[Federal Register: July 1, 2008 (Volume 73, Number 127)]
[Rules and Regulations]
[Page 37371-37382]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01jy08-6]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 31 and 602
[TD 9405]
RIN 1545-BG50
Employment Tax Adjustments
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations relating to
employment tax adjustments and employment tax refund claims. The final
regulations modify the process for making interest-free adjustments for
both underpayments and overpayments of Federal Insurance Contributions
Act (FICA) and Railroad Retirement Tax Act (RRTA) taxes and Federal
income tax withholding (ITW) under sections 6205(a) and 6413(a),
respectively, of the Internal Revenue Code (Code). These regulations
also modify the process for filing claims for refund of overpayments of
employment taxes under sections 6402 and 6414.
This document contains final regulations relating to the return
requirements under section 6011 to reflect the changes to the
adjustment and refund processes, and to reflect additional statutory
and process updates. This document also contains final regulations
under section 6302 to clarify deposit obligations with respect to
interest-free adjustments of underpayments and the effect of
adjustments and refunds on the deposit schedule of a Form 943 filer.
DATES: Effective Date: These final regulations are effective on January
1, 2009.
Applicability date: With respect to the regulations under Code
sections 6205, 6402, 6413, and 6414, these final regulations apply to
any error ascertained on or after January 1, 2009.
FOR FURTHER INFORMATION CONTACT: Ligeia M. Donis, (202) 622-0047 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations
has been reviewed and approved by the Office of Management and Budget
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3507(d)) under control number 1545-2097. The collection of information
in these proposed regulations is in Sec. Sec. 31.6011(a)-1,
31.6011(a)-4, 31.6011(a)-5, 31.6205-1, 31.6402(a)-2, 31.6413(a)-1,
31.6413(a)-2, and 31.6414-1. This information is required by the IRS to
verify compliance with return requirements under section 6011,
employment tax adjustments under sections 6205 and 6413, and claims for
refund of overpayments of employment taxes under sections 6402 and
6414. This information will be used to determine whether the amount of
tax has been reported and calculated correctly.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
These final regulations are issued in connection with the IRS's
development of new forms to report adjustments to employment taxes
which will replace the existing process of reporting adjustments of
employment taxes on regularly filed employment tax returns. These
regulations affect taxpayers that file employment tax returns,
including Form 941, ``Employer's QUARTERLY Federal Tax Return,'' Form
943, ``Employer's Annual Tax Return for Agricultural Employees,'' Form
944, ``Employer's ANNUAL Federal Tax Return,'' Form 945, ``Annual
Return of Withheld Federal Income Tax,'' and Form CT-1, ``Employer's
Annual Railroad Retirement Tax Return,'' and any related Spanish-
language returns or returns for U.S. possessions.
These final regulations are part of the IRS's effort to reduce
taxpayer burden by permitting employers to make employment tax
adjustments on a separately filed form as soon as an error is
ascertained. These regulations amend the Employment Tax Regulations (26
[[Page 37372]]
CFR part 31) under section 6011 relating to the requirement to file a
return, under sections 6205(a) and 6413(a) relating to the process for
making adjustments of underpayments and overpayments, respectively, of
employment taxes, under section 6302 relating to deposit obligations,
and under sections 6402 and 6414 relating to the process of filing a
claim for refund for an overpayment of employment taxes. For purposes
of these regulations, the term employment taxes means the Federal
Insurance Contributions Act (FICA) tax (both the social security and
Medicare portions) imposed on both the employer and the employee, the
Railroad Retirement Tax Act (RRTA) tax imposed on both the employer and
employee, and Federal income tax withholding (ITW). To the extent that
other types of withholding are treated as ITW under section 3402(a)
(that is, gambling withholding, pension withholding, and backup
withholding as set forth in sections 3402(q)(7), 3405(f), and
3406(h)(10), respectively), these other types of withholding are
included in the term employment taxes.
Interest-Free Adjustments
Generally, the Code requires that interest be paid to the IRS on
any underpayment of tax and that interest be allowed and paid to the
taxpayer on any overpayment of tax. See sections 6601(a) and 6611(a),
respectively. An exception to the general rule, however, applies
uniquely to employment taxes. Where an amount other than the correct
amount of tax imposed by sections 3101 (employee FICA tax), 3111
(employer FICA tax), 3201 (employee RRTA tax), 3221 (employer RRTA
tax), or 3402 (ITW) is reported to the IRS with respect to any payment
of wages or compensation, sections 6205(a) and 6413(a) permit employers
to make interest-free adjustments for underpayments and overpayments,
respectively. Where the correct amount of tax has been reported but not
paid, no adjustment to the amount reported is necessary; accordingly,
the interest-free adjustment rules do not apply.
Claims for Refund
For overpayments of employment taxes, section 6413(b) permits the
filing of a claim for refund when an interest-free adjustment cannot be
made. Under the regulatory authority in section 6413(b), the IRS has
permitted taxpayers to choose between filing a claim for refund
pursuant to section 6402(a) and making an interest-free adjustment
pursuant to section 6413(a) to correct an overpayment of employment
taxes.
Under section 6402(a), the IRS, within the applicable period of
limitations on credit or refund, may credit the amount of an
overpayment, including any interest, against any tax liability of the
person who made the overpayment and shall, subject to certain offsets,
refund any balance to such person. A claim for refund under section
6402(a) must be filed within the period of limitations on credit or
refund. Section 6414 permits refunds of ITW only to the extent the
amount of the ITW overpayment was not actually deducted and withheld
from an employee.
Since 1960, the regulations under sections 6205 and 6413 have
provided that employment tax adjustments are made by reporting the
adjustment on an employer's current period employment tax return.
Because the adjustment was reported on a current period return, the
amount of the adjustment was treated as part of the current period's
liability. Such a process for making adjustments of employment taxes
presented a number of problems for both employers and the IRS, in large
part because it required employers to make adjustments for past periods
in connection with the filing of their current period returns.
The IRS, as part of the Form 94X Project initiated by the Office of
Taxpayer Burden Reduction and in response to the request of employers
and the payroll community, is developing new forms to be used when
making adjustments of employment taxes. The new forms will reduce the
employer's burden in making and tracking adjustments and increase the
IRS's ability to ensure employment tax compliance. The IRS is
simultaneously revising the process for claiming refunds. These final
regulations are issued in connection with the IRS's development of such
new forms which will be used by employers to make overpayment and
underpayment adjustments to employment taxes or to claim refunds of
overpaid employment taxes.
A notice of proposed rulemaking (REG-111583-07, 2008-4 IRB 323, 72
FR 74233) was published in the Federal Register on December 31, 2007. A
correction to the notice of proposed rulemaking was published in the
Federal Register on January 28, 2008 (73 FR 4765). No requests for a
public hearing were received, therefore, no public hearing was held.
