[Federal Register Volume 68, Number 137 (Thursday, July 17, 2003)]
[Proposed Rules]
[Pages 42329-42331]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-18042]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 31

[REG-144908-02]
RIN 1545-BB66


Federal Unemployment Tax Deposits--De Minimis Threshold

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations relating to the 
deposit of Federal Unemployment Tax Act (FUTA) taxes. The proposed 
regulations would provide an additional exception to the FUTA deposit 
requirements for taxpayers that qualify for the de minimis exception to 
the deposit requirements applicable to Federal Insurance Contribution 
Act (FICA) and withheld income taxes. The regulations affect small 
employers required to make deposits of FUTA taxes.

DATES: Written or electronically generated comments and requests for a 
public hearing must be received by October 15, 2003.

ADDRESSES: Send submissions to: CC:PA:RU (REG-144908-02), room 5226, 
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, 
DC 20044. Submissions may be hand delivered Monday through Friday 
between the hours of 8 a.m. and 4 p.m. to: CC:PA:RU (REG-144908-02), 
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, 
NW., Washington, DC. Alternatively, taxpayers may submit comments 
electronically via the Internet directly to the IRS Internet site at 
http://www.irs.gov/regs.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Heather L. Dostaler, (202) 622-4940; concerning submissions of comments 
and requests for a public hearing, Treena Garrett of the Regulations 
Unit at (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    The current rules relating to the deposit of FUTA taxes require 
employers to deposit taxes on a quarterly basis. The only generally 
applicable exception to this requirement is for employers whose 
accumulated FUTA taxes (i.e., FUTA taxes for the current quarter plus 
undeposited FUTA taxes for prior quarters) do not exceed $100. These 
employers are not subject to the deposit requirements until the quarter 
in which accumulated FUTA taxes exceed $100. Similarly, if FUTA tax 
liability for a calendar year exceeds deposits for the year, the 
employer may remit the balance with the annual return only if it does 
not exceed $100. In all other cases, the balance must be deposited with 
an authorized financial institution.
    An employer is also generally required to deposit FICA taxes and 
withheld income taxes (employment taxes) on at least a monthly basis 
and file a quarterly or annual employment tax return. For any return 
period in which the employer's total liability for these taxes is less 
than $2,500, the employer may satisfy its deposit obligation by 
remitting the tax with a timely filed employment tax return. An 
employer that qualifies for this exception with respect to employment 
taxes accumulated during a return period may, nevertheless, be required 
to deposit FUTA taxes for that period if the amount of accumulated FUTA 
taxes exceeds $100.

Explanation of Provisions

    The proposed regulations would provide an additional exception to 
the FUTA deposit requirements for

[[Page 42330]]

employers that are permitted to satisfy their obligation to deposit 
employment taxes by remitting the taxes with the employment tax return 
(de minimis depositors). Thus, an employer will not be required to 
deposit FUTA taxes for a quarter if the amount of the employer's 
accumulated FICA taxes and withheld income taxes for the quarter is 
less than $2,500 and those taxes are remitted with the employer's 
timely filed employment tax return for the quarter. The employer will 
remain subject to the FUTA deposit requirements and will be required to 
deposit accumulated FUTA taxes for any quarter in which the amount of 
accumulated FICA taxes and withheld income taxes is at least $2,500 and 
the amount of accumulated FUTA taxes exceeds $100. The proposed 
regulations would also permit an employer that is a de minimis 
depositor for the last calendar quarter of a year to remit the balance 
of its FUTA tax liability for the year with a timely filed return. 
These additional exemptions from the FUTA deposit requirements will 
lessen burdens on small business owners, especially those employing 
part-time or seasonal workers.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It also has 
been determined that section 553(b) of the Administrative Procedure Act 
(5 U.S.C. chapter 5) does not apply to these regulations, and, because 
these regulations do not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. 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 their 
impact.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (a signed original and 8 
copies) and electronic comments that are submitted timely to the IRS. 
The IRS and Treasury specifically request comments on the clarity of 
the proposed regulations and how they can be made easier to understand. 
All comments will be available for public inspection and copying. A 
public hearing may be scheduled if requested in writing by any person 
that timely submits comments. If a public hearing is scheduled, notice 
of the date, time, and place for the public hearing will be published 
in the Federal Register.

