[Federal Register Volume 59, Number 73 (Friday, April 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8935]


[[Page Unknown]]

[Federal Register: April 15, 1994]


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DEPARTMENT OF THE TREASURY
26 CFR Part 31

[EE-45-93]
RIN 1545-AR67

 

Electronic Filing of Form W-4

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations pertaining to Form 
W-4, Employee's Withholding Allowance Certificate. The proposed 
regulations would authorize employers to establish systems to permit 
employees to make certain changes electronically to their Forms W-4. 
The proposed regulations will provide employers and employees with 
guidance necessary to comply with the law, and will affect employers 
and employees who choose to avail themselves of the procedure. This 
document also provides notice of a public hearing on these proposed 
regulations.

DATES: Written comments must be received by June 14, 1994. Requests to 
speak (with outlines of oral comments) at a public hearing scheduled 
for July 15, 1994, at 10 a.m., must be received by June 24, 1994.

ADDRESSES: Send submissions to: CC:DOM:CORP:T:R (EE-45-93), room 5228, 
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, 
DC 20044. The public hearing will be held in the IRS Auditorium, 
seventh floor, 7400 corridor, 1111 Constitution Avenue, NW., 
Washington, DC 20224.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Karin 
Loverud, 202-622-6060; concerning submissions and the hearing, Carol 
Savage, 202-622-8452. These are not toll-free numbers.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act (44 U.S.C. 
3504(h)). Comments on the collection of information should be sent to 
the Office of Management and Budget, Attn: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, PC:FP, Washington, DC 
20224.
    The collection of information is in Sec. 31.3402(f)(5)-2. This 
information is required by the IRS to ensure that, if the IRS requests 
it, employers will be able to furnish a hard copy of the electronic 
Form W-4. This information will be used to verify that the employer 
used the electronic Form W-4 data properly. The likely respondents are 
state and local governments, business or other for-profit institutions, 
federal agencies or employees, nonprofit institutions, and small 
businesses or organizations. Estimated total annual reporting burden: 
40,000 hours. The estimated annual burden per respondent varies from 10 
minutes to 20 minutes, depending on individual circumstances, with an 
estimated average of 15 minutes. Estimated number of respondents: 
2,000. Estimated annual frequency of responses: on occasion.

Background

    This document contains proposed amendments to the Employment Tax 
Regulations (26 CFR part 31) under section 3402 of the Internal Revenue 
Code (Code). These amendments are proposed to authorize a procedure for 
employees to file Forms W-4, Employee's Withholding Allowance 
Certificate, and are to be issued under the authority of section 7805.
    Every employee is required to furnish his or her employer with a 
signed withholding exemption certificate on or before commencing 
employment. The form and content of the certificate are prescribed by 
the regulations, which specifically identify the Form W-4 as the form 
prescribed. The number of withholding exemptions to which an employee 
is entitled on any day depends upon the employee's marital status, the 
employee's filing status, the number of the employee's dependents, the 
number of exemptions claimed by the employee's spouse (if any) on a 
Form W-4, and the amount of the employee's estimated itemized 
deductions, tax credits, and certain other deductions from income.
    If the number of withholding exemptions to which an employee is 
entitled becomes greater than the number claimed by the employee on 
Form W-4, the employee may furnish the employer with a new Form W-4 
showing the correct number of withholding exemptions. The employee is 
required to furnish the employer with a new Form W-4 within 10 days if 
the number of withholding exemptions to which the employee is entitled 
becomes fewer than the number claimed by the employee on Form W-4.
    Similarly, if the employee incurred no income tax liability for the 
preceding taxable year and anticipates that he or she will incur no 
income tax liability for the current taxable year, the employee may 
furnish the employer with a new Form W-4 containing these statements. 
But, if the employee furnished such a Form W-4 and later in the year no 
longer believes that he or she will incur no income tax liability for 
the current taxable year, the employee is required within 10 days to 
furnish the employer with a new Form W-4 that does not contain the 
statements.
    The existing regulations set forth rules for employers to submit 
copies of certain Forms W-4 to the IRS. Employers must submit a copy of 
each Form W-4 on which the employee claims more than 10 withholding 
exemptions. Employers must also submit a copy of each Form W-4 on which 
the employee claims exemption from withholding for the taxable year, 
and the employer reasonably expects, when the Form W-4 is received, 
that the employee's wages from that employer will usually be $200 or 
more per week.

