[Federal Register Volume 64, Number 19 (Friday, January 29, 1999)]
[Rules and Regulations]
[Pages 4540-4541]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-1664]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 31
[TD 8815]
RIN 1545-AT99
Federal Unemployment Tax Act (FUTA) Taxation of Amounts Under
Employee Benefit Plans
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations under section
3306(r)(2) of the Internal Revenue Code (Code), that provide guidance
as to when amounts deferred under or paid from a nonqualified deferred
compensation plan are taken into account as wages for purposes of the
employment taxes imposed by the Federal Unemployment Tax Act (FUTA).
Section 3306(r)(2), relating to treatment of certain nonqualified
deferred compensation, was added to the Code by section 324 of the
Social Security Amendments of 1983. These regulations provide guidance
to employers who maintain nonqualified deferred compensation plans.
DATES: Effective Date: These regulations are effective January 29,
1999.
Applicability Date: These regulations are applicable on and after
January 1, 2000. In addition, these regulations provide certain
transition rules for amounts deferred and benefits paid before January
1, 2000, including allowing employers to use a reasonable, good faith
interpretation of section 3306(r)(2).
FOR FURTHER INFORMATION CONTACT: Janine Cook, Linda E. Alsalihi, or
Margaret A. Owens, (202) 622-6040 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
These final regulations amend the Employment Tax Regulations (26
CFR
[[Page 4541]]
part 31) under section 3306(r)(2). Section 3306(r)(2) was added to the
Internal Revenue Code (Code) by section 324 of the Social Security
Amendments of 1983 (1983 Amendments). Section 2662(f)(2) of the Deficit
Reduction Act of 1984 (DEFRA) amended section 324 of the 1983
Amendments.
Notice 94-96 (1994-2 C.B. 564) provides that until final
regulations are issued, the IRS will not challenge an employer's
determination of FUTA tax liability with respect to a nonqualified
deferred compensation plan for periods before the effective date of any
final regulations if the determination is based on a reasonable, good
faith interpretation of section 3306(r)(2). On January 25, 1996, a
notice of proposed rulemaking (EE-55-95), under section 3306(r)(2) was
published in the Federal Register (61 FR 2214), providing guidance
related to the FUTA tax treatment of amounts deferred under or paid
from certain nonqualified deferred compensation plans. On December 24,
1997, a notice of proposed rulemaking (REG-209484-87 and REG-209807-
95), under section 3306(r)(2), extending the proposed general effective
date of the regulations to January 1, 1998, was published in the
Federal Register (62 FR 67304).
Comments regarding the proposed regulations were received from the
public, and on June 24, 1996, the IRS held a public hearing concerning
the proposed amendments. After consideration of the public comments
received and the statements made at the public hearing, the proposed
regulations are adopted as revised by this Treasury decision.
Explanation of Provisions
These final regulations provide guidance under section 3306(r)(2),
relating to when amounts deferred under or paid from nonqualified
deferred compensation plans are taken into account as wages for FUTA
purposes. These rules are substantially similar to the rules applicable
to the FICA (Federal Insurance Contributions Act) tax treatment of such
amounts deferred under section 3121(v)(2). Thus, these final
regulations cross-reference the final regulations under section
3121(v)(2) (FICA tax treatment of nonqualified deferred compensation),
published elsewhere in this issue of the Federal Register.
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 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 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 their impact on small business.
Drafting Information
The principal authors of these regulations are Janine Cook, Linda
E. Alsalihi, and Margaret A. Owens, Office of the Associate Chief
Counsel (Employee Benefits and Exempt Organizations). 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.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 31 is 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 31.3306(r)(2)-1 is added to read as follows:
Sec. 31.3306(r)(2)-1 Treatment of amounts deferred under certain
nonqualified deferred compensation plans.
(a) In general. Section 3306(r)(2) provides a special timing rule
for the tax imposed by section 3301 with respect to any amount deferred
under a nonqualified deferred compensation plan. Section 31.3121(v)(2)-
1 contains rules relating to when amounts deferred under certain
nonqualified deferred compensation plans are wages for purposes of
sections 3121(v)(2), 3101, and 3111. The rules in Sec. 31.3121(v)(2)-1
also apply to the special timing rule of section 3306(r)(2). For
purposes of applying the rules in Sec. 31.3121(v)(2)-1 to section
3306(r)(2) and this paragraph (a), references to the Federal Insurance
Contributions Act are considered references to the Federal Unemployment
Tax Act (26 U.S.C. 3301 et seq.), references to FICA are considered
references to FUTA, references to section 3101 or 3111 are considered
references to section 3301, references to section 3121(v)(2) are
considered references to section 3306(r)(2), references to section
3121(a), (a)(5), and (a)(13) are considered references to section
3306(b), (b)(5), and (b)(10), respectively, and references to
Sec. 31.3121(a)-2(a) are considered references to Sec. 31.3301-4.
(b) Effective dates and transition rules. Except as otherwise
provided, section 3306(r)(2) applies to remuneration paid after
December 31, 1984. Section 31.3121(v)(2)-2 contains effective date
rules for certain remuneration paid after December 31, 1983, for
purposes of section 3121(v)(2). The rules in Sec. 31.3121(v)(2)-2 also
apply to section 3306(r)(2). For purposes of applying the rules in
Sec. 31.3121(v)(2)-2 to section 3306(r)(2) and this paragraph (b),
references to section 3121(v)(2) are considered references to section
3306(r)(2), and references to section 3121(a)(2), (a)(3), or (a)(13)
are considered references to section 3306(b)(2), (b)(3), or (b)(10),
respectively. In addition, references to Sec. 31.3121(v)(2)-1 are
considered references to paragraph (a) of this section. For purposes of
applying the rules of Sec. 31.3121(v)(2)-2 to this paragraph (b)--
(1) References to ``December 31, 1983'' are considered references
to ``December 31, 1984'';
(2) References to ``before 1984'' are considered references to
``before 1985'';
(3) References to ``Federal Insurance Contributions Act'' are
considered references to ``Federal Unemployment Tax Act''; and
(4) References to ``FICA'' are considered references to ``FUTA''.
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
Approved: December 23, 1998.
Donald C. Lubick,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 99-1664 Filed 1-28-99; 8:45 am]
BILLING CODE 4830-01-P