Drafting Information

    The principal author of these regulations is Heather L. Dostaler of 
the Office of Associate Chief Counsel, Procedure and Administration 
(Administrative Provisions and Judicial Practice Division).

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

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

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

    2. In Sec.  31.6302(c)-3, paragraphs (a)(2) and (a)(3) are revised 
to read as follows:


Sec.  31.6302(c)-3  Use of Government depositaries in connection with 
tax under the Federal Unemployment Tax Act.

    (a) * * *
    (2) Special rules--(i) De minimis rule for deposit of taxes 
attributable to payments made after December 31, 2003. The provisions 
of paragraph (a)(1) of this section do not apply to a period described 
therein if the period ends after December 31, 2003, and the taxpayer is 
a de minimis depositor of employment taxes as defined in Sec.  31.6302-
1(e) (Federal Insurance Contributions Act (FICA) taxes and withheld 
income taxes) for such period. A taxpayer is a de minimis depositor of 
employment taxes for a period described in paragraph (a)(1) of this 
section if--
    (A) The period is a single calendar quarter and, under the de 
minimis rule of Sec.  31.6302-1(f)(4), the taxpayer is permitted to 
satisfy its obligation to deposit employment taxes accumulated during 
the quarter by remitting the taxes with a timely filed return; or
    (B) The period includes two or more calendar quarters and, under 
the de minimis rule of Sec.  31.6302-1(f)(4), the taxpayer is permitted 
to satisfy its obligation to deposit employment taxes accumulated 
during the last quarter in the period by remitting the taxes with a 
timely filed return.
    (ii) Special rule where accumulated amount does not exceed $100. 
The provisions of paragraph (a)(1) of this section do not apply with 
respect to a period described therein if the amount of the tax imposed 
by section 3301 for the period as computed under the provisions of 
section 6157 plus amounts not deposited for prior periods in the same 
calendar year does not exceed $100. Thus, an employer is not required 
to make a deposit for a period unless the tax for the period plus tax 
not deposited for prior periods exceeds $100.
    (iii) The provisions of this paragraph (a)(2) are illustrated by 
the following examples. In the examples, A's FUTA tax rate, after the 
credit for contributions to state unemployment funds, is assumed to be 
0.8 percent. The examples are as follows:

    Example 1. In 2004, Employer A makes quarterly returns of 
employment taxes. In the first quarter, A's only employees are part-
time workers B and C, who are each paid an annual salary of $15,000 
in semi-monthly installments. Both B and C claim single filing 
status with one exemption on Form W-4 and each is paid $3,750 during 
the first quarter. The employees' share of FICA tax for the quarter 
is $573.75 (.0765 x ($3,750 + $3,750)), A's matching FICA tax is 
also $573.75, and Federal income tax withheld from B and C is $518. 
Thus, the amount of accumulated employment taxes for the quarter 
($1,665.50) is less than $2,500 and, under the de minimis rule of 
Sec.  31.6302-1(f)(4), A is permitted to satisfy its obligation to 
deposit employment taxes by remitting the taxes with a timely filed 
return. A's FUTA tax liability for the first quarter is $60 (.008 x 
($3,750 + $3,750)). Because A is a de minimis depositor under 
paragraph (a)(2)(i) of this section and A's FUTA tax liability does 
not exceed $100, both of the exceptions in this paragraph (a)(2) 
apply and A is not required to deposit FUTA taxes for the first 
calendar quarter.
    Example 2. On April 16, 2004, A hires part-time worker D, who is 
also paid an annual salary of $15,000 in semi-monthly installments 
and who also claims single filing status with one exemption on Form 
W-4. During the second quarter, B and C are each paid $3,750 and D 
is paid $3,125. The employees' share of FICA tax for the quarter is 
$812.81 (.0765 x ($3,750 + $3,750 + $3,125)), A's matching FICA tax 
is also $812.81, and Federal income tax withheld from B, C, and D is 
$734. Again, the amount of accumulated employment taxes for the 
quarter ($2,359.62) is less than $2,500 and, under the de minimis 
rule of Sec.  31.6302-1(f)(4), A is permitted to satisfy its 
obligation to deposit employment taxes by remitting the taxes with a 
timely filed return. The FUTA tax applies only to the first $7,000 
that each employee is paid during the calendar year. Thus, for both 
B and C, amounts paid in the second quarter are subject to the FUTA 
tax only to the extent they do not exceed $3,250 (the $7,000 annual 
limit less first quarter wages of $3,750). A's FUTA tax liability 
for the second quarter is $77 (.008 x ($3,250 +

