26 CFR Part 31 — Employment Taxes and Collection of Income Tax at Source

PART 31—EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE Authority: 26 U.S.C. 7805. Section 31.3111-6 also issued under secs. 7001 and 7003, Public Law 116-127, 134 Stat. 178, and sec. 2301, Public Law 116-136, 134 Stat. 281. Sections 31.3121(a)-1, 31.3121(a)-3, 31.3231(e)-1, 31.3231(e)-3, 31.3306(b)-1, 31.3306(b)-2, 31.3401(a)-1, and 31.3401(a)-4 also issued under 26 U.S.C. 62. Section 31.3121(b)(7)-2 also issued under 26 U.S.C. 3121(b)(7)(F). Section 31.3121(b)(19)-1 also issued under 26 U.S.C. 7701(b)(11). Section 31.3131-1 also issued under 26 U.S.C. 3131(g). Section 31.3132-1 also issued under 26 U.S.C. 3132(g). Section 31.3134-1 also issued under 26 U.S.C. 3134(m)(3). Section 31.3221-5 also issued under secs. 7001 and 7003, Public Law 116-127, 134 Stat. 178, and sec. 2301, Public Law 116-136, 134 Stat. 281. Section 31.3306(c)(18)-1 also issued under 26 U.S.C. 7701(b)(11). Section 31.3401(a)(6)-1 also issued under 26 U.S.C. 1441(c)(4) and 26 U.S.C. 3401(a)(6). Section 31.3402 also issued under 26 U.S.C. 3402(i) and (m). Section 31.3402(f)(1)-1 also issued under 26 U.S.C. 3402(m). Section 31.3402(f)(5)-1 also issued under 26 U.S.C. 3402 (i) and (m). Section 31.3402(f)(5)-1T also issued under 26 U.S.C. 3402 (i) and (m). Section 31.3402(n)-1 also issued under 26 U.S.C. 6001, 6011 and 6364. Section 31.3402(r)-1 also issued under 26 U.S.C. 3402(p) and (r). Section 31.3405(a)-1 also issued under 26 U.S.C. 3405(a)(4). Sections 31.3406(a)-1 through 31.3406(i)-1 also issued under 26 U.S.C.3406(i). Section 31.3406(j)-1 also issued under 26 U.S.C. 3406(i). Section 31.3511-1 is also issued under 26 U.S.C. 3511(h). Section 31.6011(a)-3A is also issued under the authority of 26 U.S.C. 6011. Section 31.6011(a)-4 also issued under 26 U.S.C. 6011. Section 31.6051-1 also issued under 26 U.S.C. 6051. Section 31.6051-2 also issued under 26 U.S.C. 6051. Section 31.6051-3 also issued under 26 U.S.C. 6051. Sections 31.6053-3 (b)(5), (h) and (j)(9) and 31.6053-4 are also issued under sec. 1072 of Pub. L. 98-369, 98 Stat. 1052; and 26 U.S.C. 6001. Sections 31.6053-3T and 31.6053-4T are also issued under sec. 1072 of Pub. L. 98-369, 98 Stat. 1052; and 26 U.S.C. 6001. Section 31.6060-1 also issued under 26 U.S.C. 6060(a). Section 31.6071(a)-1 also issued under 26 U.S.C.6071. Section 31.6071(a)-1A is also issued under the authority of 26 U.S.C. 6071. Section 31.6081-1 also issued under 26 U.S.C. 6081. Section 31.6109-2 also issued under 26 U.S.C. 6109(a). Section 31.6205-2 is also issued under 26 U.S.C. 6205(a)(1). Section 31.6302-1 also issued under 26 U.S.C. 6302(a) and (h). Section 31.6302-2, 31.6302-3, and 31.6302-4 also issued under 26 U.S.C. 6302(a) and (h). Section 31.6302(c)-2A also issued under 26 U.S.C. 6157(d) and 6302(a) and (h). Section 31.6302(c)-3 also issued under 26 U.S.C. 6302(a) and (h). Section 31.6695-1 also issued under 26 U.S.C. 6695(b). Source: T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, unless otherwise noted. Subpart A—Introduction § 31.0-1 Introduction. (a) In general. (b) Division of regulations. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 8723, 62 FR 37492, July 14, 1997] § 31.0-2 General definitions and use of terms. (a) In general. (1) The terms defined in the provisions of law contained in the regulations in this part shall have the meanings so assigned to them. (2) The Internal Revenue Code of 1954 means the act approved August 16, 1954 (26 U.S.C.), entitled “An act to revise the internal revenue laws of the United States”, as amended. (3) The Internal Revenue Code of 1939 means the act approved February 10, 1939 (53 Stat., Part 1), as amended. (4) The Social Security Act means the act approved August 14, 1935 (42 U.S.C. c. 7), as amended. (5) (i) The Social Security Amendments of 1954 means the act approved September 1, 1954 (68 Stat. 1052), as amended. (ii) The Social Security Amendments of 1956 means the act approved August 1, 1956 (70 Stat. 807), as amended. (iii) The Social Security Amendments of 1958 means the act approved August 28, 1958 (72 Stat. 1013), as amended. (iv) The Social Security Amendments of 1960 means the act approved September 13, 1960 (74 Stat. 924). (v) The Social Security Amendments of 1961 means the act approved June 30, 1961 (75 Stat. 131). (vi) The Social Security Amendments of 1965 means the act approved July 30, 1965 (79 Stat. 286). (vii) The Social Security Amendments of 1967 means the act approved January 2, 1968 (81 Stat. 821). (viii) The Social Security Amendments of 1972 means the act approved October 30, 1972 (86 Stat. 1329). (6) The Social Security Administration means the Social Security Administration of the Department of Health and Human Services. (See the Statement of Organization and delegations of Authority of the Department of Health and Human Services (20 CFR Part 1996).) (7) District director means district director of internal revenue. The term also includes the Director of International Operations in all cases where the authority to perform the functions which may be performed by a district director has been delegated to the Director of International Operations. (8) Person includes an individual, a corporation, a partnership, a trust or estate, a joint-stock company, an association, or a syndicate, group, pool, joint venture or other unincorporated organization or group, through or by means of which any business, financial operation, or venture is carried on. It includes a guardian, committee, trustee, executor, administrator, trustee in bankruptcy, receiver, assignee for the benefit of creditors, conservator, or any person acting in a fiduciary capacity. (9) Calendar quarter means a period of 3 calendar months ending on March 31, June 30, September 30, or December 31. (10) Account number means the identifying number of an employee assigned, as the case may be, under the Internal Revenue Code of 1954, under Subchapter A of Chapter 9 of the Internal Revenue Code of 1939, or under title VIII of the Social Security Act. See also § 301.7701-11 of this chapter (Regulations on Procedure and Administration). (11) Identification number means the identifying number of an employer assigned, as the case may be, under the Internal Revenue Code of 1954, under Subchapter A or D of Chapter 9 of the Internal Revenue Code of 1939, or under title VIII of the Social Security Act. See also § 301.7701-12 of this chapter (Regulations on Procedure and Administration). (12) Regulations 90 means the regulations approved February 17, 1936 (26 CFR (1939) Part 400), as amended, relating to the excise tax on employers under title IX of the Social Security Act, and such regulations as made applicable to Subchapter C of Chapter 9 and other provisions of the Internal Revenue Code of 1939 by Treasury Decision 4885, approved February 11, 1939 (26 CFR (1939) 1943 Cum. Supp., p. 5876), together with any amendments to such regulations as so made applicable to the Internal Revenue Code of 1939. (13) Regulations 91 means the regulations approved November 9, 1936 (26 CFR (1939) Part 401), as amended, relating to the employees' tax and the employers' tax under title VIII of the Social Security Act, and such regulations as made applicable to Subchapter A of Chapter 9 and other provisions of the Internal Revenue Code of 1939 by Treasury Decision 4885, approved February 11, 1939 (26 CFR (1939) 1943 Cum. Supp., p. 5876), together with any amendments to such regulations as so made applicable to the Internal Revenue Code of 1939. (14) Regulations 106 means the regulations approved February 24, 1940 (26 CFR (1939) Part 402), as amended, relating to the employees' tax and the employers' tax under the Federal Insurance Contributions Act (Subchapter A of Chapter 9 of the Internal Revenue Code of 1939) with respect to the period after 1939 and before 1951. (15) Regulations 107 means the regulations approved September 12, 1940 (26 CFR (1939) Part 403), as amended, relating to the excise tax on employers under the Federal Unemployment Tax Act (Subchapter C of Chapter 9 of the Internal Revenue Code of 1939) with respect to the period after 1939 and before 1955. (16) Regulations 114 means the regulations approved December 30, 1948 (26 CFR (1939) Part 411), as amended, relating to the employers' tax, employees' tax, and employee representatives' tax under the Railroad Retirement Tax Act (Subchapter B of Chapter 9 of the Internal Revenue Code of 1939) with respect to compensation paid after 1948 for services rendered after 1946 and before 1955. (17) Regulations 120 means the regulations approved December 22, 1953 (26 CFR (1939) Part 406), as amended, relating to collection of income tax at source on wages under Subchapter D of Chapter 9 of the Internal Revenue Code of 1939 with respect to the period after 1953 and before 1955. (18) Regulations 128 means the regulations approved December 6, 1951 (26 CFR (1939) Part 408), as amended, relating to the employee tax and the employer tax under the Federal Insurance Contributions Act (Subchapter A of Chapter 9 of the Internal Revenue Code of 1939) with respect to the period after 1950 and before 1955. (19) The cross references in the regulations in this part to other portions of the regulations, when the word “see” is used, are made only for convenience and shall be given no legal effect. (b) Subpart B. (1) Act means the Federal Insurance Contributions Act. (2) Taxes means the employee tax and the employer tax, as respectively defined in this paragraph. (3) Employee tax means the tax (with respect to wages received by an employee after Dec. 31, 1965, the taxes) imposed by section 3101 of the Code. (4) Employer tax means the tax (with respect to wages paid by an employer after Dec. 31, 1965, the taxes) imposed by section 3111 of the Code. (c) Subpart C. (1) Act means the Railroad Retirement Tax Act. (2) Railway Labor Act means the act approved May 20, 1926 (45 U.S.C. c. 8), as amended. (3) Railroad Retirement Act of 1937 means the act approved June 24, 1937 (45 U.S.C. 228a and following), as amended. (4) Railroad Retirement Board means the board established pursuant to section 10 of the Railroad Retirement Act of 1937 (45 U.S.C. 228j). (5) Tax means the employee tax, the employee representative tax, or the employer tax, as respectively defined in this paragraph. (6) Employee tax means the tax imposed by section 3201 of the Code. (7) Employee representative tax means the tax imposed by section 3211 of the Code. (8) Employer tax means the tax imposed by section 3221 of the Code. (d) Subpart D. (1) Act means the Federal Unemployment Tax Act. (2) Railroad Unemployment Insurance Act means the act approved June 25, 1938 (45 U.S.C. c. 11), as amended. (3) Tax means the tax imposed by section 3301 of the Code. (e) Subpart E. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6606, 27 FR 8516, Aug. 25, 1962; T.D. 6658, 28 FR 6631, June 27, 1963; T.D. 6983, 33 FR 18013, Dec. 4, 1968; T.D. 7280, 38 FR 18369, July 10, 1973] § 31.0-3 Scope of regulations. (a) Subpart B. (b) Subpart C. (c) Subpart D. (d) Subpart E. (e) Subpart F. (f) Subpart G. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 8305, July 2, 1964; T.D. 8723, 62 FR 37493, July 14, 1997; T.D. 9849, 84 FR 9238, Mar. 14, 2019] § 31.0-4 Extent to which the regulations in this part supersede prior regulations. The regulations in this part, with respect to the subject matter within the scope thereof, supersede 25 CFR (1939) Parts 403, 406, 408, and 411 (Regulations 107, 120, 128, and 114, respectively). The Regulation on Monthly Returns and Payment of Employment Taxes (23 FR 5006) are also superseded. Subpart B—Federal Insurance Contributions Act (Chapter 21, Internal Revenue Code of 1954) Tax on Employees § 31.3101-1 Measure of employee tax. The employee tax is measured by the amount of wages received after 1954 with respect to employment after 1936. See § 31.3121(a)-1, relating to wages; and §§ 31.3121(b)-1 to 31.3121(b)-4, inclusive, relating to employment. For provisions relating to the time of receipt of wages, see § 31.3121(a)-2. [T.D. 6744, 29 FR 8305, July 2, 1964] § 31.3101-2 Rates and computation of employee tax. (a) Old-Age, Survivors, and Disability Insurance. Calendar year Percent 1984, 1985, 1986, or 1987 5.7 1988 or 1989 6.06 1990 and subsequent years 6.2 (b)(1) Hospital Insurance. Calendar year Percent 1974, 1975, 1976, or 1977 0.90 1978 1.00 1979 or 1980 1.05 1981, 1982, 1983, or 1984 1.30 1985 1.35 1986 and subsequent years 1.45 (2) Additional Medicare Tax. Taxable year Percent Beginning after December 31, 2012 0.9 (ii) Individuals are liable for Additional Medicare Tax with respect to wages received in taxable years beginning after December 31, 2012, which are in excess of: Filling status Threshold Married individual filing a joint return $250,000 Married individual filing a separate return 125,000 Any other case 200,000 (c) Computation of employee tax. Example. In 1989, A performed services for X which constituted employment (see § 31.3121(b)-2). In 1990 A receives from X $1,000 as remuneration for such services. The tax is payable at the 6.2 percent OASDI rate and the 1.45 percent HI rate in effect for the calendar year 1990 (the year in which the wages are received) and not at the 6.06 percent OASDI rate and the 1.45 percent HI rate which were in effect for the calendar year 1989 (the year in which the services were performed). (d) Effective/applicability date. [T.D. 9645, 78 FR 71471, Nov. 29, 2013, as amended at 79 FR 4623, Jan. 29, 2014] § 31.3101-3 When employee tax attaches. The employee tax attaches at the time that the wages are received by the employee. For provisions relating to the time of such receipt, see § 31.3121(a)-2. § 31.3102-1 Collection of, and liability for, employee tax; in general. (a) The employer shall collect from each of his employees the employee tax with respect to wages for employment performed for the employer by the employee. The employer shall make the collection by deducting or causing to be deducted the amount of the employee tax from such wages as and when paid. (For provisions relating to the time of such payment, see § 31.3121(a)-2.) The employer is required to collect the tax, notwithstanding the wages are paid in something other than money, and to pay over the tax in moey. (As to the exclusion from wages of remuneration paid in any medium other than cash for certain types of services, see § 31.3121(a)(7)-1, relating to such remuneration paid for service not in the course of the employer's trade or business or for domestic service in a private home of the employer; and § 31.3121(a)(8)-1, relating to such remuneration paid for agricultural labor.) For provisions relating to the collection of, and liability for, employee tax in respect of tips, see § 31.3102-3. For special rules relating to Additional Medicare Tax imposed under section 3101(b)(2), see § 31.3102-4. (b) The employer is permitted, but not required, to deduct amounts equivalent to employee tax from payments to an employee of cash remuneration to which the sections referred to in this paragraph (b) are applicable prior to the time that the sum of such payments equals— (1) $100 in the calendar year, for service not in the course of the employer's trade or business, to which § 31.3121(a)(7)-1 is applicable; (2) The applicable dollar threshold (as defined in section 3121(x)) in the calendar year, for domestic service in a private home of the employer, to which § 31.3121(a)(7)-1 is applicable; (3) $150 in the calendar year, for agricultural labor, to which § 31.3121(a)(8)-1(c)(1)(i) is applicable; or (4) $100 in the calendar year, for service performed as a home worker, to which § 31.3121(a)(10)-1 is applicable. (c) At such time as the sum of the cash payments in the calendar year for a type of service referred to in paragraph (b)(1), (b)(2), (b)(3) or (b)(4) of this section equals or exceeds the amount specified, the employer is required to collect from the employee any amount of employee tax not previously deducted. If an employer pays cash remuneration to an employee for two or more of the types of service referred to in paragraph (b)(1), (b)(2), (b)(3) or (b)(4) of this section, the provisions of paragraph (b) of this section and this paragraph (c) are to be applied separately to the amount of remuneration attributable to each type of service. For provisions relating to the repayment to an employee, or other disposition, of amounts deducted from an employee's remuneration in excess of the correct amount of employee tax, see (d) In collecting employee tax, the employer shall disregard any fractional part of a cent of such tax unless it amounts to one-half cent or more, in which case it shall be increased to 1 cent. The employer is liable for the employee tax with respect to all wages paid by him to each of his employees whether or not it is collected from the employee. If, for example, the employer deducts less than the correct amount of tax, or if he fails to deduct any part of the tax, he is nevertheless liable for the correct amount of the tax. Until collected from him the employee also is liable for the employee tax with respect to all the wages received by him. Any employee tax collected by or on behalf of an employer is a special fund in trust for the United States. See section 7501. The employer is indemnified against the claims and demands of any person for the amount of any payment of such tax made by the employer to the district director. (e)(1) The provisions of paragraphs (a) and (d) of this section apply to any payment made on or after January 1, 1955. (2) The provisions of paragraphs (b) and (c) of this section that apply to any payment made for service not in the course of the employer's trade or business or for service performed as a home worker within the meaning of section 3121(d)(3)(C) apply to any such payment made on or after January 1, 1978. The provisions of paragraphs (b) and (c) of this section that apply to any payment made for domestic service in a private home of the employer apply to any such payment made on or after January 1, 1994. The provisions of paragraphs (b) and (c) of this section that apply to any payment made for agricultural labor apply to any such payment made on or after January 1, 1988. For rules applicable to any payment for these services made prior to the dates set forth in this paragraph (e)(2), see see (f) Effective/applicability date. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 8305, July 2, 1964; T.D. 7001, 34 FR 998, Jan. 23, 1969; T.D. 9266, 71 FR 35154, June 19, 2006; T.D. 9645, 78 FR 71472, Nov. 29, 2013] § 31.3102-2 Manner and time of payment of employee tax. The employee tax is payable to the district director in the manner and at the time prescribed in Subpart G of the regulations in this part. For provisions relating to the payment by an employee of employee tax in respect of tips, see paragraph (d) of § 31.3102-3. [T.D. 7001, 34 FR 998, Jan. 23, 1969] § 31.3102-3 Collection of, and liability for, employee tax on tips. (a) Collection of tax from employee In general. (i) The tax under section 3101 required to be collected by the employer in respect of wages as defined in section 3121(a) (exclusive of tips); (ii) The tax under section 3402 required to be collected by the employer in respect of wages as defined in section 3401(a) (exclusive of tips); and (iii) The amount of taxes imposed on the remuneration of an employee withheld by the employer pursuant to State and local law (including amounts withheld under an agreement between the employer and the employee pursuant to such law) except that the amount of taxes taken into account in this subdivision shall not include any amount attributable to tips. (2) Limitations. (i) During the period beginning at the time the written statement is submitted to him and ending at the close of the 10th day of the month following the month in which the statement was submitted, or (ii) In the case of an employer who elects to deduct the tax on an estimated basis (see paragraph (c) of this section), during the period beginning at the time the written statement is submitted to him and ending at the close of the 30th day following the quarter in which the statement was submitted, collect the employee tax by deducting it or causing it to be deducted as provided in subparagraph (1). (3) Furnishing of funds to employer. (b) Less than $20 of tips. (1) Covering a period of less than 1 month, and (2) The statement is furnished to the employer prior to the close of the 10th day of the month following the month in which the tips were actually received by the employee, and (3) The aggregate amount of tips reported in the statement and in all other statements previously furnished by the employee covering periods within the same month is less than $20, and the statements, collectively, do not cover the entire month, the employer may deduct amounts equivalent to employee tax on such tips from wages (exclusive of tips) which are under the control of the employer or other funds turned over by the employee to the employer. For provisions relating to the repayment to an employee, or other disposition, of amounts deducted from an employee's remuneration in excess of the correct amount of employee tax, see § 31.6413(a)-1. (As to the exclusion from wages of tips of less than $20, see § 31.3121(a)(12)-1.) (c) Collection of employee tax on estimated basis In general. (i) In respect of each employee, make an estimate of the amount of tips that will be reported, pursuant to section 6053(a), by the employee to the employer in a calendar quarter. (ii) Determine the amount which must be deducted upon each payment of wages (exclusive of tips) which are under the control of the employer to be made during the quarter by the employer to the employee in order to collect from the employee during the quarter an amount equal to the amount obtained by multiplying the estimated quarterly tips by the sum of the rates of tax under subsections (a) and (b) of section 3101. (iii) Deduct from any payment of such employee's wages (exclusive of tips) which are under the control of the employer, or from funds referred to in paragraph (a)(3) of this section, such amount as may be necessary to adjust the amount of tax withheld on the estimated basis to conform to the amount of employee tax imposed upon, and required to be deducted in respect of, tips reported by the employee to the employer during the calendar quarter in written statements furnished to the employer pursuant to section 6053(a). If an adjustment is required, the additional employee tax required to be collected may be deducted upon any payment of the employee's wages (exclusive of tips) which are under the control of the employer during the quarter and within the first 30 days following the quarter or from funds turned over by the employee to the employer for such purposes within such period. For provisions relating to the repayment to an employee, or other disposition, of amounts deducted from an employee's remuneration in excess of the correct amount of employee tax, see § 31.6413(a)-1. (2) Estimating tips employee will report Initial estimate. (ii) Adjusting estimate. (iii) Reasonableness of estimate. (d) Employee tax not collected by employer. (1) The amount of the employee tax imposed by section 3101 in respect of those tips received by an employee which constitute wages exceeds (2) The amount of employee tax imposed by section 3101 (in respect of tips reported by the employee to the employer) which can be collected by the employer from such employee's wages (exclusive of tips) which are under the control of the employer or from funds referred to in paragraph (a)(3) of this section, the employee shall be liable for the payment of tax in an amount equal to such excess. For provisions relating to the manner and time of payment of employee tax by an employee, see paragraph (d) of § 31.6011(a)-1 and paragraph (a)(4) of § 31.6071(a)-1. For provisions relating to statements required to be furnished by employers to employees in respect of uncollected employee tax on tips reported to the employer, see § 31.6053-2. [T.D. 7001, 34 FR 998, Jan. 23, 1969; 34 FR 1554, Jan. 31, 1969] § 31.3102-4 Special rules regarding Additional Medicare Tax. (a) Collection of tax from employee. Example. H, who is married and files a joint return, receives $100,000 in wages from his employer for the calendar year. I, H's spouse, receives $300,000 in wages from her employer for the same calendar year. H's wages are not in excess of $200,000, so H's employer does not withhold Additional Medicare Tax. I's employer is required to collect Additional Medicare Tax only with respect to wages it pays which are in excess of the $200,000 threshold (that is, $100,000) for the calendar year. (b) Collection of amounts not withheld. Example. J, who is married and files a joint return, receives $190,000 in wages from his employer for the calendar year. K, J's spouse, receives $150,000 in wages from her employer for the same calendar year. Neither J's nor K's wages are in excess of $200,000, so neither J's nor K's employers are required to withhold Additional Medicare Tax. J and K are liable to pay Additional Medicare Tax on $90,000 ($340,000 minus the $250,000 threshold for a joint return). (c) Employer's liability for tax. (d) Effective/applicability date. [T.D. 9645, 78 FR 71472, Nov. 29, 2013] Tax on Employers § 31.3111-1 Measure of employer tax. The employer tax is measured by the amount of wages paid after 1954 with respect to employment after 1936. See § 31.3121(a)-1, relating to wages, and §§ 31.3121(b)-1 to 31.3121(b)-4, inclusive, relating to employment. For provisions relating to time of payment of wages, see § 31.3121(a)-2. [T.D. 6744, 29 FR 8306, July 2, 1964] § 31.3111-2 Rates and computation of employer tax. (a) Old-age, survivors, and disability insurance. Calendar year Percent 1955 and 1956 2 1957 and 1958 2.25 1959 2.5 1960 and 1961 3 1962 3.125 1963 to 1965, both inclusive 3.625 1966 3.85 1967 3.9 1968 3.8 1969 and 1970 4.2 1971 and 1972 4.6 1973 4.85 1974 to 2010, both inclusive 4.95 2011 and subsequent calendar years 5.95 (b) Hospital insurance. Calendar year Percent 1966 0.35 1967 .50 1968 to 1972, both inclusive .60 1973 1.0 1974 to 1977, both inclusive 0.90 1978 to 1980, both inclusive 1.10 1981 to 1985, both inclusive 1.35 1986 and subsequent calendar years 1.50 (c) Computation of employer tax. [T.D. 6983, 33 FR 18014, Dec. 4, 1968, as amended by T.D. 7374, 40 FR 30948, July 24, 1975] § 31.3111-3 When employer tax attaches. The employer tax attaches at the time that the wages are paid by the employer. For provisions relating to the time of such payment, see § 31.3121(a)-2. § 31.3111-4 Liability for employer tax. The employer is liable for the employer tax with respect to the wages paid to his employees for employment performed for him. § 31.3111-5 Manner and time of payment of employer tax. The employer tax is payable to the district director in the manner and at the time prescribed in Subpart G of the regulations in this part. § 31.3111-6 Recapture of credits under the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act. (a) Recapture of erroneously refunded credits under the Families First Coronavirus Response Act. (b) Recapture of erroneously refunded credits under the Coronavirus Aid, Relief, and Economic Security Act. (c) Advance credit amounts erroneously refunded. (d) Third party payors. (e) Applicability date. [T.D. 9978, 88 FR 48123, July 26, 2023] § 31.3112-1 Instrumentalities of the United States specifically exempted from the employer tax. Section 3112 makes ineffectual as to the employer tax imposed by section 3111 those provisions of law which grant to an instrumentality of the United States an exemption from taxation, unless such provisions grant a specific exemption from the tax imposed by section 3111 by an express reference to such section or the corresponding section of prior law (section 1410 of the Internal Revenue Code of 1939). Thus, the general exemptions from Federal taxation granted by various statutes to certain instrumentalities of the United States without specific reference to the tax imposed by section 3111 or by section 1410 of the 1939 Code are rendered inoperative insofar as such exemptions relate to the tax imposed by section 3111. For provisions relating to the exception from employment of services performed in the employ of an instrumentality of the United States specifically exempted from the employer tax, see § 31.3121(b)(5)-1. For provisions relating to services performed for an instrumentality exempt on December 31, 1950, from the employer tax, see paragraph (c) of § 31.3121 (b) (6)-1. General Provisions § 31.3121(a)-1 Wages. (a)(1) Whether remuneration paid after 1954 for employment performed after 1936 constitutes wages is determined under section 3121(a). This section and §§ 31.3121(a)(1)-1 to 31.3121(a)(15)-1, inclusive (relating to the statutory exclusions from wages), apply with respect only to remuneration paid after 1954 for employment performed after 1936. Whether remuneration paid after 1936 and before 1940 for employment performed after 1936 constitutes wages shall be determined in accordance with the applicable provisions of law and of 26 CFR (1939) Part 401 (Regulations 91). Whether remuneration paid after 1939 and before 1951 for employment performed after 1936 constitutes wages shall be determined in accordance with the applicable provisions of law and of 26 CFR (1939) Part 402 (Regulations 106). Whether remuneration paid after 1950 and before 1955 for employment performed after 1936 constitutes wages shall be determined in accordance with the applicable provisions of law and of 26 CFR (1939) Part 408 (Regulations 128). (2) The term compensation wages (b) The term “wages” means all remuneration for employment unless specifically excepted under section 3121(a) (see §§ 31.3121(a)(1)-1 to 31.3121(a)(15)-1, inclusive) or paragraph (j) of this section. (c) The name by which the remuneration for employment is designated is immaterial. Thus, salaries, fees, bonuses, and commissions on sales or on insurance premiums, are wages if paid as compensation for employment. (d) Generally the basis upon which the remuneration is paid is immaterial in determining whether the remuneration constitutes wages. Thus, it may be paid on the basis of piecework, or a percentage of profits; and it may be paid hourly, daily, weekly, monthly, or annually. See, however, § 31.3121(a)(8)-1 which relates to the treatment of cash remuneration computed on a time basis for agricultural labor. (e) Generally the medium in which the remuneration is paid is also immaterial. It may be paid in cash or in something other than cash, as for example, goods, lodging, food, or clothing. Remuneration paid in items other than cash shall be computed on the basis of the fair value of such items at the time of payment. See, however, §§ 31.3121 (a)(7)-1, 31.3121(a)(8)-1, 31.3121(a)(10)-1, and 31.3121(a)(12)-1, relating to the treatment of remuneration paid in any medium other than cash for services not in the course of the employer's trade or business and for domestic service in a private home of the employer, for agricultural labor, for services performed by certain homeworkers, and as tips, respectively. (f) Ordinarily, facilities or privileges (such as entertainment, medical services, or so-called “courtesy” discounts on purchases), furnished or offered by an employer to his employees generally, are not considered as remuneration for employment if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, good will, contentment, or efficiency of his employees. The term “facilities or privileges”, however, does not ordinarily include the value of meals or lodging furnished, for example, to restaurant or hotel employees, or to seamen or other employees aboard vessels, since generally these items constitute an appreciable part of the total remuneration of such employees. (g) Amounts of so-called “vacation allowances” paid to an employee constitute wages. Thus, the salary of an employee on vacation, paid notwithstanding his absence from work, constitutes wages. (h) Amounts paid specifically—either as advances or reimbursements—for traveling or other bona fide ordinary and necessary expenses incurred or reasonably expected to be incurred in the business of the employer are not wages. Traveling and other reimbursed expenses must be identified either by making a separate payment or by specifically indicating the separate amounts where both wages and expense allowances are combined in a single payment. For amounts that are received by an employee on or after July 1, 1990, with respect to expenses paid or incurred on or after July 1, 1990, see § 31.3121(a)-3. (i) Remuneration for employment, unless such remuneration is specifically excepted under section 3121(a) or paragraph (j) of this section, constitutes wages even though at the time paid the relationship of employer and employee no longer exists between the person in whose employ the services were performed and the individual who performed them. Example. A is employed by B during the month of January 1955 in employment and is entitled to receive remuneration of $100 for the services performed for B, the employer, during the month. A leaves the employ of B at the close of business on January 31, 1955. On February 15, 1955 (when A is no longer an employee of B), B pays A the remuneration of $100 which was earned for the services performed in January. The $100 is wages and the taxes are payable with respect thereto. (j) In addition to the exclusions specified in §§ 31.3121(a)(1)-1 to 31.3121(a)(15)-1, inclusive, the following types of payments are excluded from wages: (1) Remuneration for services which do not constitute employment under section 3121(b) and which are not deemed to be employment under section 3121(c) (see § 31.3121(c)-1). (2) Remuneration for services which are deemed not to be employment under section 3121(c) (see § 31.3121(c)-1). (3) Tips or gratuities paid, prior to January 1, 1966, directly to an employee by a customer of an employer, and not accounted for by the employee to the employer. For provisions relating to the treatment of tips received by an employee after December 31, 1965, as wages, see §§ 31.3121(a)(12) and 31.3121(q). (k) Split-dollar life insurance arrangements. see [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 7001, 34 FR 999, Jan. 23, 1969; T.D. 7374, 40 FR 30948, July 24, 1975; T.D. 8276, 54 FR 51027, Dec. 12, 1989; T.D. 8324, 55 FR 51696, Dec. 17, 1990; T.D. 8582, 59 FR 66189, Dec. 23, 1994; T.D. 9092, 68 FR 45361, Sept. 17, 2003] § 31.3121(a)-1T Question and answer relating to the definition of wages in section 3121(a) (Temporary). The following question and answer relates to the definition of wages in section 3121(a) of the Internal Revenue Code of 1954, as amended by section 531(d)(1)(A) of the Tax Reform Act of 1984 (98 Stat. 885): Q-1: A-1: [T.D. 8004, 50 FR 755, Jan. 7, 1985] § 31.3121(a)-2 Wages; when paid and received. (a) In general, wages are received by an employee at the time that they are paid by the employer to the employee. Wages are paid by an employer at the time that they are actually or constructively paid unless under paragraph (c) of this section they are deemed to be subsequently paid. For provisions relating to the time when tips received by an employee are deemed paid to the employee, see § 31.3121(q)-1. (b) Wages are constructively paid when they are credited to the account of or set apart for an employee so that they may be drawn upon by him at any time although not then actually reduced to possession. To constitute payment in such a case the wages must be credited to or set apart for the employee without any substantial limitation or restriction as to the time or manner of payment or condition upon which payment is to be made, and must be made available to him so that they may be drawn upon at any time, and their payment brought within his own control and disposition. For provisions relating to the treatment of deductions from remuneration as payments of remuneration, see § 31.3123-1. (c)(1) The first $100 of cash remuneration paid, either actually or constructively, by an employer in any calendar year to an employee for— (i) Service not in the course of the employer's trade or business, to which § 31.3121(a)(7)-1 is applicable, shall be deemed to be paid by the employer to the employee at the first moment of time in such calendar year that the sum of such cash payments made within such year is at least $100; or (ii) Service performed as a home worker within the meaning of section 3121(d)(3)(C), to which § 31.3121(a)(10)-1 is applicable, shall be deemed to be paid by the employer to the employee at the first moment of time in such calendar year that the sum of such cash payments made within such year is at least $100. (2) Cash remuneration paid, either actually or constructively, by an employer in any calendar year to an employee for domestic service in a private home of the employer to which § 31.3121(a)(7)-1 is applicable, and before the sum of the payments of such cash remuneration equals or exceeds the applicable dollar threshold (as defined in section 3121(x)) for such year, shall be deemed to be paid by the employer to the employee at the first moment of time in such calendar year that the sum of such cash payments made within such year equals or exceeds the applicable dollar threshold (as defined in section 3121(x)) for such year. (3) Cash remuneration paid, either actually or constructively, by an employer in any calendar year to an employee for agricultural labor to which § 31.3121(a)(8)-1 is applicable, and before either of the events described in paragraphs (c)(3)(i) and (c)(3)(ii) of this section has occurred, shall be deemed to be paid by the employer to the employee at the first moment of time in such calendar year that— (i) The sum of the payments of such remuneration is $150 or more; or (ii) The employer's expenditures for agricultural labor in such calendar year equals or exceeds $2,500, except that this paragraph (c)(3)(ii) shall not apply in determining when such remuneration is deemed to be paid under this paragraph if such employee— (A) Is employed as a hand-harvest laborer and is paid on a piece rate basis in an operation which has been, and is customarily and generally recognized as having been, paid on a piece rate basis in the region of employment; (B) Commutes daily from his permanent residence to the farm on which he is so employed; and (C) Has been employed in agriculture less than 13 weeks during the preceding calendar year. (4) If an employer pays cash remuneration to an employee for two or more of the types of service referred to in this paragraph, the provisions of this paragraph are to be applied separately to the amount of remuneration attributable to each type of service. (d)(1) The provisions of paragraphs (a) and (b) of this section apply to any payment of wages made on or after January 1, 1955. (2) The provisions of paragraph (c) of this section that apply to any payment of wages made for service not in the course of the employer's trade or business or for service performed as a home worker within the meaning of section 3121(d)(3)(C) apply to any such payment made on or after January 1, 1978. The provisions of paragraph (c) of this section that apply to any payment of wages made for domestic service in a private home of the employer apply to any such payment made on or after January 1, 1994. The provisions of paragraph (c) of this section that apply to any payment of wages made for agricultural labor apply to any such payment made on or after January 1, 1988. For rules applicable to any payment of wages for these services made prior to the dates set forth in this paragraph (d)(2), see see [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 8306, July 2, 1964; T.D. 7001, 34 FR 999, Jan. 23, 1969; T.D. 9266, 71 FR 35154, June 19, 2006] § 31.3121(a)-3 Reimbursement and other expense allowance amounts. (a) When excluded from wages. (b) When included in wages Accountable plans General rule. (ii) Per diem or mileage allowances. (2) Nonaccountable plans. (c) Effective dates. [T.D. 8324, 55 FR 51696, Dec. 17, 1990] § 31.3121(a)(1)-1 Annual wage limitation. (a) In general. (i) After 1954 and before 1959 which exceeds the first $4,200 of remuneration, (ii) After 1958 and before 1966 which exceeds the first $4,800 of remuneration, (iii) After 1965 and before 1968 which exceeds the first $6,600 of remuneration, (iv) After 1967 and before 1972 which exceeds the first $7,800 of remuneration, (v) After 1971 and before 1973 which exceeds the first $9,000 of remuneration, (vi) After 1972 and before 1974 which exceeds the first $10,800 of remuneration, (vii) After 1973 and before 1975 which exceeds the first $13,200 of remuneration, or (viii) After 1974 which exceeds the amount equal to the contribution and benefit base (as determined under section 230 of the Social Security Act) which is effective for such calendar year (exclusive of remuneration excepted from wages in accordance with paragraph (j) of § 31.3121(a)-1 or §§ 31.3121(a)(2)-1 to 31.3121(a)(15)-1, inclusive) paid within the calendar year by an employer to the employee for employment performed for him at any time after 1936. For provisions relating to the treatment of tips for purposes of the annual wage limitation see § 31.3121(q)-1. (2) The annual wage limitation applies only if the remuneration received during any 1 calendar year by an employee from the same employer for employment performed after 1936 exceeds the amount of such limitation. The limitation in such case relates to the amount of remuneration received during any 1 calendar year for employment after 1936 and not to the amount of remuneration for employment performed in any 1 calendar year. Example. Employee A, in 1967 receives $7,000 from employer B in part payment of $8,000 due him from employment performed in 1967. In 1968 A receives from employer B the balance of $1,000 due him for employment performed in 1967, and thereafter in 1968 also receives $7,000 for employment performed in 1968 for employer B. The first $6,600 of the $7,000 received during 1967 is subject to the taxes in 1967. The remaining $400 received in 1967 is not included as wages and is not subject to the taxes. The balance of $1,000 received in 1968 for employment during 1967 is subject to the taxes during 1968 as is also the first $6,800 of the $7,000 thereafter received in 1968 ($1,000 plus $6,800 totaling $7,800, which is the annual wage limitation applicable to remuneration received in 1968 by an employee from any one employer). The remaining $200 received in 1968 is not included as wages and is not subject to the taxes. (3) If during a calendar year the employee receives remuneration from more than one employer, the annual wage limitation does not apply to the aggregate remuneration received from all of such employers, but instead applies to the remuneration received during such calendar year from each employer with respect to employment after 1936. In such case the first remuneration received in any calendar year after 1974 up to the amount equal to the contribution and benefit base (as determined under section 230 of the Social Security Act) (the first $13,200 received in 1974, the first $10,800 received in 1973, the first $9,000 received in 1972, the first $7,800 received in any calendar year after 1967 and before 1972, the first $6,600 received in any calendar year after 1965 and before 1968, the first $4,800 received in any calendar year after 1958 and before 1966, or the first $4,200 received in any calendar year after 1954 and before 1959) from each employer constitutes wages and is subject to the taxes, even though, under section 6413(c), the employee may be entitled to a special credit or refund of a portion of the employee tax deducted from his wages received during the calendar year. In this connection and in connection with the two examples immediately following, see § 31.6413(c)-1, relating to special credits or refunds of employee tax. In connection with the annual wage limitation in the case of remuneration paid for services performed in the employ of the United States or a wholly owned instrumentality thereof, see § 31.3122. In connection with the annual wage limitation in the case of remuneration paid for services performed in the employ of the Government of Guam, the Government of American Samoa, the District of Columbia, a political subdivision of the Government of Guam, or the Government of American Samoa, or any instrumentality of any of the foregoing which is wholly owned thereby, see § 31.3125. In connection with the application of the annual wage limitation, see also paragraph (b) of this section, relating to the circumstances under which wages paid by a predecessor employer are deemed to be paid by his successor. In connection with the annual wage limitation in the case of remuneration paid after December 31, 1978, from two or more related corporations that compensate an employee through a common paymaster, see § 31.3121(s)-1. Example 1. During 1968 employee C receives from employer D a salary of $1,300 a month for employment performed for D during the first 7 months of 1968, or total remuneration of $9,100. At the end of the 6th month C has received $7,800 from employer D, and only that part of his total remuneration from D constitutes wages subject to the taxes. The $1,300 received by employee C from employer D in the 7th month is not included as wages and is not subject to the taxes. At the end of the 7th month C leaves the employ of D and enters the employ of E. C receives remuneration of $1,560 a month from employer E in each of the remaining 5 months of 1968, or total remuneration of $7,800 from employer E. The entire $7,800 received by C from employer E constitutes wages and is subject to the taxes. Thus, the first $7,800 received from employer D and the entire $7,800 received from employer E constitute wages. Example 2. During the calendar year 1968 F is simultaneously an officer (an employee) of the X Corporation, the Y Corporation, and the Z Corporation and during such year receives a salary of $7,800 from each corporation. Each $7,800 received by F from each of the Corporations X, Y, and Z (whether or not such corporations are related) constitutes wages and is subject to the taxes. (b) Wages paid by predecessor attributed to successor. (2) The wages paid, or considered as having been paid, by a predecessor to an employee shall, for purposes of the annual wage limitation, be treated as having been paid to such employee by a successor if: (i) The successor during a calendar year acquired substantially all the property used in a trade or business, or used in a separate unit of a trade or business, of the predecessor; (ii) Such employee was employed in the trade or business of the predecessor immediately prior to the acquisition and is employed by the successor in his trade or business immediately after the acquisition; and (iii) Such wages were paid during the calendar year in which the acquisition occurred and prior to such acquisition. (3) The method of acquisition by an employer of the property of another employer is immaterial. The acquisition may occur as a consequence of the incorporation of a business by a sole proprietor or a partnership, the continuance without interruption of the business of a previously existing partnership by a new partnership or by a sole proprietor, or a purchase or any other transaction whereby substantially all the property used in a trade or business, or used in a separate unit of a trade or business, of one employer is acquired by another employer. (4) Substantially all the property used in a separate unit of a trade or business may consist of substantially all the property used in the performance of an essential operation of the trade or business, or it may consist of substantially all the property used in a relatively self-sustaining entity which forms a part of the trade or business. Example 1. The M Corporation which is engaged in the manufacture of automobiles, including the manufacture of automobile engines, discontinues the manufacture of the engines and transfers all the property used in such manufacturing operation to the N Company. The N Company is considered to have acquired a separate unit of the trade or business of the M Corporation, namely, its engine manufacturing unit. Example 2. The R Corporation which is engaged in the operation of a chain of grocery stores transfers one of such stores to the S Company. The S Company is considered to have acquired a separate unit of the trade or business of the R Corporation. (5) A successor may receive credit for wages paid to an employee by a predecessor only if immediately prior to the acquisition the employee was employed by the predecessor in his trade or business which was acquired by the successor and if immediately after the acquisition such employee is employed by the successor in his trade or business (whether or not in the same trade or business in which the acquired property is used). If the acquisition involves only a separate unit of a trade or business of the predecessor, the employee need not have been employed by the predecessor in that unit provided he was employed in the trade or business of which the acquired unit was a part. Example. The Y Corporation in 1968 acquires by purchase all the property of the X Company and immediately after the acquisition employs in its trade or business employee A, who, immediately prior to the acquisition, was employed by the X Company. The X Company has in 1968 (the calendar year in which the acquisition occurs) and prior to the acquisition paid $5,000 of wages to A. The Y Corporation in 1968 pays to A remuneration of $5,000 with respect to employment. Only $2,800 of the remuneration paid by the Y Corporation is considered to be wages. For purposes of the $7,800 limitation, the Y Corporation is credited with the $5,000 paid to A by the X Company. If in the same calendar year, the Z Company acquires the property by purchase from the Y Corporation and A immediately after the acquistion is employed by the Z Company in its trade or business, no part of the remuneration paid to A by the Z Company in the year of the acquisition will be considered to be wages. The Z Company will be credited with the remuneration paid to A by the Y Corporation and also with the wages paid to A by the X Company (considered for purposes of the application of the $7,800 limitation as having also been paid by the Y Corporation). (6) Where a corporation described in section 501(c)(3) which is exempt from income tax under section 501(a) has in effect a certificate filed pursuant to section 3121(k), or pursuant to section 1426(1) of the Internal Revenue Code of 1939, waiving its exemption from the taxes imposed by the Act, the activity in which such corporation is engaged is considered to be its trade or business for the purpose of determining whether the transferred property was used in the trade or business of the predecessor and for the purpose of determining whether the employment by the predecessor and the successor of an individual whose services were retained by the successor constitute employment in a trade or business. Thus, if a charitable or religious organization, subject to the taxes by virtue of its certificate, acquires all the property of another such organization likewise subject to the taxes and retains the services of employees of the predecessor, wages paid to such employees by the predecessor in the year of the acquisition (and prior to such acquisition) will be attributed to the successor for purposes of the annual wage limitation. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 8307, July 2, 1964; T.D. 6983, 33 FR 18015, Dec. 4, 1968; T.D. 7374, 40 FR 30948, July 24, 1975; T.D. 7660, 44 FR 75139, Dec. 19, 1979] § 31.3121(a)(2)-1 Payments on account of sickness or accident disability, medical or hospitalization expenses, or death. (a) The term “wages” does not include the amount of any payment (including any amount paid by an employer for insurance or annuities, or into a fund, to provide for any such payment) made to, or on behalf of, an employee or any of his dependents under a plan or system established by an employer which makes provision for his employees generally (or for his employees generally and their dependents) or for a class or classes of his employees (or for a class or classes of his employees and their dependents), on account of— (1) Sickness or accident disability of an employee or any of his dependents, only if payment is received under a workers' compensation law; (2) Medical or hospitalization expenses in connection with sickness or accident disability of an employee or any of his dependents, or (3) Death of an employee or any of his dependents. (b) The plan or system established by an employer need not provide for payments on account of all of the specified items, but such plan or system may provide for any one or more of such items. Payments for any one or more of such items under a plan or system established by an employer solely for the dependents of his employees are not within this exclusion from wages. (c) Dependents of an employee include the employee's husband or wife, children, and any other members of the employee's immediate family. (d) Workers' compensation law. (2) For purposes of paragraph (a)(1) of this section, a payment made under a workers' compensation law does not include a payment made pursuant to a State temporary disability insurance law. (3) If an employee receives a payment on account of sickness or accident disability that is not made under a workers' compensation law or a statute in the nature of a workers' compensation act, the payment is not excluded from wages as defined by section 3121(a)(2)(A) even if the payment must be repaid if the employee receives a workers' compensation award or an award under a statute in the nature of a workers' compensation act with respect to the same period of absence from work. (4) If an employee receives a payment on account of non-occupational injury sickness or accident disability such payment is not excluded from wages, as defined by section 3121(a)(2)(A). (e) Examples. Example 1. A local government employee is injured while performing work-related activities. The employee is not covered by the State workers' compensation law, but is covered by a local government ordinance that requires the local government to pay the employee's full salary when the employee is out of work as a result of an injury incurred while performing services for the local government. The ordinance does not limit or otherwise affect the local government's liability to the employee for the work-related injury. The local ordinance is not a workers' compensation law, but it is in the nature of a workers' compensation act. Therefore, the salary the employee receives while out of work as a result of the work-related injury is excluded from wages under section 3121(a)(2)(A). Example 2. The facts are the same as in Example 1 Example 3. The facts are the same as in Example 1 (f) It is immaterial for purposes of this exclusion whether the amount or possibility of such benefit payments is taken into consideration in fixing the amount of an employee's remuneration or whether such payments are required, expressly or impliedly, by the contract of service. [ T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 9233, 70 FR 74199, Dec. 15, 2005] § 31.3121(a)(3)-1 Retirement payments. The term “wages” does not include any payment made by an employer to an employee (including any amount paid by an employer for insurance or annuities, or into a fund, to provide for any such payment) on account of the employee's retirement. Thus, payments made to an employee on account of his retirement are excluded from wages under this exception even though not made under a plan or system. § 31.3121(a)(4)-1 Payments on account of sickness or accident disability, or medical or hospitalization expenses. The term “wages” does not include any payment made by an employer to, or on behalf of, an employee on account of the employee's sickness or accident disability or the medical or hospitalization expenses in connection with the employee's sickness or accident disability, if such payment is made after the expiration of 6 calendar months following the last calendar month in which such employee worked for such employer. Such payments are excluded from wages under this exception even though not made under a plan or system. If the employee does not actually perform services for the employer during the requisite period, the existence of the employer- employee relationship during that period is immaterial. § 31.3121(a)(5)-1 Payments from or to certain tax-exempt trusts, or under or to certain annuity plans or bond purchase plans. (a) Payments from or to certain tax- exempt trusts. (1) By an employer, on behalf of an employee or his beneficiary, into a trust, or (2) To, or on behalf of, an employee or his beneficiary from a trust. If at the time of such payment the trust is exempt from tax under section 501(a) as an organization described in section 401(a). A payment made to an employee of such a trust for services rendered as an employee of the trust and not as a beneficiary thereof is not within this exclusion from wages. (b) Payments under or to certain annuity plans. (i) By an employer, on behalf of an employee or his beneficiary, into an annuity plan, or (ii) To, or on behalf of, an employee or his beneficiary under an annuity plan, if at the time of such payment the annuity plan is a plan described in section 403(a). (2) The term “wages” does not include any payment made before January 1, 1963— (i) By an employer, on behalf of an employee or his beneficiary, into an annuity plan, or (ii) To, or on behalf of, an employee or his beneficiary under an annuity plan, if at the time of such payment the annuity plan meets the requirements of section 401(a)(3), (4), (5), and (6). (c) Payments under or to certain bond purchase plans. (1) By an employer, on behalf of an employee or his beneficiary, into a bond purchase plan, or (2) To, or on behalf of, an employee or his beneficiary under a bond purchase plan, if at the time of such payment the plan is a qualified bond purchase plan described in section 405(a). [T.D. 6876, 31 FR 2596, Feb. 10, 1966] § 31.3121(a)(5)-2 Payments under or to an annuity contract described in section 403(b). (a) Salary reduction agreement defined. salary reduction agreement (1) If the employee elects to reduce his or her compensation pursuant to a cash or deferred election as defined at § 1.401(k)-1(a)(3) of this chapter; (2) If the employee elects to reduce his or her compensation pursuant to a one-time irrevocable election made at or before the time of initial eligibility to participate in such plan or arrangement (or pursuant to a similar arrangement involving a one-time irrevocable election); or (3) If the employee agrees as a condition of employment (whether such condition is set by statute, contract, or otherwise) to make a contribution that reduces his or her compensation. (b) Effective/applicability date. [T.D. 9367, 72 FR 64942, Nov. 19, 2007] § 31.3121(a)(6)-1 Payment by an employer of employee tax under section 3101 or employee contributions under a State law. The term “wages” does not include any payment by an employer (without deduction from the remuneration of, or other reimbursement from, the employee) of either (a) the employee tax imposed by section 3101 or the corresponding section of prior law, or (b) any payment required from an employee under a State unemployment compensation law. § 31.3121(a)(7)-1 Payments for services not in the course of employer's trade or business or for domestic service. (a) Meaning of terms Services not in the course of employer's trade or business. (2) Domestic service in a private home of the employer. (b) Payments other than in cash. (c) Cash payments. wages (i) Domestic service in a private home of the employer, unless the cash remuneration paid in such year by the employer to the employee for such service equals or exceeds the applicable dollar threshold (as defined in section 3121(x)) for such year; or (ii) Service not in the course of the employer's trade or business, unless the cash remuneration paid in such year by the employer to the employee for such service equals or exceeds $100. (2) The tests relating to cash remuneration are based on the remuneration paid in a calendar year rather than on the remuneration earned during a calendar year. The following example illustrates this provision: Example. On March 31, 2004, employer X pays employee A cash remuneration of $100 for service not in the course of X's trade or business. Such remuneration constitutes wages subject to the taxes even though $10 thereof represents payment for such service performed by A for X in December 2003. (3) In determining whether wages have been paid either for domestic service in a private home of the employer or for service not in the course of the employer's trade or business, only cash remuneration for such service shall be taken into account. Cash remuneration includes checks and other monetary media of exchange. Remuneration paid in any other medium, such as lodging, food, clothing, car tokens, transportation passes or tickets, or other goods or commodities, is disregarded in determining whether the cash-remuneration test is met. If an employee receives cash remuneration from an employer in a calendar year for both types of services the pertinent cash-remuneration test is to be applied separately to each type of service. If an employee receives cash remuneration from more than one employer in a calendar year for domestic service in a private home of the employer or for service not in the course of the employer's trade or business, the pertinent cash-remuneration test is to be applied separately to the remuneration received from each employer. (d) Cross references. see (2) For provisions relating to time of payment of wages for such services, see (3) For provisions relating to computations to the nearest dollar of any payment of cash remuneration for domestic service in a private home of the employer, see (e) Effective dates. (2) For rules applicable to any cash payment made prior to the dates set forth in paragraph (e)(1), see see [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 9266, 71 FR 35155, June 19, 2006] § 31.3121(a)(8)-1 Payments for agricultural labor. (a) Scope of this section. (b) Payments other than in cash. (c) Cash payments. wages (i) The cash remuneration paid in such year by the employer to the employee for such labor is $150 or more; or (ii) The employer's expenditures for agricultural labor in such year equal or exceed $2,500, except that this paragraph (c)(1)(ii) shall not apply in determining whether remuneration paid to an employee constitutes wages for agricultural labor if such employee— (A) Is employed as a hand-harvest laborer and is paid on a piece rate basis in an operation which has been, and is customarily and generally recognized as having been, paid on a piece rate basis in the region of employment; (B) Commutes daily from his permanent residence to the farm on which he is so employed; and (C) Has been employed in agriculture less than 13 weeks during the preceding calendar year. (2) The application of the provisions of paragraph (c)(1) of this section may be illustrated by the following example: Example. Employer X pays A $140 in cash for agricultural labor in calendar year 2004. X makes no other payments to A during the year and makes no other payment for agricultural labor to any other employee. Employee A is not employed as a hand-harvest laborer. Neither the $150-cash-remuneration test nor the $2,500-employer's-expenditures-for-agricultural-labor test is met. Accordingly, the remuneration paid by X to A is not subject to the taxes. If in 2004 X had paid A $140 in cash for agricultural labor and had made expenditures of $2,360 or more to other employees for agricultural labor, the $140 paid by X to A would have been subject to tax because the $2,500-employer's-expenditures-for-agricultural-labor test would have been met. Or, if X had paid A $150 in cash in 2004 and made no other payments to any other employee for agricultural labor, the $150 paid by X to A would have been subject to tax because the $150-cash-remuneration test would have been met. (d) Application of cash-remuneration test. Example. Employer X operates a store and also is engaged in farming operations. Employee A, who regularly performs services for X in connection with the operation of the store, works on X's farm when additional help is required for the farm activities. In the calendar year 2004, X pays A $140 in cash for services performed in agricultural labor, and $4,000 for services performed in connection with the operation of the store. X has no additional expenditures for agricultural labor in 2004. Since the cash remuneration paid by X to A in the calendar year 2004 for agricultural labor is less than $150, the $150-cash-remuneration test is not met. The $140 paid by X to A in 2004 for agricultural labor does not constitute wages and is not subject to the taxes. (2) The test relating to cash remuneration of $150 or more is based on the cash remuneration paid in a calendar year rather than on the remuneration earned during a calendar year. It is immaterial if such cash remuneration is paid in a calendar year other than the year in which the agricultural labor is performed. The following example illustrates this paragraph (d)(2): Example. Employer X pays cash remuneration of $150 in the calendar year 2004 to employee A for agricultural labor. Such remuneration constitutes wages even though $10 of such amount represents payment for agricultural labor performed by A for X in December 2003. (3) In determining whether $150 or more has been paid to an employee for agricultural labor, only cash remuneration for such labor shall be taken into account. If an employee receives cash remuneration in any one calendar year from more than one employer for agricultural labor, the cash-remuneration test is to be applied with respect to the remuneration received by the employee from each employer in such calendar year for such labor. (e) Application of employer's-expenditures-for-agricultural-labor test. Example. Employer X operates a store and also is engaged in farming operations. Employee A, who regularly performs services for X in connection with the operation of the store, works on X's farm when additional help is required for the farm activities. In calendar year 2004, X pays A $140 in cash for services performed in agricultural labor, and $4,000 for services performed in connection with the operation of the store. X has no additional expenditures for agricultural labor in 2004. Since X's expenditures for agricultural labor in 2004 are less than $2,500, the employer's-expenditures-for-agricultural-labor test is not met. The $140 paid by X to A in 2004 for agricultural labor does not constitute wages and is not subject to the taxes. (2) The test relating to an employer's expenditures of $2,500 or more for agricultural labor is based on the expenditures paid by the employer in a calendar year rather than on the expenses incurred by the employer during a calendar year. It is immaterial if the expenditures are paid in a calendar year other than the year in which the agricultural labor is performed. The following example illustrates this paragraph (e)(2): Example. Employer X employs A to construct fences on a farm owned by X. The work constitutes agricultural labor and is performed over the course of November and December 2003. A is not employed by X at any other time, however X does have other employees to whom X pays remuneration of $2,000 for agricultural labor in 2003. X pays A $140 in cash in November 2003 and $140 in cash in January 2004, in full payment for the work. The $140 payment to A made in November is not wages for calendar year 2003 because the $150-cash-remuneration test is not met and X's total expenditures for agricultural labor for such year are not equal to or in excess of $2,500. The $140 payment to A made in January is not wages for 2004 because the $150 cash-remuneration test is not met. However, if X pays additional remuneration to employees for agricultural labor in 2004 that equals or exceeds $2,360, the employer's-expenditures-for-agricultural-labor test will be met and the $140 paid by X to A in 2004 will be considered wages. It is immaterial that the work was performed in 2003. (f) Meaning of “cash remuneration.” (g) Cross references. (2) For provisions relating to the time of payment of wages for agricultural labor, see § 31.3121(a)-2. (3) For provisions relating to records to be kept with respect to agricultural labor, see paragraph (b) of § 31.6001-2. (h) Effective dates. see see [T.D. 6744, 29 FR 8308, July 2, 1964, as amended by T.D. 9266, 71 FR 35155, June 19, 2006] § 31.3121(a)(9)-1 [Reserved] § 31.3121(a)(10)-1 Payments to certain home workers. (a) The term wages see (b) The application of paragraph (a) of this section may be illustrated by the following example: Example. A, a home worker, performs services for X, a manufacturer, in 2003 and 2004. In the performance of the home work A is an employee by reason of section 3121(d)(3)(C). In March 2004, A returns to X articles made by A at home from materials received by A from X in 2003. X pays A cash remuneration of $100 for such work when the finished articles are delivered. The $100 includes $10 which represents remuneration for home work performed by A in 2003. The entire $100 is subject to the taxes. Any additional cash remuneration paid by X to A in 2004 for such services is also subject to the taxes. (c) In the event an employee receives remuneration in any one calendar year from more than one employer for services performed as a home worker of the character described in paragraph (a) of this section, the regulations in this section are to be applied with respect to the remuneration received by the employee from each employer in such calendar year for such services. This exclusion from wages has no application to remuneration paid for services performed as a home worker who is an employee under section 3121(d)(2) ( see (d) Cash remuneration includes checks and other monetary media of exchange. Remuneration paid in any other medium, such as clothing, car tokens, transportation passes or tickets, or other goods or commodities, is disregarded in determining whether the $100 cash-remuneration test is met. If the cash remuneration paid in any calendar year by an employer to an employee for services performed as a home worker of the character described in paragraph (a) of this section is $100 or more, then no remuneration, whether in cash or in any medium other than cash, paid by the employer to the employee in such calendar year for such services is excluded from wages under this exception. (e)(1) For provisions relating to deductions of employee tax or amounts equivalent to the tax from cash payments for services performed as a home worker within the meaning of section 3121(d)(3)(C), see (2) For provisions relating to the time of payment of wages for services performed as a home worker within the meaning of section 3121(d)(3)(C), see (3) For provisions relating to records to be kept with respect to payment of wages for services performed as a home worker within the meaning of section 3121(d)(3)(C), see (f) The provisions of this section apply to any payment for services performed as a home worker within the meaning of section 3121(d)(3)(C) made on or after January 1, 1978. For rules applicable to any payment for services performed as a home worker within the meaning of section 3121(d)(3)(C) made prior to January 1, 1978, see see [T.D. 9266, 71 FR 35156, June 19, 2006] § 31.3121(a)(11)-1 Moving expenses. (a) The term “wages” does not include remuneration paid on or after November 1, 1964, to or on behalf of an employee, either as an advance or a reimbursement, specifically for moving expenses incurred or expected to be incurred, if (and to the extent that) at the time of payment it is reasonable to believe that a corresponding deduction is or will be allowable to the employee under section 217. The reasonable belief contemplated by the statute may be based upon any evidence reasonably sufficient to induce such belief, even though such evidence may be insufficient upon closer examination by the district director or the courts finally to establish that a deduction is allowable under section 217. The reasonable belief shall be based upon the application of section 217 and the regulations thereunder in Part 1 of this chapter (Income Tax Regulations). When used in this section, the term “moving expenses” has the same meaning as when used in section 217 and the regulations thereunder. (b) Except as otherwise provided in paragraph (a) of this section, or in a numbered paragraph of section 3121(a), amounts paid to or on behalf of an employee for moving expenses are wages for purposes of section 3121(a). [T.D. 7375, 40 FR 42350, Sept. 12, 1975] § 31.3121(a)(12)-1 Tips. The term “wages” does not include remuneration received by an employee after December 1965 in the form of tips if— (a) The tips are paid in any medium other than cash, or (b) The cash tips received by an employee in any calendar month in the course of his employment by an employer are less than $20. If the cash tips received by an employee in a calendar month after December 1965 in the course of his employment by an employer amount to $20 or more, none of the cash tips received by the employee in such calendar month are excluded from the term “wages” under this section. The cash tips to which this section applies include checks and other monetary media of exchange. Tips received by an employee in any medium other than cash, such as passes, tickets, or other goods or commodities do not constitute wages. If an employee in any calendar month performs services for two or more employers and receives tips in the course of his employment by each employer, the $20 test is to be applied separately with respect to the cash tips received by the employee in respect of his services for each employer and not to the total cash tips received by the employee during the month. As to the time tips are deemed paid, see § 31.3121(q)-1. For provisions relating to the treatment of tips received by an employee prior to 1966, see paragraph (j)(3) of § 31.3121 (a)-1. [T.D. 7001, 34 FR 999, Jan. 23, 1969] § 31.3121(a)(13)-1 Payments under certain employers' plans after retirement, disability, or death. (a) In general. (1) Death, (2) Retirement for disability, or (3) Retirement after attaining an age specified in the plan established by the employer or in a pension plan of the employer at the age at which a person in the employee's circumstances is eligible for retirement. A payment or series of payments made under the circumstances described in the preceding sentence is excluded from “wages” even if made pursuant to an incentive compensation plan which also provides for the making of other types of payments. However, any payment or series of payments which would have been paid if the employee's relationship had not been terminated is not excluded from “wages” under this section and section 3121(a)(13). For example, lump-sum payments for unused vacation time or a final paycheck received after retirement are payments which the employee would have received whether or not he retired and therefore are not excluded from “wages” under this section. Further, if any payment is made upon or after termination of employment for any reason other than those set out in subparagraphs (1), (2), and (3) of this paragraph such payment is not excludable from “wages” by this section. For example, if a pension plan provides for retirement upon disability, completion of 30 years of service, or attainment of age 65, and if an employee who is not disabled retires at age 61 after 30 years of service, none of the retirement payments made to the employee under the pension plan (including any made after he is 65) is excludable from “wages” under this section. However, if the pension plan had conditioned retirement after 30 years of service upon attainment of age 60, all of the retirement payments would have been excludable. (b) Plan. (c) Dependents. (d) Benefit payment. (e) Example. Example. A, an employee, receives a salary of $1,500 a month, payable on the 5th day of the month following the month for which the salary is earned. A's employer has established an incentive compensation plan for a class of his employees, including A, providing for the payment of deferred compensation on termination of employment, including termination upon an employee's death, retirement at age 65 (the retirement age specified in the plan), or retirement for disability. On March 1, 1973, A attains the age of 65 and retires. On March 5, 1973, A receives $5,500 from his employer of which $1,500 represents A's salary for services he performed in February 1973, and $4,000 represents incentive compensation paid under the employer's plan. The amount of $4,000 is excluded from “wages” under this section. The amount of $1,500 is not excluded from “wages” under this section. [T.D. 7374, 40 FR 30949, July 24, 1975] § 31.3121(a)(14)-1 Payments by employer to survivor or estate of former employee. The term “wages” does not include any payment by an employer to a survivor or the estate of a former employee made after 1972 and after the calendar year in which such employee died. [T.D. 7374, 40 FR 30950, July 24, 1975, as amended by T.D. 7373, 40 FR 30957, July 24, 1975] § 31.3121(a)(15)-1 Payments by employer to disabled former employee. The term “wages” does not include any payment made after 1972 by an employer to an employee, if at the time such payment is made such employee is entitled to disability insurance benefits under section 223(a) of the Social Security Act and such entitlement commenced prior to the calendar year in which such payment is made, and if such employee did not perform any service for such employer during the period for which such payment is made. [T.D. 7374, 40 FR 30950, July 24, 1975, as amended by T.D. 7373, 40 FR 30957, July 24, 1975] § 31.3121(a)(18)-1 Payments or benefits under a qualified educational assistance program. The term “wages” does not include any payment made, or benefit furnished, to or for the benefit of an employee in a taxable year beginning after December 31, 1978, if at the time of such payment or furnishing it is reasonable to believe that the employee will be able to exclude such payment or benefit from income under section 127. [T.D. 7898, 48 FR 31019, July 6, 1983] § 31.3121(b)-1 Employment; services to which the regulations in this subpart apply. (a) The provisions of the regulations in this subpart relating to the term “employment” apply with respect to services performed after 1954. Certain provisions also apply with respect to services performed before 1955 for which the remuneration is paid after 1954 (see paragraph (b) of § 31.3121(b)-2. For provisions relating generally to services performed before 1955, see paragraph (a) of § 31.3121 (b)-2. For provisions relating to the circumstances under which services which do not constitute employment are nevertheless deemed to be employment, and relating to the circumstances under which services which constitute employment are nevertheless deemed not to be employment, see § 31.3121 (c)-1. For provisions relating to who are employees and who are employers see §§ 31.3121 (d)-1 and 31.3121 (d)-2, respectively. (b) The taxes apply with respect to remuneration paid after 1954 for services performed before 1955, as well as for services performed after 1954, to the extent that the remuneration and services constitute wages and employment. See §§ 31.3121(a)-1 to 31.3121(a)(13)-1 relating to wages. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6983, 33 FR 18015, Dec. 4, 1968] § 31.3121(b)-2 Employment; services performed before 1955. (a) General rule. (i) Services performed after 1936 and before 1955 which were employment under the applicable law in effect before 1955 constitute employment under section 3121(b). (ii) Services performed after 1936 and before 1955 which were not employment under the applicable law in effect before 1955 do not constitute employment under section 3121(b). (2) Except as provided in paragraph (b) of this section, determination of whether services performed before 1955 constitute employment shall be made in accordance with the applicable provisions of law in effect before 1955 and of the regulations thereunder. The regulations applicable in determining whether service performed after 1936 and before 1955 constitute employment are as follows: (i) Services performed after 1936 and before 1940—26 CFR (1939) Part 401 (Regulations 91). (ii) Services performed after 1939 and before 1951—26 CFR (1939) Part 402 (Regulations 106). (iii) Services performed after 1950 and before 1955—26 CFR (1939) Part 408 (Regulations 128). (b) Certain services performed before 1955 the remuneration for which is paid after 1954. (i) Agricultural labor, as defined in section 3121(g) (see § 31.3121(g)-1), other than services of the character described in section 3121(b)(1) (relating to services performed in connection with the production or harvesting of certain oleoresinous products and services performed by certain foreign agricultural workers), which, at the time performed, constituted employment under section 1426(b) of the 1939 Code, or would have constituted employment except for the provisions of section 1426(b)(1) of such Code, as in effect at the time the services were performed. (ii) Services not in the course of the employers' trade or business (see paragraph (a)(1) of § 31.3121(a)(7)-1) which, at the time performed, constituted employment under section 1426(b) of the 1939 Code, or would have constituted employment except for the provisions of section 1426(b)(3) of such Code, as in effect at the time the services were performed. (2) Services of the character described in paragraphs (a) and (b) of § 31.3121(b)(1)-1, which were performed by certain foreign agricultural workers before 1955 and the remuneration for which is paid after 1954, do not constitute employment under section 3121(b), irrespective of whether they constituted employment under section 1426(b) of the 1939 Code, as in effect at the time the services were performed. (3) This paragraph has no application to services performed before 1955 and the remuneration for which was paid before 1955. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 8309, July 2, 1964] § 31.3121(b)-3 Employment; services performed after 1954. (a) In general. (b) Services performed within the United States. (c) Services performed outside the United States In general. (2) On or in connection with an American vessel or American aircraft. ( a ( b ( c (ii) An employee performs services on and in connection with the vessel or aircraft if he performs services on such vessel or aircraft which are also in connection with the vessel or aircraft. Services performed on the vessel by employees as officers or members of the crew, or as employees of concessionaires, of the vessel, for example, are performed under such circumstances, since such services are also connected with the vessel. Similarly, services performed on the aircraft by employees as officers or members of the crew of the aircraft are performed on and in connection with such aircraft. Services may be performed on the vessel or aircraft, however, which have no connection with it, as in the case of services performed by an employee while on the vessel or aircraft merely as a passenger in the general sense. For example, the services of a buyer in the employ of a department store while he is a passenger on a vessel are not in connection with the vessel. (iii) If services are performed by an employee “on and in connection with” an American vessel or American aircraft when outside the United States and the conditions listed in paragraph (c)(2)(i) ( b c (iv) Services performed by a member of the crew or other employee whose contract of service is not entered into within the United States, and during the performance of which and while the employee is employed on the vessel or aircraft it does not touch at a port within the United States, do not constitute employment under this subparagraph, notwithstanding services performed by other members of the crew or other employees on or in connection with the vessel or aircraft may constitute employment. (v) A vessel includes every description of watercraft, or other contrivance, used as a means of transportation on water. An aircraft includes every description of craft, or other contrivance, used as a means of transportation through the air. In the case of an aircraft, the term “port” means an airport. An airport means an area on land or water used regularly by aircraft for receiving or discharging passengers or cargo. For definitions of “American vessel” and “American aircraft”, see § 31.3121(f)-1. (vi) With respect to services performed outside the United States on or in connection with an American vessel or American aircraft, the citizenship or residence of the employee is immaterial, and the citizenship or residence of the employer is material only in case it has a bearing in determining whether a vessel is an American vessel. (3) By a citizen of the United States as an employee for an American employer. (4) By a citizen of the United States as an employee for a foreign subsidiary corporation. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 8309, July 2, 1964] § 31.3121(b)-4 Employment; excepted services in general. (a) Services performed by an employee for an employer do not constitute employment for purposes of the taxes if they are specifically excepted from employment under any of the numbered paragraphs of section 3121(b). Services so excepted do not constitute employment for purposes of the taxes even though they are performed within the United States, or are performed outside the United States on or in connection with an American vessel or American aircraft, or are performed outside the United States by a citizen of the United States for an American employer. If not otherwise provided in the regulations relating to the numbered paragraphs of section 3121(b), such regulations apply to services performed after 1954. (b) The exception attaches to the services performed by the employee and not to the employee as an individual; that is, the exception applies only to the services in an excepted class rendered by the employee. Example. A is an individual who is employed part time by B to perform services which are specifically excepted from employment under one of the numbered paragraphs of section 312(b). A is also employed by C part time to perform services which constitute employment. While no tax liability is incurred with respect to A's remuneration for services performed in the employ of B (the services being excepted from employment), the exception does not embrace the services performed by A in the employ of C (which constitute employment) and the taxes attached with respect to the wages (see § 31.3121(a)-1) for such services. (c) For provisions relating to the circumstances under which services which are excepted are nevertheless deemed to be employment, and relating to the circumstances under which services which are not excepted are nevertheless deemed not to be employment, see § 31.3121(c)-1. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 8310, July 2, 1964] § 31.3121(b)(1)-1 Certain services performed by foreign agricultural workers, or performed before 1959 in connection with oleoresinous products. (a) Services of workers from Mexico. (b) Services of workers from British West Indies. (c) Services performed after 1956 by foreign workers. (d) Services performed before 1959 in connection with the production or harvesting of certain oleoresinous products. (e) Cross-reference. [T.D. 6744, 29 FR 8310, July 2, 1964] § 31.3121(b)(2)-1 Domestic service performed by students for certain college organizations. (a) Services of a household nature performed in or about the club rooms or house of a local college club, or in or about the club rooms or house of a local chapter of a college fraternity or sorority, by a student who is enrolled and regularly attending classes at a school, college, or university are excepted from employment. For purposes of this exception, the statutory tests are the type of services performed by the employee, the character of the place where the services are performed, and the status of the employee as a student enrolled and regularly attending classes at a school, college, or university. (b) In general, services of a household nature in or about the club rooms or house of a local college club or local chapter of a college fraternity or sorority include services rendered by cooks, waiters, butlers, maids, janitors, laundresses, furnacemen, handymen, gardeners, housekeepers, and housemothers. (c) A local college club or local chapter of a college fraternity or sorority does not include an alumni club or chapter. If the club rooms or house of a local college club or local chapter of a college fraternity or sorority is used primarily for the purpose of supplying board or lodging to students or the public as a business enterprise, the services performed therein are not within the exception. (d) An organization is a school, college, or university (e) Services of a household nature are not within the exception if performed in or about rooming or lodging houses, boarding houses, clubs (except local college clubs) hotels, hospitals, eleemosynary institutions, or commercial offices or establishments. (f) For provisions relating to domestic service in a private home of the employer, see § 31.3121(a)(7)-1. [T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 9167, 69 FR 76405, Dec. 21, 2004] § 31.3121(b)(3)-1 Family employment. (a) Certain services are excepted from employment because of the existence of a family relationship between the employee and the individual employing him. The exceptions are as follows: (1) Services performed by an individual in the employ of his or her spouse; (2) (i) Services performed before 1961 by a father or mother in the employ of his or her son or daughter; (ii) Services not in the course of the employer's trade or business, or domestic service in a private home of the employer, performed after 1960 but prior to 1968 by a father or mother in the employ of his or her son or daughter; (iii) Services not in the course of the employer's trade or business, or domestic service in a private home of the employer, performed after 1967 by a father or mother in the employ of his or her son or daughter unless ( a b ( 1 ( 2 ( 3 (3) Services performed by a son or daughter under the age of 21 in the employ of his or her father or mother. (b) Under paragraph (a) (1) and (2) (i) of this section, the exception is conditioned solely upon the family relationship between the employee and the individual employing him. Under paragraph (a)(2) (ii) and (iii) of this section, in addition to the family relationship, there is a further requirement that the services performed after 1960 and before 1968 for purposes of paragraph (a)(2)(ii) and after 1967 for purposes of paragraph (a)(2)(iii) shall be services not in the course of the employer's trade or business or shall be domestic service in a private home of the employer. The terms “services not in the course of the employer's trade or business” and “domestic service in a private home of the employer” have the same meaning as when used in § 31.3121(a) (7)-1, except that it is immaterial under paragraphs (a)(2) (ii) and (iii) of this section whether or not such services are performed on a farm operated for profit. The mere fact that a mental or physical disability, whether temporary or permanent, renders a child or spouse incapable of self-support does not necessarily mean that the child requires the personal care and supervision of an adult or that the spouse is incapable of caring for a child within the meaning of paragraph (a)(2)(iii) of this section. A written statement by a doctor of the existence of the mental or physical condition of the child or spouse which states that the child requires the personal care and supervision of an adult or that the spouse is incapable of caring for a child and which sets forth the period of time during which the condition has existed and is likely to exist will usually be sufficient evidence to establish the existence and duration of the condition at the time of the statement. Under paragraph (a)(3) of this section, in addition to the family relationship, there is a further requirement that the son or daughter shall be under the age of 21, and the exception continues only during the time that the son or daughter is under the age of 21. (c) Services performed in the employ of a partnership are within the exception described in paragraph (a) of this section only if the requisite family relationship exists between the employee and each of the partners comprising the partnership. (d) Services performed in the employ of a corporation are not within the exception described in paragraph (a) of this section, except that services performed in the employ of an entity that is treated as a corporation under § 301.7701-2(c)(2)(iv)(B) of this chapter may qualify for the exception if the requirements of the exception are otherwise met. An entity that is treated as a corporation under § 301.7701-2(c)(2)(iv)(B) of this chapter is not treated as the employer for purposes of applying section 3121(b)(3) and this section. For purposes of applying section 3121(b)(3) and this section, the owner of an entity that is treated as a corporation under § 301.7701-2(c)(2)(iv)(B) of this chapter is treated as the employer. (e) Paragraphs (c) and (d) of this section apply to wages paid on or after November 1, 2011. However, taxpayers may apply paragraphs (c) and (d) of this section to wages paid on or after January 1, 2009. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 8311, July 2, 1964; T.D. 7374, 40 FR 30950, July 24, 1975; T.D. 9554, 76 FR 67365, Nov. 1, 2011; T.D. 9670, 79 FR 36206, June 26, 2014] § 31.3121(b)(4)-1 Services performed on or in connection with a non-American vessel or aircraft. (a) Services performed within the United States by an employee for an employer “on or in connection with” a vessel not an American vessel, or “on or in connection with” an aircraft not an American aircraft, are excepted from employment if— (1) The employee is employed by such employer “on and in connection with” such vessel or aircraft when outside the United States, and (2) (i) The employee is not a citizen of the United States, or (ii) the employer is not an American employer. (b) An employee performs services on and in connection with the vessel or aircraft if he performs services on the vessel or aircraft when outside the United States which are also in connection with the vessel or aircraft. Services performed on the vessel outside the United States by employees as officers or members of the crew, or by employees of concessionaires, of the vessel, for example, are performed under such circumstances, since such services are also connected with the vessel. Similarly, services performed on the aircraft outside the United States by employees as officers or members of the crew of the aircraft are performed on and in connection with such aircraft. Services may be performed on the vessel or aircraft, however, which have no connection with it, as in the case of services performed by an employee while on the vessel or aircraft merely as a passenger in the general sense. For example, the services of a buyer in the employ of a department store while he is a passenger on a vessel are not in connection with the vessel. (c) The expression “on or in connection with” refers not only to services performed on the vessel or aircraft but also to services connected with the vessel or aircraft which are not actually performed on it (for example, shore services performed as officers or members of the crew, or as employees of concessionaires, of the vessel). (d) Services performed within the United States on or in connection with a non-American vessel or aircraft for an employer by an employee who is not a citizen of the United States are excepted from employment, irrespective of whether the employer is or is not an American employer, provided the employee also is employed by such employer on and in connection with the vessel or aircraft when outside the United States. Services performed within the United States on or in connection with a non-American vessel or aircraft by an employee for an employer who is not an American employer also are excepted from employment, irrespective of whether the employee is or is not a citizen of the United States, provided the employee also is employed by such employer on and in connection with the vessel or aircraft when outside the United States. Services performed within the United States on or in connection with a non-American vessel or aircraft for an American employer by an employee who is a citizen of the United States are not excepted from employment under section 3121(b)(4), irrespective of whether the employee is employed by such employer on and in connection with the vessel or aircraft when outside the United States. Further, section 3121(b)(4) does not except from employment services performed within the United States for an employer, whether or not an American employer, on or in connection with a non-American vessel or aircraft by an employee, whether or not a citizen of the United States, who is not also employed by such employer on and in connection with the vessel or aircraft when outside the United States. (e) Services performed outside the United States on or in connection with a vessel not an American vessel, or on or in connection with an aircraft not an American aircraft, by a citizen of the United States as an employee for an American employer are not excepted from employment under section 3121(b)(4), irrespective of whether the employee is employed on and in connection with such vessel or aircraft when outside the United States. Services performed outside the United States on or in connection with a vessel not an American vessel or on or in connection with an aircraft not an American aircraft, either by an employee who is not a citizen of the United States or for an employer who is not an American employer, do not, in any event, constitute employment. See paragraph (c) of § 31.3121(b)-3, relating to services performed outside the United States which constitute employment. (f) See paragraph (c)(2)(v) of § 31.3121(b)-3 for definitions of “vessel” and “aircraft”, § 31.3121(f)-1, for definitions of “American vessel” and “American aircraft”, § 31.3121(e)-1, for definition of “citizen of the United States”, and § 31.3121(h)-1, for definition of “American employer”. § 31.3121(b)(5)-1 Services in employ of an instrumentality of the United States specifically exempted from the employer tax. Services performed in the employ of an instrumentality of the United States are excepted from employment if such instrumentality is exempt from the employer tax imposed by section 3111 by virtue of any other provision of law which specifically refers to such section 3111 or the corresponding section of prior law (section 1410 of the Internal Revenue Code of 1939) in granting exemption from the employer tax. This exception does not operate to exclude from employment services performed in the employ of an instrumentality of the United States unless the Congress has granted to such instrumentality a specific exemption from the tax imposed by section 3111 or the corresponding section of prior law. For provisions which make general exemptions from Federal taxation ineffectual as to the employer tax imposed by section 3111, see § 31.3112-1. For other exceptions from employment applicable with respect to services performed in the employ of an instrumentality of the United States, see § 31.3121(b)(6)-1. § 31.3121(b)(6)-1 Services in employ of United States or instrumentality thereof. (a) In general. (b) Services covered under a retirement system established by a law of the United States. (c) Services performed for an instrumentality not subject to employer tax on December 31, 1950, and covered under a retirement system established by such instrumentality. (i) The particular instrumentality was not subject on December 31, 1950, to the employer tax imposed by section 1410 of the Internal Revenue Code of 1939, and (ii) The services are covered by a retirement system established by such instrumentality. (2) If the particular instrumentality was not in existence on December 31, 1950, but is created thereafter under a law which was in effect on December 31, 1950, services performed in the employ of such instrumentality are excepted from employment (unless otherwise provided in paragraph (c)(4) of this section) if— (i) The instrumentality had it been in existence on December 31, 1950, would not have been subject on that date to the employer tax imposed by section 1410 of the Internal Revenue Code of 1939, and (ii) The services are covered by a retirement system established by such instrumentality. It is immaterial, for purposes of this exception, whether the exemption from the employer tax on December 31, 1950, resulted, or would have resulted, from a tax exemption as such in effect on December 31, 1950, or from the provisions of section 1426(b) (6) of the Internal Revenue Code of 1939 in effect on that date, relating to the exception from employment of services performed in the employ of certain instrumentalities of the United States. (3) Determinations as to whether services performed in the employ of an instrumentality referred to in paragraph (c)(1) or (2) of this section are covered by a retirement system established by such instrumentality are to be made as of the time such services are performed. Services of an employee who has an option to have his services covered under a retirement system established by the instrumentality are not covered under such retirement system unless and until he exercises such option. The test is whether particular services performed by an employee are covered by a retirement system established by the instrumentality rather than whether the position in which such services are performed is covered by such retirement system. (4) The exception from employment provided in section 3121(b)(6)(B) has no application with respect to any of the following classes of services: (i) Services performed in the employ of a corporation which is wholly owned by the United States; (ii) Services performed in the employ of a production credit association, a Federal Reserve Bank, or a Federal Credit Union; services performed before December 31, 1959, in the employ of a national farm loan association; services performed after December 30, 1959, in the employ of a Federal land bank association; services performed after December 31, 1959, in the employ of a Federal land bank, a Federal intermediate credit bank, or a bank for cooperatives; services performed after December 31, 1972, in the employ of a Federal home loan bank; and services performed after December 31, 1966, and before January 1, 1973, in the employ of a Federal home loan bank, in the case of individuals who are in such employ on the latter date, provided that an amount equal to the taxes imposed by sections 3101 and 3111 with respect to all such services performed by all such individuals are paid under the provisions of section 3122 by July 1, 1973; (iii) Services performed in the employ of a State, county, or community committee under the Commodity Stabilization Service; (iv) Services performed by a civilian employee, not compensated from funds appropriated by the Congress, in the Army and Air Force Exchange Service, Army and Air Force Motion Picture Service, Navy Exchanges, Marine Corps Exchanges, or other activities, conducted by an instrumentality of the United States subject to the jurisdiction of the Secretary of Defense, at installations of the Department of Defense for the comfort, pleasure, contentment, and mental and physical improvement of personnel of such Department; or (v) Services performed by a civilian employee, not compensated from funds appropriated by the Congress, in the Coast Guard Exchanges or other activities, conducted by an instrumentality of the United States subject to the jurisdiction of the Secretary of the Treasury, at installations of the Coast Guard for the comfort, pleasure, contentment, and mental and physical improvement of personnel of the Coast Guard. (d) Special classes of services. (1) Services performed as the President or Vice President of the United States or a Member, Delegate, or Resident Commissioner, of or to the Congress of the United States; (2) Services performed in the legislative branch of the United States Government; (3) Services performed in a penal institution of the United States by an inmate thereof; (4) (i) Except as provided in paragraph (d)(4)(ii) of this section, services performed by student nurses, medical or dental interns, residents in training, student dietitians, student physical therapists, or student occupational therapists, assigned or attached to a hospital, clinic, or medical or dental laboratory operated by any department, agency, or instrumentality of the U.S. Government, or by certain other student employees described in section 5351(2) of title 5, United States Code. (ii) The provisions of paragraph (d)(4)(i) of this section have no application to services performed after 1965 by medical or dental interns or by medical or dental residents in training. (5) Services performed by an individual as an employee serving on a temporary basis in case of fire, storm, earthquake, flood, or other similar emergency; and (6) (i) Except as provided in paragraph (d)(6)(ii) of this section, services performed by an individual to whom subchapter III of chapter 83 of title 5, United States Code (civil service retirement) does not apply because he is, with respect to such services, subject to another retirement system, established either by a law of the United States or by the agency or instrumentality of the United States for which such services are performed. (ii) The provisions of paragraph (d)(6)(i) of this section have no application to service performed by an individual to whom subchapter III of chapter 83 of title 5, United States Code (civil service retirement) does not apply because such individual is subject to the retirement system of the Tennessee Valley Authority, if such service is subject to the plan approved by the Secretary of Health and Human Services on December 28, 1956, pursuant to section 104 (i)(2) of the Social Security Amendments of 1956 (70 Stat. 827). See section 201(m)(4) of such amendments for provisions relating to the timeliness of payment of tax with respect to remuneration paid before 1957 for such services, and barring the imposition of interest on the amount of any such tax due for any period before December 28, 1956. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 8311, July 2, 1964; T.D. 6983, 33 FR 18016, Dec. 4, 1968; T.D. 7373, 40 FR 30957, July 24, 1975] § 31.3121(b)(7)-1 Services in employ of States or their political subdivisions or instrumentalities. (a) In general. (b) Covered transportation service. (c) Government of American Samoa. (d) District of Columbia. (1) Services performed in a hospital or penal institution by a patient or inmate thereof. (2) Services performed by student nurses, student dietitians, student physical therapists, or student occupational therapists assigned or attached to a hospital, clinic, or medical or dental laboratory operated by the District of Columbia or by any wholly owned instrumentality thereof, or by certain other student employees described in section 5351(2) of title 5, United States Code. This subparagraph does not apply to services performed by medical or dental interns or by medical or dental residents in training described in such section 5351(2). (3) Services performed by an individual as an employee serving on a temporary basis in case of fire, storm, snow, earthquake, flood, or other similar emergency. (4) Services performed by a member of a board, committee, or council of the District of Columbia, paid on a per diem, meeting, or other fee basis. (e) Government of Guam. (1) Any person whose services as an officer or employee of such Government or instrumentality is not covered by a retirement system established by a law of the United States shall not, with respect to such service, be regarded as an employee of the United States or any agency or instrumentality thereof, and (2) The remuneration for service described in subparagraph (1) (including fees paid to a public official) shall be deemed to have been paid by such Government or instrumentality. [T.D. 6744, 29 FR 8312, July 2, 1964, as amended by T.D. 6983, 33 FR 18016, Dec. 4, 1968; T.D. 7373, 40 FR 30958, July 24, 1975] § 31.3121(b)(7)-2 Service by employees who are not members of a public retirement system. (a) Table of contents. § 31.3121(b)(7)-2 Service by employees who are not members of a public retirement system. (a) Table of contents. (b) Introduction. (c) General rule. (1) Inclusion in employment of service by employees who are not members of a retirement system. (2) Treatment of individuals employed in more than one position. (d) Definition of qualified participant. (1) General rule. (2) Special rule for part time, seasonal and temporary employees. (3) Alternative lookback rule. (4) Treatment of former participants. (e) Definition of retirement system. (1) Requirement that system provide retirement-type benefits. (2) Requirement that system provide minimum level of benefits. (f) Transition rules. (1) Application of qualified participant rules during 1991. (2) Additional transition rules for plans in existence on November 5, 1990. (b) Introduction. (c) General rule Inclusion in employment of service by employees who are not members of a retirement system. (2) Treatment of individuals employed in more than one position. Example 1. An individual is employed full-time by a county and is a qualified participant (as defined in paragraph (d) of this section) in its retirement plan with regard to such employment. In addition to this full-time employment, the individual is employed part-time in another position with the same county. The part-time position is not covered by the county retirement plan, however, and neither the service nor the compensation in the part-time position is considered in determining the employee's retirement benefit under the county retirement plan. Nevertheless, if the retirement plan meets the requirements of paragraph (e) of this section with respect to the individual, the exclusion from employment under section 3121(b)(7) applies to both the employee's full-time and part-time service with the county. Example 2. An individual is employed full-time by a State and is a member of its retirement plan. The individual is also employed part-time by a city located in the State, but does not participate in the city's retirement plan. The services of the individual for the city are not excluded from employment under section 3121(b)(7), because the determination of whether services constitute employment for such purposes is made separately with respect to each political subdivision for which services are performed. (d) Definition of qualified participant General rule Defined benefit retirement systems. Example 1. A State maintains a defined benefit plan that is a retirement system within the meaning of paragraph (e)(1) of this section. Under the terms of the plan, employees in positions covered by the plan must complete 6 months of service before becoming participants. The exception from employment in section 3121(b)(7) does not apply to services of an employee during the employee's 6 months of service prior to his or her initial entry into the plan. The same result occurs even if, upon the satisfaction of this service requirement, the employee is given credit under the plan for all service with the employer (i.e., if service is credited for the 6-month waiting period). This is true even if the employee makes a required contribution in order to gain the retroactive credit. The same result also occurs if the employee can elect to participate in the plan before the end of the 6-month waiting period, but does not elect to do so. Example 2. A political subdivision maintains a defined benefit plan that is a retirement system within the meaning of paragraph (e)(1) of this section. Under the terms of the plan, service during a plan year is not credited for accrual purposes unless a participant has at least 1,000 hours of service during the year. Benefits that accrue only upon satisfaction of this 1,000-hour requirement may not be taken into account in determining whether an employee is a qualified participant in the plan before the 1,000-hour requirement is satisfied. (ii) Defined contribution retirement systems. Example 1. A State-owned hospital maintains a nonelective defined contribution plan that is a retirement system within the meaning of paragraph (e)(1) of this section. Under the terms of the plan, employees must be employed on the last day of a plan year in order to receive any allocation for the year. Employees may not be treated as qualified participants in the plan before the last day of the year. Example 2. Assume the same facts as in Example 1 Example 3. A political subdivision maintalns an elective defined contribution plan that is a retirement system within the meaning of paragraph (e)(1) of this section. The plan has a calendar year plan year and two open seasons—in December and June—when employees can change their contribution elections. In December, an employee elects not to contribute to the plan. In June, the employee elects (beginning July 1) to contribute a uniform percentage of compensation for each pay period to the plan for the remainder of the plan year. The employee is not a qualified participant in the plan during the period January-June, because no allocations are made to the employee's account with respect to compensation during that time, and it is not certain at that time that any allocations will be made. If the level of contributions during the period July-December meets the minimum retirement benefit requirement of paragraph (e)(2) of this section with respect to compensation during that period, however, the employee is treated as a qualified participant during that period. Example 4. Assume the same facts as in Example 3, (2) Special rule for part-time, seasonal and temporary employees In general. (ii) Treatment of employees entitled to certain distributions upon death or separation from service. Example. An employee is required to contribute 7.5 percent of his or her compensation to a State's defined benefit plan each year. The contribution is “picked up” by the employer in accordance with section 414(h). Under the plan, these amounts plus interest accrued since the date each amount was contributed are refundable to the employee in all cases upon the employee's death or separation from service with the employer. If the interest rate meets the requirements of paragraph (e)(2)(iii)(C) of this section, then the employee's benefits under the plan are considered nonforfeitable and thus meet the requirement of paragraph (d)(2)(i) of this section. Of course, the benefit under the plan must still meet the minimum retirement benefit requirement for defined benefit plans of paragraph (e)(2)(ii) of this section. (iii) Definitions of part-time, seasonal and temporary employee Definition of part-time employee. Example. A community college treats a teacher as a full-time employee if the teacher is assigned to work 15 classroom hours per week. A new teacher is assigned to work 8 classroom hours per week. Because the assigned classroom hours of the teacher are at least one-half of the school's definition of full-time teacher, the teacher is not a part-time employee. (B) Definition of seasonal employee. (C) Definition of temporary employee. (D) Treatment of employees participating in certain systems. Provided that: Example. Assume that an employee works 15 hours per week for a county and 10 hours per week for a municipality, and that both of these political subdivisions contribute to the same state-wide public employee retirement system. Assume further that the employee's service in both positions is aggregated under the system for all purposes in determining benefits (including vesting). If the employee is covered under the retirement system with respect to both positions and is treated for benefit accrual purposes at least as favorably as full-time employees under the retirement system, then the employee is not considered a part-time employee of either the county or the municipality for purposes of the nonforfeitable benefit requirement of paragraph (d)(2)(i) of this section. (3) Alternative lookback rule In general. Example 1. A political subdivision maintains a plan that is a retirement system within the meaning of paragraph (e)(1) of this section. An employee is a qualified participant within the meaning of paragraph (d)(1) of this section in the plan on the last day of the plan year ending on May 31, 1995. If the alternative lookback rule is used to determine FICA liability, no such liability exists with respect to the employee or employer for calendar year 1996 by reason of section 3121(b)(7)(F). The same result would apply if the determination is being made with respect to calendar year 1992 and the lookback year was the plan year ending May 31, 1991, even though that plan year ended before the effective date of section 3121(b)(7)(F). Example 2. A political subdivision maintains an elective defined contribution plan described in section 457(b) of the Code. An employee is eligible to participate in the plan but does not elect to contribute for a plan year. Under the general rule of paragraph (d)(1) of this section, the employee is not a qualified participant in the plan during the plan year because contributions sufficient to meet the minimum retirement benefit requirement of paragraph (e)(2) of this section are not being made. However, if an employee's status as a qualified participant is being determined under the alternative lookback rule, then the employee is a qualified participant for the calendar year in which the determination is being made if he of she was a qualified participant as of the end of the plan year that ended in the previous calendar year. (ii) Application in first year of participation. Example 1. A political subdivision maintains a plan that is a retirement system within the meaning of paragraph (e)(1) of this section and uses the alternative lookback rule of this paragraph (d)(3). Under the terms of the plan, service during a plan year is not credited for accrual purposes unless a participant has at least 1,000 hours of service during the year. Assume that an employee becomes a participant. If it is reasonable to believe that the employee will be credited with 1,000 hours of service by the last day of his or her first year of participation and thereby become a qualified participant by reason of accruing a benefit that meets the minimum retirement benefit requirement of paragraph (e)(2) of this section, the services of the employee are not subject to FICA tax from the date of initial participation until the end of that plan year. If the employee is a qualified participant on the last day of his or her first plan year of participation, then the exception from employment for purposes of FICA will apply to services of the employee for the balance of the calendar year in which the plan year ended. Example 2. Assume the same facts as Example 1, (iii) Application in last year of participation. (iv) Special rule for defined contribution retirement systems. Example. A political subdivision maintains a defined contribution plan that covers all of its full-time employees and is a retirement system within the meaning of paragraph (e)(1) of this section. Under the plan, a portion of each participant's compensation in the final month of every plan year is allocated to the participant's account. Employees covered under the plan generally may not be treated as qualified participants under the alternative lookback rule for any portion of the calendar year following the year in which such allocation is made. (v) Consistency requirement. (4) Treatment of former participants In general. (ii) Treatment of re-hired annuitants. (e) Definition of retirement system Requirement that system provide retirement-type benefits. Example 1. Under an employment arrangement, a portion of an employee's compensation is regularly deferred for 5 years. Because a plan that defers the receipt of compensation for a short span of time rather than until retirement is not a plan that provides retirement benefits, this arrangement is not a retirement system for purposes of section 3121(b)(7)(F). Example 2. An individual holds two positions with the same political subdivision. The wages earned in one position are subject to FICA tax pursuant to an agreement (under section 218 of the Social Security Act) between the Secretary of Health and Human Services and the State in which the political subdivision is located. Because the Social Security system is not a retirement system for purposes of section 3121(b)(7)(F), the exception from employment in section 3121(b)(7) does not apply to service in the other position unless the employee is otherwise a member of a retirement system of such political subdivision. (2) Requirement that system provide minimum level of benefits In general. (ii) Defined benefit retirement systems. (iii) Defined contribution retirement systems In general. (B) Definition of compensation. Example. A political subdivision maintains an elective defined contribution plan that is a retirement system within the meaning of paragraph (e)(1) of this section. The plan has a calendar year plan year. In 1995, an employee contributes to the plan at a rate of 7.5 percent of base pay. Assume that the employee will reach the maximum contribution base described in section 3121(x)(1) in October of 1995. The employee is a qualified participant in the plan for all of the 1995 plan year without regard to whether the employee ceases to participate at any time after reaching the maximum contribution base. (C) Reasonable interest rate requirement. Example. A political subdivision maintains a defined contribution plan described in section 457(b). Under the plan, the accounts of participants are credited annually on the basis of a variable interest rate formula determined as of the beginning of the plan year. The formula requires an interest rate (after adjustment for administrative expense payments) equal to 100 percent of the Applicable Federal Rate for long-term debt instruments. This interest rate constitutes a reasonable rate of interest. (iv) Treatment of emloyees employed in more than one position with the same entity. (v) Treatment of employees participating in certain systems. (A) The compensation and service on which the additional allocations or benefits are based are also taken into account in determining whether the employee's allocations or benefits satisfy the minimum retirement benefit requirement; (B) The retirement system takes all service and compensation of the employee in all positions covered by the system into account for all benefit determination purposes; and (C) If the employee is a part-time, seasonal or temporary employee, he or she is treated under the plan for benefit accrual purposes in as favorable a manner as a full-time employee participating in the system. (vi) Additional testing methods. (f) Transition rules Application of qualified participant rules during 1991 In general. (ii) Extension of reliance period if legislative action required. Example 1. A State maintains a defined benefit plan that meets the requirements of paragraph (e) of this section. The plan does not cover a particular class of full-time employees as of July 1, 1991. However, in light of the enactment of section 3121(b)(7)(F), State officials administering the plan for the State intend to request that the legislature amend the State statute to include that class of employees in the existing plan and otherwise to modify the terms of the plan to meet the requirements of section 3121(b)(7)(F) and this section. The State legislature meets from January through March each year, and legislative action is required to expand coverage under the plan. State officials administering the plan have publicized the proposed amendment providing for the addition of these employees to the plan. Under the transition rule for 1991, if it is reasonable to believe that the legislature will pass this bill in the 1992 session, service by the employees who will be covered under the plan by reason of the amendment is not treated as employment by reason of section 3121(b)(7)(F) during the period prior to April 1, 1992. This is true regardless of whether the plan provides retroactive coverage for the period July 1, 1991 through March 31, 1992. Example 2. Assume the same facts as in Example 1, (2) Additional transition rules for plans in existence on November 5, 1990 Application of minimum retirement benefit requirement to defined benefit retirement systems in plan years beginning before 1993 In general. Example 1. The retirement formula under a retirement plan that was in existence on November 5, 1990, is amended to use career average compensation instead of a high 3-year average, without any increase in the benefit formula. This amendment constitutes a material decrease in the level of benefit under the retirement plan. Therefore, the retirement plan is subject to the minimum retirement benefit requirement for the plan year for which the amendment is effective and for all succeeding plan years. Example 2. A defined benefit retirement plan that was in existence on November 5, 1990, is subsequently amended to include part-time employees. Previously, this class of employees was not covered under the plan either on a mandatory or on an elective basis. The plan is subject to the minimum retirement benefit requirement with respect to the part-time employees because this class of employees was previously excluded from coverage under the retirement plan. Of course, the nonforfeitable benefit rule applies to the benefit relied upon to meet the minimum retirement benefit requirement with respect to any part-time, seasonal or temporary employee covered during this period. (B) Treatment in plan years beginning after 1992 of benefits accrued during previous plan years. Example. A defined benefit plan maintained by a State was in existence on November 5, 1990. It provides a retirement benefit on the last day of the 1992 plan year that is insufficient to meet the requirements of paragraph (e)(2) of this section based on employees' total service and compensation with the State at that time. The plan will nevertheless meet the requirements of paragraph (e)(2) of this section if it is amended to provide benefits sufficient to meet the requirements of paragraph (e)(2) of this section based on employees' service and compensation in plan years beginning after December 31, 1992. (C) Treatment of part-time, seasonal or temporary employees. (ii) Application of minimum retirement benefit requirement to defined contribution retirement systems in plan years beginning before 1993. (iii) Application of qualified participant rules. Example. A political subdivision maintains a defined benefit plan that is a retirement system within the meaning of paragraph (e)(1) of this section but does not meet the requirements of paragraph (e)(2) of this section. If the plan is not subject to the minimum retirement benefit requirement, an employee who is a participant in the retirement plan as of the end of a plan year beginning before January 1, 1993, and may reasonably be expected to accrue a benefit under the plan by the end of such plan year may be treated as a qualified participant in the plan throughout the plan year regardless of the actual amount of the accrual. [T.D. 8354, 56 FR 29570, June 28, 1991; 56 FR 40246, Aug. 14, 1991, as amended by T.D. 8794, 63 FR 70338, Dec. 21, 1998; T.D. 8891, 65 FR 44682, July 19, 2000] § 31.3121(b)(8)-1 Services performed by a minister of a church or a member of a religious order. (a) In general. (b) Service by a minister in the exercise of his ministry. (1) Whether service performed by a minister constitutes the conduct of religious worship or the ministration of sacerdotal functions depends on the tenets and practices of the particular religious body constituting his church or church denomination. (2) Service performed by a minister in the control, conduct, and maintenance of a religious organization relates to directing, managing, or promoting the activities of such organization. Any religious organization is deemed to be under the authority of a religious body constituting a church or church denomination if it is organized and dedicated to carrying out the tenets and principles of a faith in accordance with either the requirements or sanctions governing the creation of institutions of the faith. The term “religious organization” has the same meaning and application as is given to the term for income tax purposes. (3) (i) If a minister is performing service in the conduct of religious worship or the ministration of sacerdotal functions, such service is in the exercise of his ministry whether or not it is performed for a religious organization. (ii) The rule in paragraph (b)(3)(i) of this section may be illustrated by the following example: Example. M, a duly ordained minister, is engaged to perform service as chaplain at N University. M devotes his entire time to performing his duties as chaplain which include the conduct of religious worship, offering spiritual counsel to the university students, and teaching a class in religion. M is performing service in the exercise of his ministry. (4) (i) If a minister is performing service for an organization which is operated as an integral agency, of a religious organization under the authority of a religious body constituting a church or church denomination, all service performed by the minister in the conduct of religious worship, in the ministration of sacerdotal functions, or in the control conduct, and maintenance of such organization (see paragraph (b)(2) of this section) is in the exercise of his ministry. (ii) The rule in paragraph (b)(4)(i) of this section may be illustrated by the following example: Example. M, a duly ordained minister, is engaged by the N Religious Board to serve as director of one of its departments. He performs no other service. The N Religious Board is an integral agency of O, a religious organization operating under the authority of a religious body constituting a church denomination. M is performing service in the exercise of his ministry. (5) (i) If a minister, pursuant to an assignment or designation by a religious body constituting his church, performs service for an organization which is neither a religious organization nor operated as an integral agency of a religious organization, all service performed by him, even though such service may not involve the conduct of religious worship or the ministration of sacerdotal functions, is in the exercise of his ministry. (ii) The rule in paragraph (b)(5)(i) of this section may be illustrated by the following example: Example. M, a duly ordained minister, is assigned by X, the religious body constituting his church, to perform advisory service to Y Company in connection with the publication of a book dealing with the history of M's church denomination. Y is neither a religious organization nor operated as an integral agency of a religious organization. M performs no other service for X or Y. M is performing service in the exercise of his ministry. (c) Service by a minister not in the exercise of his ministry. (2) (i) If a minister is performing service for an organization which is neither a religious organization nor operated as an integral agency of a religious organization and the service is not performed pursuant to an assignment or designation by his ecclesiastical superiors, then only the service performed by him in the conduct of religious worship or the ministration of sacerdotal functions is in the exercise of his ministry. See, however, paragraph (c)(3) of this section. (ii) The rule in paragraph (c)(2)(i) of this section may be illustrated by the following example: Example. M, a duly ordained minister, is engaged by N University to teach history and mathematics. He performs no other service for N although from time to time he performs marriages and conducts funerals for relatives and friends. N University is neither a religious organization nor operated as an integral agency of a religious organization. M is not performing the service for N pursuant to an assignment or designation by his ecclesiastical superiors. The service performed by M for N University is not in the exercise of his ministry. However, service performed by M in performing marriages and conducting funerals is in the exercise of his ministry. (3) Service performed by a duly ordained, commissioned, or licensed minister of a church as an employee of the United States, or a State, Territory, or possession of the United States, or the District of Columbia, or a foreign government, or a political subdivision of any of the foregoing, is not considered to be in the exercise of his ministry for purposes of the taxes, even though such service may involve the ministration of sacerdotal function or the conduct of religious worship. Thus, for example, service performed by an individual as a chaplain in the Armed Forces of the United States is considered to be performed by a commissioned officer in his capacity as such, and not by a minister in the exercise of his ministry. Similarly, service performed by an employee of a State as a chaplain in a State prison is considered to be performed by a civil servant of the State and not by a minister in the exercise of his ministry. (d) Service in the exercise of duties required by a religious order. [T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 7280, 38 FR 18369, July 10, 1973] § 31.3121(b)(9)-1 Railroad industry; services performed by an employee or an employee representative as defined in section 3231. Services performed by an individual as an “employee” or as an “employee representative”, as those terms are defined in section 3231, are excepted from employment. For definitions of employee and employee representatives, see §§ 31.3231(b)-1 and 31.3231(c)-1. § 31.3121(b)(10)-1 Services for remuneration of less than $50 for calendar quarter in the employ of certain organizations exempt from income tax. (a) Services performed by an employee in a calendar quarter in the employ of an organization exempt from income tax under section 501(a) (other than an organization described in section 401(a)) or under section 521 are excepted from employment if the remuneration for the services is less than $50. The test relating to remuneration of $50 is based on the remuneration earned during a calendar quarter rather than on the remuneration paid in a calendar quarter. The exception applies separately with respect to each organization for which the employee renders services in a calendar quarter. The type of services performed by the employee and the place where the services are performed are immaterial; the statutory tests are the character of the organization in the employ of which the services are performed and the amount of the remuneration for services performed by the employee in the calendar quarter. For provisions relating to exemption from income tax under section 501(a) or 521, see Part 1 of this chapter (Income Tax Regulations). Example 1. X is a local lodge of a fraternal organization and is exempt from income tax under section 501(a) as an organization of the character described in section 501(c)(8). X has two paid employees, A, who serves exclusively as recording secretary for the lodge, and B, who performs services for the lodge as janitor of its clubhouse. For services performed during the first calendar quarter of 1955 (that is, January 1, 1955, through March 31, 1955, both dates inclusive) A earns a total of $30. For services performed by certain student quarter B earns $180. Since the remuneration for the services performed by A during such quarter is less than $50, all of such services are expected, and the taxes do not attach with respect to any of the remuneration for such services. Since the remuneration for the services performed by B during such quarter, however, is not less than $50, none of such services are excepted, and the taxes attached with respect to all of the remuneration for such services (that is, $180) as and when paid. Example 2. The facts are the same as in example 1, above, except that on April 1, 1955, A's salary is increased and, for services performed during the calendar quarter beginning on that date (that is, April 1, 1955, through June 30, 1955, both dates inclusive), A earns a total of $60. Although all of the services performed by A during the first quarter were excepted, none of A's services performed during the second quarter are excepted since the remuneration for such services is not less than $50. The taxes attach with respect to all of the remuneration for services performed during the second quarter (that is, $60) as and when paid. Example 3. The facts are the same as in example 1, above, except that A earns $120 for services performed during the year 1955, and such amount is paid to him in a lump sum at the end of the year. The services performed by A in any calendar quarter during the year are excepted if the portion of the $120 attributable to services performed in that quarter is less than $50. If, however, the portion of the $120 attributable to services performed in any calendar quarter during the year is not less than $50, the services during that quarter are not excepted, and the taxes attach with respect to that portion of the remuneration attributable to his services in that quarter. (b) See § 31.3121(b)(8)-1, relating to services performed by a minister of a church in the exercise of his ministry or by a member of a religious order in the exercise of duties required by such order; § 31.3121(b)(10)-2, relating to services performed by certain students in the employ of a school, college, or university or of a nonprofit organization auxiliary to a school, college, or university; and § 31.3121(b)(13)-1, relating to services performed by certain student nurses and hospital interns. [T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 7373, 40 FR 30958, July 24, 1975; T.D. 9849, 84 FR 9238, Mar. 14, 2019] § 31.3121(b)(10)-2 Services performed by certain students in the employ of a school, college, or university, or of a nonprofit organization auxiliary to a school, college, or university. (a) General rule. (2) Services performed in the employ of an organization which is— (i) Described in section 509(a)(3) and § 1.509(a)-4; (ii) Organized, and at all times thereafter operated, exclusively for the benefit of, to perform the functions of, or to carry out the purposes of a school, college, or university within the meaning of paragraph (c) of this section; and (iii) Operated, supervised, or controlled by or in connection with the school, college, or university; are excepted from employment, if the services are performed by a student who is enrolled and regularly attending classes within the meaning of paragraph (d) of this section at the school, college, or university. The preceding sentence shall not apply to services performed in the employ of a school, college, or university of a State or a political subdivision thereof by a student referred to in section 218(c)(5) of the Social Security Act (42 U.S.C. 418(c)(5)) if such services are covered under the agreement between the Commissioner of Social Security and such State entered into pursuant to section 218 of such Act. For the definitions of “operated, supervised, or controlled by”, “supervised or controlled in connection with”, and “operated in connection with”, see paragraphs (g), (h), and (i), respectively, of § 1.509(a)-4. (b) Statutory tests. (1) The character of the organization in the employ of which the services are performed as a school, college, or university within the meaning of paragraph (c) of this section, or as an organization described in paragraph (a)(2) of this section, and (2) The status of the employee as a student enrolled and regularly attending classes within the meaning of paragraph (d) of this section at the school, college, or university within the meaning of paragraph (c) of this section by which the employee is employed or with which the employee's employer is affiliated within the meaning of paragraph (a)(2) of this section. (c) School, College, or University. school, college, or university (d) Student Status—general rule. (1) Enrolled and regularly attending classes. (2) Course of study. (3) Incident to and for the purpose of pursuing a course of study. General rule. (ii) Student status determined with respect to each academic term. (iii) Full-time employee. (iv) Evaluating educational aspect. (v) Evaluating service aspect. (A) Normal work schedule and hours worked. (B) Professional employee. 1 ( i ( ii ( iii ( 2 Licensed, professional employee. (C) Employment Benefits. (e) Examples. Example 1. (i) Employee C is employed by State University T to provide services as a clerk in T's administrative offices, and is enrolled and regularly attending classes at T in pursuit of a B.S. degree in biology. C has a course workload during the academic term which constitutes a full-time course workload at T. C is considered a part-time employee by T during the academic term, and C's normal work schedule is 20 hours per week, but occasionally due to work demands unforeseen at the start of the academic term C works 40 hours or more during a week. C is compensated by hourly wages, and receives no other compensation or employment benefits. (ii) In this example, Example 2. (i) Employee D is employed in the accounting department of University U, and is enrolled and regularly attending classes at U in pursuit of an M.B.A. degree. D has a course workload which constitutes a half-time course workload at U. D is considered a full-time employee by U under U's standards and practices. (ii) In this example, Example 3. (i) The facts are the same as in Example 2, except that D is not considered a full-time employee by U, and D's normal work schedule is 32 hours per week. In addition, D's work is repetitive in nature and does not require the consistent exercise of discretion and judgment, and is not predominantly intellectual and varied in character. However, D receives vacation, sick leave, and paid holiday employment benefits, and D is eligible to participate in a retirement plan maintained by U described in section 401(a). (ii) In this example, Example 4. (i) Employee E is employed by University V to provide patient care services at a teaching hospital that is an unincorporated division of V. These services are performed as part of a medical residency program in a medical specialty sponsored by V. The residency program in which E participates is accredited by the Accreditation Counsel for Graduate Medical Education. Upon completion of the program, E will receive a certificate of completion, and be eligible to sit for an examination required to be certified by a recognized organization in the medical specialty. E's normal work schedule, which includes services having an educational, instructional, or training aspect, is 40 hours or more per week. (ii) In this example, Example 5. (i) Employee F is employed in the facilities management department of University W. F has a B.S. degree in engineering, and is completing the work experience required to sit for an examination to become a professional engineer eligible for licensure under state or local law. F is not attending classes at W. (ii) In this example, Example 6. (i) Employee G is employed by Employer X as an apprentice in a skilled trade. X is a subcontractor providing services in the field in which G wishes to specialize. G is pursuing a certificate in the skilled trade from Community College C. G is performing services for X pursuant to an internship program sponsored by C under which its students gain experience, and receive credit toward a certificate in the trade. (ii) In this example, Example 7. (i) Employee H is employed by a cosmetology school Y at which H is enrolled and regularly attending classes in pursuit of a certificate of completion. Y's primary function is to carry on educational activities to prepare its students to work in the field of cosmetology. Prior to issuing a certificate, Y requires that its students gain experience in cosmetology services by performing services for the general public on Y's premises. H is scheduled to work and in fact works significantly less than 30 hours per week. H's work does not require knowledge of an advanced type in a field of science or learning, nor is it predominantly intellectual and varied in character. H receives remuneration in the form of hourly compensation from Y for providing cosmetology services to clients of Y, and does not receive any other compensation and is not eligible for employment benefits provided by Y. (ii) In this example, Example 8. (i) Employee J is a graduate teaching assistant at University Z. J is enrolled and regularly attending classes at Z in pursuit of a graduate degree. J has a course workload which constitutes a full-time course workload at Z. J's normal work schedule is 20 hours per week, but occasionally due to work demands unforeseen at the start of the academic term J works more than 40 hours during a week. J's duties include grading quizzes and exams pursuant to guidelines set forth by the professor, providing class and laboratory instruction pursuant to a lesson plan developed by the professor, and preparing laboratory equipment for demonstrations. J receives a cash stipend and employment benefits in the form of eligibility to make elective employee contributions to an arrangement described in section 403(b). In addition, J receives qualified tuition reduction benefits within the meaning of section 117(d)(5) with respect to the tuition charged for the credits earned for being a graduate teaching assistant. (ii) In this example, (f) Effective date. (g) For provisions relating to domestic service performed by a student in a local college club, or local chapter of a college fraternity or sorority, see § 31.3121(b)(2)-1. [T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 7373, 40 FR 30958, July 24, 1975; T.D. 9167, 69 FR 76407, Dec. 21, 2004] § 31.3121(b)(11)-1 Services in the employ of a foreign government. (a) Services performed by an employee in the employ of a foreign government are excepted from employment. The exception includes not only services performed by ambassadors, ministers, and other diplomatic officers and employees but also services performed as a consular or other officer or employee of a foreign government, or as a nondiplomatic representative thereof. (b) For purposes of this exception, the citizenship or residence of the employee is immaterial. It is also immaterial whether the foreign government grants an equivalent exemption with respect to similar services performed in the foreign country by citizens of the United States. § 31.3121(b)(12)-1 Services in employ of wholly owned instrumentality of foreign government. (a) Services performed by an employee in the employ of certain instrumentalities of a foreign government are excepted from employment. The exception includes all services performed in the employ of an instrumentality of the government of a foreign country, if— (1) The instrumentality is wholly owned by the foreign government; (2) The services are of a character similar to those performed in foreign countries by employees of the United States Government or of an instrumentality thereof; and (3) The Secretary of State certifies to the Secretary of the Treasury that the foreign government, with respect to whose instrumentality and employees thereof exemption is claimed, grants an equivalent exemption with respect to services performed in the foreign country by employees of the United States Government and of instrumentalities thereof. (b) For purposes of this exception, the citizenship or residence of the employee is immaterial. § 31.3121(b)(13)-1 Services of student nurse or hospital intern. (a) Services performed as a student nurse in the employ of a hospital or a nurses' training school are excepted from employment, if the student nurse is enrolled and regularly attending classes in a nurses' training school and such nurses' training school is chartered or approved pursuant to State law. (b) Services performed before 1966 as an intern (as distinguished from a resident doctor), in the employ of a hospital are excepted from employment, if the intern has completed a 4 years' course in a medical school chartered or approved pursuant to State law. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6983, 33 FR 18017, Dec. 4, 1968] § 31.3121(b)(14)-1 Services in delivery or distribution of newspapers, shopping news, or magazines. (a) Services of individuals under age 18. (b) Services of individuals of any age. § 31.3121(b)(15)-1 Services in employ of international organization. (a) Subject to the provisions of section 1 of the International Organizations Immunities Act (22 U.S.C. 288), services performed in the employ of an international organization as defined in section 7701(a)(18) are excepted from employment. (b) (1) Section 7701(a)(18) provides as follows: Sec. 7701. Definitions. (18) International organization. (2) Section 1 of the International Organizations Immunities Act provides as follows: Sec. 1 International Organizations Immunities Act. § 31.3121(b)(16)-1 Services performed under share-farming arrangement. (a) The term “employment” does not include services performed by an individual under an arrangement with the owner or tenant of land pursuant to which— (1) Such individual undertakes to produce agricultural or horticultural commodities (including livestock, bees, poultry, and fur-bearing animals and wildlife) on such land, (2) The agricultural or horticultural commodities produced by such individual, or the proceeds therefrom, are to be divided between such individual and such owner or tenant, and (3) The amount of such individual's share depends on the amount of the agricultural or horticultural commodities produced. For purposes of this exception, the arrangement pursuant to which the individual's services are performed must meet the specified statutory conditions. (b) If the arrangement between the parties provides that the individual who undertakes to produce a crop or livestock is to be compensated at a specified rate of pay or is to receive a fixed sum of money or a stipulated quantity of the commodities to be produced, without regard to the amount actually produced, as distinguished from a proportionate share of the crop or livestock, or the proceeds therefrom, the services performed by such individual in the production of such crop or livestock is not within the exception. (c) For provisions relating to the status, under the Self-Employment Contributions Act of 1954, of the services which are excepted from “employment” under this section, see the regulations under section 1402(a) in Part 1 of this chapter (Income Tax Regulations). [T.D. 6744, 29 FR 8313, July 2, 1964] § 31.3121(b)(17)-1 Services in employ of Communist organization. The term “employment” does not include services performed in the employ of any organization in any calendar quarter beginning after June 30, 1956, and during any part of which such organization is registered, or there is in effect a final order of the Subversive Activities Control Board requiring such organization to register, under the Internal Security Act of 1950 (50 U.S.C. 781 et seq. [T.D. 6744, 29 FR 8313, July 2, 1964] § 31.3121(b)(18)-1 Services performed by a resident of the Republic of the Philippines while temporarily in Guam. (a) Services performed after 1960 by a resident of the Republic of the Philippines while in Guam on a temporary basis as a nonimmigrant alien admitted to Guam pursuant to section 101(a)(15)(H)(ii) of the Immigration and Nationality Act (8 U.S.C. 1101) are excepted from employment. (b) Section 101(a)(15)(H) of the Immigration and Nationality Act provides as follows: Sec. 101. Definitions. (a) As used in this chapter— (15) The term “immigrant” means every alien except an alien who is within one of the following classes of nonimmigrant aliens— (H) An alien having a residence in a foreign country which he has no intention of abandoning (i) who is of distinguished merit and ability and who is coming temporarily to the United States to perform temporary services of an exceptional nature requiring merit and ability; or (ii) who is coming temporarily to the United States to perform other temporary services or labor, if unemployed persons capable of performing such service or labor cannot be found in this country; or (iii) who is coming temporarily to the United States as an industrial trainee; [T.D. 6744, 29 FR 8313, July 2, 1964] § 31.3121(b)(19)-1 Services of certain nonresident aliens. (a) (1) Services performed after 1961 by a nonresident alien individual who is temporarily present in the United States as a nonimmigrant under subparagraph (F) or (J) of section 101(a)(15) of the Immigration and Nationality Act (8 U.S.C. 1101), as amended, are excepted from employment if the services are performed to carry out a purpose for which the individual was admitted. For purposes of this section an alien individual who is temporarily present in the United States as a nonimmigrant under such subparagraph (F) or (J) is deemed to be a nonresident alien individual. The preceding sentence does not apply to the extent it is inconsistent with section 7701(b) and the regulations under that section. A nonresident alien individual who is temporarily present in the United States as a nonimmigrant under such subparagraph (J) includes an alien individual admitted to the United States as an “exchange visitor” under section 201 of the United States Information and Educational Exchange Act of 1948 (22 U.S.C. 1446). (2) If services are performed by a nonresident alien individual's alien spouse or minor child, who is temporarily present in the United States as a nonimmigrant under subparagraph (F) or (J) of section 101(a)(15) of the Immigration and Nationality Act, as amended, the services are not deemed for purposes of this section to be performed to carry out a purpose for which such individual was admitted. The services of such spouse or child are excepted from employment under this section only if the spouse or child was admitted for a purpose specified in such subparagraph (F) or (J) and if the services are performed to carry out such purpose. (b) Section 101 of the Immigration and Nationality Act (8 U.S.C. 1101), as amended, provides in part as follows: Sec. 101. Definitions. (a) As used in this chapter—* * * (15) The term “immigrant” means every alien except an alien who is within one of the following classes of nonimmigrant aliens— (F) (i) An alien having a residence in a foreign country which he has no intention of abandoning, who is a bona fide student qualified to pursue a full course of study and who seeks to enter the United States temporarily and solely for the purpose of pursuing such a course of study at an established institution of learning or other recognized place of study in the United States, particularly designated by him and approved by the Attorney General after consultation with the Office of Education of the United States, which institution or place of study shall have agreed to report to the Attorney General the termination of attendance of each nonimmigrant student, and if any such institution of learning or place of study fails to make reports promptly the approval shall be withdrawn, and (ii) the alien spouse and minor children of any such alien if accompanying him or following to join him; (J) An alien having a residence in a foreign country which he has no intention of abandoning who is a bona fide student, scholar, trainee, teacher, professor, research assistant, specialist, or leader in a field of specialized knowledge or skill, or other person of similar description, who is coming temporarily to the United States as a participant in a program designated by the Secretary of State, for the purpose of teaching, instructing or lecturing, studying, observing, conducting research, consulting, demonstrating special skills, or receiving training, and the alien spouse and minor children of any such alien if accompanying him or following to join him. (Sec. 101, Immigration and Nationality Act, as amended by sec. 101, Act of June 27, 1952, 66 Stat. 166; sec. 109, Act of Sept. 21, 1961, 75 Stat. 534) [T.D. 6744, 29 FR 8313, July 2, 1964, as amended by T.D. 8411, 57 FR 15241, Apr. 27, 1992] § 31.3121(b)(20)-1 Service performed on a boat engaged in catching fish. (a) In general. (i) The individual receives a share of the boat's (or boats' for a fishing operation involving more than one boat) catch of fish or a share of the proceeds from the sale of the catch, (ii) The amount of the individual's share depends solely on the amount of the boat's (or boats' for a fishing operation involving more than one boat) catch of fish. (iii) The individual does not receive and is not entitled to receive, any cash remuneration, other than remuneration that is described in sub-division (1) of this subparagraph, and (iv) The crew of the boat (or of each boat from which the individual receives a share of the catch) normally is made up of fewer than 10 individuals. (2) The requirement of paragraph (a)(1)(ii) is not satisfied if there exists an agreement with the boat's (or boats') owner or operator by which the individual's remuneration is determined partially or fully by a factor not dependent on the size of the catch. For example, if a boat is operated under a remuneration arrangement, e.g., (3) The operating crew of a boat includes all persons on the boat (including the captain) who receive any form of remuneration in exchange for services rendered while on a boat engaged in catching fish. See § 1.6050A-1 for reporting requirements for the operator of a boat engaged in catching fish with respect to individuals performing services described in this section. (4) During the same return period, service performed by a crew member may be excepted from employment by section 3121(b)(20) and this section for one voyage and not so excepted on a subsequent voyage on the same or on a different boat. (5) During the same voyage, service performed by one crew member may be excepted from employment by section 3121(b)(20) and this section but service performed by another crew member may not be so excepted. (b) Special rule. (1) Form 941 was voluntarily filed by the boat operator or owner, regardless of whether the tax imposed by chapter 21 was withheld. For purposes of this subdivision, the filing of Form 941 is not voluntary if the filing was the result of action taken by the Service pursuant to section 6651(a) (relating to addition to the tax for failure to file tax return or to pay tax); (2) The boat owner or operator withheld from the individual's share the tax imposed by chapter 21, regardless of whether the tax was paid over to the Service; or (3) The boat owner or operator made full or partial payment of the tax imposed by chapter 21, unless the payment was made pursuant to section 7422(a) (relating to no civil actions for refund prior to filing claim for refund). However, for purposes of this paragraph crew members whose services, but for paragraphs (a)(1)(i) through (iii), would have been excepted from employment by section 3121(b)(20) are not required to pay self-employment tax on income earned in performing those services. See § 1.1402(c)-3(g). Moreover, in such cases the employer is not entitled to a refund of the employer's share of any tax imposed by chapter 21 that was paid. [T.D. 7716, 45 FR 57123, Aug. 27, 1980] § 31.3121(c)-1 Included and excluded services. (a) If a portion of the services performed by an employee for an employer during a pay period constitutes employment, and the remainder does not constitute employment, all the services performed by the employee for the employer during the period shall for purposes of the taxes be treated alike, that is, either all as included or all as excluded. The time during which the employee performs services which under section 3121(b) constitute employment, and the time during which he performs services which under such section do not constitute employment, within the pay period, determine whether all the services during the pay period shall be deemed to be included or excluded. (b) If one-half or more of the employee's time in the employ of a particular person in a pay period is spent in performing services which constitute employment, then all the services of that employee for that person in that pay period shall be deemed to be employment. (c) If less than one-half of the employee's time in the employ of a particular person in a pay period is spent in performing services which constitute employment, then none of the services of that employee for that person in that pay period shall be deemed to be employment. (d) The application of the provisions of paragraphs (a), (b), and (c) of this section may be illustrated by the following example: Example. The AB Club, which is a local college club within the meaning of section 3121(b)(2), employs D, a student who is enrolled and is regularly attending classes at a university, to perform domestic service for the club and to keep the club's books. The domestic services performed by D for the AB Club do not constitute employment, and his services as the club's bookkeeper constitute employment. D receives a payment at the end of each month for all services which he performs for the club. During a particular month D spends 60 hours in performing domestic service for the club and 40 hours as the club's bookkeeper. None of D's services during the month are deemed to be employment, since less than one-half of his services during the month constitutes employment. During another month D spends 35 hours in the performance of domestic services and 60 hours in keeping the club's books. All of D's services during the month are deemed to be employment, since one-half or more of his services during the month constitutes employment. (e) For purposes of this section, a “pay period” is the period (of not more than 31 consecutive calendar days) for which a payment of remuneration is ordinarily made to the employee by the employer. Thus, if the periods for which payments of remuneration are made to the employee by the employer are of uniform duration, each such period constitutes a “pay period”. If, however, the periods occasionally vary in duration, the “pay period” is the period for which a payment of remuneration is ordinarily made to the employee by the employer, even though that period does not coincide with the actual period for which a particular payment of remuneration is made. For example, if an employer ordinarily pays a particular employee for each calendar week at the end of the week, but the employee receives a payment in the middle of the week for the portion of the week already elapsed and receives the remainder at the end of the week, the “pay period” is still the calendar week; or if, instead, that employee is sent on a trip by such employer and receives at the end of the third week a single remuneration payment for three weeks' services, the “pay period” is still the calendar week. (f) If there is only one period (and such period does not exceed 31 consecutive calendar days) for which a payment of remuneration is made to the employee by the employer, such period is deemed to be a “pay period” for purposes of this section. (g) The rules set forth in this section do not apply (1) with respect to any services performed by the employee for the employer if the periods for which such employer makes payments of remuneration to the employee vary to the extent that there is no period “for which a payment of remuneration is ordinarily made to the employee”, or (2) with respect to any services performed by the employee for the employer if the period for which a payment of remuneration is ordinarily made to the employee by such employer exceeds 31 consecutive calendar days, or (3) with respect to any service performed by the employee for the employer during a pay period if any of such service is excepted by section 3121(b)(9) (see § 31.3121(b)(9)-1). (h) If during any period for which a person makes a payment of remuneration to an employee only a portion of the employee's services constitutes employment, but the rules prescribed in this section are not applicable, the taxes attach with respect to such services as constitute employment as defined in section 3121(b). [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 8313, July 2, 1964] § 31.3121(d)-1 Who are employees. (a) In general. (2) Section 3121(d) contains three separate and independent tests for determining who are employees. Paragraphs (b), (c), and (d) of this section relate to the respective tests. Paragraph (b) relates to the test for determining whether an officer of a corporation is an employee of the corporation. Paragraph (c) relates to the test for determining whether an individual is an employee under the usual common law rules. Paragraph (d) relates to the test for determining which individuals in certain occupational groups who are not employees under the usual common law rules are included as employees. If an individual is an employee under any one of the tests, he is to be considered an employee for purposes of the regulations in this subpart whether or not he is an employee under any of the other tests. (3) If the relationship of employer and employee exists, the designation or description of the relationship by the parties as anything other than that of employer and employee is immaterial. Thus, if such relationship exists, it is of no consequence that the employee is designated as a partner, coadventurer, agent, independent contractor, or the like. (4) All classes or grades of employees are included within the relationship of employer and employee. Thus, superintendents, managers, and other supervisory personnel are employees. (5) Although an individual may be an employee under this section, his services may be of such a nature, or performed under such circumstances, as not to constitute employment (see § 31.3121(b)-3). (b) Corporate officers. (c) Common law employees. (2) Generally such relationship exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is an employer. Other factors characteristic of an employer, but not necessarily present in every case, are the furnishing of tools and the furnishing of a place to work, to the individual who performs the services. In general, if an individual is subject to the control or direction of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result, he is an independent contractor. An individual performing services as an independent contractor is not as to such services an employee under the usual common law rules. Individuals such as physicians, lawyers, dentists, veterinarians, construction contractors, public stenographers, and auctioneers, engaged in the pursuit of an independent trade, business, or profession, in which they offer their services to the public, are independent contractors and not employees. (3) Whether the relationship of employer and employee exists under the usual common law rules will in doubtful cases be determined upon an examination of the particular facts of each case. (d) Special classes of employees. (i) As an agent-driver or commission-driver engaged in distributing meat products, vegetable products, fruit products, bakery products, beverages (other than milk), or laundry or dry-cleaning services for his principal; (ii) As a full-time life insurance salesman; (iii) As a home worker performing work, according to specifications furnished by the person for whom the services are performed, on materials or goods furnished by such person which are required to be returned to such person or a person designated by him; or (iv) As a traveling or city salesman, other than as an agent-driver or commission-driver, engaged upon a full-time basis in the solicitation on behalf of, and the transmission to, his principal (except for side-line sales activities on behalf of some other person) of orders from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments for merchandise for resale or supplies for use in their business operations. (2) In order for an individual to be an employee under this paragraph, the individual must perform services in an occupation falling within one of the enumerated groups. If the individual does not perform services in one of the designated occupational groups, he is not an employee under this paragraph. An individual who is not an employee under this paragraph may nevertheless be an employee under paragraph (b) or (c) of this section. The language used to designate the respective occupational groups relates to fields of endeavor in which particular designations are not necessarily in universal use with respect to the same service. The designations are addressed to the actual services without regard to any technical or colloquial labels which may be attached to such services. Thus, a determination whether services fall within one of the designated occupational groups depends upon the facts of the particular situation. (3) The factual situations set forth below are illustrative of some of the individuals falling within each of the above enumerated occupational groups. The illustrative factual situations are as follows: (i) Agent-driver or commission-driver. (ii) Full-time life insurance salesman. (iii) Home workers. (iv) Traveling or city salesman. a ( b Example 1. Salesman A's principal business activity is the solicitation of orders from retail pharmacies on behalf of the X Wholesale Drug Company. A also occasionally solicits orders for drugs on behalf of the Y and Z Companies. A is within this occupational group with respect to his services for the X Company but not with respect to his services for either the Y Company or the Z Company. Example 2. Salesman B's principal business activity is the solicitation of orders from retail hardware stores on behalf of the R Tool Company and the S Cooking Utensil Company. B regularly solicits orders on behalf of both companies. B is not within this occupational group with respect to the services performed for either the R Company or the S Company. Example 3. Salesman C's principal business activity is the house-to-house solicitation of orders on behalf of the T Brush Company. C occasionally solicits such orders from retail stores and restaurants. C is not within this occupational group. (4)(i) The fact that an individual falls within one of the enumerated occupational groups, however, does not make such individual an employee under this paragraph unless ( a b c (ii) The term “contract of service”, as used in this paragraph, means an arrangement, formal or informal, under which the particular services are performed. The requirement that the contract of service shall contemplate that substantially all the services to which the contract relates in the particular designated occupation are to be performed personally by the individual means that it is not contemplated that any material part of the services to which the contract relates in such occupation will be delegated to any other person by the individual who undertakes under the contract to perform such services. (iii) The facilities to which reference is made in this paragraph include equipment and premises available for the work or enterprise as distinguished from education, training, and experience, but do not include such tools, instruments, equipment, or clothing, as are commonly or frequently provided by employees. An investment in an automobile by an individual which is used primarily for his own transportation in connection with the performance of services for another person has no significance under this paragraph, since such investment is comparable to outlays for transportation by an individual performing similar services who does not own an automobile. Moreover, the investment in facilities for the transportation of the goods or commodities to which the services relate is to be excluded in determining the investment in a particular case. If an individual has a substantial investment in facilities of the requisite character, he is not an employee within the meaning of this paragraph, since a substantial investment of the requisite character standing alone is sufficient to exclude the individual from the employee concept under this paragraph. (iv) If the services are not performed as part of a continuing relationship with the person for whom the services are performed, but are in the nature of a single transaction, the individual performing such services is not an employee of such person within the meaning of this paragraph. The fact that the services are not performed on consecutive workdays does not indicate that the services are not performed as part of a continuing relationship. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 8314, July 2, 1964; T.D. 7691, 45 FR 24129, Apr. 9, 1980] § 31.3121(d)-2 Who are employers. (a) Every person is an employer if he employs one or more employees. Neither the number of employees employed nor the period during which any such employee is employed is material for the purpose of determining whether the person for whom the services are performed is an employer. (b) An employer may be an individual, a corporation, a partnership, a trust, an estate, a joint-stock company, an association, or a syndicate, group, pool, joint venture, or other unincorporated organization, group, or entity. A trust or estate, rather than the fiduciary acting for on behalf of the trust or estate, is generally the employer. (c) Although a person may be an employer under this section, services performed in his employ may be of such a nature, or performed under such circumstances, as not to constitute employment (see § 31.3121(b)-3). § 31.3121(e)-1 State, United States, and citizen. (a) When used in the regulations in this subpart, the term “State” includes the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, the Territories of Alaska and Hawaii before their admission as States, and (when used with respect to services performed after 1960) Guam and American Samoa. (b) When used in the regulations in this subpart, the term “United States”, when used in a geographical sense, means the several states (including the Territories of Alaska and Hawaii before their admission as States), the District of Columbia, the Commonwealth of Puerto Rico, and the Virgin Islands. When used in the regulations in this subpart with respect to services performed after 1960, the term “United States” also includes Guam and American Samoa when the term is used in a geographical sense. The term “citizen of the United States” includes a citizen of the Commonwealth of Puerto Rico or the Virgin Islands, and, effective January 1, 1961, a citizen of Guam or American Samoa. [T.D. 6744, 29 FR 8314, July 2, 1964] § 31.3121(f)-1 American vessel and aircraft. (a) The term “American vessel” means any vessel which is documented (that is, registered, enrolled, or licensed) or numbered in conformity with the laws of the United States. It also includes any vessel which is neither documented nor numbered under the laws of the United States, nor documented under the laws of any foreign country, if the crew of such vessel is employed solely by one or more citizens or residents of the United States or corporations organized under the laws of the United States or of any State. (For provisions relating to the terms “State” and “citizen”, see § 31.3121 (e)-1.) (b) The term “American aircraft” means any aircraft registered under the laws of the United States. (c) For provisions relating to services performed outside the United States on or in connection with an American vessel or American aircraft, see paragraph (c)(2) of § 31.3121(b)-3. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 8314, July 2, 1964] § 31.3121(g)-1 Agricultural labor. (a) In general. (2) The term “farm” as used in the regulations in this subpart includes stock, dairy, poultry, fruit, fur-bearing animal, and truck farms, plantations, ranches, nurseries, ranges, orchards, and such greenhouses and other similar structures as are used primarily for the raising of agricultural or horticultural commodities. Greenhouses and other similar structures used primarily for other purposes (for example, display, storage, and fabrication of wreaths, corsages, and bouquets) do not constitute “farms”. (3) For provisions relating to the exception from employment provided with respect to services performed by certain foreign agricultural workers and to services performed before 1959 in connection with the production or harvesting of certain oleoresinous products, see § 31.3121(b)(1)-1. For provisions relating to the exclusion from wages of remuneration paid in any medium other than cash for agricultural labor and to the test for determining whether cash remuneration paid for agricultural labor constitutes wages, see § 31.3121(a)(8)-1. (b) Services described in section 3121(g)(1). (i) The cultivation of the soil; (ii) The raising, shearing, feeding, caring for, training, or management of livestock, bees, poultry, fur-bearing animals, or wildlife; or (iii) The raising or harvesting of any other agricultural or horticultural commodity. (2) Services performed in connection with the production or harvesting of maple sap, or in connection with the raising or harvesting of mushrooms, or in connection with the hatching of poultry constitute agricultural labor only if such services are performed on a farm. Thus, services performed in connection with the operation of a hatchery, if not operated as part of a poultry or other farm, do not constitute agricultural labor. (c) Services described in section 3121(g)(2). (i) Services performed in connection with the operation, management, conservation, improvement, or maintenance of any of such farms or its tools or equipment; or (ii) Services performed in salvaging timber, or clearing land of brush and other debris, left by a hurricane. (2) The services described in paragraph (c)(1)(i) of this section may include, for example, services performed by carpenters, painters, mechanics, farm supervisors, irrigation engineers, bookkeepers, and other skilled or semiskilled workers, which contribute in any way to the conduct of the farm or farms, as such, operated by the person employing them, as distinguished from any other enterprise in which such person may be engaged. (3) Since the services described in this paragraph must be performed in the employ of the owner or tenant or other operator of the farm, the term “agricultural labor” does not include services performed by employees of a commercial painting concern, for example, which contracts with a farmer to renovate his farm properties. (d) Services described in section 3121(g)(3). (1) The ginning of cotton; (2) The operation or maintenance of ditches, canals, reservoirs, or waterways, not owned or operated for profit, used exclusively for supplying or storing water for farming purposes; or (3) The production or harvesting of crude gum (oleoresin) from a living tree or the processing of such crude gum into gum spirits of turpentine and gum rosin, provided such processing is carried on by the original producer of such crude gum. (e) Services described in section 3121(g)(4). (i) Such services are performed by the employee in the employ of an operator of a farm or in the employ of a group of operators of farms (other than a cooperative organization); (ii) Such services are performed with respect to the commodity in its unmanufactured state; and (iii) Such operator produced more than one-half of the commodity with respect to which such services are performed during the pay period, or such group of operators produced all of the commodity with respect to which such services are performed during the pay period. (2) The term “operator of a farm” as used in this paragraph means an owner, tenant, or other person, in possession of a farm and engaged in the operation of such farm. (3) The services described in this paragraph do not constitute agricultural labor if performed in the employ of a cooperative organization. The term “organization” includes corporations, joint-stock companies, and associations which are treated as corporations pursuant to section 7701(a)(3) of the Internal Revenue Code. For purposes of this paragraph, any unincorporated group of operators shall be deemed a cooperative organization if the number of operators comprising such group is more than 20 at any time during the calendar quarter in which the services involved are performed. (4) Processing services which change the commodity from its raw or natural state do not constitute agricultural labor. For example the extraction of juices from fruits or vegetables is a processing operation which changes the character of the fruits or vegetables from their raw or natural state and, therefore, does not constitute agricultural labor. Likewise, services performed in the processing of maple sap into maple sirup or maple sugar do not constitute agricultural labor. On the other hand, services rendered in the cutting and drying of fruits or vegetables are processing operations which do not change the character of the fruits or vegetables and, therefore, constitute agricultural labor, if the other requisite conditions are met. Services performed with respect to a commodity after its character has been changed from its raw or natural state by a processing operation do not constitute agricultural labor. (5) The term “commodity” refers to a single agricultural or horticultural product, for example, all apples are to be treated as a single commodity, while apples and peaches are to be treated as two separate commodities. The services with respect to each such commodity are to be considered separately in determining whether the condition set forth in paragraph (e)(1)(iii) of this section has been satisfied. The portion of the commodity produced by an operator or group of operators with respect to which the services described in this paragraph are performed by a particular employee shall be determined on the basis of the pay period in which such services were performed by such employee. (6) The services described in this paragraph do not include services performed in connection with commercial canning or commercial freezing or in connection with any commodity after its delivery to a terminal market for distribution for consumption. Moreover, since the services described in this paragraph must be rendered in the actual handling, planting, drying, packing, packaging, processing, freezing, grading, storing, or delivering to storage or to market or to a carrier for transportation to market, of the commodity, such services do not, for example, include services performed as stenographers, bookkeepers, clerks, and other office employees, even though such services may be in connection with such activities. However, to the extent that the services of such individuals are performed in the employ of the owner or tenant or other operator of a farm and are rendered in major part on a farm, they may be within the provisions of paragraph (c) of this section. (f) Services described in section 3121(g)(5). (2) Generally, a farm is not operated for profit if it is occupied by the employer primarily for residential purposes, or is used primarily for the pleasure of the employer or his family such as for the entertainment of guests or as a hobby of the employer or his family. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 8315, July 2, 1964] § 31.3121(h)-1 American employer. (a) The term “American employer” means an employer which is (1) the United States or any instrumentality thereof, (2) an individual who is a resident of the United States, (3) a partnership, if two-thirds or more of the partners are residents of the United States, (4) a trust, if all of the trustees are residents of the United States, or (5) a corporation organized under the laws of the United States or of any State. For provisions relating to the terms “State” and “United States”, see § 31.3121(e)-1. (b) For provisions relating to services performed outside the United States by a citizen of the United States as an employee for an American employer, see paragraph (c)(3) of § 31.3121(b)-3 and paragraph (e) of § 31.3121(b)(4)-1. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6744, 29 FR 8315, July 2, 1964] § 31.3121(i)-1 Computation to nearest dollar of cash remuneration for domestic service. (a) An employer may, for purposes of the act, elect to compute to the nearest dollar any payment of cash remuneration for domestic service described in section 3121(a)(7)(B) (see § 31.3121(a)(7)-1) which is more or less than a whole-dollar amount. For the purpose of the computation to the nearest dollar, the payment of a fractional part of a dollar shall be disregarded unless it amounts to one-half dollar or more, in which case it shall be increased to one dollar. For example, any amount actually paid between $4.50 and $5.49, inclusive, may be treated as $5 for purposes of the taxes imposed by the act. If an employer elects this method of computation with respect to any payment of cash remuneration made in a calendar year for domestic service in his private home, he must use the same method in computing each payment of cash remuneration of more or less than a whole-dollar amount made to each of his employees in such calendar year for domestic service in his private home. Moreover, if an employer elects this method of computation with respect to payments of the prescribed character made in any calendar year, the amount of each payment of cash remuneration so computed to the nearest dollar shall, in lieu of the amount actually paid, be deemed to constitute the amount of cash remuneration for purposes of the act. Thus, the amount of cash payments so computed to the nearest dollar shall be used for purposes of determining whether such payments constitute wages; for purposes of applying the employee and employer tax rates to the wage payments; for purposes of any required record keeping; and for purposes of reporting and paying the employee tax and employer tax with respect to such wage payments. (b) The provisions of this section apply to any cash payment for domestic service in a private home of the employer made on or after January 1, 1994. For rules applicable to any cash payment for domestic service in a private home of the employer made prior to January 1, 1994, see see [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 9266, 71 FR 35157, June 19, 2006] § 31.3121(i)-2 Computation of remuneration for service performed by an individual as a member of a uniformed service. In the case of an individual performing service after December 31, 1956, as a member of a uniformed service (see section 31.3121(n)), to which the provisions of section 3121(m)(1) (see § 31.3121(m)) are applicable, the term “wages” shall, subject to the provisions of section 3121(a)(1) (see § 31.3121(a)-1), include as the individual's remuneration for such service only his basic pay as described in section 102(10) of the Servicemen's and Veterans' Survivor Benefits Act (38 U.S.C. 401(1), 403; 72 Stat. 1126). [T.D. 6744, 29 FR 8315, July 2, 1964] § 31.3121(i)-3 Computation of remuneration for service performed by an individual as a volunteer or volunteer leader within the meaning of the Peace Corps Act. In the case of an individual performing service in his capacity as a volunteer or volunteer leader within the meaning of the Peace Corps Act (see section 31.3121(p)), the term “wages” shall, subject to the provisions of section 3121(a)(1) (see § 31.3121(a)-1), include as such individual's remuneration for such service only amounts paid pursuant to section 5(c) or section 6(1) of the Peace Corps Act (22 U.S.C. 2501; 75 Stat. 612). [T.D. 6744, 29 FR 8315, July 2, 1964] § 31.3121(i)-4 Computation of remuneration for service performed by certain members of religious orders. In any case where an individual is a member of a religious order (as defined in section 3121(r)(2) and paragraph (b) of § 31.3121(r)-1) performing service in the exercise of duties required by such order, and an election of coverage under section 3121(r) and § 31.3121(r)-1 is in effect with respect to such order or the autonomous subdivision thereof to which such member belongs, the term “wages” shall, subject to the provisions of section 3121(a)(1) (relating to definition of wages), include as such individual's remuneration for such service the fair market value of any board, lodging, clothing, and other perquisites furnished to such member by such order or subdivision or by any other person or organization pursuant to an agreement (whether written or oral) with such order or subdivision. Such other perquisites shall include any cash either paid by such order or subdivision or paid by another employer and not required by such order or subdivision to be remitted to it. For purposes of this section, perquisites shall be considered to be furnished over the period during which the member receives the benefit of them. (See example 4 of this section.) In no case shall the amount included as such individual's remuneration under this paragraph be less than $100 a month. All relevant facts and elements of value shall be considered in every case. Where the fair market value of any board, lodging, clothing, and other perquisites furnished to all members of an electing religious order or autonomous subdivision (or to all in a group of members) does not vary significantly, such order or subdivision may treat all of its members (or all in such group of members) as having a uniform wage. The provisions of this section may be illustrated by the following examples of the treatment of particular perquisites: Example 1. M is a religious order which requires its members to take a vow of poverty and which has made an election under section 3121(r). Under section 3121(i)(4), M must include in the wages of its members the fair market value of the clothing it provides for its members. M and several other religious orders using essentially the same type of religious habit purchase clothing for their members from either of two suppliers in arms-length transactions. The fair market value of such clothing ( i.e., Example 2. N is a religious order which requires its members to take a vow of poverty and which has made an election under section 3121(r). N operates a seminary adjacent to a university. Students at the university obtain lodging and board on campus from the university for its fair market value of $2,000 for the school year. Such lodging and board is essentially the same as that provided by N at its seminary to N's members subject to a vow of poverty. Accordingly, the amount to be included in the “wages” of such members with respect to lodging and board for the same period of time is $2,000. Example 3. O is a religious order which requires its members to take a vow of poverty and to observe silence, and which has made an election under section 3121(r). O operates a monastery in a remote rural area. Under section 3121(i)(4), O must include in the wages of its members assigned to this monastery the fair market value of the board and lodging furnished to them. In making a determination of the fair market value of such board and lodging, the remoteness of the monastery, as well as the smallness of the rooms and the simplicity of their furnishings, affect this determination. However, the facts that the facility is used by a religious order as a monastery and that the order's members maintain silence do not affect the fair market value of such items. Example 4. P is a religious order which requires its members to take a vow of poverty and which has made an election under section 3121(r). Several of P's members are attending a university on a full-time basis. The fair market value of the board and lodging of each of such members at the university is $1,000 per semester. P pays the university $1,000 at the beginning of each semester for the board and lodging of each of such members. In addition, P gives each such member a $400 cash advance to cover his miscellaneous expenses during the semester. Under section 3121(i)(4), P must prorate the fair market value of such members' board and lodging, as well as the miscellaneous items, over the semester and include such value in the determination of “wages”. Example 5. Q is a religious order which is a corporation organized under the laws of Wisconsin, which requires its members to take a vow of poverty, and which has made an election under section 3121(r). Q has convents in rural South America and in suburbs and central city areas of the United States. Characteristically, in the United States its suburban convents provide somewhat larger and newer rooms for its members than do its convents in city areas. Moreover, its suburban convents have more extensive grounds and somewhat more elaborate facilities than do its older convents in city areas. However, both types of convents limit resident members to a single, plainly furnished room and provide them meals which are comparable. Q's members in South America live in extremely primitive dwellings and otherwise have extremely modest perquisites. Under section 3121(i)(4), Q may report a uniform wage for its members who live in suburban convents and city convents in the United States, as the board, lodging, and perquisites furnished these members do not vary significantly from one convent to the other. Q may report another uniform wage (but not less than $100 per month apiece) for its members who are citizens of the United States and who reside in South America based on the fair market value of the perquisites furnished these individuals, as the fair market value of the perquisites furnished these individuals varies significantly from that of those furnished its members who live in its domestic convents but does not vary significantly among members in South America whose wages are subject to tax. [T.D. 7280, 38 FR 18369, July 10, 1973] § 31.3121(j)-1 Covered transportation service. (a) Transportation systems acquired in whole or in part after 1936 and before 1951 In general. (2) General retirement system protected by State constitution. (3) Additions to certain transportation systems by acquisition after 1950. (b) Transportation systems in operation on December 31, 1950, no part of which was acquired after 1936 and before 1951 In general. (2) Additions acquired after 1950. (c) Transportation systems acquired after 1950. (d) Definitions. (1) The term “general retirement system” means any pension, annuity, retirement, or similar fund or system established by a State or by a political subdivision thereof for employees of the State, political subdivision, or both; but such term does not include such a fund or system which covers only service performed in positions connected with the operation of its public transportation system. (2) A transportation system or a part thereof is considered to have been acquired by a State or political subdivision from private ownership if prior to the acquisition service performed by the employees in connection with the operation of the system or an acquired part thereof constituted employment under the act or under subchapter A of chapter 9 of the Internal Revenue Code of 1939 or was covered by an agreement entered into pursuant to section 218 of the Social Security Act (42 U.S.C. 418), and some of such employees became employees of the State or political subdivision in connection with and at the time of such acquisition. (3) The term “political subdivision” includes an instrumentality of a State, of one or more political subdivisions of a State, or of a State and one or more of its political subdivisions. (4) The term “employment” includes service covered by an agreement entered into pursuant to section 218 of the Social Security Act. § 31.3121(l)-1 Agreements entered into by domestic corporations with respect to foreign subsidiaries. For provisions relating to the extension of the Federal old-age, survivors, and disability insurance system established by title II of the Social Security Act to certain services performed outside the United States by citizens of the United States in the employ of a foreign subsidiary of a domestic corporation, see the Regulations Relating to Contract Coverage of Employees of Foreign Subsidiaries (part 36 of this chapter). § 31.3121(o)-1 Crew leader. The term “crew leader” means an individual who furnishes individuals to perform agricultural labor for another person, if such individual pays (either on his own behalf or on behalf of such person) the individuals so furnished by him for the agricultural labor performed by them and if such individual has not entered into a written agreement with such person whereby such individual has been designated as an employee of such person. For purposes of this chapter a crew leader is deemed to be the employer of the individuals furnished by him to perform agricultural labor, after 1956, for another person, and the crew leader is deemed not to be an employee of such other person with respect to the performance of services by him after 1956 in furnishing such individuals or as a member of the crew. An individual is not a crew leader within the meaning of section 3121(o) and of this section if he does not pay the agricultural workers furnished by him to perform agricultural labor for another person, or if there is an agreement between such individual and the person for whom the agricultural labor is performed whereby such individual is designated as an employee of such person. Whether or not such individual is an employee will be determined under the usual common-law rules (see paragraph (c) of § 31.3121(d)-1). [T.D. 6744, 29 FR 8320, July 2, 1964] § 31.3121(q)-1 Tips included for employee taxes. (a) In general. (b) Tips not included for employer taxes. (c) Tips received by an employee in course of his employment. (d) Computation of annual wage limitation. Example. During 1966, A is employed as a waiter by X restaurant and is paid wages by X restaurant at the rate of $100 a week. At the end of October 1966, A has been paid weekly wages in the amount of $4,300 and has reported tips in the amount of $2,200. On November 6, 1966, A is paid an additional week's wages in the amount of $100 and on November 9, 1966, A furnishes X restaurant a report of tips actually received by him during October. The annual wage limitation of $6,600 (weekly wages of $4,400 ($4,300 plus $100) and tips of $2,200) had been reached for purposes of the tax imposed by section 3101 prior to November 9 and, accordingly, no portion of the tips included in the report furnished on that date constitutes wages. However, since tips do not constitute remuneration for employment for purposes of the tax imposed by section 3111, the weekly wages paid to A during the remainder of 1966 will be subject to the tax imposed by section 3111. [T.D. 7001, 34 FR 1000, Jan. 23, 1969] § 31.3121(r)-1 Election of coverage by religious orders. (a) In general. (b) Definition of member In general. (2) Retirement because of old age In general. (ii) Factors to be considered. (A) Nature of services. (B) Amount of time. (C) Comparison of services rendered before and after retirement. Where consideration of the factors described in paragraph (b)(2)(ii) of this section does not establish whether an individual is or is not reasonably considered retired, all other factors are considered. (iii) Examples. Example 1. A is a member of a religious order who is subject to a vow of poverty. A's religious order is principally engaged in providing nursing services, and A has been fully trained in the nursing profession. In accordance with the practices of her order, upon attaining the age of 65, A is relieved of her nursing duties by reason of her age, and is assigned to a mother house where she is required to perform only such duties as light housekeeping and ordinary gardening. A is reasonably considered retired since the services she is performing are simple in nature, are markedly less skilled than those professional services which she previously performed, are of a type performed principally by retired members of her order, and are performed at a location to which members frequently retire. Example 2. Assume the same facts as in example 1 except that A is not reassigned to a mother house. Instead, she is reassigned to full-time duties in a hospital not utilizing her nursing skills. Whether A has met the retirement test requires consideration of the nature of her work. If A's new duties are almost entirely of a make-work nature primarily to occupy her body and mind, she is reasonably considered retired. However, if they are essential to the operation of the hospital, she is not reasonably considered retired. Example 3. B is a member of a religious order who is subject to a vow of poverty. As such, he provides supportive services to his order, such as housekeeping, cooking, and gardening. By reason of having attained the age of 62, he reduces the number of hours spent per day in these services from 8 hours to 2 hours. B is reasonably considered retired in view of the large reduction in the amount of time he devotes to his duties. Example 4. C is a member of a religious order who is subject to a vow of poverty. In his capacity as a member of the order, he performs duties as president of a university. Upon attaining the age of 65, C is relieved of his duties as president of the university and instead becomes a member of its faculty, teaching two courses whereas full-time members of the faculty normally teach four comparable courses. Although C's duties are no longer as demanding as those he previously performed, and although the amount of his time required for them is less than full time, he is nonetheless performing duties requiring a high degree of skill for a substantial amount of time. Accordingly, C is not reasonably considered retired. Example 5. Assume the same facts as in example 4, except that C teaches only one course upon being relieved of his position as president by reason of age. C is reasonably considered retired. Example 6. D is a member of a contemplative order who is subject to a vow of poverty. In accordance with the practices of his order, upon attaining the age of 70, D reduces by 50 percent the amount of time spent performing the normal duties of active members of his order. D is not reasonably considered retired. Example 7. Assume the same facts as in example 6, except that because of his age D no longer participates in the more rigorous liturgical services of the order and that the amount of time which he spends in all duties which might appropriately be performed by active members of his order is reduced by 75 percent. D is reasonably considered retired in view of the large reduction in his participation in the usual devotional routine of his order. (3) Retirement because of total disability. (4) Evidentiary requirements with respect to retirement. (c) Certificates of election In general. (2) Provisions of certificates. (i) Such election of coverage by such order or subdivision shall be irrevocable, (ii) Such election shall apply to all current and future members of such order, or in the case of a subdivision thereof to all current and future members of such order who belong to such subdivision, (iii) All services performed by a member of such order or subdivision in the exercise of duties required by such order or subdivision shall be deemed to have been performed by such member as an employee of such order or subdivision, and (iv) The wages of each member, upon which such order or subdivision shall pay the taxes imposed on employees and employers by sections 3101 and 3111, will be determined as provided in section 3121(i)(4). (d) Effective date of election In general. (i) The first day of the calendar quarter in which the certificate is filed, (ii) The first day of the calendar quarter immediately following the quarter in which the certificate is filed, or (iii) The first day of any calendar quarter preceding the calendar quarter in which the certificate is filed, except that such date may not be earlier than the first day of the 20th calendar quarter preceding the quarter in which such certificate is filed. (2) Retroactive elections. [T.D. 7280, 38 FR 18370, July 10, 1973, as amended by T.D. 9849, 84 FR 9238, Mar. 14, 2019] § 31.3121(s)-1 Concurrent employment by related corporations with common paymaster. (a) In general. (b) Definitions. (1) Related corporations. (i) The corporations are members of a “controlled group of corporations”, as defined in section 1563 of the Code, or would be members if section 1563(a)(4) and (b) did not apply and if the phrase “more than 50 percent” were substituted for the phrase “at least 80 percent” wherever it appears in section 1563(a). (ii) In the case of a corporation that does not issue stock, either fifty percent or more of the members of one corporation's board of directors (or other governing body) are members of the other corporation's board of directors (or other governing body), or the holders of fifty percent or more of the voting power to select such members are concurrently the holders of more than fifty percent of that power with respect to the other corporation. (iii) Fifty percent or more of one corporation's officers are concurrently officers of the other corporation. (iv) Thirty percent or more of one corporation's employees are concurrently employees of the other corporation. The following examples illustrate the application of this paragraph: Example 1. (a) X Corporation employs individuals A, B, D, E, F, G, and H. Y Corporation employs individuals A, B, and C. Z Corporation employs individuals A, C, I, J, K, L, and M. X Corporation is the paymaster for all thirteen individuals. The corporations have no officers or stockholders in common. (b) X and Y are related corporations because at least 30 percent of Y's employees are also employees of X. Y and Z are related corporations because at least 30 percent of Y's employees are also employees of Z. X and Z are not related corporations because neither corporation has 30 percent of its employees concurrently employed by the other corporation. (c) For purposes of determining the amount of the tax liability under sections 3102 and 3111, individual B is treated as having one employer. Individual C has two employers for these purposes, although Y and Z are related corporations, because C is not employed by X Corporation, the common paymaster. Individual A also is treated as having two employers for the purposes of these sections because X and Y Corporations are treated as one employer, and Z Corporation is treated as a second employer (since it is not related to the paymaster, X Corporation). Of course, individuals D, E, F, G, H, I, J, K, L, and M are not concurrently employed by two or more corporations, and, accordingly, section 3121 (s) is inapplicable to them. Example 2. M and N Corporations are both related to Corporation O but are not related to each other. Individual A is concurrently employed by all three corporations and paid by O, their common paymaster. Although M and N are not related, O is treated as the employer for A's employment with M, N, and O. Example 3. Corporations X, Y, and Z meet the definition of related corporations for the first time on April 12, 1979, and cease to meet it on July 5, 1979. A is concurrently employed by X, Y, and Z throughout 1979. In each of the four calendar quarters of 1979, A's remuneration from X, Y, and Z is $2,000, $10,000, and $30,000, respectively. All of the remuneration to A from X, Y, and Z for the year is disbursed by X, the common paymaster. Under these circumstances, the amount of wages subject to sections 3102 and 3111 is as follows: For the first calendar quarter X Y Z $2,000 $10,000 $22,900 For the second calendar quarter X Y Z $20,900 0 0 ($22,900−$2,000) For the third calendar quarter X Y Z 0 0 0 For the fourth calendar quarter X Y Z 0 $10,000 0 Of course, if the corporations had been related throughout all of 1979, only $22,900 of X's first quarter disbursement would have constituted wages subject to sections 3102 and 3111. (2) Common paymaster In general. (ii) Multiple common paymasters. (iii) Examples. Example 1. S, T, U, and V are related corporations with 2,000 employees collectively. Forty of these employees are concurrently employed by two or more of the corporations, during a calendar quarter. The four corporations arrange for S to disburse remuneration to thirty of these forty employees for their services. Under these facts, S is the common paymaster of S, T, U, and V with respect to the thirty employees. S is not a common paymaster with respect to the remaining employees. Example 2. (a) W, X, Y, and Z are related corporations. The corporations collectively have 20,000 employees. Two hundred of the employees are top-level executives and managers, sixty of whom are concurrently employed by two or more of the corporations during a calendar quarter. Six thousand of the employees are skilled artisans, all of whom are concurrently employed by two or more of the corporations during the calendar year. The four corporations arrange for Z to disburse remuneration to the sixty executives who are concurrently employed by two or more of the corporations. W and X arrange for X to disburse remuneration to the artisans who are concurrently employed by W and X. (b) A is an executive who is concurrently employed only by W, Y, and Z during the calendar year. Under these facts, Z is a common paymaster for W, Y, and Z with respect to A. Assuming that the other requirements of this section are met, the amount of the tax liability under sections 3102 and 3111 is determined as if Z were A's only employer for the calendar quarter. (c) B is a skilled artisan who is concurrently employed only by W and X during the calendar year. Under these facts, X is a common paymaster for S and X with respect to B. Assuming that the other requirements of this section are met, the amount of the tax liability under sections 3102 and 3111 is determined as if X were B's only employer for the calendar quarter. (3) Concurrent employment. Example 1. M, N, and O are related corporations which use N as a common paymaster with respect to officers. Their respective headquarters are located in three separate cities several hundred miles apart. A is an officer of M, N, and O who performs substantial services for each corporation. A does not work a set length of time at each corporate headquarters, and when A leaves one corporate headquarters, it is not known when A will return, although it is expected that A will return. Under these facts, A is concurrently employed by the three corporations. Example 2. P, Q, and R are related corporations whose geographical zones of business activity do not overlap. P, Q, and R have a common pension plan and arrange for Q to be a common paymaster for managers and executives. All three corporations maintain cafeterias for the use of their employees. B is a cafeteria manager who has worked at P's headquarters for 3 years. On June 1, 1980, B is transferred from P to the position of cafeteria manager of R. There are no plans for B's return to P. B's accrued pension benefits, vacation and sick pay, do not change as a result of the transfer. The decision to transfer B was made by Q, the parent corporation. Under these facts, B is not concurrently employed by P and R, because B's employment relationship with P was completely nonexistent during B's employment with R. Furthermore, section 3121(s) is inapplicable since B also was not employed by Q, the common paymaster, because B never contracted to perform services for remuneration from Q, and Q did not have the right to control the day-to-day duties of B's work. Example 3. C is employed by two related corporations, S and T. C was concurrently employed by these corporations between April 1, 1979, and June 30, 1979. The corporations used T as the common paymaster with respect to C's wages between May 1, 1979, and September 30, 1979. T pays C on May 15 for services performed between April 1 and April 30, on July 15 for services performed between June 1 and June 30, and on August 15 for services performed between July 1 and July 31. Section 3121 (s) applies to the first two payments but does not apply to the third payment (there was no concurrent employment). However, if the third payment was made by T for services performed for T, T counts the amounts previously disbursed to C in 1979 while C was concurrently employed by S and T towards the wage base (see section 3121 (a)(1)). (c) Allocation of employment taxes Responsibility to pay tax. (i) The amount of the liability of the common paymaster under section 3121(s), after taking account of any tax payments made, or (ii) The amount of the liability under sections 3102 and 3111 which, but for section 3121(s), would have existed with respect to the remuneration from such other related corporation, reduced by an allocable portion of any taxes previously paid by the common paymaster with respect to that remuneration. The portion of taxes previously paid by the common paymaster that is allocable to each related corporation is determined by multiplying the amount of taxes paid by a fraction, the numerator of which is the portion of the amount of employment tax liability of the common paymaster under section 3121(s) that is allocable to such related corporation under paragraph (c)(2) of this section, and the denominator of which is the total amount of the common paymaster's liability under section 3121(s), both determined without regard to any prior tax payments. These rules apply whether or not the tax on employees was withheld from the employees' wages. (2) Allocation of tax In general. (ii) Remuneration-based allocation rules. Portion of wage payment constituting re- muneration to the employee for services Tax on employees under section 3102 and performed for the corporation tax on employers under section 3111 ——————————————————————— × that the common paymaster is required Total wage payment constituting remu- to remit with respect to the wage pay- neration to the employee for all services ment performed for the related corporations using the common paymaster If the remuneration disbursed to an employee for services performed for a corporation is inappropriate, the district director may adjust the remuneration records of the related corporations to reflect appropriate remuneration. The district director may use the principles of § 1.482-2(b) in making the adjustments. Example. (i) X and Y are related corporations which use Y as common paymaster for their executives. A is a concurrently employed executive who performs services during the first quarter of 1979 for X and Y. Y remunerates $4,000 gross pay every week to A, calculated as follows: Wage payments Remuneration Tax on employers under section 3111 Tax on employees withheld under section 3102 Total X Y Total 1 $3,000 $1,000 $4,000 $245.20 $245.20 $490.40 2-3 8,000 8,000 490.40 490.40 980.80 4 1,000 3,000 4,000 245.20 245.20 490.40 5 4,000 4,000 245.20 245.20 490.40 6 2,000 2,000 4,000 177.77 177.77 355.54 7-13 10,000 18,000 28,000 0 0 0 Total 20,000 32,000 52,000 1,403.77 1,403.77 2,807.54 The amounts of remuneration to A are determined by the district director to be appropriate. Under these facts, the tax is allocated to X and Y in the following amounts: (ii) If Y remits none of the taxes to the Internal Revenue Service, X is liable for $2,452.00 (the entire amount due pursuant to sections 3102 and 3111 with respect to the remuneration to A from X) (12.26% × $20,000). Any amount remitted by X to the Internal Revenue Service under these circumstances is also credited against the liability of the common paymaster, Y. However, only the portion of the employment taxes allocated to X under (i) above may be deducted by X as employment taxes paid by it in respect of wages paid by it to its employees. (iii) If Y remits $1,000.00 of the total $2,807.54 due, Y as common paymaster remains liable for $1,807.54 ($2,807.54 minus $1,000). X's liability is the lesser of $1,807.54 (the liability of the common paymaster), or X's total liability, in the absence of section 3121 (s), on wages paid through the common paymaster ($2,452.00) minus a credit for an allocable part of the amount remitted by Y. The part is $412.66 (iii) Group-wide allocation rules. (d) Effective/applicability date In general. (2) Election to apply regulation to earlier taxable years. [T.D. 7660, 44 FR 75139, Dec. 19, 1979; 45 FR 17986, Mar. 20, 1980, as amended by T.D. 9278, 71 FR 44519, Aug. 4, 2006; T.D. 9456, 74 FR 38876, Aug. 4, 2009] § 31.3121(v)(2)-1 Treatment of amounts deferred under certain nonqualified deferred compensation plans. (a) Timing of wage inclusion General timing rule for wages. (2) Special timing rule for an amount deferred under a nonqualified deferred compensation plan In general. (ii) Special timing rule. (A) The date on which the services creating the right to that amount are performed (within the meaning of paragraph (e)(2) of this section); or (B) The date on which the right to that amount is no longer subject to a substantial risk of forfeiture (within the meaning of paragraph (e)(3) of this section). (iii) Inclusion in wages only once (nonduplication rule). (iv) Benefits that do not result from a deferral of compensation. (v) Remuneration that does not constitute wages. (b) Nonqualified deferred compensation plan In general. nonqualified deferred compensation plan term (2) Plan establishment Date plan is established. (ii) Plan amendments. (iii) Transition rule for written plan requirement. (3) Plan must provide for the deferral of compensation Deferral of compensation defined. deferral of compensation (ii) Compensation payable pursuant to the employer's customary payment timing arrangement. (iii) Short-term deferrals. (4) Plans, arrangements, and benefits that do not provide for the deferral of compensation In general. (ii) Stock options, stock appreciation rights, and other stock value rights. stock value right Thus, for example, the term stock value right does not include a phantom stock or other arrangement under which an employee is awarded the right to receive a fixed payment equal to the value of a specified number of shares of employer stock. (iii) Restricted property. (iv) Certain welfare benefits In general. (B) Severance pay. (C) Death benefits and disability pay 1 General definition. ( 2 Total benefits payable defined. 