The IRS received written and electronic comments responding to the
notice of proposed rulemaking, but none of them requested substantive
changes to the proposed regulations. The proposed regulations are
adopted as amended by this Treasury decision. The revisions are
discussed.
Summary of Comments and Explanation of Provisions
Several positive comments were received on the proposed
regulations. No substantive changes to the regulations were requested.
Several commentators suggested changes for the draft form, Form 941X,
``Adjusted Employer's QUARTERLY Federal Tax Return or Claim for
Refund,'' which was released to the public on the IRS Web site (http://
www.irs.gov) on March 4, 2008, as a vision draft for comment. The Form
941X is the first of a series of forms being developed by the IRS in
conjunction with these regulations. The series of forms will correspond
to Form 941, Form 943, Form 944, Form 945, and Form CT-1 and will be
used by employers when making adjustments of employment taxes or
claiming refunds of employment taxes. The comments on the draft Form
941X will be taken into account in preparing the final version of the
form.
As the IRS has continued to prepare for the implementation of the
new adjustment and refund claim processes for employment taxes, some
necessary changes to the proposed regulations were identified and
incorporated into these final regulations. These changes to the
proposed regulations are discussed below.
Overview of Final Regulations Under Sections 6205 and 6413
The final regulations under sections 6205 and 6413 set forth the
procedures for making interest-free adjustments for underpayments and
overpayments of employment taxes, respectively. Like the proposed
regulations, the final regulations under sections 6205 and 6413 have
been drafted to set up parallel structures according to the type of tax
being adjusted and when the error is ascertained. Accordingly, the
final regulations under sections 6205 and 6413 are divided into
provisions dealing with FICA and RRTA taxes and provisions dealing with
ITW. The provisions are further broken down based on when the error is
ascertained, that is, whether the error is ascertained before or after
a return has been filed.
Interest-Free Adjustments
The final regulations under section 6205 set forth the procedures
for making interest-free adjustments for underpayments of employment
taxes. They provide that if a return is filed and less than the correct
amount of employee or employer portions of FICA or RRTA tax is
reported, and the employer discovers such error after filing the
return, the employer shall
[[Page 37373]]
adjust the resulting underpayment of tax by reporting the additional
amount due on an adjusted return for the return period in which the
wages or compensation was paid. The adjustment must be made by the due
date of the return for the return period in which the error is
ascertained and the amount of the underpayment must be paid by the time
the adjustment is made, or interest will begin to accrue from that
date. An underpayment adjustment may only be made within the period of
limitations for assessment. For underpayments of ITW where the
incorrect amount was withheld, subject to limited exceptions, an
adjustment may be made only for errors ascertained during the calendar
year in which the wages were paid.
Under the final regulations interest-free adjustments for
underpayments of FICA tax, RRTA tax, and ITW are available under
certain circumstances where the underpayment arises because the
employer failed to file an original return or failed to report and pay
the correct type of tax. The final regulations revise the processes set
forth in the proposed regulations to accommodate the various
possibilities of errors in these situations and to ensure the IRS can
process the adjustments.
Specifically, under the final regulations, if an employer filed a
return reporting FICA tax when a return reporting RRTA tax should have
been filed, the employer can make an interest-free adjustment by filing
an original return reporting the correct amount of RRTA tax and
attaching an adjusted return to correct the erroneously reported FICA
tax. Conversely, if an employer filed a return reporting RRTA tax when
a return reporting FICA tax should have been filed, the employer can
make an interest-free adjustment by filing an original return reporting
the correct amount of FICA tax and attaching an adjusted return to
correct the erroneously reported RRTA tax. In the latter situation, if
the employer already filed a return that is used to report FICA tax in
order to report ITW, the employer can make an interest-free adjustment
by filing an adjusted return to report the correct amount of FICA tax
with an adjusted return to correct the erroneously reported RRTA tax.
The final regulations also add a cross-reference to the regulations
under section 3503 which provide that if an amount is paid under the
wrong chapter, that is, an employer erroneously pays FICA tax under
chapter 21 instead of RRTA tax under chapter 22, or RRTA tax instead of
FICA tax, the amount erroneously paid shall be credited against the tax
for which the employer is liable and any balance refunded.
In addition, the final regulations provide the process by which an
employer can make an interest-free adjustment if the employer failed to
file a return for a return period solely because the employer failed to
treat any individuals as employees. The employer can make an interest-
free adjustment to report the tax due with respect to the reclassified
workers by filing an original return and an attached adjusted return
reporting the correct amount of tax, in accordance with the
instructions for the adjusted return.
Generally, such reporting will constitute an interest-free
adjustment in each of these situations if the original return and/or
adjusted return(s) are filed by the due date of the correct return for
the return period in which the error is ascertained. The amount
reported must be paid by the time the original return and/or adjusted
return(s) are filed or interest will accrue from that date.
The final regulations under section 6413(a) set forth the
procedures for making interest-free adjustments for overpayments of
employment taxes. They provide that, if an employer ascertains an
overpayment error within the applicable period of limitations on credit
or refund, the employer is required to repay or reimburse its employees
the amount of overcollected employee FICA tax or employee RRTA tax
prior to the expiration of the applicable period of limitations on
credit or refund. However, the requirement to repay or reimburse does
not apply to the extent that taxes were not withheld from the employee
or if, after reasonable efforts, the employer cannot locate the
employee; in such case, the employer may make an adjustment for only
the employer share of FICA or RRTA tax. An interest-free adjustment for
an overpayment may not be made once a claim for refund has been filed.
The final regulations under section 6413(a) further provide that
once an employer repays or reimburses an employee to the extent
required, the employer may report both the employee and employer
portions of FICA or RRTA tax as an overpayment on an adjusted return.
The employer must certify on the adjusted return that it has repaid or
reimbursed its employees to the extent required.
Under the final regulations, the reporting of the overpayment
constitutes an interest-free adjustment if the overpayment is reported
on an adjusted return filed before the 90th day prior to expiration of
the period of limitations on credit or refund. Similar rules apply for
making interest-free adjustments for overpayments of ITW, except that
an interest-free adjustment may only be made if the employer ascertains
the error and repays or reimburses its employees within the same
calendar year that the wages were paid and reports the adjustment on an
adjusted return.
Unlike the proposed regulations, the final regulations do not
require the employer to repay or reimburse the employee or to adjust
the overpayment by the due date of the return for the return period
following the return period in which the error is ascertained. Upon
further consideration, the IRS determined there was insufficient reason
to impose a timing restriction other than the period of limitations on
credit or refund of taxes.
For both underpayments and overpayments, interest-free adjustments
are made by reporting the error on a separately filed adjusted return.