[[Page 42331]]

$3,250 + $3125)) and A has an accumulated FUTA tax liability in the 
amount of $137. Accordingly, the exception in paragraph (a)(2)(ii) 
of this section does not apply. A is, however, a de minimis 
depositor under paragraph (a)(2)(i) of this section and is, 
therefore, not required to deposit FUTA taxes for the second 
calendar quarter.
    Example 3. On June 30, 2002, B and C quit employment with A. The 
following day, A hires E, a full-time employee who is paid an annual 
salary of $40,000 in semi-monthly installments and who also claims 
single filing status with one exemption on Form W-4. During the 
third quarter, D is paid $3,750 and E is paid $10,000. The 
employees' share of FICA tax for the quarter is $1,051.88 (.0765 x 
($3,750 + $10,000)), A's matching FICA tax is also $1,051.88, and 
Federal income tax withheld from D and E is $1,609. The de minimis 
rule of Sec.  31.6302-1(f)(4) does not apply because the amount of 
accumulated employment taxes for the quarter ($3,712.76) is not less 
than $2,500 and A may not satisfy its obligation to deposit 
employment taxes by remitting the taxes with a timely filed return. 
All amounts paid to D in the third quarter are subject to the FUTA 
tax because the total amount paid to D through the end of the 
quarter does not exceed the $7,000 annual limit. The tax also 
applies to the first $7,000 paid to E. A's FUTA tax liability for 
the third quarter is $86 (.008 x ($3,750 + $7,000)) and A has an 
accumulated FUTA tax liability of $223. Because A is not a de 
minimis depositor under paragraph (a)(2)(i) of this section and A's 
accumulated FUTA tax liability exceeds $100, neither of the 
exceptions in this paragraph (a)(2) apply and A is required to 
deposit the accumulated FUTA tax liability on or before October 31, 
2004.

    (3) Requirement for deposit in lieu of payment with return. If the 
amount of tax reportable on a return on Form 940 for a calendar year 
beginning after December 31, 2003, exceeds by more than $100 the sum of 
the amount deposited by the employer pursuant to paragraph (a)(1) of 
this section for such calendar year and the employer does not qualify 
as a de minimis depositor under paragraph (a)(2)(i) of this section 
during the last quarter of the calendar year, the employer shall, on or 
before the last day of the first calendar month following the calendar 
year for which the return is required to be filed, deposit the balance 
of the tax due with an authorized financial institution. If the amount 
of tax reportable on a return on Form 940 for a calendar year beginning 
after December 31, 2003, does not exceed by more than $100 the sum of 
the amount deposited by the employer pursuant to paragraph (a)(1) of 
this section for such calendar year or if the employer qualifies as a 
de minimis depositor under paragraph (a)(2)(i) of this section during 
the last quarter of the calendar year, the employer may, on or before 
the last day of the first calendar month following the calendar year 
for which the return is required to be filed, remit the balance of the 
tax at the time and place fixed for filing the return.
* * * * *

Robert E. Wenzel,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 03-18042 Filed 7-16-03; 8:45 am]
BILLING CODE 4830-01-U