1 total benefits payable ( 3 Disability benefits payable defined. 1 disability benefits payable ( 4 Lifetime benefits payable defined. 1 lifetime benefits payable ( 5 Rules of application. 4 (v) Certain benefits provided in connection with impending termination In general. (B) Window benefits 1 In general. 3 ( 2 Special rule for recurring window benefits. ( 3 Transition rule for window benefits. 1 ( C Termination within 12 months of establishment of a benefit or plan. ( 1 ( 2 (vi) Benefits established after termination. cost-of-living adjustments (vii) Excess parachute payments. (viii) Compensation for current services. (5) Examples. Example 1: (i) In December of 2001, Employer L tells Employee A that, if specified goals are satisfied for 2002, Employee A will receive a bonus on July 1, 2003, equal to a specified percentage of 2002 compensation. Because Employee A meets the specified goals, Employer L pays the bonus to Employee A on July 1, 2003, consistent with its oral commitment. (ii) This arrangement is not a nonqualified deferred compensation plan under this section because its terms were not set forth in writing and, therefore, it was not established in accordance with paragraph (b)(2) of this section. Example 2: (i) In 2004, Employer M establishes a compensation arrangement for Employee B under which Employer M agrees to pay Employee B a specified amount based on a percentage of his salary for 2004. The amount due is to be paid out of the general assets of Employer M and is payable in 2008. (ii) Employee B has a legally binding right during 2004 to an amount of compensation that has not been actually or constructively received and that, pursuant to the terms of the arrangement, is payable in a later year. Therefore, the arrangement provides for the deferral of compensation. Example 3: (i) Employer N establishes a nonqualified deferred compensation plan (within the meaning of paragraph (b)(1) of this section) for Employee C in 1984. The plan is amended on January 1, 2001, to increase benefits, and the amendment provides that the increase in benefits is on account of Employee C's performance of services for Employer N from 1985 through 2000. (ii) The additional benefits that resulted from the plan amendment cannot be taken into account as amounts deferred for 1985 through 2000, even though the plan was established before then. Pursuant to paragraphs (b)(2)(ii) and (e)(1) of this section, the additional benefits cannot be taken into account before the latest of the date on which the amendment is adopted, the date on which the amendment is effective, or the date on which the material terms of the plan, as amended, are set forth in writing. Example 4: (i) In 2002, Employer O, a state or local government, establishes a plan for certain employees that provides for the deferral of compensation and that is subject to section 457(a). (ii) Paragraph (b)(1) of this section provides that nonqualified deferred compensation plan means any plan that is established by an employer and that provides for the deferral of compensation, other than a plan described in section 3121(a)(5). Section 3121(a)(5) lists, among other plans, an exempt governmental deferred compensation plan as defined in section 3121(v)(3). Under section 3121(v)(3)(A), this definition does not include any plan to which section 457(a) applies. Thus, the plan established by Employer O is not an exempt governmental deferred compensation plan described in section 3121(v)(3) and, consequently, is not a plan described in section 3121(a)(5). Accordingly, the plan is a nonqualified deferred compensation plan within the meaning of section 3121(v)(2) and paragraph (b)(1) of this section. (iii) However, the general timing rule of paragraph (a)(1) of this section and the special timing rule of paragraph (a)(2) of this section apply only to remuneration for employment that constitutes wages. Under section 3121(b)(7), certain service performed in the employ of a state, or any political subdivision of a state, is not employment. Thus, even though the plan is a nonqualified deferred compensation plan, the extent to which section 3121(v)(2) applies to a participating employee will depend on whether or not the service performed for Employer O is excluded from the definition of employment under section 3121(b)(7). Example 5: (i) In 2000, Employer P establishes a plan that provides for bonuses to be paid to employees based on an objective formula that takes into account the employees' performance for the year. Employer P does not have the discretion to reduce the amount of any employee's bonus after the end of the year. The bonus is not actually calculated until March 1 of the following year, and is paid on March 15 of that following year. (ii) The plan provides for the deferral of compensation because the employees have a legally binding right, as of the last day of a calendar year, to an amount of compensation that has not been actually or constructively received and, pursuant to the terms of the plan, that compensation is payable in a later year. However, because the bonuses under the plan are paid within a brief period of time after the end of the calendar year from which they are deferred, Employer P may choose, pursuant to paragraph (b)(3)(iii) of this section, to treat all the bonuses as if they are not subject to the special timing rule of paragraph (a)(2) of this section. (iii) If the employer uses the special timing rule, the amount deferred would be taken into account as wages on December 31, 2000. If the employer chooses not to use the special timing rule, the amount of the bonus is wages on the date it is actually or constructively paid, March 15, 2000. Example 6: (i) Employer Q establishes a plan under which bonuses based on performance in one year may be paid on February 1 of the following year at the discretion of the board of directors. The board of directors meets in January of each year to determine the amount, if any, of the bonuses to be paid based on performance in the prior year. (ii) Because an employee does not have a legally binding right to any bonus until January of the year in which the bonus is paid, any bonus paid under the plan in that year is not deferred from the preceding calendar year, and the plan does not provide for the deferral of compensation within the meaning of paragraph (b)(3)(i) of this section. Example 7: (i) Employer R maintains a plan for employees that provides nonqualified stock options described in § 1.83-7(a) of this chapter. Under the plan, employees are granted in 2001 the option to acquire shares of employer stock at the fair market value of the shares on the date of grant ($50 per share). The options can be exercised at any time from the date of grant through 2010. The options do not have a readily ascertainable fair market value for purposes of section 83 at the date of grant, and shares are issued upon the exercise of the options without being subject to a substantial risk of forfeiture within the meaning of section 83. In 2005, when the fair market value of a share of employer stock is $80, Employee D exercises an option to acquire 1,000 shares. (ii) Under paragraph (b)(4)(ii) of this section, neither the grant of a stock option nor amounts received currently as a result of the exercise of a stock option result from the deferral of compensation for purposes of section 3121(v)(2). Thus, under the general timing rule of paragraph (a)(1) of this section, the $30,000 spread between the amount paid for the shares ($50,000) and the fair market value of the shares on the date of exercise ($80,000) is taken into account as wages for FICA tax purposes in the year of exercise. (iii) If the options had been granted at $45 per share, $5 per share below the fair market value on date of grant, the $35,000 spread between the amount paid for the shares ($45,000) and the fair market value of the shares on the date of exercise ($80,000) would similarly be taken into account as wages for FICA tax purposes in the year of exercise. Example 8: (i) Employer T establishes a phantom stock plan for certain employees. Under the plan, an employee is credited on the last day of each calendar year with a dollar amount equal to the fair market value of 1,000 shares of employer stock. Upon termination of employment for any reason, each employee is entitled to receive the value on the date of termination, in cash or employer stock, of the shares with which he or she has been credited. (ii) Because compensation to which the employee has a legally binding right as of the last day of one year is paid in a subsequent year, the phantom stock plan provides for the deferral of compensation. The phantom stock plan does not provide stock value rights within the meaning of paragraph (b)(4)(ii) of this section because it provides for awards equal in value to the full fair market value of a specified number of shares of Employer T stock, rather than the excess of that fair market value over a specified price. Example 9: (i) Employer U establishes a severance pay arrangement (within the meaning of section 3(2)(b)(i) of ERISA) which provides for payments solely upon an employee's death, disability, or dismissal from employment. The amount of the payments to an employee is based on the length of continuous active service with Employer U at the time of dismissal, and is paid in monthly installments over a period of three years. (ii) Because benefits payable under the plan upon termination of employment are payable only upon an employee's involuntary termination, the plan is a severance pay plan within the meaning of paragraph (b)(4)(iv)(B) of this section. Thus, the benefits are not treated as resulting from the deferral of compensation for purposes of section 3121(v)(2). Example 10: (i) Employer V establishes a nonqualified deferred compensation plan under which employees will receive benefit payments commencing at age 65 as a life annuity or in one of several actuarially equivalent annuity forms. If an employee dies before benefit payments commence under the plan, a benefit is payable to the employee's designated beneficiary in a single lump sum payment equal to the present value of the employee's annuity benefit. This benefit (sometimes called a full reserve death benefit) is calculated using the applicable interest rate specified in section 417(e) and, for the period after age 65, the applicable mortality table specified in section 417(e), both of which are reasonable actuarial assumptions. During 2002, Employee E obtains a legally binding right to an annuity benefit under the plan, payable at age 65. This annuity benefit has a present value of $10,000 at the end of 2002, determined using the same assumptions as are used under the plan to calculate the full reserve death benefit. (ii) The present value, at the end of 2002, of the total benefits payable to or on behalf of Employee E (i.e., the sum of the present value of the annuity benefit commencing at age 65, and the present value of the full reserve death benefit, with both determined using the actuarial assumptions described in paragraph (i) of this Example 10, (iii) The same result would apply in the case of a plan that bases benefits on an interest bearing account balance and pays the account balance at termination of employment or death (because the sum of the deferred benefits payable in the future if the employee terminates employment before death with a discount for the probability of death before that date plus the present value of the benefit payable in the event of death necessarily equals the present value of the deferred benefits payable with no discount for the probability of death). Example 11: (i) The facts are the same as in Example 10, except that, in lieu of the full reserve death benefit, the plan provides a monthly life annuity benefit to an employee's spouse in the event of the employee's death before benefit payments commence equal to 100 percent of the monthly annuity that would be payable to the employee at age 65 under the life annuity form. Employee E is age 63 and has a spouse who is age 51. The sum of the present value of Employee E's annuity benefit commencing at age 65 determined with a discount for the possibility that Employee E might die before age 65 and the present value of the 100 percent annuity death benefit for Employee E's spouse exceeds $10,000. (ii) The amount deferred for 2002 is $10,000 (because the 100 percent annuity death benefit for Employee E's spouse is disregarded to the extent that the total benefits payable to or on behalf of Employee E exceeds the present value of the annuity benefits that could be payable to Employee E under the plan during Employee E's lifetime without a discount for the probability of Employee E's death before benefit payments commence). Example 12: (i) On January 1, 2001, Employer W establishes a plan that covers only Employee F, who owns a significant portion of the business and who has 30 years of service as of that date. The plan provides that, upon Employee F's termination of employment at any time, he will receive $200,000 per year for each of the immediately succeeding five years. Employee F terminates employment on March 1, 2001. (ii) Because Employee F terminates employment within 12 months of the establishment of the plan and the facts and circumstances set forth above indicate that the plan was established in contemplation of impending termination of employment, the plan is considered to be established in connection with impending termination within the meaning of paragraph (b)(4)(v) of this section. Therefore, the benefits provided under the plan are not treated as resulting from the deferral of compensation for purposes of section 3121(v)(2). Example 13: (i) Employer X establishes a plan on January 1, 2004, to supplement the qualified retirement benefits of recently hired 55-year old Employee G, who forfeited retirement benefits with her former employer in order to accept employment with Employer X. The plan provides that Employee G will receive $50,000 per year for life beginning at age 65, regardless of when she terminates employment. On April 15, 2004, Employee G unexpectedly terminates employment. (ii) The facts and circumstances indicate that the plan was not established in contemplation of impending termination. Thus, even though Employee G terminated employment within 12 months of the establishment of the plan, the plan is not considered to be established in connection with impending termination within the meaning of paragraph (b)(4)(v) of this section. Benefits provided under the plan are treated as resulting from the deferral of compensation for purposes of section 3121(v)(2). Example 14: (i) Employer Y establishes a plan to provide supplemental retirement benefits to a group of management employees who are at various stages of their careers. All employees covered by the plan are subject to the same benefit formula. Employee H is planning to (and actually does) retire within six months of the date on which the plan is established. (ii) Even though Employee H terminated employment within 12 months of the establishment of the plan, the plan is not considered to have been established in connection with Employee H's impending termination within the meaning of paragraph (b)(4)(v) of this section because the facts and circumstances indicate otherwise. Example 15: (i) Employee J owns 100 percent of Employer Z, a corporation that provides consulting services. Substantially all of Employer Z's revenue is derived as a result of the services performed by Employee J. In each of 2001, 2002, and 2003, Employer Z has gross receipts of $180,000 and expenses (other than salary) of $80,000. In each of 2001 and 2002, Employer Z pays Employee J a salary of $100,000 for services performed in each of those years. On December 31, 2002, Employer Z establishes a plan to pay Employee J $80,000 in 2003. The plan recites that the payment is in recognition of prior services. In 2003, Employer Z pays Employee J a salary of $20,000 and the $80,000 due under the plan. (ii) The facts and circumstances described above indicate that the $80,000 paid pursuant to the plan is based on services performed by Employee J in 2003 and, thus, is paid for current services within the meaning of paragraph (b)(4)(viii) of this section. Accordingly, the plan does not provide for the deferral of compensation within the meaning of section 3121(v)(2), and the $80,000 payment is included as wages in 2003 under the general timing rule of paragraph (a)(1) of this section. (c) Determination of the amount deferred Account balance plans General rule. (ii) Definitions Account balance plan. (B) Income. income (iii) Additional rules Commingled accounts. (B) Bifurcation permitted. (C) Actuarial equivalents. (2) Nonaccount balance plans General rule. (ii) Present value defined. present value (iii) Treatment of actuarially equivalent benefits In general. (B) Use of normal form commencing at normal commencement date. ( 1 ( 2 ( 3 (C) Fixed mortality assumptions permitted. (D) Normal form of benefit commencing at normal commencement date defined. (E) Rule applicable if actuarial assumptions cease to be reasonable. (3) Separate determination for each period. (4) Examples. http://www.soa.org. Example 1: (i) Employer M establishes a nonqualified deferred compensation plan for Employee A. Under the plan, 10 percent of annual compensation is credited on behalf of Employee A on December 31 of each year. In addition, a reasonable rate of interest is credited quarterly on the balance credited to Employee A as of the last day of the preceding quarter. All amounts credited under the plan are 100 percent vested and the benefits payable to Employee A are based solely on the balance credited to Employee A's account. (ii) The plan is an account balance plan. Thus, pursuant to paragraph (c)(1) of this section, the amount deferred for a calendar year is equal to 10 percent of annual compensation. Example 2: (i) Employer N establishes a nonqualified deferred compensation plan for Employee B. Under the plan, 2.5 percent of annual compensation is credited quarterly on behalf of Employee B. In addition, a reasonable rate of interest is credited quarterly on the balance credited to Employee B's account as of the last day of the preceding quarter. All amounts credited under the plan are 100 percent vested, and the benefits payable to Employee B are based solely on the balance credited to Employee B's account. As permitted by paragraph (e)(5) of this section, any amount deferred under the plan for the calendar year is taken into account as wages on the last day of the year. (ii) The plan is an account balance plan. Thus, pursuant to paragraph (c)(1) of this section, the amount deferred for a calendar year equals 10 percent of annual compensation (i.e., the sum of the principal amounts credited to Employee B's account for the year) plus the interest credited with respect to that 10 percent principal amount through the last day of the calendar year. If Employer N had not chosen to apply paragraph (e)(5) of this section and, thus, had taken into account 2.5 percent of compensation quarterly, the interest credited with respect to those quarterly amounts would not have been treated as part of the amount deferred for the year. Example 3: (i) Employer O establishes a nonqualified deferred compensation plan for a group of five employees. Under the plan, a specified sum is credited to an account for the benefit of the group of employees on July 31 of each year. Income on the balance of the account is credited annually at a rate that is reasonable for each year. The benefit payable to an employee is equal to one-fifth of the account balance and is payable, at the employee's option, in a lump sum or in 10 annual installments that reflect income on the balance. (ii) The plan is an account balance plan notwithstanding the fact that the employee's benefit is equal to a specified percentage of an account maintained for a group of employees. Example 4: (i) The facts are the same as in Example 3, (ii) Under paragraphs (c)(1)(iii)(C) and (c)(2)(iii) of this section, the plan does not fail to be an account balance plan merely because the plan permits employees to elect to receive their benefits under the plan in a form that is actuarially equivalent to payment of the account balance using actuarial assumptions that are reasonable at the time the form is selected. Example 5: (i) Employer P establishes a nonqualified deferred compensation plan for a group of employees. Under the plan, each participating employee has a fully vested right to receive a life annuity, payable monthly beginning at age 65, equal to the product of 2 percent for each year of service and the employee's highest average annual compensation for any 3-year period. The plan also provides that, if an employee dies before age 65, the present value of the future payments will be paid to his or her beneficiary. As permitted under paragraph (e)(5) of this section, any amount deferred under the plan for a calendar year is taken into account as FICA wages as of the last day of the year. As of December 31, 2002, Employee C is age 60, has 25 years of service, and high 3-year average compensation of $100,000 (the average for the years 2000 through 2002). As of December 31, 2003, Employee C is age 61, has 26 years of service, and has high 3-year average compensation of $104,000. As of December 31, 2004, Employee C is age 62, has 27 years of service, and has high 3-year average compensation of $105,000. The assumptions that Employer P uses to determine the amount deferred for 2003 (a 7 percent interest rate and, for the period after commencement of benefit payments, the GAM 83 (male) mortality table) and for 2004 (a 7.5 percent interest rate and, for the period after commencement of benefit payments, the GAM 83 (male) mortality table) are assumed, solely for purposes of this example, to be reasonable actuarial assumptions. (ii) As of December 31, 2002, Employee C has a legally binding right to receive lifetime payments of $50,000 (2 percent × 25 years × $100,000) per year. As of December 31, 2003, Employee C has a legally binding right to receive lifetime payments of $54,080 (2 percent × 26 years × $104,000) per year. Thus, during 2003, Employee C has earned a legally binding right to additional lifetime payments of $4,080 ($54,080−$50,000) per year beginning at age 65. The amount deferred for 2003 is the present value, as of December 31, 2003, of these additional payments, which is $28,767 ($4,080 × the present value factor for a deferred annuity payable at age 65, using the specified actuarial assumptions for 2003). Similarly, during 2004, Employee C has earned a legally binding right to additional lifetime payments of $2,620 (2 percent × 27 years × $105,000, minus $54,080) per year beginning at age 65. The amount deferred for 2004 is the present value, as of December 31, 2004, of these additional payments, which is $18,845 ($2,620 × the present value factor for a deferred annuity payable at age 65, using the specified actuarial assumptions for 2004). Example 6: (i) Employer Q establishes a nonqualified deferred compensation plan for Employee D on January 1, 2001, when Employee D is age 63. During 2001, Employee D obtains a fully vested right to receive a life annuity under the nonqualified deferred compensation plan equal to the excess of $200,000 over the life annuity benefits payable to Employee D under a qualified defined benefit pension plan sponsored by Employer Q. The life annuity benefit payable annually under the qualified plan is the lesser of $200,000 and the section 415(b)(1)(A) limitation in effect for the year, where the section 415(b)(1)(A) limitation is automatically adjusted to reflect changes in the cost of living. Benefits under both the qualified and nonqualified plan are payable monthly beginning at age 65. For purposes of this example, the section 415(b)(1)(A) limit for 2001 is assumed to be $140,000. The nonqualified plan provides no benefits in the event Employee D dies prior to commencement of benefit payments. As permitted under paragraph (e)(5) of this section, any amount deferred under the plan for a calendar year is taken into account as FICA wages as of the last day of the year. The assumptions that Employer Q uses to determine the amount deferred for 2001 (a 7 percent interest rate, a 3 percent increase in the cost of living and the GAM 83 (male) mortality table) are assumed, solely for purposes of this example, to be reasonable actuarial assumptions. As of December 31, 2001, Employee D has a legally binding right to receive lifetime payments as set forth in the following table: Year Annual gross amount Assumed qualified plan annual payment (based on cost of Net annual payment under nonqualified plan 2003 $200,000 $145,000 $55,000 2004 200,000 150,000 50,000 2005 200,000 155,000 45,000 2006 200,000 160,000 40,000 2007 200,000 165,000 35,000 2008 200,000 170,000 30,000 2009 200,000 175,000 25,000 2010 200,000 180,000 20,000 2011 200,000 185,000 15,000 2012 200,000 190,000 10,000 2013 200,000 195,000 5,000 2014 and thereafter 200,000 205,000 or greater 0 (ii) The amount deferred for 2001 is the present value, as of December 31, 2001, of the net lifetime payments under the nonqualified plan, or $223,753. (d) Amounts taken into account and income attributable thereto Amounts taken into account In general. wages (ii) Amounts not taken into account Failure to take an amount deferred into account under the special timing rule. (B) Failure to take a portion of an amount deferred into account under the special timing rule. (2) Income attributable to the amount taken into account Account balance plans In general. income attributable to the amount taken into account (B) Rules relating to actual investment—(1) In general. ( 2 Certain rates of return not based on predetermined actual investment. (C) Rules relating to reasonable interest rates—(1) In general. ( 2 Fixed rates permitted. (ii) Nonaccount balance plans. income attributable to the amount taken into account (iii) Unreasonable rates of return Account balance plans. AFR (B) Nonaccount balance plans. (3) Examples. Example 1: (i) In 2001, Employer M establishes a nonqualified deferred compensation plan for Employee A under which all benefits are 100 percent vested. In 2002, Employee A has $200,000 of current annual compensation from Employer M that is subject to FICA tax. The amount deferred under the plan on behalf of Employee A for 2002 is $20,000. Thus, Employee A has total wages for FICA tax purposes of $220,000. Because Employee A has other wages that exceed the OASDI wage base for 2002, no additional OASDI tax is due as a result of the $20,000 amount deferred. Because there is no wage base limitation for the HI portion of FICA, additional HI tax liability results from the $20,000 amount deferred. However, Employer M fails to pay the additional HI tax. (ii) Under paragraph (d)(1)(i) of this section, an amount deferred is considered taken into account as wages for FICA tax purposes as of the date it is included in computing FICA wages, but only if any additional FICA tax liability that results from inclusion of the amount deferred is actually paid. Because the HI tax resulting from the $20,000 amount deferred was not paid, that amount deferred was not taken into account within the meaning of paragraph (d)(1) of this section. Thus, pursuant to paragraph (d)(1)(ii) of this section, benefit payments attributable to the $20,000 amount deferred will be included as wages in accordance with the general timing rule of paragraph (a)(1) of this section and will be subject to the HI portion of FICA tax when actually or constructively paid (and the OASDI portion of FICA tax to the extent Employee A's wages do not exceed the OASDI wage base limitation). Example 2: (i) The facts are the same as in Example 1, (ii) Because the HI tax resulting from the $20,000 amount deferred is paid, that amount deferred is considered taken into account for 2002. Thus, in accordance with paragraph (a)(2)(iii) of this section, neither the amount deferred nor the income attributable to the amount taken into account will be treated as wages for FICA tax purposes at any time thereafter. Example 3: (i) Employer N establishes a nonqualified deferred compensation plan under which all benefits are 100 percent vested. Under the plan, an employee's account is credited with a contribution equal to 10 percent of salary on December 31 of each year. The employee's account balance also is increased each December 31 by interest (ii) Pursuant to paragraph (d)(2)(iii)(A) of this section, the income credits in excess of the income that would be credited using the AFR are considered additional amounts deferred in the year credited. Example 4: (i) The facts are the same as in Example 3, (ii) Because this index reflects a reasonable rate of interest, the income credited under the plan is considered income attributable to the amount taken into account within the meaning of paragraph (d)(2)(i) of this section. Example 5: (i) The facts are the same as in Example 3, (ii) Because the income credited under the plan does not exceed the actual rate of return on a predetermined actual investment, the income credited is considered income attributable to the amount taken into account within the meaning of paragraph (d)(2)(i) of this section. Example 6: (i) The facts are the same as in Example 3, (ii) Because the rate of increase or decrease is based on the greater of two rates of returns, the increase is not based on the return on a predetermined actual investment within the meaning of paragraph (d)(2)(i)(B) of this section. Thus, if the rate of return credited under the plan (i.e., the greater of the rates of return of the two mutual funds) exceeds the income that would be credited using the AFR, the excess is not considered income attributable to the amount taken into account within the meaning of paragraph (d)(2)(i) of this section and, pursuant to paragraph (d)(2)(iii)(A) of this section, is considered an additional amount deferred. Example 7: (i) The facts are the same as in Example 6, (ii) Because the increase or decrease attributable to any portion of the employee's account is based on the return on a predetermined actual investment, the entire increase or decrease is considered income attributable to the amount taken into account within the meaning of paragraph (d)(2)(i) of this section. Example 8: (i) The facts are the same as in Example 3, (ii) The annual increase or decrease for 2004 is based on the return of a predetermined actual investment. Although the annual increase or decrease for 2005 is based on an actual investment, the actual investment is not predetermined since it was not designated before the beginning of 2005. Pursuant to paragraph (d)(2)(iii)(A) of this section, the excess of the income credited under the plan over the income determined using AFR is an additional amount deferred for 2005. Example 9: (i) Employer O establishes a nonqualified deferred compensation plan for Employee B. Under the plan, if Employee B survives until age 65, he has a fully vested right to receive a lump sum payment at that age, equal to the product of 10 percent per year of service and Employee B's highest average annual compensation for any 3-year period, but no benefits are payable in the event Employee B dies prior to age 65. As permitted under paragraph (e)(5) of this section, any amount deferred under the plan for the calendar year is taken into account as wages as of the last day of the year. As of December 31, 2002, Employee B has 25 years of service and Employee B's high 3-year average compensation is $100,000 (the average for the years 2000 through 2002). As of December 31, 2002, Employee B has a legally binding right to receive a payment at age 65 of $250,000 (10 percent × 25 years × $100,000). As of December 31, 2003, Employee B is age 63, has 26 years of service, and has high 3-year average compensation of $104,000. As of December 31, 2003, Employee B has a legally binding right to receive a payment at age 65 of $270,400 (10 percent × 26 years × $104,000). Thus, during 2003, Employee B has earned a legally binding right to an additional payment at age 65 of $20,400 ($270,400−$250,000). The assumptions that Employer O uses to determine the amount deferred for 2003 are a 7 percent interest rate and the GAM 83 (male) mortality table, which, solely for purposes of this example, are assumed to be reasonable actuarial assumptions. The amount deferred for 2003 is the present value, as of December 31, 2003, of the $20,400 payment, which is $17,353. Employer O takes this amount into account by including it in Employee B's FICA wages for 2003 and paying the additional FICA tax. (ii) Under paragraph (d)(2)(ii) of this section, the income attributable to the amount that was taken into account is the increase in the present value of the future payment due solely to the passage of time, because the amount deferred was determined using reasonable actuarial assumptions and methods. As of the payment date at age 65, the present value of the future payment earned during 2003 is $20,400. The entire difference between the $20,400 and the $17,353 amount deferred ($3,047) is the increase in the present value of the future payment due solely to the passage of time, and thus constitutes income attributable to the amount taken into account. Because the amount deferred was taken into account, the entire payment of $20,400 represents either an amount deferred that was previously taken into account ($17,353) or income attributable to that amount ($3,047). Accordingly, pursuant to the nonduplication rule of paragraph (a)(2)(iii) of this section, none of the payment is included in wages. Example 10: (i) The facts are the same as in Example 9, Example 9, (ii) Under paragraph (d)(2)(ii) of this section, the income attributable to the amount that was taken into account is the increase in the present value of the future payments due solely to the passage of time, because the amount deferred was determined using reasonable actuarial assumptions and methods. Because the amount deferred was taken into account, each annual payment of $4,080 attributable to the amount deferred in 2003 represents either an amount deferred that was previously taken into account or income attributable to that amount. Accordingly, pursuant to the nonduplication rule of paragraph (a)(2)(iii) of this section, none of the payments are included in wages. Example 11: (i) The facts are the same as in Example 10, (ii) Under paragraph (d)(1)(ii)(A) of this section, if an amount deferred for a period is not taken into account, then the benefit payments attributable to that amount deferred are included as wages in accordance with the general timing rule of paragraph (a)(1) of this section. In this case, assuming that the amounts deferred in other periods were taken into account, $4,080 of each year's total benefit payments will be included in wages when actually or constructively paid, in accordance with the general timing rule. Example 12: (i) Employer P establishes an account balance plan on January 1, 2002, under which all benefits are 100 percent vested. The plan provides that amounts deferred will be credited annually with interest beginning in 2002 at a rate that is greater than a reasonable rate of interest. Employer P treats the excess over the applicable interest rate in section 417(e) as an additional amount deferred for 2002 and in each year thereafter, and takes the additional amount into account by including it in FICA wages and paying the additional FICA tax for the year. (ii) Under the nonduplication rule in paragraph (a)(2)(iii) of this section, the benefits paid under the plan will be excluded from wages for FICA tax purposes. Example 13: (i) The facts are the same as in Example 9, (ii) Under paragraph (d)(2)(iii)(B) of this section, if any actuarial assumption or method is not reasonable, then the income attributable to the amount taken into account is limited to the income that would result from application of the AFR and, if applicable, the 417(e) mortality table. Because the 15 percent interest rate is unreasonable, the income attributable to the amount taken into account is limited to the income that would result from using a 7 percent interest rate and, in this case, an increase for survivorship using the 417(e) mortality table. Under these assumptions, the income attributable to the $15,023 amount taken into account for 2003 is $1,199 in 2004 and $1,313 in 2005. Under paragraph (d)(1)(ii) of this section, the sum of these amounts ($17,535) is excluded from Employee B's wages pursuant to the nonduplication rule of paragraph (a)(2)(iii) of this section, and the balance of the payment ($2,865) is subject to the general timing rule of paragraph (a)(1) of this section and, thus, is included in Employee B's wages when actually or constructively paid. (iii) The same result can be reached by multiplying the attributable benefit payments by a fraction, the numerator of which is the amount taken into account, and the denominator of which is the amount deferred that would have been taken into account at the same time had the amount deferred been calculated using the AFR and the 417(e) mortality table. These assumptions are determined as of January 1 of the calendar year in which the amount was taken into account. In this Example 13, Example 14: (i) The facts are the same as Example 10, (ii) Under paragraph (d)(2)(iii)(B) of this section, if any actuarial assumption or method used is not reasonable, then the income attributable to the amount taken into account is limited to the income that would result from application of the AFR and, if applicable, the 417(e) mortality table. Because the 15 percent interest rate is not reasonable, the income attributable to the amount taken into account is equal to the income that would result from using a 7 percent interest rate and the amount taken into account is treated as if it represented a portion of the amount deferred for purposes of applying paragraph (d)(1)(ii)(B) of this section. Under these assumptions, the income attributable to the $18,252 amount taken into account for 2003 is $1,278 in 2004 and $1,367 in 2005. Under paragraph (d)(1)(ii)(B) of this section, the portion of each benefit payment attributable to the amount deferred that is excluded from wages pursuant to the nonduplication rule of paragraph (a)(2)(iii) of this section is determined at benefit commencement by multiplying each benefit payment by a fraction, the numerator of which is the amount taken into account (plus income attributable to that amount) and the denominator of which is the present value of future benefit payments attributable to the amount deferred. Because the interest rate assumption is not reasonable, not only is the income limited to the application of the AFR, but the present value in the denominator must be determined using the AFR and (if applicable) the 417(e) mortality table. In this case, the present value is $40,283 and thus the fraction is $20,897 divided by $40,283, or .51875. Thus, $2,116 (.51875 × $4,080) of each year's benefit payment is excluded from wages and the balance of each year's payment ($1,964) is subject to the general timing rule of paragraph (a)(1) of this section and is included in wages when actually or constructively paid. (iii) The same result can be reached by multiplying the attributable benefit payments by a fraction the numerator of which is the amount taken into account, and the denominator of which is the amount deferred that would have been taken into account at the same time had the amount deferred been calculated using the AFR and the 417(e) mortality table. These assumptions are determined as of January 1 of the calendar year in which the amount was taken into account. In this Example 14, (e) Time amounts deferred are required to be taken into account In general. (2) Services creating the right to an amount deferred. (3) Substantial risk of forfeiture. (4) Amount deferred that is not reasonably ascertainable under a nonaccount balance plan In general Date required to be taken into account. (B) Definition of reasonably ascertainable. (ii) Earlier inclusion permitted In general. (B) True-up at resolution date. (C) Actuarial assumptions. (D) Allocation rules for amounts deferred over more than one period 1 General rule. ( 2 Future compensation increases. ( 3 Early retirement subsidies. ( 4 Allocation with respect to offsets. 4 (E) Treatment of benefits paid before the resolution date. (5) Rule of administrative convenience. (6) Portions of an amount deferred required to be taken into account on more than one date. (7) Examples. Example 1: (i) Employer M establishes a nonqualified deferred compensation plan for Employee A on November 1, 2005. Under the plan, which is an account balance plan, Employee A obtains a legally binding right on the last day of each calendar year (if Employee A is employed on that date) to be credited with a principal amount equal to 5 percent of compensation for the year. In addition, a reasonable rate of interest is credited quarterly. Employee A's account balance is nonforfeitable and is payable upon Employee A's termination of employment. For 2006, the principal amount credited to Employee A under the plan (which, in this case, is also the amount deferred within the meaning of paragraph (c) of this section) is $25,000. (ii) Under paragraph (e)(2) of this section, the services creating the right to the $25,000 amount deferred are considered performed as of December 31, 2006, the date on which Employee A has performed all of the services necessary to obtain a legally binding right to the amount deferred. Thus, in accordance with paragraph (e)(1) of this section, the $25,000 amount deferred must be taken into account as of December 31, 2006, which is the later of the date on which services creating the right to the amount deferred are performed or the date on which the right to the amount deferred is no longer subject to a substantial risk of forfeiture. Example 2: (i) The facts are the same as in Example 1, (ii) Under paragraph (e)(3) of this section, the determination of whether the right to an amount deferred is subject to a substantial risk of forfeiture is made in accordance with the principles of section 83. Under § 1.83-3(c) of this chapter, a substantial risk of forfeiture generally exists where rights in property that are transferred are conditioned, directly or indirectly, upon the future performance of substantial services. Because Employee A's right to receive the $25,000 principal amount (and attributable interest) is conditioned on the performance of services for five years, a substantial risk of forfeiture exists with respect to that amount deferred until December 31, 2011. (iii) December 31, 2011, is the later of the date on which services creating the right to the amount deferred are performed or the date on which the right to the amount deferred is no longer subject to a substantial risk of forfeiture. Thus, in accordance with paragraph (e)(1) of this section, the amount deferred (which, pursuant to paragraph (c)(1) of this section, is equal to the $25,000 principal amount credited to Employee A's account on December 31, 2006, plus the interest credited with respect to that principal amount through December 31, 2011) must be taken into account as of December 31, 2011. Example 3: (i) The facts are the same as in Example 2, (ii) Paragraph (e)(6) of this section provides that, if different portions of an amount deferred are required to be taken into account under paragraph (e)(1) of this section on more than one date, then each such portion is considered a separate amount deferred for purposes of this section. Thus, $5,000 of the principal amount, plus interest credited through December 31, 2007, is taken into account as an amount deferred on December 31, 2007; $5,000 of the principal amount, plus interest credited through December 31, 2008, is taken into account as a separate amount deferred on December 31, 2008; etc. Example 4: (i) On November 21, 2001, Employer N establishes a nonqualified deferred compensation plan under which all benefits are 100 percent vested. The plan provides for Employee B (who is age 45) to receive a lump sum benefit of $500,000 at age 65. This benefit will be forfeited if Employee B dies before age 65. (ii) Because the amount, form, and commencement date of the benefit are known, and the only assumptions needed to determine the amount deferred are interest and mortality, the amount deferred is reasonably ascertainable within the meaning of paragraph (e)(4)(i) of this section on November 21, 2001. Example 5: (i) The facts are the same as in Example 4, (ii) Because the commencement date of the benefit payment is contingent on when Employee B terminates employment, the commencement date of the benefit payment is not known. Thus, the amount deferred is not reasonably ascertainable within the meaning of paragraph (e)(4)(i) of this section, unless the plan satisfies the requirements of paragraph (c)(2)(iii)(B) of this section. Because the fixed 5 percent factor may not be reasonable at the time benefit payments commence (i.e., 5 percent might be higher or lower than a reasonable interest rate when payments commence), the plan fails to satisfy paragraph (c)(2)(iii)(B) of this section and accordingly the amount deferred is not reasonably ascertainable until termination of employment. Example 6: (i) The facts are the same as in Example 4, (ii) Because the commencement date of the benefit payment is contingent on when Employee B terminates employment, the commencement date of the benefit payment is not known. Thus, the amount deferred is not reasonably ascertainable until termination of employment. Example 7: (i) The facts are the same as in Example 4, (ii) Because the plan permits employees to elect to receive benefits in more than one form and the alternative forms may not have the same value when Employee B makes his election, the plan fails to satisfy the requirements of paragraph (c)(2)(iii)(B) of this section until a form of benefit is selected. Thus, the amount deferred is not reasonably ascertainable until then. Example 8: (i) Employer O establishes a nonqualified deferred compensation plan. The plan is a supplemental executive retirement plan (SERP) that provides Employee C with a fully vested right to receive a pension, in the form of a life annuity payable monthly, beginning at age 65, equal to the excess of 3 percent of Employee C's final 3-year average pay for each year of participation up to 15 years, over the amount payable to Employee C from Employer O's qualified pension plan. The amount payable under the qualified pension plan is a life annuity payable monthly, beginning at age 65, equal to 1.5 percent of final 3-year average pay for each year of employment, excluding pay in excess of the section 401(a)(17) compensation limit. No benefits are payable under the SERP if Employee C dies before age 65. Employee C becomes a participant in the SERP on January 1, 2001, at age 44. The amount deferred under the SERP for any year is not reasonably ascertainable prior to termination of employment because the amount of the benefit is not known and the determination of the amount deferred requires assumptions other than interest and mortality (e.g., an assumption as to Employee C's average pay for the final three years of employment). As permitted by paragraph (e)(4)(i) of this section, Employer O chooses not to take any amount into account for any year before the resolution date. Employee C terminates employment on December 31, 2018 when he is age 62. (ii) As of the date Employee C terminates employment, the amount of the benefit is known and the only actuarial or other assumptions needed to determine the amount deferred are an interest rate assumption and a mortality assumption. At that time, the amount deferred in each past year becomes reasonably ascertainable, and Employer O is able to determine that during 2001 Employee C earned a legally binding right to a life annuity of $4,000 per year beginning in 2021 when Employee C is age 65. Employer O determines the present value of Employee C's future benefit payments under the SERP as of this resolution date (December 31, 2018), using a 7 percent interest rate and the UP-84 mortality table, which, solely for purposes of this example, are assumed to be reasonable actuarial assumptions for December 31, 2018. The special timing rule will be satisfied if the resulting present value, $26,950, is taken into account on that date in accordance with paragraph (d)(1) of this section. Example 9: (i) The facts are the same as in Example 8, (ii) As of the date Employee C terminates employment, the amount of the benefit is known and the only actuarial or other assumptions needed to determine the amount deferred are an interest rate assumption and a mortality assumption. At that time, the amount deferred in each past year becomes reasonably ascertainable, and Employer O is able to determine that during 2001 Employee C earned a legally binding right to a life annuity of $4,000 per year beginning on December 31, 2018 when Employee C is age 62. Employer O determines the present value of Employee C's future benefit payments under the SERP as of this resolution date (December 31, 2018), using a 7 percent interest rate and the UP-84 mortality table, which, solely for purposes of this example, are assumed to be reasonable actuarial assumptions for December 31, 2018. The special timing rule will be satisfied if the resulting present value, $37,576, is taken into account on that date in accordance with paragraph (d)(1) of this section. Example 10: (i) The facts are the same as in Example 9, (ii) In accordance with paragraph (e)(4)(ii)(B) of this section, Employer O must determine any additional amount required to be taken into account in 2018. If the $4,000 payable in the form of a life annuity beginning at age 62 exceeds the life annuity which is actuarially equivalent to the $13,043 previously taken into account, the present value of the excess must be taken into account. In this Example 10, Example 11: (i) The facts are the same as in Example 9, except that, as permitted under paragraph (e)(4)(ii) of this section, Employer O chooses to take an amount into account before the amount deferred for 2001 is reasonably ascertainable. The amount that Employer O takes into account on December 31, 2001, is $9,569 (the present value of a life annuity of $4,000 per year, payable at age 65, using a 6 percent interest rate and the UP-84 mortality table). Employer O does not take any other amount into account before the resolution date. (ii) In accordance with paragraph (e)(4)(ii)(B) of this section, Employer O must determine any additional amount required to be taken into account in 2018. If the $4,000 payable in the form of a life annuity beginning in 2018 at age 62 exceeds the life annuity which is actuarially equivalent to the $9,569 previously taken into account, the present value of the excess must be taken into account. In this case, the $9,569 previously taken into account is actuarially equivalent to a $2,935 annuity commencing at age 62 using a 6 percent interest rate and the UP-84 mortality table (which, solely for purposes of this example, are assumed to be reasonable actuarial assumptions for December 31, 2001). Accordingly, an additional amount needs to be taken into account in 2018 equal to the present value of the excess of the $4,000 annual stream of benefit payments to which Employee C obtained a legally binding right during 2001 over the $2,935 annual stream of benefit payments which is actuarially equivalent to the amount previously taken into account. This present value (i.e., the present value of a life annuity equal to $4,000 minus $2,935, or $1,065 annually) is determined by Employer O to be $10,005 as of the resolution date using a 7 percent interest rate and the UP-84 mortality table (which, solely for purposes of this example, are assumed to be reasonable actuarial assumptions for December 31, 2018). Example 12: (i) The facts are the same as in Example 9, (ii) In accordance with paragraph (e)(4)(ii)(B) of this section, Employer O must determine any additional amount required to be taken into account in 2018. If the $4,000 payable in the form of a life annuity beginning at age 62 exceeds the life annuity which is actuarially equivalent to the $15,834 previously taken into account, the present value of the excess must be taken into account. In this case, the $15,834 previously taken into account is actuarially equivalent to a $4,856 annuity commencing at age 62 using a 6 percent interest rate and the UP-84 mortality table (which, solely for purposes of this example, are assumed to be reasonable actuarial assumptions for December 31, 2001). Because the life annuity of $4,856 per year (which is equivalent to the amount taken into account at the early inclusion date) exceeds the $4,000 annuity attributable to the amount deferred in 2001, no additional amount is required to be taken into account for that amount deferred as of the resolution date. Employer O may claim a refund or credit for the overpayment of FICA tax with respect to amounts taken into account prior to the resolution date to the extent permitted by sections 6402, 6413, and 6511. Example 13: (i) The facts are the same as in Example 12, (ii) Employer O may allocate the $15,834 previously taken into account among any amounts deferred on or before the early inclusion date. At the resolution date, Employer O will have to take into account the present value of an annuity equal to the excess of the life annuity attributable to the amounts deferred for 2000 and 2001 over a life annuity of $4,856 per year. Example 14: (i) In 2003, Employer P establishes a nonqualified deferred compensation plan for Employee D. The plan provides that, in consideration of Employee D's services to be performed on Project X in 2004, Employee D will have a nonforfeitable right to receive 1 percent per year of Employer P's net profits associated with Project X for each of the immediately succeeding three years. No services beyond 2004 are required. The 1 percent of net profits payable each year will be paid on March 31 of the immediately succeeding year. One percent of net profits associated with Project X is $750,000 in 2005, $400,000 in 2006, and $90,000 in 2007. Employee D receives $750,000 on March 31, 2006, $400,000 on March 31, 2007, and $90,000 on March 31, 2008. (ii) Because the services creating the right to all of the amount deferred are performed in 2004, the benefit payments based on the 2005, 2006, and 2007 net profits are all attributable to the amount deferred in 2004. However, because the present value of Employee D's future benefit is contingent on future profits, the determination of the amount deferred requires the use of assumptions other than interest, mortality, and cost of living. Thus, all of the amount deferred in 2004 will not be reasonably ascertainable within the meaning of paragraph (e)(4)(i) of this section until December 31, 2007 (which is the resolution date). Employer P does not choose to take any amount into account prior to the amount deferred becoming reasonably ascertainable. (iii) However, paragraph (d)(1)(ii)(A) of this section provides that a benefit payment attributable to an amount deferred under a nonqualified deferred compensation plan must be included as wages when actually or constructively paid if the amount deferred has not been taken into account as wages under the special timing rule of paragraph (a)(2) of this section. Thus, the benefit payments in 2006 and 2007 must be included as wages when paid. (iv) As of December 31, 2007, all of the amount deferred under the plan becomes reasonably ascertainable because the amount of the benefit payable attributable to the amount deferred is treated as known under paragraph (e)(4)(i)(B) of this section, and the only assumption needed to determine the present value of the future benefits is interest. However, since Employer P was required to treat the payments in 2006 and 2007 as wages when paid under the general timing rule of paragraph (a)(1) of this section, only the present value of the payment to be made in 2008 is required to be taken into account as of the resolution date (December 31, 2007) under the special timing rule of paragraph (a)(2) of this section. Using an interest rate of 10 percent per year (which, solely for purposes of this Example 14, Example 15: (i) The facts are the same as in Example 14, (ii) Pursuant to paragraph (e)(4)(ii)(E) of this section, in applying the nonduplication rule of paragraph (a)(2)(iii) of this section, a first-in-first-out rule applies in determining the benefit payments that are attributable to amounts previously taken into account. Using the 10 percent interest rate, Employer P determines that the $750,000 benefit payment on March 31, 2006, and the March 31, 2007, benefit payment of $400,000 are less than the $1,000,000 taken into account at the early inclusion date, plus attributable income, and, therefore, are not included in wages when paid. (iii) Under paragraph (e)(4)(ii)(E) of this section, if an employer chooses to take an amount into account before the resolution date, the amount taken into account (plus income attributable to that amount) is disregarded to the extent the amount is attributed to benefit payments made before the resolution date. Thus, Employer P must reduce the $1,000,000 taken into account in 2004 (plus income attributable to that amount) based upon the two benefit payments ($750,000 and $400,000) that were excluded from wages. Using an interest rate of 10 percent, Employer P determines that the amount taken into account in 2004 plus interest to the resolution date and reduced based upon the two benefit payments is $15,228 and the additional amount that is required to be taken into account as of December 31, 2007, is $72,653 ($87,881-$15,228). Example 16: (i) Employee E obtains a fully vested, legally binding right during 2002, 2003, and 2004 to payments from a nonqualified deferred compensation plan of Employer Q under which the benefits are based on a formula that includes an actuarial offset by the account balance under a qualified defined contribution plan of Employer Q as of December 31, 2004. The payments from the nonqualified deferred compensation plan are to commence on December 31, 2005. At the resolution date for the amounts earned during 2002, 2003, and 2004, which is December 31, 2004, Employee E has a legally binding right to a net annual benefit of $100,000 payable for life to commence on December 31, 2005. On the resolution date, Employer Q determines that on December 31, 2002, Employee E had a legally binding right to receive $100,000 annually for life beginning on December 31, 2005 (as a result of the gross benefit under the nonqualified plan being $120,000 annually for life, and the offset being $20,000 annually for life, as of December 31, 2002). On December 31, 2003, Employee E had a legally binding right to receive $95,000 annually for life beginning on December 31, 2005 (as a result of the gross benefit under the nonqualified plan being $135,000 annually for life, and the offset being $40,000 annually for life, as of December 31, 2003). On December 31, 2004, Employee E had a legally binding right to receive $100,000 annually for life beginning on December 31, 2005 (as a result of the gross benefit under the nonqualified plan being $145,000 annually for life, and the offset being $45,000 annually for life, as of December 31, 2004). (ii) In this case, pursuant to paragraph (e)(4)(ii)(D)( 4 Example 17: (i) In 2010, Employee F performs services for which she earns a right to 10 percent of the proceeds from the sale of a motion picture. In 2011, Employee F performs services for which she earns a right to 10 percent of the proceeds from the sale of another motion picture. These proceeds are calculated by subtracting the total advertising expenses for both movies. Payment is to be made in the year following the date on which both pictures have been sold, but not later than 2018. At the end of 2010, the advertising expenses for both pictures totaled $300,000. The first motion picture is sold for $10,000,000 in 2014. The second motion picture is sold for $17,000,000 in 2017. At the end of 2017, the advertising expenses totaled $1,700,000. In 2018, Employee F is paid $2,530,000 (10 percent of the sum of $10,000,000 and $17,000,000 minus $1,700,000). (ii) Pursuant to paragraph (e)(4)(ii)(D)( 4 (f) Withholding In general. (2) Estimated method In general. (ii) Underestimate of the amount deferred General rule. (B) Shortfall is treated as wages paid on a date after the estimate date. (C) Shortfall is treated as wages paid on the estimate date. (D) Reporting. (iii) Overestimate of the amount deferred. (3) Lag method. (4) Examples. Example 1: (i) Employer M maintains a nonqualified deferred compensation plan that is an account balance plan. The plan provides for annual bonuses based on current year profits to be deferred until termination of employment. Employer M's profits for 2003, and thus the amount deferred, is reasonably ascertainable, but Employer M calculates the amount deferred on March 3, 2004, when the relevant data is available. (ii) In accordance with the alternative method described in paragraph (f)(2) of this section, Employer M makes a reasonable estimate that the amount deferred that must be taken into account as of December 31, 2003, for Employee A is $20,000, and withholds and deposits FICA tax on that amount as if it were wages paid by Employer M and received by Employee A on that date. In January of 2004, Employer M files and furnishes Form W-2 for Employee A including the $20,000 in FICA wages. On March 3, 2004, Employer M determines that the actual amount deferred that should have been taken into account on December 31, 2003, was $22,000. (iii) In accordance with the alternative method described in paragraph (f)(2)(ii) of this section, Employer M may treat the additional $2,000 as wages paid to and received by Employee A on December 31, 2003, the estimate date. Employer M may treat the $2,000 shortfall as an error ascertained on March 3, 2004, and withhold and deposit FICA tax on that amount. Form W-2c for Employee A for 2003 must include the $2,000 shortfall in FICA wages. Employer M must also correct the information on Form 941 for the last quarter of 2003, reporting the adjustment on Form 941 for the first quarter of 2004, accompanied by Form 941c for the last quarter of 2003. (iv) Instead, Employer M may treat the $2,000 shortfall as wages paid on March 31, 2004, and withhold and deposit FICA tax on that amount as if it were wages paid by Employer M and received by Employee A on that date. Form W-2 for Employee A for 2004 and Form 941 for the first quarter of 2004 must include the $2,000 shortfall in FICA wages. Example 2: (i) The facts are the same as in Example 1, (ii) Under paragraph (f)(2)(iii) of this section, Employer M may, in accordance with sections 6402, 6413, and 6511, claim a refund or credit for the overpayment of tax resulting from the overestimate. In addition, Employer M must file and furnish a Form W-2c for Employee A and must correct the information on Form 941 for the last quarter of 2003. Example 3: (i) The facts are the same as in Example 1, (ii) Under the alternative method described in paragraph (f)(3) of this section, the amount taken into account on March 15, 2004 (including the interest), will be treated as FICA wages paid to and received by Employee A on March 15, 2004. Example 4: (i) The facts are the same as in Example 1, (ii) Employer M may use any date not later than January 15, 2004, to take the amount deferred into account (provided that the amount deferred includes interest, at AFR for January 1, 2003, through December 31, 2003, and at AFR for January 1, 2004, through January 15, 2004). (g) Effective date and transition rules General effective date. (2) Reasonable, good faith interpretation for amounts deferred and benefits paid before January 1, 2000 In general. (ii) Plan must be established or adopted. (iii) Certain changes in position for stock options, stock appreciation rights, and other stock value rights not reasonable, good faith interpretation. (3) Optional adjustments to conform with this section for pre-effective-date open periods General rule. (ii) Consistency required. (iii) Reporting. (4) Application of reasonable, good faith standard Plans that are not subject to section 3121(v)(2). (A) With respect to benefit payments actually or constructively paid before January 1, 2000, that are attributable to amounts previously taken into account under the plan, no additional FICA tax will be due; (B) On or after January 1, 2000, benefit payments under the plan must be taken into account as wages when actually or constructively paid in accordance with paragraph (a)(1) of this section; and (C) To the extent permitted by paragraph (g)(3) of this section, the employer may claim a refund or credit for FICA tax actually paid on amounts taken into account prior to January 1, 2000. (ii) Plans that are subject to section 3121(v)(2) for which the amount deferred has not been fully taken into account In general. (B) No additional tax required. (C) General timing rule applicable. (D) Special rule for amounts deferred before 1994. (E) Special rule for amounts required to be taken into account in 1994 or 1995. (iii) Plans that are subject to section 3121(v)(2) for which more than the amount deferred has been taken into account. (A) The determination of the amount deferred for any period beginning on or after January 1, 2000, must be made in accordance with paragraph (c) of this section, and the time when amounts deferred under the plan are required to be taken into account must be determined in accordance with paragraph (e) of this section, without regard to any such amount that was taken into account for any period ending before January 1, 2000; and (B) To the extent permitted by sections 6402, 6413, and 6511, the employer may claim a refund or credit for an overpayment of tax caused by the overinclusion of wages that occurred before January 1, 2000. (5) Examples. Example 1: (i) In 1996, Employer M establishes a nonqualified deferred compensation plan that is a nonaccount balance plan for Employee A. All benefits under the plan are 100 percent vested. In order to determine the amount deferred on behalf of Employee A under the plan for 1996 and 1997, Employer M must make assumptions as to the date on which Employee A will retire and the form of benefit Employee A will elect, in addition to interest, mortality, and cost-of-living assumptions. Based on assumptions made with respect to all of these contingencies, Employer M determines that the amount deferred for 1996 is $50,000 and the amount deferred for 1997 is $55,000. In 1996 and 1997, Employee A's total wages (without regard to the amounts deferred) exceed the OASDI wage bases. Employer M withholds and deposits HI tax on the $50,000 and $55,000 amounts. Employee A does not retire before January 1, 2000. Employer M chooses under paragraph (g)(3) of this section to apply this section to 1996 and 1997 before the January 1, 2000, general effective date. (ii) Under this section, the amounts deferred in 1996 and 1997 are not reasonably ascertainable (within the meaning of paragraph (e)(4)(i) of this section) before January 1, 2000. Thus, as long as the applicable period of limitations has not expired for the periods in 1996 and 1997, Employer M may, to the extent permitted under paragraph (g)(3) of this section, apply for a refund or credit for the HI tax paid on the amounts deferred for 1996 and 1997 and, in accordance with paragraph (e)(4) of this section, take into account the amounts deferred when they become reasonably ascertainable. Example 2: (i) Employer N adopts a plan on January 1, 1994, that covers Employee B, who has 10 years of service as of that date. The plan provides that, in consideration of Employee B's outstanding services over the past 10 years, Employee B will be paid a $500,000 lump sum distribution upon termination of employment at any time. On January 15, 1996, Employee B terminates employment with Employer N. Employer N determines, based on a reasonable, good faith interpretation of section 3121(v)(2), that the plan is a nonqualified deferred compensation plan under that section. Employer N treats the $500,000 as having been taken into account as an amount deferred in 1993 and earlier years. (ii) Under paragraph (g)(2)(ii) of this section, if all amounts are deferred and all benefits are paid under a plan before January 1, 2000, then in no event will an employer's treatment of amounts deferred under the plan be considered to be in accordance with a reasonable, good faith interpretation of section 3121(v)(2) if the employer treats these amounts as taken into account as wages for FICA tax purposes prior to the adoption of the plan. Accordingly, Employer N's treatment is not in accordance with a reasonable, good faith interpretation of section 3121(v)(2) because Employer N treated amounts as taken into account in years before the adoption of the plan. As a result, the payment made to Employee B in 1996 was subject to both the OASDI and HI portions of FICA tax when paid. Example 3: (i) Employer O adopts a bonus plan on December 1, 1993, that becomes effective and legally binding on January 1, 1994. Under the plan, which is not set forth in writing, a specified bonus amount (which is 100 percent vested) is credited to Employee C's account each December 31. A reasonable rate of interest on Employee C's account balance is credited quarterly. Employee C's account balance will begin to be paid in equal annual installments over 10 years beginning on January 1, 2000. Employer O determines, based on a reasonable, good faith interpretation of section 3121(v)(2), that the bonus plan is a nonqualified deferred compensation plan under that section and, therefore, treats the amounts credited from January 1, 1994, through December 31, 1999, as amounts deferred and, in accordance with a reasonable, good faith interpretation of section 3121(v)(2), takes those amounts deferred into account as wages for FICA tax purposes as of those dates. The bonus plan is set forth in writing on May 1, 1999, and, thus, is treated as established as of January 1, 1994. (ii) Under paragraph (g)(2)(ii) of this section, if an amount is deferred before January 1, 2000, and the attributable benefit is paid on or after January 1, 2000, then in no event will an employer's treatment of the amount deferred under a plan be considered to be in accordance with a reasonable, good faith interpretation of section 3121(v)(2) if the employer treats the amount deferred as taken into account as wages for FICA tax purposes prior to the establishment of the plan (within the meaning of paragraph (b)(2) of this section). Because the bonus plan is treated as established on January 1, 1994 (pursuant to the transition rule for unwritten plans in paragraph (b)(2)(iii) of this section), and because Employer O, in accordance with a reasonable, good faith interpretation of section 3121(v)(2), took amounts deferred into account in 1994 through 1999, the amounts paid to Employee C attributable to those amounts deferred will not be subject to FICA tax when paid. Example 4: (i) In 1985, Employer P establishes a compensation arrangement for Employee D that provides for a lump sum payment to be made after termination of employment but the arrangement is not a nonqualified deferred compensation plan (within the meaning of paragraph (b)(1) of this section). However, prior to January 1, 2000, and in accordance with a reasonable, good faith interpretation of section 3121(v)(2), Employer P treats the arrangement as a nonqualified deferred compensation plan under section 3121(v)(2). Employer P determines that Employee D's total wages (without regard to the amount deferred) for each year from 1985 through 1993 exceed the applicable OASDI and HI wage bases for each of those years and, consequently, there is no FICA tax liability with respect to the amounts deferred for those years. In 1994, Employee D's total wages (without regard to the amount deferred) exceed the OASDI wage base. However, because there is no limit on the HI wage base, the amount deferred for 1994 results in additional HI tax liability of $290, which is timely paid by Employer P. (ii) Employee D terminates employment with Employer P in 1995 and receives a plan payment of $50,000. In that year, Employee D also receives wages of $60,000 from Employer P. In accordance with its treatment of the plan as a nonqualified deferred compensation plan under section 3121(v)(2), Employer P does not treat the $50,000 payment in 1995 as wages for FICA tax purposes in that year. (iii) Because amounts under a plan were taken into account (within the meaning of paragraph (d)(1) of this section) as amounts deferred under a nonqualified deferred compensation plan pursuant to a reasonable, good faith interpretation of section 3121(v)(2)(A), but that plan is not a nonqualified deferred compensation plan within the meaning of paragraph (b)(1) of this section, the transition rules provided in paragraph (g)(4)(i) of this section apply. Thus, no additional FICA tax will be due on the benefits paid in 1995. (iv) Because $290 of HI tax was paid on the amount deferred in 1994, Employer P is entitled to a refund or credit for that amount to the extent permitted under sections 6402, 6413, and 6511—but only to the extent that $290 exceeds the FICA tax that would have been due on the $50,000 payment in 1995 if that payment had been subject to FICA tax when paid (i.e., if paragraphs (a) through (f) of this section had been effective for those years). In 1995, Employee D had other wages of $60,000. Thus, only $1,200 (the $61,200 OASDI wage base, less the $60,000 of other wages) of the $50,000 payment would have been subject to OASDI; the full $50,000 would have been subject to HI. This would have resulted in $148.80 of OASDI tax ($1,200 × 12.4 percent) and $1,450 of HI tax ($50,000 × 2.9 percent). Employer P is not entitled to a refund or credit under the consistency rule of paragraph (g)(3)(ii) because the $290 of HI tax paid in 1994 is less than the total $1,598.80 of FICA tax liability that would have resulted if this section had applied for 1995. (v) However, if the benefit payment is instead actually or constructively paid on or after January 1, 2000, the benefit payment must be taken into account as wages when actually or constructively paid in accordance with the general timing rule of paragraph (a)(1) of this section (and paragraph (g)(4)(i)(B) of this section). Example 5: (i) In 1985, Employer Q establishes a compensation arrangement for Employee E that is a nonqualified deferred compensation plan within the meaning of paragraph (b)(1) of this section. However, prior to January 1, 2000, Employer Q determines, based on a reasonable, good faith interpretation of section 3121(v)(2), that the arrangement is not a nonqualified deferred compensation plan within the meaning of that section. Thus, when Employee E retires at the end of 1996 and benefit payments under the arrangement begin in 1997, Employer Q withholds and deposits FICA tax on the amounts paid to Employee E. Payments under the arrangement continue on or after January 1, 2000. Employer Q does not choose (under paragraph (g)(3) of this section) to adjust its FICA tax determination for a pre-effective-date open period by treating this section as in effect for all amounts deferred and benefits actually or constructively paid for any such period. The periods in 1994 and 1995 are not pre-effective-date open periods for Employer Q. (ii) Under paragraph (g)(4)(ii) of this section, for purposes of determining whether benefits actually or constructively paid on or after January 1, 2000, were previously taken into account for purposes of applying the nonduplication rule of section 3121(v)(2)(B), any amount that would have been required to have been taken into account before 1994 will be treated as if it had been taken into account within the meaning of paragraph (d)(1) of this section. Under the nonduplication rule, benefit payments attributable to an amount that has been so treated as taken into account is not treated as wages for FICA tax purposes at any later time (such as upon payment). (iii) Because Employer Q does not adjust its FICA tax determination by treating this section as in effect for all amounts deferred for periods ending after December 31, 1993, any benefit payments attributable to amounts deferred in periods ending after December 31, 1993, will be included in wages when actually or constructively paid in accordance with the general timing rule of paragraph (a)(1) of this section. Example 6: (i) The facts are the same as in Example 5, (ii) In accordance with the nonduplication rule of paragraph (a)(2)(iii) of this section, because all amounts deferred for Employee E under the plan were taken into account (or treated as taken into account), any benefit payments made to Employee E under the plan will not be included as FICA wages when actually or constructively paid. Example 7: (i) The facts are the same as in Example 5, except that Employer Q does not withhold and deposit the FICA tax due on benefits actually or constructively paid before January 1, 2000. (ii) Because Employer Q did not withhold and deposit the FICA tax due on benefits actually or constructively paid before January 1, 2000, Employer Q did not determine FICA tax liability and satisfy FICA tax withholding requirements in accordance with a reasonable, good faith interpretation of section 3121(v)(2). Thus, the transition rules provided in paragraphs (g)(3) and (4) of this section do not apply. As a result, any amount that would have been required to have been taken into account under this section before 1994 is not treated as if it had been so taken into account under paragraph (g)(4)(ii)(D) of this section, and benefit payments attributable to amounts deferred before January 1, 2000, are treated as FICA wages when actually or constructively paid in accordance with the general timing rule of paragraph (a)(1) of this section. Example 8: (i) In 1993, Employer R establishes a nonqualified deferred compensation plan for Employee F under which Employee F will have a fully vested right to receive a lump sum payment in 2000 equal to 50 percent of Employee F's highest rate of salary. On December 31, 1993, Employee F's highest salary is $1 million. In accordance with a reasonable, good faith interpretation of section 3121(v)(2), Employer R determines that, for 1993, there is an amount deferred that must be taken into account as wages for FICA tax purposes. Based on Employer R's estimate that Employee F's highest salary will be $3 million in 2000, Employer R determines that the amount deferred is equal to the present value in 1993 of $1.5 million payable in 2000. However, because Employee F has other wages in 1993 that exceed the applicable OASDI and HI wage bases for that year, no additional FICA tax is paid as a result of that amount deferred being taken into account for 1993. In addition, Employer R takes no amounts into account under the plan after 1993 for Employee F. Under paragraphs (e)(1) and (4)(ii)(D)( 2 (ii) In accordance with paragraphs (g)(1) and (4)(iii)(A) of this section, the determination of the amount deferred under the plan for any period beginning on or after January 1, 2000, and the time when that amount deferred is required to be taken into account must be determined in accordance with this section. In addition, these determinations must be made without regard to any amount deferred that was taken into account for any period ending before January 1, 2000, that could not be taken into account before January 1, 2000, if paragraphs (a) through (f) of this section had been in effect. Because no FICA tax was actually paid on that $1 million in 1993, no overpayment of tax was caused by the overinclusion of wages in 1993 and, thus, Employer R is not entitled to a refund or credit (even assuming that the period of limitations has been kept open for periods in 1993). In addition, because the difference between the present value of the $1.5 million payment and the present value of a $500,000 payment was not taken into account for periods beginning on or after January 1, 1994, $1 million must be included in FICA wages under the general timing rule when paid. [64 FR 4547, Jan. 29, 1999; 64 FR 15687, Apr. 1, 1999] § 31.3121(v)(2)-2 Effective dates and transition rules. (a) General statutory effective date. (b) Definitions. (1) FICA. FICA et seq. (2) 457(a) plan. A 457(a) plan (3) Gap agreement. Gap agreement (4) Individual party to a gap agreement. Individual party to a gap agreement (5) Individual party to a March 24, 1983 agreement. Individual party to a March 24, 1983 agreement (6) March 24, 1983 agreement. March 24, 1983 agreement (7) Retirement payment exclusions. Retirement payment exclusions (8) Transition benefits. Transition benefits (c) Transition rules In general. (2) Transition benefits under a March 24, 1983 agreement. (3) Transition benefits under a gap agreement. (i) Take the transition benefits into account as wages when paid; or (ii) Take the amount deferred (within the meaning of § 31.3121(v)(2)-1(c)) with respect to the transition benefits into account as wages under section 3121(v)(2) (as if section 3121(v)(2) had applied before its general statutory effective date). (d) Determining transition benefit portion. 9/25 (e) Order of payment. [64 FR 4567, Jan. 29, 1999] § 31.3123-1 Deductions by an employer from remuneration of an employee. Any amount deducted by an employer from the remuneration of an employee is considered to be part of the employee's remuneration and is considered to be paid to the employee as remuneration at the time that the deduction is made. It is immaterial that any act of Congress or the law of any State requires or permits such deductions and the payment of the amount thereof to the United States, a State, or any political subdivision thereof. § 31.3127-1 Exemption for employers and their employees if both are members of religious faiths opposed to participation in Social Security Act programs. (a) Exemption Employer. (i) The employer (or if the employer is a partnership, each partner therein) and its employee are members of a recognized religious sect or division described in section 1402(g)(1); (ii) Both the employer (or if the employer is a partnership, each partner therein) and the employee adhere to the tenets and teachings of that sect; and (iii) Both the employer and the employee have filed and had approved applications under section 3127(b) for exemption from the taxes imposed by sections 3111 and 3101. (2) Employee. (b) Corporation. (c) Effective/applicability date. [T.D. 9670, 79 FR 36206, June 26, 2014] § 31.3131-1 Recapture of credits. (a) Recapture of erroneously refunded credits. (b) Advance credit amounts erroneously refunded. (c) Third party payors. (d) Applicability date. [T.D. 9978, 88 FR 48124, July 26, 2023] § 31.3132-1 Recapture of credits. (a) Recapture of erroneously refunded credits. (b) Advance credit amounts erroneously refunded. (c) Third party payors. (d) Applicability date. [T.D. 9978, 88 FR 48124, July 26, 2023] § 31.3134-1 Recapture of credits. (a) Recapture of erroneously refunded credits. (b) Advance credit amounts erroneously refunded. (c) Third party payors. (d) Applicability date. [T.D. 9978, 88 FR 48125, July 26, 2023] Subpart C—Railroad Retirement Tax Act (Chapter 22, Internal Revenue Code of 1954) Tax on Employees § 31.3201-1 Measure of employee tax. The employee tax is measured by the amount of compensation received for services rendered as an employee. For provisions relating to compensation, see § 31.3231(e)-1. For provisions relating to the circumstances under which certain compensation is to be disregarded for the purpose of determining the employee tax, see paragraphs (b)(1) and (2) of § 31.3231(e)-1. [T.D. 8582, 59 FR 66189, Dec. 23, 1994] § 31.3201-2 Rates and computation of employee tax. (a) Rates Tier 1 tax. (ii) Example. Example. A received compensation of $60,000 in 1992. The section 3101(a) rate of 6.2 percent would be applied to A A (2)(i) Tier 2 tax. (ii) Example. Example. A received compensation of $60,000 in 1992. The section 3201(b) rate of 4.90 percent would be applied to A (b)(1) Computation. (2) Example. Example. In 1990, employee A R [T.D. 8582, 59 FR 66189, Dec. 23, 1994] § 31.3202-1 Collection of, and liability for, employee tax. (a) Collection; general rule. (b) Collection; payments by two or more employers in excess of annual compensation limitation. (c) Undercollections or overcollections. (d) When fractional part of cent may be disregarded. (e) Employer's liability. (f) Concurrent employment. (g) Special rules regarding Additional Medicare Tax. Example. A, who is married and files a joint return, receives $100,000 in compensation from her employer for the calendar year. B, A's spouse, receives $300,000 in compensation from his employer for the same calendar year. A's compensation is not in excess of $200,000, so A's employer does not withhold Additional Medicare Tax. B's employer is required to collect Additional Medicare Tax only with respect to compensation it pays to B that is in excess of the $200,000 threshold (that is, $100,000) for the calendar year. (2) To the extent the employer does not collect Additional Medicare Tax imposed on the employee by section 3201(a) (as calculated under section 3101(b)(2)), the employee is liable to pay the tax. Example. C, who is married and files a joint return, receives $190,000 in compensation from her employer for the calendar year. D, C's spouse, receives $150,000 in compensation from his employer for the same calendar year. Neither C's nor D's compensation is in excess of $200,000, so neither C's nor D's employers are required to withhold Additional Medicare Tax. C and D are liable to pay Additional Medicare Tax on $90,000 ($340,000 minus the $250,000 threshold for a joint return). (3) If the employer deducts less than the correct amount of Additional Medicare Tax, or if it fails to deduct any part of Additional Medicare Tax, it is nevertheless liable for the correct amount of tax that it was required to withhold, unless and until the employee pays the tax. If an employee subsequently pays the tax that the employer failed to deduct, the tax will not be collected from the employer. The employer will not be relieved of its liability for payment of the tax required to be withheld unless it can show that the tax under section 3201(a) (as calculated under section 3101(b)(2)) has been paid. The employer, however, will remain subject to any applicable penalties or additions to tax resulting from the failure to withhold as required. (h) Effective/applicability date. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6541, 26 FR 553, Jan. 20, 1961; T.D. 6727, 29 FR 5866, May 5, 1964; T.D. 8582, 59 FR 66189, Dec. 23, 1994; T.D. 9645, 78 FR 71472, Nov. 29, 2013] Tax on Employee Representatives § 31.3211-1 Measure of employee representative tax. The employee representative tax is measured by the amount of compensation received for services rendered as an employee representative. For provisions relating to compensation, see § 31.3231(e)-1. [T.D. 8582, 59 FR 66190, Dec. 23, 1994] § 31.3211-2 Rates and computation of employee representative tax. (a) Rates Tier 1 tax. (ii) Example. Example. B, an employee representative, received compensation of $60,000 in 1992. The sections 3101(a) and 3111(a) rates of 12.4 percent (6.2 percent plus 6.2 percent) would be applied to B B (2) (i) Tier 2 tax. (ii) Example. Example. B received compensation of $60,000 in 1992. The section 3211(a)(2) rate of 14.75 percent would be applied to B (3) Supplemental Annuity Tax. (b) (1) Computation. (2) Example. Example. In 1990, employee representative B R (c) (1) Rule where compensation is received both as an employee representative and employee. (2) Example. Example. C performed services both as an employee and an employee representative in 1992. C C [T.D. 8582, 59 FR 66190, Dec. 23, 1994] § 31.3211-3 Employee representative supplemental tax. See paragraphs (a), (b), and (c) of § 31.3221-3 for rules applicable to the supplemental tax for each work-hour for which compensation is paid to an employee representative for services rendered as an employee representative. [T.D. 8525, 59 FR 9666, Mar. 1, 1994] § 31.3212-1 Determination of compensation. See § 31.3231(e)-1 for regulations applicable to compensation. Tax on Employers § 31.3221-1 Measure of employer tax. (a) General Rule (b) Payments by two or more employers in excess of annual compensation limitation. (c) Underpayments or overpayments. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6541, 26 FR 555, Jan. 20, 1961; T.D. 8582, 59 FR 66190, Dec. 23, 1994] § 31.3221-2 Rates and computation of employer tax. (a) Rates Tier 1 tax. (ii) Example. Example. R's employee, A, A A (2)(i) Tier 2 tax. (ii) Example. Example. R's employee, A, A (3) Supplemental Annuity Tax. (b)(1) Computation. (2) Example. Example. In 1990, R A R [T.D. 8582, 59 FR 66190, Dec. 23, 1994] § 31.3221-3 Supplemental tax. (a) Introduction In general. (2) Overview. work-hours. (b) Definition of work-hours In general. work-hours (i) Payments included in work-hours. (ii) Payments excluded from work-hours. compensation (2) Hourly compensation. (3) Daily, weekly, monthly compensation. (ii) The rule in paragraph (b)(3)(i) of this section is illustrated by the following examples. Example 1 A, an office worker, receives an annual salary that is paid monthly. The salary is based on an 8-hour, Monday through Friday work schedule. A A A A Example 2 B is paid a stated amount for each day B B B B B B B (4) Conversion hours (ii) The rule in paragraph (b)(4)(i) of this section is illustrated by the following example. Example. C's normal workday consists of 2 150-mile round trips that together take 6 hours. C C C (c) Calculation of work-hours (2) The rules in paragraph (c) of this section are illustrated by the following examples. Example 1. D worked 8 hours a day, Monday through Friday, during the months of February and March 1992. D D D Example 2. E worked 7-hour shifts every Tuesday through Saturday during the months of February and March 1992. E E E E E E E E E E Example 3. Employment beginning during month. F began employment on March 16, a Monday, and worked 8 hours a day, Monday through Friday. The employer calculates that F F Example 4. Employment ending during month. G's last day of employment was Friday, March 13. G G G G G (d) Safe harbor In general. (2) Method of calculation. (i) Safe harbor number defined. (ii) Employee defined. (3) Method of election. (4) Additional rules. (e) Effective dates. [T.D. 8525, 59 FR 9666, Mar. 1, 1994] § 31.3221-4 Exception from supplemental tax. (a) General rule. (b) Definition of supplemental pension plan In general. (2) Pension benefit requirement. (3) Railroad Retirement Board determination with respect to the plan. (4) Other requirements. (c) Collective bargaining agreement. (d) Substitute section 3221(d) excise tax. (e) Effective date In general. (2) Delayed effective date for collective bargaining agreement provisions. [T.D. 8832, 64 FR 42833, Aug. 6, 1999] § 31.3221-5 Recapture of credits under the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act. (a) Recapture of erroneously refunded credits under the Families First Coronavirus Response Act. (b) Recapture of erroneously refunded credits under the Coronavirus Aid, Relief, and Economic Security Act. (c) Advance credit amounts erroneously refunded. (d) Third party payors. (e) Applicability date. [T.D. 9978, 88 FR 48125, July 26, 2023] General Provisions § 31.3231(a)-1 Who are employers. (a) Each of the following persons is an employer within the meaning of the act: (1) Any carrier, that is, any express carrier, sleeping car carrier, or rail carrier providing transportation subject to subchapter I of chapter 105 of title 49; (2) Any company— (i) Which is directly or indirectly owned or controlled by one or more employers as defined in paragraph (a)(1) of this section, or under common control therewith, and (ii) Which operates any equipment or facility or performs any service (except trucking service, casual service, and the casual operation of equipment or facilities) in connection with— ( a ( b (3) Any receiver, trustee, or other individual or body, judicial or otherwise, when in the possession of the property or operating all or any part of the business of any employer as defined in paragraph (a)(1) or (2) of this section; (4) Any railroad association, traffic association, tariff bureau, demurrage bureau, weighing and inspection bureau, collection agency, and any other association, bureau, agency, or organization controlled and maintained wholly or principally by two or more employers as defined in paragraph (a)(1), (2) or (3) of this section and engaged in the performance of services in connection with or incidental to railroad transportation; (5) Any railway labor organization, national in scope, which has been or may be organized in accordance with the provisions of the Railway Labor Act; and (6) Any subordinate unit of a national railway-labor-organization employer, that is, any State or National legislative committee, general committee, insurance department, or local lodge or division, of an employer as defined in paragraph (a)(5) of this section, established pursuant to the constitution and bylaws of such employer. (b) As used in paragraph (a)(2) of this section, the term “controlled” includes direct or indirect control, whether legally enforceable and however exercisable or exercised. The control may be by means of stock ownership, or by agreements, licenses, or any other devices which insure that the operation of the company is in the interest of one or more carriers. It is the reality of the control, however, which is decisive, not its form nor the mode of its exercise. (c) As used in paragraph (a)(2) of this section, the term casual (d) The term “employer” does not include any street, interurban, or suburban electric railway, unless such railway is operating as a part of a general steam-railroad system of transportation, but shall not exclude any part of the general steam-railroad system of transportation which is operated by any other motive power. (e) The term “employer” does not include any company by reason of its being engaged in the mining of coal, the supplying of coal to an employer where delivery is not beyond the mine tipple and the operation of equipment or facilities for such mining or supplying of coal, or in any of such activities. (f) Any company that is described in paragraph (a)(2) of this section is an employer under section 3231. In certain cases, based on all the facts and circumstances, it may be appropriate to segregate those businesses engaged in rail services and therefore subject to the Railroad Retirement Tax Act from those businesses engaged exclusively in nonrail services and therefore not subject to the Railroad Retirement Tax Act. The factors considered are set forth in guidance published by the Internal Revenue Service. [T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960; T.D. 8582, 59 FR 66191, Dec. 23, 1994] § 31.3231(b)-1 Who are employees. (a) In general. (i) He is subject to the continuing authority of the employer to supervise and direct the manner in which he renders such services; or (ii) He is rendering professional or technical services and is integrated into the staff of the employer; or (iii) He is rendering, on the property used in the employer's operations, other personal services the rendition of which is integrated into the employer's operations. (2) In order that an individual may be in the service of an employer within the meaning of paragraph (a)(1)(i) of this section, it is not necessary that the employer actually direct or control the manner in which the services are rendered; it is sufficient if the employer has the right to do so. The right of an employer to discharge an individual is also an important factor indicating that the individual is subject to the continuing authority of the employer to supervise and direct the manner of rendition of the services. Other factors indicating that an individual is subject to the continuing authority of the employer to supervise and direct the manner of rendition of the services are the furnishing of tools and the furnishing of a place to work by the employer to the individual who renders the services. (3) In general, if an individual is subject to the control or direction of an employer merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result, he is an independent contractor. On individual performing services as an independent contractor is not, as to such services, in the service of an employer within the meaning of paragraph (a)(1)(i) of this section. However, an individual performing services as an independent contractor may be, as to such services, in the service of an employer within the meaning of paragraph (a)(1) (ii) or (iii) of this section. (4) Whether or not an individual is an employee will be determined upon an examination of the particular facts of the case. (5) If an individual is an employee, it is of no consequence that he is designated as a partner, coadventurer, agent, independent contractor, or otherwise, or that he performs services on a part-time basis. (6) No distinction is made between classes or grades of employees. Thus, superintendents, managers, and other supervisory personnel are employees within the meaning of the act. An officer of an employer is an employee, but a director as such is not. (7) In determining whether an individual is an employee with respect to services rendered within the United States, the citizenship or residence of the individual, or the place where the contract of service was entered into is immaterial. (8) If an individual performs services for an employer (other than a local lodge or division or a general committee of a railway-labor-organization employer) which does not conduct the principal part of its business within the United States, such individual shall be deemed to be in the service of such employer only to the extent that he performs services for it in the United States. Thus, with respect to services rendered for such employer outside the United States, such individual is not in the service of an employer. (9) If an individual performs services for an employer (other than a local lodge or division or a general committee of a railway-labor-organization employer) which conducts the principal part of its business within the United States, he is in the service of such employer whether his services are rendered within or without the United States. In the case of an individual, not a citizen or resident of the United States, rendering services in a place outside the United States to an employer which is required under the laws applicable in such place to employ, in whole or in part, citizens or residents thereof, such individual shall not be deemed to be in the service of an employer with respect to services so rendered. (10) The term “employee” does not include any individual while he is engaged in the physical operations consisting of the mining of coal, the preparation of coal, the handling (other than movement by rail with standard railroad locomotives) of coal not beyond the mine tipple, or the loading of coal at the tipple. (b) Employees of local lodges or divisions of railway-labor-organization employers. (i) All, or substantially all, the individuals constituting the membership of such local lodge or division are employees of an employer conducting the principal part of its business in the United States; or (ii) The headquarters of such local lodge or division is located in the United States. (2) (i) An individual in the service of a local lodge or division is not an employee within the meaning of the act unless he was, on or after August 29, 1935, in the service of a carrier (see § 31.3231(g) for definition of carrier) or he was, on August 29, 1935, in the “employment relation” to a carrier. (ii) An individual shall be deemed to have been in the employment relation to a carrier on August 29, 1935, if ( a b c 1 2 3 b d (c) Employees of general committees of railway-labor-organization employers. (1) He is representing a local lodge or division described in paragraph (b)(1) of this section; or (2) All, or substantially all, the individuals represented by such general committee are employees of an employer conducting the principal part of its business in the United States; or (3) He acts in the capacity of a general chairman or an assistant general chairman of a general committee which represents individuals rendering service in the United States to an employer. In such case, if his office or headquarters is not located in the United States and the individuals represented by such general committee are employees of an employer not conducting the principal part of its business in the United States, only a part of his remuneration for such service shall be regarded as compensation. The part of his remuneration regarded as compensation shall be in the same proportion to his total remuneration as the mileage in the United States under the jurisdiction of such general committee bears to the total mileage under its jurisdiction, unless such mileage formula is inapplicable, in which case such other formula as the Railroad Retirement Board may have prescribed pursuant to section 1(c) of the Railroad Retirement Act of 1937 (45 U.S.C. 228a) shall be applicable. However, no part of his remuneration for such service shall be regarded as compensation if the application of such mileage formula, or such other formula as the Railroad Retirement Board may have prescribed, would result in his compensation for the service being less than 10 percent of his remuneration for such service. § 31.3231(c)-1 Who are employee representatives. (a) An employee representative within the meaning of the act is— (1) Any officer or official representative of a railway labor organization which is not included as an employer under section 3231(a) who— (i) Was in the service of an employer either before or after June 29, 1937, and (ii) Is duly authorized and designated to represent employees in accordance with the Railway Labor Act. For railway labor organizations which are employers under section 3231(a), see paragraph (a) (5) and (6) of § 31.3231(a)-1. (2) Any individual who is regularly assigned to or regularly employed by an employee representative, as defined in paragraph (a)(1) of this section, in connection with the duties of such employee representative's office. (b) In determining whether an individual is an employee representative, his citizenship or residence is material only insofar as those factors may affect the determination of whether he was “in the service of an employer” (see paragraph (a) of § 31.3231(b)-1). § 31.3231(d)-1 Service. See § 31.3231(b)-1 for regulations relating to the term “in the service of an employer.” § 31.3231(e)-1 Compensation. (a) Definition compensation wages (2) A payment made by an employer to an individual through the employer's payroll is presumed, in the absence of evidence to the contrary, to be compensation for services rendered as an employee of the employer. Likewise, a payment made by an employee organization to an employee representative through the organization's payroll is presumed, in the absence of evidence to the contrary, to be compensation for services rendered by the employee representative as such. For rules regarding the treatment of deductions by an employer from remuneration of an employee, see § 31.3123-1. (3) The term compensation (4) Compensation includes amounts paid to an employee for loss of earnings during an identifiable period as the result of the displacement of the employee to a less remunerative position or occupation as well as pay for time lost. (5) For rules regarding the treatment of reimbursement and other expense allowance amounts, see § 31.3121(a)-3. For rules regarding the inclusion of fringe benefits in compensation, see § 31.3121(a)-1T. (6) Split-dollar life insurance arrangements. See (b) Special Rules. (2) Compensation for service as a delegate to a national or international convention of a railway-labor-organization employer is disregarded for purposes of determining the employee tax under section 3201 and the employer tax under section 3221 if the individual rendering the service has not previously rendered service, other than as a delegate, which may be included in the individual's years of service for purposes of the Railroad Retirement Act. (3) For special provisions relating to the compensation of certain general chairs or assistant general chairs of a general committee of a railway-labor-organization employer, see paragraph (c)(3) of § 31.3231(b)-1. [T.D. 8582, 59 FR 66191, Dec. 23, 1994, as amended by T.D. 9092, 68 FR 54361, Sept. 17, 2003] § 31.3231(e)-2 Contribution base. The term compensation [T.D. 8582, 59 FR 66191, Dec. 23, 1994] Subpart D—Federal Unemployment Tax Act (Chapter 23, Internal Revenue Code of 1954) § 31.3301-1 Persons liable for tax. Every person who is an employer as defined in section 3306(a) (see § 31.3306(a)-1) is liable for the tax. Even if an employer is not subject to any State unemployment compensation law, he is nevertheless liable for the tax. However, if he is subject to such a State law, he may be entitled to certain credits against the tax (see §§ 31.3302(a)1 to 31.3302(c)-1, inclusive). For provisions relating to payment of the tax, see Subpart G of the regulations in this part. § 31.3301-2 Measure of tax. The tax for any calendar year is measured by the amount of wages paid by the employer during such year with respect to employment after December 31, 1938. (See § 31.3306(b)-1, relating to wages, and §§ 31.3306(c)-1 to 31.3306(c)-3, inclusive, relating to employment.) [T.D. 6658, 28 FR 6632, June 27, 1963] § 31.3301-3 Rate and computation of tax. (a) The rates of tax with respect to wages paid in calendar years after 1954 are as follows: Percent In the calendar years 1955 to 1960, both inclusive 3 In the calendar year 1961 3.1 In the calendar year 1962 3.5 In the calendar year 1963 3.35 In the calendar year 1964 and subsequent calendar years 3.1 (b) The tax is computed by applying to the wages paid in a calendar year, with respect to employment after December 31, 1938, the rate in effect at the time the wages are paid. [T.D. 6658, 28 FR 6632, June 27, 1963] § 31.3301-4 When wages are paid. Wages are paid when actually or constructively paid. Wages are constructively paid when they are credited to the account of or set apart for an employee so that they may be drawn upon by him at any time although not then actually reduced to possession. To constitute payment in such a case the wages must be credited to or set apart for the employee without any substantial limitation or restriction as to the time or manner of payment or condition upon which payment is to be made, and must be made available to him so that they may be drawn upon at any time, and their payment brought within his own control and disposition. See § 31.6011(a)-3, relating to the return on which wages are to be reported. § 31.3302(a)-1 Credit against tax for contributions paid. (a) In general. Provided, however, (b) Limitation on the taxable year with respect to which contributions are allowable. Example 1. Under the unemployment compensation law of State X, employer M is required to report in his contribution return for the quarter ending December 31, 1955, all remuneration payable for services rendered in such quarter. A portion of such remuneration is not paid to his employees until February 1, 1956. On January 20, 1956, M pays to the State the total amount of contributions due with respect to all remuneration so required to be reported. Such contributions, including those with respect to the remuneration paid on February 1, 1956, may be included in computing the credit against the tax for the calendar year 1955. This is true even though the remuneration paid on February 1, 1956 (if it constitutes “wages”) is required to be reported in the Federal return for 1956 and not in the Federal return for 1955. Example 2. Under the unemployment compensation law of State Y, employer N is required to include in his contribution return for the quarter ending December 31, 1955, certain remuneration paid on December 30, to 1955, to an employee for services to be rendered after December 31. On January 20, 1956, N pays to the State the total amount of contributions due with respect to all remuneration required to be reported on the contribution return. Such contributions, including those with respect to the remuneration paid on December 30, 1955, may be included in computing the credit against the tax for the calendar year 1955. (c) Limitation on amount of credit allowable based on time when contributions are paid In general. (2) Amount of credit allowable when contributions are paid on or before last day for filing return. (3) Amount of credit allowable when contributions are paid after last day for filing return. Example 1. The Federal return of the M Company for the calendar year 1961 discloses total wages of $400,000. The Federal tax, imposed at the rate of 3.1 percent, is $12,400. The company is liable for total State contributions of $8,000 for 1961. The due date of the Federal return is January 31, 1962, no extension of time for filing the return having been granted. The contributions are not paid until February 1, 1962. If the contributions had been paid on or before January 31, 1962, the entire amount of $8,000 could have been credited against the tax. (Credits could not exceed 2.7 percent of the wages, or $10,800. See § 31.3302(c)-1.) Since the contributions were paid after January 31, 1962, the M Company is entitled to a credit of 90 percent of the amount which would have been allowable as credit had the contributions been paid on time (90 percent of $8,000, or $7,200), the net liability for Federal tax being $5,200 ($12,400 minus $7,200). Example 2. The facts are the same as in example 1, except that the M Company is liable for and pays total State contributions of $12,000, instead of $8,000. If the contributions had been paid on or before January 31, 1962, the amount allowable as credit would have been $10,800 (2.7 percent of wages of $400,000). Since the contributions were paid after January 31, 1962, the M Company is entitled to a credit of 90 percent of $10,800, or $9,720, the net liability for Federal tax being $2,680 ($12,400 minus $9,720). Example 3. The Federal return of the R Company for the calendar year 1961 discloses a total tax of $3,100. The company is liable for total State contributions of $2,700 for such year. The due date of the Federal return is January 31, 1962, no extension of time for filing the return having been granted. The R Company pays $1,700 of the total State contributions on or before such date, and the remaining $1,000 on February 1, 1962. If the $1,000 had been paid on or before January 31, 1962, that amount could have been credited against the tax (such amount plus the $1,700 paid on or before January 31, 1962, not exceeding the aggregate credit allowable). Since the $1,000 was paid after January 31, 1962, the R Company is entitled to a credit of 90 percent of this amount or $900, plus the credit of $1,700 allowable for the contributions paid on or before January 31, 1962. The net liability for Federal tax is thus $500 ($3,100 minus $2,600). (4) Amount of credit allowable when contributions are paid to wrong State. Example. Employee N, whose Federal return for the calendar year 1961 discloses a total tax of $3,100, employs individuals in State X and State Y during the calendar year 1961. N assumes in good faith that the services of his employees are covered by the unemployment compensation law of State Y, and pays as contributions to State Y the amount of $2,700 based upon the remuneration of the employees. All of the services were in fact covered by the unemployment compensation law of State X, and none by the law of State Y. The payment to State Y was made on January 31, 1962. When the error was discovered thereafter, N paid to State X contributions in the amount of $2,700 based upon such remuneration. Since the contributions were paid to State Y on January 31, 1962, the contributions to State X are, for purposes of the credit, deemed to have been paid on such date. N is entitled to a credit of $2,700 against the Federal tax of $3,100, the net liability for Federal tax being $400 ($3,100 minus $2,700). [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6658, 28 FR 6632, June 27, 1963] § 31.3302(a)-2 Refund of State contributions. If, subsequent to the filing of the return, a refund is made by a State to the taxpayer of any part of his contribution credited against the tax, the taxpayer is required to advise the district director of the date and amount of such refund and the reason therefor, and to pay the tax, if any, due as a result of such refund, together with interest from the date when the tax was due. § 31.3302(a)-3 Proof of credit under section 3302(a). Credit against the tax for any calendar year for contributions paid into State unemployment funds shall not be allowed unless there is submitted to the district director: (a) A certificate of the proper officer of each State (the laws of which required the contributions to be paid) showing, for the taxpayer: (1) The total amount of contributions required to be paid under the State law with respect to such calendar year (exclusive of penalties and interest) which was actually paid on or before the date the Federal return is required to be filed; and (2) The amounts and dates of such required payments (exclusive of penalties and interest) actually paid after the date the Federal return is required to be filed. (b) A statement by the taxpayer that no part of any payment made by him into a State unemployment fund for such calendar year, which is claimed as a credit against the tax, was deducted or is to be deducted from the remuneration of individuals in his employ. Such statement shall contain or be verified by a written declaration that it is made under the penalties of perjury. (c) Such other or additional proof as the Commissioner or the district director may deem necessary to establish the right to the credit provided for under section 3302(a). § 31.3302(b)-1 Additional credit against tax. (a) In general. (b) Method of computing amount of additional credit allowable with respect to a State law Certification of a State law as a whole. (i) The amount of contributions (whether or not with respect to employment as defined in section 3306(c)) which the taxpayer would have been required to pay under the State law for such year if throughout the year he had been subject to the highest rate applied under such law in such year, or to a rate of 2.7 percent, whichever rate is lower. (ii) The amount of contributions (whether or not with respect to employment as defined in section 3306 (c)) he was required to pay under the State law with respect to such year, whether or not paid. The amount computed under paragraph (b)(1)(ii) of this section should then be subtracted from the amount computed under paragraph (b)(1)(i) of this section and the result will be the additional credit for the taxable year with respect to the law of that State. Example. A employs individuals only in State X during the calendar year 1955. The unemployment compensation law of State X has been certified in its entirety to the Secretary of the Treasury by the Secretary of Labor for such year. The highest rate applied in such year under such State law to any taxpayer is 3 percent. However, A has obtained a rate of 1 percent under the law of such State and is required to pay his entire year's contribution at that rate. The amount of remuneration of A's employees subject to contributions under such State law is $25,000. A's additional credit under section 3302(b) is $425, computed as follows: Remuneration subject to contributions $25,000 Contributions at 2.7 percent rate 675 Less: Contributions required to be paid at 1 percent rate 250 Additional credit to A 425 Since the 2.7 percent rate is less than the highest rate applied (3 percent), the 2.7 percent rate is used in computing the amount ($675) from which the amount of contributions required to be paid at the 1 percent rate ($250) is deducted in order to ascertain the additional credit ($425). (2) Certification with respect to particular provisions of a State law. (c) Amount of additional credit allowable to taxpayer with respect to more than one State law. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6658, 28 FR 6632, June 27, 1963] § 31.3302(b)-2 Proof of additional credit under section 3302(b). Additional credit under section 3302(b) shall not be allowed against the tax for any calendar year unless there is submitted— (a) To the Commissioner a certificate of the proper officer of each State (with respect to the law of which the additional credit is claimed) showing the highest rate of contributions applied under the State law in such calendar year to any person having individuals in his employ; and (b) To the district director a certificate of the proper officer of each State (with respect to the law of which the additional credit is claimed) showing for the taxpayer— (1) The total remuneration with respect to which contributions were required to be paid by the taxpayer under the State law with respect to such calendar year; and (2) The rate of contributions applied to the taxpayer under the State law with respect to such calendar year. If under the law of such State different rates of contributions were applied to the taxpayer during particular periods of such calendar year, the certificate shall set forth the information called for in paragraphs (b)(1) and (2) of this section with respect to each such period. (c) Such other or additional proof as the Commissioner or the district director may deem necessary to establish the right to the additional credit provided for under section 3302(b). § 31.3302(c)-1 Limit on total credits. (a) In general. (b) Limitation on aggregate credit. (c) Reductions of amount of credit otherwise allowable Advances before September 13, 1960, under title XII of Social Security Act Credit reductions for 1961 and 1962. ( a ( b (ii) Credit reductions for 1963 and subsequent years. ( a ( b The credit reduction for a taxable year shall be a percentage of the wages paid by the taxpayer during that taxable year which are attributable to the State. The percentage for the taxable year 1963, or for any succeeding taxable year beginning before January 1, 1968, is 0.15 percent (that is, 5 percent of the Federal tax, computed as if imposed at the rate of 3 percent of the wages). The percentage for any taxable year beginning on or after January 1, 1968, is the percentage reduction for the immediately preceding taxable year plus 0.15 percent. Thus, for 1968 the percentage is 0.3 percent, for 1969 the percentage is 0.45 percent, and for 1970 the percentage is 0.6 percent. (2) Advances after September 12, 1960, under title XII of Social Security Act In general. a b c (ii) Additional reduction if a balance of advances exists after third or fourth consecutive January 1. (iii) Additional reduction if a balance of advances exists after fifth or any succeeding consecutive January 1. (3) Payments under the Temporary Unemployment Compensation Act of 1958. (i) There have been restored to the Treasury the amounts of temporary unemployment compensation paid in the State (except amounts paid to individuals who exhausted their unemployment compensation under title XV of the Social Security Act and title IV of the Veterans' Readjustment Assistance Act of 1952 prior to their making their first claims under the Temporary Unemployment Compensation Act of 1958), the amount of costs incurred in the administration of the Temporary Unemployment Compensation Act of 1958); with respect to the State, and the amount estimated by the Secretary of Labor as the State's proportionate share of other costs incurred in the administration of such Act, or (ii) The State restores to the general fund of the Treasury the amount certified by the Secretary of Labor pursuant to section 104 of the Temporary Unemployment Compensation Act of 1958, and designates such restoration as being made for purposes of the last sentence of such section. The credit reduction for a taxable year shall be a percentage of the wages paid by the taxpayer during that year which are attributable to the State. The percentage for the taxable year 1963 is 0.15 percent (that is, 5 percent of the Federal tax, computed as if imposed at the rate of 3 percent). The percentage for any succeeding year is 0.3 percent (that is, 10 percent of the Federal tax, computed as if imposed at the rate of 3 percent). (4) Example. Example. Advances to the unemployment account of State X were made in 1957 and in 1961 under title XII of the Social Security Act. Payments under the Temporary Unemployment Compensation Act of 1958 were made in State X in 1958. No portion of the advances or payments is returned before November 10, 1964. As a consequence: (a) The credit reduction applicable under subparagraph (1) of this paragraph is made for 1964 at the rate of 0.15 percent; (b) The credit reduction described in subparagraph (2) of this paragraph has been made for 1963 (the second successive year after 1961) at the rate of 0.3 percent. The rate of credit reduction under subparagraph (2) for 1964 is 1 percent (the aggregate of 0.6 percent under section 3302(c)(3)(A) and 0.4 percent (assumed for purposes of this example to be the percentage referred to in section 3302(c)(3)(B) which is certified by the Secretary of Labor), and (c) The credit reduction described in subparagraph (3) of this paragraph has been made for 1963 at the rate of 0.15 percent. The rate of credit reduction for 1964 is 0.3 percent. The cumulative rate of credit reduction applicable for 1964 to wages attributable to State X is 1.45 percent, representing the aggregate of the percentage reductions applicable under subparagraphs (1), (2), and (3) of this paragraph (0.15 percent, 1 percent, and 0.3 percent, respectively). In 1964 Employer A paid wages of $100,000, all of which are subject to the unemployment compensation law of State X. The credit which would be allowable (under section 3302 (a), (b), and (c)(1)) if there were no credit reduction is $2,700. Employer A's tax is computed as follows for 1964: Total taxable wages (attributable to State X) $100,000 Gross Federal tax (3.1 percent of wages) 3,100 Less credit: Gross credit $2,700 Credit reduction (1.45 percent of wages) 1,450 Net credit 1,250 Amount of Federal tax due 1,850 [T.D. 6658, 28 FR 6633, June 27, 1963, as amended by T.D. 6708, 29 FR 3198, Mar. 10, 1964] § 31.3302(d)-1 Definitions and special rules relating to limit on total credits. (a) Rate of tax deemed to be 3 percent. (b) Wages attributable to a particular State. (c) Employment Security Act of 1960. [T.D. 6658, 28 FR 6635, June 27, 1963] § 31.3302(e)-1 Successor employer. (a) In general. (b) Method of computing credit under section 3302(e). (2) If, during the calendar year in which the acquisition takes place, the predecessor pays remuneration, subject to contributions under the unemployment compensation law of a State, to any employee other than the individuals referred to in paragraph (a) of this section, the taxpayer will be entitled only to a portion of the amount of credit described in paragraph (b)(1) of this section. The portion is determined by multiplying such amount by a fraction. The numerator of the fraction is the total amount of remuneration, subject to such contributions, paid by the predecessor during such year to the individuals referred to in paragraph (a) of this section. The denominator of the fraction is the total amount of remuneration, subject to such contributions, paid by the predecessor during such year to all employees for services performed by them in the trade or business, or unit thereof, acquired by the taxpayer. Example. In April 1961 the X Partnership terminated after selling all of its property to the Y Corporation. During 1961, the X Partnership paid its employees and former employees a total of $1,000,000 as remuneration subject to contributions under the employment compensation law of a State. (Note that the X Partnership did not qualify as an employer for 1961 for purposes of the Federal unemployment tax, because it had employees during less than 20 weeks in 1961.) When the Y Corporation acquired the property it concurrently employed all individuals who were then in the employ of the X Partnership. Assume that the X Partnership, if it had qualified as an employer for 1961, would have been entitled to a total credit against the Federal tax of $30,000 under section 3302 (a) and (b), without regard to the limits in section 3302(c). Of the $1,000,000 remuneration paid by the X Partnership in 1961, one-fifth (or $200,000) was paid to individuals who were employed by the Y Corporation at the time it acquired the property of the X Partnership. Under section 3302(e), therefore, the Y Corporation is entitled to credit of $6,000, which is one-fifth of the credit ($30,000) which would have been available to the X Partnership. (3) The aggregate amount of credit allowable to the taxpayer under section 3302 (a), (b), and (e) is subject to the limits in section 3302(c). (c) Proof of credit under section 3302(e). (d) Cross-references. [T.D. 6658, 28 FR 6635, June 27, 1963] § 31.3306(a)-1 Who are employers. (a) Definition For calendar years 1956 through 1969, inclusive. (1a) For 1970 and subsequent calendar years. (2) For calendar year 1955. (3) General agents of the Secretary of Commerce. (b) The several weeks in each of which occurs a day on which the prescribed number of employees are employed need not be consecutive weeks. It is not necessary that the employees so employed be the same individuals; they may be different individuals on each day. Neither is it necessary that the prescribed number of employees be employed at the same moment of time or for any particular length of time or on any particular basis of compensation. It is sufficient if the total number of employees employed during the 24 hours of a calendar day is 4 or more (8 or more for the calendar year 1955). (c) In determining whether a person employs a sufficient number of employees to be an employer subject to the tax, each employee is counted with respect to services which constitute employment as defined in section 3306(c) (see § 31.3306(c)-2). No employee is counted with respect to services which do not constitute employment as so defined. See, however, paragraph (d) of this section. (d) The provisions of paragraph (c) of this section are subject to the provisions of section 3306(d), relating to services which do not constitute employment but which are deemed to be employment, and relating to services which constitute employment but which are deemed not to be employment (see § 31.3306(d)-1). For example, if the services of an employee during a pay period are deemed to be employment under section 3306(d), even though a portion thereof does not constitute employment under section 3306(c), the employee is counted with respect to all services during the pay period. On the other hand, if the services of an employee during a pay period are deemed not to be employment, even though a portion thereof constitutes employment, the employee is not counted with respect to any services during the pay period. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 7037, 35 FR 6709, Apr. 28, 1970] § 31.3306(b)-1 Wages. (a) Applicable law and regulations Remuneration paid after 1954. (2) Remuneration paid after 1939 and before 1955. (3) Remuneration paid in 1939. (b) The term “wages” means all remuneration for employment unless specifically excepted under section 3306(b) (see §§ 31.3306(b)(1)-1 to 31.3306(b)(10)-1, inclusive) or paragraph (j) of this section. (c) The name by which the remuneration for employment is designated is immaterial. Thus, salaries, fees, bonuses, and commissions are wages if paid as compensation for employment. (d) The basis upon which the remuneration is paid is immaterial in determining whether the remuneration constitutes wages. Thus, it may be paid on the basis of piecework or a percentage of profits; and it may be paid hourly, daily, weekly, monthly, or annually. (e) Except in the case of remuneration paid for services not in the course of the employer's trade or business (see § 31.3306(b)(7)-1), the medium in which the remuneration is paid is also immaterial. It may be paid in cash or in something other than cash, as for example, goods, lodging, food, or clothing. Remuneration paid in items other than cash shall be computed on the basis of the fair value of such items at the time of payments. (f) Ordinarily, facilities or privileges (such as entertainment, medical services, or so-called “courtesy” discounts on purchases), furnished or offered by an employer to his employees generally, are not considered as remuneration for employment if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, good will, contentment, or efficiency of his employees. The term “facilities or privileges”, however, does not ordinarily include the value of meals or lodging furnished, for example, to restaurant or hotel employees, or to seamen or other employees aboard vessels, since generally these items constitute an appreciable part of the total remuneration of such employees. (g) Amounts of so-called “vacation allowances” paid to an employee constitute wages. Thus, the salary of an employee on vacation, paid notwithstanding his absence from work, constitutes wages. (h) Amounts paid specifically—either as advances or reimbursements—for traveling or other bona fide ordinary and necessary expenses incurred or reasonably expected to be incurred in the business of the employer are not wages. Traveling and other reimbursed expenses must be identified either by making a separate payment or by specifically indicating the separate amounts where both wages and expense allowances are combined in a single payment. For amounts that are received by an employee on or after July 1, 1990, with respect to expenses paid or incurred on or after July 1, 1990, see § 31.3306(b)-2. (i) Remuneration paid by an employer to an individual for employment, unless such remuneration is specifically excepted under section 3306(b), constitutes wages even though at the time paid the individual is no longer an employee. Example. A is employed by B, an employer, during the month of June 1955 in employment and is entitled to receive remuneration of $100 for the services performed for B during the month. A leaves the employ of B at the close of business on June 30, 1955. On July 15, 1955 (when A is no longer an employee of B), B pays A the remuneration of $100 which was earned for the services performed in June. The $100 is wages, and the tax is payable with respect thereto. (j) In addition to the exclusions specified in §§ 31.3306(b)(1)-1 to 31.3306(b)(10)-1, inclusive, the following types of payments are excluded from wages: (1) Remuneration for services which do not constitute employment under section 3306(c). (2) Remuneration for services which are deemed not to be employment under section 3306(d) (§ 31.3306(d)-1). (3) Tips or gratuities paid directly to an employee by a customer of an employer, and not accounted for by the employee to the employer. (k) For provisions relating to the treatment of deductions from remuneration as payments of remuneration, see § 31.3307-1. (l) Split-dollar life insurance arrangements. see [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6658, 28 FR 6636, June 27, 1963; T.D. 7375, 40 FR 42350, Sept. 12, 1975; T.D. 8276, 54 FR 51028, Dec. 12, 1989; T.D. 8324, 55 FR 51697, Dec. 17, 1990; T.D. 9092, 68 FR 54361, Sept. 17, 2003] § 31.3306(b)-1T Question and answer relating to the definition of wages in section 3306(b) (Temporary). The following question and answer relates to the definition of wages in section 3306(b) of the Internal Revenue Code of 1954, as amended by section 531(d)(3) of the Tax Reform Act of 1984 (98 Stat. 885): Q-1: A-1: [T.D. 8004, 50 FR 755, Jan. 7, 1985] § 31.3306(b)-2 Reimbursement and other expense allowance amounts. (a) When excluded from wages. (b) When included in wages Accountable plans General rule. (ii) Per diem or mileage allowances. (2) Nonaccountable plans. (c) Effective dates. [T.D. 8324, 55 FR 51697, Dec. 17, 1990] § 31.3306(b)(1)-1 $3,000 limitation. (a) In general. (2) The $3,000 limitation applies only if the remuneration paid during any one calendar year by an employer to the same employee for employment performed after 1938 exceeds $3,000. The limitation in such case relates to the amount of remuneration paid during any one calendar year for employment after 1938 and not to the amount of remuneration for employment performed in any one calendar year. Example. Employer B, in 1955, pays employee A $2,500 on account of $3,000 due him for employment performed in 1955. In 1956 employer B pays employee A the balance of $500 due him for employment performed in the prior year (1955), and thereafter in 1956 also pays A $3,000 for employment performed in 1956. The $2,500 paid in 1955 is subject to tax in 1955. The balance of $500 paid in 1956 for employment during 1955 is subject to tax in 1956, as is also the first $2,500 paid of the $3,000 for employment during 1956 (this $500 for 1955 employment added to the first $2,500 paid for 1956 employment constitutes the maximum wages subject to the tax which could be paid in 1956 by B to A). The final $500 paid by B to A in 1956 is not included as wages and is not subject to the tax. (3) If during a calendar year an employee is paid remuneration by more than one employer, the limitation of wages to the first $3,000 of remuneration paid applies, not to the aggregate remuneration paid by all employers with respect to employment performed after 1938, but instead to the remuneration paid during such calendar year by each employer with respect to employment performed after 1938. In such case the first $3,000 paid during the calendar year by each employer constitutes wages and is subject to the tax. In connection with the application of the $3,000 limitation, see also paragraph (b) of this section relating to the circumstances under which wages paid by a predecessor employer are deemed to be paid by his successor. In connection with the annual wage limitation in the case of remuneration after December 31, 1978 from two or more related corporations that compensate an employee through a common paymaster, see § 31.3306(p)-1. Example 1. During 1955 employer D pays to employee C a salary of $600 a month for employment performed for D during the first seven months of 1955, or total remuneration of $4,200. At the end of the fifth month C has been paid $3,000 by employer D, and only that part of his total remuneration from D constitutes wages subject to the tax. The $600 paid to employee C by employer D in the sixth month, and the like amount paid in the seventh month, are not included as wages and are not subject to the tax. At the end of the seventh month C leaves the employ of D and enters the employ of E. Employer E pays to C remuneration of $600 a month in each of the remaining five months of 1955, or total remuneration of $3,000. The entire $3,000 paid by E to employee C constitutes wages and is subject to the tax. Thus, the first $3,000 paid by employer D and the entire $3,000 paid by employer E constitute wages. Example 2. During the calendar year 1955 F is simultaneously an officer (an employee) of the X Corporation, the Y Corporation, and the Z Corporation, each such corporation being an employer for such year. During such year F is paid a salary of $3,000 by each Corporation. Each $3,000 paid to F by each of the corporations, X, Y, and Z (whether or not such corporations are related), constitutes wages and is subject to the tax. (b) Wages paid by predecessor attributed to successor. (2) The wages paid, or considered as having been paid, by a predecessor to an employee shall, for purposes of the $3,000 limitation, be treated as having been paid to such employee by a successor, if: (i) The successor during a calendar year acquired substantially all the property used in a trade or business, or used in a separate unit of a trade or business, of the predecessor; (ii) Such employee was employed in the trade or business of the predecessor immediately prior to the acquisition and is employed by the successor in his trade or business immediately after the acquisition; and (iii) Such wages were paid during the calendar year in which the acquisition occurred and prior to such acquisition. (3) The method of acquisition by an employer of the property of another employer is immaterial. The acquisition may occur as a consequence of the incorporation of a business by a sole proprietor of a partnership, the continuance without interruption of the business of a previously existing partnership by a new partnership or by a sole proprietor, or a purchase or any other transaction whereby substantially all the property used in a trade or business, or used in a separate unit of a trade or business, of one employer is acquired by another employer. (4) Substantially all the property used in a separate unit of a trade or business may consist of substantially all the property used in the performance of an essential operation of the trade or business, or it may consist of substantially all the property used in a relatively self-sustaining entity which forms a part of the trade or business. Example 1. The M Corporation which is engaged in the manufacture of automobiles, including the manufacture of automobile engines, discontinues the manufacture of the engines and transfers all the property used in such manufacturing operations to the N Company. The N Company is considered to have acquired a separate unit of the trade or business of the M Corporation, namely, its engine manufacturing unit. Example 2. The R Corporation which is engaged in the operation of a chain of grocery stores transfers one of such stores to the S Company. The S Company is considered to have acquired a separate unit of the trade or business of the R Corporation. (5) A successor may receive credit for wages paid to an employee by a predecessor only if immediately prior to the acquisition the employee was employed by the predecessor in his trade or business which was acquired by the successor and if immediately after the acquisition such employee is employed by the successor in his trade or business (whether or not in the same trade or business in which the acquired property is used). If the acquisition involves only a separate unit of a trade or business of the predecessor, the employee need not have been employed by the predecessor in that unit provided he was employed in the trade or business of which the acquired unit was a part. Example. The Y Corporation in 1955 acquires all the property of the X Manufacturing Company and immediately after the acquisition employs in its trade or business employee A, who, immediately prior to the acquisition, was employed by the X Company. Both the Y Corporation and the X Company are employers, as defined in the Act, for the calendar year 1955. The X Company has in 1955 (the calendar year in which the acquisition occurs) and prior to the acquisition paid $2,000 of wages to A. The Y Corporation in 1955 pays to A remuneration with respect to employment of $2,000. Only $1,000 of such remuneration is considered to be wages. For purposes of the $3,000 limitation, the Y Corporation is credited with the $2,000 paid to A by the X Company. If, in the same calendar year, the property is acquired from the Y Corporation by the Z Company, an employer for such year, and A immediately after the acquisition is employed by the Z Company in its trade or business, no part of the remuneration paid to A by the Z Company in the year of the acquisition will be considered to be wages. The Z Company will be credited with the remuneration paid to A by the Y Corporation and also with the wages paid to A by the X Company (considered for purposes of the application of the $3,000 limitation as having also been paid by the Y Corporation). [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6658, 28 FR 6636, June 27, 1963; T.D. 7660, 44 FR 75142, Dec. 19, 1979] § 31.3306(b)(2)-1 Payments under employers' plans on account of retirement, sickness or accident disability, medical or hospitalization expenses, or death. (a) The term “wages” does not include the amount of any payment (including any amount paid by an employer for insurance or annuities, or into a fund, to provide for any such payment) made to, or on behalf of, an employee or any of his dependents under a plan or system established by an employer which makes provision for his employees generally (or for his employees generally and their dependents) or for a class or classes of his employees (or for a class or classes of his employees and their dependents), on account of: (1) An employee's retirement, (2) Sickness or accident disability of an employee or any of his dependents, (3) Medical or hospitalization expenses in connection with sickness or accident disability of an employee or any of his dependents, or (4) Death of an employee or any of his dependents. (b) The plan or system established by an employer need not provide for payments on account of all of the specified items, but such plan or system may provide for any one or more of such items. Payments for any one or more of such items under a plan or system established by an employer solely for the dependents of his employees are not within this exclusion from wages. (c) Dependents of an employee include the employee's husband or wife, children, and any other members of the employee's immediate family. (d) It is immaterial for purposes of this exclusion whether the amount or possibility of such benefit payments is taken into consideration in fixing the amount of an employee's remuneration or whether such payments are required, expressly or impliedly, by the contract of service. § 31.3306(b)(3)-1 Retirement payments. The term “wages” does not include any payment made by an employer to an employee (including any amount paid by an employer for insurance or annuities, or into a fund, to provide for any such payment) on account of the employee's retirement. Thus payments made to an employee on account of his retirement are excluded from wages under this exception even though not made under a plan or system. § 31.3306(b)(4)-1 Payments on account of sickness or accident disability, or medical or hospitalization expenses. The term “wages” does not include any payment made by an employer to, or on behalf of, an employee on account of the employee's sickness or accident disability or the medical or hospitalization expenses in connection with the employee's sickness or accident disability, if such payment is made after the expiration of 6 calendar months following the last calendar month in which such employee worked for such employer. Such payments are excluded from wages under this exception even though not made under a plan or system. If the employee does not actually perform services for the employer during the requisite period, the existence of the employer-employee relationship during that period is immaterial. § 31.3306(b)(5)-1 Payments from or to certain tax-exempt trusts, or under or to certain annuity plans or bond purchase plans. (a) Payments from or to certain tax-exempt trusts. (1) By an employer, on behalf of an employee or his beneficiary, into a trust, or (2) To, or on behalf of an employee or his beneficiary from a trust, if at the time of such payment the trust is exempt from tax under section 501(a) as an organization described in section 401(a). A payment made to an employee of such a trust for services rendered as an employee of the trust and not as a beneficiary thereof is not within this exclusion from wages. (b) Payments under or to certain annuity plans. (i) By an employer, on behalf of an employee or his beneficiary, into an annuity plan, or (ii) To, or on behalf of, an employee or his beneficiary under an annuity plan, if at the time of such payment the annuity plan is a plan described in section 403(a). (2) The term “wages” does not include any payment made before January 1, 1963— (i) By an employer, on behalf of an employee or his beneficiary, into an annuity plan, or (ii) To, or on behalf of, an employee or his beneficiary under an annuity plan, if at the time of such payment the annuity plan meets the requirements of section 401(a) (3), (4), (5), and (6). (c) Payments under or to certain bond purchase plans. (1) By an employer, on behalf of an employee or his beneficiary, into a bond purchase plan, or (2) To, or on behalf of, an employee or his beneficiary under a bond purchase plan, if at the time of such payment the plan is a qualified bond purchase plan described in section 405(a). [T.D. 6658, 28 FR 6636, June 27, 1963] § 31.3306(b)(6)-1 Payment by an employer of employee tax under section 3101 or employee contributions under a State law. The term “wages” does not include any payment by an employer (without deduction from the remuneration of, or other reimbursement from, the employee) of either (a) the employee tax imposed by section 3101 or the corresponding section of prior law, or (b) any payment required from an employee under a State unemployment compensation law. § 31.3306(b)(7)-1 Payments other than in cash for service not in the course of employer's trade or business. The term “wages” does not include remuneration paid in any medium other than cash for service not in the course of the employer's trade or business. Cash remuneration includes checks and other monetary media of exchange. Remuneration paid in any medium other than cash, such as lodging, food, or other goods or commodities, for service not in the course of the employer's trade or business does not constitute wages. Remuneration paid in any medium other than cash for other types of services does not come within this exclusion from wages. For provisions relating to the circumstances under which service not in the course of the employer's trade or business does not constitute employment, see § 31.3306(c)(3)-1. § 31.3306(b)(8)-1 Payments to employees for non-work periods. The term “wages” does not include any payment (other than vacation or sick pay) made by an employer to an employee after the calendar month in which the employee attains age 65, if— (a) Such employee does no work (other than being subject to call for the performance of work) for such employer in the period for which such payment is made; and (b) The employer-employee relationship exists between the employer and employee throughout the period for which such payment is made. Vacation or sick pay is not within this exclusion from wages. If the employee does any work for the employer in the period for which the payment is made, no remuneration paid by such employer to such employee with respect to such period is within this exclusion from wages. For example, if employee A, who attained the age of 65 in January 1955, is employed by the X Company on a stand-by basis and is paid $200 by the X Company for being subject to call during the month of February 1955 and an additional $25 for work performed for the X Company on one day in February 1955, then none of the $225 is excluded from wages under this exception. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6708, 29 FR 3199, Mar. 10, 1964] § 31.3306(b)(9)-1 Moving expenses. (a) The term “wages” does not include remuneration paid on or after November 1, 1964, to or on behalf of an employee, either as an advance or a reimbursement, specifically for moving expenses incurred or expected to be incurred, if (and to the extent that) at the time of payment it is reasonable to believe that a corresponding deduction is or will be allowable to the employee under section 217. The reasonable belief contemplated by the statute may be based upon any evidence reasonably sufficient to induce such belief, even though such evidence may be insufficient upon closer examination by the district director or the courts finally to establish that a deduction is allowable under section 217. The reasonable belief shall be based upon the application of section 217 and the regulations thereunder in Part 1 of this chapter (Income Tax Regulations). When used in this section, the term “moving expenses” has the same meaning as when used in section 217 and the regulations thereunder. (b) Except as otherwise provided in paragraph (a) of this section, or in a numbered paragraph of section 3306(b), amounts paid to or on behalf of an employee for moving expenses are wages for purposes of section 3306(b). [T.D. 7375, 40 FR 42351, Sept. 12, 1975] § 31.3306(b)(10)-1 Payments under certain employers' plans after retirement, disability, or death. (a) In general. (1) Death, (2) Retirement for disability, or (3) Retirement after attaining an age specified in the plan established by the employer or in a pension plan of the employer as the age at which a person in the employee's circumstances is eligible for retirement. A payment or series of payments made under the circumstances described in the preceding sentence is excluded from “wages” even if made pursuant to an incentive compensation plan which also provides for the making of other types of payments. However, any payment or series of payments which would have been paid if the employee's relationship had not been terminated is not excluded from “wages” under this section and section 3306(b)(10). For example, lump-sum payments for unused vacation time or a final paycheck received after retirement are payments which the employee would have received whether or not he retired and therefore are not excluded from “wages.” Further, if any payment is made upon or after termination of employment for any reason other than those set out in paragraphs (a)(1), (2), and (3) of this section such payment is not excludable from “wages” by this section. For example, if a pension plan provides for retirement upon disability, completion of 30 years of service, or attainment of age 65, and if an employee who is not disabled retires at age 61 after 30 years of service, none of the retirement payments made to the employee under the pension plan (including any made after he is 65) is excludable from “wages” under this section. However, if the pension plan had conditioned retirement after 30 years of service upon attainment of age 60, all of the retirement payments would have been excludable. (b) Plan. (c) Dependents. (d) Benefit payments. (e) Example. Example. A, an employee, receives a salary of $1,500 a month, payable on the 5th day of the month following the month for which the salary is earned. A's employer has established an incentive compensation plan for a class of his employees, including A, providing for the payment of deferred compensation on termination of employment, including termination upon an employee's death, retirement at age 65 (the retirement age specified in the plan), or retirement for disability. On March 1, 1973, A attains the age of 65 and retires. On March 5, 1973, A receives $5,500 from his employer of which $1,500 represents A's salary for services he performed in February 1973, and $4,000 represents incentive compensation paid under the employer's plan. The amount of $4,000 is excluded from “wages” under this section. The amount of $1,500 is not excluded from “wages” under this section. [T.D. 7374, 40 FR 30951, July 24, 1975] § 31.3306(b)(13)-1 Payments or benefits under a qualified educational assistance program. The term “wages” does not include any payment made, or benefit furnished, to or for the benefit of an employee in a taxable year beginning after December 31, 1978, if at the time of such payment or furnishing it is reasonable to believe that the employee will be able to exclude such payment or benefit from income under section 127. [T.D. 7898, 48 FR 31019, July 6, 1983] § 31.3306(c)-1 Employment; services performed before 1955. (a) Services performed after 1938 and before 1955 constitute employment under section 3306(c) if such services were employment under the law applicable to the period in which they were performed. (b) The tax applies with respect to remuneration paid by an employer after 1954 for services performed after 1938 and before 1955, as well as for services performed after 1954, to the extent that the remuneration and services constitute wages and employment. See §§ 31.3306(b)-1 to 31.3306(b)(8)-1, inclusive, relating to wages. (c) Determination of whether services performed after 1938 and before 1955 constitute employment shall be made in accordance with the provisions of law applicable to the period in which they were performed and of the regulations thereunder. The regulations applicable in determining whether services performed after 1938 and before 1955 constitute employment are as follows: (1) Services performed in 1939—26 CFR (1939) Part 400 (Regulations 90). (2) Services performed after 1939 and before 1955—26 CFR (1939) Part 403 (Regulations 107). § 31.3306(c)-2 Employment; services performed after 1954. (a) In general. (b) Services performed within the United States. (c) Services performed outside the United States In general. (2) On or in connection with an American vessel or American aircraft. ( a ( b ( c (ii) An employee performs services on and in connection with the vessel or aircraft if he performs services on the vessel or aircraft which are also in connection with the vessel or aircraft. Services performed on the vessel by employees as officers or members of the crew, or as employees of concessionaires, of the vessel, for example, are performed under such circumstances, since the services are also connected with the vessel. Similarly, services performed on the aircraft by employees as officers or members of the crew of the aircraft are performed on and in connection with such aircraft. Services may be performed on the vessel or aircraft, however, which have no connection with it, as in the case of services performed by an employee while on the vessel or aircraft merely as a passenger in the general sense. For example, the services of a buyer in the employ of a department store while he is a passenger on a vessel are not in connection with the vessel. (iii) If services are performed by an employee “on and in connection with” an American vessel or American aircraft when outside the United States and the conditions in ( b c (iv) Services performed by a member of the crew or other employee whose contract of service is not entered into within the United States, and during the performance of which and while the employee is employed on the vessel or aircraft it does not touch at a port within the United States, do not constitute employment, notwithstanding that service performed by other members of the crew or other employees on or in connection with the vessel or aircraft may constitute employment. (v) A vessel includes every description of watercraft, or other contrivance, used as a means of transportation on water. An aircraft includes every description of craft, or other contrivance, used as a means of transportation through the air. In the case of an aircraft, the term “port” means an airport. An airport means an area on land or water used regularly by aircraft for receiving or discharging passengers or cargo. For definitions of “American vessel” and “American aircraft”, see § 31.3306(m)-1. (vi) With respect to services performed outside the United States on or in connection with an American vessel or American aircraft, the citizenship or residence of the employee is immaterial, and the citizenship or residence of the employer is material only in case it has a bearing in determining whether a vessel is an American vessel. [T.D. 6658, 28 FR 6636, June 27, 1963] § 31.3306(c)-3 Employment; excepted services in general. (a) Services performed by an employee for the person employing him do not constitute employment for purposes of the tax if they are specifically excepted from employment under any of the numbered paragraphs of section 3306(c). Services so excepted do not constitute employment for purposes of the tax even though they are performed within the United States, or are performed outside the United States on or in connection with an American vessel or American aircraft. If not otherwise provided in the regulations relating to the numbered paragraphs of section 3306(c), such regulations apply with respect to services performed after 1954. (b) The exception attaches to the services performed by the employee and not to the employee as an individual; that is, the exception applies only to the services rendered by the employee in an excepted class. Example. A is an individual who is employed part time by B to perform services which constitutes “agricultural labor” (see § 31.3306 (k)-1). A is also employed by C part time to perform services as a grocery clerk in a store owned by him. While A's services which constitute “agricultural labor” are expected, the exception does not embrace the services performed by A as a grocery clerk in the employ of C and the latter services are not excepted from employment. (c) For provisions relating to the circumstances under which services which are excepted are nevertheless deemed to be employment, and relating to the circumstances under which services which are not excepted are nevertheless deemed not to be employment, see § 31.3306(d)-1. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6658, 28 FR 6637, June 27, 1963] § 31.3306(c)(1)-1 Agricultural labor. Services performed by an employee for the person employing him which constitute “agricultural labor” as defined in section 3306(k) are excepted from employment. For provisions relating to the definition of the term “agricultural labor”, see § 31.3306(k)-1. § 31.3306(c)(2)-1 Domestic service. (a) In a private home. (2) In general, services of a household nature in or about a private home include services performed by cooks, waiters, butlers, housekeepers, governesses, maids, valets, baby sitters, janitors, laundresses, furnacemen, caretakers, handymen, gardeners, footmen, grooms, and chauffeurs of automobile for family use. (b) In a local college club or local chapter of a college fraternity or sorority. (2) In general, services of a household nature in or about the club rooms or house of a local college club or local chapter of a college fraternity or sorority include services rendered by cooks, waiters, butlers, maids, janitors, laundresses, furnacemen, handymen, gardeners, housekeepers, and housemothers. (c) Services not excepted. § 31.3306(c)(3)-1 Services not in the course of employer's trade or business. (a) Services not in the course of the employer's trade or business performed by an employe for an employer in a calendar quarter are excepted from employment unless— (1) The cash remuneration paid for such services performed by the employee for the employer in the calendar quarter is $50 or more; and (2) Such employee is regularly employed in the calendar quarter by such employer to perform such services. Unless the tests set forth in both paragraphs (a)(1) and (2) of this section are met, the services are excepted from employment. (b) The term “services not in the course of the employer's trade or business” includes services that do not promote or advance the trade or business of the employer. Services performed for a corporation do not come within the exception. (c) The test relating to cash remuneration of $50 or more is based on the remuneration earned during a calendar quarter rather than on the remuneration paid in a calendar quarter. However, for purposes of determining whether the test is met, it is also required that the remuneration be paid, although it is immaterial when the remuneration is paid. Furthermore, in determining whether $50 or more has been paid for services not in the course of the employer's trade or business, only cash remuneration for such services shall be taken into account. The term “cash remuneration” includes checks and other monetary media of exchange. Remuneration paid in any other medium, such as lodging, food, or other goods or commodities, is disregarded in determining whether the cash-remuneration test is met. (d) For purposes of this exception, an individual is deemed to be regularly employed by an employer during a calendar quarter only if— (1) Such individual performs services not in the course of the employer's trade or business for such employer for some portion of the day on at least 24 days (whether or not consecutive) during such calendar quarter; or (2) Such individual was regularly employed (as determined under paragraph (d)(1) of this section) by such employer in the performance of services not in the course of the employer's trade or business during the preceding calendar quarter (including the last calendar quarter of 1954). (e) In determining whether an employee has performed services not in the course of the employer's trade or business on at least 24 days during a calendar quarter, there shall be counted as one day— (1) Any day or portion thereof on which the employee actually performs such services; and (2) Any day or portion thereof on which the employee does not perform services of the prescribed character but with respect to which cash remuneration is paid or payable to the employee for such services, such as a day on which the employee is sick or on vacation. An employee who on a particular day reports for work and, at the direction of his employer, holds himself in readiness to perform services not in the course of the employer's trade or business shall be considered to be engaged in the actual performance of such services on that day. For purposes of this exception, a day is a period of 24 hours commencing at midnight and ending at midnight. (f) For provisions relating to the exclusion from wages of remuneration paid in any medium other than cash for services not in the course of the employer's trade or business, see § 31.3306(b) (7)-1. § 31.3306(c)(4)-1 Services on or in connection with a non-American vessel or aircraft. (a) Services performed within the United States by an employee for an employer “on or in connection with” a vessel not an American vessel, or “on or in connection with” an aircraft not an American aircraft, are excepted from employment if the employee is employed by the employer “on and in connection with” the vessel or aircraft when outside the United States. (b) An employee performs services on and in connection with the vessel or aircraft if he performs services on the vessel or aircraft when outside the United States which are also in connection with the vessel or aircraft. Services performed on the vessel outside the United States by employees as officers or members of the crew, or by employees of concessionaires, of the vessel, for example, are performed under such circumstances, since such services are also connected with the vessel. Similarly, services performed on the aircraft outside the United States by employees as officers or members of the crew of the aircraft are performed on and in connection with such aircraft. Services may be performed on the vessel or aircraft, however, which have no connection with it, as in the case of services performed by an employee while on the vessel or aircraft merely as a passenger in the general sense. For example, the services of a buyer in the employ of a department store while he is a passenger on a vessel are not in connection with the vessel. (c) The expression “on or in connection with” refers not only to services performed on the vessel or aircraft but also to services connected with the vessel or aircraft which are not actually performed on it (for example, shore services performed as officers or members of the crew, or as employees of concessionaires, of the vessel). (d) The citizenship or residence of the employee and the place where the contract of service is entered into are immaterial for purposes of this exception, and the citizenship or residence of the person employing him is material only in case it has a bearing in determining whether the vessel is an American vessel. For definitions of the terms “vessel” and “aircraft”, see paragraph (c)(2)(v) of § 31.3306(c)-2. For definitions of the terms “American vessel” and “American aircraft”, see § 31.3306(m)-1. (e) Since the only services performed outside the United States which constitute employment are those described in section 3306(c) and paragraph (c) of § 31.3306(c)-2 (relating to services performed outside the United States on or in connection with an American vessel or American aircraft), services performed outside the United States on or in connection with a vessel not an American vessel, or an aircraft not an American aircraft, do not constitute employment in any event. (f) The provisions of section 3306(c) (4) and of this section, insofar as they relate to services performed on or in connection with an aircraft not an American aircraft, apply only to services performed after 1961 for which remuneration is paid after 1961. [T.D. 6658, 28 FR 6637, June 27, 1963] § 31.3306(c)(5)-1 Family employment. (a) Certain services are excepted from employment because of the existence of a family relationship between the employee and the individual employing him. The exceptions are as follows: (1) Services performed by an individual in the employ of his or her spouse; (2) Services performed by a father or mother in the employ of his or her son or daughter; and (3) Services performed by a son or daughter under the age of 21 in the employ of his or her father or mother. (b) Under paragraph (a) (1) and (2) of this section, the exception is conditioned solely upon the family relationship between the employee and the individual employing him. Under paragraph (a)(3) of this section, in addition to the family relationship, there is a further requirement that the son or daughter shall be under the age of 21, and the exception continues only during the time that such son or daughter is under the age of 21. (c) Services performed in the employ of a partnership are within the exception described in paragraph (a) of this section only if the requisite family relationship exists between the employee and each of the partners comprising the partnership. (d) Services performed in the employ of a corporation are not within the exception described in paragraph (a) of this section, except that services performed in the employ of an entity that is treated as a corporation under § 301.7701-2(c)(2)(iv)(B) of this chapter may qualify for the exception if the requirements of the exception are otherwise met. An entity that is treated as a corporation under § 301.7701-2(c)(2)(iv)(B) of this chapter is not treated as the employer for purposes of applying section 3306(c)(5) and this section. For purposes of applying section 3306(c)(5) and this section, the owner of an entity that is treated as a corporation under § 301.7701-2(c)(2)(iv)(B) of this chapter is treated as the employer. (e) Paragraphs (c) and (d) of this section apply to wages paid on or after November 1, 2011. However, taxpayers may apply paragraphs (c) and (d) of this section to wages paid on or after January 1, 2009. [T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 9554, 76 FR 67365, Nov. 1, 2011; T.D. 9670, 79 FR 36206, June 26, 2014] § 31.3306(c)(6)-1 Services in employ of United States or instrumentality thereof. (a) Services in employ of United States or wholly-owned instrumentality thereof. (b) Services in employ of instrumentality not wholly owned by United States Services performed after 1961. (2) Services performed before 1962. [T.D. 6658, 28 FR 6638, June 27, 1963] § 31.3306(c)(7)-1 Services in employ of States or their political subdivisions or instrumentalities. (a) Services performed in the employ of any State, or of any political subdivision thereof, are excepted from employment. Services performed in the employ of an instrumentality of one or more States or political subdivisions thereof are excepted if the instrumentality is wholly owned by one or more of the foregoing. Services performed in the employ of an instrumentality of one or more of the several States or political subdivisions thereof which is not wholly owned by one or more of the foregoing are excepted only to the extent that the instrumentality is with respect to such services immune under the Constitution of the United States from the tax imposed by section 3301. (b) For provisions relating to the term “State” see § 31.3306(j)-1. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6658, 28 FR 6638, June 27, 1963] § 31.3306(c)(8)-1 Services in employ of religious, charitable, educational, or certain other organizations exempt from income tax. (a) Services performed after 1961. (b) Services performed before 1962. (2) Any organization which is an organization of a type described in section 501(c)(3) and which— (i) Is exempt from income tax under section 501(a), or (ii) Has been denied exemption from income tax under section 501(a) by reason of the provisions of section 503 or 504, relating to prohibited transactions and to accumulations out of income, respectively, is an organization of a type described in section 3306(c)(8) as in effect before 1962. An organization which would be an organization of a type described in section 501(c)(3) except for those provisions of section 501(c)(3) which are not contained in section 3306(c)(8) as in effect before 1962 (provisions relating to participation or intervention in a political campaign on behalf of a candidate for public office) is also an organization of a type described in section 3306(c)(8) as in effect before 1962. [T.D. 6658, 28 FR 6638, June 27, 1963] § 31.3306(c)(9)-1 Railroad industry; services performed by an employee or an employee representative under the Railroad Unemployment Insurance Act. (a) Services performed by an individual as an “employee” or as an “employee representative”, as those terms are defined in section 1 of the Railroad Unemployment Insurance Act, as amended, are excepted from employment. (b) Section 1 of the Railroad Unemployment Insurance Act (45 U.S.C. 351), as amended, provides, in part, as follows: For the purposes of this Act, except when used in amending the provisions of other Acts— (a) The term “employer” means any carrier (as defined in subsection (b) of this section), and any company which is directly or indirectly owned or controlled by one or more such carriers or under common control therewith, and which operates any equipment or facility or performs any service (except trucking service, casual service, and the casual operation of equipment or facilities) in connection with the transportation of passengers or property by railroad, or the receipt, delivery elevation, transfer in transit, refrigeration or icing, storage, or handling of property transported by railroad, and any receiver, trustee, or other individual or body, judicial or otherwise, when in the possession of the property or operating all or any part of the business of any such employer: Provided, however, (b) The term “carrier” means an express company, sleeping-car company, or carrier by railroad, subject to part I of the Interstate Commerce Act. (c) The term “company” includes corporations, associations, and joint-stock companies. (d) The term “employee” (except when used in phrases establishing a different meaning) means any individual who is or has been (i) in the service of one or more employers for compensation, or (ii) an employee representative. The term “employee” shall include an employee of a local lodge or division defined as an employer in section 1 (a) only if he was in the service of a carrier on or after August 29, 1935. The term “employee” includes an officer of an employer. The term “employee” shall not include any individual while such individual is engaged in the physical operations consisting of the mining of coal, the preparation of coal, the handling (other than movement by rail with standard railroad locomotives) of coal not beyond the mine tipple, or the loading of coal at the tipple. (e) An individual is in the service of an employer whether his service is rendered within or without the United States if (i) he is subject to the continuing authority of the employer to supervise and direct the manner of rendition of his service, or he is rendering professional or technical services and is integrated into the staff of the employer, or he is rendering, on the property used in the employer's operations, other personal services the rendition of which is integrated into the employer's operations, and (ii) he renders such service for compensation: Provided, however, Provided further, (f) The term “employee representative” means any officer or official representative of a railway labor organization other than a labor organization included in the term employer as defined in section 1(a) who before or after August 29, 1935, was in the service of an employer as defined in section 1(a) and who is duly authorized and designated to represent employees in accordance with the Railway Labor Act, and any individual who is regularly assigned to or regularly employed by such officer or official representative in connection with the duties of his office. (i) The term “compensation” means any form of money remuneration, including pay for time lost but excluding tips, paid for services rendered as an employee to one or more employers, or as an employee representative: Provided, however, (r) The term “Board” means the Railroad Retirement Board. (s) The term “United States”, when used in a geographical sense, means the States, Alaska, Hawaii, and the District of Columbia. (Sec. 1, Railroad Unemployment Insurance Act, as amended by secs. 1 and 2, Act of June 20, 1939, 53 Stat. 845; secs. 1 and 3, Act of Aug. 13, 1940, 54 Stat. 785, 786; sec. 15, Act of Apr. 8, 1942, 56 Stat. 210; secs. 1 and 2, Act of July 31, 1946, 60 Stat. 722; sec. 302, Act of Aug. 31, 1954, 68 Stat. 1040; sec. 301, Act of May 19, 1959, Pub. L. 86-28, 73 Stat. 30) [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6658, 28 FR 6638, June 27, 1963] § 31.3306(c)(10)-1 Services in the employ of certain organizations exempt from income tax. (a) In general. (2) See also § 31.3306(c)(8)-1 for provisions relating to the exception of services performed in the employ of religious, charitable, educational, or certain other organizations exempt from income tax; § 31.3306(c)(10)-2 for provisions relating to the exception of services performed by certain students in the employ of a school, college, or university; and § 31.3306(c)(10)-3 for provisions relating to the exception of services performed before 1962 in the employ of certain employees' beneficiary associations. (b) Remuneration less than $50 for calendar quarter. Example 1. X is a local lodge of a fraternal organization and is exempt from income tax under section 501(a) as an organization of the character described in section 501 (c)(8). X has a number of paid employees, among them being A who serves exclusively as recording secretary for the lodge, and B who performs services for the lodge as janitor of its clubhouse. For services performed during the first calendar quarter of 1955 (that is, January 1, 1955, through March 31, 1955, both dates inclusive) A earns a total of $30. For services performed during the same calendar quarter B earns $180. Since the remuneration for the services performed by A during such quarter is less than $50, all of such services are excepted. Thus, A is not counted as an employee in employment on any of the days during such quarter for purposes of determining whether the X organization is an employer (see § 31.3306(a)-1). Even though it is subsequently determined that X is an employer, A's remuneration of $30 for services performed during the first calendar quarter of such year is not subject to tax. B's services, however, are not excepted during such quarter since the remuneration therefor is not less than $50. Thus, B is counted as an employee in employment during all of such quarter for purposes of determining whether the X organization is an employer. If it is determined that the X organization is an employer, B's remuneration of $180 for services performed during the first calendar quarter is included in computing the tax. Example 2. The facts are the same as in example 1, above, except that on April 1, 1955, A's salary is increased and, for services performed during the calendar quarter beginning on that date (that is, April 1, 1955, through June 30, 1955, both dates inclusive), A earns $60. Although all of the services performed by A during the first quarter were excepted, none of A's services performed during the second quarter are excepted since the remuneration for such services is not less than $50. A, therefore, is counted as an employee in employment during all of the second quarter for the purpose of determining whether the X organization is an employer. If it is determined that the X organization is an employer, A's remuneration of $60 for services performed during the second calendar quarter is included in computing the tax. Example 3. The facts are the same as in example 1, above, except that A earns $120 for services performed during the year 1955, and such amount is paid to him in a lump sum at the end of the year. The services performed by A in any calendar quarter during the year are excepted if the portion of the $120 attributable to services performed in that quarter is less than $50. In such case, A is not counted as an employee in employment on any of the days during such quarter for purposes of determining whether the X organization is an employer. If, however, the portion of the $120 attributable to services performed in any calendar quarter during the year is not less than $50, the services during that quarter are not excepted. In the latter case, A is counted as an employee in employment during all of such quarter and, if it is determined that the X organization is an employer, that portion of the $120 attributable to services performed in such quarter is included in computing the tax. (c) Collection of dues or premiums for fraternal beneficiary societies, and ritualistic services in connection with such societies, before 1962. (1) Services performed away from the home office of such a society, order, or association in connection with the collection of dues or premiums for such society, order, or association; and (2) Ritualistic services (wherever performed) in connection with such a society, order, or association. For purposes of the paragraph the amount of the remuneration for services performed by the employee in the calendar quarter is immaterial; the tests are the character of the organization in whose employ the services are performed, the type of services, and, in the case of collection of dues or premiums, the place where the services are performed. (d) Students employed before 1962. (2) The term “school, college, or university” as used in this paragraph is to be taken in its commonly or generally accepted sense. For provisions relating to services performed before 1962 by a student enrolled and regularly attending classes at a school, college, or university not exempt from income tax in the employ of such school, college, or university, see paragraph (b) of § 31.3306(c)(10)-2. For provisions relating to services performed after 1961 by a student enrolled and regularly attending classes at a school, college, or university in the employ of such school, college, or university, see paragraph (a) or § 31.3306(c)(10)-2. (e) Services performed before 1962 in employ of agricultural or horticultural organization exempt from income tax. (2) For purposes of this paragraph, the type of services performed by the employee, the amount of remuneration for the services, and the place where the services are performed are immaterial; the test is the character of the organization in whose employ the services are performed. [T.D. 6658, 28 FR 6639, June 27, 1963] § 31.3306(c)(10)-2 Services of student in employ of school, college, or university. (a) Services performed after 1961. (b) Services performed before 1962. (c) General rule. (2) School, college, or university. school, college, or university (d) Student Status general rule. (1) Enrolled and regularly attending classes. (2) Course of study. (3) Incident to and for the purpose of pursuing a course of study. General rule. (ii) Student status determined with respect to each academic term. (iii) Full-time employee. (iv) Evaluating educational aspect. (v) Evaluating service aspect. (A) Normal work schedule and hours worked. (B) Professional employee. 1 ( i ( ii ( iii ( 2 Licensed, professional employee. (C) Employment Benefits. (e) Effective date. [T.D. 6658, 28 FR 6640, June 27, 1963, as amended by T.D. 9167, 69 FR 76410, Dec. 21, 2004] § 31.3306(c)(10)-3 Services before 1962 in employ of certain employees' beneficiary associations. (a) Voluntary employees' beneficiary associations. (1) No part of its net earnings inures (other than through such payments) to the benefit of any private shareholder or individual, (2) 85 percent or more of the income consists of amounts collected from members for the sole purpose of making such payments and meeting expenses, and (3) The services are performed before 1962, or remuneration for the services is paid before 1962. (b) Federal employees' beneficiary associations. (1) Admission to membership in the association is limited to individuals who are officers or employees of the United States Government, (2) No part of the net earnings of the association inures (other than through such payments) to the benefit of any private shareholder or individual, and (3) The services are performed before 1962, or remuneration for the services is paid before 1962. (c) Application of tests. [T.D. 6658, 28 FR 6640, June 27, 1963] § 31.3306(c)(11)-1 Services in employ of foreign government. (a) Services performed by an employee in the employ of a foreign government are excepted from employment. The exception includes not only services performed by ambassadors, ministers, and other diplomatic officers and employees but also services performed as a consular or other officer or employee of a foreign government, or as a nondiplomatic representative thereof. (b) For purposes of this exception, the citizenship or residence of the employee is immaterial. It is also immaterial whether the foreign government grants an equivalent exemption with respect to similar services performed in the foreign country by citizens of the United States. § 31.3306(c)(12)-1 Services in employ of wholly owned instrumentality of foreign government. (a) Services performed by an employee in the employ of certain instrumentalities of a foreign government are excepted from employment. The exception includes all services performed in the employ of an instrumentality of the government of a foreign country, if— (1) The instrumentality is wholly owned by the foreign government; (2) The services are of a character similar to those performed in foreign countries by employees of the United States Government or of an instrumentality thereof; and (3) The Secretary of State certifies to the Secretary of the Treasury that the foreign government, with respect to whose instrumentality exemption is claimed, grants an equivalent exemption with respect to services performed in the foreign country by employees of the United States Government and of instrumentalities thereof. (b) For purposes of this exception, the citizenship or residence of the employee is immaterial. § 31.3306(c)(13)-1 Services of student nurse or hospital intern. (a) Services performed as a student nurse in the employ of a hospital or a nurses' training school are excepted from employment, if the student nurse is enrolled and regularly attending classes in a nurses' training school and such nurses' training school is chartered or approved pursuant to State law. (b) Services performed as an intern (as distinguished from a resident doctor) in the employ of a hospital are excepted from employment, if the intern has completed a 4 years' course in a medical school chartered or approved pursuant to State law. § 31.3306(c)(14)-1 Services of insurance agent or solicitor. (a) Services performed for a person by an employee as an insurance agent or insurance solicitor are excepted from employment, if all such services performed for such person by such individual are performed for remuneration solely by way of commission. (b) If all or any part of the remuneration of an employee for services performed as an insurance agent or insurance solicitor for a person is a salary, none of his services performed as an insurance agent or insurance solicitor for such person are excepted from employment, and his total remuneration (for example, salary, or salary and commissions) for such services is included for purposes of computing the tax. § 31.3306(c)(15)-1 Services in delivery or distribution of newspapers, shopping news, or magazines. (a) Services of individuals under age 18. (b) Services of individuals of any age. § 31.3306(c)(16)-1 Services in employ of international organization. (a) Subject to the provisions of section 1 of the International Organizations Immunities Act (22 U.S.C. 228), services performed in the employ of an international organization as defined in section 7701(a)(18) are excepted from employment. (b) (1) Section 701(a)(18) provides as follows: Sec. 7701. Definitions. (18) International organization. (2) Section 1 of the International Organizations Immunities Act provides as follows: Sec. 1. International Organizations Immunities Act. § 31.3306(c)(17)-1 Fishing services. (a) In general. (b) Salmon and halibut fishing. (c) Vessels of more than 10 net tons. § 31.3306(c)(18)-1 Services of certain nonresident aliens. (a) (1) Services performed after 1961 by a nonresident alien individual who is temporarily present in the United States as a nonimmigrant under subparagraph (F) or (J) of section 101(a) (15) of the Immigration and Nationality Act (8 U.S.C. 1101), as amended, are excepted from employment if the services are performed to carry out a purpose for which the individual was admitted. For purposes of this section an alien individual who is temporarily present in the United States as a nonimmigrant under such subparagraph (F) or (J) is deemed to be a nonresident alien individual. The preceding sentence does not apply to the extent it is inconsistent with section 7701(b) and the regulations under that section. A nonresident alien individual who is temporarily present in the United States as a nonimmigrant under such subparagraph (J) includes an alien individual admitted to the United States as an “exchange visitor” under section 201 of the United States Information and Educational Exchange Act of 1948 (22 U.S.C. 1446). (2) If services are performed by a nonresident alien individual's alien spouse or minor child, who is temporarily present in the United States as a nonimmigrant under subparagraph (F) or (J) of section 101(a)(15) of the Immigration and Nationality Act, as amended, the services are not deemed for purposes of this section to be performed to carry out a purpose for which such individual was admitted. The services of such spouse or child are excepted from employment under this section only if the spouse or child was admitted for a purpose specified in such subparagraph (F) or (J) and if the services are performed to carry out such purpose. (b) Section 101 of the Immigration and Nationality Act (8 U.S.C. 1101), as amended, provides, in part, as follows: Sec. 101. Definitions. (a) As used in this chapter—* * * (15) The term immigrant (F) (i) An alien having a residence in a foreign country which he has no intention of abandoning, who is a bona fide student qualified to pursue a full course of study and who seeks to enter the United States temporarily and solely for the purpose of pursuing such a course of study at an established institution of learning or other recognized place of study in the United States, particularly designated by him and approved by the Attorney General after consultation with the Office of Education of the United States, which institution or place of study shall have agreed to report to the Attorney General the termination of attendance of each nonimmigrant student, and if any such institution of learning or place of study fails to make reports promptly the approval shall be withdrawn, and (ii) the alien spouse and minor children of any such alien if accompanying him or following to join him; (J) An alien having a residence in a foreign country which he has no intention of abandoning who is a bona fide student, scholar, trainee, teacher, professor, research assistant, specialist, or leader in a field of specialized knowledge or skill, or other person of similar description, who is coming temporarily to the United States as a participant in a program designated by the Secretary of State, for the purpose of teaching, instructing or lecturing, studying, observing, conducting research, consulting, demonstrating special skills, or receiving training, and the alien spouse and minor children of any such alien if accompanying him or following to join him. (Sec. 101, Immigration and Nationality Act, as amended by sec. 101, Act of June 27, 1952, 66 Stat. 166; sec. 109, Act of Sept. 21, 1961, 75 Stat. 534) [T.D. 6658, 28 FR 6640, June 27, 1963, as amended by T.D. 8411, 57 FR 15241, Apr. 27, 1992] § 31.3306(d)-1 Included and excluded service. (a) If a portion of the services performed by an employee for the person employing him during a pay period constitutes employment, and the remainder does not constitute employment, all the services of the employee during the period shall for purposes of the tax be treated alike, that is, either all as included or all as excluded. The time during which the employee performs services which under section 3306(c) constitute employment, and the time during which he performs services which under such section do not constitute employment, within the pay period, determine whether all the services during the pay period shall be deemed to be included or excluded. (b) If one-half or more of the employee's time in the employ of a particular person in a pay period is spent in performing services which constitute employment, then all the services of that employee for that person in that pay period shall be deemed to be employment. (c) If less than one-half of the employee's time in the employ of a particular person in a pay period is spent in performing services which constitute employment, then none of the services of that employee for that person in that pay period shall be deemed to be employment. (d) The application of the provisions of paragraphs (a), (b), and (c) of this section may be illustrated by the following examples: Example 1. Employer B, who operates a farm and a store, employs A to perform services in connection with both operations. A's services on the farm are such that they are excepted as agricultural labor and do not constitute employment, and his services in the store constitute employment. He is paid at the end of each month. During a particular month A works 120 hours on the farm and 80 hours in the store. None of A's services during the month are deemed to be employment, since less than one-half of his services during the month constitutes employment. During another month A works 75 hours on the farm and 120 hours in the store. All of A's services during the month are deemed to be employment, since one-half or more of his services during the month constitutes employment. Example 2. Employee C is employed as a maid by D, a medical doctor, whose home and office are located in the same building. C's services in the home are excepted as domestic service and do not constitute employment, and her services in the office constitute employment. She is paid each week. During a particular week C works 20 hours in the home and 20 hours in the office. All of C's services during that week are deemed to be employment, since one-half or more of her services during the week constitutes employment. During another week C works 22 hours in the home and 15 hours in the office. None of C's services during that week are deemed to be employment, since less than one-half of her services during the week constitutes employment. (e) For purposes of this section, a “pay period” is the period (of not more than 31 consecutive calendar days) for which a payment of remuneration is ordinarily made to the employee by the person employing him. Thus, if the periods for which payments of remuneration are made to the employee by such person are of uniform duration, each such period constitutes a “pay period”. If, however, the periods occasionally vary in duration, the “pay period” is the period for which a payment of remuneration is ordinarily made to the employee by such person, even though that period does not coincide with the actual period for which a particular payment of remuneration is made. For example, if a person ordinarily pays a particular employee for each calendar week at the end of the week, but the employee receives a payment in the middle of the week for the portion of the week already elapsed and receives the remainder at the end of the week, the “pay period” is still the calendar week; or if, instead, that employee is sent on a trip by such person and receives at the end of the third week a single remuneration payment for 3 weeks' services, the “pay period” is still the calendar week. (f) If there is only one period (and such period does not exceed 31 consecutive calendar days) for which a payment of remuneration is made to the employee by the person employing him, such period is deemed to be a “pay period” for purposes of this section. (g) The rules set forth in this section do not apply (1) with respect to any services performed by the employee for the person employing him if the periods for which such person makes payments of remuneration to the employee vary to the extent that there is no period “for which a payment of remuneration is ordinarily made to the employee,” or (2) with respect to any services performed by the employee for the person employing him if the period for which a payment of remuneration is ordinarily made to the employee by such person exceeds 31 consecutive calendar days, or (3) with respect to any service performed by the employee for the person employing him during a pay period if any of such service is excepted by section 3306(c) (9) (see § 31.3306(c) (9)-1). (h) If during any period for which a person makes a payment of remuneration to an employee only a portion of the employee's services constitutes employment, but the rules prescribed in this section are not applicable, the tax attaches with respect to such services as constitute employment as defined in section 3306(c) (provided such person is an employer as defined in section 3306(a) and § 31.3306(a)-1). § 31.3306(i)-1 Who are employees. (a) Every individual is an employee if the relationship between him and the person for whom he performs services is the legal relationship of employer and employee. (The word “employer” as used in this section only, notwithstanding the provisions of § 31.3306(a)-1, includes a person who employs one or more employees.) (b) Generally such relationship exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is an employer. Other factors characteristic of an employer, but not necessarily present in every case, are the furnishing of tools and the furnishing of a place to work, to the individual who performs the services. In general, if an individual is subject to the control or direction of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result, he is an independent contractor. An individual performing services as an independent contractor is not as to such services an employee. Individuals such as physicians, lawyers, dentists, veterinarians, construction contractors, public stenographers, and auctioneers, engaged in the pursuit of an independent trade, business, or profession, in which they offer their services to the public, are independent contractors and not employees. (c) Whether the relationship of employer and employee exists will in doubtful cases be determined upon an examination of the particular facts of each case. (d) If the relationship of employer and employee exists, the designation or description of the relationship by the parties as anything other than that of employer and employee is immaterial. Thus, if such relationship exists, it is of no consequence that the employee is designated as a partner, coadventurer, agent, independent contractor, or the like. (e) All classes or grades of employees are included within the relationship of employer and employee. Thus, superintendents, managers, and other supervisory personnel are employees. Generally, an officer of a corporation is an employee of the corporation. However, an officer of a corporation who as such does not perform any services or performs only minor services and who neither receives nor is entitled to receive, directly or indirectly, any remuneration is considered not to be an employee of the corporation. A director of a corporation in his capacity as such is not an employee of the corporation. (f) Although an individual may be an employee under this section, his services may be of such a nature, or performed under such circumstances, as not to constitute employment (see § 31.3306(c)-2). § 31.3306(j)-1 State, United States, and citizen. (a) When used in the regulations in this subpart, the term “State” includes the District of Columbia, the Territories of Alaska and Hawaii before their admission as States, and (when used with respect to remuneration paid after 1960 for services performed after 1960) the Commonwealth of Puerto Rico. (b) When used in the regulations in this subpart, the term “United States”, when used in a geographical sense, means the several States (including the Territories of Alaska and Hawaii before their admission as States), and the District of Columbia. When used in the regulations in this subpart with respect to remuneration paid after 1960 for services performed after 1960, the term “United States” also includes the Commonwealth of Puerto Rico when the term is used in a geographical sense, and the term “citizen of the United States” includes a citizen of the Commonwealth of Puerto Rico. [T.D. 6658, 28 FR 6641, June 27, 1963] § 31.3306(k)-1 Agricultural labor. (a) In general. (2) The term “farm” as used in this subpart includes stock, dairy, poultry, fruit, fur-bearing animal, and truck farms, plantations, ranches, nurseries, ranges, orchards, and such greenhouses and other similar structures as are used primarily for the raising of agricultural or horticultural commodities. Greenhouses and other similar structures used primarily for other purposes (for example, display, storage, and fabrication of wreaths, corsages, and bouquets) do not constitute “farms”. (b) Services described in section 3306(k)(1). (1) The cultivation of the soil; (2) The raising, shearing, feeding, caring for, training, or management of livestock, bees, poultry, fur-bearing animals, or wildlife; or (3) The raising or harvesting of any other agricultural or horticultural commodity. (c) Services described in section 3306(k)(2). (i) Services performed in connection with the operation, management, conservation, improvement, or maintenance of any such farms or its tools or equipment; or (ii) Services performed in salvaging timber, or clearing land of brush and other debris, left by a hurricane. (2) The services described in paragraph (c)(1)(i) of this section may include, for example, services performed by carpenters, painters, mechanics, farm supervisors, irrigation engineers, bookkeepers, and other skilled or semiskilled workers, which contribute in any way to the conduct of the farm or farms, as such, operated by the person employing them, as distinguished from any other enterprise in which such person may be engaged. (3) Since the services described in this paragraph must be performed in the employ of the owner or tenant or other operator of the farm, services performed by employees of a commercial painting concern, for example, which contracts with a farmer to renovate his farm properties, do not constitute agricultural labor. (d) Services described in section 3306(k)(3). (1) The ginning of cotton; (2) The hatching of poultry; (3) The raising or harvesting of mushrooms; (4) The operation or maintenance of ditches, canals, reservoirs, or waterways used exclusively for supplying or storing water for farming purposes; (5) The production or harvesting of maple sap or the processing of maple sap into maple sirup or maple sugar (but not the subsequent blending or other processing of such sirup or sugar with other products); or (6) The production or harvesting of crude gum (oleoresin) from a living tree or the processing of such crude gum into gum spirits of turpentine and gum rosin provided such processing is carried on by the original producer of such crude gum. (e) Services described in section 3306(k)(4). (ii) Generally services are performed “as an incident to ordinary farming operations” within the meaning of this paragraph if they are services of the character ordinarily performed by the employees of a farmer or of a farmers' cooperative organization or group as a prerequisite to the marketing, in its unmanufactured state, of any agricultural or horticultural commodity produced by such farmer or by the members of such farmers' organization or group. Services performed by employees of such farmer or farmers' organization or group in the handling, planting, drying, packing, packaging, processing, freezing, grading, storing, or delivering to storage or to market or to a carrier for transportation to market, of commodities produced by persons other than such farmer or members of such farmers' organization or group are not performed “as an incident to ordinary farming operations”. (2) Services performed by an employee in the employ of any person in the handling, planting, drying, packing, packaging, processing, freezing, grading, storing, or delivering to storage or to market or to a carrier for transportation to market, of fruits and vegetables, whether or not of a perishable nature, constitute agricultural labor, if such services are performed as an incident to the preparation of such fruits and vegetables for market. For example, if services in the sorting, grading, or storing of fruits, or in the cleaning of beans, are performed as an incident to their preparation for market, such services may constitute agricultural labor, whether performed in the employ of a farmer, a farmers' cooperative, or a commercial handler of such commodities. (3) The services described in paragraphs (e)(1) and (2) of this section do not include services performed in connection with commercial canning or commercial freezing or in connection with any commodity after its delivery to a terminal market for distribution for consumption. Moreover, since the services described in such subparagraphs must be rendered in the actual handling, planting, drying, packing, packaging, processing, freezing, grading, storing, or delivering to storage or to market or to a carrier for transportation to market, of the commodity, such services do not, for example, include services performed as stenographers, bookkeepers, clerks, and other office employees, even though such services may be in connection with such activities. However, to the extent that the services of such individuals are performed in the employ of the owner or tenant or other operator of a farm and are rendered in major part on a farm, they may be within the provisions of paragraph (c) of this section. § 31.3306(m)-1 American vessel and aircraft. (a) The term “American vessel” means any vessel which is documented (that is, registered, enrolled, or licensed) or numbered in conformity with the laws of the United States. It also includes any vessel which is neither documented nor numbered under the laws of the United States, nor documented under the laws of any foreign country, if the crew of such vessel is employed solely by one or more citizens or residents of the United States or corporations organized under the laws of the United States or of any State. (For provisions relating to the terms “State” and “citizen”, see § 31.3306(j)-1.) (b) The term “American aircraft” means any aircraft registered under the laws of the United States. (c) For provisions relating to services performed outside the United States on or in connection with an American vessel or American aircraft, see paragraph (c) of § 31.3306(c)-2. [T.D. 6658, 28 FR 6641, June 27, 1963] § 31.3306(n)-1 Services on American vessel whose business is conducted by general agent of Secretary of Commerce. (a) Section 3306(n) and this section of the regulations apply with respect only to services performed by an officer or member of the crew of an American vessel (1) which is owned by or bareboat chartered to the United States, and (2) whose business is conducted by a general agent of the Secretary of Commerce. Whether services performed by such an officer or member of a crew under the above conditions constitute employment is determined under section 3306(c) and (n), but without regard to section 3306(c)(6). See § 31.3306(c)(6)-1, relating to services performed in the employ of the United States and instrumentalities thereof. If, without regard to section 3306(c)(6), such services constitute employment, they are not excepted from employment by reason of the fact that they are performed on or in connection with an American vessel which is owned by or bareboat chartered to the United States and whose business is conducted by a general agent of the Secretary of Commerce, that is, such services are not excepted from employment by section 3306(c)(6). For provisions relating to services performed within the United States and services performed outside the United States which constitute employment, see § 31.3306(c)-2. (b) The expression “officer or member of the crew” includes the master or officer in charge of the vessel, however designated, and every individual, subject to his authority, serving on board and contributing in any way to the operation and welfare of the vessel. Thus, the expression includes, for example, the master, mates, pilots, pursers, surgeons, stewards, engineers, firemen, cooks, clerks, carpenters, and deck hands. (c) An employee of the United States who performs services as an officer or member of the crew of an American vessel which is owned by or bareboat chartered to the United States and whose business is conducted by a general agent of the Secretary of Commerce shall be deemed, under section 3306(n), to be performing services for such general agent rather than for the United States. Any such general agent of the Secretary of Commerce is considered a legal entity in his capacity as such general agent, separate and distinct from his identity as a person employing individuals on his own account. Each such general agent who in his capacity as such qualifies as an employer under section 3306(a) is with respect to each calendar year for which he so qualifies subject to the tax imposed by section 3301, and to all the requirements imposed upon an employer as defined in section 3306(a) by the regulations in this part, with respect to services which constitute employment by reason of section 3306(n) and this section of the regulations. § 31.3306(p)-1 Employees of related corporations. (a) In general. (b) Allocation of credit for contributions to State unemployment funds. (c) Effective date. [T.D. 7660, 44 FR 75142, Dec. 19, 1979] § 31.3306(r)(2)-1 Treatment of amounts deferred under certain nonqualified deferred compensation plans. (a) In general. et seq. (b) Effective dates and transition rules. (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”. [64 FR 4541, Jan. 29, 1999] § 31.3307-1 Deductions by an employer from remuneration of an employee. Any amount deducted by an employer from the remuneration of an employee is considered to be a part of the employee's remuneration and is considered to be paid to the employee as remuneration at the time that the deduction is made. It is immaterial that any act of Congress or the law of any State requires or permits such deductions and the payment of the amount thereof to the United States, a State, or any political subdivision thereof. § 31.3308-1 Instrumentalities of the United States specifically exempted from tax imposed by section 3301. Section 3308 makes ineffectual as to the tax imposed by section 3301 (with respect to remuneration paid after 1961 for services performed after 1961) those provisions of law which grant to an instrumentality of the United States an exemption from taxation, unless such provisions grant a specific exemption from the tax imposed by section 3301 by an express reference to such section or the corresponding section of prior law. Thus, the general exceptions from Federal taxation granted by various statutes to certain instrumentalities of the United States without specific reference to the tax imposed by section 3301 or the corresponding section of prior law are rendered inoperative insofar as such exemptions relate to the tax imposed by section 3301. For provisions relating to the exception from employment of services performed in the employ of an instrumentality of the United States specifically exempted from the tax imposed by section 3301, see § 31.3306(c)(6)-1. [T.D. 6658, 28 FR 6641, June 27, 1963] Subpart E—Collection of Income Tax at Source § 31.3401(a)-1 Wages. (a) In general. (2) The name by which the remuneration for services is designated is immaterial. Thus, salaries, fees, bonuses, commissions on sales or on insurance premiums, pensions, and retired pay are wages within the meaning of the statute if paid as compensation for services performed by the employee for his employer. (3) The basis upon which the remuneration is paid is immaterial in determining whether the remuneration constitutes wages. Thus, it may be paid on the basis of piecework, or a percentage of profits; and may be paid hourly, daily, weekly, monthly, or annually. (4) Generally the medium in which remuneration is paid is also immaterial. It may be paid in cash or in something other than cash, as for example, stocks, bonds, or other forms of property. (See, however, § 31.3401(a)(11)-1, relating to the exclusion from wages of remuneration paid in any medium other than cash for services not in the course of the employer's trade or business, and § 31.3401(a)(16)-1, relating to the exclusion from wages of tips paid in any medium other than cash.) If services are paid for in a medium other than cash, the fair market value of the thing taken in payment is the amount to be included as wages. If the services were rendered at a stipulated price, in the absence of evidence to the contrary, such price will be presumed to be the fair value of the remuneration received. If a corporation transfers to its employees its own stock as remuneration for services rendered by the employee, the amount of such remuneration is the fair market value of the stock at the time of the transfer. (5) Remuneration for services, unless such remuneration is specifically excepted by the statute, constitutes wages even though at the time paid the relationship of employer and employee no longer exists between the person in whose employ the services were performed and the individual who performed them. Example. A is employed by R during the month of January 1955 and is entitled to receive remuneration of $100 for the services performed for R, the employer, during the month. A leaves the employ of R at the close of business on January 31, 1955. On February 15, 1955 (when A is no longer an employee of R), R pays A the remuneration of $100 which was earned for the services performed in January. The $100 is wages within the meaning of the statute. (b) Certain specific items Pensions and retirement pay. (ii) Amounts received as retirement pay for service in the Armed Forces of the United States, the Coast and Geodetic Survey, or the Public Health Service or as a disability annuity paid under the provisions of section 831 of the Foreign Service Act of 1946, as amended (22) U.S.C. 1081; 60 Stat. 1021), are subject to withholding unless such pay or disability annuity is excluded from gross income under section 104(a)(4), or is taxable as an annuity under the provisions of section 72. Where such retirement pay or disability annuity (not excluded from gross income under section 104(a)(4) and not taxable as an annuity under the provisions of section 72) is paid to a nonresident alien individual, withholding is required only in the case of such amounts paid to a nonresident alien individual who is a resident of Puerto Rico. (2) Traveling and other expenses. (3) Vacation allowances. (4) Dismissal payments. (5) Deductions by employer from remuneration of an employee. (6) Payment by an employer of employee's tax, or employee's contributions under a State law. (7) Remuneration for services as employee of nonresident alien individual or foreign entity. (8) Amounts paid under accident or health plans Amounts paid in taxable years beginning on or after January 1, 1977 a In general. ( b Payments made by an agent of the employer. (1 ( 2 ( 3 ( c Exceptions to withholding. 