(1)-1............................................    1545-0723
48.6416(b)(1)-2............................................    1545-0723
48.6416(b)(1)-3............................................    1545-0723
48.6416(b)(1)-4............................................    1545-0723
48.6416(b)(2)-1............................................    1545-0723
48.6416(b)(2)-2............................................    1545-0723
48.6416(b)(2)-3............................................    1545-0723
                                                               1545-1087
48.6416(b)(2)-4............................................    1545-0723
48.6416(b)(3)-1............................................    1545-0723
48.6416(b)(3)-2............................................    1545-0723
48.6416(b)(3)-3............................................    1545-0723
48.6416(b)(4)-1............................................    1545-0723
48.6416(b)(5)-1............................................    1545-0723
48.6416(c)-1...............................................    1545-0723
48.6416(e)-1...............................................    1545-0023
                                                               1545-0723
48.6416(f)-1...............................................    1545-0023
                                                               1545-0723
48.6416(g)-1...............................................    1545-0723
48.6416(h)-1...............................................    1545-0723
48.6420(c)-2...............................................    1545-0023
48.6420(f)-1...............................................    1545-0023
48.6420-1..................................................    1545-0162
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48.6420-2..................................................    1545-0162
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48.6420-3..................................................    1545-0162
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48.6420-4..................................................    1545-0162
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48.6420-5..................................................    1545-0162
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48.6420-6..................................................    1545-0162
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48.6421-0..................................................    1545-0162
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48.6421-1..................................................    1545-0162
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48.6421-2..................................................    1545-0162
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48.6421-3..................................................    1545-0162
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48.6421-4..................................................    1545-0162
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48.6421-5..................................................    1545-0162
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48.6421-6..................................................    1545-0162
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48.6421-7..................................................    1545-0162
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48.6424-0..................................................    1545-0723
48.6424-1..................................................    1545-0723
48.6424-2..................................................    1545-0723
48.6424-3..................................................    1545-0723
48.6424-4..................................................    1545-0723
48.6424-5..................................................    1545-0723
48.6424-6..................................................    1545-0723
48.6427-0..................................................    1545-0723
48.6427-1..................................................    1545-0023
                                                               1545-0162
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48.6427-2..................................................    1545-0162
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48.6427-3..................................................    1545-0723
48.6427-4..................................................    1545-0723
48.6427-5..................................................    1545-0723
48.6427-8..................................................    1545-1418
48.6427-9..................................................    1545-1418
48.6427-10.................................................    1545-1418
48.6427-11.................................................    1545-1418
49.4251-1..................................................    1545-1075
49.4251-2..................................................    1545-1075
49.4251-4(d)(2)............................................    1545-1628
49.4253-3..................................................    1545-0023
49.4253-4..................................................    1545-0023
49.4264(b)-1...............................................    1545-0023
                                                               1545-0224
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49.4271-1(d)...............................................    1545-0685
49.5000B-1.................................................    1545-2177
51.2(f)(2)(ii).............................................    1545-2209
51.7.......................................................    1545-2209
52.4682-1(b)(2)(iii).......................................    1545-1153
52.4682-2(b)...............................................    1545-1153
                                                               1545-1361
52.4682-2(d)...............................................    1545-1153
                                                               1545-1361
