[Federal Register Volume 62, Number 1 (Thursday, January 2, 1997)]
[Rules and Regulations]
[Pages 22-25]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32669]
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DEPARTMENT OF THE TREASURY
26 CFR Parts 31 and 602
[TD 8706]
RIN 1545-AR67
Electronic Filing of Form W-4
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations relating to Form W-4,
Employee's Withholding Allowance Certificate. The final regulations
authorize employers to establish electronic systems for use by
employees in filing their Forms W-4. The regulations provide employers
and employees with guidance necessary to comply with the law. The
regulations affect employers that establish electronic systems and
their employees.
EFFECTIVE DATE: These final regulations are effective January 2, 1997.
FOR FURTHER INFORMATION CONTACT: Karin Loverud, (202) 622-6060 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations
has been reviewed and approved by the Office of Management and Budget
in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under
control number 1545-1435. Responses to this collection of information
are mandatory.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
The estimated annual burden per respondent is 20 hours.
Comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be sent to the Internal
Revenue Service, Attn: IRS Reports Clearance Officer, T:FP, Washington,
DC 20224, and 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.
Books or records relating to this collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
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).
On December 21, 1994, temporary regulations (TD 8577) clarifying
the existing proposed regulations were published in the Federal
Register (59 FR 65712). A notice of proposed rulemaking (EE-45-93)
cross-referencing the temporary regulations was published in the
Federal Register for the same day (59 FR 65740).
Written comments responding to these notices were received. Public
hearings were requested and were held on July 15, 1994, and November 7,
1995.
After consideration of all the comments, the proposed regulations
under section 3402(f) are adopted as revised by this Treasury decision.
The comments and revisions are discussed below.
Explanation of Revisions and Summary of Comments
1. Relationship between paper and electronic Forms W-4
A withholding exemption certificate (Form W-4) may be in either
paper or electronic form. Therefore, an employee will furnish a Form W-
4 to the employer either on paper or electronically. To clarify that an
electronic Form W-4 has the same status as a paper Form W-4, the final
regulations make minor revisions to Sec. 31.3402(f)(5)-1, Form and
contents of withholding exemption certificates. Further, the final
regulations appear as Sec. 31.3402(f)(5)-1(c), rather than in a
separate regulations section limited to electronic forms.
2. Electronic filing by all employees.
The existing proposed and temporary regulations require employers
that establish electronic systems to provide employees with the option
of filing paper or electronic Forms W-4. Several commentators requested
that employers be allowed to adopt systems under which all employees
file Forms W-4 electronically. These commentators stated that a system
under which all employees file electronically would reduce employer
burden in terms of costs and time (for example, eliminate maintenance
of duplicative paper and electronic systems). Similarly, it would
reduce employee burden in terms of time and choosing a filing option.
The IRS and Treasury want to assist in reducing burdens on both
employers and employees and to make it as easy as possible for
employers to adopt less burdensome systems. The final regulations
permit an employer to adopt a system under which all employees file
Forms W-4 electronically. The IRS and Treasury expect, however, that an
employer will make a paper option reasonably available upon request to
any employee who has a serious objection to using the electronic system
or whose access to, or ability to use, the system may be limited (for
example, as a result of a disability). The paper option would be
satisfied, for example, if the employer informs employees how they can
obtain a paper Form W-4 and where they should submit the completed
paper Form W-4. The IRS and Treasury also expect that employers will
comply with all applicable law
[[Page 23]]
governing the workplace and terms and conditions of employment, such as
the Americans with Disabilities Act (42 U.S.C. 12112(a)). Compliance
with these regulations does not guarantee that a system for filing
Forms W-4 electronically is in compliance with those applicable laws.
3. Electronic Forms W-4
Several commentators recommended that electronic systems be allowed
for all Forms W-4 without exception. The prior proposed and temporary
regulations specifically exclude (1) Forms W-4 required upon
commencement of employment (initial Form W-4), and (2) Forms W-4
required to be furnished to the IRS by employers because more than 10
withholding exemptions are claimed or, if the employee is expected to
earn more than $200 per week, exemption from withholding is claimed.
Initial Form W-4. Section 3402(f)(2)(A) of the Internal Revenue
Code (Code) requires a new employee to furnish the employer with a
signed withholding exemption certificate. Section 6061 requires all
Forms W-4 to be signed. See discussion below under ``5. Signature Under
Penalties of Perjury'' and Sec. 301.6061-1(b), which states that the
Secretary may prescribe in forms, instructions, or other appropriate
guidance the method of signing any return, statement, or other document
required to be made under any provision of the internal revenue laws or
regulations. The final regulations permit electronic systems to include
Forms W-4 required upon commencement of employment.