The new adjusted return will not be filed as an attachment to a current
return and will not affect the liability reported on the current
return. In addition, the regulations provide that the forms used to
accept an assessment of employment taxes after an examination (that is,
Form 2504, ``Agreement and Collection of Additional Tax and Acceptance
of Overassessment (Excise or Employment Tax)'', and Form 2504-WC,
``Agreement to Assessment and Collection of Additional Tax and
Acceptance of Overassessment in Worker Classification Cases (Employment
Tax)'') constitute adjusted returns for purposes of permitting the
assessment to be treated as an interest-free adjustment.
The IRS intends to issue guidance to provide examples of how the
final regulations under sections 6205, 6402, 6413, and 6414 apply in
different factual scenarios.
Deposits, Payments, and Credits
The final regulations under section 6302 provide that an employer
making an interest-free adjustment must pay the amount of the
adjustment by the time it files an adjusted return; such timely payment
will satisfy the employer's deposit obligations with respect to the
adjustment. Conversely, if the amount of the adjustment is not paid by
the time the adjusted return is filed, a penalty under section 6656 for
failure to deposit may apply because the deposit obligation for such
taxes is not deemed to be satisfied and the employer may not have
otherwise satisfied its deposit obligations for accumulated employment
taxes.
[[Page 37374]]
In addition, the final regulations governing agricultural employers
(Form 943 filers) provide that for purposes of determining the amount
of accumulated taxes in the employer's lookback period (which
determines the employer's deposit schedule), adjustments to tax
liability made pursuant to the filing of adjusted returns or claims for
refund will not be taken into account. This rule is consistent with the
rule already in effect with respect to Form 941 and Form 944 filers
that adjustments to prior return periods are not taken into account in
determining the employment tax liability for such prior return period.
See Sec. 31.6302-1T(b)(4). The final regulations also added language
to clarify that new agricultural employers are treated as having
employment tax liabilities of zero for any lookback period before the
date the employer started or acquired its business, which is consistent
with the current rule governing the lookback period for Form 941 and
Form 944 filers.
The adjusted overpayment amount will be applied as a credit toward
payment of the employer's liability for the calendar quarter (or
calendar year for annual returns being adjusted) in which the adjusted
return is filed, unless the IRS notifies the employer that the employer
is not entitled to the adjustment (that is, because there is no
overpayment or because the requirements for making an adjustment were
not satisfied) or that the credit will be applied to a different return
period.
Refunds for Overpayments
In lieu of making an interest-free adjustment for an overpayment,
employers may file a claim for refund pursuant to section 6402 or 6414
for the amount of the overpayment. Furthermore, if an employer cannot
make an interest-free adjustment with respect to an overpayment because
the period of limitations for claiming a credit or refund for such
overpayment will expire within 90 days or because the IRS has otherwise
notified the employer that it is not entitled to the adjustment, the
employer may recover the overpayment only by filing a claim for refund.
The final regulations under section 6402(a) set out the procedures
for filing a claim for refund of overpaid FICA and RRTA taxes. The
regulations permit an employer to file a claim for refund of an
overpayment of FICA or RRTA tax, but require the employer to certify as
part of the claim process that the employer has repaid or reimbursed
the employee's share of FICA or RRTA tax to the employee or has secured
the written consent of the employee to allowance of the refund or
credit. However, the employer is not required to repay or reimburse the
employee or obtain the written consent of the employee to the extent
that the overpayment does not include taxes withheld from the employee
or, after reasonable efforts, the employer cannot locate the employee
or the employee, once contacted, will not provide the requested
consent.
The final regulations under section 6414 set out the procedures for
filing a claim for refund of overpaid ITW which are similar to the
procedures for filing a claim for refund of overpaid FICA or RRTA tax,
except that an employer may not file a claim for refund of an
overpayment of ITW for an amount the employer deducted or withheld from
an employee.
Tax Returns or Statements
The final regulations for reporting employment taxes under section
6011 reflect the changes to the adjustment and refund processes. The
final regulations are updated to conform to current law due to the
enactment of section 3510, added to the Code by section 2(b)(1) of the
Social Security Domestic Employment Reform Act of 1994 (Public Law 103-
387), which mandates annual returns for domestic service employment
taxes, and to reflect the current use of Schedule H (Form 1040) as the
generally prescribed form for reporting wages for domestic service in a
private home paid in calendar years beginning after December 31, 1994.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It has also been
determined that section 553(b) of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these regulations.
In accordance with the Regulatory Flexibility Act (5 U.S.C. chapter
6), this regulation will not have a significant economic impact on a
substantial number of small entities.
The final regulations under sections 6011, 6205, 6402, 6413, and
6414 affect all taxpayers that file employment tax returns. Therefore,
the IRS has determined that these regulations will have an impact on a
substantial number of small entities.
The IRS has determined, however, that the impact on entities
affected by the final regulations will not be significant. The
regulations require taxpayers to provide certain information if they
file adjusted returns to make interest-free adjustments to their
employment taxes for either underpayments or overpayments or file
claims for refund for an overpayment of employment tax. The taxpayer
must provide an explanation setting forth the basis for the correction
or the claim in detail, designating the return period in which the
error was ascertained and the return period being corrected, and
setting forth such other information as may be required by the
instructions to the form. In addition, for adjustments of overpayments
and for claims for refund, taxpayers must also obtain and retain the
written receipt of the employee showing the date and amount of the
repayment, evidence of reimbursement, or the written consent of the
employee. For purposes of overpayment adjustments and claims for refund
of employee FICA and RRTA tax overcollected in an earlier year, the
employer must also obtain and retain 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.
This collection of information is not new to the final regulations
and has been in existence since the 1960's when the previous
regulations were promulgated. In addition, the amendments to the
regulations are being made in conjunction with a project of the Office
of Taxpayer Burden Reduction which seeks to revise the process for
making corrections to employment tax returns to make it less burdensome
to taxpayers. The filing of a claim for refund and the making of an
interest-free adjustment pursuant to the final regulations are
voluntary on the part of taxpayers.
Based on these facts, the IRS hereby certifies that the collection
of information contained in these regulations will not have a
significant economic impact on a substantial number of small entities.
Accordingly, a regulatory flexibility analysis is not required.
Pursuant to section 7805(f) of the Code, the proposed regulations
preceding these regulations were submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its impact
on small business.
Drafting Information
The principal author of these regulations is Ligeia M. Donis of the
Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and
Government Entities). However, other personnel from the IRS and
Treasury
[[Page 37375]]
Department participated in their development.
List of Subjects
26 CFR Part 31
Employment taxes, Income taxes, Penalties, Pensions, Railroad
retirement, Reporting and recordkeeping requirements, Social security,
Unemployment compensation.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
0
Accordingly, 26 CFR parts 31 and 602 are amended as follows:
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT THE
SOURCE
0
Paragraph 1. The authority citation for part 31 continues to read, in
part, as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 31.6011(a)-1 is amended by revising the text of
paragraphs (a)(2), (a)(3), and the section heading and text of
paragraphs (a)(4) and (c) to read as follows:
Sec. 31.6011(a)-1 Returns under Federal Insurance Contributions Act.