Explanation of Provisions

    Currently no provision exists for employees to furnish withholding 
exemption certificate information in a form other than on a paper Form 
W-4. The proposed regulations establish requirements for employers who 
wish to install electronic systems for employees to use to furnish 
withholding exemption changes to their employers.
    If an employer chooses to establish an electronic system, the 
employer will be free to determine the type of system (such as 
telephone or computer) or systems available to its employees. The 
system or systems must, however, reliably identify the user, ensure 
that the information received is the information sent, and document 
occasions of employee access. The electronic filing must contain 
exactly the same information as the paper Form W-4. Upon request by the 
IRS, 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 filed by the named employee.
    The proposed regulations do not require employees of an employer 
who has established an electronic system to use the system to furnish 
withholding exemption information. Nor do the proposed regulations 
permit an employer who has established a system to require all 
employees to use the system in lieu of furnishing withholding exemption 
information on a paper Form W-4. The authorization of the use of 
electronic systems for the transmission of withholding exemption 
information is merely an alternative to the use of a paper Form W-4 for 
employers and their employees who choose to use the electronic system.
    The authorization provided in the proposed regulations does not 
apply to the initial Form W-4 furnished to an employer by a new 
employee. The authorization also does not apply to Forms W-4 that are 
required to be furnished by the employer to the IRS. Forms W-4 that are 
required to be furnished to the IRS are those on which the employee 
claims more than 10 withholding exemptions, and those on which the 
employee claims exemption from withholding for the taxable year (unless 
the employer reasonably expects that the employee's wages from that 
employer will not usually exceed $200 per week).
    An employer should use electronically transmitted W-4 information 
furnished by an employee only for the purpose for which it is provided. 
W-4 records maintained by the employer should be kept confidential and 
disclosed internally only to authorized users of the electronic system 
and employer agents on a need-to-know basis.
    The regulations are proposed to become effective when they are 
published in the Federal Register as a treasury decision.

Special Analyses

    It has been determined that these regulations are not a significant 
regulatory action as defined in EO 12866. It also has been determined 
that section 553(b) of the Administrative Procedure Act (5 U.S.C. 
chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do 
not apply to these regulations and, therefore, a Regulatory Flexibility 
Analysis is not required. Pursuant to section 7805(f) of the Internal 
Revenue Code, this notice of proposed rulemaking will be submitted to 
the Chief Counsel for Advocacy of the Small Business Administration for 
comment on its impact on small business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments that are submitted 
timely (preferably a signed original and eight copies) to the IRS. All 
comments will be available for public inspection and copying.
    A public hearing has been scheduled for Friday, July 15, 1994, at 
10 a.m., in the IRS Auditorium, 7400 corridor, Internal Revenue 
Building, 1111 Constitution Avenue, NW., Washington, DC. Because of 
access restrictions, visitors will not be admitted beyond the building 
lobby more than 15 minutes before the hearing starts.
    The rules of 601.601(a)(3) apply to the hearing.
    Persons that have submitted written comments by June 14, 1994, and 
want to present oral comments at the hearing must submit, not later 
than June 24, 1994, an outline of the topics to be discussed and the 
time to be devoted to each topic. A period of 10 minutes will be 
allotted to each person for making comments.

Drafting Information

    The principal author of these proposed regulations is Karin 
Loverud, Office of the Associate Chief Counsel (Employee Benefits and 
Exempt Organizations), Internal Revenue Service. However, other 
personnel from the IRS and Treasury Department participated in their 
development.

List of Subjects in 26 CFR Part 31

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

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 31 is proposed to be amended as follows:

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

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

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

    Par. 2. Section 31.3402(f)(5)-2 is added to read as follows:


Sec. 31.3402(f)(5)-2  Electronic filing of withholding exemption 
certificates.

    (a) In general. An employer may provide its employees with the 
option of electronic filing of those withholding exemption certificates 
to which this section applies. The employer must, nevertheless, provide 
its employees with the option of filing paper withholding exemption 
certificates.
    (b) Certificates to which this section applies--(1) In general. 
This section applies to any withholding exemption certificate permitted 
or required by 31.3402(f)(2)-1(b) (change in status affecting calendar 
year) or 31.3402(f)(2)-1(c) (change in status affecting next calendar 
year). This section does not apply to the withholding exemption 
certificate required by 31.3402(f)(2)-1(a) (commencement of 
employment).
    (2) Exception for certificates that must be submitted. 
Notwithstanding paragraph (b)(1) of this section, this section does not 
apply to any withholding exemption certificate for which submission to 
the Internal Revenue Service is required under 31.3402(f)(2)-1(g)(1) 
(regarding certificates that claim more than 10 withholding exemptions 
and certain claims of exemption from withholding).
    (c) Requirements--(1) The electronic system must reliably identify 
the user, ensure that the information received is the information sent, 
and document occasions of employee access.
    (2) The electronic filing must contain exactly the same information 
as the paper Form W-4.
    (3) Upon request by the 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 filed by the 
named employee.
Margarett Milner Richardson,
Commissioner of Internal Revenue.
[FR Doc. 94-8935 Filed 4-14-94; 8:45 am]
BILLING CODE 4830-01-U