52.4682-3(c)(2)............................................    1545-1153
52.4682-3(g)...............................................    1545-1153
52.4682-4(f)...............................................    1545-0257
                                                               1545-1153
52.4682-5(d)...............................................    1545-1361
52.4682-5(f)...............................................    1545-1361
53.4940-1..................................................    1545-0052
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53.4942(a)-1...............................................    1545-0052
53.4942(a)-2...............................................    1545-0052
53.4942(a)-3...............................................    1545-0052
53.4942(b)-3...............................................    1545-0052
53.4945-1..................................................    1545-0052
53.4945-4..................................................    1545-0052
53.4945-5..................................................    1545-0052
53.4945-6..................................................    1545-0052
53.4947-1..................................................    1545-0196
53.4947-2..................................................    1545-0196
53.4948-1..................................................    1545-0052
53.4958-6..................................................    1545-1623
53.4961-2..................................................    1545-0024
53.4963-1..................................................    1545-0024
53.6001-1..................................................    1545-0052
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53.6060-1(a)(1)............................................    1545-1231
53.6065-1..................................................    1545-0052
53.6071-1..................................................    1545-0049
53.6081-1..................................................    1545-0066
                                                               1545-0148
53.6107-1..................................................    1545-1231
53.6161-1..................................................    1545-0575
54.4975-7..................................................    1545-0575
54.4977-1T.................................................    1545-0771
54.4980B-6.................................................    1545-1581
54.4980B-7.................................................    1545-1581
54.4980B-8.................................................    1545-1581
54.4980F-1.................................................    1545-1780
54.6011-1..................................................    1545-0575
54.6011-1T.................................................    1545-0575
54.6060-1(a)(1)............................................    1545-1231
54.6107-1..................................................    1545-1231
54.9801-3..................................................    1545-1537
54.9801-4..................................................    1545-1537
54.9801-5..................................................    1545-1537
54.9801-6..................................................    1545-1537
54.9812-1T.................................................    1545-2165
54.9815-1251T..............................................    1545-2178
54.9815-2711T..............................................    1545-2179
54.9815-2712T..............................................    1545-2180
54.9815-2714T..............................................    1545-2172
54.9815-2715...............................................    1545-2229
54.9815-2719AT.............................................    1545-2181
54.9815-2719T..............................................    1545-2182
55.6001-1..................................................    1545-0123
55.6011-1..................................................    1545-0123
                                                               1545-0999
                                                               1545-1016
55.6060-1(a)(1)............................................    1545-1231
55.6061-1..................................................    1545-0999
55.6071-1..................................................    1545-0999
55.6107-1..................................................    1545-1231
56.4911-6..................................................    1545-0052
56.4911-7..................................................    1545-0052
56.4911-9..................................................    1545-0052
56.4911-10.................................................    1545-0052
56.6001-1..................................................    1545-1049
56.6011-1..................................................    1545-1049
56.6060-1(a)(1)............................................    1545-1231
56.6081-1..................................................    1545-1049
56.6107-1..................................................    1545-1231
56.6161-1..................................................    1545-0257
                                                               1545-1049
57.2(e)(2)(i)..............................................    1545-2249
145.4051-1.................................................    1545-0745
145.4052-1.................................................    1545-0120
                                                               1545-0745
                                                               1545-1076
145.4061-1.................................................    1545-0224
                                                               1545-0230
                                                               1545-0257
                                                               1545-0745
156.6001-1.................................................    1545-1049
156.6011-1.................................................    1545-1049
