State Income Tax Withholding and Allotments

OFFICE OF PERSONNEL MANAGEMENT

5 CFR Parts 831 and 841

RIN 3206-AH62

State Income Tax Withholding and Allotments

AGENCY: Office of Personnel Management.

ACTION: Proposed rule.

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SUMMARY: The Office of Personnel Management (OPM) is proposing

regulations to permit expansion of the State income tax withholding and

the voluntary allotment program under the Civil Service Retirement

System (CSRS) and the Federal Employees' Retirement System (FERS).

These regulations would simplify the current State income tax

withholding program, continue the currently-authorized programs

established by regulation, and allow OPM to add additional allotment

programs for the convenience of annuitants.

DATES: Comments must be received on or before August 23, 1999.

ADDRESSES: Send comments to Mary E. Wilson, Chief, Retirement Policy

Division; Retirement and Insurance Service; Office of Personnel

Management; PO Box 57; Washington, DC 20044; or deliver to OPM, Room

4351, 1900 E Street NW., Washington, DC. Comments may also be submitted

by electronic mail to [email protected].

FOR FURTHER INFORMATION CONTACT: Patricia A. Rochester, (202) 606-0299.

SUPPLEMENTARY INFORMATION: We propose to amend Title 5, Code of Federal

Regulations, to allow for expansion of our voluntary allotment program.

In the past, technological constraints in OPM's automated systems

limited the range of allotments offered to annuitants and survivors.

Recent improvements in OPM's automated systems now make a broader range

of allotments possible. In the future, additional allotments will be

considered for inclusion in the program. Key considerations will be

needed improvements in banking technology that will assure that

allotments are processed and appropriate information provided to the

allotees concerning the amount to be credited in each individual case,

as well as the allotees' acceptance of responsibility for timely

crediting of the allotment to the appropriate account on its records.

OPM in its sole discretion, will determine if such allotments will be

processed, pursuant to our statutory authority to make such

determinations.

There will be an immediate expansion in our program of State income

tax withholding and full implementation of our pilot U.S. Savings Bonds

allotment program. Participation in these programs will be entirely

voluntary.

As we have already stated, these regulations will also allow us to

expand our voluntary allotment program to other areas such as

allotments to checking and savings accounts. Other types of allotments

are also under consideration; however, our ability to make some

allotment programs available to annuitants and survivors will be

dependent upon advancements in banking technology within the small,

independent banking communities. Changes have already been proposed by

the National Automated Clearing House Association (NACHA) to require

the banking community to accept and pass on addendum information

necessary to credit allotments to the proper accounts. As these changes

become effective and more financial institutions are able to handle

allotment transactions, we will determine which programs we consider

appropriate for addition to the allotments program.

1. State Income Tax Withholding

Sections 8345(k) and 8469 of title 5, United States Code, require

OPM to provide State income tax withholding from Civil Service

Retirement System (CSRS) and Federal Employees Retirement System (FERS)

annuities. The statutes provide that the withholding will be made in

accordance with an agreement between the State and OPM and require

certain conditions in that agreement, including that the withholding be

limited to annuitants who voluntarily request such withholding in

writing, that the amounts withheld be retained in the Fund and

disbursed to the States quarterly, and other administrative items

concerning the frequency and timing of State tax changes that an

annuitant may request. The current implementing regulations, contained

in subpart S of part 831 (CSRS) and subpart J of part 841 (FERS) of

Title 5, Code of Federal Regulations, require annuitants who want State

income tax withholding to contact the State. The State prepares a list

of taxpayers and amounts to be withheld and submits that list monthly

to OPM via magnetic tape.

The expanded State income tax withholding program will streamline

the current withholding process by allowing our annuitants to

communicate directly with OPM (instead of the individual States).

Annuitants will be able to initiate or change State income tax

withholding by writing or calling OPM. Current participants' State

income tax withholdings from annuity will continue without

interruption. OPM has already notified annuitants of the availability

of the expanded program.

Under the expanded program, States that wish to receive annuitant

tax withholdings will no longer have to obtain election forms from

annuitants and maintain their accounts. States need only execute an

agreement with OPM. OPM will then assume administrative responsibility

for the State income tax withholding program and permit annuitants to

initiate or change their withholding by specifying a specific dollar

amount.

