Electronic Filing of Form W-4

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]

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