[Federal Register Volume 69, Number 230 (Wednesday, December 1, 2004)]
[Rules and Regulations]
[Pages 69819-69820]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-26511]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 31

[TD 9162]
RIN 1545-BB66


Federal Unemployment Tax Deposits--De Minimis Threshold

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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

SUMMARY: This document contains final regulations relating to the 
deposit of Federal Unemployment Tax Act (FUTA) taxes. The regulations 
change the accumulated amount of tax liability above which taxpayers 
must begin depositing Federal unemployment taxes. The regulations 
affect employers that have an accumulated FUTA tax liability of $500 or 
less.

DATES: Effective Date: These regulations are effective December 1, 
2004.
    Applicability Date: For dates of applicability, see Sec.  
31.6302(c)-3(a)(2) and (3).

FOR FURTHER INFORMATION CONTACT: Heather L. Dostaler, (202) 622-4940 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to the Regulations on Employment 
Taxes and Collection of Income Tax at Source (26 CFR part 31) under 
section 6302 relating to mode or time of collection. The current rules 
relating to the deposit of FUTA taxes generally require employers to 
deposit taxes on a quarterly basis. An exception provides that an 
employer is not required to make a deposit until accumulated FUTA tax 
liability exceeds $100.
    A notice of proposed rulemaking (REG-144908-02) providing an 
additional exception to the FUTA tax deposit requirements was published 
in the Federal Register (68 FR 42329) on July 17, 2003. Under the 
proposed exception, an employer would not be required to deposit FUTA 
taxes if the employer's liability for other employment taxes (FICA 
taxes and withheld income taxes) was below the threshold at which 
deposits were required for those other taxes.
    Three written comments were received in response to the notice of 
proposed rulemaking, but there was no request for a public hearing and 
a public hearing was not held. All comments were considered and are 
available for public inspection upon request. After consideration of 
the written comments, the proposed regulations under section 6302 are 
adopted as revised by this Treasury decision. The public comments and 
the revisions are discussed below.

Summary of Comments

    Two commentators expressed concern that the creation of an 
additional exception linked to the deposit rules for other employment 
taxes will create complexity and that a single exception based on FUTA 
tax liability is sufficient. One commentator expressed concern 
regarding the low threshold amounts under both exceptions, and also 
expressed concern that the proposed exception could be misinterpreted 
by those accustomed to referring only to the amount of accumulated FUTA 
taxes.
    One commentator suggested that the regulations should exempt 
household employers who file Schedule H, ``Household Employment 
Taxes,'' with Form 1040. This comment is outside the scope of these 
regulations, which are limited to the deposit rules issued under 
section 6302. Household employment taxes reported on Schedule H are 
paid with the employer's income taxes.

Explanation of Provisions

    After considering the public comments, the IRS and Treasury 
Department agree that a single exception based on a higher FUTA tax 
liability threshold is preferable to the exception in the proposed 
regulations. Accordingly, the final regulations do not include an 
exception linked to the deposit rules for other employment taxes. 
Instead, they increase the FUTA tax liability threshold from $100 to 
$500. Thus, an employer will not be required to make a deposit of FUTA 
taxes until FUTA tax liability exceeds $500. This change is a simple 
and straightforward step to reduce the burden on small businesses.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations, 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, the 
notice of proposed rulemaking preceding these regulations was submitted 
to the Chief Counsel for Advocacy of the Small Business Administration 
for comment on its impact on small business.

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.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 31 is amended as follows:

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

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

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

[[Page 69820]]


0
Par. 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 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.
    (3) Requirement for deposit in lieu of payment with return. If the 
amount of tax reportable on a return on Form 940 exceeds by more than 
$500 ($100 in the case of calendar years before 2005) the sum of the 
amounts deposited by the employer pursuant to paragraph (a)(1) of this 
section for such 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.
* * * * *

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: November 23, 2004.
Gregory Jenner,
Acting Assistant Secretary of the Treasury.
[FR Doc. 04-26511 Filed 11-30-04; 8:45 am]
BILLING CODE 4830-01-P