2. Voluntary Allotments

Sections 8345(h) and 8465(b) of title 5, United States Code,

authorize an individual entitled to benefits from the Fund to make

allotments from an annuity for such purposes as OPM considers

appropriate. Under subpart O of part 831 of Title 5, Code of Federal

Regulations, we issued regulations limiting the availability of

allotments under this authority to payments to large national

organizations existing primarily for the purpose of representing

employees or annuitants. Using new technology, we are prepared to offer

an expanded allotment program without eliminating the program

applicable to current participants. The current program will be

continued for participating organizations for 3 years from the date of

publication of final regulations in order to give the organizations in

the current program time to make the adjustments necessary to utilize

the expanded program proposed by these regulations.

The Savings Bond allotment program offers annuitants, for the first

time, the opportunity to purchase U.S. Savings Bonds in a manner

similar to the payroll-savings plan available to employees, except that

the full purchase price of the bond must be paid each month. Series EE

bonds are currently available in denominations of $100, $200, and $500.

We have also added Series I bonds in denominations of $50, $75, $100,

$500, $1,000, or $5,000. Other options may be added as they become

available.

[[Page 33430]]

Regulatory Flexibility Act

I certify that this regulation will not have a significant economic

impact on a substantial number of small entities because the regulation

only provides information about the increased responsibility OPM will

assume in providing certain allotment services to annuitants, survivors

and former spouses.

Lists of Subjects in 5 CFR Parts 831 and 841

Administrative practice and procedure, Air traffic controllers,

Alimony, Claims, Disability benefits, Firefighters, Government

employees, Income taxes, Intergovernmental relations, Law enforcement

officers, Pensions, Retirement.

U.S. Office of Personnel Management,

Janice R. LaChance,

Director.

Accordingly, under 5 U.S.C. 8347, 8461, and as discussed in the

preamble, OPM proposes to amend Title 5, Code of Federal Regulations

Parts 831 and 841, as follows:

PART 831--RETIREMENT

1. The authority citation for part 831 is revised to read as

follows:

Authority: 5 U.S.C. 8347; Sec. 831.102 also issued under 5

U.S.C. 8334; Sec. 831.106 also issued under 5 U.S.C. 552a;

Sec. 831.108 also issued under 5 U.S.C. 8336(d)(2);

Sec. 831.201(b)(1) also issued under 5 U.S.C. 8347(g);

Sec. 831.201(b)(6) also issued under 5 U.S.C. 7701(b)(2);

Sec. 831.201(g) also issued under sections 11202(f), 11232(e), and

11246(b) of Pub. L. 105-33, 111 Stat. 251; Sec. 831.204 also issued

under section 102(e) of Pub. L. 104-8, 109 Stat. 102, as amended by

section 153 of Pub. L. 104-134, 110 Stat. 1321; Sec. 831.303 also

issued under 5 U.S.C. 8334(d)(2); Sec. 831.502 also issued under 5

U.S.C. 8337; Sec. 831.502 also issued under section 1(3), E.O.

11228, 3 CFR 1964-1965 Comp.; Sec. 831.663 also issued under 5

U.S.C. 8339(j) and (k)(2); Secs. 831.663 and 831.664 also issued

under Pub. L. 103-66, 107 Stat. 412; Sec. 831.682 also issued under

section 201(d) of Pub. L. 99-251, 100 Stat. 23; subpart V also

issued under 5 U.S.C. 8343a and section 6001 of Pub. L. 100-203, 101

Stat. 1330-275; Sec. 831.2203 also issued under section 7001(a)(4)

of Pub. L. 101-508; 104 Stat. 1388-328.

Secs. 831.1501, 831.1511 and 831.1521 (Subpart O) [Removed and

reserved]

2. Subpart O of consisting of Secs. 831.1501, 831.1511, and

831.1521, of part 831 is removed and reserved.

Secs. 831.1901-831.1907 (Subpart S) [Removed and reserved]

3. Subpart S, consisting of Secs. 831.1901 through 831.1907, of

part 831 is removed and reserved.

PART 841--FEDERAL EMPLOYEES RETIREMENT SYSTEM--GENERAL

ADMINISTRATION

4. The authority citation for part 841 is revised to read as

follows:

Authority: 5 U.S.C. 8461; Sec. 841.108 also issued under 5

U.S.C. 552a; subpart D also issued under 5 U.S.C. 8423; Sec. 841.504

also issued under 5 U.S.C. 8422; Sec. 841.506 also issued under 5

U.S.C. 7701(b)(2); Sec. 841.507 also issued under section 505 of

Pub. L. 99-335; Sec. 841.508 also issued under section 505 of Pub.