Forms W-4 claiming more than 10 exemptions or exemption from
withholding. Section 31.3402(f)(2)-1(g) requires employers to submit to
the IRS copies of certain Forms W-4 furnished to them by their
employees. The Forms W-4 required to be submitted are those on which
the employee claims either (1) more than 10 withholding exemptions, or
(2) exemption from withholding (and the employee is expected to earn
more than $200 per week).
Under Sec. 31.3402(f)(2)-1(g)(5), if the IRS determines that a Form
W-4, a copy of which was submitted to the IRS, is defective, the IRS
will notify in writing both the employer and the employee. (The notice
is referred to as a ``lock-in letter.'') A Form W-4 is defective if (1)
the IRS determines that the Form W-4 contains a materially incorrect
statement, or (2) following communication with the employee, the IRS
lacks sufficient information to determine whether the certificate is
correct. The lock-in letter issued by the IRS advises the employer that
the employee either is not entitled to claim exemption from withholding
or is not entitled to claim more withholding exemptions than the number
specified by the IRS in the notice, or both. If the employee
subsequently files a new Form W-4, the employer may withhold on the
basis of that new Form W-4 only if the new Form W-4 is consistent with
the lock-in letter. The employer must continue to withhold on the basis
of that advice until the IRS revokes in writing its lock-in letter.
The final regulations permit electronic systems to include Forms W-
4 on which employees claim more than 10 withholding exemptions or
exemption from withholding. However, the IRS and Treasury expect that
electronic systems, alone or in conjunction with the rest of an
employer's payroll system, will ensure compliance with the advice
contained in a lock-in letter. For instance, an electronic system can
ensure compliance with a lock-in letter by prohibiting an employee for
whom a lock-in letter was issued from filing any electronic Form W-4 or
prohibiting the employee from claiming more withholding exemptions than
the number specified in the IRS notice. Additionally, an employer may
choose to require any employee to file a paper Form W-4 if the employee
wishes to claim more than 10 withholding exemptions or exemption from
withholding.
4. Submission of Certain Forms W-4 to IRS
Section 31.3402(f)(2)-1(g) requires employers to submit to the IRS
copies of Forms W-4 on which the employee claims either more than 10
withholding exemptions or exemption from withholding (and the employee
is expected to earn more than $200 per week). Generally, the copies are
sent quarterly to the IRS along with the employer's Form 941,
Employer's Quarterly Federal Tax Return. Copies can also be submitted
earlier and more often to the employer's IRS service center.
Employers that establish electronic systems will satisfy the
requirement of Sec. 31.3402(f)(2)-1(g) if they furnish the Form W-4
information on magnetic media. Before using magnetic media, employers
must submit Form 4419, Application for Filing Information Returns
Magnetically/Electronically, to request authorization. Rev. Proc. 92-80
(1992-2 C.B. 465) contains specifications for filing Forms W-4 on
magnetic tape and on 5\1/4\- and 3\1/2\-inch magnetic diskettes.
Electronic transmission of Form W-4 information to the IRS is not yet
available.
5. Signature Under Penalties of Perjury
Section 6061 of the Code requires that any return, statement, or
other document required to be made under any provision of the Code or
regulations be signed. Section 6065 requires that any such document
contain or be verified by a written declaration that it is made under
the penalties of perjury. These requirements apply to all Forms W-4,
including those filed electronically, and are reflected in
Sec. 31.3402(f)(5)-1(c)(iii) of the final regulations.
Although sections 6061 and 6065 apply to all Forms W-4, the IRS and
Treasury are concerned that some electronic systems established under
the temporary regulations may not include a signature under penalties
of perjury. The final regulations, therefore, include guidance on the
perjury statement and the electronic signature.
For certain Forms W-4, the final regulations treat the signature-
under-penalties-of-perjury-statement requirement as satisfied until
January 1, 1999. This special rule applies only if the system precludes
the electronic filing of Forms W-4 required upon commencement of
employment and Forms W-4 claiming more than 10 withholding exemptions
or exemption from withholding. Moreover, the special rule applies only
to Forms W-4 filed electronically before the earlier of (1) January 1,
1999, or (2) the first date on which the employer's electronic system
permits the filing of Forms W-4 required upon commencement of
employment or Forms W-4 claiming more than 10 withholding exemptions or
exemption from withholding.