1 ( 2 (ii) Amounts paid after December 31, 1955 and before January 1, 1977—(a) In general. b c d ( b Amounts paid before January 1, 1977, by employer for whom services are performed for period of absence beginning after December 31, 1963. 1 ( i ( ii b)(1)(ii). For purposes of this subdivision ( b)(1), ( 2 Example 1. A, an employee of B, normally works Monday through Friday and has a regular weekly rate of wages of $100. On Monday, November 5, 1974, A becomes ill, and as a result is absent from work for two weeks, returing to work on Monday, November 19, 1974. A is not hospitalized. Under B's noncontributory wage continuation plan, A receives no benefits for the first three working days of absence and is paid benefits directly by B at the rate of $85 a week thereafter ($34 for the last two days of the first week of absence and $85 for the second week of absence). No wage continuation payment is made by any other person. Since the benefits are entirely attributable to contributions to the plan by B, such benefits are wage continuation payments in their entirety. The wage continuation payments for the first seven calendar days of absence are not excludable from A's gross income because A was not hospitalized for at least one day during his period of absence, and therefore B must withhold with respect to such payments. Under section 105(a), the wage continuation payments attributable to absence after the first seven calendar days of absence are excludable to the extent that they do not exceed a rate of $75 a week. Under the principles stated in paragraph (e)(6)(iv) of § 1.105-4 of this chapter (Income Tax Regulations), the wage continuation payments in this case are at a rate not in excess of 75 percent ( 119/200 Example 2. Assume the facts in example 1 except that A is unable to return to work until Monday, February 11, 1975, and that, of the $85 a week of wage continuation payments $35 is paid directly by B and $50 is reasonably expected by B to be paid by C, an insurance company, on behalf of B. In such a case, both the $50 and the $35 payments constitute wage continuation payments and the amount of such payments which is attributable to the first 30 calendar days of absence is at a rate not in excess of 75 percent ( 323/440 ( c Amounts paid by employer for whom services are performed for period of absence beginning before January 1, 1964. ( 1 ( 2 c 2 c ( d Amounts paid before January 1, 1977 by person other than the employer for whom services are performed. ( e Cross references. (9) Value of meals and lodging. (10) Facilities or privileges. (11) Tips or gratuities. (12) Remuneration for services performed by permanent resident of Virgin Islands Exemption from withholding. (ii) Claiming exemption. (iii) Disposition of statement. (iv) Applicability of subparagraph. (13) Federal employees resident in Puerto Rico. (14) Supplemental unemployment compensation benefits. (ii) For purposes of this subparagraph, the term “supplemental unemployment compensation benefits” means amounts which are paid to an employee, pursuant to a plan to which the employer is a party, because of the employee's involuntary separation from the employment of the employer, whether or not such separation is temporary, but only when such separation is one resulting directly from a reduction in force, the discontinuance of a plant or operation, or other similar conditions. (iii) For the meanings of the terms “involuntary separation from the employment of the employer” and “other similar conditions”, see subparagraphs (3) and (4) of § 1.501(c)(17)-1(b) of this chapter (Income Tax Regulations). (iv) As used in this subparagraph, the term “employee” means an employee within the meaning of paragraph (a) of § 31.3401(c)-1, the term “employer” means an employer within the meaning of paragraph (a) of § 31.3401(d)-1, and the term “employment” means employment as defined under the usual common law rules. (v) References in this chapter to wages as defined in section 3401(a) shall be deemed to refer also to supplemental unemployment compensation benefits which are treated under this subparagraph as if they were wages. (15) Split-dollar life insurance arrangements. See (c) Geographical definitions. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6654, 28 FR 5251, May 28, 1963; T.D. 6908, 31 FR 16775, Dec. 31, 1966; T.D. 7001, 34 FR 1000, Jan. 23, 1969; T.D. 7068, 35 FR 17328, Nov. 11, 1970; T.D. 7277, 38 FR 12742, May 15, 1973; T.D. 7493, 42 FR 33728, July 1, 1977; T.D. 7670, 45 FR 6932, Jan. 31, 1980; T.D. 7888, 48 FR 17587, Apr. 25, 1983; T.D. 8276, 54 FR 51028, Dec. 12, 1989; T.D. 8324, 55 FR 51697, Dec. 17, 1990; T.D. 9092, 68 FR 54361, Sept. 17, 2003; T.D. 9276, 71 FR 42054, July 25, 2006] § 31.3401(a)-1T Question and answer relating to the definition of wages in section 3401(a) (Temporary). The following question and answer relates to the definition of wages in section 3401(a) of the Internal Revenue Code of 1954, as amended by section 531(d)(4) of the Tax Reform Act of 1984 (98 Stat. 886): Q-1: A-1: [T.D. 8004, 50 FR 756, Jan. 7, 1985] § 31.3401(a)-2 Exclusions from wages. (a) In general. (2) The exception attaches to the remuneration for services performed by an employee and not to the employee as an individual; that is, the exception applies only to the remuneration in an excepted category. Example. A is an individual who is employed part time by B to perform domestic service in his home (see § 31.3401(a)(3)-1). A is also employed by C part time to perform services as a clerk in a department store owned by him. While no withholding is required with respect to A's remuneration for services performed in the employ of B (the remuneration being excluded from wages), the exception does not embrace the remuneration for services performed by A in the employ of C and withholding is required with respect to the wages for such services. (3) For provisions relating to the circumstances under which remuneration which is excepted is nevertheless deemed to be wages, and relating to the circumstances under which remuneration which is not excepted is nevertheless deemed not to be wages, see § 31.3402(e)-1. (4) For provisions relating to payments with respect to which a voluntary withholding agreement is in effect, which are not defined as wages in section 3401(a) but which are nevertheless deemed to be wages, see §§ 31.3401(a)-3 and 31.3402(p)-1. (b) Fees paid a public official. (2) Amounts paid to precinct workers for services performed at election booths in State, county, and municipal elections and fees paid to jurors and witnesses are in the nature of fees paid to public officials and therefore are not subject to withholding. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6654, 28 FR 5251, May 28, 1963; T.D. 7096, 36 FR 5216, Mar. 18, 1971] § 31.3401(a)-3 Amounts deemed wages under voluntary withholding agreements. (a) In general. (b) Remuneration for services. (2) For purposes of this paragraph, remuneration for services shall not include amounts not subject to withholding under § 31.3401(a)-1(b)(12) (relating to remuneration for services performed by a permanent resident of the Virgin Islands), § 31.3401(a)-2(b) (relating to fees paid to a public official), section 3401(a)(5) (relating to remuneration for services for foreign government or international organization), section 3401(a)(8)(B) (relating to remuneration for services performed in a possession of the United States (other than Puerto Rico) by citizens of the United States), section 3401(a)(8)(C) (relating to remuneration for services performed in Puerto Rico by citizens of the United States), section 3401(a)(11) (relating to remuneration other than in cash for service not in the course of employer's trade or business), section 3401(a)(12) (relating to payments from or to certain tax-exempt trusts, or under or to certain annuity plans or bond purchase plans), section 3401(a)(14) (relating to group-term life insurance), section 3401(a)(15) (relating to moving expenses), or section 3401(a)(16)(A) (relating to tips paid in any medium other than cash). [T.D. 7096, 36 FR 5216, Mar. 18, 1971] § 31.3401(a)-4 Reimbursements and other expense allowance amounts. (a) When excluded from wages. (b) When included in wages Accountable plans General rule. (ii) Per diem or mileage allowances. (2) Nonaccountable plans. (c) Withholding rate. (d) Effective dates. [T.D. 8324, 55 FR 51698, Dec. 17, 1990, as amended by T.D. 9276, 71 FR 42054, July 25, 2006] § 31.3401(a)(1)-1 Remuneration of members of the Armed Forces of the United States for active service in combat zone or while hospitalized as a result of such service. Remuneration paid for active service as a member of the Armed Forces of the United States performed in a month during any part of which such member served in a combat zone (as determined under section 112) or is hospitalized at any place as a result of wounds, disease, or injury incurred while serving in such a combat zone is excepted from wages and is, therefore, not subject to withholding. The exception with respect to hospitalization is applicable, however, only if during all of such month there are combatant activities in some combat zone (as determined under section 112). See § 1.112-1 of this chapter (Income Tax Regulations). § 31.3401(a)(2)-1 Agricultural labor. The term “wages” does not include remuneration for services which constitute agricultural labor as defined in section 3121(g). For regulations relating to the definition of the term “agricultural labor”, see § 31.3121(g)-1. § 31.3401(a)(3)-1 Remuneration for domestic service. (a) In a private home. (2) In general, services of a household nature in or about a private home include services performed by cooks, waiters, butlers, housekeepers, governesses, maids, valets, baby sitters, janitors, laundresses, furnacemen, caretakers, handymen, gardeners, footmen, grooms, and chauffeurs of automobiles for family use. (b) In a local college club or local chapter of a college fraternity or sorority. (2) In general, services of a household nature in or about the club rooms or house of a local college club or local chapter of a college fraternity or sorority include services rendered by cooks, waiters, butlers, maids, janitors, laundresses, furnacemen, handymen, gardeners, housekeepers, and housemothers. (c) Remuneration not excepted. § 31.3401(a)(4)-1 Cash remuneration for service not in the course of employer's trade or business. (a) Cash remuneration paid for services not in the course of the employer's trade or business performed by an employee for an employer in a calendar quarter is excepted from wages and hence is not subject to withholding unless— (1) The cash remuneration paid for such services performed by the employee for the employer in the calendar quarter is $50 or more; and (2) Such employee is regularly employed in the calendar quarter by such employer to perform such services. Unless the tests set forth in both paragraphs (a)(1) and (2) of this section are met, cash remuneration for service not in the course of the employer's trade or business is excluded from wages. (For provisions relating to the exclusion from wages of remuneration paid in any medium other than cash for services not in the course of the employer's trade or business, see § 31.3401(a)(11)-1.) (b) The term “services not in the course of the employer's trade or business” includes services that do not promote or advance the trade or business of the employer. As used in this section, the term does not include service not in the course of the employer's trade or business performed on a farm operated for profit or domestic service in a private home, local college club, or local chapter of a college fraternity or sorority. Accordingly, this exception does not apply with respect to remuneration which is excepted from wages under section 3401(a)(2) or section 3401(a)(3) (see §§ 31.3401(a)(2)-1 and 31.3401(a)(3)-1, respectively). Remuneration paid for service performed for a corporation does not come within the exception. (c) The test relating to cash remuneration of $50 or more is based on the remuneration earned during a calendar quarter rather than on the remuneration paid in a calendar quarter. However, for purposes of determining whether the test is met, it is also required that the remuneration be paid, although it is immaterial when the remuneration is paid. Furthemore, in determining whether $50 or more has been paid for service not in the course of the employer's trade or business, only cash remuneration for such service shall be taken into account. The term “cash remuneration” includes checks and other monetary media of exchange. Remuneration paid in any other medium, such as lodging, food, or other goods or commodities, is disregarded in determining whether the cash-remuneration test is met. (d) For purposes of this exception, an individual is deemed to be regularly employed by an employer during a calendar quarter only if— (1) Such individual performs service not in the course of the employer's trade or business for such employer for some portion of the day on at least 24 days (whether or not consecutive) during such calendar quarter; or (2) Such individual was regularly employed (as determined under paragraph (d)(1) of this section) by such employer in the performance of service not in the course of the employer's trade or business during the preceding calendar quarter. (e) In determining whether an employee has performed service not in the course of the employer's trade or business on at least 24 days during a calendar quarter, there shall be counted as one day— (1) Any day or portion thereof on which the employee actually performs such service; and (2) Any day or portion thereof on which the employee does not perform service of the prescribed character but with respect to which cash remuneration is paid or payable to the employee for such service, such as a day on which the employee is sick or on vacation. An employee who on a particular day reports for work and, at the direction of his employer, holds himself in readiness to perform service not in the course of the employer's trade or business shall be considered to be engaged in the actual performance of such service on that day. For purposes of this exception, a day is a continuous period of 24 hours commencing at midnight and ending at midnight. § 31.3401(a)(5)-1 Remuneration for services for foreign government or international organization. (a) Services for foreign government. (2) The citizenship or residence of the employee and the place where the services are performed are immaterial for purposes of the exception. (b) Services for international organization. (2) Section 7701(a)(18) provides as follows: Sec. 7701. Definitions. (18) International organization. (3) Section 1 of the International Organizations Immunities Act provides as follows: Section 1. International Organizations Immunities Act. § 31.3401(a)(6)-1 Remuneration for services of nonresident alien individuals. (a) In general. (b) Remuneration for services performed outside the United States. (c) Remuneration for services of residents of Canada or Mexico who enter and leave the United States at frequent intervals Transportation service. (2) Service on international projects. (3) Limitation. (4) Certificate required. (d) Remuneration for services performed by residents of Puerto Rico. (2) Remuneration paid for services performed outside the United States but not in Puerto Rico by a nonresident alien individual who is a resident of Puerto Rico for an employer (other than the United States or any agency thereof) is excepted from wages and hence is not subject to withholding if such individual does not expect to be a resident of Puerto Rico during the entire taxable year. In order for the exception provided by this subparagraph to apply for any taxable year, the nonresident alien employee must furnish his employer a statement for the taxable year setting forth the employee's name and address and certifying (i) that he is not a citizen or resident of the United States and (ii) that he is a resident of Puerto Rico but does not expect to be a resident of Puerto Rico during the entire taxable year. The statement shall be dated, shall identify the taxable year to which it relates, shall be signed by the employee, and shall contain, or be verified by, a written declaration that it is made under the penalties of perjury. No particular form is prescribed for this statement. (3) Remuneration paid for services performed outside the United States by a nonresident alien individual who is a resident of Puerto Rico as an employee of the United States or any agency thereof is excepted from wages and hence is not subject to withholding if such individual does not expect to be a resident of Puerto Rico during the entire taxable year. In order for the exception provided by this subparagraph to apply for any taxable year, the nonresident alien employee must furnish his employer a statement for the taxable year setting forth the employee's name and address and certifying (i) that he is not a citizen or resident of the United States and (ii) that he is a resident of Puerto Rico but does not expect to be a resident of Puerto Rico during the entire taxable year. This statement shall be dated, shall identify the taxable year to which it relates, shall be signed by the employee, and shall contain, or be verified by, a written declaration that it is made under the penalties of perjury. No particular form is prescribed for this statement. (e) Exemption from income tax for remuneration paid for services performed before January 1, 2001. (f) Exemption from income tax for remuneration paid for services performed after December 31, 2000. [T.D. 6908, 31 FR 16775, Dec. 31, 1966, as amended by T.D. 7670, 45 FR 6932, Jan. 31, 1980; T.D. 7977, 49 FR 36836, Sept. 20, 1984; T.D. 8734, 62 FR 53493, Oct. 14, 1997; T.D. 8804, 63 FR 72189, Dec. 31, 1998; T.D. 8856, 64 FR 73412, Dec. 30, 1999] § 31.3401(a)(6)-1A Remuneration for services of certain nonresident alien individuals paid before January 1, 1967. (a) Except in the case of certain nonresident alien individuals who are residents of Canada, Mexico, or Puerto Rico or individuals who are temporarily present in the United States as nonimmigrants under subparagraph (F) or (J) of section 101(a)(15) of the Immigration and Nationality Act (8 U.S.C. 1101), as amended, remuneration for services performed by nonresident alien individuals does not constitute wages subject to withholding under section 3402. For withholding of income tax on remuneration paid for services performed within the United States in the case of nonresident alien individuals generally, see § 1.1441-1 and following of this chapter (Income Tax Regulations). (b) Remuneration paid to nonresident aliens who are residents of a contiguous country (Canada or Mexico) and who enter and leave the United States at frequent intervals is not excepted from wages under section 3401(a)(6). See, however, § 31.3401(a)(7)-1, relating to remuneration paid to such nonresident alien individuals when engaged in transportation service. (c) Remuneration paid to a nonresident alien individual for services performed in Puerto Rico for an employer (other than the United States or any agency thereof) is excepted from wages and hence is not subject to withholding, even though such alien individual is a resident of Puerto Rico at the time when such services are performed. Wages paid for services performed by a nonresident alien individual who is a resident of Puerto Rico are subject to withholding if such services are performed as an employee of the United States or any agency thereof. The place of performance of such services is immaterial, provided such alien individual is a resident of Puerto Rico at the time of performance of the services. Wages representing retirement pay for services in the Armed Forces of the United States, the Coast and Geodetic Survey, or the Public Health Service, or a disability annuity paid under the provisions of section 831 of the Foreign Service Act of 1946, as amended (22 U.S.C. 1081; 60 Stat. 1021), are subject to withholding, under the limitations specified in paragraph (b)(1)(ii) of § 31.3401(a)-1, in the case of an alien resident of Puerto Rico. (d) (1) Remuneration paid after 1961 to a nonresident alien individual who is temporarily present in the United States as a nonimmigrant under subparagraph (F) or (J) of section 101(a)(15) of the Immigration and Nationality Act (8 U.S.C. 1101), as amended, is not excepted from wages under section 3401(a)(6) if the remuneration is exempt from withholding under section 1441(a) by reason of section 1441(c)(4)(B) and is not exempt from taxation under section 872(b)(3). See §§ 1.872-2 and 1.1441-4 of this chapter (Income Tax Regulations). A nonresident alien individual who is temporarily present in the United States as a nonimmigrant under subparagraph (J) includes an alien individual admitted to the United States as an “exchange visitor” under section 201 of the United States Information and Educational Exchange Act of 1948 (22 U.S.C. 1446). (2) Section 101 of the Immigration and Nationality Act (8 U.S.C. 1101), as amended, provides in part, as follows: Sec. 101. Definitions. (a) As used in this chapter—* * * (15) The term “immigrant” means every alien except an alien who is within one of the following classes of nonimmigrant aliens— (F) (i) An alien having a residence in a foreign country which he has no intention of abandoning, who is a bona fide student qualified to pursue a full course of study and who seeks to enter the United States temporarily and solely for the purpose of pursuing such a course of study at an established institution of learning or other recognized place of study in the United States, particularly designated by him and approved by the Attorney General after consultation with the Office of Education of the United States, which institution or place of study shall have agreed to report to the Attorney General the termination of attendance of each nonimmigrant student, and if any such institution of learning or place of study fails to make reports promptly the approval shall be withdrawn, and (ii) the alien spouse and minor children of any such alien if accompanying him or following to join him; (J) An alien having a residence in a foreign country which he has no intention of abandoning who is a bona fide student, scholar, trainee, teacher, professor, research assistant, specialist, or leader in a field of specialized knowledge or skill, or other person of similar description, who is coming temporarily to the United States as a participant in a program designated by the Secretary of State, for the purpose of teaching, instructing or lecturing, studying, observing, conducting research, consulting, demonstrating special skills, or receiving training, and the alien spouse and minor children of any such alien if accompanying him or following to join him. (e) This section shall not apply with respect to remuneration paid after December 31, 1966. For rules with respect to such remuneration see § 31.3401(a)(6)-1. (Sec. 101. Immigration and Nationality Act, as amended by sec. 101, Act of June 27, 1952, 66 Stat. 166; sec. 109, Act of Sept. 21, 1961, 75 Stat. 534) [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6654, 28 FR 5251, May 28, 1963; T.D. 6727, 29 FR 5869, May 5, 1964; T.D. 6908, 31 FR 16775, Dec. 31, 1966] § 31.3401(a)(7)-1 Remuneration paid before January 1, 1967, for services performed by nonresident alien individuals who are residents of a contiguous country and who enter and leave the United States at frequent intervals. (a) Transportation service. (b) Service on international projects. (c) Limitation on application of section. (d) Certificate required. (e) Effective date. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6908, 31 FR 16776, Dec. 31, 1966] § 31.3401(a)(8)(A)-1 Remuneration for services performed outside the United States by citizens of the United States. (a) Remuneration excluded from gross income under section 911. (ii) Remuneration paid by an employer to an employee constitutes wages, and hence is subject to withholding only to the extent that the remuneration is expected to exceed the aggregate amount which is excludable from the employee's gross income under section 911(a). For amounts paid after December 31, 1984, the determination of the amount subject to withholding shall be made by applying the excludable amount, on a pro rata basis, to each payment of remuneration to the employee. For this purpose, an employer is not required to ascertain information with respect to amounts received by his employee from any other source; but, if the employer has such information, he shall take it into account in determining whether the earned income of the employee is in excess of the applicable limitation. For purposes of section 911(d)(5) and § 1.911-2(c), relating to an employee who states to the authorities of a foreign country that he is not a resident of that country, the employer is not required to ascertain whether such a statement has been made; but if an employer knows that such a statement has been made, he shall presume that the employee is not a bona fide resident of that country, unless the employer also knows that the authorities of the foreign country have determined, notwithstanding the statement that the employee is a resident of that country. For purposes of section 911(d)(1) or § 1.911-2(a) relating to the definition of a qualified individual, the reasonable belief contemplated by the statute may be based on a presumption as set forth in subparagraph (2) or (3) of this paragraph. For purposes of sections 911(a)(2) and 911(c)(2) and § 1.911-4(b) and (d)(1), relating to the housing cost amount exclusion and the definition of housing expenses, the reasonable belief contemplated by the statute may be based on the presumption set forth in subparagraph (4) of this paragraph. (2)(i) The employer may, in the absence of cause for a reasonable belief to the contrary, presume that an employee will maintain a tax home in a foreign country or countries and be a bona fide resident of a foreign country or countries, within the meaning of section 911(d)(1), for an uninterrupted period which includes each taxable year of the employee, or applicable portion thereof, in respect of which the employee properly executes and delivers to the employer a statement that the employee meets or will meet the requirement of § 1.911-2(a) relating to maintaining a tax home and a bona fide residence in a foreign country for the taxable year. This statement must set forth the facts alleged as the basis for this determination and contain a declaration by the employee that the statement is made under the penalties of perjury. Sample forms of acceptable statements may be obtained by writing to the Foreign Operations District, Internal Revenue Service, Washington, D.C. 20225 (Form IO-673). (ii) If the employer was entitled to presume for the two consecutive taxable years immediately preceding an employee's current taxable year that such employee was a bona fide resident of a foreign country or countries for an uninterrupted period which includes such preceding taxable years, he may, if such employee is residing in a foreign country on the first day of such current taxable year, presume, in the absence of cause for a reasonable belief to the contrary, and without obtaining from the employee the statement prescribed in subdivision (i) of this subparagraph, that the employee will be a bona fide resident of a foreign country or countries in such current taxable year. (3) The employer may, in the absence of cause for a reasonable belief to the contrary, presume that an employee will maintain a tax home in a foreign country or countries and be present in a foreign country or countries during at least 330 full days during any period of twelve consecutive months, within the meaning of section 911(d)(1), and that such period includes each taxable year of the employee, or applicable portion thereof, in respect of which the employee properly executes and delivers to the employer a statement that the employee meets or will meet the requirements of § 1.911-2(a) relating to maintaining a tax home and being physically present in a foreign country for the taxable year. This statement must set forth the facts alleged as the basis for this determination and contain a declaration by the employee that the statement is made under the penalties of perjury. Sample forms of acceptable statements may be obtained by writing to the Foreign Operations District, Internal Revenue Service, Washington, D.C. 20225 (Form IO-673). (4) The employer may, in the absence of cause for a reasonable belief to the contrary, presume that an employee's housing cost amount will be the amount shown on a statement properly executed and delivered to the employer. This statement must set forth the employee's estimation of the following items: housing expenses (as defined in § 1.911-4(b)), the housing cost amount exclusion (as defined in § 1.911-4(d)(1)), and the qualifying period (as defined in § 1.911-2(a)). The statement must contain a declaration by the employee that it is made under the penalties of perjury. Sample forms of acceptable statements may be obtained by writing to the Foreign Operations District, Internal Revenue Service, Washington, D.C. 20225 (IO-673). The employer may not rely on a statement from an employee if the employer, based on his or her knowledge of housing costs in the vicinity of the employee's tax home (as defined in § 1.911-2(b)), believes the employee's housing expenses are lavish or extravagant under the circumstances. (b) Remuneration subject to withholding of income tax under law of a foreign country or a possession of the United States. (2) Remuneration is not exempt from withholding under this paragraph if the employer is not required by the law of a foreign country or of a possession of the United States to withhold income tax upon such remuneration. Mere agreements between the employer and the employee whereby the estimated income tax of a foreign country or of a possession of the United States is withheld from the remuneration in anticipation of actual liability under the law of such country or possession will not suffice. (3) The exemption from withholding provided by this paragraph does not apply by reason of withholding of income tax pursuant to the law of a territory of the United States, of a political subdivision of a possession of the United States, or of a political subdivision of a foreign state. (4) For provisions relating to remuneration for services performed by a permanent resident of the Virgin Islands, see paragraph (b)(12) of § 31.3401(a)-1. (c) Limitation on application of section. (Approved by the Office of Management and Budget under control number 1545-0067) (Sec. 911, 95 Stat. 194; 26 U.S.C. 911), sec. 7805 (68A Stat. 917; 26 U.S.C. 7805) of the Internal Revenue Code of 1954) [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6697, 28 FR 13745, Dec. 17, 1963; T.D. 8006, 50 FR 2977, Jan. 23, 1985] § 31.3401(a)(8)(B)-1 Remuneration for services performed in possession of the United States (other than Puerto Rico) by citizen of the United States. (a) Remuneration paid for services for an employer (other than the United States or any agency thereof) performed by a citizen of the United States within a possession of the United States (other than Puerto Rico) does not constitute wages and hence is not subject to withholding, if it is reasonable to believe that at least 80 percent of the remuneration to be paid to the employee by such employer during the calendar year will be for such services. The reasonable belief contemplated by section 3401(a)(8)(B) may be based upon any evidence reasonably sufficient to induce such belief, even though such evidence may be insufficient upon closer examination by the district director or the courts finally to establish that at least 80 percent of the remuneration paid by the employer to the employee during the calendar year was for services performed within such a possession of the United States. (b) This section has no application to remuneration paid to a citizen of the United States for services performed in any possession of the United States as an employee of the United States or any agency thereof. (c) For provisions relating to remuneration for services performed by a permanent resident of the Virgin Islands, see paragraph (b)(12) of § 31.3401(a)-1. § 31.3401(a)(8)(C)-1 Remuneration for services performed in Puerto Rico by citizen of the United States. (a) Remuneration paid for services performed within Puerto Rico for an employer (other than the United States or any agency thereof) by a citizen of the United States does not constitute wages and hence is not subject to withholding, if it is reasonable to believe that during the entire calendar year the employee will be a bona fide resident of Puerto Rico. The reasonable belief contemplated by section 3401(a)(8)(C) may be based upon any evidence reasonably sufficient to induce such belief, even though such evidence may be insufficient upon closer examination by the district director or the courts finally to establish that the employee was a bona fide resident of Puerto Rico for the entire calendar year. (b) The employer may, in the absence of cause for a reasonable belief to the contrary, presume that an employee will be a bona fide resident of Puerto Rico during the entire calendar year. (1) Unless the employee is known by the employer to have maintained his abode at a place outside Puerto Rico at some time during the current or the preceding calendar year; or (2) In any case where the employee files with the employer a statement (containing a declaration under the penalties of perjury that such statement is true to the best of the employee's knowledge and belief) that such employee has at all times during the current calendar year been a bona fide resident of Puerto Rico and that he intends to remain a bona fide resident of Puerto Rico during the entire remaining portion of such current calendar year. (c) This section has no application to remuneration paid to a citizen of the United States for services performed in Puerto Rico as an employee of the United States or any agency thereof. § 31.3401(a)(9)-1 Remuneration for services performed by a minister of a church or a member of a religious order. (a) In general. (b) Service by a minister in the exercise of his ministry. (1) Whether service performed by a minister constitutes the conduct of religious worship or the ministration of sacerdotal functions depends on the tenents and practices of the particular religious body constituting his church or church denomination. (2) Service performed by a minister in the control, conduct, and maintenance of a religious organization relates to directing, managing, or promoting the activities of such organization. Any religious organization is deemed to be under the authority of a religious body constituting a church or church denomination if it is organized and dedicated to carrying out the tenents and principles of a faith in accordance with either the requirements or sanctions governing the creation of institutions of the faith. The term “religious organization” has the same meaning and application as is given to the term for income tax purposes. (3) (i) If a minister is performing service in the conduct of religious worship or the ministration of sacerdotal functions, such service is in the exercise of his ministry whether or not it is performed for a religious organization. (ii) The rule in paragraph (b)(3)(i) of this section may be illustrated by the following example: Example. M, a duly ordained minister, is engaged to perform service as chaplain at N University. M devotes his entire time to performing his duties as chaplain which include the conduct of religious worship, offering spiritual counsel to the university students, and teaching a class in religion. M is performing service in the exercise of his ministry. (4) (i) If a minister is performing service for an organization which is operated as an integral agency of a religious organization under the authority of a religious body constituting a church or church denomination, all service performed by the minister in the conduct of religious worship, in the ministration of sacerdotal functions, or in the control, conduct, and maintenance of such organization (see paragraph (b)(2) of this section) is in the exercise of his ministry. (ii) The rule in paragraph (b)(4)(i) of this section may be illustrated by the following example: Example. M, a duly ordained minister, is engaged by the N Religious Board to serve as director of one of its departments. He performs no other service. The N Religious Board is an integral agency of O, a religious organization operating under the authority of a religious body constituting a church denomination. M is performing service in the exercise of his ministry. (5) (i) If a minister, pursuant to an assignment or designation by a religious body constituting his church, performs service for an organization which is neither a religious organization nor operated as an integral agency of a religious organization, all service performed by him, even though such service may not involve the conduct of religious worship or the ministration of sacerdotal functions, is in the exercise of his ministry. (ii) The rule in subdivision (i) of this subparagraph may be illustrated by the following example: Example. M, a duly ordained minister, is assigned by X, the religious body constituting his church, to perform advisory service to Y Company in connection with the publication of a book dealing with the history of M's church denomination. Y is neither a religious organization nor operated as an integral agency of a religious organization. M performs no other service for X or Y. M is performing service in the exercise of his ministry. (c) Service by a minister not in the exercise of his ministry. (2) (i) If a minister is performing service for an organization which is neither a religious organization nor operated as an integral agency of a religious organization and the service is not performed pursuant to an assignment or designation by his ecclesiastical superiors, then only the service performed by him in the conduct of religious worship or the ministration of sacerdotal functions is in the exercise of his ministry. See, however, paragraph (b)(3) of this section. (ii) The rule in subdivision (i) of this subparagraph may be illustrated by the following example: Example. M, a duly ordained minister, is engaged by N University to teach history and mathematics. He performs no other service for N although from time to time he performs marriages and conducts funerals for relatives and friends. N University is neither a religious organization nor operated as an integral agency of a religious organization. M is not performing the service for N pursuant to an assignment or designation by his ecclesiastical superiors. The service performed by M for N University is not in the exercise of his ministry. However, service performed by M in performing marriages and conducting funerals is in the exercise of his ministry. (3) Service performed by a duly ordained, commissioned, or licensed minister of a church as an employee of the United States, or a State, Territory, or possession of the United States, or the District of Columbia, or a foreign government, or a political subdivision of any of the foregoing, is not considered to be in the exercise of his ministry for purposes of the collection of income tax at source on wages, even though such service may involve the ministration of sacerdotal functions or the conduct of religious worship. Thus, for example, service performed by an individual as a chaplain in the Armed Forces of the United States is considered to be performed by a commissioned officer in his capacity as such, and not by a minister in the exercise of his ministry. Similarly, service performed by an employee of a State as a chaplain in a State prison is considered to be performed by a civil servant of the State and not by a minister in the exercise of his ministry. (d) Service in the exercise of duties required by a religious order. § 31.3401(a)(10)-1 Remuneration for services in delivery or distribution of newspapers, shopping news, or magazines. (a) Services of individuals under age 18. (b) Services of individuals of any age. § 31.3401(a)(11)-1 Remuneration other than in cash for service not in the course of employer's trade or business. (a) Remuneration paid in any medium other than cash for services not in the course of the employer's trade or business is excepted from wages and hence is not subject to withholding. Cash remuneration includes checks and other monetary media of exchange. Remuneration paid in any medium other than cash, such as lodging, food, or other goods or commodities, for services not in the course of the employer's trade or business does not constitute wages. Remuneration paid in any medium other than cash for other types of services does not come within this exception from wages. For provisions relating to cash remuneration for service not in the course of employer's trade or business, see § 31.3401(a)(4)-1. (b) As used in this section, the term “services not in the course of the employer's trade or business” has the same meaning as when used in § 31.3401(a)(4)-1. § 31.3401(a)(12)-1 Payments from or to certain tax-exempt trusts, or under or to certain annuity plans or bond purchase plans, or to individual retirement plans. (a) Payments from or to certain taxexempt trusts. (1) By an employer, on behalf of an employee or his beneficiary, into a trust, or (2) To, or on behalf of, an employee or his beneficiary from a trust, if at the time of such payment the trust is exempt from tax under section 501(a) as an organization described in section 401(a). A payment made to an employee of such a trust for services rendered as an employee of the trust and not as a beneficiary thereof is not within this exclusion from wages. Also, since supplemental unemployment compensation benefits are treated under paragraph (b) (14) of § 31.3401 (a)-1 as if they were wages for purposes of this chapter, this section does not apply to such benefits. (b) Payments under or to certain annuity plans. (i) By an employer, on behalf of an employee or his beneficiary, into an annuity plan, or (ii) To, or on behalf of, an employee or his beneficiary under an annuity plan, if at the time of such payment the annuity plan is a plan described in section 403(a). (2) The term “wages” does not include any payment made before January 1, 1963— (i) By an employer, on behalf of an employee or his beneficiary, into an annuity plan, or (ii) To, or on behalf of, an employee or his beneficiary under an annuity plan, if at the time of such payment the annuity plan meets the requirements of section 401 (a) (3), (4), (5), and (6). (c) Payments under or to certain bond purchase plans. (1) By an employer, on behalf of an employee or his beneficiary, into a bond purchase plan, or (2) To, or on behalf of, an employee or his beneficiary under a bond purchase plan, if at the time of such payment the plan is a qualified bond purchase plan described in section 405(a). (d) Payment to individual retirement plans. (2) The term “wages” does not include any payment to an individual retirement plan described in section 7701(a)(37) by an employer after December 31, 1976, on behalf of an employee, if, at the time of such payment, it is reasonable for the employer to believe that the employee on whose behalf the payment is made will be entitled to a deduction for such payment under section 220(a). (3) The term “wages” does not include any payment to a simplified employee pension arrangement described in section 408(k) by an employer after December 31, 1978, on behalf of an employee, if, at the time of such payment, it is reasonable for the employer to believe that the employee on whose behalf the payment is made will be entitled to a deduction for such payment under section 219(a). [T.D. 6654, 28 FR 5252, May 28, 1963, as amended by T.D. 7068, 35 FR 17329, Nov. 11, 1970; T.D. 7730, 45 FR 72652, Nov. 3, 1980] § 31.3401(a)(13)-1 Remuneration for services performed by Peace Corps volunteers. (a) Remuneration paid after September 22, 1961, for services performed as a volunteer or volunteer leader within the meaning of the Peace Corps Act (22 U.S.C. 2501) is excepted from wages, and hence is not subject to withholding, unless the remuneration is paid pursuant to section 5(c) or section 6(1) of the Peace Corps Act. (b) Sections 5 and 6 of the Peace Corps Act (22 U.S.C. 2504, 2505) provide, in part, as follows: Sec. 5 Peace Corps Volunteers (c) Readjustment allowances. Provided, however, Sec. 6 Peace Corps Volunteer Leaders; number; applicability of chapter; benefits Provided, however, (1) Volunteer leaders shall be entitled to receive a readjustment allowance at a rate not to exceed $125 for each month of satisfactory service as determined by the President; [T.D. 6654, 28 FR 5252, May 28, 1963, as amended by T.D. 7493, 42 FR 33729, July 1, 1977] § 31.3401(a)(14)-1 Group-term life insurance. (a) The cost of group-term life insurance on the life of an employee is excepted from wages, and hence is not subject to withholding. For provisions relating generally to such remuneration, and for reporting requirements with respect to such remuneration, see sections 79 and 6052, respectively, and the regulations thereunder in Part 1 of this chapter (Income Tax Regulations). (b) The cost of group-term life insurance on the life of an employee's spouse or children is not subject to withholding if it is excludable from the employee's gross income because it is merely incidental. See paragraph (d)(2)(ii)( b [T.D. 7493, 42 FR 33730, July 1, 1977] § 31.3401(a)(15)-1 Moving expenses. (a) An amount paid to or on behalf of an employee after March 4, 1964, either as an advance or a reimbusement, specifically for moving expenses incurred or expected to be incurred is excepted from wages, and hence is not subject to withholding, if (and to the extent that) at the time of payment it is reasonable to believe that a corresponding deduction is or will be allowable to the employee under section 217. The reasonable belief contemplated by the statute may be based upon any evidence reasonably sufficient to induce such belief, even though such evidence may be insufficient upon closer examination by the district director or the courts finally to establish that a deduction is allowable under section 217. The reasonable belief shall be based upon the application of section 217 and the regulations thereunder in Part 1 of this chapter (Income Tax Regulations). When used in this section, the term “moving expenses” has the same meaning as when used in section 217. See § 1.6041-2(a) in Part 1 of this chapter (Income Tax Regulations), relating to return of information as to payments to employees, and § 31.6051-1(e), relating to the reporting of reimbursements of or payments of certain moving expenses. (b) Except as otherwise provided in paragraph (a) of this section, or in a numbered paragraph of section 3401(a), amounts paid to or on behalf of an employee for moving expenses constitute wages subject to withholding. [T.D. 7493, 42 FR 33730, July 1, 1977] § 31.3401(a)(16)-1 Tips. Tips paid to an employee are excepted from wages and hence not subject to withholding if— (a) The tips are paid in any medium other than cash, or (b) The cash tips received by an employee in any calendar month in the course of his employment by an employer are less than $20. However, if the cash tips received by an employee in a calendar month in the course of his employment by an employer amount to $20 or more, none of the cash tips received by the employee in such calendar month are excepted from wages under this section. The cash tips to which this section applies include checks and other monetary media of exchange. Tips received by an employee in any medium other than cash, such as passes, tickets, or other goods or commodities do not constitute wages. If an employee in any calendar month performs services for two or more employers and receives tips in the course of his employment by each employer, the $20 test is to be applied separately with respect to the cash tips received by the employee in respect of his services for each employer and not to the total cash tips received by the employee during the month. As to the time tips are deemed paid, see § 31.3401(f)-1. For provisions relating to the treatment of tips received by an employee prior to 1966, see paragraph (b)(11) of § 31.3401(a)-1. [T.D. 7001, 34 FR 1001, Jan. 23, 1969] § 31.3401(a)(17)-1 Remuneration for services performed on a boat engaged in catching fish. (a) Remuneration for services performed on or after December 31, 1954, by an individual on a boat engaged in catching fish or other forms of aquatic animal life (hereinafter “fish”) is excepted from wages and hence is not subject to withholding if— (1) The individual receives a share of the boat's (or boats' for a fishing operation involved more than one boat) catch of fish or a share of the proceeds from the sale of the catch, (2) The amount of the individual's share depends solely on the amount of the boat's (or boats' for a fishing operation involving more than one boat) catch of fish, (3) The individual does not receive, and is not entitled to receive, any cash remuneration, other than remuneration that is described in subparagraph (1) of this paragraph, and (4) The crew of the boat (or of each boat from which the individual receives a share of the catch) normally is made up of fewer than 10 individuals. (b) The requirement of paragraph (a)(2) of this section is not satisfied if there exists an agreement with the boat's (or boats') owner or operator by which the individual's remuneration is determined partially or fully by a factor not dependent on the size of the catch. For example, if a boat is operated under a remuneration arrangement, e.g., (c) The operating crew of a boat includes all persons on the boat (including the captain) who receive any form of remuneration in exchange for services rendered while on a boat engaged in catching fish. See § 1.6050A-1 for reporting requirements for the operator of a boat engaged in catching fish with respect to individuals performing services described in this section. (d) During the same return period, service performed by a crew member may be excepted from employment by section 3121(b)(20) and this section for one voyage and not so excepted on a subsequent voyage on the same or on a different boat. [T.D. 7716, 45 FR 57124, Aug. 27, 1980] § 31.3401(a)(18)-1 Payments or benefits under a qualified educational assistance program. A payment made, or benefit furnished, to or for the benefit of an employee in a taxable year beginning after December 31, 1978, does not constitute wages and hence is not subject to withholding if, at the time of such payment or furnishing, it is reasonable to believe that the employee will be able to exclude such payment or benefit from income under section 127. [T.D. 7898, 48 FR 31019, July 6, 1983] § 31.3401(a)(19)-1 Reimbursements under a self-insured medical reimbursement plan. Amounts reimbursed to or on behalf of an employee after December 31, 1979, as a medical care reimbursement under a self-insured medical reimbursement plan (within the meaning of section 105(h)(6)) do not constitute wages and hence are not subject to withholding even though such reimbursement is includible in the gross income of an employee. For rules with respect to self-insured medical reimbursement plans, see section 105(h) and § 1.105-11 of this Chapter (Income Tax Regulations). (Secs. 105(h) and 7805 Internal Revenue Code of 1954; 94 Stat. 2855, 68A Stat. 917 (26 U.S.C. 105(h) and 7805)) [T.D. 7754, 46 FR 3509, Jan. 15, 1981. Redesignated by T.D. 7898, 48 FR 31019, July 6, 1983] § 31.3401(b)-1 Payroll period. (a) The term payroll period (b) For the purpose of section 3402, an employee can have but one payroll period with respect to wages paid by any one employer. Thus, if an employee is paid a regular wage for a weekly payroll period and in addition thereto is paid supplemental wages (for example, bonuses) determined with respect to a different period, the payroll period is the weekly payroll period. For computation of tax on supplemental wage payments, see § 31.3402(g)-1. (c) The term payroll period (d) The term miscellaneous payroll period [T.D. 6516, 25 FR 13096, Dec. 20, 1960, as amended by T.D. 7068, 35 FR 17329, Nov. 11, 1970] § 31.3401(c)-1 Employee. (a) The term employee (b) Generally the relationship of employer and employee exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is an employer. Other factors characteristic of an employer, but not necessarily present in every case, are the furnishing of tools and the furnishing of a place to work to the individual who performs the services. In general, if an individual is subject to the control or direction of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result, he is not an employee. (c) Generally, physicians, lawyers, dentists, veterinarians, contractors, subcontractors, public stenographers, auctioneers, and others who follow an independent trade, business, or profession, in which they offer their services to the public, are not employees. (d) Whether the relationship of employer and employee exists will in doubtful cases be determined upon an examination of the particular facts of each case. (e) If the relationship of employer and employee exists, the designation or description of the relationship by the parties as anything other than that of employer and employee is immaterial. Thus, if such relationship exists, it is of no consequence that the employee is designated as a partner, coadventurer, agent, independent contractor, or the like. (f) All classes or grades of employees are included within the relationship of employer and employee. Thus, superintendents, managers and other supervisory personnel are employees. Generally, an officer of a corporation is an employee of the corporation. However, an officer of a corporation who as such does not perform any services or performs only minor services and who neither receives nor is entitled to receive, directly or indirectly, any remuneration is not considered to be an employee of the corporation. A director of a corporation in his capacity as such is not an employee of the corporation. (g) The term employee (h) Although an individual may be an employee under this section, his services may be of such a nature, or performed under such circumstances, that the remuneration paid for such services does not constitute wages within the meaning of section 3401(a). [T.D. 6516, 25 FR 13096, Dec. 20, 1960, as amended by T.D. 7068, 35 FR 17329, Nov. 11, 1970] § 31.3401(d)-1 Employer. (a) The term employer (b) It is not necessary that the services be continuing at the time the wages are paid in order that the status of employer exist. Thus, for purposes of withholding, a person for whom an individual has performed past services for which he is still receiving wages from such person is an employer. (c) An employer may be an individual, a corporation, a partnership, a trust, an estate, a joint-stock company, an association, or a syndicate, group, pool, joint venture, or other unincorporated organization, group or entity. A trust or estate, rather than the fiduciary acting for or on behalf of the trust or estate, is generally the employer. (d) The term employer (e) The term employer wages (f) If the person for whom the services are or were performed does not have legal control of the payment of the wages for such services, the term employer wages employer. (g) The term employer employer (h) It is a basic purpose to centralize in the employer the responsibility for withholding, returning, and paying the tax, and for furnishing the statements required under section 6051 and § 31.6051-1. The special definitions of the term employer [T.D. 6516, 25 FR 13096, Dec. 20, 1960, as amended by T.D. 7068, 35 FR 17329, Nov. 11, 1970] § 31.3401(f)-1 Tips. (a) Tips considered wages. (b) When tips deemed paid. [T.D. 7001, 34 FR 1001, Jan. 23, 1969] § 31.3402(a)-1 Requirement of withholding. (a) Section 3402 provides alternative methods, at the election of the employer, for use in computing the amount of income tax to be collected at source on wages. Under the percentage method of withholding (see § 31.3402(b)-1), the employer is required to deduct and withhold a tax computed in accordance with the provisions of section 3402(a). Under the wage bracket method of withholding (see § 31.3402(c)-1), the employer is required to deduct and withhold a tax determined in accordance with the provisions of section 3402(c). The employer may elect to use the percentage method, the wage bracket method, or certain other methods (see § 31.3402(h) (4)-1). Different methods may be used by the employer with respect to different groups of employees. (b) The employer is required to collect the tax by deducting and withholding the amount thereof from the employee's wages as and when paid, either actually or constructively. Wages are constructively paid when they are credited to the account of or set apart for an employee so that they may be drawn upon by him at any time although not then actually reduced to possession. To constitute payment in such a case, the wages must be credited to or set apart for the employee without any substantial limitation or restriction as to the time or manner of payment or condition upon which payment is to be made, and must be made available to him so that they may be drawn upon at any time, and their payment brought within his own control and disposition. (c) Except as provided in sections 3402 (j) and (k) (see §§ 31.3402(j)-1 and 31.3402(k)-1, relating to noncash remuneration paid to retail commission salesman and to tips received by an employee in the course of his employment, respectively), an employer is required to deduct and withhold the tax notwithstanding the wages are paid in something other than money (for example, wages paid in stocks or bonds; see § 31.3401 (a)-1) and to pay over the tax in money. If wages are paid in property other than money, the employer should make necessary arrangements to insure that the amount of the tax required to be withheld is available for payment in money. (d) For provisions relating to the circumstances under which tax is required to be deducted and withheld from certain amounts received under accident and health plans, see paragraph (b)(8) of § 31.3401(a)-1. (e) As a matter of business administration, certain of the mechanical details of the withholding process may be handled by representatives of the employer. Thus, in the case of an employer having branch offices, the branch manager or other representative may actually, as a matter of internal administration, withhold the tax or prepare the statements required under section 6051. Nevertheless, the legal responsibility for withholding, paying, and returning the tax and furnishing such statements rests with the employer. For provisions relating to statements under section 6051, see § 31.6051-1. (f) The amount of any tax withheld and collected by the employer is a special fund in trust for the United States. See section 7501. (g) For purposes of chapter 24 of the Code and this subpart: (1) References to “withholding exemption certificate” include “withholding allowance certificate” unless otherwise stated in this subpart. (2) [Reserved] (h) The provisions of paragraph (g) of this section apply on and after October 6, 2020. Taxpayers may choose to apply paragraph (g) of this section on or after January 1, 2020 and before October 6, 2020. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 7001, 34 FR 1001, Jan. 23, 1969; T.D. 7115, 36 FR 9209, May 21, 1971; T.D. 7888, 48 FR 17588, Apr. 25, 1983; T.D. 9924, 85 FR 63026, Oct. 6, 2020] § 31.3402(b)-1 Percentage method of withholding. (a) Percentage method of withholding. (b) Applicability date. [T.D. 9924, 85 FR 63026, Oct. 6, 2020] § 31.3402(c)-1 Wage bracket withholding. (a) In general. (2) The amount of tax to be deducted and withheld from an employee's wages under the wage bracket method of withholding is determined based on the entry for the employee's anticipated filing status or marital status and other entries on the employee's withholding allowance certificate using the applicable wage bracket method tables and computational procedures set forth in the applicable forms, instructions, publications, and other guidance prescribed by the Commissioner issued with respect to the period in which wages are paid. (3) For provisions relating to the treatment of wages paid under accident and health plans and wages paid other than in cash to retail commission salesmen, see paragraph (b)(8) of § 31.3401(a)-1 and § 31.3402(j)-1, respectively. (b) Established payroll periods, other than daily or miscellaneous, covered by wage bracket withholding tables. Example 1. On June 30, 1971, employee A is paid wages for a semimonthly payroll period. A has in effect a withholding exemption certificate indicating that he claims two withholding exemptions and that he is married. A's wages are determined at the rate of $2 per hour. During a certain payroll period he works only 24 hours and earns $48. Although A worked only 24 hours during the semimonthly payroll period, the applicable wage bracket withholding table contained in Circular E for a semimonthly payroll period for an employee who is married should be used in determining the tax to be withheld. Under this table it will be found that no tax is required to be withheld from a wage payment of $48 when two withholding exemptions are claimed. Example 2. On May 14, 1971, employee B is paid wages for a weekly payroll period. B has in effect a withholding exemption certification indicating that he claims one withholding exemption and that he is single. B's wages are determined at the rate of $2 per hour. During a certain payroll period B works 18 hours and earns $36. Although B worked only 18 hours during the weekly payroll period the applicable wage bracket withholding table for a weekly payroll period for an employee who is single should be used in determining the tax to be withheld. Under this table it will be found that $0.50 is the amount of tax to be withheld from a wage payment of $36 when one withholding exemption is claimed. (c) Periods to which the tables for a daily or miscellaneous payroll period are applicable In general. (2) Period not a payroll period. Example. An individual performs services for a contractor in connection with a construction project. He has in effect a withholding exemption certificate indicating that he claims two withholding exemptions and that he is married. Wages have been fixed at the rate of $36 per day, to be paid upon completion of the project. The project is completed before July 1, 1971, in 12 consecutive days, at the end of which period the individual is paid wages of $360 for 10 days' services performed during the period. Under the wage bracket method the amount to be deducted and withheld from such wages is determined by dividing the amount of the wages ($360) by the number of days in the period (12), the result being $30. The amount of tax required to be withheld is determined under the appropriate table applicable to a miscellaneous payroll period for an employee who is married. Under this table the tax required to be withheld is $47.40 (12 × $3.95). (3) Wages paid without regard to any period. (i) The first day after the last payment of wages to such employee by such employer in the calendar year, or (ii) The date on which such individual's employment with such employer began in the calendar year, or (iii) January 1 of such calendar year, and ending with (and including) the date on which such wages are paid. Example. On April 2, 1971, C is employed by the X Real Estate Company to sell real estate on a commission basis, commissions to be paid only upon consummation of sales. C has in effect a withholding exemption certificate indicating that he claims one withholding exemption and that he is not married. On May 22, 1971, C receives a commission of $300, his first commission since April 2, 1971. Again on June 19, 1971, C receives a commission of $420. Under the wage bracket method, the amount of tax to be deducted and withheld in respect of the commission paid on May 22, is $10, which amount is obtained by multiplying $0.20 (tax per day under the appropriate wage bracket table applicable to a daily or miscellaneous payroll period for an employee who is not married where wages are at least $6 but less than $6.25 a day) by 50 (number of days elapsed); and the amount of tax to be withheld with respect to the commission paid on June 19 is $54.60, which amount is obtained by multiplying $1.95 (tax under the appropriate wage bracket table for a daily or miscellaneous payroll period where wages are at least $15 but less than $15.50 a day) by 28 (number of days elapsed). (d) Period or elapsed time less than 1 week. Example 1. On May 14, 1971, an employee who has a daily payroll period is paid wages of $15 per day. The employee has in effect a withholding exemption certificate indicating that he claims one withholding exemption and that he is not married. Under the applicable table for a daily payroll period for an employee who is not married, the amount of tax to be deducted and withheld from each such payment of wages is $1.95. Example 2. An employee works for a certain employer on 4 consecutive days for which he is paid wages totalling $60 on July 25, 1971. The employee has in effect a withholding exemption certificate claiming two withholding exemptions and indicating that he is married. The amount of tax to be deducted and withheld under the wage bracket method is $5.60 (4 × $1.40). (2) If the payroll period, other period or elapsed time where wages are paid without regard to any period, is less than one week, the employer may, under certain conditions, elect to deduct and withhold the tax determined by the application of the wage table for a weekly payroll period to the aggregate of the wages paid to the employee during the calendar week. The election to use the weekly wage table in such cases is subject to the limitations and conditions prescribed in Circular E with respect to employers using the percentage method in similar cases. (3) As used in this paragraph the term “calendar week” means a period of seven consecutive days beginning with Sunday and ending with Saturday. (e) Rounding off of wage payment. (f) Applicability date. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6860, 30 FR 13942, Nov. 4, 1965; T.D. 7115, 36 FR 9215, May 21, 1971; T.D. 7888, 48 FR 17588, Apr. 25, 1983; T.D. 7915, 48 FR 44073, Sept. 27, 1983; T.D. 9924, 85 FR 63027, Oct. 6, 2020] § 31.3402(d)-1 Failure to withhold. If the employer in violation of the provisions of section 3402 fails to deduct and withhold the tax, and thereafter the income tax against which the tax under section 3402 may be credited is paid, the tax under section 3402 shall not be collected from the employer. Such payment does not, however, operate to relieve the employer from liability for penalties or additions to the tax applicable in respect of such failure to deduct and withhold. The employer will not be relieved of his liability for payment of the tax required to be withheld unless he can show that the tax against which the tax under section 3402 may be credited has been paid. See § 31.3403-1, relating to liability for tax. § 31.3402(e)-1 Included and excluded wages. (a) If a portion of the remuneration paid by an employer to his employee for services performed during a payroll period of not more than 31 consecutive days constitutes wages, and the remainder does not constitute wages, all the remuneration paid the employee for services performed during such period shall for purposes of withholding be treated alike, that is, either all included as wages or all excluded. The time during which the employee performs services, the remuneration for which under section 3401(a) constitutes wages, and the time during which he performs services, the remuneration for which under such section does not constitute wages, determine whether all the remuneration for services performed during the payroll period shall be deemed to be included or excluded. (b) If one-half or more of the employee's time in the employ of a particular employer in a payroll period is spent in performing services the remuneration for which consititutes wages, then all the remuneration paid the employee for services performed in that payroll period shall be deemed to be wages. (c) If less than one-half of the employee's time in the employ of a particular employer in a payroll period is spent in performing services the remuneration for which constitutes wages, then none of the remuneration paid the employee for services performed in that payroll period shall be deemed to be wages. (d) The application of the provisions of paragraphs (a), (b), and (c) of this section may be illustrated by the following examples: Example 1. Employer B, who operates a store and a farm, employs A to perform services in connection with both operations. The remuneration paid A for services on the farm is excepted as remuneration for agricultural labor, and the remuneration for services performed in the store constitutes wages. Employee A is paid on a monthly basis. During a particular month, A works 120 hours on the farm and 80 hours in the store. None of the remuneration paid by B to A for services performed during the month is deemed to be wages, since the remuneration paid for less than one-half of the services performed during the month constitutes wages. During another month A works 75 hours on the farm and 120 hours in the store. All of the remuneration paid by B to A for services performed during the month is deemed to be wages since the remuneration paid for one-half or more of the services performed during the month constitutes wages. Example 2. Employee C is employed as a maid by D, a physician, whose home and office are located in the same building. The remuneration paid C for services in the home is excepted as remuneration for domestic service, and the remuneration paid for her services in the office constitutes wages. C is paid on a weekly basis. During a particular week C works 20 hours in the home and 20 hours in the office. All of the remuneration paid by D to C for services performed during that week is deemed to be wages, since the remuneration paid for one-half or more of the services performed during the week constitutes wages. During another week C works 22 hours in the home and 15 hours in the office. None of the remuneration paid by D to C for services performed during that week is deemed to be wages, since the remuneration paid for less than one-half of the services performed during the week constitutes wages. (e) The rules set forth in this section do not apply (1) with respect to any remuneration paid for services performed by an employee for his employer if the periods for which remuneration is paid by the employer vary to the extent that there is no period which constitutes a payroll period within the meaning of section 3401(b) (see § 31.3401(b)-1), or (2) with respect to any remuneration paid for services performed by an employee for his employer if the payroll period for which remuneration is paid exceeds 31 consecutive days. In any such case withholding is required with respect to that portion of such remuneration which constitutes wages. § 31.3402(f)(1)-1 Withholding allowance. (a) In general. (2) The employer is not required to ascertain whether the withholding allowance claimed is greater than the withholding allowance to which the employee is entitled. For rules relating to invalid withholding allowance certificates, see § 31.3402(f)(2)-1(f)(3), for rules relating to required submission of copies of certain withholding allowance certificates to the Internal Revenue Service, see § 31.3402(f)(2)-1(g)(1), and for rules relating to the notice of the maximum withholding allowance permitted, see § 31.3402(f)(2)-1(g)(2). (b) Withholding allowance defined. (2) The withholding allowance is determined based on the following— (i) Whether the employee is an individual for whom a deduction is allowable with respect to another taxpayer under section 151; (ii) If the employee is married, whether the employee's spouse is an individual for whom a deduction is allowable with respect to another taxpayer under section 151 but only if such spouse does not have in effect a withholding allowance certificate claiming such deduction; (iii) If the employee is married, whether the employee's spouse is entitled to additional deductions, credits, or other items the employee elects to take into account under § 31.3402(m)-1 or would be so entitled if the employee's spouse were an employee receiving wages, but only if such spouse does not have in effect a withholding allowance certificate claiming such allowance; (iv) Any credit under section 24(a) that the employee reasonably expects to be able to claim on the employee's income tax return for the calendar year for which the withholding allowance certificate is in effect, except that the employee may not take into account any credit under section 24(a) if this credit is claimed on another valid withholding allowance certificate in effect with respect to another employer of the employee or the employee's spouse. In addition, an employee whose employer must withhold for that employee pursuant to a notice under § 31.3402(f)(2)-1(g)(2) must offset any tax benefit resulting from a credit under section 24(a) with any anticipated income tax attributable to items other than wages includible in the employee's gross income in the manner prescribed by the Commissioner; (v) Any additional deductions, credits, or other items the employee elects to take into account under § 31.3402(m)-1 for the calendar year for which the withholding allowance certificate is in effect; (vi) The basic standard deduction (as defined in section 63(c)(2)) relating to the filing status the employee reasonably expects to claim on the employee's income tax return for the calendar year for which the withholding allowance certificate is in effect; and (vii) Any adjustment resulting from multiple withholding allowance certificates the employee, the employee's spouse, or both have or reasonably expect to have in effect with respect to one or more employers, determined based on the instructions to the withholding allowance certificate and other guidance for the calendar year for which the withholding allowance certificate is in effect. (c) Applicability date. [T.D. 9924, 85 FR 63027, Oct. 6, 2020] § 31.3402(f)(2)-1 Furnishing of withholding allowance certificates. (a) On commencement of employment. (2) In no event may the withholding allowance exceed the withholding allowance that the employee is entitled to as determined based on the employee's reasonable expectations and the instructions set forth in forms, instructions, publications, and other guidance prescribed by the Commissioner. (3) The employee may claim exemption from withholding if the certifications described in section 3402(n) and § 31.3402(n)-1(a)(1) and (2) are true with respect to the employee. (4) If an employee has no valid withholding allowance certificate in effect with the employer at the time of the payment of the wages, and fails to furnish a valid withholding allowance certificate to the employer, the employee will be treated as single but having the withholding allowance provided in forms, instructions, publications, and other guidance prescribed by the Commissioner. (b) Change of status that affects calendar year General rule. (2) Changes of status. (i) The employee's filing status changes in the manner described in § 31.3402(l)-1(c). (ii) The employee no longer has only one withholding allowance certificate in effect for the employee, the employee's spouse, or both, and the employee or the employee's spouse selects higher withholding rate tables on the additional withholding allowance certificate, but higher withholding rate tables are not selected on any previously furnished withholding allowance certificate. (iii) The employee has multiple withholding allowance certificates in effect on which higher withholding rate tables are not selected, and the employee or the employee's spouse reasonably expects an increase in regular wages for the calendar year (as defined in § 31.3402(g)-1(a)(1)(ii)) in excess of $10,000. (iv) The employee has included on a valid withholding allowance certificate the child tax credit allowed under section 24(a) but reasonably expects the number of individuals who satisfy the definition of “qualifying child” as defined in section 24(c) who will be reported on the employee's income tax return for the year for which tax is being withheld to be less than the number taken into account in completing the withholding allowance certificate. (v) The employee has included on a valid withholding allowance certificate a tax credit allowed under section 24(a) or other tax credits allowed under § 31.3402(m)-1 but reasonably expects the employee's tax credits that will be reported on the employee's income tax return for the year for which tax is being withheld to decrease by more than $500 from the amount taken into account in completing the withholding allowance certificate. (vi) The employee has included on a valid withholding allowance certificate deductions allowed under § 31.3402(m)-1 but reasonably expects the employee's included income tax deductions that will be reported on the employee's income tax return for the year for which tax is being withheld to decrease by more than $2,300 from the amount taken into account in completing the withholding allowance certificate. (vii) It is no longer reasonable for an employee who has furnished the employer with a withholding allowance certificate which relies upon the certifications described in § 31.3402(n)-1(a) to anticipate that the employee will incur no liability for income tax imposed under subtitle A of the Code for the current or previous taxable year. (3) Exception. (c) Increase in withholding allowance. (d) Exemption from withholding. (e) Change of status which affects next calendar year General rule. (2) Exception. (f) Special rules Employer requests. (2) Social security account numbers. (3) Invalid withholding allowance certificates General rule. (ii) Employer disregard of invalid withholding allowance certificate. (g) Submission of certain withholding allowance certificates and notice of maximum withholding allowance permitted Submission of certain withholding allowance certificates In general. (A) Notice to submit withholding allowance certificates. (B) Published guidance. (ii) Withholding after submission of withholding allowance certificate. (2) Notice of the maximum withholding allowance permitted Notice to employer. (A) The IRS determines that a copy of a withholding allowance certificate submitted under paragraph (g)(1) of this section or otherwise provided to the IRS includes a materially incorrect statement or determines, after a request to the employee for verification of the statements on the certificate, that the IRS lacks sufficient information to determine if the certificate is correct; or (B) The IRS otherwise determines that the employee is not entitled to claim a complete exemption from withholding and is not entitled to claim more than a specified number of withholding exemptions, withholding allowances, or a specified withholding allowance. (ii) Notice to employee. (iii) Requirement to furnish. (A) The employer pays wages with respect to prior employment to the employee subject to income tax withholding on or after the date specified in the notice; (B) The employer reasonably expects the employee to resume the performance of services for the employer within twelve months of the date of the notice; or (C) The employee is on a bona fide leave of absence and either the period of such leave does not exceed twelve months or the employee retains a right to reemployment with the employer under an applicable statute or by contract. (iv) Requirement to withhold based on the notice. (v) Employment resumes after twelve months. (vi) Requirement to withhold based on an existing Form W-4. (vii) Modification notice. (viii) Requirement to withhold after termination of employment. (ix) Requirement to withhold based on new Form W-4. (A) Employee requests more withholding. (B) Employee requests less withholding. (3) Definition of employer. (4) Examples. (i) Example 1. (ii) Example 2. (iii) Example 3. (iv) Example 4. (v) Example 5. (vi) Example 6. (h) Applicability date. [T.D. 9924, 85 FR 63028, Oct. 6, 2020] § 31.3402(f)(3)-1 When withholding allowance certificate takes effect. (a) No withholding allowance certificate on file. (b) Withholding allowance certificate on file. (c) Withholding allowance certificate furnished to take effect in next calendar year. (d) Applicability date. [T.D. 9924, 85 FR 63031, Oct. 6, 2020] § 31.3402(f)(4)-1 Effective period of a withholding allowance certificate. (a) In general. (b) Certifications under section 3402(n) eliminating requirement of withholding. (1) In the case of an employee whose liability for tax under subtitle A of the Code is determined on a calendar year basis, after February 15 of the calendar year following the estimation year; or (2) In the case of an employee to whom paragraph (b)(1) of this section does not apply, after the 15th day of the 2nd calendar month following the last day of the estimation year. (c) Estimation year. (d) Applicability to notice of maximum withholding allowance. (e) Applicability date. [T.D. 9924, 85 FR 63031, Oct. 6, 2020] § 31.3402(f)(5)-1 Form and contents of withholding allowance certificates. (a) In general Form W-4. (2) Employee substitute forms. (3) Current year revision. (4) Examples. (i) Example 1. (ii) Example 2. (b) Invalid Form W-4. (1) An alteration of a withholding allowance certificate is any deletion of the language of the jurat or other similar provision of such certificate by which the employee certifies or affirms the correctness of the completed certificate, or any material defacing of such certificate; and (2) An unauthorized addition to a withholding allowance certificate is any writing on such certificate other than the entries requested on the Form W-4 ( e.g., (c) Electronic Form W-4 In general. (2) Requirements In general. (ii) Information to employer. irs.gov. (iii) Information to employee. irs.gov (iv) Jurat and signature requirements. (A) Jurat. (B) Electronic signature. (v) Copies of electronic Forms W-4. (d) Applicability date. [T.D. 9924, 85 FR 63032, Oct. 6, 2020] § 31.3402(f)(6)-1 Withholding exemptions for nonresident alien individuals. (a) In general. (2) The withholding exemption in paragraph (a) of this section and section 3402(f)(6) is the deduction allowed to the nonresident alien individual under section 151. (b) Additional guidance. (c) Applicability date. [T.D. 9924, 85 FR 63032, Oct. 6, 2020] § 31.3402(g)-1 Supplemental wage payments. (a) In general and withholding on supplemental wages in excess of $1,000,000 Determination of supplemental wages and regular wages Supplemental wages. (ii) Regular wages. (iii) Amounts that are not wages subject to income tax withholding. (iv) Optional treatment of overtime pay as regular wages. overtime pay (v) Optional treatment of tips as regular wages. (vi) Amount to be withheld. (2) Mandatory flat rate withholding. (3) Certain persons treated as one employer Persons under common control. (ii) Agents. (4) Treatment of certain items in determining applicability of mandatory flat rate withholding Optional treatment of compensation not subject to income tax withholding. (ii) Allocation of salary reduction deferrals. i.e. (iii) Optional de minimis exception for certain payments by agents. (iv) Treatment of supplemental wage payment exceeding $1,000,000 cumulative threshold. (5) Withholding on supplemental wages that are not subject to mandatory flat rate withholding. (6) Aggregate procedure for withholding on supplemental wages Applicability. (ii) Procedure. (7) Optional flat rate withholding on supplemental wages Applicability. (A) Paragraph (a)(2) of this section does not apply to the payment or the portion of the payment; (B) The supplemental wages are either not paid concurrently with regular wages or are separately stated on the payroll records of the employer; and (C) Income tax has been withheld from regular wages of the employee during the calendar year of the payment or the preceding calendar year. (ii) Procedure. (iii) Rate applicable for purposes of optional flat rate withholding. (A) From supplemental wages paid after April 30, 1966, and prior to January 1, 1994, by using a flat percentage rate of 20 percent; (B) From supplemental wages paid after December 31, 1993, and on or before August 6, 2001, by using a flat percentage rate of 28 percent; (C) From supplemental wages paid after August 6, 2001, and on or before December 31, 2001, by using a flat percentage rate of 27.5 percent; (D) From supplemental wages paid after December 31, 2001, and on or before May 27, 2003, by using a flat percentage rate of 27 percent; (E) From supplemental wages paid after May 27, 2003, and on or before December 31, 2004, by using a flat percentage rate of 25 percent; and (F) From supplemental wages paid after December 31, 2004, by using a flat percentage rate of 28 percent (or the corresponding rate in effect under section 1(i)(2) for taxable years beginning in the calendar year in which the payment is made). (8) Examples. Example 1. (i) Employee A is an employee of three entities (X, Y, and Z) that are treated as a single employer under section 52(a) or (b). In 2007, X pays regular wages to A on a monthly payroll period for services performed for X, Y, and Z. The regular wages are paid on the third business day of each month. Income tax is withheld from the regular wages of A during the year. A receives only the following supplemental wage payments during 2007 in addition to the regular wages paid by X— (A) A bonus of $600,000 from X on March 15, 2007; (B) A bonus of $2,300,000 from Y on November 15, 2007; and (C) A bonus of $10,000 from Z on December 31, 2007. (ii) In this Example 1 (iii) In this Example 1 (iv) The $10,000 bonus paid from Z is also a supplemental wage payment. To calculate the withholding on the $10,000 bonus, the $2,900,000 in cumulative supplemental wages already paid to A in 2007 by X and Y must be taken into account because X, Y, and Z are treated as a single employer. The entire $10,000 bonus would be subject to mandatory flat rate withholding at the maximum rate of tax in effect under section 1 for 2007. The income tax required to be withheld on this payment would be 35 percent of $10,000 or $3,500. Example 2. Employees B and C work for employer M. Each employee receives a monthly salary of $3,000 in 2007. As a result of the withholding allowances claimed by B, there has been no income tax withholding on the regular wages M pays to B during either 2007 or 2006. In contrast, M has withheld income tax from regular wages M pays to C during 2007. Together with the monthly salary check paid in December 2007 to each employee, M includes a bonus of $2,000, which is the only supplemental wage payment each employee receives from M in 2007. The bonuses are separately stated on the payroll records of M. Because M has withheld no income tax from B's regular wages during either the calendar year of the $2,000 bonus or the preceding calendar year, M cannot use optional flat rate withholding provided under paragraph (a)(7) of this section to calculate the income tax withholding on B's $2,000 bonus. Consequently, M must use the aggregate procedure set forth in paragraph (a)(6) of this section to calculate the income tax withholding due on the $2,000 bonus to B. With respect to the bonus paid to C, M has the option of using either the aggregate procedure provided under paragraph (a)(6) of this section or the optional flat rate withholding provided under paragraph (a)(7) of this section to calculate the income tax withholding due. Example 3. (i) Employee D works as an employee of Corporation R. Corporations R and T are treated as a single employer under section 52(a) or (b). R makes regular wage payments to Employee D of $200,000 on a monthly basis in 2007, and income tax is withheld from those wages. R pays D a bonus for his services as an employee equal to $3,000,000 on June 30, 2007. Unrelated company U pays D sick pay as an agent of the employer R and such sick pay is supplemental wages pursuant to § 31.3401(a)-1(b)(8)(i)( b 2 (ii) In chronological summary, D is paid the following wages other than the regular monthly wages paid by R: (A) June 30, 2007—$3,000,000 (bonus from R); (B) October 31, 2007—$50,000 (sick pay from U); and (C) December 31, 2007—$100,000 (bonus from T). (iii) In this Example 3 (iv) Because income tax has been withheld on D's regular wages, income tax may be withheld on $1,000,000 of the $3,000,000 bonus paid on June 30, 2007, under either paragraph (a)(6) or (7) of this section. If R elects to use optional flat rate withholding provided under paragraph (a)(7)(iii)(F) of this section, withholding would be calculated at 25 percent of the $1,000,000 portion of the payment and would be $250,000. (v) Income tax withheld on the following supplemental wage payments (or portion of a payment) as follows is required to be calculated at the maximum rate in effect under section 1, or 35 percent in 2007— (A) $2,000,000 of the $3,000,000 bonus paid by R on June 30, 2007; and (B) all of the $100,000 bonus paid by T on December 31, 2007. (vi) Pursuant to paragraph (a)(4)(iii) of this section, because the total wage payments made by U, an agent of the employer, to D are less than $100,000, U is permitted to determine the amount of income tax to be withheld without regard to other supplemental wage payments made to the employee. Income tax withholding on the $50,000 in sick pay may be determined under either paragraph (a)(6) or (7) of this section. If U elects to withhold income tax at the flat rate provided under paragraph (a)(7)(iii)(F) of this section, withholding on the $50,000 of sick pay would be calculated at 25 percent of the $50,000 payment and would be $12,500. Alternatively, U may choose to take account of the $3,000,000 in supplemental wages paid by the employer during 2007 prior to payment of the $50,000 sick pay, and withholding on the $50,000 of sick pay could be calculated applying the mandatory flat rate of 35 percent, resulting in withholding of $17,500 on the $50,000 payment. Example 4. (i) Employer J has decided it wants to grant its employee B a $1,000,000 net bonus (after withholding) to be paid in 2007. Employer J has withheld income tax from the regular wages of the employee. Employer J has made no other supplemental wage payments to B during the year. (ii) This Example 4 (9) Certain noncash payments to retail commission salesmen. (10) Alternative methods. b (b) Special rule where aggregate withholding exemption exceeds wages paid. Step 1. Step 2. Step 3. Example. An employee has a weekly payroll period ending on Saturday of each week, the wages for which are paid on Friday of the succeeding week. On the 10th day of each month he is paid a bonus based upon production during the payroll periods for which wages were paid in the preceding month. The employee is paid a weekly wage of $64 on each of the five Fridays occurring in July 1966. On August 10, 1966, the employee is paid a bonus of $125 based upon production during the five payroll periods covered by the wages paid in July. On the date of payment of the bonus, the employee, who is married and has three children, has a withholding exemption certificate in effect indicating that he is married and claiming five withholding exemptions. The amount of the tax to be withheld from the bonus paid on August 10, 1966, is computed as follows: Wages paid in July 1966 for 5 payroll periods (5 × $64) $320.00 Bonus paid August 10, 1966 125.00 Aggregate of wages and bonus 445.00 Average wage per payroll period ($445 ÷ 5) 89.00 Computation of tax under percentage method: Withholding exemptions (5 × $13.50) 67.50 Remainder subject to tax 21.50 Tax on average wage for 1 week under percentage method of withholding (married person with weekly payroll period) 14 percent of $17.50 (excess over $4)) 2.45 Tax on average wage for 5 weeks 12.25 Less: Tax previously withheld on weekly wage payments of $64 None Tax to be withheld on supplemental wages 12.25 Computation of tax under wage bracket method: Tax on $89 wage under weekly wage table for married person ($2.50 per week for 5 weeks) 12.50 Less: Tax previously withheld on weekly wage payments of $64 None Tax to be withheld on supplemental wages 12.50 (2) Applicability. (c) Vacation allowances. (d) Applicability date. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6860, 30 FR 13947, Nov. 4, 1965; T.D. 6882, 31 FR 5661, Apr. 12, 1966; T.D. 9276, 71 FR 42054, July 25, 2006; 71 FR 58276, Oct. 3, 2006; 71 FR 77612, Dec. 27, 2006; 72 FR 3734, Jan. 26, 2007; T.D 9924, 85 FR 63033, Oct. 6, 2020] § 31.3402(g)-2 Wages paid for payroll period of more than one year. If wages are paid to an employee for a payroll period of more than one year, for the purpose of determining the amount of tax required to be deducted and withheld in respect of such wages— (a) Under the percentage method, the amount of the tax shall be determined as if such payroll period constituted an annual payroll period, and (b) Under the wage bracket method, the amount of the tax shall be determined as if such payroll period constituted a miscellaneous payroll period of 365 days. § 31.3402(g)-3 Wages paid through an agent, fiduciary, or other person on behalf of two or more employers. (a) If a payment of wages is made to an employee by an employer through an agent, fiduciary, or other person who also has the control, receipt, custody, or disposal of, or pays the wages payable by another employer to such employee, the amount of the tax required to be withheld on each wage payment made through such agent, fiduciary, or person shall, whether the wages are paid separately on behalf of each employer or paid in a lump sum on behalf of all such employers, be determined upon the aggregate amount of such wage payment or payments in the same manner as if such aggregate amount had been paid by one employer. Hence, under either the percentage method or the wage bracket method the tax shall be determined upon the aggregate amount of the wage payment. (b) In any such case, each employer shall be liable for the return and payment of a pro rata portion of the tax so determined, such portion to be determined in the ratio which the amount contributed by the particular employer bears to the aggregate of such wages. (c) For example, three companies maintain a central management agency which carries on the administrative work of the several companies. The central agency organization consists of a staff of clerks, bookkeepers, stenographers, etc., who are the common employees of the three companies. The expenses of the central agency, including wages paid to the foregoing employees, are borne by the several companies in certain agreed proportions. Company X pays 45 percent, Company Y pays 35 percent and Company Z pays 20 percent of such expenses. The amount of tax required to be withheld on the wages paid to persons employed in the central agency should be determined in accordance with the provisions of this section. In such event, Company X is liable as an employer for the return and payment of 45 percent of the tax required to be withheld, Company Y is liable for the return and payment of 35 percent of the tax and Company Z is liable for the return and payment of 20 percent of the tax. (See § 31.3504-1, relating to acts to be performed by agents.) § 31.3402(h)(1)-1 Withholding on basis of average wages. (a) In general. (b) Withholding on the basis of average estimated tips In general. (i) In respect of each employee, make an estimate of the amount of tips that will be reported, pursuant to section 6053, by the employee to the employer in a calendar quarter. (ii) Determine the amount which must be deducted and withheld upon each payment of wages (exclusive of tips) which are under the control of the employer to be made during the quarter by the employer to the employee. The total amount which must be deducted and withheld shall be determined by assuming that the estimated tips for the quarter represent the amount of wages to be paid to the employee in the form of tips in the quarter and that such tips will be ratably (in terms of pay periods) paid during the quarter. (iii) Deduct and withhold from any payment of wages (exclusive of tips) which are under the control of the employer, or from funds referred to in section 3402(k) (see §§ 31.3402(k) and 31.3402(k)-1), such amount as may be necessary to adjust the amount of tax withheld on the estimated basis to conform to the amount required to be withheld in respect of tips reported by the employee to the employer during the calendar quarter in written statements furnished to the employer pursuant to section 6053(a). If an adjustment is required, the additional tax required to be withheld may be deducted upon any payment of wages (exclusive of tips) which are under the control of the employer during the quarter and within the first 30 days following the quarter or from funds turned over by the employee to the employer for such purpose within such period. For provisions relating to the repayment to an employee, or other disposition, of amounts deducted from an employee's remuneration in excess of the correct amount of tax, see § 31.6413(a)-1. (2) Estimating tips employee will report Initial estimate. (ii) Adjusting estimate. (iii) Reasonableness of estimate. [T.D. 7053, 35 FR 11626, July 21, 1970] § 31.3402(h)(2)-1 Withholding on basis of annualized wages. An employer may determine the amount of tax to be deducted and withheld upon a payment of wages to an employee by taking the following steps: Step 1. Step 2. Step 3. Example. On July 1, 1970, A, a single person who is on a weekly payroll period and claims one exemption, receives wages of $100 from X Co., his employer. X Co. multiplies the weekly wage of $100 by 52 weeks to determine an annual wage of $5,200. It then subtracts $650 for A's withholding exemption and arrives at a balance of $4,550. The applicable table in section 3402(a) for annual payroll periods indicates that the amount of tax to be withheld thereon is $376 plus $314.50 (17 percent of excess over $2,700), or a total of $690.50. The annual tax of $690.50, when divided by 52 to arrive at the portion thereof attributable to the weekly payroll period, equals $13.28. X Co. may, if it chooses, withhold $13.28 rather than the amount specified in section 3402 (a) or (c) for a weekly payroll period. [T.D. 7053, 35 FR 11627, July 21, 1970] § 31.3402(h)(3)-1 Withholding on basis of cumulative wages. (a) In general. Step 1. Step 2. Step 3. Step 4. Example. On July 1, 1970, Y Co. employs B, a single person claiming one exemption. Y Co. pays B the following amounts of wages on the basis of a biweekly payroll period on the following pay days: July 20 $1,000 August 3 300 August 17 300 August 31 300 September 14 300 September 28 300 On October 5, B requests that Y Co. withhold on the basis of his cumulative wages with respect to his wages to be paid on October 12 and thereafter. Y Co. adds the $300 in wages to be paid to B on October 12 to the payments of wages already made to B during the calendar year, and determines that the aggregate amount of wages is $2,800. The average amount of wages for the 7 biweekly payroll periods is $400. The total amount of tax required to be deducted and withheld for payments of $400 for each of 7 biweekly payroll periods is $485.87 under section 3402(a). Since the total amount of tax which has been deducted and withheld by Y Co. through September 28 is $484.86, Y Co. may, if it chooses, deduct and withhold $1.01 (the amount by which $485.87 exceeds the total amount already withheld by Y Co.) from the payment of wages to B on October 12 rather than the amount specified in section 3402 (a) or (c). (b) Employee's request and revocation of request. (c) Requests due to increases or decreases in allowances. (Secs. 3402(i) and (m) and 7805 of the Internal Revenue Code of 1954 (26 U.S.C. 3402 (i) and (m), 95 Stat. 172, 184; 26 U.S.C. 7805, 68A Stat. 917)) [T.D. 7053, 35 FR 11627, July 21, 1970, as amended by T.D. 7915, 48 FR 44074, Sept. 27, 1983] § 31.3402(h)(4)-1 Other methods. (a) Maximum permissible deviations. If the tax required to be withheld under the annual percentage rate schedule is The maximum permissible annual deviation is $10 to $100 $10, plus 10 percent of excess over $10. $100 to $1,000 $19, plus 3 percent of excess over $100. $1,000 or over $46, plus 1 percent of excess over $1,000. In any case, an amount which is less than $10 more or less per year than the amount required to be deducted and withheld under section 3402(a) is substantially the same as the latter amount. If any method produces results which are not greater than the prescribed maximum deviations only with respect to some of his employees, the employer may use such method only with respect to such employees. An employer should thoroughly test any method which he contemplates using to ascertain whether it meets the tolerances prescribed by this paragraph. An employer may not use any method, one of the principal purposes of which is to consistently produce amounts to be deducted and withheld which are less (though substantially the same) than the amount required to be deducted and withheld by applying section 3402(a). (b) Part-year employment method of withholding In general. Step 1. Step 2. Step 3. Step 4. The use of the method described in this paragraph does not preclude the employee from claiming additional withholding allowances pursuant to section 3402(m) or the standard deduction allowance pursuant to section 3402(f)(1)(G). (2) Equivalent number of payroll periods. (3) Term of continuous employment. (4) Part-year employment. If, however, A had also worked for Y Co. from December 15 of the previous year through February 5 of the current calendar year, the total duration of A's terms of continuous employment will, during the current calendar year, exceed 245 days (36 days (January 1 through February 5) plus 214 days (June 1 through December 31) equals 250 days). This year's employment does not therefore qualify as part-year employment for purposes of this section. (5) Employee's request. ( a ( b ( c An employee's request furnished to his employer pursuant to this section shall be effective, and may be acted upon by his employer, with respect to wages paid after the furnishing of such request, and shall cease to be effective with respect to any wages paid on or after the beginning of the payroll period during which the current calendar year will end. (ii) If, on any day during the calendar year, any of the anticipations stated by the employee in his statement provided pursuant to subdivision (i)( b (c) Applicability date. [T.D. 7053, 35 FR 11627, July 21, 1970, as amended by T.D. 7251, 38 FR 867, Jan. 5, 1973; T.D. 7915, 48 FR 44074, Sept. 27, 1983; T.D 9924, 85 FR 63033, Oct. 6, 2020] § 31.3402(i)-1 Increases in withholding. (a) Increases in withholding In general. (2) Increases in withholding based on additional income. (ii) The employee may request that the employer deduct and withhold additional amounts of income tax resulting from the employee selecting higher withholding rate tables on the withholding allowance certificate; (iii) The employer must comply with the employee's request under paragraph (a)(1)(i) or (ii) of this section, except that the employer shall comply with the employee's request only to the extent that the amount that the employee requests to be deducted and withheld under this section does not exceed the amount that remains after the employer has deducted and withheld all amounts otherwise required to be deducted and withheld by Federal law (other than by section 3402(i) and this section), State law, and local law (other than by State or local law that provides for voluntary withholding); and (iv) The employer must comply with the employee's request in accordance with the time limitations in § 31.3402(f)(3)-1. The employee must make the request on Form W-4 as provided in § 31.3402(f)(5)-1 (relating to form and contents of withholding allowance certificates), and this Form W-4 shall take effect and remain effective in accordance with section 3402(f) and § 31.3402(f)(4)-1. (3) Amount deducted treated as tax. (b) Applicability date. [T.D. 7915, 48 FR 44074, Sept. 27, 1983, as amended by T.D. 9924, 85 FR 63033, Oct. 6, 2020] § 31.3402(j)-1 Remuneration other than in cash for service performed by retail commission salesman. (a) In general. (2) Section 3402(j) and this section are not applicable with respect to wages paid to the employee that are subject to withholding under § 31.3402(g)-1(a)(2). Section 3402(j) and this section are not applicable with respect to noncash wages paid to a retail commission salesman for services performed by him in a capacity other than as such a salesman. Such sections are not applicable with respect to noncash wages paid by an employer to an employee for services performed as a retail commission salesman if the employer ordinarily pays the employee remuneration other than by way of cash commissions for such services. Thus, noncash remuneration may not be disregarded in computing the amount to be deducted and withheld in a case where the employee, for services performed as a retail commission salesman, is paid both a salary and cash commissions on sales, or is ordinarily paid in something other than cash (stocks, bonds, or other forms of property) notwithstanding that the amount of remuneration paid to the employee is measured by sales. (b) Retail commission salesman. (c) Noncash remuneration. (d) Cross reference. [T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 9276, 71 FR 42057, July 25, 2006] § 31.3402(k)-1 Special rule for tips. (a) Withholding of income tax in respect of tips In general. (i) The tax under section 3101 required to be collected by the employer in respect of wages as defined in section 3121(a) (exclusive of tips); (ii) The tax under section 3402 required to be collected by the employer in respect of wages as defined in section 3401(a) (exclusive of tips); and (iii) The amount of taxes imposed on the remuneration of an employee withheld by the employer pursuant to State and local law (including amounts withheld under an agreement between the employer and the employee pursuant to such law) except that the amount of taxes taken into account in this subdivision shall not include any amount attributable to tips. (2) Limitations. (3) Furnishing of funds to employer. (b) Less than $20 of tips. (1) Covering a period of less than 1 month, and (2) The statement is furnished to the employer prior to the close of the 10th day of the month following the month in which the tips were actually received by the employee, and (3) The aggregate amount of tips reported in the statement and in all other statements previously furnished by the employee covering periods within the same month is less than $20, and such statements, collectively, do not cover the entire month, the employer may deduct amounts equivalent to the tax on such tips from wages (exclusive of tips) which are under the control of the employer or other funds turned over by the employee to the employer. For provisions relating to the repayment to an employee, or other disposition, of amounts deducted from an employee's remuneration in excess of the correct amount of tax, see § 31.6413(a)-1. (As to the exclusion from wages of tips of less than $20, see § 31.3401(a)(16)-1.) (c) Priority of tax collection In general. (i) The tax under section 3101 and the tax under section 3402 with respect to such payment of wages. (ii) Any tax under section 3101 which, at the time of payment of the wages, the employer is required to collect— ( a ( b but which has not been collected by the employer and which cannot be deducted from funds turned over by the employee to the employer for such purpose. (See § 31.3102-3, relating to collection of, and liability for, employee tax on tips.) (iii) Any tax under section 3402 which, at the time of the payment of the wages, the employer is required to collect— ( a ( b but which has not been collected by the employer and which cannot be deducted from funds turned over by the employee to the employer for such purpose. For provisions relating to the witholding of tax on the basis of average estimated tips, see paragraph (b) of § 31.3402(h)(1)-1. (2) Examples. Example 1. W is a waiter employed by R restaurant. W's principal remuneration for his services is in the form of tips received from patrons of R; however, he also receives a salary from R of $40 per week, which is paid to him every Friday. W is a member of a labor union which has a contract with R pursuant to which R is to collect dues for the union by withholding from the wages of its employees at the rate of $1 per week. In addition to the taxes required to be withheld under the Internal Revenue Code, W's wages are subject to withholding of a state income tax imposed upon both his regular wage and his tips received and reported to R. On Monday of a given week W furnishes a written statement to R pursuant to section 6053(a) in which he reports the receipt of $160 in tips. The $40 wage to be paid to W on Friday of the same week is subject to the following items of withholding: Taxes with respect to regular wage Taxes with respect to tips Total Section 3101 (F.I.C.A.) $1.76 $7.04 $8.80 Section 3402 (income tax at source) 5.65 28.30 33.95 State income tax 1.20 4.80 6.00 Union dues 1.00 Total 49.75 W does not turn over any funds to R. R should satisfy the taxes imposed by sections 3101 and 3402 out of W's $40 wage as follows: The taxes imposed with respect to the regular wage (a total of $74l) should be satisfied first. The taxes imposed with respect to tips are to be withheld only out of “wages (exclusive of tips) which are under the control of the employer” as that phrase is defined in §§ 31.3102-3(a)(1) and 31.3402(k)-1(a)(1). The amount of such wages under the control of employer in this example is $31.39, or $40, less the amounts applied in satisfaction of the Federal and State withholding taxes imposed with respect to the regular $40 wage ($8.61). This $31.39 is applied first in satisfaction of the tax under section 3101 with respect to tips ($7.04) in the balance of $24.35 is applied in partial satisfaction of the withholding of income tax at source under section 3402 with respect to tips. The amount of the tax with respect to tips under section 3402 which remains unsatisfied ($3.95) should be withheld from wages under the control of the employer the following week. Example 2. During the week following the week dealt with in example 1, W furnishes a written statement to R pursuant to withholding: Taxes with respect to regular wage Taxes with respect to tips Total Section 3101 (F.I.C.A.) $1.76 $5.72 $7.48 Section 3402 (Income tax at source): Current week 5.65 22.30 27.95 Carryover from prior week 3.95 3.95 State income tax 1.20 3.90 5.10 Union dues 1.00 Garnishment 10.00 Total 55.48 As in example 1, the amount of “wages (exclusive of tips) which are under the control of the employer” is $31.39. This amount is applied first in satisfaction of the tax under section 3101 with respect to tips ($5.72) and the balance is applied in partial satisfaction of the withholding of income tax at source under section 3402 with respect to tips (a total of $26.25), including that portion of the amount required to be withheld from the prior week's wages which remained unsatisfied. The amount of the tax with respect to tips under section 3402 which remains unsatisfied ($0.58) should be withheld from wages under the control of the employer the following week. [T.D. 7001, 34 FR 1002, Jan. 23, 1969, as amended by T.D. 7053, 35 FR 11628, July 21, 1970] § 31.3402(l)-1 Determination and disclosure of marital or filing status. (a) In general. (b) Employee's filing status. (1) The employee may select head of household filing status on the employee's withholding allowance certificate only if the employee reasonably expects to be eligible to claim head of household filing status under section 2(b) and § 1.2-2(b) of this chapter on the employee's income tax return. (2) The employee may select married filing jointly filing status on the employee's withholding allowance certificate only if paragraph (d) of this section applies to the employee and the employee reasonably expects to file jointly a single return of income under subtitle A of the Code with the employee's spouse. If an employee is married and expects to file a separate return from the employee's spouse, the employee must select single or married filing separately filing status on the employee's withholding allowance certificate. (c) Change in filing status In general. (i) From married filing jointly (or qualifying widow(er)) to head of household, married filing separately, or single; or (ii) From head of household to married filing separately or single. (2) Exception. (d) Determination of marital status. (1) An employee shall on any day be considered as a single person and not married if— (i) The employee is legally separated from the employee's spouse under a decree of divorce or separate maintenance; or (ii) Either the employee or the employee's spouse is, or on any preceding day within the same calendar year was, a nonresident alien unless the employee has made or reasonably expects to make an election under section 6013(g) in the time and manner prescribed in § 1.6013-6(a)(4) of this chapter. (2) An employee shall on any day be considered as a married person if paragraph (d)(1) of this section does not apply and— (i) The employee is married within the meaning of § 301.7701-18(b) of this chapter on the day the withholding allowance certificate is furnished; (ii) The employee's spouse died during the employee's taxable year; or (iii) The employee's spouse died during one of the two taxable years immediately preceding the current taxable year and, on the basis of facts existing at the beginning of such day, the employee reasonably expects, at the close of the taxable year, to be a surviving spouse as defined in section 2 and § 1.2-2(a) of this chapter. The employee must reasonably expect to file an income tax return claiming qualifying widow(er) status. (e) Applicability date. [T.D. 9924, 85 FR 63034, Oct. 6, 2020] § 31.3402(m)-1 Additional withholding allowance. (a) In general. (b) Estimated tax deductions. (1) Estimated itemized deductions (as defined in section 63(d)) allowable under chapter 1; (2) Estimated deductions described in section 62(a), except for— (i) Any deduction described in section 62(a)(1); (ii) Any deduction described in section 62(a)(2) if the reimbursement or payment for the amount allowable as such deduction is excludable from wages subject to income tax withholding; (iii) Any deduction described in section 62(a)(3); (iv) Any deduction described in section 62(a)(4); and (v) Any deduction described in section 62(a)(5); (3) Estimated deductions for net operating loss carryovers under section 172; (4) The estimated aggregate net losses from schedules C (Profit or Loss from Business), D (Capital Gains and Losses), E (Supplemental Income and Loss), and F (Profit or Loss from Farming) of Form 1040 and from the last line of Part II of Form 4797 (Sale of Business Property); (5) Estimated additional standard deduction for the aged and blind provided under section 63(c)(3) and section 63(f); (6) Estimated deduction allowed under section 199A; and (7) Estimated deduction or deductions allowed under section 151. (c) Estimated tax credits. (1) The credit under section 31(a) for taxes withheld under chapter 24 of the Code (which includes taxes withheld on wages and amounts treated as wages for chapter 24 purposes, such as pension withholding under section 3405 and backup withholding under section 3406) unless, on the day the employee estimates this amount, the amount has been actually withheld from the employee's wages (or another payment treated as wages for this purpose), the employee enters this amount of tax withheld pursuant to the instructions in the Tax Withholding Estimator (or successor (2) The credit for tax withheld at source for nonresident aliens and foreign corporations under section 33; and (3) Any credit to the extent that the employee has filed or expects to file any IRS form claiming such credit other than the employee's United States Individual Income Tax Return (Form 1040). (d) Estimated tax payments. (1) The employee's employer is not obligated to withhold on the employee's wages pursuant to a notice under § 31.3402(f)(2)-1(g)(2); (2) The amount claimed has been paid with the payment voucher from Form 1040-ES (or was otherwise designated by the taxpayer as a payment of estimated tax) or is planned to be made with respect to nonwage items but only if the planned amount does not decrease withholding below the pro-rata share of chapter 1 tax attributable to wages as determined under forms, instructions, publications, and other guidance prescribed by the Commissioner; (3) The employee uses the Tax Withholding Estimator (or successor) or Publication 505 (or successor) and enters the amount claimed pursuant to the instructions in the Tax Withholding Estimator (or successor) or Publication 505 (or successor); and (4) In using the Tax Withholding Estimator (or successor) or Publication 505 (or successor), the employee includes all items of nonwage income the Tax Withholding Estimator (or successor) or Publication 505 (or successor) prompts or instructs the employee to enter or include. (e) Definitions and special rules Estimated. (i) The amount shown for that particular item on the income tax return that the employee has filed for the taxable year preceding the estimation year (or, if such return has not yet been filed, then the income tax return that the employee filed for the taxable year preceding such year), which amount the employee also reasonably expects to show on the income tax return for the estimation year; plus (ii) The determinable additional amounts (as defined in paragraph (e)(1)(iii) of this section) for each item for the estimation year. (iii) The determinable additional amounts are amounts that are not included in paragraph (e)(1)(i) of this section and that are demonstrably attributable to identifiable events during the estimation year or the preceding year. Amounts are demonstrably attributable to identifiable events if they relate to payments already made during the estimation year, to binding obligations to make payments (including the payment of taxes) during the year, and to other transactions or occurrences, the implementation of which has begun and is verifiable at the time the employee furnishes a withholding allowance certificate. The estimation year is the taxable year including the day on which the employee furnishes the withholding allowance certificate to the employer, except that if the employee furnishes the withholding allowance certificate to the employer and specifies on the certificate that the certificate is not to take effect until a specified future date, the estimation year shall be the taxable year including that specified future date. It is not reasonable for an employee to include in his or her withholding computation for the estimation year any amount that is shown for a particular item on the income tax return that the employee has filed for the taxable year preceding the estimation year (or, if such return has not yet been filed, then the income tax return that the employee filed for the taxable year preceding such year) and that has been disallowed by the Service as part of an adjustment described in § 601.103(b) of this chapter (relating to examination and determination of tax liability) and § 601.105(b) through (d) of this chapter (relating to examination of returns), without regard to any pending request for reconsideration, protest, request for consideration by an Appeals office, or civil action in which such proposed adjustment is at issue. (2) Restriction for employees with nonwage income. (3) Multiple withholding allowance certificates In general. (ii) Married taxpayers filing jointly. (iii) Married taxpayers filing separately. (4) IRS instructions. (f) Applicability date. [T.D. 9924, 85 FR 63034, Oct. 6, 2020] § 31.3402(n)-1 Employees incurring no income tax liability. (a) In general. (1) The employee incurred no liability for income tax imposed under subtitle A of the Internal Revenue Code for the employee's preceding taxable year; and (2) The employee anticipates that the employee will incur no liability for income tax imposed under subtitle A for the employee's current taxable year. (b) Mandatory flat rate withholding. (c) Liability for income tax. (d) Rules about withholding allowance certificates. (e) Examples. (1) Example 1. (2) Example 2. (3) Example 3. (f) Applicability date. [T.D. 9924, 85 FR 63036, Oct. 6, 2020] § 31.3402(o)-1 Extension of withholding to supplemental unemployment compensation benefits. (a) In general. (b) Withholding exemption certificates. [T.D. 7068, 35 FR 17329, Nov. 11, 1970, as amended by T.D. 7803, 47 FR 3546, Jan. 26, 1982] § 31.3402(o)-2 Extension of withholding to annuity payments if requested by payee. (a) In general. (b) Manner of making request. For the requirements relating to Form W-4P with respect to qualified State individual income taxes, see paragraph (d)(3)(i) of § 301.6361-1 of this chapter (Regulations on Procedure and Administration). (c) When request takes effect. (1) In a case in which no previous request is in effect, 3 calendar months after the date on which such request is furnished to such payor, and (2) In a case in which a previous request is in effect, the first status determination date (see section 3402(f)(3)(B) and paragraph (d) of § 31.3402(f)(3)-1 of this chapter) which occurs at least 30 days after the date on which such request is so furnished. However, the payor may, at his election, commence to deduct and withhold such specified amount with respect to an annuity payment which is made prior to the annuity payment described in the preceding sentence with respect to which the payor must commence to deduct and withhold. (d) Duration and termination of request. (e) Special rules. (1) An amount which is requested to be withheld pursuant to this section shall be deemed a tax required to be deducted and withheld under section 3402. (2) An amount deducted and withheld pursuant to this section shall be deemed an amount deducted and withheld under section 3402. (3) The term “wages” includes the gross amount of an annuity payment with respect to which there is in effect a request for withholding under this section. However, references to the definition of wages in section 3401(a) which are made in section 6014 (relating to election by the taxpayor not to compute the tax on his annual return) and section 6015(a) (relating to declaration of estimated tax by individuals) shall not be deemed to include any portion of such an annuity payment. (4) The term “employer” includes a payor with respect to whom a request for withholding is in effect under this section. (5) The term “employee” includes a payee with respect to whom a request for withholding is in effect under this section. (6) The term “payroll period” includes the period of accrual with respect to which payments of an annuity which is subject to withholding under this section are ordinarily made. (f) Returns of income tax withheld and statements for payees. (2) Each statement on Form W-2P shall show the following: (i) The gross amount of annuity payments made during the calendar year, whether or not income tax withholding under this section was in effect with respect to all such payments, (ii) The total amount deducted and withheld as tax under section 3402 of this section, and (iii) The information required to be shown by Form W-2P and the instructions applicable thereto. For the requirements relating to Form W-2P with respect to qualified State individual income taxes, see paragraph (d)(3)(ii) of § 301.6361-1 of this chapter (Regulations on Procedure and Administration). (3) The provisions of § 1.9101-1 of this chapter (relating to permission to submit information required by certain returns and statements on magnetic tape) shall be applicable to the information required to be furnished on Form W-2P. (4) The provisions of § 31.6109-1 of this chapter (relating to supplying of identifying numbers) shall be applicable to Form W-2P and to any payee of an annuity to whom a statement on Form W-2P is required to be furnished. (g) Definitions. (1) The term “annuity” means periodic payments which are payable over a period greater than 1 year and which are treated under section 72 as amounts received as an annuity, whether or not such periodic payments are variable in amount. Also, periodic payments to an individual who is retired before the normal retirement age for reasons of disability, to which the provisions of section 105(d) apply, shall be deemed to be an annuity for purposes of this section. A lump-sum payment (including a total distribution under section 72(n)) is not an annuity. (2) The term “payee” means an individual who is a citizen or resident of the United States and who receives an annuity payment. (3) The term “payor” means a person making an annuity payment except that, if the person making the payment is acting soley as an agent for another person, the term “payor” shall mean such other person and not the person actually making the payment. For example, if a bank makes an annuity payment only as agent for an employees' trust, the trust shall be deemed to be the “payor.” Notwithstanding the preceding two sentences, any person who, under section 3401(a) (5) or (8), would not be required to deduct and withhold the tax under section 3402 if the annuity payment were remuneration for services shall not be considered a “payor.” (Sec. 7805, 68A Stat. 917; 26 U.S.C. 7805; 86 Stat. 944, 26 U.S.C. 6364; 68A Stat. 747, 26 U.S.C. 6051) [T.D. 7056, 35 FR 13436, Aug. 22, 1970, as amended by T.D. 7577, 43 FR 59360, Dec. 20, 1978: T.D. 7580, 43 FR 60160, Dec. 26, 1978. Redesignated by T.D. 7803, 47 FR 3546, Jan. 26, 1982] § 31.3402(o)-3 Extension of withholding to sick pay. (a) In general. (b) Manner of making request. (c) Amount requested to be withheld. (d) When request takes effect. (e) Duration and termination of request. (f) Special rules. (1) An amount which is requested to be withheld pursuant to this section shall be deemed a tax required to be deducted and withheld under section 3402. (2) An amount deducted and withheld pursuant to this section shall be deemed an amount deducted and withheld under section 3402. (3) The term “wages” includes the gross amount of a sick pay payment with respect to which there is in effect a request for withholding under this section. However, references to the definition of wages in section 3401(a) which are made in section 6014 (relating to election by the taxpayer not to compute the tax on his annual return) and section 6015(a) (relating to declaration of estimated tax by individuals) shall not be deemed to include any portion of such a sick pay payment. (4) The term “employer” includes a payor with respect to whom a request for withholding is in effect under this section. (5) The term “employee” includes a payee with respect to whom a request for withholding is in effect under this section. (6) The term “payroll period” includes the period of accrual with respect to which payments of sick pay which are subject to withholding under this section are ordinarily made. (g) Statements required to be furnished to payees. (h) Definitions. (ii) This paragraph (h)(1) may be illustrated by the following examples: Example 1. Employee A works for P Company and Employee B works for Q Company. P Company has contracted with R Insurance Company for R to pay P's employees the equivalent of their normal wages when they are temporarily absent from work because of sickness or personal injury. Q Company has neither entered into such a contract, nor will it make such payments directly from it own funds. B consequently goes to S Insurance Company and purchases directly an insurance policy which will pay him the equivalent of his normal wages when he is unable to work because of sickness or personal injury. Both A and B are subsequently temporarily absent from work on account of sickness or personal injuries. A receives payments from R and B receives payments from S. Neither the payments made by R to A nor the payments made by S to B constitute wages (determined without regard to section 3402(o) and this section). A may request that R withhold income taxes under section 3402(o) and this section from the payments he receives because the payments are sick pay as defined in section 3402(o) and this section. B may not request that S withhold income taxes under section 3402(o) and this section from the payments he receives because the payments are not paid pursuant to a plan to which Q Company is a party and thus are not sick pay as defined in section 3402(o) and this section. Example 2. Employees C and D both work for T Company , which has contracted with U Insurance Company for U to pay T's employees for all sickness or injury claims Employee C is sick and out from work for a month. U pays C the equivalent of C's regular pay. Employee D loses his arm in an accident and U pays D $10,000. C may request that U withhold income taxes under section 3402(o) and this section from the payments he receives because the payments constitute remuneration or a payment in lieu of remuneration for any period during which the employee is temporarily absent from work on account of sickness or personal injuries. D may not request that U withhold income taxes from the payments he receives because the payments do not constitute remuneration or a payment in lieu of remuneration for any period during which the employee is temporarily absent from work on account of sickness or personal injuries. (2) The term “payee” means an individual who is a citizen or resident of the United States and who receives a sick pay payment. (3) (i) The term “payor” means any person making a sick pay payment who is not the employer (as defined in section 3401 and in § 31.3401(d)-1 (except paragraph (f) thereof)) of the payee. If however the person making the payment is acting solely as an agent for another person, the term “payor” shall mean the other person and not the person actually making the payment. (ii) This paragraph (h)(3) may be illustrated by the following examples: Example 1. X Company contracts with Y Insurance Company for Y to pay X's employees the equivalent of their normal wages when they are temporarily absent from work because of sickness or personal injury. Y computes the amount to be paid and determines the date payment is to be made for each of X's employees. Y then instructs Z Bank to issue a check for that amount on that date. Y reimburses Z for the amount of the check plus Z's administrative costs. Under these circumstances, Z is the agent of Y and Y is the payor under section 3402(o) and this section. Example 2. V Company contracts with W Company for W to pay V's employees the equivalent of their normal wages when they are temporarily absent from work on account of sickness or personal injury. Under the contractual arrangement, V advises W of the wages normally paid to each of V's employees. V tells W when an employee of V is temporarily absent from work on account of sickness or personal injury, and W computes the amount to be paid the employee and makes payments of sick pay to the employee during the period of the employee's absence. V subsequently reimburses W for the amount of those payments and pays W a fee for W's services. Under these circumstances, W is acting solely as the agent of V, and a payee may not request under section 3402(o) and these regulations that W withhold income taxes from his payments. However, see section 3401 and the regulations thereunder for the obligation of V to withhold income taxes from the payments that W makes as the agent of V, which are not excluded from income under section 105 and the regulations thereunder and which are wages under section 3401 and the regulations thereunder. See also § 31.3402(g)-1 (relating to supplemental wage payments) for the conditions under which a flat percentage rate of withholding may be used. Example 3. Assume the same facts as in Example 2, except that the consideration for W's services is a set insurance premium rather than reimbursement for costs plus a fee. Under these circumstances W is the payor and is not acting solely as the agent of V. An employee of V to whom W makes payments under the agreement may request under section 3402(o) and the regulations thereunder that W withhold income taxes from those payments. (i) Special rules for sick pay paid pursuant to certain collective-bargaining agreements. (i) The sick pay must be paid pursuant to a collective-bargaining agreement between employee representatives and one or more employers. (ii) The agreement must contain a provision that section 3402(o)(5) is to apply to sick pay paid pursuant to the agreement. (iii) The agreement must contain a provision for determining the amount to be deducted and withheld from each payment of sick pay. (iv) The social security number of the payee must be furnished to the payor. The agreement may provide that the employer will furnish this or the payee may furnish his social security number directly to the payor. (v) The payor must be furnished with information that is necessary for the payor to determine whether the payment is pursuant to the agreement and to determine the amount to be deducted and withheld. The agreement may provide that the employer will furnish this information directly to the payor. (2) The following special rules apply to sick pay where all of the tests of subparagraph (1) are met. (i) The requirement of section 3402(o)(1)(c) and this section that a request for withholding be in effect does not apply. (ii) The amount to be deducted and withheld from the sick pay shall be determined according to the provisions of the agreement and not according to this section. This rule shall not however apply— (A) To payments enumerated in section 3402(n) (relating to employees incurring no income tax liability) and the regulations thereunder, or (B) To payments made to a payee more than 7 days after the date that the payor receives a statement from the payee that the payee expects to claim an exclusion from gross income under section 105(d). Such statement must include adequate verification of disability. A certificate from a qualified physician attesting that the employee is permanently and totally disabled (within the meaning of section 105(d)) shall be deemed to constitute adequate verification. If the payor receives such a statement, the payor shall not withhold any income tax from the payments made to the payee, regardless of the provisions of the collective bargaining agreement. This exception from withholding does not affect the requirements of § 31.6051-3. (Secs. 3402(o), 7805, Internal Revenue Code of 1954 (94 Stat. 3495, (26 U.S.C. 3402(o)); 68A Stat. 917 (26 U.S.C. 7805))) [T.D. 7813, 47 FR 11277, Mar. 16, 1982, as amended by T.D. 7915, 48 FR 44076, Sept. 27, 1983] § 31.3402(p)-1 Voluntary withholding agreements. (a) Employer-employee agreement. (b) Form and duration of employer-employee agreement. (ii) In the case of an employee who desires to enter into an agreement under section 3402(p)(3)(A) with his employer, if the employee performs services (in addition to those to be the subject of the agreement) the remuneration for which is subject to mandatory income tax withholding by such employer, or if the employee wishes to specify that the agreement terminate on a specific date, the employee shall furnish the employer with a request for withholding which shall be signed by the employee, and shall contain— ( a ( b ( c ( d If accepted by the employer as provided in subdivision (iii) of this subparagraph, the request shall be attached to, and constitute part of, the employee's Form W-4. An employee who furnishes his employer a request for withholding under this subdivision shall also furnish such employer with Form W-4 if such employee does not already have a Form W-4 in effect with such employer. (iii) No request for withholding under section 3402(p)(3)(A) shall be effective as an agreement between an employer and an employee until the employer accepts the request by commencing to withhold from the amounts with respect to which the request was made. (2) An agreement under section 3402(p)(3)(A) shall be effective for such period as the employer and employee mutually agree upon. However, either the employer or the employee may terminate the agreement prior to the end of such period by furnishing a signed written notice to the other. Unless the employer and employee agree to an earlier termination date, the notice shall be effective with respect to the first payment of an amount in respect of which the agreement is in effect which is made on or after the first “status determination date” (January 1, May 1, July 1, and October 1 of each year) that occurs at least 30 days after the date on which the notice is furnished. If the employee executes a new Form W-4, the request upon which an agreement under section 3402(p)(3)(A) is based shall be attached to, and constitute a part of, such new Form W-4. (c) Other payments. www.IRS.gov (d) Effective/applicability date. (86 Stat. 944, 26 U.S.C. 6364; 68A Stat. 917, 26 U.S.C. 7805) [T.D. 7096, 36 FR 5216, Mar. 18, 1971, as amended by T.D. 7577, 43 FR 59359, Dec. 20, 1978; T.D. 8619, 60 FR 49215, Sept. 22, 1995; T.D. 9692, 79 FR 55363, Sept. 16, 2014] § 31.3402(q)-1 Extension of withholding to certain gambling winnings. (a) Withholding obligation General rule. (2) Exceptions. (b) Winnings subject to withholding In general. (i) A wager placed in a State-conducted lottery (defined in paragraph (c)(2) of this section) but only if the proceeds from the wager exceed $5,000; (ii) A wager placed in a sweepstakes, wagering pool, or lottery other than a State-conducted lottery but only if the proceeds from the wager exceed $5,000; or (iii) Any other wagering transaction (as defined in paragraph (c)(3) of this section) but only if the proceeds from the wager: (A) Exceed $5,000; and (B) Are at least 300 times as large as the amount of the wager. (2) Total proceeds subject to withholding. (c) Definitions; special rules Rules for determining amount of proceeds from a wager In general. (ii) Amount of the wager in the case of horse races, dog races, and jai alai. (iii) Amount paid with respect to a wager Identical wagers. (B) Non-monetary proceeds. (C) Periodic payments. (2) Wager placed in a State-conducted lottery. (3) Other wagering transaction. (4) Certain payments to nonresident aliens or foreign corporations. (5) Gambling winnings treated as payments by employer to employee. (ii) Solely for purposes of applying the deposit rules under 6302(c) and the return requirement of section 6011, the withholding from winnings shall be deemed to have been made no earlier than at the time the winner's identity is known to the payer. Thus, for example, winnings from a State-conducted lottery are subject to withholding when actually or constructively paid, whichever is earlier; however, the time for depositing the withheld taxes and filing a return with respect thereto shall be determined by reference to the date on which the winner's identity is known to the State, if such date is later than the date on which the winnings are actively or constructively paid. If a payer's obligation to pay winnings terminates other than by payment, all liabilities and requirements resulting from the requirement that the payer deduct and withhold with respect to such winnings shall also terminate. (d) Statement furnished by payee In general. (2) Contents of statement. (i) The name, address, and taxpayer identification number of the winner accompanied by a declaration that no other person is entitled to any portion of such payment, or (ii) The name, address, and taxpayer identification number of the payee and of every person entitled to any portion of the payment. (3) Multiple payments. (4) Reliance on statement for identical wagers. (e) Return of payer In general. (i) The name, address, and taxpayer identification number of the payer; (ii) The name, address, and taxpayer identification number of the winner; (iii) The date, amount of the payment, and amount withheld; (iv) The type of wagering transaction; (v) Except with respect to winnings from a wager placed in a State-conducted lottery, a general description of the two types of identification (as described in paragraph (e)(2) of this section), one of which must have the payee's photograph on it (except in the case of tribal member identification cards in certain circumstances as described in paragraph (e)(3) of this section), that the payer relied on to verify the payee's name, address, and taxpayer identification number; (vi) The amount of winnings from identical wagers; and (vii) Any other information required by the form, instructions, or other applicable guidance published in the Internal Revenue Bulletin. (2) Identification. (i) Government-issued identification (for example, a driver's license, passport, social security card, military identification card, tribal member identification card issued by a federally-recognized Indian tribe, or voter registration card) in the name of the payee; and (ii) A Form W-9, “Request for Taxpayer Identification Number and Certification,” signed by the payee that includes the payee's name, address, taxpayer identification number, and other information required by the form. A Form W-9 is not acceptable for this purpose if the payee has modified the form (other than pursuant to instructions to the form) or if the payee has deleted the jurat or other similar provisions by which the payee certifies or affirms the correctness of the statements contained on the form. (3) Special rule for tribal member identification cards. (i) The payee is a member of a federally-recognized Indian tribe; (ii) The payee presents the payer with a tribal member identification card issued by a federally-recognized Indian tribe stating that the payee is a member of such tribe; and (iii) The payer is a gaming establishment (as described in § 1.6041-10(b)(2)(iv) of this chapter) owned or licensed (in accordance with 25 U.S.C. 2710) by the tribal government that issued the tribal member identification card referred to in paragraph (e)(3)(ii) of this section. (4) Transmittal form. (5) Furnishing a statement to the payee. (f) Examples. Example 1. A purchases a lottery ticket for $1 in the State W lottery from an authorized agent of State W. On February 1, 1977, the drawing is held and A wins $5,001. Since the proceeds of the wager ($5,001—$1) are not greater than $5,000, State W is not required to withhold or deduct any amount from A's winnings. Example 2. Assume the same facts as in example 1 except that A purchases two $1 tickets and that A wins $5,002 when one of the tickets is drawn. State W must deduct and withhold tax at a rate of 20% from $5,001 ($5,002 less the $1 wager), or $1,000.20. Example 3. C purchases a lottery ticket for $1. On June 1, 1979, the lottery drawing is held and C wins the grand prize of $50,000, payable $500 monthly. The payer must deduct and withhold tax at a rate of 20% from each payment of winnings. Therefore, $99.80 must be withheld from the first monthly payment to B ($500−$1) × 20% = $99.80) and $100 ($500 × 20%) must be withheld from each monthly payment thereafter. Example 4. Assume the same facts as in example 3, except that C wins an automobile rather than the grand prize. The fair market value of the automobile on the date on which it is made available to C is $10,000. The payer must deduct and withhold a tax of $2,000 (($10,001−$1) × 20%). This may be accomplished, for example, if C pays $2,000 to the payer. Alternatively, if the payer, as part of the prize, pays all taxes required to be duducted and withheld, the payer must deduct and withhold tax not only on the fair market value of the automobile less the wager, but also on the taxes it pays that are required to be deducted and withheld. This results in a pyramiding of taxes requiring the use of an algebraic formula. Under this formula, the payer must deduct and withhold a tax of 25 percent of the fair market value of the automobile less the wager ($2,500) and, in addition, the payer must indicate on Form W-2G the amount of such winnings as $12,501 ($10,001 + 25%($10,001−$1)). Example 5. D purchases a ticket for $1 in the State Y lottery from an authorized agent of State Y On January 1, 1976, a drawing is held and D wins $100 a month for the rest of D's life. It is actuarially determined that, on January 3, 1977, D's life expectancy is 5 years. Based on that determination, the proceeds from the wager paid to D on or after January 3, 1977, will exceed $5,000. Therefore, State Y must deduct and withhold $20 from each monthly payment made on or after January 3, 1977. (None of such payments is reduced by the amount of the wager because the amount of the wager was offset by the first payment of winnings which was made before January 3, 1977)). Example 6. Assume the same facts as in example 5 except that State Y purchases in its own name, as owner, an annuity of $100 a month for D's life from E Corporation, in order to fund its own obligation to make the payments. Although State Y remains liable for the withholding of tax, E Corporation as paying agent for State Y, making payments directly to D, should deduct and withhold from each monthly payment in the manner described in example 5. Example 7. E purchases a sweepstakes ticket for $1 in a sweepstakes conducted by W. E purchases the ticket on behalf of himself and on behalf of F and G, who have contributed equal amounts toward the purchase of the ticket and who have agreed to share equally in any prizes won. The ticket which E purchases wins $1,002. Since the proceeds of the wager ($1,002—$1) are greater than $1,000 W is required to withhold and deduct 20 percent of such proceeds. Example 8. On February 1, 1977, a drawing is held in the State X lottery in which a winning ticket is selected. The person holding the winning ticket is entitled to proceeds of $100,000 payable either as a lump sum upon demand or $10,000 a year for 10 years. Under State law, the winning ticket must be presented to an authorized agent of State X before February 1, 1978. Until the ticket is presented, State X does not know the identity of the winner. On December 1, 1977, H, the winner, presents the winning ticket to an authorized agent of the State X lottery. The winnings are constructively paid to H on February 1, 1977. Since H, has the option of receiving the entire proceeds upon demand, State X is required to deduct and withhold $20,000 ($100,000 × 20%) from the proceeds of H's winnings on February 1, 1977; but for purposes of determining the time at which the deposit and inclusion on Form 941 of these taxes is to be made, the withholding shall be deemed to have beem made on December 1, 1977. Example 9. J purchases a subscription to N magazine, at the regular subscription price. All new subscribers are automatically eligible for a special drawing. The drawing is held and J wins $50,000. Since J has not paid any more than the regular subscription price, J has not placed a wager or entered a wagering transaction. Therefore, N is not required to deduct and withhold J's winnings. Example 10. (i) B places a $15 bet at the cashier window at the racetrack for horse A to win the fifth race at the racetrack that day. After placing the first bet, B gains confidence in horse A's prospects to win and places an additional $40 bet at the cashier window at the racetrack for horse A to win the fifth race, receiving a second ticket for this second bet. Horse A wins the fifth race, and B wins a total of $5,500 (100 to 1 odds) on those bets. The $15 bet and the $40 bet are identical wagers under paragraph (c)(1)(iii)(A) of this section because winning on both bets depended on the occurrence of the same event and the bets are placed in the same parimutuel pool with the same payer. This is true regardless of the fact that the amount of the wager differs in each case. (ii) B cashes the tickets at different cashier windows. Pursuant to paragraph (d) of this section and § 1.6011-3, B completes a Form W-2G indicating that the amount of winnings is from identical wagers and provides the form to each cashier. The payments by each cashier of $1,500 and $4,000 are less than the $5,000 threshold for withholding, but under paragraph (c)(1)(iii)(A) of this section, identical wagers are treated as paid with respect to a single wager for purposes of determining the proceeds from a wager. The payment is not subject to withholding or reporting because although the proceeds from the wager are $5,445 ($1,500 + $4,000 − $55), the proceeds from the wager are not at least 300 times as great as the amount wagered ($55 × 300 = $16,500). Example 11. B makes two $1,000 bets in a single “show” pool for the same jai alai game, one bet on Player X to show and one bet on Player Y to show. A show bet is a winning bet if the player comes in first, second, or third in a single game. The bets are placed at the same time at the same cashier window, and B receives a single ticket showing both bets. Player X places second in the game, and Player Y does not place first, second, or third in the game. B wins $8,000 from his bet on Player X. Because winning on both bets does not depend on the occurrence of the same event, the bets are not identical bets under paragraph (c)(1)(iii)(A) of this section. However, pursuant to the rule in paragraph (c)(1)(ii) of this section, the amount of the wager is the aggregate amount of both wagers ($2,000) because the bets were placed in a single parimutuel pool and reflected on a single ticket. The payment is not subject to withholding or reporting because although the proceeds from the wager are $6,000 ($8,000 − $2,000), the proceeds from the wager are not at least 300 times as great as the amount wagered ($2,000 × 300 = $600,000). Example 12. B bets a total of $120 on a three-dog exacta box bet ($20 for each one of the six combinations played) at the dog racetrack and receives a single ticket reflecting the bet from the cashier. B wins $5,040 from one of the selected combinations. Pursuant to the rule in paragraph (c)(1)(ii) of this section, the amount of the wager is $120, not $20 for the single winning combination of the six combinations played. The payment is not subject to withholding under section 3402(q) because the proceeds from the wager are $4,920 ($5,040 − $120), which is below the section 3402(q) withholding threshold. Example 13. B makes two $12 Pick 6 bets at the horse racetrack at two different cashier windows and receives two different tickets each representing a single $12 Pick 6 bet. In his two Pick 6 bets, B selects the same horses to win races 1-5 but selects different horses to win race 6. All Pick 6 bets on those races at that racetrack are part of a single parimutuel pool from which Pick 6 winning bets are paid. B wins $5,020 from one of his Pick 6 bets. Pursuant to the rule in paragraph (c)(1)(ii) of this section, the bets are not aggregated for purposes of determining the amount of the wager because the bets are reflected on separate tickets. Assuming that the applicable rate is 25%, the racetrack must deduct and withhold $1,252 (($5,020 − $12) × 25%) because the amount of the proceeds of $5,008 ($5,020 − $12) is greater than $5,000 and is at least 300 times as great as the amount wagered ($12 × 300 = $3,600). The racetrack also must report B's winnings on Form W-2G pursuant to paragraph (e) of this section and furnish a copy of the Form W-2G to B. Example 14. C makes two $50 bets in two different parimutuel pools for the same jai alai game. One bet is an “exacta” in which C bets on player M to win and player N to “place.” The other bet is a “trifecta” in which C bets on player M to win, player N to “place,” and player O to “show.” C wins both bets and is paid $2,000 with respect to the bet in the “exacta” pool and $3,100 with respect to the bet in the “trifecta” pool. Under paragraph (c)(1)(iii)(A) of this section, the bets are not identical bets. Under paragraph (c)(1)(ii) of this section, the bets are not aggregated for purposes of determining the amount of the wager for either payment because they are not wagers in the same parimutuel pool. No section 3402(q) withholding is required on either payment because neither payment separately exceeds the $5,000 withholding threshold. Example 15. C makes two $100 bets for the same dog to win a particular race. C places one bet at the racetrack and one bet at an off-track betting establishment, but the two pools constitute a single pool. C receives separate tickets for each bet. C wins both bets and is paid $4,000 from the racetrack and $4,000 from the off-track betting establishment. Under paragraph (c)(1)(ii) of this section, the bets are not aggregated for purposes of determining the amount of the wager because the wager placed at the racetrack and the wager placed at the off-track betting establishment are reflected on separate tickets, despite being placed in the same parimutuel pool. No section 3402(q) withholding is required because neither payment separately exceeds the $5,000 withholding threshold. Example 16. C places a $200 Pick 6 bet for a series of races at the racetrack on a particular day and receives a single ticket for the bet. No wager correctly picks all six races that day, so that portion of the pool carries over to the following day. On the following day, C places an additional $200 Pick 6 bet for that day's series of races and receives a new ticket for that bet. C wins $100,000 on the second day. Pursuant to the rule in paragraph (c)(1)(ii) of this section, the bets are on two separate tickets, so C's two Pick 6 bets are not aggregated for purposes of determining the amount of the wager. Assuming that the applicable rate is 25%, the racetrack must deduct and withhold $24,950 (($100,000 − $200) × 25%) because the amount of the proceeds of $99,800 ($100,000 − $200) is greater than $5,000, and is at least 300 times as great as the amount wagered ($200 × 300 = $60,000). The racetrack also must report C's winnings on Form W-2G pursuant to paragraph (e) of this section and furnish a copy of the Form W-2G to C. (g) Applicability date. (Secs. 6011 and 7805 of the Internal Revenue Code of 1954 (68A Stat. 732, 917; 26 U.S.C. 6011, 7805) [T.D. 7787, 46 FR 46908, Sept. 23, 1981, as amended by T.D. 7919, 48 FR 46298, Oct. 12, 1983; 48 FR 55728, Dec. 15, 1983; T.D. 7943, 49 FR 5345, Feb. 13, 1984; 49 FR 8437, Mar. 7, 1984; T.D. 8895, 65 FR 50408, Aug. 18, 2000; T.D. 9824, 82 FR 44926, Sept. 27, 2017] § 31.3402(r)-1 Withholding on distributions of Indian gaming profits to tribal members. (a) (1) General rule. (2) Withholding tables. (3) Annualized amount of payment. (4) Alternate withholding procedures In general. (ii) Method of election. (5) Additional withholding permitted. (b) Effective date. This section applies to payments made after December 31, 1994. [T.D. 8634, 60 FR 65238, Dec. 19, 1995] § 31.3403-1 Liability for tax. Every employer required to deduct and withhold the tax under section 3402 from the wages of an employee is liable for the payment of such tax whether or not it is collected from the employee by the employer. If, for example, the employer deducts less than the correct amount of tax, or if he fails to deduct any part of the tax, he is nevertheless liable for the correct amount of the tax. See, however, § 31.3402(d)-1. The employer is relieved of liability to any other person for the amount of any such tax withheld and paid to the district director or deposited with a duly designated depositary of the United States. § 31.3404-1 Return and payment by governmental employer. If the United States, or a State, Territory, Puerto Rico, or a political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing, is an employer required to deduct and withhold tax under Chapter 24, the return of the amount deducted and withheld as such tax may be made by the officer or employee having control of the payment of the wages or other officer or employee appropriately designated for that purpose. (For provisions relating to the execution and filing of returns, see Subpart G of the regulations in this part.) § 31.3405(a)-1 Questions and answers relating to Federal income tax withholding on periodic retirement and annuity payments. (a) The questions and answers in this section relate to Federal income tax withholding on periodic payments under section 3405(a), as amended by section 11041(c)(2)(G) of the Tax Cuts and Jobs Act (Pub. L. 115-97, 131 Stat. 2054 (2017)). The withholding rules of section 3405(a) do not apply to periodic payments that are eligible rollover distributions (as defined in section 402(f)(2)(A)). See generally section 3405(c) and § 31.3405(c)-1 for Federal income tax withholding rules applicable to eligible rollover distributions. See section 3405(e)(13) for additional rules applicable to certain periodic payments under section 3405(a) and nonperiodic distributions under section 3405(b) that are to be delivered outside the United States and its possessions. For additional guidance regarding periodic payments, see §§ 35.3405-1 and 35.3405-1T of this chapter. (b)(1) Q-1: How will Federal income tax be withheld from a periodic payment? (2) A-1: In the case of a periodic payment that is subject to withholding under section 3405(a), amounts are withheld as if the payment were a payment of wages by an employer to the employee for the appropriate payroll period. If the payee has not furnished a withholding certificate, the amount to be withheld is determined in the manner described in the applicable forms, instructions, publications, and other guidance prescribed by the Commissioner. The rules for withholding when the payee has not furnished a withholding certificate apply regardless of whether the payor is aware of the payee's actual marital status or actual Federal income tax filing status. (c)(1) Q-2: Do rules similar to those for wage withholding apply to the furnishing of a withholding certificate for periodic payments? (2) A-2: Yes. Unless the rules of section 3405 specifically conflict with the rules of section 3402, the rules for withholding on periodic payments that are not eligible rollover distributions will parallel the rules for wage withholding. Thus, if a withholding certificate is furnished by a payee, it will generally take effect in accordance with section 3402(f)(3) and as provided in applicable forms, instructions, publications, and other guidance prescribed by the Commissioner. If no withholding certificate is furnished, the amount withheld must be determined in the manner described in the applicable forms, instructions, publications, and other guidance prescribed by the Commissioner for withholding on periodic payments when no withholding certificate is furnished. (d)(1) Q-3: What is the applicability date of this section? (2) A-3: This section applies with respect to periodic payments made after December 31, 2020. [T.D. 9920, 85 FR 61815, Oct. 1, 2020] § 31.3405(c)-1 Withholding on eligible rollover distributions; questions and answers. The following questions and answers relate to withholding on eligible rollover distributions under section 3405(c) of the Internal Revenue Code of 1986, as added by section 522(b) of the Unemployment Compensation Amendments of 1992 (Public Law 102-318, 106 Stat. 290) (UCA). For additional UCA guidance under sections 401(a)(31), 402(c), 402(f), and 403(b)(8) and (10), see §§ 1.401(a)(31)-1, 1.402(c)-2, 1.402(f)-1, and 1.403(b)-2 of this chapter, respectively. List of Questions Q-1: What are the withholding requirements under section 3405 for distributions from qualified plans and section 403(b) annuities? Q-2: May a distributee elect under section 3405(c) not to have Federal income tax withheld from an eligible rollover distribution? Q-3: May a distributee be permitted to elect to have more than 20-percent Federal income tax withheld from an eligible rollover distribution? Q-4: Who has responsibility for complying with section 3405(c) relating to the 20-percent income tax withholding on eligible rollover distributions? Q-5: May the plan administrator shift the withholding responsibility to the payor and, if so, how? Q-6: How does the 20-percent withholding requirement under section 3405(c) apply if a distributee elects to have a portion of an eligible rollover distribution paid to an eligible retirement plan in a direct rollover and to have the remainder of that distribution paid to the distributee? Q-7: Will the plan administrator be subject to liability for tax, interest, or penalties for failure to withhold 20 percent from an eligible rollover distribution that, because of erroneous information provided by a distributee, is not paid to an eligible retirement plan even though the distributee elected a direct rollover? Q-8: Is an eligible rollover distribution that is paid to a qualified defined benefit plan subject to 20-percent withholding? Q-9: If property other than cash, employer securities, or plan loans is distributed, how is the 20-percent income tax withholding required under section 3405(c) accomplished? Q-10: What assumptions may a plan administrator make regarding whether a benefit is an eligible rollover distribution for purposes of determining the amount of a distribution that is subject to 20-percent mandatory withholding? Q-11: Are there special rules for applying the 20-percent withholding requirement to employer securities and a plan loan offset amount distributed in an eligible rollover distribution? Q-12: How does the mandatory withholding rule apply to net unrealized appreciation from employer securities? Q-13: Does the 20-percent withholding requirement apply to eligible rollover distributions from a qualified plan distributed annuity contract? Q-14: Must a payor or plan administrator withhold tax from an eligible rollover distribution for which a direct rollover election was not made if the amount of the distribution is less than $200? Q-15: If eligible rollover distributions are made from a qualified plan, who has responsibility for making the returns and reports required under these regulations? Q-16: What eligible rollover distributions must be reported on Form 1099-R? Q-17: Must the plan administrator, trustee or custodian of the eligible retirement plan report amounts received in a direct rollover? Questions and Answers Q-1: What are the withholding requirements under section 3405 for distributions from qualified plans and section 403(b) annuities? A-1: (a) General rule. (b) Application of other statutory provisions. (c) Effective date Statutory effective date General rule. (ii) Special rule for governmental section 403(b) annuities. (2) Regulatory effective date. Q-2: May a distributee elect under section 3405(c) not to have Federal income tax withheld from an eligible rollover distribution? A-2: No. The 20-percent income tax withholding imposed under section 3405(c)(1) applies to an eligible rollover distribution unless the distributee elects under section 401(a)(31) to have the eligible rollover distribution paid directly to an eligible retirement plan in a direct rollover. See § 1.401(a)(31)-1 and § 1.403(b)-7(b) of this chapter for provisions concerning the requirement that a distributee of an eligible rollover distribution be permitted to elect a distribution in the form of a direct rollover. Q-3: May a distributee be permitted to elect to have more than 20-percent Federal income tax withheld from an eligible rollover distribution? A-3: Yes. Under section 3402(p), a distributee of an eligible rollover distribution and the plan administrator or payor are permitted to enter into an agreement to provide for withholding in excess of 20 percent from an eligible rollover distribution. Any agreement must be made in accordance with applicable forms and instructions. However, no request for withholding will be effective between the plan administrator or payor and the distributee until the plan administrator or payor accepts the request by commencing to withhold from the amounts with respect to which the request was made. An agreement under section 3402(p) shall be effective for such period as the plan administrator or payor and the distributee mutually agree upon. However, either party to the agreement may terminate the agreement prior to the end of such period by furnishing a signed written notice to the other. Q-4: Who has responsibility for complying with section 3405(c) relating to the 20-percent income tax withholding on eligible rollover distributions? A-4: Section 3405(d) generally requires the plan administrator of a qualified plan and the payor of a section 403(b) annuity to withhold under section 3405(c)(1) an amount equal to 20 percent of the portion of an eligible rollover distribution that the distributee does not elect to have paid in a direct rollover. When an amount is paid under a qualified plan distributed annuity contract as defined in § 1.402(c)-2(h) of this chapter, the payor is treated as the plan administrator. See Q&A-13 of this section concerning eligible rollover distributions from a qualified plan distributed annuity contract. Q-5: May the plan administrator shift the withholding responsibility to the payor and, if so, how? A-5: Yes. The plan administrator may shift the withholding responsibility to the payor by following the procedures set forth in § 35.3405-1, Q&A E-2 through E-5 of this chapter (relating to elective withholding on pensions, annuities and certain other deferred income) with appropriate adjustments, including the plan administrator's identification of amounts that constitute required minimum distributions. Q-6: How does the 20-percent withholding requirement under section 3405(c) apply if a distributee elects to have a portion of an eligible rollover distribution paid to an eligible retirement plan in a direct rollover and to have the remainder of that distribution paid to the distributee? A-6: If a distributee elects to have a portion of an eligible rollover distribution paid to an eligible retirement plan in a direct rollover and to receive the remainder of the distribution, the 20-percent withholding requirement under section 3405(c) applies only to the portion of the eligible rollover distribution that the distributee receives and not to the portion that is paid in a direct rollover. Q-7: Will the plan administrator be subject to liability for tax, interest, or penalties for failure to withhold 20 percent from an eligible rollover distribution that, because of erroneous information provided by a distributee, is not paid to an eligible retirement plan even though the distributee elected a direct rollover? A-7: (a) General rule. (b) Adequate information. Q-8: Is an eligible rollover distribution that is paid to a qualified defined benefit plan subject to 20-percent withholding? A-8: No. If an eligible rollover distribution is paid in a direct rollover to an eligible retirement plan within the meaning of section 402(c)(8), including a qualified defined benefit plan, it is reasonable to believe that the distribution is not includible in gross income pursuant to section 402(c)(1). Accordingly, pursuant to section 3405(e)(1)(B), the distribution is not a designated distribution and is not subject to 20-percent withholding. Q-9: If property other than cash, employer securities, or plan loans is distributed, how is the 20-percent income tax withholding required under section 3405(c) accomplished? A-9: When all or a portion of an eligible rollover distribution subject to 20-percent income tax withholding under section 3405(c) consists of property other than cash, employer securities, or plan loan offset amounts, the plan administrator or payor must apply § 35.3405-1, Q&A F-2 of this chapter and may apply § 35.3405-1, Q&A F-3 of this chapter in determining how to satisfy the withholding requirements. Q-10: What assumptions may a plan administrator make regarding whether a benefit is an eligible rollover distribution for purposes of determining the amount of a distribution that is subject to 20-percent mandatory withholding? A-10: (a) In general. (b) $5,000 death benefit. (c) Required minimum distributions. (d) Valuation of property. Q-11: Are there special rules for applying the 20-percent withholding requirement to employer securities and a plan loan offset amount distributed in an eligible rollover distribution? A-11: Yes. The maximum amount to be withheld on any designated distribution (including any eligible rollover distribution) under section 3405(c) must not exceed the sum of the cash and the fair market value of property (excluding employer securities) received in the distribution. The amount of the sum is determined without regard to whether any portion of the cash or property is a designated distribution or an eligible rollover distribution. For purposes of this rule, any plan loan offset amount, as defined in § 1.402(c)-2(g) of this chapter, is treated in the same manner as employer securities. Thus, although employer securities and plan loan offset amounts must be included in the amount that is multiplied by 20-percent, the total amount required to be withheld for an eligible rollover distribution is limited to the sum of the cash and the fair market value of property received by the distributee, excluding any amount of the distribution that is a plan loan offset amount or that is distributed in the form of employer securities. For example, if the only portion of an eligible rollover distribution that is not paid in a direct rollover consists of employer securities or a plan loan offset amount, withholding is not required. In addition, if a distribution consists solely of employer securities and cash (not in excess of $200) in lieu of fractional shares, no amount is required to be withheld as income tax from the distribution under section 3405 (including section 3405(c) and this section). For purposes of section 3405 and this section, employer securities means securities of the employer corporation within the meaning of section 402(e)(4)(E)(ii). Q-12: How does the mandatory withholding rule apply to net unrealized appreciation from employer securities? A-12: An eligible rollover distribution can include net unrealized appreciation from employer securities, within the meaning of section 402(e)(4), even if the net unrealized appreciation is excluded from gross income under section 402(e)(4). However, to the extent that it is excludable from gross income pursuant to section 402(e)(4), net unrealized appreciation is not a designated distribution pursuant to section 3405(e)(1)(B) because it is reasonable to believe that it is not includable in gross income. Thus, to the extent that net unrealized appreciation is excludable from gross income pursuant to section 402(e)(4), net unrealized appreciation is not included in the amount of an eligible rollover distribution that is subject to 20-percent withholding. Q-13: Does the 20-percent withholding requirement apply to eligible rollover distributions from a qualified plan distributed annuity contract? A-13: The 20-percent withholding requirement applies to eligible rollover distributions from a qualified plan distributed annuity contract as defined in § 1.402(c)-2(h) of this chapter. In the case of an eligible rollover distribution from such an annuity contract, the payor is treated as the plan administrator for purposes of section 3405. See § 1.401(a)(31)-1, Q&A-17 of this chapter concerning the direct rollover requirements that apply to distributions from such an annuity contract and see § 1.402(c)-2(h) of this chapter concerning the treatment of distributions from such annuity contracts as eligible rollover distributions. Q-14: Must a payor or plan administrator withhold tax from an eligible rollover distribution for which a direct rollover election was not made if the amount of the distribution is less than $200? A-14: No. However, all eligible rollover distributions received within one taxable year of the distributee under the same plan must be aggregated for purposes of determining whether the $200 floor is reached. If the plan administrator or payor does not know at the time of the first distribution (that is less than $200) whether there will be additional eligible rollover distributions during the year for which aggregation is required, the plan administrator need not withhold from the first distribution. If distributions are made within one taxable year under more than one plan of an employer, the plan administrator or payor may, but need not, aggregate distributions for purposes of determining whether the $200 floor is reached. However, once the $200 threshold has been reached, the sum of all payments during the year must be used to determine the applicable amount to be withheld from subsequent payments during the year. Q-15: If eligible rollover distributions are made from a qualified plan, who has responsibility for making the returns and reports required under these regulations? A-15: Generally, the plan administrator, as defined in section 414(g), is responsible for maintaining the records and making the required reports with respect to eligible rollover distributions from qualified plans. However, if the plan administrator fails to keep the required records and make the required reports, the employer maintaining the plan is responsible for the reports and returns. Q-16: What eligible rollover distributions must be reported on Form 1099-R? A-16: Each eligible rollover distribution, including each eligible rollover distribution that is paid directly to an eligible retirement plan in a direct rollover, must be reported on Form 1099-R in accordance with the instructions for Form 1099-R. For purposes of the reporting required under section 6047(e), a direct rollover is treated as a distribution that is immediately rolled over to an eligible retirement plan. Distributions that are not eligible rollover distributions are subject to the reporting requirements set forth in § 35.3405-1 of this chapter and applicable forms and instructions. Q-17: Must the plan administrator, trustee or custodian of the eligible retirement plan report amounts received in a direct rollover? A-17: (a) Individual retirement plan. (b) Qualified plan or section 403(b) annuity. [T.D. 8619, 60 FR 49215, Sept. 22, 1995, as amended by T.D. 8880, 65 FR 21315, Apr. 21, 2000; T.D. 9340, 72 FR 41159, July 26, 2007; T.D. 10001, 89 FR 58951, July 19, 2024] § 31.3405(e)-1 Questions and answers relating to withholding on pensions, annuities, and certain other deferred income. (a) The following questions and answers apply for purposes of determining whether a payor of periodic payments or nonperiodic distributions from pensions, annuities, and certain other deferred income (other than eligible rollover distributions) must withhold federal income tax under section 3405(a) or (b) of the Code. For purposes of this section, references to the United States include possessions of the United States. (b)(1) Q-1. (2) A-1. (c)(1) Q-2. (2) A-2. (i) Send the distribution to a financial institution or other person located outside of the United States; (ii) Send the distribution to a financial institution or other person located within the United States with further instructions (such as for further credit to (iii) Send the distribution to a financial institution or other person pursuant to payment instructions (including addenda information) that reference an International Automated Clearing House Transaction (IAT), International Bank Account Number (IBAN), Society for Worldwide Interbank Financial Telecommunication (SWIFT) Business Identifier Code (BIC), or similar identifier linked to a financial institution or other person located outside of the United States. (d)(1) Q-3. (2) A-3. (e)(1) Q-4. (2) A-4. (f)(1) Q-5. (2) A-5. (g)(1) Q-6. (2) A-6. [T.D. 10008, 89 FR 84082, Oct. 21, 2024] § 31.3406-0 Outline of the backup withholding regulations. This section lists paragraphs contained in §§ 31.3406(a)-1 through 31.3406(i)-1. § 31.3406(a)-1 Backup withholding requirement on reportable payments. (a) Overview. (b) Conditions that invoke the backup withholding requirement. (1) Conditions applicable to all reportable payments. (2) Conditions applicable only to reportable interest or dividend payments. (c) Exceptions. (d) Cross references. § 31.3406(a)-2 Definition of payors obligated to backup withhold. (a) In general. (b) Persons treated as payors. (c) Persons not treated as payors. (d) Effective date. § 31.3406(a)-3 Scope and extent of accounts subject to backup withholding. § 31.3406(a)-4 Time when payments are considered to be paid and subject to backup withholding. (a) Timing. (1) In general. (2) Special rules for dividends. (b) Amounts reportable under section 6045. (1) In general. (2) Special rule for interest accrued on bonds. (c) Middlemen. (1) In general. (2) Special rule for common trust funds. (3) Special rule for certain grantor trusts. § 31.3406(b)(2)-1 Reportable interest payment. (a) Interest subject to backup withholding. (1) In general. (2) Special rule for tax-exempt interest. (b) Amount subject to backup withholding. (1) In general. (2) Special rule to adjust for premature withdrawal penalty. § 31.3406(b)(2)-2 Original issue discount. (a) Original issue discount subject to backup withholding. (b) Amount subject to backup withholding and time when backup withholding is imposed with respect to short-term obligations. (c) Transferred short-term obligations. (1) Subsequent holder may establish purchase price. (2) Subsequent holder unable (or not permitted) to establish purchase price. (3) Transferred obligation. (d) Amount subject to backup withholding and time when backup withholding is imposed with respect to long-term obligations. (1) No cash payments prior to maturity. (2) Registered long-term obligations with cash payments prior to maturity. (3) Transferred registered long-term obligations with payments prior to maturity. (e) Bearer long-term obligations. (1) Payments prior to maturity. (2) Payments at maturity. § 31.3406(b)(2)-3 Window transactions. (a) Requirement to backup withhold. (b) Window transaction defined. (c) Manner of furnishing taxpayer identification number in the case of a window transaction. § 31.3406(b)(2)-4 Reportable dividend payment. (a) Dividends subject to backup withholding. (b) Dividends not subject to backup withholding. (c) Amount subject to backup withholding. (1) In general. (2) Reasonable estimate of amount of dividend subject to backup withholding. (3) Reinvested dividends. § 31.3406(b)(2)-5 Reportable patronage dividend payment. (a) Patronage dividends subject to backup withholding. (b) Amount subject to backup withholding. (1) Failure to provide taxpayer identification number or notification of incorrect taxpayer identification number. (2) Notified payee underreporting or payee certification failure. § 31.3406(b)(3)-1 Reportable payments of rents, commissions, nonemployee compensation, etc. (a) Section 6041 and 6041A(a) payments subject to backup withholding. (b) Amount subject to backup withholding. (1) In general. (2) Net commissions. (3) Payments aggregating $600 or more for the calendar year. § 31.3406(b)(3)-2 Reportable barter exchanges and gross proceeds of sales of securities, commodities, or digital assets by brokers. (a) Transactions subject to backup withholding. (b) Amount subject to backup withholding. (1) In general. (2) Forward contracts, including foreign currency contracts, and regulated futures contracts. (3) Security sales made through a margin account. (4) Security short sales. (5) Fractional shares. (6) Amount subject to backup withholding in the case of reporting under § 1.6045-1(d)(2)(i)(C) and (d)(10) of this chapter. (i) Optional reporting method for sales of qualifying stablecoins and specified nonfungible tokens. (A) In general. (B) Backup withholding on non-designated sales of qualifying stablecoins. ( 1 ( 2 (ii) Applicable threshold for sales by processors of digital asset payments. § 31.3406(b)(3)-3 Reportable payments by certain fishing boat operators. (a) Payments subject to backup withholding. (b) Amount subject to backup withholding. § 31.3406(b)(3)-4 Reportable payments of royalties. (a) Royalty payments subject to backup withholding. (b) Amount subject to backup withholding. § 31.3406(b)(3)-5 Reportable payments of payment card and third party network transactions. (a) Payment card and third party network transactions subject to backup withholding. (b) Amount subject to backup withholding. (c) Time when payments are considered to be subject to backup withholding. (d) Backup withholding from an alternate source. (e) Effective/applicability date. § 31.3406(b)(4)-1 Exemption for certain minimal payments. (a) In general. (b) Manner of making the election. (c) How to annualize. (1) In general. (2) Special aggregation rule for reportable interest and dividends. (d) Exception for window transactions and original issue discount. § 31.3406(c)-1 Notified payee underreporting of reportable interest or dividend payments. (a) Overview. (b) Definitions. (1) Notified payee underreporting. (2) Payee underreporting. (c) Notice to payors regarding backup withholding due to notified payee underreporting. (1) In general. (2) Additional requirements for payors that are also brokers. (3) Payor identification of accounts of the payee subject to backup withholding due to notified payee underreporting. (d) Notice from payors of backup withholding due to notified payee underreporting. (1) In general. (2) Procedures. (e) Period during which backup withholding is required. (1) In general. (2) Stop withholding. (3) Dormant accounts. (f) Notice to payees from the Internal Revenue Service. (1) Notice period. (2) Payee subject to backup withholding. (3) Disclosure of names of payors and brokers. (4) Backup withholding certification. (g) Determination by the Internal Revenue Service that backup withholding should not start or should be stopped. (1) In general. (2) Date notice to stop backup withholding will be provided. (3) Grounds for determination. (4) No underreporting. (5) Correcting any payee underreporting. (6) Undue hardship. (7) Bona fide dispute. (h) Payees filing a joint return. (1) In general. (2) Exceptions. (i) [Reserved] (j) Penalties. § 31.3406(d)-1 Manner required for furnishing a taxpayer identification number. (a) Requirement to backup withhold. (b) Reportable interest or dividend account. (1) Manner required for furnishing a taxpayer identification number with respect to a pre-1984 account or instrument. (2) Determination of pre-1984 account or instrument. (3) Manner required for furnishing a taxpayer identification number with respect to an account or instrument that is not a pre-1984 account. (4) Special rule with respect to the acquisition of a readily tradable instrument in a transaction between certain parties acting without the assistance of a broker. (c) Brokerage account. (1) Manner required for furnishing a taxpayer identification number with respect to a brokerage relationship that is not a post-1983 brokerage account. (2) Manner required for furnishing a taxpayer identification number with respect to a post-1983 brokerage account. (d) Rents, commissions, nonemployee compensation, and certain fishing boat operators, etc.—Manner required for furnishing a taxpayer identification number. § 31.3406(d)-2 Payee certification failure. (a) Requirement to backup withhold. (b) Exceptions. § 31.3406(d)-3 Special 30-day rules for certain reportable payments. (a) Accounts or readily tradable instruments acquired directly from the payor (including a broker who holds an instrument in street name) by electronic transmission or by mail. (b) Sale of an instrument for a customer by electronic transmission or by mail. (c) Application to foreign payees. § 31.3406(d)-4 Special rules for readily tradable instruments acquired through a broker. (a) Readily tradable instruments acquired through post-1983 brokerage accounts with a broker who is not a payor. (1) In general. (2) Additional requirements. (3) Transactions entered into through a brokerage account that is not a post-1983 brokerage account. (4) Payor must notify payee. (b) Notices. (1) Form of notice by broker to payor. (2) Form of notice by payor to payee. (c) Payor's reliance on information from broker. (1) In general. (2) Amount subject to backup withholding. § 31.3406(d)-5 Backup withholding when the Service or a broker notifies the payor to withhold because the payee's taxpayer identification number is incorrect. (a) Overview. (b) Definitions and special rules. (1) Definition of an incorrect name/TIN combination. (2) Definition of account. (3) Definition of business day. (4) Certain exceptions. (c) Notice regarding an incorrect name/TIN combination. (1) In general. (2) Additional requirements for payors that are also brokers. (3) Payor identification of the account or accounts of the payee that have the incorrect taxpayer identification number. (4) Special rule for joint accounts. (5) Date of receipt. (d) Notice from payors of backup withholding due to an incorrect name/TIN combination. (1) In general. (2) Procedures. (e) Period during which backup withholding is required due to notification of an incorrect name/TIN combination. (1) In general. (2) Grace periods. (3) Dormant accounts. (f) Manner required for payee to furnish certified taxpayer identification number. (g) Receipt of two notices within a 3-year period. (1) In general. (2) Notice to payee who has provided two incorrect name/TIN combinations within 3 calendar years. (3) Period during which backup withholding is required due to a second notice of an incorrect name/TIN combination within 3 calendar years. (4) Receipt of two notices in one calendar year. (5) Notification from the Social Security Administration (or the Internal Revenue Service) validating a name/TIN combination. (h) Payors must use newly provided certified number. (i) Effective date. (j) Examples. § 31.3406(e)-1 Period during which backup withholding is required. (a) In general. (b) Failure to furnish a taxpayer identification number in the manner required. (1) Start withholding. (2) Stop withholding. (c) Notification of an incorrect taxpayer identification number. (d) Notified payee underreporting. (e) Payee certification failure. (1) Start withholding. (2) Stop withholding. (f) Rule for determining when the payor receives a taxpayer identification number or certificate from a payee. § 31.3406(f)-1 Confidentiality of information. (a) Confidentiality and liability for violation. (b) Permissible use of information. (1) In general. (2) Window transactions. (c) Specific restrictions on the use of information. § 31.3406(g)-1 Exception for payments to certain payees and certain other payments. (a) Exempt recipients. (1) In general. (2) Nonexclusive list. (b) Determination of whether a person is described in paragraph (a)(1) of this section. (c) Prepaid or advance premium life-insurance contracts. (d) Reportable payments made to Canadian nonresident alien individuals. (e) Certain reportable payments made outside the United States by foreign persons, foreign offices of United States banks and brokers, and others. (1) Reportable payments other than gross proceeds from sales of digital assets. (2) Reportable payments of gross proceeds from sales of digital assets. (i)-(ii) [Reserved] (f) Applicability date. § 31.3406(g)-2 Exception for reportable payments for which backup withholding is otherwise required. (a) In general. (b) Payment of wages. (c) Distribution from a pension, annuity, or other plan of deferred compensation. (d) Gambling winnings. (1) In general. (2) Definition of a reportable gambling winning and determination of amount subject to backup withholding. (3) Special rules. (e) Certain real estate transactions. (f) Certain payments after an acquisition of accounts or instruments. (g) Certain gross proceeds. (h) Applicability date. § 31.3406(g)-3 Exemption while payee is waiting for a taxpayer identification number. (a) In general. (1) Backup withholding not required for 60 days. (2) Reserve method. (3) Alternative rule; 7-day grace period. (b) Special rule for readily tradable instruments. (c) Exceptions. (1) In general. (2) Special rule for amounts subject to reporting under section 6045 other than proceeds of redemptions of bearer obligations. (d) Awaiting-TIN certificate. (e) Form for awaiting-TIN certificate. § 31.3406(h)-1 Definitions. (a) In general. (b) Taxpayer identification number. (1) In general. (2) Obviously incorrect number. (c) Broker. (d) Readily tradable instrument. (e) Day. (f) Business day. § 31.3406(h)-2 Special rules. (a) Joint accounts. (1) Relevant name and taxpayer identification number combination. (2) Optional rule for accounts subject to backup withholding under section 3406(a)(1)(B) or (C) where the names are switched. (3) Joint foreign payees. (b) Backup withholding from an alternative source. (1) In general. (2) Exceptions for payments made in property. (c) Trusts. (d) Adjustment of prior withholding by middleman. (e) Conversion of amounts paid in foreign currency into United States dollars. (1) Convertible foreign currency. (2) Nonconvertible foreign currency. [Reserved] (f) Coordination with other sections. (g) Tax liabilities and penalties. (h) To whom payor is liable for amount withheld. § 31.3406(h)-3 Certificates. (a) Prescribed form to furnish information under penalties of perjury. (1) In general. (2) Use of a single or multiple Forms W-9 for accounts of the same payee. (b) Prescribed form to furnish a noncertified taxpayer identification number. (c) Forms prepared by payors or brokers. (1) Substitute forms; in general. (2) Form for exempt recipient. (d) Special rule for brokers. (e) Reasonable reliance on certificate. (1) In general. (2) Circumstances establishing reasonable reliance. (f) Who may sign certificate. (1) In general. (2) Notified payee underreporting. (g) Retention of certificates. (1) Accounts or instruments that are not pre-1984 accounts and brokerage relationships that are post-1983 brokerage accounts. (2) Accounts or instruments that are pre-1984 accounts and brokerage relationships that are not post-1983 brokerage accounts. (h) Cross references. § 31.3406(i)-1 Effective date. [T.D. 8637, 60 FR 66112, Dec. 21, 1995, as amended by T.D. 8734, 62 FR 53493, Oct. 14, 1997; T.D. 9010, 67 FR 48759, July 26, 2002; T.D. 9496, 75 FR 49834, Aug. 16, 2010; T.D. 9824, 82 FR 44929, Sept. 27, 2017; T.D. 10000, 89 FR 56582, July 9, 2024] § 31.3406(a)-1 Backup withholding requirement on reportable payments. (a) Overview. (b) Conditions that invoke the backup withholding requirement Conditions applicable to all reportable payments. (i) The payee of the reportable payment does not furnish the payee's taxpayer identification number to the payor, as required in section 3406(a)(1)(A) and § 31.3406(d)-1; or (ii) The Internal Revenue Service or a broker notifies the payor that the taxpayer identification number furnished by its payee for a reportable payment is incorrect, as described in section 3406(a)(1)(B) and § 31.3406(d)-5. (2) Conditions applicable only to reportable interest or dividend payments. (i) The Internal Revenue Service or a broker notifies the payor that its payee has underreported interest or dividend income, as described in section 3406(a)(1)(C) and § 31.3406(c)-1; or (ii) The payee fails to certify to the payor or broker that the payee is not subject to withholding due to notified payee underreporting, as described in section 3406(a)(1)(D) and § 31.3406(d)-2. (c) Exceptions. (d) Cross references. payor, taxpayer identification number, (e) Applicability date. [T.D. 8637, 60 FR 66114, Dec. 21, 1995, as amended by T.D. 10053, 91 FR 51394, Aug. 10, 2026] § 31.3406(a)-2 Definition of payors obligated to backup withhold. (a) In general. Payor (b) Persons treated as payors. (1) A grantor trust established after December 31, 1995, all of which is owned by two or more grantors (treating for this purpose spouses filing a joint return as one grantor); (2) A grantor trust with ten or more grantors established on or after January 1, 1984 but before January 1, 1996; (3) A common trust fund; and (4) A partnership or an S corporation that makes a reportable payment. (c) Persons not treated as payors. (1) A trust (other than a grantor trust as described in paragraph (b)(1) or (2) of this section) that files a Form 1041 containing information required to be shown on an information return, including amounts withheld under section 3406; or (2) A partnership making a payment of a distributive share or an S corporation making a similar distribution. (d) Effective date. [T.D. 9010, 67 FR 48759, July 26, 2002, as amended by T.D. 9496, 75 FR 49835, Aug. 16, 2010] § 31.3406(a)-3 Scope and extent of accounts subject to backup withholding. A payor who is required to withhold under § 31.3406(a)-1 must withhold— (a) On the accounts subject to withholding under § 31.3406(a)-1 (b)(1)(i) or (b)(2)(ii); and (b) On the accounts subject to withholding under § 31.3406(a)-1(b)(1)(ii) or (b)(2)(i), as described under § 31.3406(d)-5 (relating to notification of incorrect TIN) or § 31.3406(c)-1 (relating to notified payee underreporting), respectively. [T.D. 8637, 60 FR 66114, Dec. 21, 1995] § 31.3406(a)-4 Time when payments are considered to be paid and subject to backup withholding. (a) Timing In general. (2) Special rules for dividends. (i) Record date earlier than payment date. (ii) Dividends paid in corporate reorganizations. (b) Amounts reportable under section 6045 In general. (2) Special rule for interest accrued on bonds. (c) Middlemen In general. (2) Special rule for common trust funds. (i) At the time the reportable payment is received by or credited to the common trust fund as provided in paragraph (c)(1) of this section; (ii) On the date on which the assets of the common trust fund are valued; or (iii) At the time the common trust fund pays or credits the reportable payment to a participant of the common trust fund. (3) Special rule for certain grantor trusts. [T.D. 8637, 60 FR 66115, Dec. 21, 1995, as amended by T.D. 9010, 67 FR 48760, July 26, 2002] § 31.3406(b)(2)-1 Reportable interest payment. (a) Interest subject to backup withholding In general. (2) Special rule for tax-exempt interest. (b) Amount subject to backup withholding In general. (2) Special rule to adjust for premature withdrawal penalty. [T.D. 8637, 60 FR 66115, Dec. 21, 1995] § 31.3406(b)(2)-2 Original issue discount. (a) Original issue discount subject to backup withholding. (b) Amount subject to backup withholding and time when backup withholding is imposed with respect to short-term obligations. (c) Transferred short-term obligations Subsequent holder may establish purchase price In general. (ii) Exception. (2) Subsequent holder unable (or not permitted) to establish purchase price. (3) Transferred obligation. (d) Amount subject to backup withholding and time when backup withholding is imposed with respect to long-term obligations No cash payments prior to maturity. (2) Registered long-term obligations with cash payments prior to maturity. (3) Transferred registered long-term obligations with payments prior to maturity. (e) Bearer long-term obligations. (1) Payments prior to maturity. (2) Payments at maturity. [T.D. 8637, 60 FR 66115, Dec. 21, 1995; 61 FR 12135, Mar. 25, 1996] § 31.3406(b)(2)-3 Window transactions. (a) Requirement to backup withhold. (b) Window transaction defined. Window transaction (1) An interest coupon in bearer form that is subject to taxation (i.e., other than exempt interest described in § 1.6049-5(b)(1)(ii) of this chapter); (2) A United States savings bond; or (3) A discount obligation having a maturity at issue of one year or less, including commercial paper and bankers' acceptances that are in definitive form (i.e., evidenced by a paper document other than a confirmation receipt) but not including short-term government obligations (as defined in section 1271(a)(3)(B)). (c) Manner of furnishing taxpayer identification number in the case of a window transaction. [T.D. 8637, 60 FR 66116, Dec. 21, 1995] § 31.3406(b)(2)-4 Reportable dividend payment. (a) Dividends subject to backup withholding. (b) Dividends not subject to backup withholding. (1) Any amount treated as a taxable dividend by reason of section 302 (relating to redemptions of stock), section 304 (relating to redemptions through the use of related corporations), section 306 (relating to disposition of certain stock), section 356 (relating to receipt of additional consideration in connection with certain reorganizations), or section 1081(e)(2) (relating to certain distributions pursuant to an order of the Securities and Exchange Commission); (2) Any exempt-interest dividend, as defined in section 852(b)(5)(A), paid by a regulated investment company; or (3) Any amount paid or treated as paid during a year by a regulated investment company, provided that the payor reasonably estimates, as provided in paragraph (c)(2) of this section, that 95 percent or more of all dividends paid or treated as paid during the year are exempt-interest dividends. (c) Amount subject to backup withholding In general. (2) Reasonable estimate of amount of dividend subject to backup withholding. (i) The estimate does not exceed the proportion of the distributions made by the payor during the most recent calendar year for which a Form 1099 was required to be filed that was not reported by the payor as a dividend; and (ii) The payor has no reasonable basis to expect that the proportion of the distribution that is not a dividend will be substantially different for the current year. (3) Reinvested dividends. [T.D. 8637, 60 FR 66117, Dec. 21, 1995] § 31.3406(b)(2)-5 Reportable patronage dividend payment. (a) Patronage dividends subject to backup withholding. (b) Amount subject to backup withholding Failure to provide taxpayer identification number or notification of incorrect taxpayer identification number. money (2) Notified payee underreporting or payee certification failure. (i) There has been a notified payee underreporting described in section 3406(a)(1)(C) and § 31.3406(c)-1 or there has been a payee certification failure described in section 3406(a)(1)(D) and § 31.3406(d)-2; (ii) The payor makes a reportable payment subject to reporting under section 6044 to the payee; and (iii) Fifty percent or more of the payment is in cash or by qualified check. [T.D. 8637, 60 FR 66117, Dec. 21, 1995] § 31.3406(b)(3)-1 Reportable payments of rents, commissions, nonemployee compensation, etc. (a) Section 6041 and 6041A(a) payments subject to backup withholding. (b) Amount subject to backup withholding In general. (2) Net commissions. (3) Payments aggregating $600 or more for the calendar year In general. (ii) Exceptions The $600 aggregation rule. (B) Determination of whether payments aggregate $600 or more. ( 1 ( 2 [T.D. 8637, 60 FR 66117, Dec. 21, 1995] § 31.3406(b)(3)-2 Reportable barter exchanges and gross proceeds of sales of securities, commodities, or digital assets by brokers. (a) Transactions subject to backup withholding. (b) Amount subject to backup withholding In general. (2) Forward contracts, including foreign currency contracts, and regulated futures contracts In general. (A) All cash or property withdrawn from the account by the customer during the relevant year; and (B) The amount of cash in the account available for withdrawal by the customer at the relevant year-end (including both gross proceeds and variation margin). (ii) Rules concerning withdrawals. b (iii) Special rule for forward contracts, including foreign currency contracts, and regulated futures contracts. (3) Security sales made through a margin account. (4) Security short sales Amount subject to backup withholding. (ii) Time of backup withholding. (5) Fractional shares. (6) Amount subject to backup withholding in the case of reporting under § 1.6045-1(d)(2)(i)(C) and (d)(10) of this chapter Optional reporting method for sales of qualifying stablecoins and specified nonfungible tokens In general. (B) Backup withholding on non-designated sales of qualifying stablecoins 1 In general. ( 2 Non-qualifying events. non-qualifying event 2 (ii) Applicable threshold for sales by processors of digital asset payments. (c) Applicability date. see [T.D. 8637, 60 FR 66118, Dec. 21, 1995, as amended by T.D. 9010, 67 FR 48760, July 26, 2002; T.D. 10000, 89 FR 56582, July 9, 2024] § 31.3406(b)(3)-3 Reportable payments by certain fishing boat operators. (a) Payments subject to backup withholding. (b) Amount subject to backup withholding. [T.D. 8637, 60 FR 66119, Dec. 21, 1995] § 31.3406(b)(3)-4 Reportable payments of royalties. (a) Royalty payments subject to backup withholding. (b) Amount subject to backup withholding. [T.D. 8637, 60 FR 66119, Dec. 21, 1995] § 31.3406(b)(3)-5 Reportable payments of payment card and third party network transactions. (a) Payment card and third party network transactions subject to backup withholding. (b) Amount subject to backup withholding In general. (2) Third party network transactions. (3) Exception. (4) Examples. (i) Example 1. (ii) Example 2. Example 1 (iii) Example 3. Example 2 (iv) Example 4. Example 3 (c) Time when payments are considered to be subject to backup withholding In general. (2) Example. Example. On Day 1, Customer A uses a payment card to purchase $100 worth of goods from Merchant B. Bank X, the merchant acquiring entity for B, is the party with the contractual obligation to make payment to B in settlement of the transaction. On Day 2, X, after deducting fees of $2, makes payment of $98 to settle the transaction for the sale of goods from B to A. Under paragraph (a)(6) of § 1.6050W-1, X must report the amount of $100, the amount of the transaction on Day 1, without any reduction for fees or any other amount, as the gross amount of this reportable payment transaction on the annual information return filed under paragraph (a)(1) of § 1.6050W-1. Under paragraph (c)(1) of this section, X's obligation, if any, to backup withhold arises on Day 1, the backup withholding obligation must be satisfied on Day 2, and the amount subject to backup withholding is $100 (the gross amount of the reportable payment transaction (as defined in paragraph (a)(6) of § 1.6050W-1)). (d) Backup withholding from an alternate source In general. (2) Exceptions for backup withholding when there are no funds available Backup withholding from an alternative source. (ii) Deferral of withholding. (A) The date on which cash, in a sufficient amount to satisfy the obligation in full, is deposited in the account subject to withholding under section 3406; or (B) The close of the fourth calendar year after the obligation arose. (iii) Termination of obligation to backup withhold. (e) Applicability date. [T.D. 9496, 75 FR 49835, Aug. 16, 2010, as amended by T.D. 10053, 91 FR 51394, Aug. 10, 2026] § 31.3406(b)(4)-1 Exemption for certain minimal payments. (a) In general. (b) Manner of making the election. (c) How to annualize In general. (2) Special aggregation rule for reportable interest and dividends. (d) Exception for window transactions and original issue discount. [T.D. 8637, 60 FR 66119, Dec. 21, 1995] § 31.3406(c)-1 Notified payee underreporting of reportable interest or dividend payments. (a) Overview. (b) Definitions Notified payee underreporting. Notified payee underreporting (i) Determined that there was a payee underreporting (as defined in paragraph (b)(2) of this section); (ii) Mailed at least four notices under paragraph (f)(1) of this section to the payee (over a period of at least 120 days) with respect to the underreporting; and (iii) Assessed any deficiency attributable to the underreporting in the case of any payee who has filed a return. (2) Payee underreporting In general. Payee underreporting (A) A payee failed to include in the payee's return of tax under chapter 1 of the Internal Revenue Code for that year any portion of a reportable interest or dividend payment required to be shown on that tax return; or (B) A payee may be required to file a return for that year and to include a reportable interest or dividend payment in the return, but failed to file the return. (ii) Payments included in making payee underreporting determination. (c) Notice to payors regarding backup withholding due to notified payee underreporting In general. (i) Identify any accounts of the payee under the rules of paragraph (c)(3) of this section; and (ii) Notify the payee and withhold under section 3406 on reportable interest or dividend payments made with respect to any identified account under the rules of paragraphs (d) and (e) of this section. (2) Additional requirements for payors that are also brokers In general. (A) The broker (in its capacity as a payor) receives a notice from the Internal Revenue Service under paragraph (c)(1) of this section that a payee is subject to withholding due to notified payee underreporting and the broker is required to identify an account of the payee under paragraph (c)(3) of this section; (B) The payee subsequently acquires the instrument from the broker through the same account; and (C) The acquisition of the instrument occurs after the close of the 30th business day after the date that the broker receives the notice (or on any earlier date that the broker may begin applying this paragraph (c)(2) after receipt of the notice described in paragraph (c)(1) of this section). (ii) Transfer out of street name. (iii) Method of providing notice. (iv) Termination of obligation to provide information. (3) Payor identification of accounts of the payee subject to backup withholding due to notified payee underreporting In general Notice from the Internal Revenue Service. (B) Notice from a broker. (ii) Exercise of reasonable care. (iii) Newly opened accounts. (B) For purposes of paragraph (c)(3)(iii)(A) of this section, a payor is considered to have actual knowledge that a payee's statement that the payee is not subject to withholding under section 3406(a)(1)(C) is not true if— ( 1 ( 2 ( 3 (C) Except as provided in this paragraph (c)(3)(iii)(C), a payor is not required to investigate whether the statements made on the Form W-9 described in paragraph (c)(3)(iii)(A) of this section are true. If, however, in opening a new account, the payor relies on the same Form W-9 (or appropriate substitute) that it relied on previously in opening another account, the payor must investigate whether any such existing account is subject to withholding under section 3406(a)(1)(C). Similarly, if the payor utilizes a universal account system described in the first sentence of paragraph (c)(3)(ii) of this section, and in opening a new account the payor searches its records to determine whether the new account should be identified under an existing identifier (because the payee has existing accounts with the payor), the payor must investigate whether any existing accounts identified with the same identifier are subject to withholding under section 3406(a)(1)(C). (d) Notice from payors of backup withholding due to notified payee underreporting In general. (2) Procedures. (i) That the Internal Revenue Service has given notice that the payee has underreported reportable interest or dividends; (ii) That, as a result of the underreporting, the payor is required under section 3406(a)(1)(C) of the Internal Revenue Code to withhold 31 percent of reportable interest or dividend payments made to the payee; (iii) The date that the payor started (or plans to start) withholding due to notified payee underreporting under section 3406(a)(1)(C); (iv) The account number or numbers that are subject to withholding due to notified payee underreporting; (v) That the payee must obtain a determination from the Internal Revenue Service in order to stop the withholding due to notified payee underreporting; and (vi) That while the payee is subject to withholding due to notified payee underreporting, the payee may not certify to a payor making reportable interest or dividend payments (or to a broker acquiring a readily tradable instrument for the payee) that the payee is not subject to withholding due to notified underreporting. (e) Period during which backup withholding is required In general. (2) Stop withholding When no underreporting exists or undue hardship exists Stop date. ( 1 ( 2 (B) Acceleration of stop date. (ii) When underreporting is corrected or bona fide dispute exists. (3) Dormant accounts. (i) The date that the most recent reportable interest or dividend payment was made with respect to that account; or (ii) The date that the payor received notice under paragraph (c)(1) of this section. (f) Notice to payees from the Internal Revenue Service Notice period. (2) Payee subject to backup withholding. (i) A payee obtains a determination under paragraph (g) of this section; or (ii) In the case of a payee who has filed a tax return, the Internal Revenue Service has not assessed the deficiency attributable to the underreporting. (3) Disclosure of names of payors and brokers. (4) Backup withholding certification. (g) Determination by the Internal Revenue Service that backup withholding should not start or should be stopped In general. (2) Date notice to stop backup withholding will be provided Underreporting corrected or bona fide dispute. (ii) No underreporting or undue hardship. (3) Grounds for determination. (i) Shows that there was no payee underreporting (as provided in paragraph (g)(4) of this section) for each taxable year with respect to which the Internal Revenue Service determined under paragraph (b)(2) of this section that there was payee underreporting; (ii) Corrects any payee underreporting (as provided in paragraph (g)(5) of this section) for each taxable year with respect to which the Internal Revenue Service determined under paragraph (b)(2) of this section that there was payee underreporting; (iii) Shows that withholding will cause or is causing an undue hardship (as defined in paragraph (g)(6) of this section) and that it is unlikely that the payee will underreport interest or dividend payments again; or (iv) Shows that a bona fide dispute exists regarding whether any underreporting has occurred (as provided in paragraph (g)(7) of this section) for each taxable year with respect to which the Internal Revenue Service determined under paragraph (b)(2) of this section that there was payee underreporting. (4) No underreporting. (i) Receipts or other satisfactory documentation to the Internal Revenue Service showing that all taxes relating to the payments were reported; or (ii) Evidence showing that the payee did not have to file a return for the taxable year in question (e.g., because the payee did not make enough income) or that the underreporting determination was based upon a factual, clerical, or other error. (5) Correcting any payee underreporting Before issuance of a statutory notice of deficiency. (A) By filing a return if one was not previously filed and including the unreported interest and dividends thereon; (B) By filing an amended return in the event a return was filed and including the unreported interest and dividends thereon; or (C) By consenting to the additional assessment according to applicable notices and forms sent to the payee by the Internal Revenue Service with respect to the underreporting, and paying taxes, penalties, and interest due with respect to any underreported interest or dividend payments. (ii) After issuance of a statutory notice of deficiency. (A) The payee may correct underreporting at any time, by filing a return if one was not previously filed and paying the entire deficiency and any other taxes including penalties and interest attributable to any payee underreporting of interest or dividend payments; or (B) The payee may correct underreporting after the mailing of the statutory notice of deficiency but before the expiration of the 90-day or 150-day period described in section 6213(a) or, if a petition is filed with the United States Tax Court, before the decision of the Tax Court is final, by making a remittance to the Internal Revenue Service of the amounts described in paragraph (g)(5)(ii)(A) of this section. The payee must specifically designate in writing that the remittance is a deposit in the nature of a cash bond. (iii) Special rules. (6) Undue hardship In general. (ii) Factors. (A) Whether estimated tax payments, and other credits for current tax liabilities, or amounts withheld on employee wages or pensions, in addition to withholding under section 3406, would cause significant overwithholding; (B) The payee's health, including the payee's ability to pay foreseeable medical expenses; (C) The extent of the payee's reliance on interest and dividend payments to meet necessary living expenses and the existence, if any, of other sources of income; (D) Whether other income of the payee is limited or fixed (e.g., social security, pension, and unearned income); (E) The payee's ability to sell or liquidate stocks, bonds, bank accounts, trust accounts, or other assets, and the consequences of doing so; (F) Whether the payee reported and timely paid the most recent year's tax liability, including interest and dividend income; and (G) Whether the payee has filed a bankruptcy petition with the United States Bankruptcy Court. (7) Bona fide dispute. (h) Payees filing a joint return In general. (2) Exceptions Innocent spouse. (A) He or she did not underreport income because he or she is a spouse described in section 6013(e), i.e., innocent spouse; or (B) There is a bona fide dispute regarding whether he or she is an innocent spouse and hence did not underreport income. (ii) Divorced or legally separated payee. (i) [Reserved] (j) Penalties. [T.D. 8637, 60 FR 66119, Dec. 21, 1995] § 31.3406(d)-1 Manner required for furnishing a taxpayer identification number. (a) Requirement to backup withhold. (b) Reportable interest or dividend account Manner required for furnishing a taxpayer identification number with respect to a pre-1984 account or instrument. (2) Determination of pre-1984 account or instrument In general. (ii) Account or instrument automatically acquired on the maturity or termination of an account. (iii) Insurance policies. (iv) Acquisitions of accounts and instruments Pre-1984 or post-1983 status known. (B) Pre-1984 or post-1983 status unknown. (C) Cross reference. (3) Manner required for furnishing a taxpayer identification number with respect to an account or instrument that is not a pre-1984 account. (4) Special rule with respect to the acquisition of a readily tradable instrument in a transaction between certain parties acting without the assistance of a broker. (c) Brokerage account Manner required for furnishing a taxpayer identification number with respect to a brokerage relationship that is not a post-1983 brokerage account In general. (ii) Definition of a brokerage account that is not a post-1983 brokerage account. (2) Manner required for furnishing a taxpayer identification number with respect to a post-1983 brokerage account In general. (ii) Definition of a post-1983 brokerage account. (d) Rents, commissions, nonemployee compensation, certain fishing boat operators, and payment card and third party network transactions, etc.