(a) * * *
(2) Employers of agricultural workers. Every employer who pays
wages for agricultural labor with respect to taxes imposed by the
Federal Insurance Contributions Act must make a return for the first
calendar year in which the employer pays such wages and for each
subsequent calendar year (whether or not wages are paid) until the
employer has filed a final return in accordance with Sec. 31.6011(a)-
6. Form 943, ``Employer's Annual Federal Tax Return for Agricultural
Employees,'' is the form prescribed for making the annual return
required by this section, except that, if the employer's principal
place of business is in Puerto Rico, or if the employer has employees
who are subject to income tax withholding for Puerto Rico, the return
must be made on Form 943-PR, ``Planilla para la Declaraci[oacute]n
ANUAL de la Contribuci[oacute]n Federal del Patrono de Empleados
Agr[iacute]colas.'' However, Form 943 is the form prescribed for making
such return in the case of every employer of agricultural workers who
is required pursuant to Sec. 31.6011(a)-4 to make a return of income
tax withheld from wages.
(3) Employers of domestic workers. Schedule H (Form 1040),
``Household Employment Taxes,'' is the form prescribed for use by every
employer in making a return as required under paragraph (a)(1) of this
section in respect of wages, as defined in the Federal Insurance
Contributions Act, paid by the employer in any calendar year for
domestic service as defined in section 3510. Schedule H (Form 1040) is
generally filed as an attachment to an income tax return; however, if
the employer does not otherwise have an obligation to file an income
tax return, Schedule H (Form 1040) may be filed as a separate return.
If, however, the employer is required under paragraph (a)(1) of this
section to make a return on Form 941, ``Employer's QUARTERLY Federal
Tax Return,'' or under paragraph (a)(2) of this section to make a
return on Form 943, ``Employer's Annual Federal Tax Return For
Agricultural Employees,'' or under paragraph (a)(5) of this section to
make a return on Form 944, ``Employer's ANNUAL Federal Tax Return,''
the employer may choose instead to report wages with respect to
domestic workers on such Form 941, Form 943, or Form 944. If such wages
are included on Form 941, Form 943, or Form 944, the employer must also
include Federal unemployment tax for the employee(s) on Form 940,
``Employer's Annual Federal Unemployment (FUTA) Tax Return,'' under the
provisions of Sec. 31.6011(a)-3.
(4) Employers in Puerto Rico, the U.S. Virgin Islands, Guam,
American Samoa, or the Commonwealth of the Northern Mariana Islands.
Form 941-PR, ``Planilla para la Declaraci[oacute]n Federal TRIMESTRAL
del Patrono,'' (or Form 944-PR, ``Planilla para la Declaraci[oacute]n
Federal ANUAL del Patrono,'' if the IRS notified the employer that the
Form 944-PR must be filed in lieu of Form 941-PR) is the form
prescribed for use in making the return required under paragraph (a)(1)
(or (a)(5)) of this section in the case of every employer whose
principal place of business is in Puerto Rico, or if the employer has
employees who are subject to income tax withholding for Puerto Rico.
Form 941-SS, ``Employer's QUARTERLY Federal Tax Return (American Samoa,
Guam, the Commonwealth of the Northern Mariana Islands, and the U.S.
Virgin Islands),'' (or Form 944-SS, ``Employer's ANNUAL Federal Tax
Return (American Samoa, Guam, the Commonwealth of the Northern Mariana
Islands, and the U.S. Virgin Islands),'' if the IRS notified the
employer that Form 944-SS must be filed in lieu of Form 941-SS) is the
form prescribed for use in making the return required under paragraph
(a)(1) (or (a)(5)) of this section in the case of every employer whose
principal place of business is in the U.S. Virgin Islands, Guam,
American Samoa, or the Commonwealth of the Northern Mariana Islands, or
if the employer has employees who are subject to income tax withholding
for these U.S. possessions. However, Form 941 (or Form 944 if the IRS
notified the employer that Form 944 must be filed in lieu of Form 941)
is the form prescribed for making such return in the case of every such
employer who is required pursuant to Sec. 31.6011(a)-4 to make a
return of income tax withheld from wages.
* * * * *
(c) Adjustments and refunds. For rules applicable to adjustments
and refunds of employment taxes, see sections 6205, 6402, 6413, and
6414, and the applicable regulations.
* * * * *
0
Par. 3. Section 31.6011(a)-4 is amended by revising paragraph (a)(2) to
read as follows:
Sec. 31.6011(a)-4 Returns of income tax withheld.
(a) * * *
(2) Wages paid for domestic service. Schedule H (Form 1040),
``Household Employment Taxes,'' is the form prescribed for making the
return required under paragraph (a)(1) of this section with respect to
income tax withheld, pursuant to an agreement under section 3402(p),
from wages paid for domestic service as defined in section 3510.
Schedule H (Form 1040) is generally filed as an attachment to an income
tax return; however, if the employer does not otherwise have an
obligation to file an income tax return, Schedule H (Form 1040) may be
filed as a separate return. The preceding sentence shall not apply in
the case of an employer who has chosen under Sec. 31.6011(a)-1(a)(3)
to use Form 941, ``Employer's QUARTERLY Federal Tax Return,'' Form 943,
``Employer's Annual Tax Return for Agricultural Employees,'' or Form
944, ``Employer's ANNUAL Federal Tax Return,'' as the return with
respect to such payments for purposes of the Federal Insurance
Contributions Act. For the requirements relating for Schedule H (Form
1040) with respect to qualified State individual income taxes, see
Sec. 301.6361-1(d)(3)(iv).
* * * * *
0
Par. 4. Section 31.6011(a)-5 is amended by revising paragraph (a) to
read as follows:
[[Page 37376]]
Sec. 31.6011(a)-5 Monthly returns.
(a) In general--(1) Requirement. The provisions of this section are
applicable in respect of the taxes reportable on returns required
pursuant to Sec. 31.6011(a)-1 or Sec. 31.6011(a)-4. An employer (or
other person) who is required by Sec. 31.6011(a)-1 or Sec.
31.6011(a)-4 to make quarterly or annual returns on any such form
shall, in lieu of making such quarterly or annual returns, make returns
of such taxes in accordance with the provisions of this section if the
employer is so notified in writing by the IRS. Every employer (or other
person) notified by the IRS shall make a return for the calendar month
in which the notice is received, for each of the prior calendar months
in the return period, and for each calendar month afterwards (whether
or not wages are paid in any such month) until the employer has filed a
final return or is required to make quarterly or annual returns
pursuant to notification as provided in paragraph (a)(2) of this
section. Each return required under this section shall be made on the
form prescribed for making the return which would otherwise be required
of the employer (or other person) under the provisions of Sec.