The IRS and Treasury will consider written comments pertaining to
the provisions relating to signatures under penalties of perjury.
Submissions should be sent to: CC:DOM:CORP:R (TD 8706), room 5228,
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington,
DC 20044. Alternatively, taxpayers may submit comments electronically
via the Internet by selecting the ``Tax Regs'' option on the IRS Home
Page, or by submitting comments directly to the IRS Internet site at
http://www.irs.ustreas.gov/prod/tax__regs/comments.html. Submissions
may be hand delivered between the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (TD 8706), Courier's Desk, Internal Revenue Service, 1111
Constitution Avenue NW, Washington, DC.
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6. Employer Retention of Forms W-4 and Predecessor and Successor
Employers
One commentator requested guidance concerning the period for which
paper Forms W-4 are required to be retained under Sec. 31.6001-1(e)
after the employer establishes an electronic system and in predecessor-
employer/successor-employer situations. Electronic Forms W-4 have the
same status as paper Forms W-4. Therefore, guidance that applies to
paper Forms W-4 also applies to electronic Forms W-4. For further
information, see Rev. Proc. 91-59 (1991-2 C.B. 841) (information
regarding the retention of records using a variety of automatic data
processing systems); and section 5 of Rev. Proc. 96-60 (1996-53 I.R.B.)
(predecessor/successor situations).
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)
does not apply to these regulations, and, because the notice of
proposed rulemaking preceding the regulations was issued prior to March
29, 1996, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the Code, the notice of proposed
rulemaking preceding these regulations was submitted to the Small
Business Administration for comment on its impact on small business.
Drafting Information
The principal author of these regulations is Karin Loverud, 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 is amended by
adding an entry for section 31.3402(f)(5)-1 to read as follows:
Authority: 26 U.S.C. 7805 * * * Section 31.3402(f)(5)-1 also
issued under 26 U.S.C. 3402 (i) and (m). * * *
Par. 2. Section 31.3402(f)(5)-1 is amended as follows:
1. Headings are added to paragraphs (a) and (b).
2. The fourth sentence of paragraph (a) is revised.
3. Paragraph (c) is added.
4. The authority citation which follows the end of the section is
removed.
The revisions and additions read as follows:
Sec. 31.3402(f)(5)-1 Form and contents of withholding exemption
certificates.
(a) Form W-4. * * * Blank copies of paper Forms W-4 will be
supplied to employers upon request to the Internal Revenue Service. * *
*
(b) Invalid Form W-4. * * *
(c) Electronic Form W-4--(1) In general. An employer may establish
a system for its employees to file withholding exemption 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 filing 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 filing the Form W-4 is the
employee identified in the form.
(ii) Same information as paper Form W-4. The electronic filing must
provide the employer with exactly the same information as the paper
Form W-4.
(iii) Jurat and signature requirements. The electronic filing 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 contained 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 filing the electronic Form W-4 and authenticate and verify
the filing. For this purpose, 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 submission.
(iv) Copies of electronic Forms W-4. Upon request by the Internal
Revenue Service, the employer must supply a hardcopy 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 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.
(3) Effective date--(i) In general. This paragraph applies to all
withholding exemption certificates filed electronically by employees on
or after January 2, 1997.
(ii) Special rule for certain Forms W-4. In the case of an
electronic system that precludes the filing of Forms W-4 required on
commencement of employment and Forms W-4 claiming more than 10
withholding exemptions or exemption from withholding, the requirements
of paragraph (c)(2)(iii) of this section will be treated as satisfied
if the Form W-4 is filed electronically before January 1, 1999.
Sec. 31.3402(f)(5)-2T [Removed]
Par. 3. Section 31.3402(f)(5)-2T is removed.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 4. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Par. 5. In Sec. 602.101, paragraph (c) is amended by:
1. Removing the entry for 31.3402(f)(5)-2T from the table.
2. Revising the entry for 31.3402(f)(5)-1 to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(c) * * *
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Current OMB
CFR part or section where identified and described Control No.
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* * * * *
31.3402(f)(5)-1............................................ 1545-0010
1545-1435
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* * * * *
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Approved: December 12, 1996.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Donald C. Lubick,
Acting Assistant Secretary of the Treasury.
[FR Doc. 96-32669 Filed 12-31-96; 8:45 am]
BILLING CODE 4830-01-U