—Manner required for furnishing a taxpayer identification number. [T.D. 8637, 60 FR 66123, Dec. 21, 1995, as amended by T.D. 9496, 75 FR 49835, Aug. 16, 2010] § 31.3406(d)-2 Payee certification failure. (a) Requirement to backup withhold. (b) Exceptions. (1) With respect to a pre-1984 account (as defined in § 31.3406(d)-1(b)(1)); (2) In a window transaction (as defined in § 31.3406(b)(2)-3(b)); (3) With respect to a readily tradable instrument described in § 31.3406(d)-1(b)(2)(iv) or § 31.3406(d)-4(a)(3); or (4) During the period and with respect to an account or readily tradable instrument described in § 31.3406(d)-3. [T.D. 8637, 60 FR 66125, Dec. 21, 1995] § 31.3406(d)-3 Special 30-day rules for certain reportable payments. (a) Accounts or readily tradable instruments acquired directly from the payor (including a broker who holds an instrument in street name) by electronic transmission or by mail. (b) Sale of an instrument for a customer by electronic transmission or by mail. (c) Application to foreign payees. [T.D. 8637, 60 FR 66125, Dec. 21, 1995, as amended by T.D. 8734, 62 FR 53493, Oct. 14, 1997] § 31.3406(d)-4 Special rules for readily tradable instruments acquired through a broker. (a) Readily tradable instruments acquired through post-1983 brokerage accounts with a broker who is not a payor In general. (i) Obtain once with respect to each account the certifications described in § 31.3406(d)-2(a) and § 31.3406(d)-1(b)(3) and (c)(2) from the payee (relating to certification regarding payee underreporting and taxpayer identification number, respectively); (ii) Furnish the payee's taxpayer identification number to the payor; and (iii) Notify the payor to impose withholding if the payee fails to make either of the required certifications to the broker or if the broker has been notified by the Internal Revenue Service before the acquisition of the instrument that the payee is subject to withholding due to notified payee underreporting under section 3406(a)(1)(C) or that the payee is subject to withholding because the payee's taxpayer identification number is incorrect under section 3406(a)(1)(B) (as described in § 31.3406(d)-5). (2) Additional requirements. (3) Transactions entered into through a brokerage account that is not a post-1983 brokerage account. (4) Payor must notify payee Failure to provide certifications. (ii) Notified payee underreporting and incorrect taxpayer identification number. (b) Notices Form of notice by broker to payor. (i) The payee's name, address, and taxpayer identification number (if provided to the broker); and (ii) A statement that the payee is subject to withholding under section 3406(a)(1) (A), (B), (C), or (D) of the Internal Revenue Code, whichever section applies; and (iii) When applicable, a statement that the broker was notified by the Internal Revenue Service that the payee is subject to withholding under section 3406(a)(1)(B) or (C). (2) Form of notice by payor to payee. (i) For a notification concerning a failure to provide a taxpayer identification number in the required manner under section 3406(a)(1)(A) or a failure to make the following certification described in section 3406(a)(1)(D): Recently, you purchased (identify security acquired). Because of the existence of one or more of the following conditions, payments of interest, dividends, and other reportable amounts that are made to you will be subject to withholding of tax at a 31 percent rate: (specify the condition or conditions, described below, that are applicable) (1) You failed to provide a taxpayer identification number, or failed to provide this number under penalties of perjury, in connection with the purchase of the acquired security. (An individual's taxpayer identification number is his or her social security number.) (2) You failed to certify, under penalties of perjury, that you are not subject to withholding due to notified payee underreporting as required under section 3406(a)(1)(D) of the Internal Revenue Code. If condition (1) applies, you may stop withholding by providing your taxpayer identification number on the enclosed Form W-9, signing the form, and returning it to us. If you do not have a taxpayer identification number, but have applied (or will soon apply) for one, you may so indicate on the Form W-9. Withholding may apply during the 60-day period you are waiting for your taxpayer identification number. You must provide us with your taxpayer identification number promptly after you receive it in order to avoid withholding after the end of the 60-day period or to stop withholding if it has already begun. Certain persons, described on the enclosed Form W-9, are exempt from withholding. Follow the instructions on that form if applicable to you. If condition (2) applies, you may stop withholding by certifying on the enclosed Form W-9 that you are not subject to withholding due to notified payee underreporting, signing the form, and returning it to us. If more than one condition applies, you must remove all applicable conditions to stop withholding. Please address any questions concerning this notice to: [Insert payor identifying information]. (Do not address questions to the broker who purchased the securities for you.) (ii) For the form of the notice concerning imposition of withholding due to an incorrect taxpayer identification number, see § 31.3406(d)-5 (d)(2) and (g)(2). (iii) For the form of the notice concerning the imposition of withholding due to notified payee underreporting, see § 31.3406(c)-1(d)(2). (c) Payor's reliance on information from broker In general. (2) Amount subject to backup withholding. [T.D. 8637, 60 FR 66125, Dec. 21, 1995; 61 FR 11307, Mar. 20, 1996; 61 FR 12135, Mar. 25, 1996; T.D. 9010, 67 FR 48760, July 26, 2002] § 31.3406(d)-5 Backup withholding when the Service or a broker notifies the payor to withhold because the payee's taxpayer identification number is incorrect. (a) Overview. (b) Definitions and special rules Definition of incorrect name/TIN combination. (2) Definition of account. (3) Definition of business day. (4) Certain exceptions In general. (A) Were made to a fiduciary or nominee account; or (B) Were not reportable payments (for example, because the payments were made to an exempt recipient). See § 301.6724-1(f)(3) of this chapter for certain solicitation rules applicable after receipt of a notice under paragraph (c)(1) or (2) of this section with respect to a fiduciary or nominee account. (ii) Definition of fiduciary or nominee account. (c) Notice regarding an incorrect name/TIN combination In general. (i) Identify under paragraph (c)(3) of this section any account or accounts of the payee having the same name/TIN combination; (ii) Except as provided in paragraph (g) of this section, notify the payee and backup withhold on reportable payments made to the account or accounts under the rules of paragraphs (d), (e), and (f) of this section. This paragraph (c)(1) also applies if the payor receives notice from a broker under paragraph (c)(2) of this section. (2) Additional requirements for payors that are also brokers In general. (A) The broker (in its capacity as a payor) receives a notice from the Internal Revenue Service under paragraph (c)(1) of this section that a payee's name/TIN combination is incorrect and is required to identify an account of the payee pursuant to paragraph (c)(3) of this section as having the name/TIN combination; (B) The payee acquires through the same account with the broker a readily tradable instrument with respect to which the broker is not the payor; and (C) The acquisition of such instrument occurs after the close of the 30th business day after the date that the broker receives that notice (or on any earlier date that the broker chooses to begin applying this paragraph (c)(2)). For purposes of this paragraph (c)(2)(i), with respect to notices under paragraph (c)(1) of this section received on or after September 1, 1992, an acquisition includes a transfer of an instrument out of street name into the name of the registered owner, i.e., (ii) Required information. (A) The fact that the broker was notified by the Internal Revenue Service that the payee furnished an incorrect name/TIN combination; (B) The incorrect name/TIN combination; and (C) The fact that the named payee is subject to backup withholding under section 3406(a)(1)(B). The broker is required to provide this information to the payor of the instrument in connection with the transfer instructions for the acquisition. (iii) Termination of obligation to provide information. (3) Payor identification of the account or accounts of the payee that have the incorrect taxpayer identification number In general. (ii) Reasonable care where no account number or designation is provided. (A) Part one of the test is satisfied if a payor searches for accounts of the payee on the computer or other recordkeeping system that the payor can reasonably associate with the information return that generated the notice under paragraph (c)(1) of this section. For example, a payor who maintains separate computer or recordkeeping systems for different product lines will have identified and used the appropriate system if the payor searches for accounts of the payee on the computer or recordkeeping system that contains the product line for the type of payments reported on the information return. A payor with the same product line on several nonintegrated computer or record systems will have identified and used the appropriate system if the payor searches for accounts of the payee on any computer or record system that the payor otherwise can reasonably associate with the information return. (B) Part two of the test is satisfied if the payor inputs the name/TIN combination provided on the notice from the Internal Revenue Service under paragraph (c)(1) of this section into the system that is described in paragraph (c)(3)(ii)(A) of this section. If the system of a payor cannot utilize the name/TIN combination, the payor must input appropriate data or criteria, as determined by the capability of the payor's computer or recordkeeping system. (iii) No identification if error is caused by payor. (4) Special rules for joint accounts In general. (ii) Transitional rule. (iii) Optional rule where names are switched. (5) Date of receipt. (d) Notice from payors of backup withholding due to an incorrect name/TIN combination In general. (2) Procedures In general. (ii) Two or more notices for an account for the same year or received in the same year. (e) Period during which backup withholding is required due to notification of an incorrect name/TIN combination In general. (2) Grace periods Starting backup withholding. (ii) Stopping backup withholding. (3) Dormant accounts. (i) The date that the last reportable payment was made to that account; or (ii) The date that the payor received the notice under paragraph (c)(1) or (2) of this section. (f) Manner required for payee to furnish certified taxpayer identification number. (i) Provide the payee's name and taxpayer identification number; and (ii) Certify, under penalties of perjury, that the taxpayer identification number being provided is correct. (2) The certification must be made even if the account is a pre-1984 account and even if the payment to the account is a reportable payment other than interest, dividends, patronage dividends, original issue discount, or proceeds of a sale of a security or commodity. In order to prevent backup withholding under paragraph (e) of this section from starting or to stop it once it has begun, a payee is not required to certify, under penalties of perjury, that the payee is not subject to backup withholding due to notified payee underreporting under section 3406(a)(1)(C). With respect to notices received under paragraph (c)(1) or (2) of this section on or after September 1, 1993, the requirements of this paragraph (f) are not satisfied if a payee provides only an awaiting TIN certification. As a result, a payor must not fail to begin backup withholding under paragraph (e) of this section solely because the payee provided an awaiting TIN certification, or stop it once it has begun solely because the payee provided an awaiting TIN certification. (g) Receipt of two notices within a 3-year period In general. (i) Disregard any future certifications (described in paragraph (f) of this section) furnished by the payee with respect to the account until the payor receives notice from the Social Security Administration (or the Internal Revenue Service) validating a name/TIN combination under paragraph (g)(5) of this section; (ii) Send the notice described in paragraph (g)(2) of this section to the payee (and not the notice required under paragraph (d) of this section) within 15 business days after the date that the payor receives the second notice; and (iii) Impose backup withholding on the account for the period described in paragraph (g)(3) of this section. The payor must maintain sufficient records to determine whether the payor has received notices under paragraph (c) (1) or (2) of this section twice within 3 calendar years with respect to the same account. (2) Notice to payee who has provided two incorrect name/TIN combinations within 3 calendar years. (3) Period during which backup withholding is required due to a second notice of an incorrect name/taxpayer identification combination within 3 calendar years In general. (ii) Grace periods Starting backup withholding. (B) Stopping backup withholding. (iii) Dormant accounts. (A) The date that the last reportable payment was made to that account; or (B) The date that the payor received the second notice under paragraph (c) (1) or (2) of this section. (4) Receipt of two notices for the same year or in the same calendar year. (5) Notification from the Social Security Administration (or the Internal Revenue Service) validating a name/TIN combination. (h) Payor must use newly provided certified number. (i) Effective date. (j) Examples. Example 1. D opened an account with Bank O prior to 1984 and furnished a taxpayer identification number to O at the time he opened the account. O pays interest on the account at the end of each calendar month, and the account is a pre-1984 account. On October 1, 1990, the Internal Revenue Service notifies Bank O that the name/TIN combination provided by D is incorrect. O timely notifies D as required in paragraph (d)(1) of this section. O does not receive the certification required under paragraph (f) of this section from D. O is required to backup withhold 20 percent of all reportable payments made after November 14, 1990 (which is 30 business days after the date the Internal Revenue Service notified O). Therefore, O is not required to backup withhold on the reportable payment made on October 31, 1990, but is required to backup withhold on the reportable payment made on November 30, 1990. O is required to continue to backup withhold under section 3406(a)(1)(B) until O receives the certification required under paragraph (f) of this section from D (or, if earlier, until backup withholding terminates under paragraph (e)(3) of this section). Example 2. Assume the same facts as in Example 1 Example 3. Assume the same facts as in Example 2 Example 4. Individual F has two post-1983 accounts with Bank R that pay reportable interest: a savings account and a money market account. The money market account was opened in 1986, and the savings account was opened on February 1, 1991. R treats each of these accounts as a separate account on its books and records for business purposes. On October 1, 1990, the Internal Revenue Service notified R pursuant to paragraph (c)(1) of this section that F furnished an incorrect name/TIN combination with respect to the money market account. R timely sends F the notice required under paragraph (d) of this section and receives the certification required under paragraph (f) of this section from F on November 1, 1990. On October 1, 1991, the Internal Revenue Service again notifies R that F furnished an incorrect name/TIN combination with respect to the money market account. Further, R determines from its business records that two notifications of an incorrect name/TIN combination have been received with respect to the money market account within 3 calendar years. R must send F the notice required under paragraph (g)(2) of this section and must commence backup withholding on reportable interest paid on the money market account pursuant to paragraph (g)(3) of this section after November 14, 1991, which is 30 business days after R received the second notice. R must continue to backup withhold under paragraph (g) of this section on the money market account until R receives notification from the Social Security Administration as described in paragraph (g)(5) of this section (or, if earlier, until backup withholding terminates under paragraph (g)(3)(iii) of this section). R is not required to backup withhold on the savings account unless and until it receives notice under paragraph (c) (1) or (2) of this section with respect to the savings account. [T.D. 8409, 57 FR 13031, Apr. 15, 1992, as amended by T.D. 9055, 68 FR 22595, Apr. 29, 2003] § 31.3406(e)-1 Period during which backup withholding is required. (a) In general. (b) Failure to furnish a taxpayer identification number in the manner required Start withholding. (i) The payor has not received the payee's taxpayer identification number in the manner required in § 31.3406(d)-1; or (ii) The payor has received notice from a broker (as required in § 31.3406(d)-4(a)(1)(iii)) with respect to a readily tradable instrument that the payee did not furnish a taxpayer identification number to the broker in the manner required in § 31.3406(d)-1 and the payor has not received the taxpayer identification number from the payee in this manner. (2) Stop withholding. (i) The payee's taxpayer identification number in the manner required under § 31.3406(d)-1; or (ii) A statement, in such form and containing such information as is required under applicable regulations, that the payee is not a United States person. (c) Notification of an incorrect taxpayer identification number. (d) Notified payee underreporting. (e) Payee certification failure Start withholding. (i) The payor has not received from the payee the certification required in § 31.3406(d)-2; or (ii) The payor has received notice from a broker (as required in § 31.3406(d)-4(a)(1)(iii)) with respect to a readily tradable instrument that the payee did not make the required certification and the payor has not received the required certification from the payee. (2) Stop withholding. (f) Rule for determining when the payor receives a taxpayer identification number or certificate from a payee. [T.D. 8637, 60 FR 66127, Dec. 21, 1995] § 31.3406(f)-1 Confidentiality of information. (a) Confidentiality and liability for violation. (b) Permissible use of information In general. (2) Window transactions. (c) Specific restrictions on the use of information. (1) Close an account (or instrument) of a payee solely because that payee (or the account of a payee) is subject to withholding under section 3406(a)(1) (A), (B), (C), or (D); (2) Refuse to open an account or to issue an instrument if the person fails to certify, under penalties of perjury, that the person is not subject to withholding under section 3406(a)(1)(C) (relating to notified payee underreporting); (3) Use information obtained under section 3406 (including a payee's failure or inability to certify that the payee is not subject to withholding due to notified payee underreporting or the fact that the account is subject to withholding), surcharge an account (i.e., charge an account more than the fee charged a similar account that was not subject to withholding under section 3406), or use that information to determine whether to open or close an account, whether to issue or redeem an instrument, or whether to extend credit to the payee. [T.D. 8637, 60 FR 66127, Dec. 21, 1995] § 31.3406(g)-1 Exception for payments to certain payees and certain other payments. (a) Exempt recipients In general. (i) An organization exempt from taxation under section 501(a) or an individual retirement account; (ii) The United States or any wholly owned agency or instrumentality thereof; (iii) A state, the District of Columbia, a possession of the United States, any political subdivision of any of the foregoing, or any wholly owned agency or instrumentality of any one or more of the foregoing; (iv) A foreign government, a political subdivision of a foreign government, or any wholly owned agency or instrumentality of any one or more of the foregoing (as defined in regulations under section 892); or (v) An international organization or any wholly owned agency or instrumentality thereof (as defined in section 7701(a)(18)). (2) Nonexclusive list. (b) Determination of whether a person is described in paragraph (a)(1) of this section. (c) Prepaid or advance premium life-insurance contracts. (d) Reportable payments made to nonresident alien individuals. (e) Certain reportable payments made outside the United States by foreign persons, foreign offices of United States banks and brokers, and others Reportable payments other than gross proceeds from sales of digital assets. see see (2) [Reserved] (f) Applicability date. see [T.D. 8637, 60 FR 66128, Dec. 21, 1995, as amended by T.D. 8664, 61 FR 17574, Apr. 22, 1996; T.D. 8734, 62 FR 53493, Oct. 14, 1997; T.D. 8804, 63 FR 72189, Dec. 31, 1998; T.D. 8856, 64 FR 73412, Dec. 30, 1999; T.D. 9136, 69 FR 41941, July 13, 2004; T.D. 9584, 77 FR 23395, Apr. 19, 2012; T.D. 9658, 79 FR 12808, Mar. 6, 2014; T.D. 9699, 79 FR 63812, Oct. 27, 2014; T.D. 9808, 82 FR 2121, Jan. 6, 2017; T.D. 10000, 89 FR 56582, July 7, 2024] § 31.3406(g)-2 Exception for reportable payment for which withholding is otherwise required. (a) In general. (b) Payment of wages. (c) Distribution from a pension, annuity, or other plan of deferred compensation. (1) Distributions from a pension, annuity, profit-sharing, stock bonus plan, or other plan deferring the receipt of compensation; (2) Distributions from an individual retirement account or annuity; (3) Distributions from an owner-employee plan; and (4) Certain surrenders of life insurance contracts. (d) Gambling winnings In general. (2) Definition of a reportable gambling winning and determination of amount subject to backup withholding. (i) The amount paid with respect to the amount of the wager reduced, at the option of the payer; by (ii) The amount of the wager. (3) Special rules. (e) Certain real estate transactions. (f) Certain payments after an acquisition of accounts or instruments. (g) Certain gross proceeds. (h) Applicability date. [T.D. 8637, 60 FR 66128, Dec. 21, 1995, as amended by T.D. 9524, 76 FR 26601, May 9, 2011; T.D. 9586, 77 FR 24611, Apr. 25, 2012; T.D. 9807, 81 FR 96380, Dec. 30, 2016; T.D. 9824, 82 FR 44929, Sept. 27, 2017; 89 FR 56583, July 9, 2024] § 31.3406(g)-3 Exemption while payee is waiting for a taxpayer identification number. (a) In general Backup withholding not required for 60 days. (2) Reserve method. (3) Alternative rule; 7-day grace period In general. (ii) Withholding on withdrawals. (iii) Withholding regardless of withdrawals. (b) Special rule for readily tradable instruments. (c) Exceptions In general. (i) Window transactions (as defined in § 31.3406(b)(2)-3(b)); (ii) Redemptions of bearer obligations that are subject to reporting under section 6045; or (iii) Other amounts that are subject to reporting under section 6045 (except as described in paragraph (c)(2) of this section). (2) Special rule for amounts subject to reporting under section 6045 other than proceeds of redemptions of bearer obligations. (d) Awaiting-TIN certificate. (e) Form for awaiting-TIN certificate. [T.D. 8637, 60 FR 66129, Dec. 21, 1995] § 31.3406(h)-1 Definitions. (a) In general. (b) Taxpayer identification number In general. Taxpayer identification number (2) Obviously incorrect number. Obviously incorrect number (c) Broker. Broker broker (d) Readily tradable instrument. Readily tradable instrument (1) Any instrument that is part of an issue any portion of which is traded on an established securities market (within the meaning of section 453(f)(5)); or (2) Any instrument that is regularly quoted by brokers or dealers making a market. (e) Day. Day (f) Business day. Business day [T.D. 8637, 60 FR 66130, Dec. 21, 1995; 61 FR 12135, Mar. 25, 1996, as amended by T.D. 9010, 67 FR 48760, July 26, 2002] § 31.3406(h)-2 Special rules. (a) Joint accounts Relevant name and taxpayer identification number combination. (2) Optional rule for accounts subject to backup withholding under section 3406(a)(1) (B) or (C) where the names are switched. (3) Joint foreign payees In general. (ii) Information reporting on an account including foreign payees. (b) Backup withholding from an alternative source In general. (2) Exceptions for payments made in property Backup withholding from alternative source. Example 5, (ii) Deferral of withholding. (A) The date the payor makes a cash payment to the account subject to withholding under section 3406 or cash is otherwise deposited in the account in a sufficient amount to satisfy the obligation in full; or (B) The close of the fourth calendar year after the obligation arose. (iii) Barter exchanges. (A) The scrip or credit, if converted to cash in order to satisfy the deposit requirements of section 6302 and § 31.6302-4; or (B) Any other source maintained by the exchange for the member or client in the manner described in paragraph (b)(2) of this section. (c) Trusts. (d) Adjustment of prior withholding by middlemen. (e) Conversion of amounts paid in foreign currency into United States dollars Convertible foreign currency. (2) Nonconvertible foreign currency. (f) Coordination with other sections. (1) An amount required to be withheld under section 3406 must be treated as a tax required to be withheld under section 3402; (2) An amount withheld under section 3406 must be treated as an amount withheld under section 3402; (3) An amount withheld under section 3406 must be deposited as required under § 31.6302-4; (4) Wages (5) Employee (6) Employer (g) Tax liabilities and penalties. (h) To whom payor is liable for amount withheld. (i) Effective/applicability date. [T.D. 8637, 60 FR 66130, Dec. 21, 1995; 61 FR 11307, Mar. 20, 1996, as amended by T.D. 8734, 62 FR 53493, Oct. 14, 1997; T.D. 8804, 63 FR 72189, Dec. 31, 1998; T.D. 8856, 64 FR 73412, Dec. 30, 1999; T.D. 9010, 67 FR 48760, July 26, 2002; T.D. 9658, 79 FR 12809, Mar. 6, 2014; T.D. 9808, 82 FR 2121, Jan. 6, 2017] § 31.3406(h)-3 Certificates. (a) Prescribed form to furnish information under penalties of perjury In general. (i) The taxpayer identification number furnished to the payor is correct (as required in § 31.3406(d)-1 and § 31.3406(d)-5); (ii) The payee is not subject to withholding due to notified payee underreporting (as required in § 31.3406(d)-2); (iii) The payee is an exempt recipient (as described in § 31.3406(g)-1); or (iv) The payee is awaiting receipt of a taxpayer identification number (as described in § 31.3406(g)-3). (2) Use of a single or multiple Forms W-9 for accounts of the same payee. (b) Prescribed form to furnish a noncertified taxpayer identification number. (c) Forms prepared by payors or brokers—(1) Substitute forms; in general. (i) The payee's taxpayer identification number is correct; and (ii) The payee is not subject to withholding under section 3406 due to notified payee underreporting. (2) Form for exempt recipient. (d) Special rule for brokers. (e) Reasonable reliance on certificate In general. (2) Circumstances establishing reasonable reliance. (i) The form does not contain the name and taxpayer identification number of the payee (or does not state, in lieu of a taxpayer identification number, that the payee is awaiting receipt of a taxpayer identification number (i.e., an awaiting-TIN certificate)); (ii) The form is not signed and dated by the payee; (iii) The form does not contain the statement, when required, that the payee is not subject to withholding due to notified payee underreporting; (iv) The payee has deleted the jurat or other similar provisions by which the payee certifies or affirms the correctness of the statements contained on the form; or (v) For purposes of section 3406(a)(1)(C), the payor is required to subject the account to which the form relates to withholding under section 3406(a)(1)(C) under the circumstances described in § 31.3406(c)-1(c)(3)(iii). (f) Who may sign certificate In general. (2) Notified payee underreporting. (g) Retention of certificates Accounts or instruments that are not pre-1984 accounts and brokerage relationships that are post-1983 brokerage accounts. (2) Accounts or instruments that are pre-1984 accounts and brokerage relationships that are not post-1983 brokerage accounts. (h) Cross references. [T.D. 8637, 60 FR 66131, Dec. 21, 1995, as amended by T.D. 8881, 65 FR 32212, May 22, 2000] § 31.3406(i)-1 Effective date. Sections 31.3406-0 through 31.3406(i)-1 (except §§ 31.3406(d)-5 and 31.3406(g)-1(c) and except for international transactions) are effective after December 31, 1996, and, optionally, for reportable payments made and transactions occurring on or after December 21, 1995. For the effective date of § 31.3406(d)-5, see § 31.3406(d)-5(i). Section 31.3406(g)-1(c) is effective before January 1, 1997. See §§ 35a.9999-0T through 35a.9999-5 of this chapter for rules that apply to international transactions after December 31, 1996. [T.D. 8637, 60 FR 66133, Dec. 21, 1995] § 31.3406(j)-1 Taxpayer Identification Number (TIN) matching program. (a) The matching program. see (b) Notice of incorrect TIN. (c) Application of section 3406(f). (d) Reasonable cause. (e) Definition of account. Account (f) Effective date. [T.D. 8721, 62 FR 33009, June 18, 1997, as amended by T.D. 9041, 68 FR 4923, Jan. 31, 2003; T.D. 9136, 69 FR 41942, July 13, 2004] Subpart F—General Provisions Relating to Employment Taxes (Chapter 25, Internal Revenue Code of 1954) § 31.3501(a)-1T Question and answer relating to the time employers must collect and pay the taxes on noncash fringe benefits (Temporary). The following questions and answers relate to the time employers must collect and pay the taxes imposed by subtitle C on noncash fringe benefits: Q-1: A-1: With respect to noncash fringe benefits provided during the first calendar quarter of 1985, a special rule applies. Such benefits may be deemed paid at any time on or after the date on which they are provided as long as the date they are deemed paid is on or before the last day of the second calendar quarter of 1985. In addition, for purposes of § 31.6302(c)-1(a)(1)(i), the term “tax” does not include the employer tax under section 3111 with respect to noncash fringe benefits which are deemed by the employer to be paid on the last day of any calendar quarter. For purposes of the first sentence of § 31.6302(c)-2(a)(1), the phrase “employer tax imposed after December 31, 1983, under section 3221 (a) and (b)” will not include any such employer tax with respect to noncash fringe benefits which are deemed by the employer to be paid on the last day of the quarter; provided that for purposes of deposits required under § 31.6302(c)-1(a)(1)(v), such first sentence applies to such noncash fringe benefits. Notwithstanding anything in this section to the contrary, if an employer in fact withholds, the amount withheld is subject to the general deposit rules. The manner in which and the time at which the employer withholds amounts from the wages of an employee to pay the taxes imposed under section 3101, 3201, and/or 3402 will generally be left to be determined by the employer and the employee. Any delay in withholding, however, does not affect the employer's obligation upon the filing of an employment tax return, to pay amounts which would be due under this subtitle if the employer had withheld, with respect to noncash fringe benefits, the amount which would have been required to be withheld if such noncash fringe benefits had been paid in cash on the date the benefits were deemed paid. However, if such amounts are not withheld from the wages of an employee within a reasonable period after payment of the taxes by the employer, payment by the employer may be deemed additional compensation of the employee. Q-2: A-2: Q-3: A-3: During the month following the quarter, A withholds from its employees with respect to the noncash fringe benefits deemed paid on the last day of the quarter. As A withholds amounts, such amounts become “taxes” subject to § 31.6302(c)-1(a)(1)(i). If, as of the date of filing of the return for the period which includes the last day of the quarter, A has not deposited all amounts with respect to the quarter which are due under section 3111 or which would have been due had A withheld, under sections 3102 and 3402, with respect to noncash fringe benefits, the amount which would have been required to be withheld had such benefits been paid in cash, A shall pay the balance with its return. A must make such payment regardless of whether, at the time the return is filed, he has actually withheld all amounts which he would have been required to withhold had such benefits been paid in cash. Q-4: A-4: Q-5: A-5: Q-6: A-6: Q-7: A-7: Q-8: May an employer treat any part of the Annual Lease Value or Daily Lease Value (as defined in 1.61-21 of this chapter ), or the fair market value if the special rule of 1.61-21 of this chapter is not or cannot be used, of an automobile or other road vehicle made available to an employee as includible in the employee's gross income without regard to whether the employee has used the automobile or other road vehicle in the employer's business? A-8: No, except as otherwise provided in this Q/A-8, an employer may not include any amount in an employee's income with respect to an employer-provided automobile or other road vehicle unless such inclusion is based on: (a) Records or a statement submitted by an employee that contain the business and total mileage for the period beginning on January 1, 1985, and ending on the last day of the employer's taxable year that began in 1984, or (b) Records that satisfy the employer's “adequate contemporaneous record” requirement under section 274(d)(4) and the regulations thereunder for the employer's taxable years beginning after December 31, 1984. For example, an employer who is subject to (b) of this Q/A-8 may rely on a statement submitted by the employee indicating for the period the number of miles driven by the employee in the employer's business and the total number of miles driven by the employee unless the employer knows or has reason to know the statement submitted is not based on “adequate contemporaneous records”. (For purposes of this section, if a road vehicle is available to any person and such availability would be taxable to an employee, miles driven by that person will be considered miles driven by the employee). Notwithstanding the preceding paragraph of this Q/A-8, an employer may include in an employee's income the value of the availability of an employer-provided road vehicle, calculated without regard to a working condition fringe exclusion based on business mileage if one of the conditions listed in § 1.274-6T(f)(1) is satisfied with respect to the relevant period. In addition, the employer must, before including any amount in an employee's income with respect to an employer-provided road vehicle, take into account other working condition fringe exclusions, such as the security exclusion discussed in § 1.132-1T. If proper calculation of an exclusion requires information from the employee and the employee does not respond within a reasonable period of time to a request for that information or produces information which the employer knows or has reason to know is not accurate, the employer may disregard such exclusion in reporting the employee's gross income. Q-8a: May an employer withhold amounts attributable to noncash fringe benefits on the basis of average wages as permitted under section 3402(h)(1)? A-8a: In general, yes. In estimating wages under section 3402(h)(1)(A), however, the employer must take into account estimated business use of the benefit (such as an employer-provided road vehicle). In no event, however, may the amount reported by the employer as “wages” for any employee for any quarter be based on an estimation. However, the rules in Q/A-1 of this section regarding permissible delays in actual withholding apply. Q-9: A-9: Q-10: A-10: (Approved by the Office of Management and Budget under control numbers 1545-0074 and 1545-0907) [T.D. 8004, 50 FR 756, Jan. 7, 1985, as amended by T.D. 8009, 50 FR 7046, Feb. 20, 1985; T.D. 9849, 84 FR 9238, Mar. 14, 2019] § 31.3502-1 Nondeductibility of taxes in computing taxable income. For provisions relating to the nondeductibility, in computing taxable income under subtitle A, of the taxes imposed by sections 3101, 3201, and 3211, and of the tax deducted and withheld under chapter 24, see §§ 1.164-2 and 1.275-1 of this chapter (Income Tax Regulations). For provisions relating to the credit allowable to the recipient of the income in respect of the tax deducted and withheld under chapter 24, see § 1.31-1 of this chapter (Income Tax Regulations). [T.D. 6780, 29 FR 18148, Dec. 22, 1964] § 31.3503-1 Tax under chapter 21 or 22 paid under wrong chapter. If, for any period, an amount is paid as tax— (a) Under chapter 21 or corresponding provisions of prior law by a person who is not liable for tax for such period under such chapter or prior law, but who is liable for tax for such period under chapter 22 or corresponding provisions of prior law, or (b) Under chapter 22 or corresponding provisions of prior law by a person who is not liable for tax for such period under such chapter or prior law, but who is liable for tax for such period under chapter 21 or corresponding provisions of prior law, the amount so paid shall be credited against the tax for which such person is liable and the balance, if any, shall be refunded. Each claim for refund or credit under this section shall be made on Form 843 and in accordance with § 31.6402(a)-2 and the applicable provisions of section 6402(a) and the regulations thereunder in Part 301 of this chapter (Regulations on Procedure and Administration). § 31.3504-1 Designation of agent by application. (a) In general. (b) Special rule for home care service recipients. In general. (2) Home care services. home care services (3) Home care service recipient. home care service recipient (c) Effective/applicability dates. [T.D. 9649, 78 FR 75474, Dec. 12, 2013] § 31.3504-2 Designation of payor to perform acts of an employer. (a) In general. wages compensation (b) Definitions Client. client (2) Service agreement. service agreement (A) Asserts it is the employer (or “co-employer”) of the individual(s) performing services for the client; (B) Pays wages or compensation to the individual(s) for services the individual(s) perform for the client; and (C) Assumes responsibility to collect, report, and pay, or assumes liability for, any taxes applicable under subtitle C of the Code with respect to the wages or compensation paid by the payor to the individual(s) performing services for the client. (ii) For purposes of paragraph (b)(2)(i)(A) of this section, the payor may implicitly or explicitly assert it is the employer (or “co-employer”) of the individual(s) performing services for the client, including by agreeing to— (A) Recruit and hire employees for the client or assign employees as permanent or temporary members of the client's work force, or participate with the client in these actions; (B) Hire the client's employees as its own and then provide them back to the client to perform services for the client; or (C) File employment tax returns using its own employer identification number that include wages or compensation paid to the individual(s) performing services for the client. (c) Effects of designation. (1) A payor must perform the acts required of an employer under each applicable chapter of the Code and the relevant regulations with respect to the wages or compensation paid by such payor. All provisions of law (including penalties) and the regulations applicable to the employer are applicable to the payor so designated with respect to the wages or compensation paid by the payor; and (2) Each employer for whom the payor is designated remains subject to all provisions of law (including penalties) and of the regulations applicable to an employer. (d) Exceptions. (1) The wages or compensation are reported on a return filed under the client's employer identification number (as defined in section 6109 and the applicable regulations); (2) The payor is a common paymaster under sections 3121(s) or 3231(i); (3) The payor is the employer of the individual(s) (including an employer within the meaning of section 3401(d)(1)); or (4) The payor is treated as an employer under section 3121(a)(2)(A). (e) Examples. (1) Example 1. Employer's QUARTERLY Federal Tax Return, (2) Example 2. Example 1, Employer's QUARTERLY Federal Tax Return, (3) Example 3. Example 1, Employer's QUARTERLY Federal Tax Return, (4) Example 4. Example 1, (5) Example 5. Example 1, Employer's QUARTERLY Federal Tax Return, (6) Example 6. Employer's QUARTERLY Federal Tax Return, (7) Example 7. (8) Example 8. (9) Example 9. Employer/Payer Appointment of Agent, Employer's QUARTERLY Federal Tax Return. Allocation Schedule for Aggregate Form 941 Filers, (f) Effective/applicability date. [T.D. 9662, 79 FR 17862, Mar. 31, 2014, as amended at 79 FR 31219, June 2, 2014] § 31.3505-1 Liability of third parties paying or providing for wages. (a) Personal liability in case of direct payment of wages In general. (i) Who is not an employer for purposes of section 3102 (relating to deduction of tax from wages under the Federal Insurance Contributions Act), section 3202 (relating to deduction of tax from compensation under the Railroad Retirement Tax Act), or section 3402 (relating to deduction of income tax from wages) with respect to an employee or group of employees, and (ii) Who pays wages on or after January 1, 1967, directly to such employee or group of employees, employed by one or more employers, or to an agent on behalf of such employee or employees, shall be liable in his own person and estate for payment to the United States of an amount equal to the sum of the taxes required to be deducted and withheld from those wages by the employer under subtitle C of the Code and interest from the due date of the employer's return relating to such taxes for the period in which the wages are paid. (2) Example. Example. Pursuant to a wage claim of $200, A, a surety company, paid a net amount of $158 to B, an employee of the X Construction Company. This was done in accordance with A's payment bond covering a private construction job on which B was an employee. If X Construction Company fails to make timely payment or deposit of $42.00, the amount of tax required by subtitle C of the Code to be deducted and withheld from, a $200 wage payment to B, A becomes personally liable for $42.00 ( i.e., (b) Personal liability where funds are supplied In general. (i) Advances funds to or for the account of an employer for the specific purpose of paying wages of the employees of that employer, and (ii) At the time the funds are advanced, has actual notice or knowledge (within the meaning of section 6323(i)(1)) that the employer does not intend to, or will not be able to, make timely payment or deposit of the amounts of tax required by subtitle C of the Code to be deducted and withheld by the employer from those wages, shall be liable in his own person and estate for payment to the United States of an amount equal to the sum of the taxes which are required by subtitle C of the Code to be deducted and withheld from wages paid on or after January 1, 1967, and which are not paid over to the United States by the employer, and interest from the due date of the employer's return relating to such taxes. However, the liability of the lender, surety, or other person shall not exceed 25 percent of the amount supplied by him for the payment of wages. The preceding sentence and the second sentence of section 3505(b) limit the liability of a lender, surety, or other person arising solely by reason of section 3505, and they do not limit the liability which the lender, surety or other person may incur to the United States as a third-party beneficiary of an agreement between the lender, surety, or other person and the employer. The liability of a lender, surety, or other person does not include penalties imposed on the taxpayer. (2) Examples. Example 1. D, a savings and loan association, advances $10,000 to Y for the specific purpose of paying the net wages of Y's employees. D advances those funds with knowledge that Y will not be able to make timely payment of the taxes required to be deducted and withheld from these wages by subtitle C of the Code, Y uses the $10,000 to pay the net wages of his employees but fails to remit withholding taxes under subtitle C in the amount of $2,600. D's liability, under this section, is limited to $2,500, 25 percent of the amount supplied for the payment of wages to Y's employees. Example 2. E, a loan company, advances $15,000 to F, a contractor, for the specific purpose of paying $20,000 of net wages due to F's employees. E advances those funds with knowledge that F will not be able to make timely payment of the taxes required to be deducted and withheld from these wages by subtitle C of the Code. F applies $5,000 of its own funds toward payment of these wages. The amount of tax required to be deducted and withheld from the gross wages is $4,500. The limitation applicable to E's liability is $3,750 (25 percent of $15,000). However, because E furnished only a portion of the total net wages, E is liable for $3,375 of the taxes required to be deducted and withheld ($4,500 × $15,000/$20,000). (3) Ordinary working capital loan. (c) Definition of other person In general. (2) Examples. Example 1. Pursuant to an agreement between L, a labor union, and M, an employer, M makes monthly vacation payments (of a sum equal to a certain percentage of the remuneration paid to each union member employed by M during the previous month) to a union administered pool plan under which each employee's rights are fully vested and nonforfeitable from the time the money is paid by M. Vacation allowances are accumulated by the plan and distributed to eligible employees during their vacations. L, acting merely as a conduit with respect to these payments, would incur no liability under section 3505. Example 2. N, a construction company, maintains a payroll account with the O Bank in which N deposits its own funds. Pursuant to an automated payroll service agreement between N and O, O prepares payroll checks and earnings statements for each of N's employees reflecting the net pay due each such employee. These checks are delivered to N for signature. After the checks are signed, O distributes them directly to N's employees on the regularly scheduled pay day. O, acting only in the capacity of a disbursing agent of N's funds, would incur no liability under section 3505 with respect to these payroll distributions. However, O may incur liability under section 3505 in the capacity of a lender if it supplies the funds for the payment of wages. (d) Payment of taxes and interest Procedure for payment. (2) Effect of payment In general. (ii) Amounts paid by a lender, surety, or other person. (iii) Amounts paid by the employer. (3) Extensions of the period for collection. (e) Returns required by employers and statements for employees. (f) Time when liability arises. (g) Effective date. [T.D. 7430, 41 FR 35175, Aug. 20, 1976, as amended by T.D. 8604, 60 FR 39110, Aug. 1, 1995] § 31.3506-1 Companion sitting placement services. (a) Definitions Companion sitting placement service. (2) Sitters. (b) General rule. (c) Individuals deemed self-employed. (d) Scope of rules. (e) Examples. Example 1. X is an agency that places babysitters with individuals who desire babysitting services. X furnishes all the sitters with an instruction manual regarding their conduct and appearance, requires them to file semimonthly reports, and determines the total fee to be charged the individual for whom the sitting is performed. Individuals who need a babysitter contact the agency, are informed of the charges, and, if agreement is reached, a sitter is sent to perform the services. The sitter collects the entire amount of the charges and remits a percentage to X as a fee for the placement. X is a companion sitting placement service within the meaning of paragraph (a)(1) of this section. Therefore, since the agency does not actually pay or receive the wages of the sitters, X is not treated as the employer of the sitters for purposes of this subtitle. The sitters are deemed to be self-employed for the purpose of the tax imposed by section 1401. Example 2. Assume the same facts as in example 1, except that the individual for whom the sitting is performed pays to X the entire amount of the charges. X retains a percentage and pays the difference to the sitter. Since X actually receives and pays the wages of the sitters, X is the employer of the sitters. Example 3. As a service to the community a neighborhood association maintains a list of individuals who are available to babysit. Parents in need of a sitter contact the association and are provided with a list of names and telephone numbers. The association charges no fee for the service and takes no action other than compiling the list of sitters and making it available to members of the community. Issues such as hours of work, amount of payment, and the method by which the services are performed are all resolved between the sitter and parent. A, a parent, used the list to hire B to sit for A's child. B performs the services four days a week in A's home and follows specific instructions given by A. Under § 31.3121(d)-1, B is the employee of A rather than the employee of the neighborhood association. Consequently, this section does not apply and B remains the employee of A. (f) Effective date. (Secs. 3506 and 7805 of the Internal Revenue Code of 1954; 91 Stat. 1356 (26 U.S.C. 3506); 68A Stat. 917 (26 U.S.C. 7805)) [T.D. 7691, 45 FR 24129, Apr. 9, 1980] § 31.3507-1 Advance payments of earned income credit. (a) General rule In general. (i) In the case of an individual who receives wages which are subject to income tax withholding, the term “employee” has the same meaning as set forth in section 3401(c) and the regulations thereunder, and the term “wages” has the same meaning as set forth in sections 3401(a) and 3402(e) and the regulations under those sections; and (ii) In the case of an individual who does not receive wages which are subject to income tax withholding, but who receives wages which are subject to employee FICA taxes, the term “employee” has the same meaning as set forth in section 3121(d) and the regulations thereunder and the term “wages” has the same meaning as set forth in section 3121(a) and the regulations thereunder. An individual not having wages subject to either income tax withholding or employee FICA taxes is not entitled to advance payments of the earned income credit. Moreover, notwithstanding paragraph (a)(1)(i) and (ii) of this section, employers are not required to pay advance earned income credit amounts to agricultural workers paid on a daily basis. For this purpose an “agricultural worker” is an employee who performs “agricultural labor”, as that term is defined in section 3121(g) and the regulations thereunder. (2) Cross references. (b) Advance earned income credit amount. (1) Employees who are not married (within the meaning of section 143), or employees whose spouses do not have an earned income credit advance payment certificate in effect; and (2) Employees whose spouses have an earned income credit advance payment certificate in effect. If during the calendar year an employer has paid an employee amounts of earned income, within the meaning of section 43(c)(2)(A)(i), which in the aggregate equal or exceed $10,000, the employer need not make further payments of advance earned income credit to the employee during that calendar year. (c) Payment of advance earned income credit amount as payment of withholding and FICA taxes In general. (A) First, from the aggregate amount, with respect to all employees, required to be deducted and withheld for the payroll period under section 3401 (relating to income tax withholding); (B) Second, from the aggregate amount, with respect to all employees, required to be deducted for the payroll period under section 3102 (relating to employee FICA taxes); and (C) Third, from the aggregate amount of the taxes imposed for the payroll period under section 3111 (relating to employer FICA taxes). For purposes of the requirements of sections 3401, 3102, and 3111, as the case may be, and 6302, amounts equal to the advance earned income credit amounts paid to employees are treated as if paid to the Treasury Department on the day on which the wages (and advance amounts) are paid to the employees. The employer must report the payment and treatment of the advance amounts on the employer's Form 941, 941E, 942, or 943, as the case may be, in accordance with the applicable instructions. (ii) The provisions of paragraph (c)(1)(i) of this section may be illustrated by the following example: Example. Employer X has ten employees, each of whom is entitled to advance earned income credit payment of $10. The total of advance amounts paid by the employer to the ten employees for the payroll period is $100. The total of income tax withholding for the payroll period is $90. The total of employee FICA taxes for the payroll period is $61.30, and the total of employer FICA taxes for the payroll period is also $61.30. Under the rules of paragraph (c)(1)(i) of this section, the total of advance amounts paid to employees is treated as if X had paid the Treasury Department on the day X paid the employees' wages: first, the $90 aggregate amount of income tax withholding; and second, $10 of the aggregate amount of employee FICA tax. X remains liable only for $112.60 of the aggregate FICA tax [$51.30 + $61.30 = $112.60]. (2) Advance payments exceeding taxes due. (ii) The provisions of paragraph (c)(2) of this section may be illustrated by the following example. Example. Assume the same facts as the example in paragraph (c)(1)(ii) of this section, except that the employer is a state government which does not pay FICA taxes. Under these facts, the advance amounts would be $10 greater than the $90 total of income tax withholding for the payroll period. Assume 10 employees each receiving $10 in advance payments. Under the rule of this paragraph (c)(2), the employer X reduces the amount of the advance amount paid to each employer by 1/10 1/10 (3) Election to treat excess amounts as advance tax payment. (i) First, for income tax withholding due under section 3401 for the reporting period in which the payment is made; (ii) Second, for employee FICA taxes due under section 3102 for the reporting period in which the payment is made; and (iii) Third, for employer FICA taxes due under section 3111 for the reporting period in which the payment is made. If the amount of the employment taxes (as described) for which the employer remains liable for the reporting period in which the excess payment is made is less than the excess payment, the employer may claim a refund of that portion of the excess amount paid which exceeds the employer's remaining liability for these taxes for the reporting period. This refund may be claimed, in the same manner as a refund of wage withholding taxes paid by the employer under section 3401, on the employer's Form 941, 941E, 942, or 943, as the case may be, for the reporting period. In the absence of a claim for refund, that portion of the excess amount will be applied by the Internal Revenue Service against the employer's liability for employment taxes reported on the employer's Form 941, 941E, 942, or 943, as the case may be, filed for the next reporting period. (4) Failure to make advance payments. [T.D. 7766, 46 FR 10151, Feb. 2, 1981] § 31.3507-2 Earned income credit advance payment certificates. (a) Definition. (1) Certifies that the employee reasonably expects to be eligible to receive the earned income credit provided by section 43 for the employee's last taxable year under subtitle A of the Internal Revenue Code of 1954 which begins in the calendar year in which the wages are paid: (2) Certifies that the employee does not have an earned income credit advance payment certificate in effect for the calendar year (in which the wages are paid) with respect to the payment of wages by another employer, and (3) States if the employee's spouse has an earned income credit advance payment certificate in effect with any employer. For the rule for determining if an employee's spouse has a certificate in effect, see paragraph (c)(3) of this section. (b) Form and content of earned income credit advance payment certificate In general. (2) Invalid certificates. (c) When earned income credit advance payment certificate takes effect No previous certificate. (i) The date of the beginning of the first payroll period ending on or after the date on which the certificate is received by the employer; (ii) The date of the first payment of wages made without regard to a payroll period on or after the date on which the certificate is received by the employer; or (iii) The first day of the calendar year for which the certificate is furnished, if that day is later than the otherwise applicable effective date specified in paragraph (c)(1)(i) or (ii) of this section. (2) Previous certificate. (3) Certificate of spouse. (4) Status determination date. (d) Period during which certificate remains in effect; change of status Period certificate remains in effect. (2) Change of status Revocation of certificate. (A) The employee no longer wishes to receive advance earned income credit payments; or (B) There has been a change of circumstances which has the effect of either making the employee ineligible for the earned income credit for the taxable year or causing a certificate to be in effect for the employee's spouse, then the employee must revoke the certificate previously furnished by furnishing the employer a new certificate (Form W-5 or identical form) in revocation of the earlier certificate. Depending upon the nature of the change of circumstances, the employer may be required, pursuant to the new certificate, to pay further advance earned income credit amounts to the employee (but in different amounts than previously paid to the employee). The Form W-5 (or identical form) must be prepared in accordance with the instructions applicable thereto and must set forth fully and clearly the data therein called for. In the case of revocation due to change of circumstances, the new certificate in revocation must be delivered to the employer within ten days after the employee first learns of the change of circumstances. The new certificate is effective under the rules provided in paragraph (c)(2) of this section for later certificates. A new certificate furnished by an employee which is invalid within the meaning of paragraph (b)(2) of this section is considered a nullity with respect to all payments of wages thereafter to the employee. The prior certificate of the employee remains in effect, unless the employee clearly indicates by an oral or written statement to the employer that the prior certificate is invalid. See paragraph (b)(2) of this section. The employer is not required to ascertain whether any employee has experienced a change of circumstances described in subdivision (i)(B) of this paragraph which necessitates the employee's furnishing a new certificate. However, the employer should inform the district director if the employer has reason to believe than an employee has experienced a change of circumstances as described if the employee does not deliver a new certificate to the employer within the ten day period. (ii) Change in spouse's certificate. [T.D. 7766, 46 FR 10152, Feb. 2, 1981] § 31.3511-1 Certified professional employer organization. (a) Treatment as employer In general. (2) Work site employee. (3) Non-work site covered employee. (b) Exemptions, exclusions, definitions, and other rules In general. (2) Presumption rebutted. (3) No inference from presumption. (c) Annual wage limitation, contribution base, and withholding threshold CPEO has separate taxable wage base, contribution base, and withholding threshold. (2) Performance of services for more than one customer. (d) Successor employer status In general. (i) A successor and predecessor employer, respectively, upon entering into a CPEO contract with respect to a work site employee who is performing services for the customer; and (ii) A predecessor and successor employer, respectively, upon termination of the CPEO contract between the CPEO and the customer with respect to the work site employee who is performing services for the customer. (2) Non-work site covered employee. (e) Treatment of credits In general. (i) The credit with respect to a work site employee performing services for a customer applies to the customer, not to the CPEO; and (ii) In computing the credit, the customer, and not the CPEO, is to take into account wages and federal employment taxes paid by the CPEO with respect to the work site employee and for which the CPEO receives payment from the customer. (2) Credits specified. (i) Section 41 (credit for increasing research activity); (ii) Section 45A (Indian employment credit); (iii) Section 45B (credit for portion of employer social security taxes paid with respect to employee cash tips); (iv) Section 45C (clinical testing expenses for certain drugs for rare diseases or conditions); (v) Section 45R (employee health insurance expenses for small employers); (vi) Section 45S (employer credit for paid family and medical leave); (vii) Section 51 (work opportunity credit); (viii) Section 1396 (empowerment zone employment credit); (ix) Statutory employee retention credits that are similar to the employee retention credit in section 1400R and that provide disaster relief to employers in designated disaster areas; and (x) Any other section specified by the Commissioner in further guidance (as defined in § 301.7705-1(b)(8) of this chapter). (f) Section not applicable to related customers, self-employed individuals, and other circumstances. (1) In the case of any customer that— (i) Has a relationship to a CPEO described in section 267(b) (including, by cross-reference, section 267(f)) or section 707(b), except that “10 percent” shall be substituted for “50 percent” wherever it appears in such sections; or (ii) Has commenced a CPEO contract with the CPEO but such commencement has not been reported to the IRS as described in paragraph (g)(3)(i) of this section; or (2) To remuneration paid by a CPEO to any self-employed individual (as defined in § 301.7705-1(b)(14) of this chapter) in that capacity; (3) To any CPEO contract that a CPEO enters into while its certification has been suspended by the IRS; or (4) To any CPEO whose certification has been revoked or voluntarily terminated for periods after the effective date of revocation or voluntary termination. (g) Reporting and recordkeeping Reporting and recordkeeping for employers. (2) Reporting on magnetic media In general. (ii) Waiver. (iii) Magnetic media. (3) Reporting to the IRS by CPEOs. (i) The commencement or termination of any CPEO contract (as defined in § 301.7705-1(b)(3) of this chapter) with a customer, or any service agreement as described in § 31.3504-2(b)(2) with a client, and the name and employer identification number (EIN) of such customer or client. (ii) With any Form 940, Form 941, and Form 943 that it files, all required schedules, including, but not limited to, the applicable Schedule R (or any successor form), containing such information as the Commissioner may require about each of its customers under a CPEO contract (as defined in § 301.7705-1(b)(3) of this chapter) and each of its clients under a service agreement (as described in § 31.3504-2(b)(2)). A CPEO must file Form 940, Form 941, and Form 943, along with all required schedules, on magnetic media, unless the CPEO is granted a waiver by the Commissioner in accordance with paragraph (g)(2)(ii) of this section. (iii) A periodic verification that it continues to meet the requirements of § 301.7705-2 of this chapter, as described in § 301.7705-2(j). (iv) Any change that materially affects the continuing accuracy of any agreement or information that was previously made or provided by the CPEO to the IRS, as described in § 301.7705-2(k) of this chapter. (v) A copy of its audited financial statements and an opinion of a certified public accountant regarding such financial statements, as described in § 301.7705-2(e)(1) of this chapter. (vi) The quarterly statements, assertions, and attestations regarding those assertions described in § 301.7705-2(f)(1) of this chapter. (vii) Any information the IRS determines is necessary to promote compliance with respect to the credits described in paragraph (e)(2) of this section and provided in section 3302. (viii) Any other information the Commissioner may prescribe in further guidance. (4) Reporting to customers by CPEOs. (i) Provide each of its customers with the information necessary for the customer to claim the credits described in paragraph (e)(2) of this section. (ii) Notify any customer if its CPEO contract has been transferred to another person (or if another person will report, withhold, or pay, under such other person's EIN, any applicable federal employment taxes with respect to the wages of any individuals covered by its CPEO contract) and provide the customer with the name and EIN of such other person. (iii) If the CPEO's certification is suspended or revoked as described in § 301.7705-2(n) of this chapter, notify each of its current customers of such suspension or revocation. (iv) If any covered employees are not, or cease to be, work site employees because they perform services at a location at which the 85 percent threshold described in § 301.7705-1(b)(17) of this chapter is not met, notify the customer that it may also be liable for federal employment taxes imposed on remuneration remitted by the CPEO to such covered employees, as described in paragraph (a)(3) of this section. (5) Information and agreements in any contract or agreement between a CPEO and a customer or client. (i) In the case of a contract that is a CPEO contract— (A) Contain the name and EIN of the CPEO reporting, withholding, and paying any applicable federal employment taxes with respect to any remuneration paid to individuals covered by the contract or agreement; (B) Require the CPEO to provide to the customer the notices and information required by paragraph (g)(4) of this section; (C) Describe the information that the CPEO will provide that is necessary for the customer to claim the credits specified in paragraph (e)(2) of this section; and (D) Require the CPEO to notify the customer that the customer may also be liable for federal employment taxes on remuneration remitted by the CPEO to covered employees if the work sites at which they perform services do not (or ever cease to) meet the 85 percent threshold described in § 301.7705-1(b)(17) of this chapter; and (ii) In the case of a service agreement described in § 31.3504-2(b)(2) that is not a CPEO contract (and thus the individuals covered by that contract are not covered employees), or if this section does not apply to the contract under paragraph (f) of this section, notify, or be accompanied by a notification to, the client that the service agreement or contract is not covered by section 3511 and does not alter the client's liability for federal employment taxes on remuneration remitted by the CPEO to the employees covered by the service agreement or contract. (h) Penalties and additions to tax In general. (2) Failures to timely make reports required under section 3511. (3) Failures to attach Schedule R. (4) Failures to file on magnetic media. (i) Applicability date. [T.D. 9869, 84 FR 24379, May 28, 2019] Subpart G—Administrative Provisions of Special Application to Employment Taxes (Selected Provisions of Subtitle F, Internal Revenue Code of 1954) § 31.6001-1 Records in general. (a) Form of records. (b) Copies of returns, schedules, and statements. (c) Records of claimants. (d) Records of employees. (e) Place and period for keeping records. (2) Except as otherwise provided in the following sentence, every person required by the regulations in this part to keep records in respect of a tax (whether or not such person incurs liability for such tax) shall maintain such records for at least four years after the due date of such tax for the return period to which the records relate, or the date such tax is paid, whichever is the later. The records of claimants required by paragraph (c) of this section shall be maintained for a period of at least four years after the date the claim is filed. (f) Cross reference. § 31.6001-2 Additional records under Federal Insurance Contributions Act. (a) In general. (i) The name, address, and account number of the employee and such additional information with respect to the employee as is required by paragraph (c) of § 31.6011(b)-2 when the employee does not advise the employer what his account number and name are as shown on an account number card issued to the employee by the Social Security Administration. (ii) The total amount and date of each payment of remuneration (including any sum withheld therefrom as tax or for any other reason) and the period of services covered by such payment. (iii) The amount of each such remuneration payment which constitutes wages subject to tax. See §§ 31.3121(a)-1 to 31.3121(a)(12)-1, inclusive. (iv) The amount of employee tax, or any amount equivalent to employee tax, collected with respect to such payment, and, if collected at a time other than the time such payment was made, the date collected. See paragraph (b) of § 31.3102-1 for provisions relating to collection of amounts equivalent to employee tax. (v) If the total remuneration payment (paragraph (a)(1)(ii) of this section) and the amount thereof which is taxable (paragraph (a)(1)(iii) of this section) are not equal, the reason therefor. (2) Every employer shall keep records of the details of each adjustment or settlement of taxes under the Federal Insurance Contributions Act made pursuant to the regulations in this part. The employer shall keep as a part of his records a copy of each statement furnished pursuant to paragraph (c) of § 31.6011(a)-1. (3) Every employer shall keep records of all remuneration in the form of tips received by his employees after 1965 in the course of their employment and reported to him pursuant to section 6053(a). The employer shall keep as part of his records employee statements of tips furnished him pursuant to section 6053(a) (unless the information disclosed by such statements is recorded on another document retained by the employer pursuant to paragraph (a)(1) of this section) and copies of employer statements furnished employees pursuant to section 6053(b). (b) Agricultural labor, domestic service, and service not in the course of employer's trade or business. (i) The name of the employee. (ii) The account number of each employee to whom wages for such services are paid within the meaning of § 31.3121(a)-2, and such additional information as is required by paragraph (c) of § 31.6011(b)-2 when the employee does not advise the employer what his account number and name are as shown on an account number card issued to the employee by the Social Security Administration. (iii) The amount of such cash remuneration paid to the employee (including any sum withheld therefrom as tax or for any other reason) for agricultural labor which constitutes or is deemed to constitute employment, for domestic service in a private home of the employer not on a farm operated for profit, or for service not in the course of the employer's trade or business; the calendar month in which such cash remuneration was paid; and the character of the services for which such cash remuneration was paid. When the employer incurs liability for the taxes imposed by the Federal Insurance Contributions Act with respect to any such cash remuneration which he did not previously expect would be subject to the taxes, the amount of any such cash remuneration not previously made a matter of record shall be determined by the employer to the best of his knowledge and belief. (iv) The amount of employee tax, or any amount equivalent to employee tax, collected with respect to such cash remuneration and the calendar month in which collected. See paragraph (b) of § 31.3102-1 for provisions relating to collection of amounts equivalent to employee tax. (v) To the extent material to a determination of tax liability, the number of days during each calendar year after 1956 on which agricultural labor which constitutes or is deemed to constitute employment is performed by the employee for cash remuneration computed on a time basis. (2) Every person to whom a “crew leader”, as that term is defined in section 3121(i), furnishes individuals for the performance of agricultural labor after December 31, 1958, shall keep records of the name; permanent mailing address, or if none, present address; and identification number, if any, of such “crew leader”. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 7001, 34 FR 1003, Jan. 23, 1969] § 31.6001-3 Additional records under Railroad Retirement Tax Act. (a) Records of employers. (i) The name and address of the employee. (ii) The total amount and date of each payment of remuneration to the employee (including any sum withheld therefrom as tax or for any other reason) and the period of service (including any period of absence from active service) covered by such payment. (iii) The amount of such remuneration payment with respect to which the tax is imposed. (iv) The amount of employee tax collected with respect to such payment, and, if collected at a time other than the time such payment was made, the date collected. (v) If the total payment of remuneration (paragraph (a)(1)(ii) of this section) and the amount thereof with respect to which the tax is imposed (paragraph (a)(1)(iii) of this section) are not equal, the reason therefor. (2) The employer shall keep records of the details of each adjustment or settlement of taxes under the Railroad Retirement Tax Act made pursuant to the regulations in this part. (b) Records of employee representatives. (1) The name and address of each employee organization employing him. (2) The total amount and date of each payment of remuneration for services rendered as an employee representative (including any sum withheld therefrom as tax or for any other reason) and the period of service (including any period of absence from active service) covered by such payment. (3) The amount of such remuneration payment with respect to which the employee representative tax is imposed. (4) If the total payment of remuneration (paragraph (a)(2) of this section) and the amount thereof with respect to which the employee representative tax is imposed (paragraph (a)(3) of this section) are not equal, the reason therefor. § 31.6001-4 Additional records under Federal Unemployment Tax Act. (a) Records of employers. (1) The total amount of remuneration (including any sum withheld therefrom as tax or for any other reason) paid to his employees during the calendar year for services performed after 1938. (2) The amount of such remuneration which constitutes wages subject to the tax. See § 31.3306(b)-1 through § 31.3306(b)(8)-1. (3) The amount of contributions paid by him into each State unemployment fund, with respect to services subject to the law of such State, showing separately (i) payments made and neither deducted nor to be deducted from the remuneration of his employees, and (ii) payments made and deducted or to be deducted from the remuneration of his employees. (4) The information required to be shown on the prescribed return and the extent to which the employer is liable for the tax. (5) If the total remuneration paid (paragraph (a)(1) of this section) and the amount thereof which is subject to the tax (paragraph (a)(2) of this section) are not equal, the reason therefor. (6) To the extent material to a determination of tax liability, the dates, in each calendar quarter, on which each employee performed services not in the course of the employer's trade or business, and the amount of cash remuneration paid at any time for such services performed within such quarter See § 31.3306(c)(3)-1. The term “remuneration,” as used in this paragraph, includes all payments whether in cash or in a medium other than cash, except that the term does not include payments in a medium other than cash for services not in the course of the employer's trade or business. See § 31.3306(b)(7)-1. (b) Records of persons who are not employers. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6658, 28 FR 6642, June 27, 1963] § 31.6001-5 Additional records in connection with collection of income tax at source on wages. (a) Every employer required under section 3402 to deduct and withhold income tax upon the wages of employees shall keep records of all remuneration paid to (including tips reported by) such employees. Such records shall show with respect to each employee— (1) The name and address of the employee, and after December 31, 1962, the account number of the employee. (2) The total amount and date of each payment of remuneration (including any sum withheld therefrom as tax or for any other reason) and the period of services covered by such payment. (3) The amount of such remuneration payment which constitutes wages subject to withholding. (4) The amount of tax collected with respect to such remuneration payment, and, if collected at a time other than the time such payment was made, the date collected. (5) If the total remuneration payment (paragraph (a)(2) of this section) and the amount thereof which is taxable (paragraph (a)(3) of this section) are not equal, the reason therefor. (6) Copies of any statements furnished by the employee pursuant to paragraph (b)(12) of § 31.3401(a)-1 (relating to permanent residents of the Virgin Islands). (7) Copies of any statements furnished by the employee pursuant to §§ 31.3401(a)(6)-1 and 31.3401(a)(7)-1, relating to nonresident alien individuals. (8) Copies of any statements furnished by the employee pursuant to § 31.3401(a)(8)(A)-1 (relating to residence or physical presence in a foreign country). (9) Copies of any statements furnished by the employee pursuant to § 31.3401(a)(8)(C)-1 (relating to citizens resident in Puerto Rico). (10) The fair market value and date of each payment of noncash remuneration, made to an employee after August 9, 1955, for services performed as a retail commission salesman, with respect to which no income tax is withheld by reason of § 31.3402(j)-1. (11) [Reserved] (12) In the case of the employer for whom services are performed, with respect to payments made directly by him after December 31, 1955, under an accident or health plan (as defined in section 105 and the regulations thereunder)— (i) The beginning and ending dates of each period of absence from work for which any such payment was made; and (ii) Sufficient information to establish the amount and weekly rate of each such payment. (13) The withholding exemption certificates (Forms W-4 and W-4E) filed with the employer by the employee. (14) The agreement, if any, between the employer and the employee for the withholding of additional amounts of tax pursuant to § 31.3402(i)-1. (15) To the extent material to a determination of tax liability, the dates, in each calendar quarter, on which the employee performed services not in the course of the employer's trade or business, and the amount of cash remuneration paid at any time for such services performed within such quarter. (See § 31.3401(a)(4)-1.) (16) In the case of tips received by an employee after 1965 in the course of his employment, copies of any statements furnished by the employee pursuant to section 6053(a) unless the information disclosed by such statements is recorded on another document retained by the employer pursuant to the provisions of this paragraph. (17) Any request of an employee under section 3402(h)(3) and § 31.3402 (h)(3)-1 to have the amount of tax to be withheld from his wages computed on the basis of his cumulative wages, and any notice of revocation thereof. The term “remuneration,” as used in this paragraph, includes all payments whether in cash or in a medium other than cash, except that the term does not include payments in a medium other than cash for services not in the course of the employer's trade or business, and does not include tips received by an employee in any medium other than cash or in cash if such tips amount to less than $20 for any calendar month. See §§ 31.3401(a)(11)-1 and 31.3401(a)(16)-1, respectively. (b) The employer shall keep records of the details of each adjustment or settlement of income tax withheld under section 3402 made pursuant to the regulations in this part. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6606, 27 FR 8516, Aug. 25, 1962; T.D. 6908, 31 FR 16776, Dec. 31, 1966; T.D. 7001, 34 FR 1003, Jan. 23, 1969; T.D. 7048, 35 FR 10292, June 24, 1970; T.D. 7053, 35 FR 11628, July 21, 1970; T.D. 7888, 48 FR 17588, Apr. 25, 1983] § 31.6001-6 Notice by district director requiring returns, statements, or the keeping of records. The district director may require any person, by notice served upon him, to make such returns, render such statements, or keep such specific records as will enable the district director to determine whether or not such person is liable for any of the taxes to which the regulations in this part have application. § 31.6011-4 Requirement of statement disclosing participation in certain transactions by taxpayers. (a) In general. listed transaction transaction of interest b (b) Effective/applicability date. [T.D. 9350, 72 FR 43154, Aug. 3, 2007] § 31.6011(a)-1 Returns under Federal Insurance Contributions Act. (a) Requirement In general. (2) Employers of agricultural workers. (3) Employers of domestic workers. (4) Employers in Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, or the Commonwealth of the Northern Mariana Islands. (5) Employers in the Employers' Annual Federal Tax Program (Form 944) In general. (A) Paragraph (a)(2) of this section to make a return on Form 943, “Employer's Annual Federal Tax Return for Agricultural Employees”; or (B) Paragraph (a)(3) of this section to make a return on Schedule H (Form 1040), “Household Employment Taxes.” (ii) Requests to opt in or opt out of the Employers' Annual Federal Tax Program (Form 944). (b) When to report wages. (c) Adjustments and refunds. (d) Returns by employees in respect of tips. (1) An employee, during a calendar year, is paid wages in the form of tips which are subject to the tax under section 3101, and (2) Any portion of the tax under section 3101 in respect of such wages cannot be collected by the employer from wages (exclusive of tips) of such employee or from funds turned over by the employee to the employer, the employee shall make a return for the calendar year in respect of the employee tax not collected by the employer. Except as otherwise provided in this subparagraph, the return shall be made on Form 1040. The form to be used by residents of the Virgin Islands, Guam, or American Samoa is Form 1040SS. In the case of a resident of Puerto Rico who is not required to make a return of income under section 6012(a), the form to be used is Form 1040SS, except that Form 1040PR shall be used if it is furnished by the Internal Revenue Service to such resident for use in lieu of Form 1040SS. (e) Time and place for filing returns. (f) Wages paid in nonconvertible foreign currency. (g) Returns by employees in respect of Additional Medicare Tax. (h) Effective/applicability dates. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 7001, 34 FR 1004, Jan. 23, 1969; T.D. 7001, 34 FR 1826, Feb. 7, 1969; T.D. 7200, 37 FR 16544, Aug. 16, 1972; T.D. 7351, 40 FR 17144, Apr. 17, 1975; T.D. 7396, 41 FR 1903, Jan. 13, 1976; T.D. 9239, 71 FR 14, Jan. 3, 2006; T.D. 9405, 73 FR 37375, July 1, 2008; T.D. 9440, 73 FR 79357, Dec. 29, 2008; T.D. 9566, 76 FR 77674, Dec. 14, 2011; T.D. 9645, 78 FR 71473, Nov. 29, 2013; T.D. 9645, 79 FR 4623, Jan. 29, 2014] § 31.6011(a)-2 Returns under Railroad Retirement Tax Act. (a) Requirement Employers. (2) Employee representatives. (b) When to report compensation In general. (2) Pre-1976 returns of employers required by State law to pay compensation on weekly basis In general. (ii) Prior elections. (iii) Example. (c) Time and place for filing returns. (d) Returns by employees and employee representatives in respect of Additional Medicare Tax. (e) Effective/applicability date. [T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 7396, 41 FR 1903, Jan. 13, 1976; T.D. 9645, 78 FR 71473, Nov. 29, 2013] § 31.6011(a)-3 Returns under Federal Unemployment Tax Act. (a) Requirement. (b) When to report wages. (c) Time and place for filing returns. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 7200, 37 FR 16544, Aug. 16, 1972] § 31.6011(a)-3A Returns of the railroad unemployment repayment tax. (a) Requirement Employers. (2) Employee representatives. (b) Time and place for filing returns. [T.D. 8105, 51 FR 40168, Nov. 5, 1986. Redesignated and amended at T.D. 8227, 53 FR 34736, Sept. 8, 1988] § 31.6011(a)-4 Returns of income tax withheld. (a) Withheld from wages In general. (2) Wages paid for domestic service. (3) Wages paid for agricultural labor. (4) Employers in the Employers' Annual Federal Tax Program (Form 944) In general. (A) Paragraph (a)(3) of this section to make a return on Form 943, “Employer's Annual Federal Tax Return for Agricultural Employees”; or (B) Paragraph (a)(2) of this section to make a return on Schedule H (Form 1040), “Household Employment Taxes.” (ii) Request to opt in or opt out of the Employers' Annual Federal Tax Program (Form 944). (b) Withheld from nonpayroll payments. (1) Certain gambling winnings subject to withholding under section 3402(q); (2) Retirement pay for services in the Armed Forces of the United States subject to withholding under section 3402; (3) Certain annuities as described in section 3402(o)(1)(B); (4) Pensions, annuities, IRAs, and certain other deferred income subject to withholding under section 3405; and (5) Reportable payments subject to backup withholding under section 3406. (c) Time and place for filing returns. (d) Effective/applicability dates. (86 Stat. 944, 26 U.S.C. 6364; and 68A Stat. 917, 26 U.S.C. 7805; 68A Stat. 747, 26 U.S.C. 6051) [T.D. 6516, 25 FR 13032, Dec. 20, 1960] Editorial Note: For Federal Register www.govinfo.gov. § 31.6011(a)-5 Monthly returns. (a) In general Requirement. (i) Who by reason of notification as provided in § 301.7512-1, is required to comply with the provisions of such § 301.7512-1; or (ii) Who failed to— (A) Make any return required pursuant to § 31.6011(a)-1 or § 31.6011(a)-4; (B) Pay tax reportable on any such form; or (C) Deposit any such tax as required under the provisions of § 31.6302-1. (2) Termination of requirement. (b) Information returns on Form W-3 and Social Security Administration copies of Form W-2. (c) Time and place for filing returns. [T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 7351, 40 FR 17145, Apr. 17, 1975; T.D. 7580, 43 FR 60154, Dec. 26, 1978; T.D. 8637, 60 FR 66133, Dec. 21, 1995; T.D. 9061, 68 FR 34799, June 11, 2003; T.D. 9405, 73 FR 37375, July 1, 2008] § 31.6011(a)-6 Final returns. (a) In general Federal Insurance Contributions Act; income tax withheld from wages and nonpayroll payments. (2) Railroad Retirement Tax Act Form CT-1. (ii) Form CT-2. (3) Federal Unemployment Tax Act. (b) Statement to accompany final return. (c) Time and place for filing returns. [T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 7396, 41 FR 1904, Jan. 14, 1976; T.D. 8637, 60 FR 66133, Dec. 21, 1995] § 31.6011(a)-7 Execution of returns. (a) In general. (b) Use of prescribed forms In general. In any case where the use of Form W-2 is required from the purpose of making a return or reporting information, such requirement may be satisfied by submitting the information required by such form on magnetic tape or by other media, provided that the prior consent of the Commissioner of Social Security (or other authorized officer or employee thereof has been obtained. (c) Signing and verification. (d) Reporting of identifying numbers. (68A Stat. 747, 26 U.S.C. 6051; and 68A Stat. 917, 26 U.S.C. 7805) [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6606, 27 FR 8516, Aug. 25, 1962; T.D. 6883, 31 FR 6590, May 3, 1966; T.D. 7276, 38 FR 11345, May 7, 1973; T.D. 7396, 41 FR 1904, Jan. 13, 1976; T.D. 7580, 43 FR 60159, Dec. 26, 1978] § 31.6011(a)-8 Composite return in lieu of specified form. The Commissioner may authorize the use, at the option of the employer, of a composite return in lieu of any form specified in this part for use by an employer, subject to such conditions, limitations, and special rules governing the preparation, execution, filing, and correction thereof as the Commissioner may deem appropriate. Such composite return shall consist of a form prescribed ty the Commissioner and an attachment or attachments of magnetic tape or other approved media. Notwithstanding any provisions in this part to the contrary, a single form and attachment may comprise the returns of more than one employer. To the extent that the use of a compsoite return has been authorized by the Commissioner, references in this part to a specific form for use by the employer shall be deemed to refer also to a composite return under this section. [T.D. 7200, 37 FR 16544, Aug. 16, 1972] § 31.6011(a)-9 Instructions to forms control as to which form is to be used. Notwithstanding provisions in this part which specify the use of a particular form for a return or other document required by this part, the use of a different form may be required by the latter form's instructions. In such case, the latter form shall be completed in accordance with its instructions. [T.D. 7351, 40 FR 17145, Apr. 17, 1975] § 31.6011(a)-10 Instructions to forms may waive filing requirement in case of no liability tax returns. Notwithstanding provisions in this part which require that a tax return be filed, the instructions to the form on which a return of tax is otherwise required by this part to be made may waive such requirement with respect to a particular class or classes of no liability tax returns. Returns in a class for which such requirement has been so waived need not be made. This Treasury decision is not adverse to any taxpayer. For this reason, it is found unnecessary to issue this Treasury decision with notice and public procedure under subsection (b) of section 553 of title 5 of the United States Code or subject to the effective date limitation of subsection (d) of that section. [T.D. 8229, 53 FR 35811, Sept. 15, 1988] § 31.6011(b)-1 Employers' identification numbers. (a) Requirement of application In general Before October 1, 1962. (ii) On or after October 1, 1962. (iii) Method of application. a b c d (2) Time for filing Form SS-4. (b) Employers who are assigned identification numbers without application. (c) Crew leaders. (d) Use of identification number. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6606, 27 FR 8517, Aug. 25, 1962; T.D. 7012, 34 FR 7693, May 15, 1969] § 31.6011(b)-2 Employees' account numbers. (a) Requirement of application In general Before November 1, 1962. (ii) On or after November 1, 1962. (iii) Method of application. (2) Time for filing Form SS-5. (3) Changes and corrections. (b) Duties of employee with respect to his account number Information to be furnished to employer. (i) Employee who has account number card. (ii) Employee who has number but card not available. (iii) Employee who has receipt acknowledging application. (iv) Employee who is unable to furnish number or receipt. For provisions relating to the duties of an employer when furnished the information required by paragraph (b)(1) (i), (ii), (iii), or (iv) of this section, see paragraph (c) of this section. (2) Additional information to be furnished by employee to employer. (3) Furnishing of account number by employee to employer. (c) Duties of employer with respect to employees' account numbers Employee who shows account number. (2) Employee who does not show account number card. (i) Employee who has not applied for account number. (ii) Employee who has account number. (iii) Employee who has receipt for application. (iv) Employee who furnishes Form SS-5 or statement. (v) Household or agricultural employees. (3) Account number unknown when return is filed. (i) If employee has shown receipt for application. (ii) If employee furnished Form SS-5 or statement. (iii) If employee did not furnish receipt, Form SS-5, or statement. (4) Household or agricultural employees. (5) Where to obtain Form SS-5. (6) Prospective employees. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6606, 27 FR 8517, Aug. 25, 1962] § 31.6051-1 Statements for employees. (a) Requirement if wages are subject to withholding of income tax General rule. (A) The name, address, and identification number of the employer. (B) The name, address, and social security number of the employee, which may be truncated to appear in the form of an IRS truncated taxpayer identification number (TTIN) on copies of Forms W-2 that are furnished to the employee (for provisions relating to the use of TTINs, see § 301.6109-4 of this chapter (Procedure and Administration Regulations)), if wages as defined in section 3121(a) have been paid or if the Form W-2 is required to be furnished to the employee, (C) The total amount of wages as defined in section 3401(a), (D) The total amount deducted and withheld as tax under section 3402, (E) The total amount of wages as defined in section 3121(a), (F) The total amount of employee tax under section 3101 deducted and withheld (increased by any adjustment in the calendar year for overcollection, or decreased by any adjustment in such year for undercollection, of such tax during any prior year) and the proportion thereof (expressed either as a dollar amount, as a percentage of the total amount of wages as defined in section 3121(a), or as a percentage of the total amount of employee tax under section 3101) withheld as tax under section 3101(b) for financing the cost of hospital insurance benefits, (G) Such information relating to coverage the employee has earned under the Federal Insurance Contributions act, as may be required by Form W-2 or its instructions, and (H) The total amount paid to the employee under section 3507 (relating to advance payment of earned income credit). (ii) Payments made in 1955 under a wage continuation plan shall be reported on Form W-2 to the extent, and in the manner, provided in paragraph (b)(8)(i) of § 31.3401(a)-1. (iii) In the case of statements furnished by the employer for whom services are performed, with respect to wages paid after December 31, 1955, “the total amount of wages as defined in section 3401(a)”, as used in section 6051(a)(3), shall include all payments made directly by such employer under a wage continuation plan which constitute wages in accordance with paragraph (b)(8)(ii)( a (iv) Form W-2 is not required in respect of any wage continuation payment made to an employee by or on behalf of a person who is not the employer for whom the employee performs services but who is regarded as an employer under section 340(d)(1). See paragraph (b)(8) of § 31.3401(a)-1. (v) In the case of remuneration paid for service described in section 3121(m), relating to service in the uniformed services, performed after 1956, “wages as defined in section 3121(a)”, as used in section 6051(a) (2) and (5), shall be determined in accordance with section 3121(i)(2) and section 3122. (vi) In the case of remuneration in the form of tips received by an employee in the course of his employment, the amounts required to be shown by paragraphs (3) and (5) of section 6051(a) (see paragraph (a)(1)(i) ( c e (2) Statements for members of the Armed Forces of the United States. (3) Undelivered statements for employees. (b) Requirement if wages are not subject to withholding of income tax General rule. (i) The name and address of the employer, (ii) The name, address, and social security number of the employee, which may be truncated to appear in the form of a TTIN on copies of Forms W-2 that are furnished to the employee (for provisions relating to the use of TTINs, see § 301.6109-4 of this chapter), (iii) The total amount of wages as defined in section 3121(a), (iv) The total amount of employee tax deducted and withheld from such wages (increased by any adjustment in such year for overcollection, or decreased by any adjustment in such year for undercollection, of employee tax during any prior year) and the proportion thereof (expressed either as a dollar amount, as a percentage of the total amount of wages as defined in section 3121(a), or as a percentage of the total amount of employee tax under section 3101) withheld as tax under section 3101(b) for financing the cost of hospital insurance benefits, and (v) Such information relating to coverage the employee has earned under the Federal Insurance Contributions Act, as may be required by Form W-2 or its instructions, and (vi) The total amount paid to the employee under section 3507 (relating to advance payment of earned income credit). See paragraph (d) of this section for provisions relating to the time for furnishing the statement required by this paragraph. (2) Uniformed services. (c) Correction of statements Federal Insurance Contributions Act. (2) Income tax withholding. (3) Cross reference. (d) Time for furnishing statements In general. (ii) Expedited furnishing General rule. (B) Requests by employees. (2) Extensions of time In general a ( 1 ( 2 ( 3 ( 4 ( b ( c (ii) Automatic Extension of Time. (e) Reporting of reimbursements of or payments of expenses of moving from one residence to another residence after July 23, 1971. (f) Statements with respect to compensation, as defined in the Railroad Retirement Tax Act Notification of possible credit or refund. (2) Information to be supplied to employees upon request. (i) The total amount of compensation with respect to which the tax imposed by section 3101(b) was deducted; (ii) The total amount of employee tax under section 3201 deducted and withheld (increased by any adjustment in the calendar year for overcollection, or decreased by any adjustment in such year for undercollection, of such tax during any prior year); and (iii) The proportion thereof (expressed either as a dollar amount, or a percentage of the total amount of compensation as defined in section 3231(e), or as a percentage of the total amount of employee tax under section 3201) withheld as tax under section 3201 for financing the cost of hospital insurance benefits. (g) Employers filing composite returns. (h) Statements with respect to the refundable earned income credit In general. (2) Time for furnishing statement. (i) In the case of an employee who is required to be furnished a Form W-2, Wage and Tax Statement, for the calendar year, within one week of (before or after) the date that the employee is furnished a timely Form W-2 for the calendar year (or, if a Form W-2 is not so furnished, on or before the date by which it is required to be furnished); and (ii) In the case of an employee who is not required to be furnished a Form W-2 for the calendar year, on or before February 7 of the year succeeding the calendar year. (3) Manner of furnishing statement. (i) Cross references. (j) Electronic furnishing of statements In general. (2) Consent In general. (ii) Withdrawal of consent. (iii) Change in hardware or software requirements. (iv) Examples. Example 1. Furnisher F sends Recipient R a letter stating that R may consent to receive Form W-2 electronically on a Web site instead of in a paper format. The letter contains instructions explaining how to consent to receive Form W-2 electronically by accessing the Web site, downloading the consent document, completing the consent document and e-mailing the completed consent back to F. The consent document posted on the Web site uses the same electronic format that F will use for the electronically furnished Form W-2. R reads the instructions and submits the consent in the manner provided in the instructions. R has consented to receive the statements electronically in the manner described in paragraph (j)(2)(i) of this section. Example 2. Furnisher F sends Recipient R an e-mail stating that R may consent to receive Form W-2 electronically instead of in a paper format. The e-mail contains an attachment instructing R how to consent to receive Form W-2 electronically. The e-mail attachment uses the same electronic format that F will use for the electronically furnished Form W-2. R opens the attachment, reads the instructions, and submits the consent in the manner provided in the instructions. R has consented to receive Form W-2 electronically in the manner described in paragraph (j)(2)(i) of this section. Example 3. Furnisher F posts a notice on its Web site stating that Recipient R may receive Form W-2 electronically instead of in a paper format. The Web site contains instructions on how R may access a secure Web page and consent to receive the statements electronically. By accessing the secure Web page and giving consent, R has consented to receive Form W-2 electronically in the manner described in paragraph (j)(2)(i) of this section. (3) Required disclosures In general. (ii) Paper statement. (iii) Scope and duration of consent. (iv) Post-consent request for a paper statement. (v) Withdrawal of consent. (A) The recipient may withdraw a consent by writing (electronically or on paper) to the person or department whose name, mailing address, telephone number, and e-mail address is provided in the disclosure statement; (B) The furnisher will confirm the withdrawal and the date on which it takes effect in writing (either electronically or on paper); and (C) A withdrawal of consent does not apply to a statement that was furnished electronically in the manner described in this paragraph (j) before the date on which the withdrawal of consent takes effect. (vi) Notice of termination. (vii) Updating information. (viii) Hardware and software requirements. (4) Format. (5) Notice In general. (ii) Undeliverable electronic address. (iii) Corrected Form W-2. (A) An electronic notice of the Web site posting of an original Form W-2 or the corrected Form W-2 was returned as undeliverable; and (B) The recipient has not provided a new e-mail address. (6) Access period. (7) Paper statements after withdrawal of consent. (k) Applicability date. (86 Stat. 944, 26 U.S.C. 6364; 68A Stat. 917, 26 U.S.C. 7805; 68A Stat. 747, 26 U.S.C. 6051(c)) [T.D. 6516, 25 FR 13032, Dec. 20, 1960] Editorial Note: For Federal Register www.govinfo.gov. § 31.6051-2 Information returns on Form W-3 and Social Security Administration copies of Forms W-2. (a) In general. (b) Corrected returns. (c) Cross references. (d) Applicability date. (68A Stat. 747, 26 U.S.C. 6051; 68A Stat. 917, 26 U.S.C. 7805) [T.D. 7351, 40 FR 17145, Apr. 17, 1975, as amended by T.D. 7580, 43 FR 60160, Dec. 26, 1978; T.D. 8155, 52 FR 34357, Sept. 10, 1987; T.D. 8344, 56 FR 15042, Apr. 15, 1991; T.D. 8636, 60 FR 66141, Dec. 21, 1995; T.D. 9061, 68 FR 34799, June 11, 2003; T.D. 9861, 84 FR 31720, July 3, 2019] § 31.6051-3 Statements required in case of sick pay paid by third parties. (a) Statements required from payor. (i) The name and, if there is withholding from sick pay under section 3402(o) and the regulations in this part under section 3402(o), the social security account number of the payee (the payee's social security number may not be truncated to appear in the form of an IRS truncated taxpayer identification number (TTIN)), (ii) The total amount of sick pay paid to the payee during the calendar year, and (iii) The total amount (if any) deducted and withheld from sick pay under section 3402(o) and the regulations thereunder. The statement must be furnished to the employer on or before January 15 of the year following the calendar year in which any sick pay was paid. (2) These reporting requirements are in lieu of the requirements of sections 6051(a) (relating to written statements for employees) and 6041 (relating to information returns). Statements required to be furnished by this paragraph shall be treated as statements required under section 6051 to be furnished to employees for purposes of sections 6674 (relating to fraudulent statement or failure to furnish statement to employee) and 7204 (relating to fraudulent statement or failure to make statement to employees). (3) A multiemployer plan paying sick pay pursuant to a collectively bargained agreement may furnish the statement required to be furnished by this paragraph, which shall include the total amount of sick pay paid to the employee under the plan regardless of the identity or number of employers for whom the employee worked during the calendar year under the plan, to one of the following: (i) The employer for whom the employee worked the most hours during the calendar year for which the statement is to be furnished, (ii) The employer for whom the employee first worked during such year, (iii) The employer for whom the employee last worked during such year, (iv) The employer for whom the employee worked immediately preceding his absence for which sick pay was paid, (v) The employer for whom the employee worked immediately following his absence for which sick pay was paid, (vi) The employer designated through the operation of a specific clause of the collective bargaining agreement, or (vii) The employer designated through the operation of a specific system of designation chosen by the payor. (b) Information required to be furnished by employer. (1) All of the information required to be furnished under paragraph (a) of this section, but the employer may truncate the payee's social security number to appear in the form of a TTIN on copies of Forms W-2 that are furnished to the payee (for provisions relating to the use of TTINs, see § 301.6109-4 of this chapter (Procedure and Administration Regulations)). (2) The name, the address, and the Employer Identification Number (EIN) of the employer, (3) The words “sick pay”, which shall be written in the box labelled “Employer's use”, and (4) If any portion of the sick pay is excludable from gross income under section 104(a)(3), the amount of the portion which is not so excludable and of the portion which is so excludable. Only sick pay payments includable in gross income shall be reported in the box labelled “Wages, tips, other compensation” on Form W-2. Any amount excludable from gross income under section 104(a)(3) shall be reported in the box labelled “Employer's use” on Form W-2 and any amount so reported shall be described as “Nontaxable”. The information required to be furnished by this paragraph may be furnished either on the same Form W-2 that is required to be furnished under section 6051(a) or on a separate Form W-2. To the extent practicable, this statement should be furnished to the payee along with the statement (if any) required under section 6051(a) (relating to written statements for employees). The statement must be furnished to the payee on or before January 31 of the year following the calendar year in which any sick pay was paid. The employer shall file copy A of Form W-2 and Form W-3 with the Social Security Administration in accordance with section 6051(d) (relating to statements to constitute information returns) and the regulations thereunder. (c) Optional rule. (d) Definitions. (e) Additional requirements. (2) The provisions of § 1.9101-1 (relating to permission to submit information required by certain returns and statements on magnetic tape) shall be applicable to the information required by this section to be furnished on Form W-2 if the employer properly complies with those provisions. (3) The provisions of section 6109 (relating to identifying numbers) and the regulations in this part and part 301 under section 6109 shall be applicable to Form W-2 and to any payee of sick pay to whom a statement on Form W-2 is required by this section to be furnished. The employer must include the social security number of the payee on all copies of Forms W-2. The employer may truncate the payee's social security number to appear in the form of a TTIN on copies of Forms W-2 that are furnished to the payee. For provisions relating to the use of TTINs, see § 301.6109-4 of this chapter. (f) Applicability date. (Secs. 3402(o), 7805, Internal Revenue Code of 1954 (94 Stat. 3495, (26 U.S.C. 3402(o)); 68A Stat. 917 (26 U.S.C. 7805)) [T.D. 7814, 47 FR 11277, Mar. 16, 1982, as amended by T.D. 9861, 84 FR 31720, July 3, 2019] § 31.6051-4 Statement required in case of backup withholding. (a) Statements required from payor. (b) Prescribed form. (c) Information required. (1) The name, address, and taxpayer identification number of the person receiving any reportable payment; (2) Except as provided in the prescribed form or instructions, the amount subject to reporting under section 6041, 6041A(a), 6042, 6044, 6045, 6049, 6050A, 6050N, or 6050W whether or not the amount of the reportable payment is less than the amount for which an information return is required or, if tax is withheld under section 3406, the amount of the payment withheld upon; (3) The amount of tax deducted and withheld under section 3406; (4) The name and address of the person filing the form; (5) A legend stating that such amount is being reported to the Internal Revenue Service; and (6) Such other information as is required by the form. (d) Time for furnishing statements. See (e) Aggregation. [T.D. 8637, 60 FR 66133, Dec. 21, 1995, as amended by T.D. 9496, 75 FR 49835, Aug. 16, 2010; T.D. 9504, 75 FR 64103, Oct. 18, 2010] § 31.6053-1 Report of tips by employee to employer. (a) Requirement that tips be reported In general. (2) Cross references. (b) Statement for use in reporting tips In general. (i) The name, address, and social security number of the employee. (ii) The name and address of the employer. (iii) The period for which, and the date on which, the statement is furnished. If the statement is for a period of less than 1 calendar month, the beginning and ending dates of the period must be included (for example, January 1 through January 8, 1998). (iv) The total amount of tips received by the employee during the period covered by the statement which are required to be reported to the employer (see paragraph (a) of this section). (2) Form of statement In general. (ii) Single-purpose forms. (iii) Regularly used forms. (c) Period covered by, and due date of, tip statement In general. (2) Termination of employment. (d) Requirements for electronic systems In general. (2) Same information as on paper statement. (3) Signature. authenticate verify (4) Copies of electronic tip statements. (5) Record retention. (6) Effective date. [T.D. 7001, 34 FR 1004, Jan. 23, 1969, as amended by T.D. 8910, 65 FR 77819, Dec. 13, 2000] § 31.6053-2 Employer statement of uncollected employee tax. (a) Requirement that statement be furnished. (1) The amount of the employee tax imposed by section 3101 in respect of tips reported by an employee to his employer pursuant to section 6053(a) (see § 31.6053-1) exceeds (2) The amount of employee tax imposed by section 3101 in respect of such tips which can be collected by the employer from wages (exclusive of tips) of such employee or from funds furnished to the employer by the employee, the employer shall furnish to the employee a statement showing the amount of the excess. For provisions relating to the collection of, and liability for, employee tax on tips, see § 31.3102-3. (b) Form of statement. (c) Excess to be shown on statement. [T.D. 7001, 34 FR 1005, Jan. 23, 1969, as amended by T.D. 7351, 40 FR 17145, Apr. 17, 1975] § 31.6053-3 Reporting by certain large food or beverage establishments with respect to tips. (a) Information return by an employer with respect to tips In general. (i) The employer's name, address, and employer identification number; (ii) The establishment's name, address, and identification number (see paragraph (a)(5) of this section); (iii) The aggregate gross receipts (other than nonallocable receipts) of the establishment from the provision of food or beverages; (iv) The aggregate amount of charge receipts (other than nonallocable receipts) on which there were charged tips; (v) The aggregate amount of charged tips shown on such charge receipts; (vi) The aggregate amount of tips actually received by food or beverage employees of the establishment during the calendar year and reported to the employer under section 6053(a) (see paragraph (j)(15) of this section); (vii) The aggregate amount the employer is required to report under section 6051 and the regulations thereunder with respect to service charges of less than 10 percent. (viii) The name and social security number of each employee of the establishment during the calendar year to whom an allocation was made under section 6053(c)(3) and paragraph (d) of this section and the amount of such allocation. (2) Calendar year 1983 information return. (3) Prescribed form. (4) Time and place for filing. (5) Large food or beverage establishment identification number. (i) The first nine digits shall be the employer's identification number (EIN). (ii) The next digit shall identify the type of large food or beverage establishment, with the categories as follows: (A) The number “1” signifies an establishment that serves evening meals only (with or without alcoholic beverages). (B) The number “2” signifies an establishment that serves evening meals and other meals (with or without alcoholic beverages). (C) The number “3” signifies an establishment that serves only meals other than evening meals (with or without alcoholic beverages). (D) The number “4” signifies an establishment that serves food, if at all, as only an incidental part of the business of serving alcoholic beverages. (iii) The last five digits are to differentiate between multiple establishments reporting under the same EIN number. For this purpose, the employer shall assign each establishment reporting under such employer's EIN number a unique five digit number. For example, each establishment could be assigned a unique number by beginning with “00001” and progressing in numerical sequence ( i.e., (6) Definitions. (b) Employer statement to employees In general. (i) The employer's name and address; (ii) The name of the employee; (iii) The aggregate amount allocated to the employee for the calendar year. (2) Prescribed form. (3) Time and manner for furnishing the statement. (4) Employee's request for an early W-2. (5) Employee reporting of tip income. (c) First quarter report of 1983 In general. (2) Prescribed form. (3) Time and place for filing. (d) Allocation of excess of 8 percent of gross receipts over the aggregate amount of reported tips In general. (i) Eight percent of the gross receipts (other than nonallocable receipts) of such establishment for the payroll period, over (ii) The aggregate amount of tips reported by employees at such establishment to the employer under section 6053(a) for such period. For this purpose, if an employee reports under section 6053(a) on the basis of a period other than a payroll period such employee may specify what portion of his or her reported tips are attributable to a given payroll period when reporting tips to the employer under section 6053(a). In the absence of any specification by the employee, the employer shall allocate the amount of tips reported by an employee to a given payroll period either: (A) By multiplying the aggregate amount of those reported tips by a fraction, the numerator of which is the gross receipts attributable to the tipped employee for the payroll period and the denominator of which is the gross receipts attributable to the employee for the entire tip reporting period; or (B) By multiplying the aggregate amount of those reported tips by a fraction, the numerator of which is the hours worked by the employee during the payroll period and the denominator of which is the total hours worked by the employee during the entire tip reporting period. With respect to each establishment, the employer shall choose the method described in either paragraph (d)(1)(ii)(A) or paragraph (d)(1)(ii)(B) of this section for a calendar year and apply such method consistently in making all allocations required by the preceding sentence. If an employee is employed in more than one of an employer's food or beverage operations, such employee may specify what portion of his or her reported tips are attributable to a given operation when reporting tips to the employer under section 6053(a). In the absence of any specification by the employee, the employer shall allocate the amount of tips reported by the employee to a given food or beverage operation in a manner similar to that provided above for allocation of tips among payroll periods. The employer shall choose the method described in either paragraph (d)(1)(ii)(A) or paragraph (d)(1)(ii)(B) of this section for a calendar year and apply such method consistently in making all allocations required by the preceding sentence. (2) Employer not liable to employees for allocations. (e) Allocation pursuant to a good faith agreement. e.g., (1) Provides for the allocation of the amount described in paragraph (d)(1) among tipped employees in a manner that, in combination with the tips reported by such employees under section 6053(a), will reflect a good faith approximation of the actual distribution of tip income among such tipped employees; (2) Is effective prospectively beginning with the first day of a payroll period that begins after the date of adoption, but in no event later than the first day of the succeeding calendar year. However, a good faith agreement may be effective for calendar year 1983 if adopted on or before December 31, 1983. (3) Is adopted at a time when there are tipped employees employed by the employer in each occupational category of tipped employees ( e.g., (4) May be revoked prospectively by a written instrumnent adopted by a least two-thirds of the tipped employees who are employed in the establishment in occupational categories affected by the agreement at the time of the revocation. A revocation of an agreement shall be effective only at the beginning of a payroll period. (f) Allocation method to be used in the absence of a good faith agreement. (i) Multiply the amount of the establishment's gross receipts for the payroll period by 8 percent (0.08). (ii) Determine the aggregate amount of tips reported for the payroll period by indirectly tipped employees. (iii) Subtract from the amount determined under paragraph (f)(1)(i) the aggregate amount of tips reported by indirectly tipped employees as determined under paragraph (f)(1)(ii) of this section. The excess is the directly tipped employees' aggregate share of 8 percent of the gross receipts of the establishment for the payroll period. (iv) For each directly tipped employee, multiply the amount determined under paragraph (f)(1)(iii) of this section by a fraction, the numerator of which is the amount of gross receipts of the establishment for the payroll period that is attributable to the employee and the denominator of which is the aggregate amount of gross receipts for the payroll period that is attributable to all directly tipped employees. The product is each directly tipped employee's share of 8 percent of the gross receipts of the establishment for the payroll period. The employer may determine the fraction described in the first sentence of this subparagraph by substituting for the numerator the number of hours worked by the directly tipped employee during the payroll period and by substituting for the denominator the number of hours worked by all directly tipped employees during the payroll period. For payroll periods beginning after December 31, 1986, the method of allocation described in the preceding sentence may be used only by an employer that employs less than the equivalent of 25 full-time employees (as defined in paragraph (j)(19) of this section) at the establishment during the payroll period. (v) For each directly tipped employee, determine the excess, if any, of the amount determined under paragraph (f)(1)(iv) of this section over the amount reported as tips by the employee for the payroll period pursuant to section 6053(a). Such excess, if any, is the employee's shortfall for the payroll period. (vi) Subtract from the amount determined under paragraph (f)(1)(i) of this section the aggregate amount of tips reported pursuant to section 6053(a) by all directly and indirectly tipped employees for the payroll period. The excess is the amount to be allocated as tips among directly tipped employees who had a shortfall for the payroll period as determined under paragraph (f)(1)(v) of this section. (vii) For each directly tipped employee who had a shortfall for the payroll period, multiply the amount determined under paragraph (f)(1)(vi) of this section by a fraction, the numerator of which is the amount of such employee's shortfall (determined under paragraph (f)(1)(v) of this section and the denominator of which is the aggregate of all shortfalls for the payroll period for all directly tipped employees. The product is the employee's allocation for the payroll period. (2) The provisions of this paragraph may be illustrated by the following examples: Example 1. X is a large food or beverage establishment that has chosen to make tip allocations using its actual payroll period and gross receipts attributable to employees. X had gross receipts for a payroll period of $100,000 and tips reported for the payroll period of $6,200. Directly tipped employees reported $5,700 while indirectly tipped employees reported $500. Directly tipped employees Gross receipts for payroll period Tips reported A 18,000 1,080 B 16,000 880 C 23,000 1,810 D 17,000 800 E 12,000 450 F 14,000 680 Total 100,000 5,700 The allocation computations would be as follows: (1) $100,000 (gross receipts) × 0.08 = $8,000. (2) Tips reported by indirectly tipped employees = $500. (3) $8,000−$500 (indirect employees tips) = $7,500. (4) Directly tipped employees Directly tipped share of 8 pct gross × Gross receipts ratio = Employee share of 8 pct gross A $7,500 18,000/100,000 1,350 B 7,500 16,000/100,000 1,200 C 7,500 23,000/100,000 1,725 D 7,500 17,000/100,000 1,275 E 7,500 12,000/100,000 900 F 7,500 14,000/100,000 1,050 Total 7,500 (5) Directly tipped employees Employee share of 8 pct gross − Tips reported = Employee shortfall A $1,350 $1,080 $270 B 1,200 880 320 C 1,725 1,810 D 1,275 800 475 E 900 450 450 F 1,050 680 370 Total shortfall 1,885 Since employee C has no reporting shortfall there is no allocation to C. (6) $8,000−6,200 (total tips reported) = $1,800 (amount allocable among shortfall employees). (7) Shortfall employees Allocable amount × Shortfall ratio = Amount of allocation A $1,800 270/1885 $258 B 1,800 320/1885 306 D 1,800 475/1885 454 E 1,800 450/1885 430 F 1,800 370/1885 353 Example 2. Assume the same facts as in example 1 except that the employer uses employee hours worked to calculate tip allocations. Directly tipped employees Hours worked in payroll period Tips reported A 40 $1,080 B 35 880 C 45 1,810 D 40 800 E 15 450 F 25 680 Total 200 $5,700 The allocation computations would be as follows: (1) $100,000 (gross receipts) × 0.08 = $8,000 (2) Tips reported by indirectly tipped employees = $500 (3) $8,000−$500 (indirect employees tips) = $7,500 (4) Directly tipped employees Directly tipped share of 8 pct gross × Hours worked ratio = Employee share of 8 pct gross A $7,500 40/200 $1,500 B 7,500 35/200 1,313 C 7,500 45/200 1,688 D 7,500 40/200 1,500 E 7,500 15/200 563 F 7,500 25/200 938 (5) Directly tipped employees Employee share of 8 pct gross − Tips reported = Employee shortfall A $1,500 $1,080 $420 B 1,313 880 433 C 1,688 1,810 D 1,500 800 700 E 563 450 113 F 938 680 258 Total shortfall $1,924 Since employee C has no reporting shortfall there is no allocation to C. (6) $8,000−6,200 (total tips reported) = $1,800 (amount allocable among shortfall employees). (7) Shortfall employees Allocable amount × Shortfall ratio = Amount of allocation A $1,800 420/1,924 $393 B 1,800 433/1,924 405 D 1,800 700/1,924 655 E 1,800 113/1,924 106 F 1,800 258/1,924 241 Example 3. X is a large food or beverage establishment that has chosen to make tip allocations using a calendar year period. X had gross receipts for a calendar year of $2,000,000 and tips reported for the calendar year of $176,000. The amount to be allocated as tips is equal to the excess of 8 percent of the gross receipts of the establishment for the calendar year over the aggregate amount of tips reported by the employees of the establishment to the employer under section 6053(a) for the calendar year. Because the reported tips for the year ($176,000) are in excess of 8 percent of the gross receipts ($2,000,000 × .08 = $160,000), no tip allocations are made to the employees of this establishment for the calendar year. Example 4. X is a large food or beverage establishment that has chosen to make tip allocations using a calendar year period and gross receipts attributable to employees. X had gross receipts for a calendar year of $1,500,000 and tips reported for the calendar year of $110,000. Directly tipped employees reported $94,000 while indirectly tipped employees reported $16,000. Directly tipped employees Gross receipts for calendar year Tips reported A 260,000 $18,600 B 240,000 14,600 C 380,000 31,200 D 260,000 13,000 E 160,000 6,000 F 200,000 10,600 Total $1,500,000 $94,000 The allocation computations are as follows: (1) $1,500,000 (gross receipts) × 0.08 = $120,000. (2) Tips reported by indirectly tipped employees = $16,000. (3) $120,000−16,000 (indirect employees tips) = $104,000. (4) Directly tipped employees Directly tipped share of 8 pct. gross X Gross receipts ratio = Employee share of 8 pct. gross A $104,000 260,000/1,500,000 $18,027 B 104,000 240,000/1,500,000 16,640 C 104,000 380,000/1,500,000 26,347 D 104,000 260,000/1,500,000 18,027 E 104,000 160,000/1,500,000 11,093 F 104,000 200,000/1,500,000 13,867 (5) Directly tipped employees Employee share of 8 pct. gross − Tips reported = Employee shortfall A 18,027 18,600 B 16,640 14,600 2,040 C 26,347 31,200 D 18,027 13,000 5,027 E 11,093 6,000 5,093 F 13,867 10,600 3,267 Total shortfall 15,427 Since employees A and C do not have a reporting shortfall there are no allocations to them. (6) $120,000−110,000 (total tips reported) = $10,000 (amount allocable among shortfall employees). (7) Shortfall employees Allocable amount × Shortfall ratio = Amount of allocation B 10,000 2,040/15,427 $1,322 D 10,000 5,027/15,427 3,259 E 10,000 5,093/15,427 3,301 F 10,000 3,267/15,427 2,118 Total $10,000 Example 5. Assume the same facts as in example 4 except that the employer has chosen the employee hours worked method of computing tip allocations, the calendar year gross receipts were $1,000,000, and the tips reported for the calendar year were $74,000. Directly tipped employees reported $70,000 while indirectly tipped employees reported $4,000. Directly tipped employees Hours worked in the calendar year Tips reported A 2,000 $11,800 B 1,750 9,800 C 2,250 15,100 D 2,000 9,000 E 750 4,500 F 1,250 7,800 G 490 3,200 H 510 2,800 I 200 800 J 1,000 5,200 Total 12,200 $70,000 The allocation computations would be as follows: (1) $1,000,000 (gross receipts) × 0.08 = $80,000. (2) Tips reported by indirectly tipped employees = $4,000. (3) $80,000 − $4,000 (indirect employee tips) = $76,000. (4) Directly tipped employees Directly tipped share of 8 pct. gross × Hours worked ratio = Employee share of 8 pct. gross A $76,000 2,000/12,200 $12,459 B 76,000 1,750/12,200 10,902 C 76,000 2,250/12,200 14,016 D 76,000 2,000/12,200 12,459 E 76,000 750/12,200 4,672 F 76,000 1,250/12,200 7,787 G 76,000 490/12,200 3,052 H 76,000 510/12,200 3,177 I 76,000 200/12,200 1,246 J 76,000 1,000/12,200 6,230 Total $76,000 (5) Directly tipped employees Employee share of 8 pct. gross − Tips reported = Employee shortfall A 12,459 11,800 $659 B 10,902 9,800 1,102 C 14,016 15,100 D 12,459 9,000 3,459 E 4,672 4,500 172 F 7,787 7,800 G 3,052 3,200 H 3,177 2,800 377 I 1,246 800 446 J 6,230 5,200 1,030 Total shortfall $7,245 Since employees C, F, and G have no reporting shortfalls, there are no allocations made to them. (6) $80,000 − 74,000 (total tips reported) = $6,000. (7) Shortfall employees Allocable amount × Shortfall ratio = Amount of allocation A $6,000 659/7,245 $546 B 6,000 1,102/7,245 913 D 6,000 3,459/7,245 2,865 E 6,000 172/7,245 142 H 6,000 377/7,245 312 I 6,000 446/7,245 369 J 6,000 1,030/7,245 853 Total $6,000 (g) Period of allocation. (h) Lowering the percentage to be used In general. (2) Time and manner for petition to have percentage reduced In general. (ii) Employer petitions. (iii) Employee petitions. (B) The petitioning employees have the burden of supplying sufficient information to allow the district director to estimate with reasonable accuracy the actual tip rate of the establishment to the extent they possess such information. If the employer possesses relevant information, the employer must provide such information to the district director upon the request of the petitioning employees or district director. Employees who file a petition under this paragraph must promptly notify their employer of the petition. Promptly upon receipt of such notification, their employer must submit to the district director copies of the Form 8027 (if any) filed for the establishment for the 3 immediately preceding calendar years. Any information supplied by the employer during the petitioning process constitutes return information (as defined in section 6103(b)(2)) which shall not be disclosed by the Internal Revenue Service (except as provided in section 6103) to any employees of the employer or to representatives of such employees. (3) Effective date for reduced percentage. (4) Single petition for certain multi-establishment employers. (i) Application of reporting requirements to new businesses In general. (2) Determination of status as a large food or beverage establishment. (3) New business compliance under section 6053(c). (j) Definitions. (1) Gross receipts. i.e., (2) Gross receipts attributable to a directly tipped employee. (3) Nonallocable receipts. (4) Charge receipts. (5) Charged tips. (6) Food or beverage operation. (7) Large food or beverage establishment. (i) The employer at the food or beverage operation normally employed more than 10 employees on a typical business day during the preceding calendar year, and (ii) The tipping of food or beverage employees of the food or beverage operation is customary. Generally, tipping would not be considered customary for a cafeteria style operation (as defined in paragraph (j)(18) of this section) or for a food or beverage operation where at least 95 percent of its total sales are nonallocable receipts, within the meaning of paragraph (j)(3) of this section, by reason of the addition of a service charge of 10 percent or more. Total sales shall include only gross receipts (as defined in paragraph (j)(1) of this section) and nonallocable receipts (other than carryout receipts) from the provision of food or beverages. In the case of an operation such as a restaurant that is a cafeteria style operation at lunch and that has full service with tipping customary at dinner, the entire operation is generally a large food or beverage establishment if the employer meets the 10-employee test. However, if the gross receipts of the cafeteria style operation at lunch are recorded separately from the dinner operation gross receipts the employer may treat the dinner operation as a large food or beverage establishment and the lunch operation as a separate food or beverage operation that is not a large food or beverage establishment due to the fact that tipping is not considered customary for cafeteria style operations. (8) Employee. (9) More than 10 employees on a typical business day. (10) Food or beverage employee. (11) Tipped employee. (12) Directly tipped employee. (13) Indirectly tipped employee. (14) Calendar year. (15) Tips reported for a specified period. (16) Complimentary food or beverages. (i) Tipping for the provision of such food or beverages is customary at the establishment, and (ii) Such food or beverages are provided in connection with an activity that is engaged in for profit and whose receipts would not be included in gross receipts as defined in paragraph (j)(1) of this section but for this subparagraph and are not nonallocable receipts which are attributable to services with respect to which a service charge of 10 percent or more is added. For example, the retail values of complimentary hors d'oeuvres served at a bar or a complimentary dessert served to a regular patron of a restaurant would not be included in gross receipts because the receipts of the bar or restaurant would be included in gross receipts as defined in paragraph (j)(1) of this section. The retail value of a complimentary fruit basket placed in a hotel room generally would not be included in gross receipts because tipping for the provision of such items is not customary. The retail value of complimentary drinks served to customers in a gambling casino would be included in gross receipts because tipping for the provision of such items is customary, the gambling casino is an activity engaged in for profit, and the gambling receipts of the casino would not be included in gross receipts as defined in paragraph (j)(1) of this section except for this subparagraph. (17) Fast food operation. (18) Cafeteria style operation. (19) Less than the equivalent of 25 full-time employees. (k) Permission to submit information on magnetic tape. (l) Recordkeeping requirements. (m) Food or beverage operations outside the United States. (n) Effective date. (96 Stat. 603, 26 U.S.C. 6053(c); 68A Stat. 917, 26 U.S.C. 7805) [T.D. 7906, 48 FR 36809, Aug. 15, 1983; 48 FR 40518, Sept. 8, 1983, as amended by T.D. 8039, 50 FR 29965, July 23, 1985; T.D. 8141, 52 FR 21511, June 8, 1987; T.D. 8895, 65 FR 50408, Aug. 18, 2000] § 31.6053-4 Substantiation requirements for tipped employees. (a) Substantiation of tip income In general. (2) Daily record. Employee's Daily Record of Tips, (3) Documentary evidence. (b) Retention of records. (c) Effective date. [T.D. 8141, 52 FR 21513, June 8, 1987, as amended by T.D. 8910, 65 FR 77820, Dec. 13, 2000] § 31.6060-1 Reporting requirements for tax return preparers. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78453, Dec. 22, 2008] § 31.6061-1 Signing of returns. Each return required under the regulations in this subpart shall, if signature is called for by the form or instructions relating to the return, be signed by (a) the individual, if the person required to make the return is an individual; (b) the president, vice president, or other principal officer, if the person required to make the return is a corporation; (c) a responsible and duly authorized member or officer having knowledge of its affairs, if the person required to make the return is a partnership or other unincorporated organization; or (d) the fiduciary, if the person required to make the return is a trust or estate. The return may be signed for the taxpayer by an agent who is duly authorized in accordance with § 31.6011(a)-7 to make such return. § 31.6065(a)-1 Verification of returns or other documents. If a return, statement, or other document made under the regulations in this part is required by the regulations contained in this part, or the form and instructions issued with respect to such return, statement, or other document, to contain or be verified by a written declaration that it is made under the penalties of perjury, such return, statement, or other document shall be so verified by the person signing it. § 31.6071(a)-1 Time for filing returns and other documents. (a) Federal Insurance Contributions Act and income tax withheld from wages and from nonpayroll payments Quarterly or annual returns. (2) Monthly tax returns. (3) Information returns General rule. (ii) Expedited filing. (4) Employee returns under Federal Insurance Contributions Act. (i) On Form 1040SS or Form 1040PR, or (ii) On Form 1040 by an individual who is not required to make a return of income for the calendar year or for a fiscal year beginning in such calendar year, shall be filed on or before the 15th day of the fourth month following the close of the calendar year. (b) Railroad Retirement Tax Act. (c) Federal Unemployment Tax Act. (d) Last day for filing. (e) Late filing. (f) Cross reference. (g) Applicability date. [T.D. 6516, 25 FR 13032, Dec. 20, 1960] Editorial Note: For Federal Register www.govinfo.gov. § 31.6071(a)-1A Time for filing returns with respect to the railroad unemployment repayment tax. (a) In general. (b) Last day for filing. (c) Late filing. [T.D. 8105, 51 FR 40169, Nov. 5, 1986. Redesignated and amended at T.D. 8227, 53 FR 34736, Sept. 8, 1988] § 31.6081(a)-1 Extensions of time for filing returns and other documents. (a) Federal Insurance Contributions Act; income tax withheld from wages; and Railroad Retirement Tax Act In general. (2) Information returns of employers on Forms W-2 and W-3 In general. (ii) Automatic Extension of Time. (b) Federal Unemployment Tax Act. (c) Duly authorized agent. (d) Effective date. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6950, 33 FR 5358, Apr. 4, 1968; T.D. 7351, 40 FR 17146, Apr. 17, 1975; T.D. 9061, 68 FR 34799, June 11, 2003; T.D. 9163, 69 FR 70549, 70550, Dec. 7, 2004] § 31.6091-1 Place for filing returns. (a) Persons other than corporations. (b) Corporations. (c) Returns of taxpayers outside the United States. (d) Returns filed with internal revenue service centers or Social Security Administration office. (e) Hand-carried returns. (1) Persons other than corporations. (2) Corporations. (3) Exceptions. (i) Persons who have no legal residence, no principal place of business, nor principal office or agency served by a local Internal Revenue Service office, (ii) Citizens of the United States whose principal place of abode for the period with respect to which the return is filed is outside the United States, (iii) Persons who claim the benefits of section 911 (relating to earned income from sources without the United States), section 922 (relating to special deduction for Western Hemisphere trade corporations), section 931 (relating to income from sources within possessions of the United States), section 933 (relating to income from sources within Puerto Rico), or section 941 (relating to the special deduction for China Trade Act corporations), and (iv) Nonresident alien persons and foreign corporations. (f) Permission to file in office other than required office. (g) Returns of officers and employees of the Internal Revenue Service. (68A Stat. 747, 26 U.S.C. 6051; 68A Stat. 917, 26 U.S.C. 7805) [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6915, 32 FR 5261, Mar. 29, 1967; T.D. 7495, 42 FR 33727, July 1, 1977; T.D. 7580, 43 FR 60160, Dec. 26, 1978; T.D. 9156, 69 FR 55745, Sept. 16, 2004] § 31.6101-1 Period covered by returns. The period covered by any return required under the regulations in this subpart shall be as provided in those provisions of the regulations under which the return is required to be made. See § 31.6011(a)-1, relating to returns of taxes under the Federal Insurance Contributions Act; § 31.6011(a)-2, relating to returns of taxes under the Railroad Retirement Tax Act; § 31.6011(a)-3, relating to returns of tax under the Federal Unemployment Tax Act; § 31.6011(a)-4, relating to returns of income tax withheld under section 3402; and § 31.6011(a)-5, relating to monthly returns of taxes under the Federal Insurance Contributions Act and of income tax withheld under section 3402. § 31.6107-1 Tax return preparer must furnish copy of return to taxpayer and must retain a copy or record. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78453, Dec. 22, 2008] § 31.6109-1 Supplying of identifying numbers. (a) In general. (b) Effective date. [39 FR 9946, Mar. 15, 1974] § 31.6109-2 Tax return preparers furnishing identifying numbers for returns or claims for refund. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78453, Dec. 22, 2008] § 31.6151-1 Time for paying tax. (a) In general. (b) Cross references. [T.D. 6872, 31 FR 149, Jan. 6, 1966; T.D. 6915, 32 FR 5261, Mar. 29, 1967; T.D. 7037, 35 FR 6709, Apr. 28, 1970; T.D. 7953, 49 FR 19644, May 9, 1984; T.D. 8952, 66 FR 33832, June 26, 2001] § 31.6157-1 Cross reference. For provisions relating to the time and manner of depositing the tax imposed by section 3301, see the provisions of § 31.6302(c)-3. For provisions relating to the time and manner of depositing the railroad unemployment repayment tax imposed by section 3321(a), see § 31.6302(c)-2A. [T.D. 7037, 35 FR 6709, Apr. 28, 1970, as amended at T.D. 8227, 53 FR 34736, Sept. 8, 1988] § 31.6161(a)(1)-1 Extensions of time for paying tax. No extension of time will be granted for payment of any of the taxes to which the regulations in this part have application. § 31.6205-1 Adjustments of underpayments. (a) In general. (2) No correction will be eligible for interest-free adjustment treatment if the failure to report relates to an issue that was raised in an examination of a prior return period or if the employer knowingly underreported its employment tax liability. (3) Every correction under this section of an underpayment of tax with respect to a payment of wages or compensation shall be made on the form prescribed by the IRS that corresponds to the return being corrected. The form, filed in accordance with this section and the instructions, will constitute an adjusted return for the return period being corrected. (4) Every adjusted return on which an underpayment is corrected pursuant to this section shall designate the return period in which the error was ascertained and the return period being corrected, explain in detail the grounds and facts relied upon to support the correction, and set forth such other information as may be required by the regulations in this section and by the instructions relating to the adjusted return. (5) For purposes of this section, an error is ascertained when the employer has sufficient knowledge of the error to be able to correct it. (6) No correction will be eligible for interest-free adjustment treatment pursuant to this section after the earlier of the following: (i) Receipt from the IRS of notice and demand for payment thereof based upon an assessment. (ii) Receipt from the IRS of a Notice of Determination of Worker Classification (Notice of Determination) in connection with such underpayment. Prior to receipt of a Notice of Determination, the taxpayer may, in lieu of making a payment, make a cash bond deposit that would have the effect of stopping the accrual of any interest, but would not deprive the taxpayer of its right to receive a Notice of Determination and to petition the Tax Court under section 7436. (7) Subject to the exceptions specified in paragraphs (a)(2) and (a)(6) of this section, Form 2504, “Agreement and Collection of Additional Tax and Acceptance of Overassessment (Excise or Employment Tax),” Form 2504-WC, “Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment in Worker Classification Cases (Employment Tax),” and such other forms as may be prescribed by the IRS, constitute adjusted returns for purposes of this section. (8) For provisions related to furnishing employee statements and corrected employee statements reporting wages and withheld taxes, see sections 6041 and 6051 and §§ 1.6041-2 and 31.6051-1. For provisions relating to filing information returns and corrected information returns reporting wages and withheld taxes, see sections 6041 and 6051 and §§ 1.6041-2 and 31.6051-2. (9) For the period of limitations upon assessment and collection of taxes, see § 301.6501(a)-1. (b) Federal Insurance Contributions Act and Railroad Retirement Tax Act Undercollection ascertained before return is filed. (2) Error ascertained after return is filed. (ii) If an employer files a return reporting FICA tax for a return period although the employer was required to file a return reporting RRTA tax, and if the employer ascertains the error after filing the return, the employer shall correct the error through an interest-free adjustment as provided in this section. However, if the employer also reported less than the correct amount of Additional Medicare Tax, the employer shall correct the underwithheld and underpaid Additional Medicare Tax in accordance with paragraph (b)(4) of this section. The employer shall adjust the underpayment of RRTA tax by reporting the correct amount of RRTA tax on an original return for reporting RRTA tax for the return period for which the incorrect return was filed, accompanied by an adjusted return corresponding to the incorrect return that was filed to correct the erroneously reported and paid FICA tax. The adjusted return must include a detailed explanation of the amounts being reported on the original return and the adjusted return and any other information as may be required by the regulations in this section and by the instructions relating to the adjusted return. The reporting of the correct amounts for the period constitutes an adjustment within the meaning of this section only if the returns are filed by the due date of the return for reporting the RRTA tax for the return period in which the error is ascertained. Pursuant to § 31.3503-1, the amount of erroneously paid FICA tax will be credited against the underpaid RRTA tax. Any remaining underpayment of RRTA tax adjusted in accordance with this section must be paid to the IRS by the time the returns are filed in accordance with this paragraph. If an adjustment is reported pursuant to this section, but the amount of the remaining underpayment is not paid when due, interest accrues from that date (see section 6601). (iii) If an employer files a return reporting RRTA tax for a return period although the employer was required to file a return reporting FICA tax, and if the employer ascertains the error after filing the return, the employer shall correct the error through an interest-free adjustment as provided in this section. However, if the employer also reported less than the correct amount of Additional Medicare Tax, the employer shall correct the underwithheld and underpaid Additional Medicare Tax in accordance with paragraph (b)(4) of this section. The employer shall adjust the underpayment of FICA tax by reporting the correct amount of FICA tax on an original return for reporting FICA tax for the return period for which the incorrect return was filed (or an adjusted return for reporting the FICA tax if an original return was already filed for such return period to report the income tax required to be withheld under section 3402), accompanied by an adjusted return corresponding to the incorrect return that was filed to correct the erroneously reported and paid RRTA tax. The adjusted return(s) must include a detailed explanation of the amount being reported on the original return and/or the adjusted return(s) and any other information as may be required by the regulations in this section and by the instructions relating to the form. The reporting of the correct amounts for the period constitutes an adjustment within the meaning of this section only if the returns are filed by the due date of the return for reporting the FICA tax for the return period in which the error is ascertained. Pursuant to § 31.3503-1, the amount of erroneously paid RRTA tax will be credited against the underpaid FICA tax. Any remaining underpayment of FICA tax adjusted in accordance with this section must be paid to the IRS by the time the returns are filed in accordance with this paragraph (b)(2)(iii). If an adjustment is reported pursuant to this section, but the amount of the remaining underpayment is not paid when due, interest accrues from that date (see section 6601). (3) Return not filed because of failure to treat individual as employee. (4) Additional Medicare Tax. (c) Income tax required to be withheld from wages Undercollection ascertained before return is filed. (2) Error ascertained after return is filed. (3) Return not filed because of failure to treat individual as employee. (d) Deductions from employee Federal Insurance Contributions Tax Act and Railroad Retirement Tax Act. (2) Income tax required to be withheld from wages. (e) Effective/applicability date. [T.D. 9405, 73 FR 37376, July 1, 2008, as amended by T.D. 9645, 78 FR 71473, Nov. 29, 2013] § 31.6205-2 Adjustments of underpayments of hospital insurance taxes that accrue after March 31, 1986, and before January 1, 1987, with respect to wages of State and local government employees. (a) Adjustments without interest. (1) Are required to be paid by reason of section 3121(u)(2), and (2) Are required to be reported on returns due July 31, 1986, October 31, 1986, or February 2, 1987. may make an adjustment without interest with respect to such taxes provided that all such taxes for the time period specified in paragraph (a)(2) (except for amounts that are subsequently paid pursuant to an interest-free adjustment under § 31.6205-1) are paid on or before February 2, 1987. (b) Example. Example. A State or local government employer should have withheld and paid $100 dollars in hospital insurance taxes for the quarter beginning April 1, 1986, and ending June 30, 1986. The due date for the return and payment for that period is July 31, 1986. If the employer made the payment by February 2, 1987, then, under section 6601, interest is not assessable with respect to the underpayment of the hospital insurance taxes. If the employer did not make the payment by February 2, 1987, the interest is assessable for the period from July 31, 1986, until the time of payment. [T.D. 8156, 52 FR 33582, Sept. 4, 1987] § 31.6302-0 Table of contents. This section lists the table of contents for §§ 31.6302-1 through 31.6302-4. § 31.6302-1 Deposit rules for taxes under the Federal Insurance Contributions Act (FICA) and withheld income taxes. (a) Introduction. (b) Determination of status. (1) In general. (2) Monthly depositor. (i) In General. (ii) Special rule. (3) Semi-weekly depositor. (4) Lookback period. (i) In general. (ii) Adjustments and claims for refund. (c) Deposit rules. (1) Monthly rule. (2) Semi-Weekly rule. (i) In general. (ii) Semi-weekly period spanning two return periods. (iii) Special rule for computing days. (3) Exception—One Day rule. (4) Deposits required only on business days. (5) Exception to the monthly and semi-weekly deposit rules for employers in the Employers' Annual Federal Tax Program (Form 944). (6) Extension of time to deposit for employers in the Employers' Annual Federal Tax Program (Form 944) during the preceding year. (7) Exception to the monthly and semi-weekly deposit rules for employers making interest-free adjustments. (d) Examples. Example 6. [Reserved] (e) Employment taxes defined. (f) Safe harbor/De Minimis rules. (1) Single deposit safe harbor. (2) Shortfall defined. (3) Shortfall make-up date. (i) Monthly rule. (ii) Semi-Weekly and One-Day rule. (4) De minimis rule. (i) De minimis (ii) De minimis (iii) De minimis (5) Examples. Example 3. [Reserved] (g) Agricultural employers—Special rules. (1) In general. (2) Monthly depositor. (3) Semi-weekly depositor. (4) Lookback period. (i) In general. (ii) Adjustments and Claims for Refund. (5) Example. (h) Time and manner of deposit—deposits required to be made by electronic funds transfer. (1) In general. (2) Applicability of requirement. (i) Deposits for return periods beginning before January 1, 2000. (ii) Deposits for return periods beginning after December 31, 1999, and made before January 1, 2011. (iii) Deposits made after December 31, 2010. (iv) Voluntary deposits. (3) Taxes required to be deposited by electronic funds transfer. (4) Definitions. (i) Electronic funds transfer. (ii) Taxpayer. (5) Exemptions. (6) Separation of deposits. (7) Payment of balance due. (8) Time deemed deposited. (9) Time deemed paid. (i) Time and manner of deposit. (1) General rules. (2) Payment of balance due. (3) Time deemed paid. (4) Procurement of FTD coupons. (5) Time deemed deposited. (6) Time deemed paid. (j) Voluntary payments by electronic funds transfer. (k) Special rules. (1) Notice exception. (2) Wages paid in nonconvertible foreign currency. (l) [Reserved] (m) Cross references. (1) Failure to deposit penalty. (2) Saturday, Sunday, or legal holiday. (n) Effective/applicability dates. (o) Effective/Applicability date. § 31.6302-2 Federal tax deposit rules for amounts withheld under the Railroad Retirement Tax Act (R.R.T.A.) attributable to payments made after December 31, 1992. (a) General rule. (b) Separate application of deposit rules. (c) Modification of Monthly rule determination. (1) General rule. (2) Exception. (d) Effective/Applicability date. § 31.6302-3 Federal tax deposit rules for amounts withheld under the backup withholding requirements of Section 3406 for payments made after December 31, 1992. (a) General Rule. (b) Treatment of backup withholding amounts separately. (c) Example. § 31.6302-4 Deposit rules for withheld income taxes attributable to nonpayroll taxes. [T.D. 8436, 57 FR 44102, Sept. 24, 1992, as amended by T.D. 9239, 71 FR 14, Jan. 3, 2006; T.D. 9405, 73 FR 37379, July 1, 2008; T.D. 9440, 73 FR 79358, Dec. 29, 2008; T.D. 9507, 75 FR 75901, Dec. 7, 2010; T.D. 9566, 76 FR 77675, Dec. 14, 2011] § 31.6302-1 Deposit rules for taxes under the Federal Insurance Contributions Act (FICA) and withheld income taxes. (a) Introduction. (b) Determination of status In general. (2) Monthly depositor In general. (ii) Special rule. (3) Semi-weekly depositor. (4) Lookback period In general. (ii) Adjustments and claims for refund. (c) Deposit rules Monthly rule. (2) Semi-Weekly rule In general. Payment dates/semi-weekly periods Deposit date (A) Wednesday, Thursday and/or Friday On or before the following Wednesday. (B) Saturday, Sunday, Monday and/or Tuesday On or before the following Friday. (ii) Semi-weekly period spanning two return periods. (iii) Special rule for computing days. (3) Exception—One-Day rule. (i) A monthly depositor takes into account only those employment taxes accumulated in the calendar month in which the day occurs; and (ii) A semi-weekly depositor takes into account only those employment taxes accumulated in the Wednesday-Friday or Saturday-Tuesday semi-weekly period in which the day occurs. (4) Deposits required only on business days. legal holiday (5) Exception to the monthly and semi-weekly deposit rules for employers in the Employers' Annual Federal Tax Program (Form 944). (6) Extension of time to deposit for employers in the Employers' Annual Federal Tax Program (Form 944) during the preceding year. (7) Exception to the monthly and semi-weekly deposit rules for employers making interest-free adjustments. (d) Examples. Example 1 Monthly depositor. (i) Determination of status. (ii) Monthly rule. Example 2 Semi-weekly depositor. (i) Determination of status. (ii) Semi-weekly rule. (iii) Deposit made within three business days. Example 3 One-Day rule. On Monday, January 10, 2011, Employer C accumulates $110,000 in employment taxes with respect to wages paid on that date. C has a deposit obligation of $110,000 that must be satisfied by the next business day. If C was not subject to the semi-weekly rule on January 10, 2011, C becomes subject to that rule as of January 11, 2011. See paragraph (b)(2)(ii) of this section. Example 4 One-Day rule in combination with subsequent deposit obligation. Employer D is subject to the semi-weekly rule for calendar year 2011. On Monday, January 10, 2011, D accumulates $115,000 in employment taxes. D has a deposit obligation that must be satisfied by the next business day. On Tuesday, January 11, D accumulates an additional $30,000 in employment taxes. Although D has a $115,000 deposit obligation incurred earlier in the semi-weekly period, D has an additional and separate deposit obligation of $30,000 on Tuesday that must be satisfied by the following Friday. Example 5 Legal Holidays. Employer E conducts business in State X. Wednesday, August 31, 2011, is a statewide legal holiday in State X which is not a legal holiday in the District of Columbia. On Friday, August 26, 2011, E (a semi-weekly depositor) has a pay day on which it accumulates $4,000 in employment taxes. E has a $4,000 deposit obligation that must be satisfied on or before the following Wednesday, August 31, 2011, notwithstanding that the day is a statewide legal holiday in State X. Example 6 Extension of time to deposit for employers who filed Form 944 for the preceding year satisfied. F (a monthly depositor) was notified to file Form 944 to report its employment tax liabilities for the 2006 calendar year. F filed Form 944 on January 31, 2007, reporting a total employment tax liability for 2006 of $3,000. Because F's annual employment tax liability for the 2006 taxable year exceeded $1,000 (the applicable eligibility threshold for that taxable year), the IRS notified F to file Forms 941 for calendar year 2007 and thereafter. Based on F's liability during the lookback period (calendar year 2005, pursuant to paragraph (b)(4)(i) of this section), F is a monthly depositor for 2007. F accumulates $1,000 in employment taxes during January 2007. Because F is a monthly depositor, F's January deposit obligation is due February 15, 2007. F does not deposit these accumulated employment taxes on February 15, 2007. F accumulates $1,500 in employment taxes during February 2007. F's February deposit is due March 15, 2007. F deposits the $2,500 of employment taxes accumulated during January and February on March 15, 2007. Pursuant to paragraph (c)(6) of this section, F will be deemed to have timely deposited the employment taxes due for January 2007, and, thus, the IRS will not impose a failure-to-deposit penalty under section 6656 for that month. (e) Employment taxes defined. (i) The employee portion of the tax withheld under section 3102; (ii) The employer tax under section 3111; (iii) The income tax withheld under sections 3402 and 3405, except income tax withheld with respect to payments made after December 31, 1993, on the following— (A) Certain gambling winnings under section 3402(q); (B) Retirement pay for service in the Armed Forces of the United States under section 3402; (C) Certain annuities described in section 3402(o)(1)(B); and (D) Pensions, annuities, IRAs, and certain other deferred income under section 3405; and (iv) The income tax withheld under section 3406, relating to backup withholding with respect to reportable payments made before January 1, 1994. (2) The term employment taxes (f) Safe harbor/De minimis rules Single deposit safe harbor. (i) The amount of any shortfall does not exceed the greater of $100 or 2 percent of the amount of employment taxes required to be deposited; and (ii) The employer deposits the shortfall on or before the shortfall make-up date. (2) Shortfall defined. (3) Shortfall make-up date Monthly rule. (ii) Semi-Weekly rule and One-Day rule. (4) De minimis rule De minimis deposit rules for quarterly and annual return periods beginning on or after January 1, 2001. de minimis de minimis de minimis (ii) De minimis deposit rule for quarterly return periods beginning on or after January 1, 2010. (iii) De minimis deposit rule for employers who file Form 944. de minimis (5) Examples. Example 1 Safe-harbor rule satisfied. On Monday, January 4, 1993, J J J J J Example 2 Safe-harbor rule not satisfied. The facts are the same as in Example 1 J J Example 3 De minimis deposit rule for employers who file Form 944 satisfied. K (a monthly depositor) was notified to file Form 944 to report its employment tax liabilities for the 2006 calendar year. In the first quarter of 2006, K accumulates employment taxes in the amount of $1,000. On April 28, 2006, K deposits the $1,000 of employment taxes accumulated in the first quarter. K accumulates another $1,000 of employment taxes during the second quarter of 2006. On July 31, 2006, K deposits the $1,000 of employment taxes accumulated in the second quarter. K's business grows and accumulates $1,500 in employment taxes during the third quarter of 2006. On October 31, 2006, K deposits the $1,500 of employment taxes accumulated in the third quarter. K accumulates another $2,000 in employment taxes during the fourth quarter. K files Form 944 on January 31, 2007, reporting a total employment tax liability for 2006 of $5,500 and submits a check for the remaining $2,000 of employment taxes with the return. K will be deemed to have timely deposited the employment taxes due for all of 2006 because K complied with the de minimis de minimis de minimis, de minimis de minimis de minimis, (g) Agricultural employers—special rules In general. (2) Monthly depositor. (3) Semi-weekly depositor. (4) Lookback period In general. (ii) Adjustments and Claims for Refund. (5) The following example illustrates the provisions of this section. Example. A, an agricultural employer, employs both farm workers and nonfarm workers (employees in its administrative offices). A A (h) Time and manner of deposit—deposits required to be made by electronic funds transfer In general. (2) Applicability of requirement Deposits for return periods beginning before January 1, 2000. Threshold amount Determination period Applicable effective date $78 million 1-1-93 to 12-31-93 Jan. 1, 1995. $47 million 1-1-93 to 12-31-93 Jan. 1, 1996. $47 million 1-1-94 to 12-31-94 Jan. 1, 1996. $50 thousand 1-1-95 to 12-31-95 July 1, 1997. $50 thousand 1-1-96 to 12-31-96 Jan. 1, 1998. $50 thousand 1-1-97 to 12-31-97 Jan. 1, 1999. (B) Unless exempted under paragraph (h)(5) of this section, a taxpayer that does not deposit any of the taxes imposed by chapters 21, 22, and 24 during the applicable determination periods set forth in paragraph (h)(2)(i)(A) of this section, but that does make deposits of other depository taxes (as described in paragraph (h)(3) of this section), is nevertheless subject to the requirement to deposit by electronic funds transfer if the taxpayer's aggregate deposits of all depository taxes exceed the threshold amount set forth in this paragraph (h)(2)(i)(B) during an applicable 12-month determination period. This requirement to deposit by electronic funds transfer applies to all depository taxes due with respect to deposit obligations incurred for return periods beginning on or after the applicable effective date. The threshold amount, determination periods, and applicable effective dates for purposes of this paragraph (h)(2)(i)(B) are as follows: Threshold amount Determination period Applicable effective date $50 thousand 1-1-95 to 12-31-95 Jan. 1, 1998. $50 thousand 1-1-96 to 12-31-96 Jan. 1, 1998. $50 thousand 1-1-97 to 12-31-97 Jan. 1, 1999. (C) This paragraph (h)(2)(i) applies only to deposits required to be made for return periods beginning before January 1, 2000. Thus, a taxpayer, including a taxpayer that is required under this paragraph (h)(2)(i) to make deposits by electronic funds transfer beginning in 1999 or an earlier year, is not required to use electronic funds transfer to make deposits for return periods beginning after December 31, 1999, unless deposits by electronic funds transfer are required under paragraph (h)(2)(ii) of this section. (ii) Deposits for return periods beginning after December 31, 1999, and made before January 1, 2011. (iii) Deposits made after December 31, 2010. (iv) Voluntary deposits. (3) Taxes required to be deposited by electronic funds transfer. (4) Definitions Electronic funds transfer. An electronic funds transfer (ii) Taxpayer. taxpayer (5) Exemptions. b (6) Separation of deposits. (7) Payment of balance due. (8) Time deemed deposited. (9) Time deemed paid. (i) Time and manner of remittance with a return General rules. (2) Payment of balance due. (3) Time deemed paid. (j) Voluntary payments by electronic funds transfer. (k) Special rules Notice exception. (2) Wages paid in nonconvertible foreign currency. (l) [Reserved] (m) Cross references Failure to deposit penalty. (2) Saturday, Sunday, or legal holiday. (n) Effective/applicability dates. Example 6, Example 3, Example 6, Example 3 (o) Effective/applicability date. Examples 1 through 5, [T.D. 8436, 57 FR 44102, Sept. 24, 1992; 57 FR 48724, Oct. 28, 1992] Editorial Note: For Federal Register www.govinfo.gov. § 31.6302-2 Deposit rules for taxes under the Railroad Retirement Tax Act (RRTA). (a) General rule. (b) Separate application of deposit rules. (c) Modification of Monthly rule determination General rule. (2) Exception. (d) Effective/applicability date. [T.D. 8436, 57 FR 44105, Sept. 24, 1992, as amended by T.D. 9507, 75 FR 75903, Dec. 7, 2010] § 31.6302-3 Federal tax deposit rules for amounts withheld under the backup withholding requirements of section 3406 for payments made after December 31, 1992. (a) General rule. (b) Treatment of backup withholding amounts separately. (c) Example. Example. For the last two calendar quarters of 1991 and the first two calendar quarters of 1992, Bank A A A A A A [T.D. 8436, 57 FR 44106, Sept. 24, 1992, as amended by T.D. 8504, 58 FR 68035, Dec. 23, 1993] § 31.6302-4 Deposit rules for withheld income taxes attributable to nonpayroll payments. (a) General rule. (b) Nonpayroll withheld taxes defined. nonpayroll withheld taxes (1) Amounts withheld under section 3402(q), relating to withholding on certain gambling winnings; (2) Amounts withheld under section 3402 with respect to amounts paid as retirement pay for service in the Armed Forces of the United States; (3) Amounts withheld under section 3402(o)(1)(B), relating to certain annuities; (4) Annuities withheld under section 3405, relating to withholding on pensions, annuities, IRAs, and certain other deferred income; and (5) Amounts withheld under section 3406, relating to backup withholding with respect to reportable payments. (c) Determination of deposit status Rules for calendar years 1994 and 1995. (2) Rules for calendar years after 1995 In general. (ii) Monthly depositor. (iii) Semi-weekly depositor. (iv) Lookback period. (d) Special rules. See (e) Effective/applicability date. [T.D. 8504, 58 FR 68036, Dec. 23, 1993, as amended by T.D. 9507, 75 FR 75903, Dec. 7, 2010; T.D. 9524, 76 FR 26602, May 9, 2011; T.D. 9586, 77 FR 24612, Apr. 25, 2012] § 31.6302(b)-1 Method of collection. For provisions relating to collection by means of returns of the taxes imposed by chapter 21 (Federal Insurance Contributions Act), see §§ 31.6011(a)-1 and 31.6011(a)-5. § 31.6302(c)-1 Use of Government depositories in connection with taxes under Federal Insurance Contributions Act and income tax withheld for amounts attributable to payments made before January 1, 1993. (a) Requirement for calendar months beginning after December 31, 1980, but before January 1, 1993 In general. ( a However, this ( a b ( b b ( 1 ( 2 b For purposes of this paragraph (a)(1)(i)( b b b The excess (if any) of a deposit over the actual taxes for a deposit period shall be applied in order of time to each of the employer's succeeding deposits with respect to the same return period, until exhausted, to the extent that the amount by which the taxes for a subsequent deposit period exceed the deposit for such subsequent deposit period. For purposes of this paragraph (a)(1)(i), “eighth-monthly period” means the first 3 days of a calendar month, the 4th day through the 7th day of a calendar month, the 8th day through the 11th day of a calendar month, the 12th day through the 15th day of a calendar month, the 16th day through the 19th day of a calendar month, the 20th day through the 22nd day of a calendar month, the 23rd day through the 25th day of a calendar month, or the portion of a calendar month following the 25th day of such month. ( c (ii) In the case of a calendar month which begins after March 31, 1991, but before January 1, 1993— ( a b c a b Example 1. Employer A A Example 2. Employer B B B B Example 3. The facts are the same as in Example 2 B B Example 4. On Friday, April 5, 1991, a payroll date, Employer C C C C ( b c b 2 b b c d f Example 1. For the eighth-monthly period April 1-3, 1991, Employer D D Example 2. For the eighth-monthly period April 1-3, 1991, Employer E E E E E Example 3. For the eighth-monthly period April 1-3, 1991, Employer F F F F F Example 4. The facts are the same as in Example 3 F F F Example 5. On Friday, April 12, 1991, the beginning of an eighth-monthly period (April 12-15), G G G G ( c Example 1. On Thursday, April 4, 1991, the beginning of the April 4-7 eighth-monthly period, Employer H H H Example 2. On Friday, April 12, 1991, the beginning of the April 12-15 eighth-monthly period, J J J J Example 3. On Monday, April 1, 1991, Employer K K K K ( d c b c Example. On Tuesday, April 2, 1991, Employer L c L L b L ( e b c d ( 1 ( 2 c ( f Example. Employer M M M M b M ( g ( h (iii) As used in subdivisions (i) and (ii) of this subparagraph, the term “taxes” means— ( a ( b ( c Exclusive of taxes with respect to wages for domestic service in a private home of the employer or, if paid before April 1, 1971, wages for agricultural labor. In addition, with respect to wages paid after December 31, 1970, and before April 1, 1971, for agricultural labor, any taxes described in paragraph (a)(2)(ii) of this section which are not required under such subparagraph to be deposited, and any income tax (including qualified State individual income tax) withheld under section 3402 with respect to such wages, shall be deemed to be “taxes” on and after April 1, 1971. For the requirements relating to the deposit and payment of withheld tax and with respect to qualified State individual income taxes, see paragraph (d)(3)(iii) of § 301.6361-1 of this chapter (Regulations on Procedure and Administration). (iv) If the aggregate amount of taxes reportable on a return (other than a return on Form 942) for a return period exceeds the total amount deposited by the employer pursuant to paragraph (a)(1) (i) or (ii) of this section for such return period ( a b a b c (v) If the aggregate amount of taxes reportable on Form CT-1, the return relating to an employer's railroad retirement tax payments, for a return period exceeds the total amount deposited by the employer pursuant to paragraph (a)(1)(i) of this section for such return period by $100 or more, the employer shall, on or before the last day of the second calendar month following the return period, deposit with a Federal Reserve bank or authorized financial institution an amount equal to the amount by which the taxes reportable on Form CT-1 exceed the total deposits (if any) of such taxes made pursuant to subdivision (i) of this subparagraph for such period. (2) Depositary forms In general. (ii) Deposits. (iii) Time deemed paid. (3) Procurement of prescribed form. (b) Exceptions Monthly returns. (2) Wages paid in nonconvertible foreign currency. (68A Stat. 775, 917; 26 U.S.C. 6302, 7805; secs. 6302 (c) and 7805 of the Internal Revenue Code of 1954; 68A Stat. 775, 26 U.S.C. 6302 (c); 68A Stat. 917; 26 U.S.C. 7805) [T.D. 6516, 25 FR 13032, Dec. 20, 1960] Editorial Note: For Federal Register www.govinfo.gov. § 31.6302(c)-2 Use of Government depositories in connection with employee and employer taxes under Railroad Retirement Tax Act for amounts attributable to payments made before January 1, 1993. (a) Requirement In general: after 1983 and before April 1, 1991. Notwithstanding the preceding sentence, and notwithstanding subdivision (v) of § 31.6302 (c)-1 (a) (1), if, for the calendar year prior to the calendar year preceding the current calendar year, the aggregate amount of taxes imposed under sections 3202 and 3221 with respect to an employer equalled or exceeded $1 million, such employer shall deposit his undeposited railroad retirement taxes required to be deposited for the current calendar year in accordance with Revenue Procedure 83-90, 1983-52 I.R.B. 18, (relating to transfers by wire to the Treasury). (2) In general: After March 31, 1991 and before January 1, 1993. (3) Special requirement. (b) Depositary forms In general. (2) Deposits. (3) Time deemed paid. (c) Procurement of prescribed form. (Secs. 6302 (c) and 7805 of the Internal Revenue Code of 1954 (68A Stat. 775, 26 U.S.C. 6302 (c); 68A Stat. 917; 26 U.S.C. 7805) [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6941, 32 FR 18041, Dec. 16, 1967; T.D. 6957, 33 FR 8272, June 4, 1968; T.D. 7419, 41 FR 19632, May 13, 1976; T.D. 7931, 48 FR 57274, Dec. 29, 1983; T.D. 7953, 49 FR 19645, May 9, 1984; T.D. 8341, 56 FR 13403, Apr. 2, 1991; T.D. 8436, 57 FR 44106, Sept. 24, 1992; T.D. 9239, 71 FR 13, Jan. 3, 2006] § 31.6302(c)-3 Deposit rules for taxes under the Federal Unemployment Tax Act. (a) Requirement In general. (i) If the person is described in section (a)(1) of section 6157, deposit the amount of such tax by the last day of the first calendar month following the close of each of the first three calendar quarters in the calendar year; or (ii) If the person is other than a person described in section (a)(1) of section 6157, deposit the amount of such tax by the last day of the first calendar month following the close of— ( a ( b a (2) Special rule where accumulated amount does not exceed $500. (b) Manner of deposit In general. (2) Time deemed paid. (c) Effective/applicability date. [T.D. 7037, 35 FR 6709, Apr. 28, 1970; 35 FR 7070, May 5, 1970, as amended by T.D. 7062, 35 FR 14840, Sept. 24, 1970; T.D. 7953, 49 FR 19645, May 9, 1984; 49 FR 25239, June 20, 1984; T.D. 8723, 62 FR 37494, July 14, 1997; T.D. 8952, 66 FR 33831, 33832, June 26, 2001; T.D. 9162, 69 FR 69820, Dec. 1, 2004; T.D. 9239, 71 FR 13, Jan. 3, 2006; T.D. 9507, 75 FR 75903, Dec. 7, 2010] § 31.6302(c)-4 Cross references. (a) Failure to deposit. (b) Saturday, Sunday, or legal holiday. [T.D. 6516, 25 FR 13032, Dec. 20, 1960. Redesignated by T.D. 7037, 35 FR 6709, Apr. 28, 1970, as amended by T.D. 8947, 66 FR 32542, June 15, 2001] § 31.6361-1 Collection and administration of qualified State individual income taxes. Except as otherwise provided in §§ 301.6361-1 to 301.6385-2, inclusive, of this chapter (Regulations on Procedure and Administration), the provisions of this part under subtitle F or chapter 24 of the Internal Revenue Code of 1954 relating to the collection and administration of the taxes imposed by chapter 1 of such Code on the incomes of individuals (or relating to civil or criminal sanctions with respect to such collection and administration) shall apply to the collection and administration of qualified State individual income taxes (as defined in section 6362 of such Code and the regulations thereunder) as if such taxes were imposed by chapter 1 of chapter 24. (86 Stat. 944, 26 U.S.C. 6364; and 68A Stat. 917, 26 U.S.C. 7805) [T.D. 7577, 43 FR 59360, Dec. 20, 1978] § 31.6402(a)-1 Credits or refunds. (a) In general. (b) Period of limitation. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 9405, 73 FR 37379, July 1, 2008] § 31.6402(a)-2 Credit or refund of tax under Federal Insurance Contributions Act or Railroad Retirement Tax Act. (a) Claim by person who paid tax to IRS In general. (ii) Except as provided in paragraph (a)(1)(iii) of this section, the claim for credit or refund must be made in the manner and subject to the conditions stated in this section. The claim for credit or refund must be filed on the form prescribed by the IRS and must designate the return period to which the claim relates, explain in detail the grounds and facts relied upon to support the claim, and set forth such other information as may be required by this section and by the instructions relating to the form used to make such claim. No refund or credit pursuant to this section for employer tax will be allowed unless the employer has first repaid or reimbursed its employee or has secured the employee's consent to the allowance of the claim for refund and includes a claim for the refund of such employee tax. However, this requirement does not apply to the extent that the taxes were not withheld from the employee or, after the employer makes reasonable efforts to repay or reimburse the employee or secure the employee's consent, the employer cannot locate the employee or the employee will not provide consent. No refund or credit of employee FICA or RRTA tax overcollected in an earlier year will be allowed if the employee has claimed a refund or credit of the amount of the overcollection which has not been rejected or if the employee has taken the amount of such tax into account in claiming a credit against or refund of the employee's income tax, including instances in which the employee has included an overcollection of employee FICA or RRTA tax in computing a special refund (see § 31.6413(c)-1). (iii) Additional Medicare Tax. (iv) For adjustments without interest of overpayments of FICA or RRTA taxes, including Additional Medicare Tax, see § 31.6413(a)-2. (v) For corrections of FICA and RRTA tax paid under the wrong chapter, see § 31.6205-1(b)(2)(ii) and (b)(2)(iii) and § 31.3503-1. (vi) For provisions related to furnishing employee statements and corrected employee statements reporting wages and withheld taxes, see sections 6041 and 6051 and §§ 1.6041-2 and 31.6051-1. For provisions relating to filing information returns and corrected information returns reporting wages and withheld taxes, see sections 6041 and 6051 and §§ 1.6041-2 and 31.6051-2. (vii) For the period of limitations on credit or refund of taxes, see § 301.6511(a)-1. (2) Statements supporting employer's claims for employee tax. (ii) Every employer who files a claim for refund or credit of employee FICA tax under section 3101 or employee RRTA tax under section 3201 collected from an employee in a calendar year prior to the year in which the credit or refund is claimed, also must certify as part of the claim process that the employer has obtained the employee's written statement that the employee has not claimed refund or credit of the amount of the overcollection, or if so, such claim has been rejected, and that the employee will not claim refund or credit of the amount. The employer must retain the employee's written statement as part of the employer's records. (b) Claim by employee In general. (i) The employee does not receive repayment or reimbursement in any manner from the employer and does not authorize the employer to file a claim and receive refund or credit, (ii) The overcollection cannot be corrected under § 31.3503-1, and (iii) In the case of overpaid employee social security tax due to having received wages or compensation from multiple employers, the employee has not taken the overcollection into account in claiming a credit against, or refund of, his or her income tax, or if so, such claim has been rejected. See § 31.6413(c)-1. (2) Statements supporting employee's claim. (ii) Except as provided in paragraph (b)(3) of this section, each individual who makes a claim under paragraph (b)(1) of this section also shall submit with such claim a statement setting forth whether the individual has taken the amount of the overcollection into account in claiming a credit against, or refund of, his or her income tax, and the amount, if any, so claimed (see § 31.6413(c)-1). (3) Additional Medicare Tax. (ii) In the case of an overpayment of Additional Medicare Tax under section 3101(b)(2) or section 3201(a) for a taxable year of an individual for which a Form 1040 (or other applicable return in the Form 1040 series) has been filed, a claim for refund shall be made by the individual on Form 1040X, “Amended U.S. Individual Income Tax Return.” (c) Effective/applicability date. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 9405, 73 FR 37379, July 1, 2008; T.D. 9645, 78 FR 71474, Nov. 29, 2013] § 31.6402(a)-3 Refund of Federal unemployment tax. Any person who pays to the district director more than the correct amount of— (a) Tax under section 3301 of the Federal Unemployment Tax Act or a corresponding provision of prior law, or (b) Interest, addition to the tax, additional amount, or penalty with respect to such tax, may file a claim for refund of the overpayment, in the manner and subject to the conditions stated in § 301.6402-2 of this chapter (Regulations on Procedure and Administration). See § 31.6413(d) and the corresponding section of prior law for provisions which bar the allowance or payment of interest on the amount of any refund based on credit allowable for contributions paid under the unemployment compensation law of a State. § 31.6404(a)-1 Abatements. For regulations under section 6404 of general application to the abatement of taxes, see § 301.6404-1 of this chapter (Regulations on Procedure and Administration). Every claim filed by an employer for abatement of employee tax under section 3101 or section 3201, or a corresponding provision of prior law, shall be made in the manner and subject to the conditions stated in paragraphs (a) (2) and (c) of § 31.6402(a)-2, as if the claim for abatement were a claim for refund. § 31.6413(a)-1 Repayment or reimbursement by employer of tax erroneously collected from employee. (a) Federal Insurance Contributions Act and Railroad Retirement Tax Act Overcollection ascertained before return is filed. (ii) Any overcollection not repaid or reimbursed to the employee as provided in paragraph (a)(1)(i) of this section shall be reported and paid to the IRS on the return for reporting such tax for the return period in which the overcollection is made. However, the reporting and payment of the overcollection may subsequently be treated as an overpayment error ascertained after the return is filed for purposes of paragraph (a)(2) of this section. (iii) For purposes of this paragraph (a)(1), an error is ascertained when the employer has sufficient knowledge of the error to be able to correct it. (2) Error ascertained after return is filed. (ii) If an employer files a return for a return period on which Additional Medicare Tax under section 3101(b)(2) or section 3201(a) is reported, collects from an employee and pays to the IRS more than the correct amount of Additional Medicare Tax required to be withheld from wages or compensation, and if the employer ascertains the error after filing the return but before the end of the calendar year in which the wages or compensation were paid, the employer shall repay or reimburse the employee in the amount of the overcollection prior to the end of the calendar year. However, this paragraph does not apply to the extent that, after reasonable efforts, the employer cannot locate the employee. (iii) If the employer repays the amount of the overcollection to an employee, the employer shall obtain and keep as part of its records the written receipt of the employee, showing the date and amount of the repayment. (iv) If the employer reimburses the amount of the overcollection to an employee, the employer shall keep as part of its records evidence of reimbursement. However, for purposes of overcollected Additional Medicare Tax under section 3101(b)(2) or section 3201(a), the employer shall reimburse the employee by applying the amount of the overcollection against the employee FICA or RRTA tax which attaches to wages or compensation paid by the employer to the employee in the calendar year in which the overcollection is made. The employer shall reimburse the employee by applying the amount of the overcollection against the employee FICA or RRTA tax which attaches to wages or compensation paid by the employer to the employee prior to the expiration of the applicable period of limitations on credit or refund. If the amount of the overcollection exceeds the amount so applied against such employee tax, the excess amount shall be repaid to the employee as required by this section. (v) If, in any calendar year, an employer repays or reimburses an employee in the amount of an overcollection of employee FICA or RRTA tax that was collected from the employee in a prior calendar year, the employer shall obtain from the employee and keep as part of its records a written statement that the employee has not claimed refund or credit of the amount of the overcollection, or if so, such claim has been rejected, and that the employee will not claim refund or credit of such amount. For this purpose, a claim for refund or credit by the employee includes instances in which the employee has included an overcollection of employee FICA or RRTA tax in computing a special refund (see § 31.6413(c)-1). This paragraph (a)(2)(v) does not apply for purposes of overcollected Additional Medicare Tax under section 3101(b)(2) or section 3201(a) which must be repaid or reimbursed to the employee in the calendar year in which the overcollection is made. (vi) For purposes of this paragraph (a)(2), an error is ascertained when the employer has sufficient knowledge of the error to be able to correct it. (vii) For the period of limitations on credit or refund of taxes, see § 301.6511(a)-1. (viii) For corrections of FICA and RRTA tax paid under the wrong chapter, see § 31.6205-1(b)(2)(ii) and (iii) and § 31.3503-1. (b) Income tax withheld from wages Overcollection ascertained before return is filed. (ii) Any overcollection not repaid or reimbursed to the employee as provided in paragraph (b)(1)(i) of this section shall be reported and paid to the IRS on the return for reporting such tax for the return period in which the overcollection is made. However, the reporting and payment of the overcollection may subsequently be treated as an overpayment error ascertained after the return is filed for purposes of paragraph (b)(2) of this section. (iii) For purposes of this paragraph (b)(1), an error is ascertained when the employer has sufficient knowledge of the error to be able to correct it. (2) Error ascertained after return is filed. (ii) If the employer repays the amount of the overcollection to an employee, the employer shall obtain and keep as part of its records the written receipt of the employee, showing the date and amount of the repayment. (iii) If the employer reimburses the amount of the overcollection to an employee, the employer shall keep as part of its records evidence of reimbursement. The employer shall reimburse the employee by applying the amount of the overcollection against the tax under section 3402, which otherwise would be required to be withheld from wages paid by the employer to the employee in the calendar year in which the overcollection is made. If the amount of the overcollection exceeds the amount so applied against such tax, the excess amount shall be repaid to the employee as required by this section. (iv) For purposes of this paragraph (b)(2), an error is ascertained when the employer has sufficient knowledge of the error to be able to correct it. (c) Effective/applicability date. [T.D. 9405, 73 FR 37380, July 1, 2008, as amended by T.D. 9645, 78 FR 71475, Nov. 29, 2013] § 31.6413(a)-2 Adjustments of overpayments. (a) In general. (2) Every correction under this section of an overpayment of tax shall be made on the form prescribed by the IRS that corresponds to the return being corrected. The form, filed in accordance with this section and the instructions, will constitute an adjusted return for the return period being corrected. (3) Every adjusted return on which an overpayment is corrected pursuant to this section shall certify that the employer has repaid or reimbursed its employee, except where taxes were not withheld from the employee or where, after reasonable efforts, the employer cannot locate the employee. Every adjusted return shall designate the return period in which the error was ascertained and the return period being corrected, explain in detail the grounds and facts relied upon to support the correction, and set forth such other information as may be required by this section and § 31.6413(a)-1 and by the instructions relating to the adjusted return. Every adjusted return, filed by an employer, for overpayment of employee FICA tax under section 3101 or employee RRTA tax under section 3201 collected from an employee in a calendar year prior to the year in which the adjusted return is filed, must also certify that the employer has obtained the employee's written statement that the employee has not claimed refund or credit of the amount of the overcollection, or if so, such claim has been rejected, and that the employee will not claim refund or credit of the amount. (4) For purposes of this section, an error is ascertained when the employer has sufficient knowledge of the error to be able to correct it. (5) For provisions related to furnishing employee statements and corrected employee statements reporting wages and withheld taxes, see sections 6041 and 6051 and §§ 1.6041-2 and 31.6051-1. For provisions relating to filing information returns and corrected information returns reporting wages and withheld taxes, see sections 6041 and 6051 and §§ 1.6041-2 and 31.6051-2. (b) Federal Insurance Contributions Act and Railroad Retirement Tax Act Overcollection ascertained before return is filed. (2) Error ascertained after return is filed Employee tax. (ii) Employer tax. (c) Income tax withheld from wages Overcollection ascertained before return is filed. (2) Error ascertained after return is filed. (d) Adjustments not permitted In general. (2) 90-day exception. (3) No adjustment after claim for refund filed. (4) No adjustment after IRS notification. (e) Effective/applicability date. [T.D. 9405, 73 FR 37381, July 1, 2008, as amended by T.D. 9645, 78 FR 71475, Nov. 29, 2013; T.D. 9645, 79 FR 4623, Jan. 29, 2014] § 31.6413(a)-3 Repayment by payor of tax erroneously collected from payee. (a) In general Erroneous withholding under section 3406 of the Internal Revenue Code. (i) The payor or broker requires a payee described in § 31.3406(g)-1(a) or described in a provision of the Internal Revenue Code requiring the reporting of a payment subject to withholding under section 3406 to certify that it is an exempt recipient, the payee fails to make the required certification, and the payor or broker subsequently withholds under section 3406 from a payment to the payee; (ii) The payor or broker does not require the payee to certify concerning its exempt status and the payor or broker withholds under section 3406; (iii) The payor or broker withholds under section 3406 from a payee after the payee provides a taxpayer identification number or required certification (including the documentation described in § 1.1441-1(e)(1)(ii), 1.6045-1(g)(3), or 1.6049-5(c) of this chapter) to the payor, but before the payor or broker treats the number or required certification as having been received under § 31.3406(e)-1(b); or (iv) The amount is withheld because a payor imposed backup withholding on a payment made to a person because the payee failed to furnish the documentation described in § 1.1441-1(e)(1)(ii) of this chapter and the payee subsequently furnishes, completes, or corrects the documentation. The documentation must be furnished, completed, or corrected prior to the end of the calendar year in which the payment is made and prior to the time the payor furnishes a Form 1099 to the payee with respect to the payment for which the withholding erroneously occurred. (2) For purposes of paragraph (a)(1) of this section (other than erroneous withholding occurring under the circumstances described in paragraph (a)(1)(iv) of this section), if a payor or broker withholds because the payor or broker has not received a taxpayer identifying number or required certification and the payee subsequently provides a taxpayer identifying number or a required certification to the payor, the payor or broker may not refund the amount to the payee. (b) Refunding amounts erroneously withheld Time and manner. (i) Keep as part of its records a receipt showing the date and amount of refund and must provide a copy of the receipt to the payee (a canceled check or an entry in a statement is sufficient, provided that the check or statement contains a specific notation that it is a refund of tax erroneously withheld); (ii) Not report on a Form 1099 as tax withheld any amount which the payor or broker has refunded to a payee; and (iii) Not deposit the amount erroneously withheld if the payor or broker has not deposited the amount of the tax prior to the time that the refund is made to the payee. (2) Adjustment after the deposit of the tax In general. (ii) Erroneous withholding from a payee that is a foreign person. [T.D. 8637, 60 FR 66133, Dec. 21, 1995, as amended by T.D. 8734, 62 FR 53494, Oct. 14, 1997] § 31.6413(b)-1 Overpayments of certain employment taxes. For provisions relating to the adjustment of overpayments of tax imposed by section 3101, 3111, 3201, 3221, or 3402, see § 31.6413(a)-2. For provisions relating to refunds of tax imposed by section 3101, 3111, 3201, or 3221, see §§ 31.6402(a)-1 and 31.6402(a)-2. For provisions relating to refunds of tax imposed by section 3402, see §§ 31.6402(a)-1 and 31.6414-1. § 31.6413(c)-1 Special refunds. (a) Who may make claims In general. ( a ( b ( c ( d ( e ( f ( g ( h the employee shall be entitled to a special refund of the amount, if any, by which the employee tax imposed by section 3101 with respect to such wages and deducted therefrom (whether or not paid) exceeds the employee tax with respect to the amount specified in ( a h (ii) The application of this subparagraph may be illustrated by the following examples: Example 1. Employee A in the calendar year 1968 receives taxable wages in the amount of $5,000 from each of his employers, B, C, and D, for services performed during such year (or at any time after 1936), or a total of $15,000. Employee tax (computed at 4.4 percent, the aggregate employee tax rate in effect in 1968) is deducted from A's wages in the amount of $220 by B and $220 by C, or a total of $440. Employer D pays employee tax in the amount of $220 without deducting such tax from A's wages. The employee tax with respect to the first $7,800 of such wages is $343.20. A is entitled to a special refund of $96.80 ($440 minus $343.20). The $5,000 of wages received from employer D and the $220 of employee tax paid with respect thereto have no bearing in computing A's special refund since such tax was not deducted from his wages. Example 2. Employee E in the calendar year 1968 performs services for employers F and G, for which E is entitled to wages of $7,800 from each employer, or a total of $15,600. On account of such services, E in 1967 received an advance payment of $1,800 of wages from F; and in 1968, receives wages in the amount of $6,000 from F and $7,800 from G. Employee tax was deducted as follows: In 1967, $79.20 ($1,800 × 4.4 percent, the aggregate employee tax rate in effect in 1967) by employer F; and in 1968, $264.00 ($6,000 × 4.4 percent, the aggregate employee tax rate in effect in 1968) by employer F, and $343.20 ($7,800 × 4.4 percent) by employer G. Thus, E in the calendar year 1968 received $13,800 in wages from which $607.20 of employee tax was deducted. The amount of employee tax with respect to the first $7,800 of such wages received in 1968 is $343.20. E is entitled to a special refund of $264.00 ($607.20 minus $343.20). The $1,800 advance of wages received in 1967 from F, and the $79.20 of employee tax with respect thereto, have no bearing in computing E's special refund for 1968, because the wages were not received in 1968. Such amounts could not form the basis for a special refund unless E during 1967 received from F and at least one more employer wages totaling more than $6,600. (2) Federal employees. a h (3) State employees. (4) Employees of certain foreign corporations. (5) Governmental employees in American Samoa. a h (6) Governmental employees in the District of Columbia. a h (b) Claims for special refund In general. (2) Form of claim. (3) Period of limitation. (c) Special refunds with respect to compensation as defined in the Railroad Retirement Tax Act In general. (2) Example. Example. Employee A rendered services to X during 1973 for which he was paid compensation at the monthly rate of $650 which was taxable under the Railroad Retirement Tax Act. A was paid $550 by X in January 1973 which was earned and deemed received in December 1972 and $650 in January of 1974 which was earned and deemed received in December of 1973. A also earned and received wages in 1973 from employer Y, which were subject to the employee tax under the Federal Insurance Contributions Act, in the amount of $6,000. A paid hospital insurance tax on $13,800 ($7,800 compensation from X including $650 earned and deemed received in December 1973 but paid in January 1974 and not including $550 paid in January 1973 but earned and deemed received in December 1972, $6,000 compensation from Y) received or deemed received or earned in 1973. For purposes of the hospital insurance tax imposed by section 3101(b), these amounts are all wages received from an employer in 1973. Therefore, A is entitled to a special refund for 1973 under section 6413(c) and this section of $30 (1.0% × $13,800 − 1.0% × $10,800). [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6950, 33 FR 5359, Apr. 4, 1968; T.D. 6983, 33 FR 18020, Dec. 4, 1968; T.D. 7374, 40 FR 30954, July 24, 1975; T.D. 7374, 69 FR 57639, Sept. 27, 2004] § 31.6414-1 Credit or refund of income tax withheld from wages. (a) In general. (2) For provisions related to furnishing employee statements and corrected employee statements reporting wages and withheld taxes, see sections 6041 and 6051 and §§ 1.6041-2 and 31.6051-1. For provisions relating to filing information returns and corrected information returns reporting wages and withheld taxes, see sections 6041 and 6051 and §§ 1.6041-2 and 31.6051-2. (3) For interest-free adjustments of overpayments of income tax withheld from wages, see § 31.6413(a)-2. (b) Period of limitation. [T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 9405, 73 FR 37382, July 1, 2008] § 31.6652(c)-1 Failure of employee to report tips for purposes of the Federal Insurance Contributions Act. (a) In general. (b) Reasonable cause. [T.D. 7001, 34 FR 1005, Jan. 23, 1969] § 31.6674-1 Penalties for fraudulent statement or failure to furnish statement. Any person required to furnish a statement to an employee under the provisions of section 6051 or 6053(b) is subject to a civil penalty for willful failure to furnish such statement in the manner, at the time, and showing the information required under such section (or § 31.6051-1 or § 31.6053-2), or for willfully furnishing a false or fraudulent statement to an employee. The penalty for each such violation is $50, which shall be assessed and collected in the same manner as the tax imposed on employers under the Federal Insurance Contributions Act. See section 7204 for criminal penalty. [T.D. 7001, 34 FR 1006, Jan. 23, 1969] § 31.6682-1 False information with respect to withholding. (a) Civil penalty. (b) Deficiency procedures not to apply. [T.D. 7963, 49 FR 28706, July 16, 1984] § 31.6694-1 Section 6694 penalties applicable to tax return preparer. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78453, Dec. 22, 2008, as amended by T.D. 9436, 74 FR 5105, Jan. 29, 2009] § 31.6694-2 Penalties for understatement due to an unreasonable position. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78454, Dec. 22, 2008] § 31.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78454, Dec. 22, 2008, as amended by T.D. 9436, 74 FR 5105, Jan. 29, 2009] § 31.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78454, Dec. 22, 2008] § 31.6695-1 Other assessable penalties with respect to the preparation of tax returns for other persons. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78454, Dec. 22, 2008] § 31.6696-1 Claims for credit or refund by tax return preparers. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78454, Dec. 22, 2008] § 31.7701-1 Tax return preparer. (a) In general. (b) Effective/applicability date. [T.D. 9436, 73 FR 78454, Dec. 22, 2008] § 31.7701-2 Definitions; spouse, husband and wife, husband, wife, marriage. (a) In general. (b) Applicability date. [T.D. 9785, 81 FR 60616, Sept. 2, 2016] § 31.7805-1 Promulgation of regulations. In pursuance of section 7805 of the Internal Revenue Code of 1954, the foregoing regulations are hereby prescribed. (See § 31.0-3 of subpart A of the regulations in this part relating to the scope of the regulations.)

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