156.6060-1(a)(1)...........................................    1545-1231
156.6081-1.................................................    1545-1049
156.6107-1.................................................    1545-1231
156.6161-1.................................................    1545-1049
157.6001-1.................................................    1545-1824
157.6011-1.................................................    1545-1824
157.6060-1(a)(1)...........................................    1545-1231
157.6081-1.................................................    1545-1824
157.6107-1.................................................    1545-1231
157.6161-1.................................................    1545-1824
301.6011-2.................................................    1545-0225
                                                               1545-0350
                                                               1545-0387
                                                               1545-0441
                                                               1545-0957
301.6011(g)-1..............................................    1545-2079
301.6017-1.................................................    1545-0090
301.6034-1.................................................    1545-0092
301.6036-1.................................................    1545-0013
                                                               1545-0773
301.6047-1.................................................    1545-0367
                                                               1545-0957
301.6056-1.................................................    1545-2251
301.6056-2.................................................    1545-2251
301.6057-1.................................................    1545-0710
301.6057-2.................................................    1545-0710
301.6058-1.................................................    1545-0710
301.6059-1.................................................    1545-0710
301.6103(c)-1..............................................    1545-1816
301.6103(n)-1..............................................    1545-1841
301.6103(p)(2)(B)-1........................................    1545-1757
301.6104(a)-1..............................................    1545-0495
301.6104(a)-5..............................................    1545-0056
301.6104(a)-6..............................................    1545-0056
301.6104(b)-1..............................................    1545-0094
                                                               1545-0742
301.6104(d)-1..............................................    1545-1655
301.6104(d)-2..............................................    1545-1655
301.6104(d)-3..............................................    1545-1655
301.6109-1.................................................    1545-0003
                                                               1545-0295
                                                               1545-0367
                                                               1545-0387
                                                               1545-0957
                                                               1545-1461
                                                               1545-2242
301.6109-3.................................................    1545-1564
301.6110-3.................................................    1545-0074
301.6110-5.................................................    1545-0074
301.6111-1T................................................    1545-0865
                                                               1545-0881
301.6111-2.................................................    1545-0865
                                                               1545-1687
301.6112-1.................................................    1545-0865
                                                               1545-1686
301.6112-1T................................................    1545-0865
                                                               1545-1686
301.6114-1.................................................    1545-1126
                                                               1545-1484
301.6222(a)-2..............................................    1545-0790
301.6222(b)-1..............................................    1545-0790
301.6222(b)-2..............................................    1545-0790
301.6222(b)-3..............................................    1545-0790
301.6223(b)-1..............................................    1545-0790
301.6223(c)-1..............................................    1545-0790
301.6223(e)-2..............................................    1545-0790
301.6223(g)-1..............................................    1545-0790
301.6223(h)-1..............................................    1545-0790
301.6224(b)-1..............................................    1545-0790
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301.6224(c)-3..............................................    1545-0790
301.6227(c)-1..............................................    1545-0790
301.6227(d)-1..............................................    1545-0790
301.6229(b)-2..............................................    1545-0790
301.6230(b)-1..............................................    1545-0790
301.6230(e)-1..............................................    1545-0790
301.6231(a)(1)-1...........................................    1545-0790
301.6231(a)(7)-1...........................................    1545-0790
301.6231(c)-1..............................................    1545-0790
301.6231(c)-2..............................................    1545-0790
301.6316-4.................................................    1545-0074
301.6316-5.................................................    1545-0074
301.6316-6.................................................    1545-0074