L. 99-335; subpart J also issued under 5 U.S.C 8345(k), 8345(h),

8465(b), and 8469.

5. Subpart J of part 841 is revised to read as follows:

Subpart J--Voluntary Allotments for State Income Tax Withholding and

for Other Purposes

Sec.

841.1001 Purpose and scope.

841.1002 Definitions.

841.1003 State income tax withholding.

841.1004 Other voluntary allotments.

841.1005 Limitations.

Subpart J--Voluntary Allotments for State Income Tax Withholding

and for Other Purposes

Sec. 841.1001 Purpose and scope.

This subpart consolidates regulations pertaining to the Civil

Service Retirement System (CSRS) and the Federal Employees Retirement

System (FERS) on--

(a) The State income tax withholding program required under

sections 8345(k) and 8469 of title 5, United States Code; and

(b) The program that OPM uses to honor annuitant requests for such

other voluntary allotments as OPM may decide to allow from annuity

payments under CSRS and FERS pursuant to sections 8345(h) and 8465(b)

of title 5, United States Code.

Sec. 841.1002 Definitions.

In this subpart--

Allotment means a specified amount an annuitant voluntarily

authorizes to be paid to an allottee.

Allottee means the institution, organization or individual to which

the allotment is paid. Annuitant means an individual who is a retiree,

a former spouse, or a survivor.

Annuity payment means the net monthly annuity payment due an

annuitant after all authorized deductions (such as those for health

benefits, Federal income tax, overpayment of annuity, indebtedness to

the Government) have been made.

Former spouse means an individual who is receiving recurring

payments under CSRS or FERS based on a court order under part 838 of

this chapter.

Retiree means a former employee or Member who is receiving

recurring payments under CSRS or FERS based on his or her service as an

employee.

Survivor means a widow, widower, child, former spouse, or person

with an insurable interest who is receiving recurring payments under

CSRS or FERS based on the death of an employee, Member, or retiree.

Sec. 841.1003 State income tax withholding.

(a) Agreements with States. OPM will maintain a program under which

an annuitant may voluntarily request State income tax withholding for a

State with which OPM has an agreement for withholding State income

taxes from CSRS and FERS annuities.

(b) Agreements between OPM and a State will establish each party's

responsibilities in the process of withholding for State income taxes

from CSRS and FERS annuities.

(c) Agreements for State income tax withholding may be modified or

terminated--

(1) By OPM or the State in accordance with the terms of the

agreement; or

(2) By OPM in accordance with appropriate rulemaking procedures

pursuant to title 5 of the United States Code.

Sec. 841.1004 Other voluntary allotments.

(a) General. An annuitant may make an allotment from annuity

payments for any purpose OPM deems appropriate.

(b) Effective dates. A request for an allotment is effective when

processed by OPM. OPM will process each request no later than the 1st

day of the second month following the month in which it is received,

but incurs no liability or indebtedness to the annuitant or allottee by

its failure to do so.

(c) Disputes. A dispute regarding any authorized allotment properly

paid by OPM is a matter between the annuitant and the allotee.

Sec. 841.1005 Limitations.

(a) The total amount of any allotments may not exceed the annuity

payment due.

(b) Allotments--State income tax withholdings excepted-- are paid

only on the regularly designated paydays of the annuitant.

(c) Payment of an allotment will be discontinued when annuity

payments are terminated or suspended by OPM. OPM is not responsible for

any interest or penalties incurred when allotments are discontinued due

to the termination or suspension of annuity payments.

(d)(1) If annuity payments are made beyond the date the annuitant's

entitlement to annuity ceases, the

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annuitant must repay any allotments paid after the date annuity

payments should have ceased.

(2) If annuity payments are made after the annuitant's death, OPM

will recover from--

(i) His or her estate; or,

(ii) In an appropriate case, from any survivor benefits payable

based on the annuitant's service; or

(iii) If there is neither an estate nor a survivor annuity payable,

from the allottee.

(f) Allotments, except allotments to large organizations under

agreements established prior to the effective date of these

regulations, may only be made to a valid electronic-funds-transfer

address established under part 210 of title 31, Code of Federal

Regulations.

[FR Doc. 99-15686 Filed 6-22-99; 8:45 am]

BILLING CODE 6325-012-P