31.6011(a)-1 or Sec. 31.6011(a)-4, except that, if some other form is
furnished by the IRS for use in lieu of such prescribed form, the
return shall be made on such other prescribed form. The IRS may notify
any employer (or other person)--
(i) Who by reason of notification as provided in Sec. 301.7512-1,
is required to comply with the provisions of such Sec. 301.7512-1; or
(ii) Who failed to--
(A) Make any return required pursuant to Sec. 31.6011(a)-1 or
Sec. 31.6011(a)-4;
(B) Pay tax reportable on any such form; or
(C) Deposit any such tax as required under the provisions of Sec.
31.6302-1.
(2) Termination of requirement. The IRS, in its discretion, may
notify the employer in writing that the employer shall discontinue the
filing of monthly returns under this section. If the employer is so
notified, the IRS will provide the employer with instructions for
filing the final monthly return. Afterwards, the employer shall make
quarterly or annual returns in accordance with the provisions of Sec.
31.6011(a)-1 or Sec. 31.6011(a)-4.
* * * * *
0
Par. 5. Section 31.6205-1 is amended to read as follows:
Sec. 31.6205-1 Adjustments of underpayments.
(a) In general. (1) An employer who has underreported and underpaid
employee Federal Insurance Contributions Act (FICA) tax under section
3101 or employer FICA tax under section 3111, employee Railroad
Retirement Tax Act (RRTA) tax under section 3201 or employer RRTA tax
under section 3221, or income tax required under section 3402 to be
withheld, with respect to any payment of wages or compensation, shall
correct such error as provided in this section. Such correction may
constitute an interest-free adjustment as provided in paragraph (b) or
(c) of this section.
(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 Sec. Sec. 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 Sec. Sec. 1.6041-2 and 31.6051-2.
(9) For the period of limitations upon assessment and collection of
taxes, see Sec. 301.6501(a)-1.
(b) Federal Insurance Contributions Act and Railroad Retirement Tax
Act--(1) Undercollection ascertained before return is filed. If an
employer collects less than the correct amount of employee FICA or RRTA
tax from an employee with respect to a payment of wages or
compensation, and if the employer ascertains the error before filing
the return on which the employee tax with respect to such wages or
compensation is required to be reported, the employer shall
nevertheless report on the return and pay to the IRS the correct amount
of employee tax. If the employer does not report the correct amount of
tax in these circumstances, the employer may not later correct the
error through an interest-free adjustment.
(2) Error ascertained after return is filed. (i) If an employer
files a return on which FICA tax or RRTA tax is required to be
reported, and reports on the return less than the correct amount of
employee or employer FICA or RRTA tax with respect to a payment of
wages or compensation, 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. The employer
shall adjust the underpayment of tax by reporting the additional amount
due on an adjusted return for the return period in which the wages or
compensation was paid, accompanied by a detailed explanation of the
amount being reported on the adjusted return and any other information
as may be
[[Page 37377]]
required by this section and by the instructions relating to the
adjusted return. The reporting of the underpayment on an adjusted
return constitutes an adjustment within the meaning of this section
only if the adjusted return is filed within the period of limitations
for assessment for the return period being corrected, and by the due
date for filing the return for the return period in which the error is
ascertained. For purposes of the preceding sentence, the due date for
filing the adjusted return is determined by reference to the return
being corrected, without regard to the employer's current filing
requirements. For example, an employer with a current annual filing
requirement who is correcting an error on a previously filed quarterly
return must file the adjusted return by the due date for filing a
quarterly return for the quarter in which the error is ascertained. The
amount of the underpayment adjusted in accordance with this section
must be paid to the IRS by the time the adjusted return is filed. If an
adjustment is reported pursuant to this section, but the amount of the
adjustment is not paid when due, interest accrues from that date (see
section 6601).
(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. 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 Sec. 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. 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 Sec.
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. If an employer fails to file a return for a return period
solely because the employer failed to treat any individuals properly as
employees for the return period (and, therefore, failed to withhold and
pay any employer or employee FICA or RRTA tax with respect to wages or
compensation paid to the employees) and if the employer ascertains the
error after the due date of the return, the employer shall correct the
error through an interest-free adjustment as provided in this section.
The employer shall report the amount due by filing an original return
required to be filed to report the tax for the return period for which
the employer failed to file a return, accompanied by an adjusted return
as provided in the instructions to the adjusted return. The adjusted
return must include a detailed explanation of the amount being reported
on the original return and adjusted return and any other information as
may be required by this section and by the instructions relating to the
adjusted return. The reporting of the correct amount of tax for the
return period constitutes an adjustment within the meaning of this
section only if the original and adjusted returns are filed by the due
date of the return for reporting such tax for the return period in
which the error is ascertained. For purposes of the preceding sentence,
the due date for filing the adjusted return is determined by reference
to the return being corrected, without regard to the employer's current
filing requirements. For example, an employer with a current annual
filing requirement who is correcting an error on a previously filed
quarterly return must file the adjusted return by the due date for
filing a quarterly return for the quarter in which the error is
ascertained. The amount of the underpayment 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 adjustment is not paid
when due, interest accrues from that date (see section 6601).
(c) Income tax required to be withheld from wages--(1)
Undercollection ascertained before return is filed. If an employer
collects less than the correct amount of income tax required to be
withheld from wages under section 3402, and if the employer ascertains
the error before filing the return on which the withheld tax is
required to be reported, the employer shall nevertheless report on the
return and pay to the IRS the correct amount of tax required to be
withheld. If the employer does not report the correct amount of tax in
these circumstances, the employer may not correct the error through an
interest-free adjustment.
(2) Error ascertained after return is filed. If an employer files a
return on which income tax required to be withheld from wages is
required to be reported and reports on the return less than the correct
amount of income tax required to be withheld, and if the
[[Page 37378]]
employer ascertains the error after filing the return, the employer
shall correct the error through an interest-free adjustment as provided
in this section. The employer shall adjust the underpayment of tax by
reporting the additional amount due on an adjusted return for the
return period in which the wages were paid, accompanied by a detailed
explanation of the amount being reported on the adjusted return and any
other information as may be required by this section and by the
instructions relating to the adjusted return. The reporting of the
underpayment on an adjusted return constitutes an adjustment within the
meaning of this section only if the adjusted return is filed by the due
date for filing the return for the return period in which the error is
ascertained. For purposes of the preceding sentence, the due date for
filing the adjusted return is determined by reference to the return
being corrected, without regard to the employer's current filing
requirements. For example, an employer with a current annual filing
requirement who is correcting an error on a previously filed quarterly
return must file the adjusted return by the due date for filing a
quarterly return for the quarter in which the error is ascertained.