[[Page 527]]

 
301.6316-7.................................................    1545-0029
301.6324A-1................................................    1545-0015
301.6361-1.................................................    1545-0024
                                                               1545-0074
301.6361-2.................................................    1545-0024
301.6361-3.................................................    1545-0074
301.6402-2.................................................    1545-0024
                                                               1545-0073
                                                               1545-0091
301.6402-3.................................................    1545-0055
                                                               1545-0073
                                                               1545-0091
                                                               1545-0132
                                                               1545-1484
301.6402-5.................................................    1545-0928
301.6404-1.................................................    1545-0024
301.6404-2T................................................    1545-0024
301.6404-3.................................................    1545-0024
301.6405-1.................................................    1545-0024
301.6501(c)-1..............................................    1545-1241
                                                               1545-1637
301.6501(d)-1..............................................    1545-0074
                                                               1545-0430
301.6511(d)-1..............................................    1545-0024
                                                               1545-0582
301.6511(d)-2..............................................    1545-0024
                                                               1545-0582
301.6511(d)-3..............................................    1545-0024
                                                               1545-0582
301.6652-2.................................................    1545-0092
301.6685-1.................................................    1545-0092
301.6689-1T................................................    1545-1056
301.6707-1T................................................    1545-0865
                                                               1545-0881
301.6708-1T................................................    1545-0865
301.6712-1.................................................    1545-1126
301.6903-1.................................................    1545-0013
                                                               1545-1783
301.6905-1.................................................    1545-0074
301.7001-1.................................................    1545-0123
301.7101-1.................................................    1545-1029
301.7207-1.................................................    1545-0092
301.7216-2.................................................    1545-0074
301.7216-2(o)..............................................    1545-1209
301.7425-3.................................................    1545-0854
301.7430-2(c)..............................................    1545-1356
301.7502-1.................................................    1545-1899
301.7507-8.................................................    1545-0123
301.7507-9.................................................    1545-0123
301.7513-1.................................................    1545-0429
301.7517-1.................................................    1545-0015
301.7605-1.................................................    1545-0795
301.7623-1.................................................    1545-0409
                                                               1545-1534
301.7654-1.................................................    1545-0803
301.7701-3.................................................    1545-1486
301.7701-4.................................................    1545-1465
301.7701-7.................................................    1545-1600
301.7701-16................................................    1545-0795
301.7701(b)-1..............................................    1545-0089
301.7701(b)-2..............................................    1545-0089
301.7701(b)-3..............................................    1545-0089
301.7701(b)-4..............................................    1545-0089
301.7701(b)-5..............................................    1545-0089
301.7701(b)-6..............................................    1545-0089
301.7701(b)-7..............................................    1545-0089
                                                               1545-1126
301.7701(b)-9..............................................    1545-0089
301.7705-1.................................................    1545-2266
301.7705-2.................................................    1545-2266
301.7805-1.................................................    1545-0805
301.9000-5.................................................    1545-1850
301.9001-1.................................................    1545-0220
301.9100-2.................................................    1545-1488
301.9100-3.................................................    1545-1488
301.9100-4T................................................    1545-0016
                                                               1545-0042
                                                               1545-0074
                                                               1545-0129
                                                               1545-0172
                                                               1545-0619
301.9100-6T................................................    1545-0872
301.9100-7T................................................    1545-0982
301.9100-8.................................................    1545-1112
301.9100-11T...............................................    1545-0123
301.9100-12T...............................................    1545-0026
                                                               1545-0074
                                                               1545-0172
                                                               1545-1027
301.9100-14T...............................................    1545-0046
301.9100-15T...............................................    1545-0046
301.9100-16T...............................................    1545-0152
302.1-7....................................................    1545-0024
305.7701-1.................................................    1545-0823
305.7871-1.................................................    1545-0823
420.0-1....................................................    1545-0710
Part 509...................................................    1545-0846
Part 513...................................................    1545-0834
Part 514...................................................    1545-0845
Part 521...................................................    1545-0848
601.104....................................................    1545-0233
601.105....................................................    1545-0091
601.201....................................................    1545-0019
                                                               1545-0819
601.204....................................................    1545-0152
601.401....................................................    1545-0257
601.504....................................................    1545-0150
601.601....................................................    1545-0800
601.602....................................................    1545-0295
                                                               1545-0387
                                                               1545-0957
601.702....................................................    1545-0429
------------------------------------------------------------------------


