[Federal Register Volume 59, Number 244 (Wednesday, December 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31288]


[[Page Unknown]]

[Federal Register: December 21, 1994]


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DEPARTMENT OF THE TREASURY
26 CFR Parts 31 and 602

[TD 8577]
RIN 1545-AT05

 

Electronic Filing of Form W-4

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations relating to Form 
W-4, Employee's Withholding Allowance Certificate. The temporary 
regulations authorize employers to establish systems that permit 
employees to make certain changes to their Forms W-4 electronically. 
The regulations provide employers and employees with guidance necessary 
to comply with the law and affect employers who choose to establish 
electronic systems and employees who use them. The text of these 
temporary regulations also serves as the text of the proposed 
regulations set forth in the notice of proposed rulemaking on this 
subject in the Proposed Rules section of this issue of the Federal 
Register.

EFFECTIVE DATE: These temporary regulations are effective December 21, 
1994.

FOR FURTHER INFORMATION CONTACT: Russ Weinheimer, (202) 622-6060 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in these regulations has 
been reviewed and, pending receipt and evaluation of public comments, 
approved by the Office of Management and Budget under control number 
1545-1435.
    For further information concerning this collection of information, 
and where to submit comments on the collection of information and the 
accuracy of the estimated burden, and suggestions for reducing this 
burden, please refer to the preamble to the cross-referencing notice of 
proposed rulemaking published in the Proposed Rules section of this 
issue of the Federal Register.

Background

    On April 15, 1994, a notice of proposed rulemaking [EE-45-93] 
containing proposed regulations relating to Form W-4, Employee's 
Withholding Allowance Certificate, was published in the Federal 
Register (59 FR 18057). The proposed regulations would authorize 
employers to establish electronic systems for employees to use in 
filing changes to their Forms W-4. These electronic systems could not 
be used for Forms W-4 required upon commencement of employment, on 
which more than 10 withholding exemptions are claimed, or, if the 
employee is expected to earn more than $200 per week, on which 
exemption from withholding is claimed. In addition, under the proposed 
regulations an employer would have to retain a paper option for those 
employees who are eligible to use the electronic system but do not wish 
to do so.
    Written comments responding to the notice have been received, and a 
public hearing was held on July 15, 1994. The commentators generally 
approved of the proposed regulations, but also urged that the IRS go 
farther. Specifically, they recommended that electronic systems be 
allowed for all Forms W-4 without exception, and that employers be 
allowed to mandate the use of an electronic system rather than be 
required to maintain a paper option for their employees. One 
commentator, however, was concerned about employees being overwhelmed 
by the transition to electronic systems and requested confirmation that 
a paper option would continue to be available.

Explanation of Provisions

    While the IRS has not concluded its evaluation of the merits of 
these recommendations, it has been decided that the final regulations 
on this subject will not further restrict situations where electronic 
Forms W-4 can be used. In order to allow the use of electronic systems 
for filing Forms W-4 as quickly as possible, these temporary 
regulations authorize employers to establish electronic systems as 
contemplated in the proposed regulations, effective immediately.
    The IRS invites further comments on the electronic filing of Forms 
W-4 and the practical implementation of systems that make such filing 
possible. To this end, a notice of proposed rulemaking appears in the 
Proposed Rules section of this issue of the Federal Register. While the 
text of these temporary regulations also serves as the text for those 
proposed regulations, comments are specifically requested on whether 
electronic systems should be allowed for additional categories of Forms 
W-4 and the extent to which employers should be allowed to mandate the 
use of an electronic system. Those further comments will be considered 
in determining the appropriate balance between the advantages to 
employers of fully electronic systems, ensuring adequate employee 
access, and the IRS's concerns relating to enforcement. This expanded 
comment process and, in particular, comments and insights arising from 
the experience of employers and the IRS during this interim period, is 
expected to provide information that is very helpful in developing 
final regulations.
    In response to requests for clarification, these temporary 
regulations differ from the previously proposed regulations in two 
ways. First, the previously proposed regulations would have required 
the electronic system established by the employer to document occasions 
of employee access. The temporary regulations provide that the system 
need not document all such occasions; the system need only document 
those occasions of employee access that result in a change to the Form 
W-4. Second, the previously proposed regulations would have required 
the employer to supply the IRS with a hard copy of the electronic Form 
W-4 upon request. The temporary regulations clarify that, while the 
hard copy must contain exactly the same information as the paper Form 
W-4, it need not be a facsimile of the paper form.
    One commentator expressed concern about the requirement that the 
electronic filing contain exactly the same information as the paper 
Form W-4. This commentator stated that such a requirement would be 
unduly burdensome if it encompassed the worksheets accompanying the 
form as well as the Form W-4 certificate itself. That result is not 
contemplated. The worksheets are intended merely as a convenience to 
the employee, to assist the employee in completing the form. The IRS 
therefore does not anticipate that the worksheets would be included as 
part of the information in the electronic filing.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in EO 12866. Therefore, a 
regulatory assessment is not required. It also has been determined that 
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) 
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, 
these temporary regulations will be submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on their 
impact on small business.

    Drafting Information: The principal author of these regulations 
is Russ Weinheimer, Office of the Associate Chief Counsel (Employee 
Benefits and Exempt Organizations), IRS. However, other personnel 
from the IRS and Treasury Department participated in their 
development.

List of Subjects

26 CFR Part 31

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

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 31 and 602 are 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)-2T is added to read as follows:


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

    (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 Sec. 31.3402(f)(2)-1(b) (change in status affecting 
calendar year) or Sec. 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 Sec. 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 Sec. 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 all occasions of employee access that result in a change 
to the Form W-4.
    (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. The hard copy of the electronic Form W-4 must contain 
exactly the same information as, but need not be a facsimile of, the 
paper Form W-4.
    (d) Effective Date. This section applies to withholding exemption 
certificates that are required to be filed after December 21, 1994.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

    Par. 3. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.


Sec. 602.101  [Amended]

    Par. 4. Section 602.101, the table in paragraph (c) is amended by 
adding the entry ``31.3402(f)(5)-2T. * * * 1545-1435'' in numerical 
order.

    Approved: November 17, 1994.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 94-31288 Filed 12-20-94; 8:45 am]
BILLING CODE 4830-01-U