Electronic Filing of Form W-4

DEPARTMENT OF THE TREASURY

26 CFR Part 31

[EE-45-93]

RIN 1545-AR67

Electronic Filing of Form W-4

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations pertaining to Form

W-4, Employee's Withholding Allowance Certificate. The proposed

regulations would authorize employers to establish systems to permit

employees to make certain changes electronically to their Forms W-4.

The proposed regulations will provide employers and employees with

guidance necessary to comply with the law, and will affect employers

and employees who choose to avail themselves of the procedure. This

document also provides notice of a public hearing on these proposed

regulations.

DATES: Written comments must be received by June 14, 1994. Requests to

speak (with outlines of oral comments) at a public hearing scheduled

for July 15, 1994, at 10 a.m., must be received by June 24, 1994.

ADDRESSES: Send submissions to: CC:DOM:CORP:T:R (EE-45-93), room 5228,

Internal Revenue Service, POB 7604, Ben Franklin Station, Washington,

DC 20044. The public hearing will be held in the IRS Auditorium,

seventh floor, 7400 corridor, 1111 Constitution Avenue, NW.,

Washington, DC 20224.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Karin

Loverud, 202-622-6060; concerning submissions and the hearing, Carol

Savage, 202-622-8452. These are not toll-free numbers.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in this notice of proposed

rulemaking has been submitted to the Office of Management and Budget

for review in accordance with the Paperwork Reduction Act (44 U.S.C.

3504(h)). Comments on the collection of information should be sent 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, with copies to the Internal Revenue

Service, Attn: IRS Reports Clearance Officer, PC:FP, Washington, DC

20224.

The collection of information is in Sec. 31.3402(f)(5)-2. This

information is required by the IRS to ensure that, if the IRS requests

it, employers will be able to furnish a hard copy of the electronic

Form W-4. This information will be used to verify that the employer

used the electronic Form W-4 data properly. The likely respondents are

state and local governments, business or other for-profit institutions,

federal agencies or employees, nonprofit institutions, and small

businesses or organizations. Estimated total annual reporting burden:

40,000 hours. The estimated annual burden per respondent varies from 10

minutes to 20 minutes, depending on individual circumstances, with an

estimated average of 15 minutes. Estimated number of respondents:

2,000. Estimated annual frequency of responses: on occasion.

Background

This document contains proposed amendments to the Employment Tax

Regulations (26 CFR part 31) under section 3402 of the Internal Revenue

Code (Code). These amendments are proposed to authorize a procedure for

employees to file Forms W-4, Employee's Withholding Allowance

Certificate, and are to be issued under the authority of section 7805.

Every employee is required to furnish his or her employer with a

signed withholding exemption certificate on or before commencing

employment. The form and content of the certificate are prescribed by

the regulations, which specifically identify the Form W-4 as the form

prescribed. The number of withholding exemptions to which an employee

is entitled on any day depends upon the employee's marital status, the

employee's filing status, the number of the employee's dependents, the

number of exemptions claimed by the employee's spouse (if any) on a

Form W-4, and the amount of the employee's estimated itemized

deductions, tax credits, and certain other deductions from income.

If the number of withholding exemptions to which an employee is

entitled becomes greater than the number claimed by the employee on

Form W-4, the employee may furnish the employer with a new Form W-4

showing the correct number of withholding exemptions. The employee is

required to furnish the employer with a new Form W-4 within 10 days if

the number of withholding exemptions to which the employee is entitled

becomes fewer than the number claimed by the employee on Form W-4.

Similarly, if the employee incurred no income tax liability for the

preceding taxable year and anticipates that he or she will incur no

income tax liability for the current taxable year, the employee may

furnish the employer with a new Form W-4 containing these statements.

But, if the employee furnished such a Form W-4 and later in the year no

longer believes that he or she will incur no income tax liability for

the current taxable year, the employee is required within 10 days to

furnish the employer with a new Form W-4 that does not contain the

statements.