[T.D. 8011, 50 FR 10222, Mar. 14, 1985]

    Editorial Note: For Federal Register citations affecting Sec.  
602.101, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.

[[Page 529]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations (CFR) that 
were made by documents published in the Federal Register since January 
1, 2017 are enumerated in the following list. Entries indicate the 
nature of the changes effected. Page numbers refer to Federal Register 
pages. The user should consult the entries for chapters, parts and 
subparts as well as sections for revisions.
For changes to this volume of the CFR prior to this listing, consult the 
annual edition of the monthly List of CFR Sections Affected (LSA). The 
LSA is available at www.govinfo.gov. For changes to this volume of the 
CFR prior to 2001, see the ``List of CFR Sections Affected, 1949-1963, 
1964-1972, 1973-1985, and 1986-2000'' published in 11 separate volumes. 
The ``List of CFR Sections Affected 1986-2000'' is available at 
www.govinfo.gov.

                                  2017

26 CFR
                                                                   82 FR
                                                                    Page
Chapter I
31.3402(q)-1 (d), (e) and (f) redesignated as (f), (d) and (e); 
        (f) Examples 4 through 10 redesignated as (f) Examples 3 
        through 9; (a)(1), (b), (c)(1), (4), new (d) and new (e) 
        revised; (f) Example 3 and Example 11 removed; (f) 
        Examples 10 through 16 and (g) added; (f) Example 4 
        amended....................................................44926
31.3406-0 Amended..................................................44929
31.3406(g)-1 (e) revised; (f) added.................................2121
31.3406(g)-1T Removed...............................................2121
31.3406(g)-2 (d)(2) and (3) revised; (h) added.....................44929
31.3406(h)-2 (a)(3)(i) revised; (i) added...........................2121
31.3406(h)-2T Removed...............................................2121
31.6071(a)-1 (a)(3) revised........................................33448
31.6071(a)-1T Added................................................33448

                                  2018

                       (No regulations published)

                                  2019

26 CFR
                                                                   84 FR
                                                                    Page
Chapter I
31 Authority citation amended...............................24379, 31719
31.0-3 (a) amended..................................................9238
31.3121(a)(9)-1 Removed.............................................9238
31.3121(b)(8)-2 Removed.............................................9238
31.3121(b)(10)-1 (b) amended........................................9238
31.3121(k)-1 Removed................................................9238
31.3121(k)-2 Removed................................................9238
31.3121(k)-3 Removed................................................9238
31.3121(k)-4 Removed................................................9238
31.3121(r)-1 (e) removed............................................9238
31.3501(a)-1T Amended...............................................9238
31.3511-1 Added....................................................24379
31.6051-1 (a)(1)(i) amended; (d)(1)(ii)(C) and (j)(8) removed; 
        (a)(1)(i)(f) undesignated text and (a) through (h) 
        redesignated as (a)(1)(i) and (A) through (H); new 
        (a)(1)(i)(B), (b)(1)(ii), (f), (h)(2), and (i) revised; 
        (k) added..................................................31719
31.6051-2 (a) and (c) revised; (d) added...........................31720
31.6051-3 (a)(1)(i), (b)(1), (e)(3), and (f) revised; (g) removed 
                                                                   31720

[[Page 530]]

                                  2020

26 CFR
                                                                   85 FR
                                                                    Page
Chapter I
31 Authority citation amended........................45518, 61815, 63026
31.3111-6T Added (temporary).......................................45518
31.3221-5T Added (temporary).......................................45519
31.3401(e)-1 Removed...............................................63026
31.3402(a)-1 (g) and (h) added.....................................63026
31.3402(b)-1 Revised...............................................63027
31.3402(c)-1 (a)(2) redesignated as (a)(3); new (a)(2) added; 
        (a)(1) and (b) revised; (c)(1) amended; (f) added; 
        parenthetical authority citation removed...................63027
31.3402(f)(1)-1 Revised............................................63027
31.3402(f)(2)-1 Revised............................................63028
31.3402(f)(3)-1 Revised............................................63031
31.3402(f)(4)-1 Removed; new section redesignated from 
        31.3402(f)(4)-2; new section revised.......................63031
31.3402(f)(4)-2 Redesignated as 31.3402(f)(4)-1....................63031
31.3402(f)(5)-1 Revised............................................63032
31.3402(f)(6)-1 Revised............................................63033
31.3402(g)-1 (a)(2) and (7)(ii) amended; (d) added.................63033
31.3402(h)(4)-1 (b) removed; (c) redesignated as new (b); new (c) 
        added; parenthetical authority citation removed............63033
31.3402(i)-1 Removed; new section redesignated from 31.3402(i)-2; 
        heading, (a)(2), and (b) revised; (a)(3) added; 
        parenthetical authority citation removed...................63033
31.3402(i)-2 Redesignated as 31.3402(i)-1..........................63033
31.3402(l)-1 Revised...............................................63034
31.3402(m)-1 Revised...............................................63034
31.3402(n)-1 Revised...............................................63036
31.3405(a)-1 Added.................................................61815
31.6071(a)-1 (a)(3) revised; (g) added..............................5327
31.6071(a)-1T Removed...............................................5327
35.3405-1T Amended.................................................61816

                                  2021

26 CFR
                                                                   86 FR
                                                                    Page
Chapter I
31 Authority citation amended......................................50642
31.3131-1T Added (temporary).......................................50642
31.3132-1T Added (temporary).......................................50642
31.3134-1T Added (temporary).......................................50642

                                  2022

                       (No regulations published)


                                  [all]