However, an adjustment may only be reported pursuant to this section if
the error is ascertained within the same calendar year that the wages
to the employee were paid, unless the underpayment is attributable to
an administrative error (that is, an error involving the inaccurate
reporting of the amount actually withheld), section 3509 applies to
determine the amount of the underpayment, or the adjustment is reported
on a Form 2504 or Form 2504-WC. The amount of the underpayment adjusted
in accordance with this section must be paid to the IRS by the time the
adjusted return is filed. If an adjustment is reported pursuant to this
section, but the amount of the adjustment 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. If an employer fails to file a return for a return period
solely because the employer failed to treat any individuals properly as
employees for the return period (and, therefore, failed to withhold and
pay any income tax required to be withheld from wages), the employer
shall correct the error through an interest-free adjustment as provided
in this section. The employer shall report the amount due by filing an
original return for the return period for which the employer failed to
file a return, accompanied by an adjusted return as provided in the
instructions to the adjusted return. The adjusted return must include a
detailed explanation of the amount being reported on the original and
adjusted returns and any other information as may be required by this
section and by the instructions relating to the adjusted return. The
reporting of the correct amount of tax for the return period
constitutes an adjustment within the meaning of this section only if
the original and adjusted returns are filed by the due date of the
return for reporting such tax for the return period in which the error
is ascertained. For purposes of the preceding sentence, the due date
for filing the adjusted return is determined by reference to the return
being corrected, without regard to the employer's current filing
requirements. For example, an employer with a current annual filing
requirement who is correcting an error on a previously filed quarterly
return must file the adjusted return by the due date for filing a
quarterly return for the quarter in which the error is ascertained.
However, an adjustment may only be reported pursuant to this section if
the error is ascertained within the same calendar year that the wages
to the employee were paid, or if section 3509 applies to determine the
amount of the underpayment, or if the adjustment is reported on a Form
2504 or Form 2504-WC. The amount of the underpayment 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 adjustment
is not paid when due, interest accrues from that date (see section
6601).
(d) Deductions from employee--(1) Federal Insurance Contributions
Tax Act and Railroad Retirement Tax Act. If an employer collects less
than the correct amount of employee FICA or RRTA tax from an employee
with respect to a payment of wages or compensation, the employer must
collect the amount of the undercollection by deducting the amount from
remuneration of the employee, if any, paid after the employer
ascertains the error. Such deductions may be made even though the
remuneration, for any reason, does not constitute wages or
compensation. The correct amount of employee tax must be reported and
paid, as provided in paragraph (b) of this section, whether or not the
undercollection is corrected by a deduction made as prescribed in this
paragraph (d)(1), and even if the deduction is made after the return on
which the employee tax must be reported is due. If such a deduction is
not made, the obligation of the employee to the employer with respect
to the undercollection is a matter for settlement between the employee
and the employer. If an employer makes an erroneous collection of
employee tax from two or more of its employees, a separate settlement
must be made with respect to each employee. An overcollection of
employee tax from one employee may not be used to offset an
undercollection of such tax from another employee. For provisions
relating to the employer's liability for the tax, whether or not it
collects the tax from the employee, see Sec. 31.3102-1(d). This
paragraph (d)(1) does not apply if section 3509 applies to determine
the employer's liability.
(2) Income tax required to be withheld from wages. If an employer
collects less than the correct amount of income tax required to be
withheld from wages during a calendar year, the employer must collect
the amount of the undercollection on or before the last day of the year
by deducting the amount from remuneration of the employee, if any, paid
after the employer ascertains the error. Such deductions may be made
even though the remuneration, for any reason, does not constitute
wages. The correct amount of income tax must be reported and paid, as
provided in paragraph (c) of this section, whether or not the
undercollection is corrected by a deduction made as prescribed in this
paragraph (d)(2), and even if the deduction is made after the return on
which the tax must be reported is due. If such a deduction is not made,
the obligation of the employee to the employer with respect to the
undercollection is a matter for settlement between the employee and the
employer within the calendar year. If an employer makes an erroneous
collection of income tax from two or more of its employees, a separate
settlement must be made with respect to each employee. An
overcollection of income tax from one employee may not be used to
offset an undercollection of such tax from another employee. For
provisions relating to the employer's liability for the tax, whether or
not it collects the tax from the employee, see Sec. 31.3403-1. For
provisions relating to the employer's liability for an underpayment of
tax unless the employer can show that the income tax against which the
tax under section 3402 may be credited has been paid, see Sec.
31.3402(d)-1. This paragraph (d)(2)
[[Page 37379]]
does not apply if section 3509 applies to determine the employer's
liability.
0
Par. 6. Section 31.6302-0 is amended by adding new entries for Sec.
31.6302-1 paragraphs (c)(7) and (g)(4)(i) and (ii) to read as follows:
Sec. 31.6302-0 Table of contents.
* * * * *
Sec. 31.6302-1 Federal tax deposit rules for withheld income taxes
and taxes under the Federal Insurance Contributions Act (FICA)
attributable to payments made after December 31, 1992.
* * * * *
(c) * * *
(7) Exception to the monthly and semi-weekly deposit rules for
employers making interest-free adjustments.
* * * * *
(g) * * *
(4) * * *
(i) In general.
(ii) Adjustments and Claims for Refund.
* * * * *
0
Par. 7. Section 31.6302-1 is amended by adding paragraph (c)(7) and
revising paragraph (g)(4) to read as follows:
Sec. 31.6302-1 Federal tax deposit rules for withheld income taxes
and taxes under the Federal Insurance Contributions Act (FICA)
attributable to payments made after December 31, 1992.
* * * * *
(c) * * *
(7) Exception to the monthly and semi-weekly deposit rules for
employers making interest-free adjustments. An employer filing an
adjusted return under Sec. 31.6205-1 to report taxes that were
accumulated in a prior return period shall pay the amount of the
adjustment by the time it files the adjusted return, and the amount
timely paid will be deemed to have been timely deposited by the
employer. The payment may be made by a check or money order with the
adjusted return, by electronic funds transfer, or by other methods of
payment as provided by the instructions relating to the adjusted
return.
* * * * *
(g) * * *
(4) Lookback period--(i) In general. For purposes of this paragraph
(g), the lookback period for Form 943 taxes is the second calendar year
preceding the current calendar year. For example, the lookback period
for calendar year 1993 is calendar year 1991. New employers shall be
treated as having employment tax liabilities of zero for any lookback
period before the date the employer started or acquired its business.
(ii) Adjustments and Claims for Refund. The employment tax
liability reported on the original return for the return period is the
amount taken into account in determining whether the amount of Form 943
taxes accumulated in the lookback period exceeds $50,000. Any amounts
reported on adjusted returns or claims for refund pursuant to sections
6205, 6402, 6413 and 6414 filed after the due date of the original
return are not taken into account when determining the amount of Form
943 taxes accumulated in the lookback period. However, prior period
adjustments reported on Form 943 for 2008 and earlier years are taken
into account in determining the employment tax liability for the return
period in which the adjustments are reported.
