11/ In many cases, the changes made by the final regulations
reflect comments made by the Small Business Administration.
22/ Thus, for example, while a payor might have an obligation to
deposit on Day 2 amounts withheld pursuant to backup withholding
on Day 1, because the amount withheld exceeded $100,000, tax
withholding on the payor’s payroll made on Day 1 would not have
to be deposited on Day 2 unless the payroll tax also exceeded
$100,000.
September 29, 1992
TO: TAX MEMBERS NO. 58-92
OPERATIONS MEMBERS NO. 31-92
PENSION COMMITTEE NO. 36-92
TRANSFER AGENT ADVISORY COMMITTEE NO. 51-92
RE: IRS FINALIZES TAX DEPOSIT REGULATIONS
__________________________________________________________
Earlier this year, the Internal Revenue Service ("IRS")
proposed certain amendments to the regulations under Internal
Revenue Code section 6302 that provide the rules for depositing,
among other things, amounts withheld under the backup withholding
requirements of Code section 3406. (See Institute Memorandum to
Tax Committee No. 21-92, Operations Committee No. 17-92 and
Transfer Agent Advisory Committee No. 30-92, dated June 9, 1992.)
The Institute testified at an IRS hearing in support of these
proposed amendments because they would (1) simplify the
procedures for making semi-weekly deposits and (2) maintain the
distinction for deposit purposes between backup withholding
amounts and other withheld tax amounts. (See Institute
Memorandum to Tax Committee No. 29-92, Pension Committee No. 27-
92, Operations Committee No. 21-92 and Transfer Agent Advisory
Committee No. 42-92, dated August 3, 1992.)
The attached final regulations retain the features of the
proposed payroll tax deposit system that were supported by the
Institute.1/1 Specifically, the final regulations permit payors
to treat amounts withheld pursuant to Code section 3406 backup
withholding separate from other withheld tax amounts in
determining payroll tax deposit obligations. 2/2 In addition, the
33/ In addition, if the period between the close of a semi-
weekly period (Wednesday/Friday or Saturday/Tuesday) and the
regular deposit date includes a banking holiday, the obligation
to make tax deposits will be postponed to ensure that payors have
at least three banking days following the close of the semi-
weekly period to make the required deposit.
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regulations retain the procedure, discussed below, by which
"semi-weekly depositors" generally make tax deposits on the same
days (i.e., Wednesday and Friday) each week. However, the final
regulations do not adopt the Institute’s suggestion that amounts
withheld on pensions and annuities under Code section 3405 also
be treated (like backup withholding amounts) as separate from
other withheld tax amounts. Similarly, the regulations do not
provide other guidance on or clarification of the rules for
depositing amounts withheld on pension and annuity accounts.
Under the final regulations, backup withholding amounts
would be deposited under one of three methods. In determining
which method to apply generally to payments made during a
calendar year, the payor would ascertain the aggregate amount of
taxes reported during the "lookback period", i.e., the twelve
month period ending on June 30 of the preceding year. The first
deposit method -- for the "monthly depositor" -- applies to
payors who withheld $50,000 or less of tax during the lookback
period. Monthly depositors are required to deposit withheld
taxes on or before the 15th day of the following month. If a
payor withheld more than $50,000 during the lookback period, the
payor would be a "semi-weekly depositor." Under this method,
deposits generally would be required (i) on or before each
Wednesday for payments made during the prior Wednesday, Thursday
and/or Friday and (ii) on or before each Friday for payments made
during the prior Saturday, Sunday, Monday and/or Tuesday. 3/3
Under the third method, if the amount of undeposited backup
withholding accumulated to $100,000 or more, the payor would be
required to deposit this amount by the close of the next business
day without regard to whether the payor was a monthly depositor
or a semi-weekly depositor.
These final regulations are effective January 1, 1993 and
apply to the deposit of employment taxes (including backup
withholding amounts) attributable to payments made after December
31, 1992. Pursuant to a special transition rule, payors may
continue to make deposits during 1993 in accordance with the
regulations as they existed prior to these amendments.
We will keep you informed of developments.
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Keith D. Lawson
Associate Counsel - Tax
Attachment