The existing regulations set forth rules for employers to submit

copies of certain Forms W-4 to the IRS. Employers must submit a copy of

each Form W-4 on which the employee claims more than 10 withholding

exemptions. Employers must also submit a copy of each Form W-4 on which

the employee claims exemption from withholding for the taxable year,

and the employer reasonably expects, when the Form W-4 is received,

that the employee's wages from that employer will usually be $200 or

more per week.

Explanation of Provisions

Currently no provision exists for employees to furnish withholding

exemption certificate information in a form other than on a paper Form

W-4. The proposed regulations establish requirements for employers who

wish to install electronic systems for employees to use to furnish

withholding exemption changes to their employers.

If an employer chooses to establish an electronic system, the

employer will be free to determine the type of system (such as

telephone or computer) or systems available to its employees. The

system or systems must, however, reliably identify the user, ensure

that the information received is the information sent, and document

occasions of employee access. The electronic filing must contain

exactly the same information as the paper Form W-4. Upon request by the

IRS, 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 proposed regulations do not require employees of an employer

who has established an electronic system to use the system to furnish

withholding exemption information. Nor do the proposed regulations

permit an employer who has established a system to require all

employees to use the system in lieu of furnishing withholding exemption

information on a paper Form W-4. The authorization of the use of

electronic systems for the transmission of withholding exemption

information is merely an alternative to the use of a paper Form W-4 for

employers and their employees who choose to use the electronic system.

The authorization provided in the proposed regulations does not

apply to the initial Form W-4 furnished to an employer by a new

employee. The authorization also does not apply to Forms W-4 that are

required to be furnished by the employer to the IRS. Forms W-4 that are

required to be furnished to the IRS are those on which the employee

claims more than 10 withholding exemptions, and those on which the

employee claims exemption from withholding for the taxable year (unless

the employer reasonably expects that the employee's wages from that

employer will not usually exceed $200 per week).

An employer should use electronically transmitted W-4 information

furnished by an employee only for the purpose for which it is provided.

W-4 records maintained by the employer should be kept confidential and

disclosed internally only to authorized users of the electronic system

and employer agents on a need-to-know basis.

The regulations are proposed to become effective when they are

published in the Federal Register as a treasury decision.

Special Analyses

It has been determined that these regulations are not a significant

regulatory action as defined in EO 12866. 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, this notice of proposed rulemaking will be submitted to

the Chief Counsel for Advocacy of the Small Business Administration for

comment on its impact on small business.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations,

consideration will be given to any written comments that are submitted

timely (preferably a signed original and eight copies) to the IRS. All

comments will be available for public inspection and copying.

A public hearing has been scheduled for Friday, July 15, 1994, at

10 a.m., in the IRS Auditorium, 7400 corridor, Internal Revenue

Building, 1111 Constitution Avenue, NW., Washington, DC. Because of

access restrictions, visitors will not be admitted beyond the building

lobby more than 15 minutes before the hearing starts.

The rules of 601.601(a)(3) apply to the hearing.

Persons that have submitted written comments by June 14, 1994, and

want to present oral comments at the hearing must submit, not later

than June 24, 1994, an outline of the topics to be discussed and the

time to be devoted to each topic. A period of 10 minutes will be

allotted to each person for making comments.

Drafting Information

The principal author of these proposed regulations is Karin

Loverud, Office of the Associate Chief Counsel (Employee Benefits and

Exempt Organizations), Internal Revenue Service. 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.

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

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)-2 is added to read as follows:

Sec. 31.3402(f)(5)-2 Electronic filing of withholding exemption

certificates.

(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 31.3402(f)(2)-1(b) (change in status affecting calendar

year) or 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 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 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 occasions of employee access.

(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.

Margarett Milner Richardson,

Commissioner of Internal Revenue.

[FR Doc. 94-8935 Filed 4-14-94; 8:45 am]

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