* * * * *
0
Par. 8. Section 31.6402(a)-1 is amended by revising paragraph (a) to
read as follows:
Sec. 31.6402(a)-1 Credits or refunds.
(a) In general. For regulations under section 6402 of special
application to credits or refunds of employment taxes, see Sec. Sec.
31.6402(a)-2, 31.6402(a)-3, and 31.6414-1. For regulations under
section 6402 of general application to credits or refunds, see
Sec. Sec. 301.6402-1 and 301.6402-2. For provisions relating to
adjustments without interest of overpayments of taxes under the Federal
Insurance Contributions Act or the Railroad Retirement Tax Act or
income tax withholding, see Sec. Sec. 31.6413(a)-1 and 31.6413(a)-2.
* * * * *
0
Par. 9. Section 31.6402(a)-2 is amended by revising paragraph heading
and text of paragraph (a) and removing paragraph (c) to read as
follows:
Sec. 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--(1) In general. (i) Any
person may file a claim for credit or refund for an overpayment (except
to the extent that the overpayment must be credited pursuant to Sec.
31.3503-1) if the person paid to the IRS more than the correct amount
of employee Federal Insurance Contributions Act (FICA) tax under
section 3101 or employer FICA tax under section 3111, employee Railroad
Retirement Tax Act (RRTA) tax under section 3201, employee
representative RRTA tax under section 3211, or employer RRTA tax under
section 3221, or interest, addition to the tax, additional amount, or
penalty with respect to any such tax.
(ii) 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 Sec. 31.6413(c)-1).
(iii) For adjustments without interest of overpayments of FICA or
RRTA taxes, see Sec. 31.6413(a)-2.
(iv) For corrections of FICA and RRTA tax paid under the wrong
chapter, see Sec. 31.6205-1(b)(2)(ii) and (iii) and Sec. 31.3503-1.
(v) For provisions related to furnishing employee statements and
corrected employee statements reporting wages and withheld taxes, see
sections 6041 and 6051 and Sec. Sec. 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 Sec. Sec. 1.6041-2 and 31.6051-2.
(vi) For the period of limitations on credit or refund of taxes,
see Sec. 301.6511(a)-1.
(2) Statements supporting employer's claims for employee tax. (i)
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 must certify as part of the claim process
that the employer has repaid or reimbursed the tax to its employee or
has secured the employee's written consent to allowance of the
[[Page 37380]]
filing of the claim for refund except to the extent that the taxes were
not withheld from the employee. The employer must retain as part of its
records the written receipt of the employee showing the date and amount
of the repayment, evidence of reimbursement, or the written consent of
the employee, whichever is used in support of the claim.
(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.
* * * * *
0
Par. 10. Section 31.6413(a)-1 is revised to read as follows:
Sec. 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--(1) Overcollection ascertained before return is filed. (i) If an
employer during any return period collects from an employee more than
the correct amount of employee Federal Insurance Contributions Act
(FICA) tax under section 3101 or employee Railroad Retirement Tax Act
(RRTA) tax under section 3201, and if the employer ascertains the error
before filing the return on which the employee tax is required to be
reported, repays or reimburses the amount of the overcollection to the
employee before filing the return for such return period, and obtains
and keeps as part of its records the written receipt of the employee
showing the date and amount of the repayment or evidence of
reimbursement, the employer shall not report on any return or pay to
the IRS the amount of the overcollection.
(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. (i) If an employer
files a return for a return period on which FICA tax or RRTA tax is
reported, collects from an employee and pays to the IRS more than the
correct amount of the employee FICA or RRTA tax, and if the employer
ascertains the error after filing the return and within the applicable
period of limitations on credit or refund, the employer shall repay or
reimburse the employee in the amount of the overcollection prior to the
expiration of such limitations period. However, this paragraph (a)(2)
does not apply to the extent that, after reasonable efforts, the
employer cannot locate the employee, or the employee does not provide
the employer with the written statement required by Sec. 31.6413(a)-
1(a)(2)(iv). This paragraph (a)(2) has no application in any case in
which an overcollection is made the subject of a claim by the employer
for refund or credit under the procedure provided in Sec. 31.6402(a)-
2.
(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 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.
(iv) 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 Sec.
31.6413(c)-1).
(v) 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.
(vi) For the period of limitations on credit or refund of taxes,
see Sec. 301.6511(a)-1.
(vii) For corrections of FICA and RRTA tax paid under the wrong
chapter, see Sec. 31.6205-1(b)(2)(ii) and (iii) and Sec. 31.3503-1.
(b) Income tax withheld from wages--(1) Overcollection ascertained
before return is filed. (i) If an employer during any return period
collects from an employee more than the correct amount of tax required
to be withheld from wages under section 3402, and if the employer
ascertains the error before filing the return on which such tax is
required to be reported, repays or reimburses the amount of the
overcollection to the employee before filing the return for such return
period and before the end of the calendar year in which the
overcollection was made, and obtains and keeps as part of its records
the written receipt of the employee showing the date and amount of the
repayment or evidence of reimbursement, the employer shall not report
on any return or pay to the IRS the amount of the overcollection.
(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. (i) If an employer
files a return for a return period on which tax required to be withheld
from wages is reported, collects from an employee and pays to the IRS
more than the correct amount of the tax required to be withheld from
wages, and if the employer ascertains the error after filing the return
but before the end of the calendar year in which the wages were paid,
the employer shall repay or reimburse the employee in the amount of the
[[Page 37381]]
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.
(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.
0
Par. 11. Section 31.6413(a)-2 is revised to read as follows:
Sec. 31.6413(a)-2 Adjustments of overpayments.
(a) In general. (1) An employer who has overcollected or overpaid
employee Federal Insurance Contributions Act (FICA) tax under section
3101 or employer FICA tax under section 3111, employee Railroad
Retirement Tax (RRTA) tax under section 3201 or employer RRTA tax under
section 3221, or income tax required under section 3402 to be withheld,
and has repaid or reimbursed the amount of the overcollection of such
tax to the employee, shall correct such error as provided in this
section. Such correction may constitute an interest-free adjustment as
provided in paragraph (b) or (c) of this section.
(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 Sec. 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 Sec. Sec. 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 Sec. Sec. 1.6041-2 and 31.6051-2.
(b) Federal Insurance Contributions Act and Railroad Retirement Tax
Act--(1) Overcollection ascertained before return is filed. If an
employer collects more than the correct amount of employee FICA or RRTA
tax from an employee, and if the employer ascertains the error before
filing the return on which the employee tax with respect to such wages
or compensation is required to be reported, and repays or reimburses
the employee under Sec. 31.6413(a)-1(a)(1), the employer shall not
report on any return or pay to the IRS the amount of the
overcollection. If the employer does not repay or reimburse the amount
of the overcollection under Sec. 31.6413(a)-1(a)(1) before filing the
return, the employer must report the amount of the overcollection on
the return. However, the 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.
(2) Error ascertained after return is filed--(i) Employee tax. If
an employer files a return for a return period on which FICA tax or
RRTA tax is required to be reported and reports on the return more than
the correct amount of employee FICA or RRTA tax, and if the employer
ascertains the error after filing the return, and repays or reimburses
the employee the amount of the overcollection of employee tax, as
provided in Sec. 31.6413(a)-1(a)(2), the employer may correct the
error through an interest-free adjustment as provided in this section.
The employer shall adjust the overpayment of tax by reporting the
overpayment on an adjusted return for the return period in which the
wages or compensation was paid, accompanied by a detailed explanation
of the amount being reported on the adjusted return as required by
paragraph (a)(3) of this section. Except as provided in paragraph (d)
of this section, the reporting of the overpayment on an adjusted return
constitutes an adjustment within the meaning of this section only if
the adjusted return is filed before the expiration of the period of
limitations on credit or refund. The employer shall take the adjusted
amount as a credit towards payment of employment tax liabilities for
the return period in which the adjusted return is filed unless the IRS
notifies the employer that the adjustment is not permitted under
paragraph (d) of this section.
(ii) Employer tax. If an employer files a return for a return
period on which FICA or RRTA tax is required to be reported and reports
on the return more than the correct amount of employer FICA or RRTA
tax, and if the employer ascertains the error after filing the return,
the employer may correct the error through an interest-free adjustment
as provided in this section. The employer must first repay or reimburse
the employee the amount of any overcollection of employee tax, if any,
as required by Sec. 31.6413(a)-1(a)(2), before making the adjustment
for the employer tax. The employer shall adjust the overpayment of tax
by reporting the overpayment on an adjusted return for the return
period in which the wages or compensation was paid, accompanied by a
detailed explanation of the amount being reported on the adjusted
return as required by paragraph (a)(3) of this section. Except as
provided in paragraph (d) of this section, the reporting of the
overpayment on an adjusted return constitutes an adjustment within the
meaning of this section only if the adjusted return is filed before the
expiration of the period of limitations on credit or refund. The
employer shall take the adjusted amount as a credit towards payment of
employment tax liabilities for the return
[[Page 37382]]
period in which the adjusted return is filed unless the IRS notifies
the employer that the adjustment is not permitted under paragraph (d)
of this section.
(c) Income tax withheld from wages--(1) Overcollection ascertained
before return is filed. If an employer collects more than the correct
amount of income tax required to be withheld from wages, and if the
employer ascertains the error before filing the return on which the tax
is required to be reported, and repays or reimburses the employee under
Sec. 31.6413(a)-1(b)(1), the employer shall not report on any return
or pay to the IRS the amount of the overcollection. If the employer
does not repay or reimburse the amount of the overcollection under
Sec. 31.6413(a)-1(b)(1) before filing the return, the employer must
report the amount of the overcollection on the return. 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 (c)(2) of this section.
(2) Error ascertained after return is filed. If an employer files a
return for a return period on which income tax required to be withheld
from wages is required to be reported and reports on the return more
than the correct amount of income tax required to be withheld, and if
the employer ascertains the error after filing the return, and repays
or reimburses the employee in the amount of the overcollection as
provided in Sec. 31.6413(a)-1(b)(2), the employer may correct the
error through an interest-free adjustment as provided in this section.
The employer shall adjust the overpayment of tax by reporting the
overpayment on an adjusted return for the return period in which the
wages were paid, accompanied by a detailed explanation of the amount
being reported on the adjusted return as required in paragraph (a)(3)
of this section. Except as provided in paragraph (d) of this section,
the reporting of the overpayment on an adjusted return constitutes an
adjustment within the meaning of this section. If the amount of the
overcollection is not repaid or reimbursed to the employee under Sec.
31.6413(a)-1(b)(2), there is no overpayment to be adjusted under this
section. However, the employer may adjust an overpayment of tax
attributable to an administrative error, that is, an error involving
the inaccurate reporting of the amount withheld, pursuant to this
section. The employer shall take the adjusted amount as a credit
towards payment of employment tax liabilities for the return period in
which the adjusted return is filed unless the IRS notifies the employer
that the adjustment is not permitted under paragraph (d) of this
section.
(d) Adjustments not permitted--(1) In general. If an adjustment
cannot be made, a claim for refund or credit may be filed in accordance
with Sec. 31.6402(a)-2 or Sec. 31.6414-1.
(2) 90-day exception. No adjustment in respect of an overpayment
may be made if the overpayment relates to a return period for which the
period of limitations on credit or refund of such overpayment will
expire within 90 days of filing the adjusted return.
(3) No adjustment after claim for refund filed. No adjustment in
respect of an overpayment may be made after the filing of a claim for
credit or refund of such overpayment under Sec. 31.6402(a)-2.
(4) No adjustment after IRS notification. No adjustment may be made
upon notification by the IRS that the adjustment is not permitted.
0
Par. 12. Section 31.6414-1 is amended by revising paragraph (a) to read
as follows:
Sec. 31.6414-1 Credit or refund of income tax withheld from wages.
(a) In general. (1) Any employer who pays to the IRS more than the
correct amount of income tax required to be withheld from wages under
section 3402 or 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 this
section on the form prescribed by the IRS. The claim for refund 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 the regulations in
this section and by the instructions relating to the form used to make
such claim. No refund to the employer will be allowed under this
section for the amount of any overpayment of tax which the employer
deducted or withheld from an employee.
(2) For provisions related to furnishing employee statements and
corrected employee statements reporting wages and withheld taxes, see
sections 6041 and 6051 and Sec. Sec. 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 Sec. Sec. 1.6041-2 and 31.6051-2.
(3) For interest-free adjustments of overpayments of income tax
withheld from wages, see Sec. 31.6413(a)-2.
* * * * *
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
0
Par. 13. The authority citation for part 602 continues to read in part
as follows:
Authority: 26 U.S.C. 7805.
0
Par. 14. In Sec. 602.101, paragraph (b) is amended by adding the
following entry in numerical order to the table to read as follows:
Sec. 602.101 OMB Control numbers
* * * * *
(b) * * *
------------------------------------------------------------------------
CFR part or section where identified and
described Current OMB control No.
------------------------------------------------------------------------
* * * * *
31.6011(a)-1.............................. 1545-2097
31.6011(a)-4.............................. 1545-2097
31.6011(a)-5.............................. 1545-2097
31.6205-1................................. 1545-2097
31.6402(a)-2.............................. 1545-2097
31.6413(a)-1.............................. 1545-2097
31.6413(a)-2.............................. 1545-2097
31.6414-1................................. 1545-2097
* * * * *
------------------------------------------------------------------------
Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
Approved: June 23, 2008.
Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E8-14947 Filed 6-30-08; 8:45 am]
BILLING CODE 4830-01-P