Td 9924

Federal Register / Vol. 85, No. 194 / Tuesday, October 6, 2020 / Rules and Regulations
substantial direct effects on one or more
Indian tribes, on the relationship
between the Federal government and
Indian tribes, or on the distribution of
power and responsibilities between the
Federal government and Indian tribes.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA)
(5 U.S.C. 601–612) applies to rules that
are subject to notice and comment
under section 553(b) of the APA. Under
21 U.S.C. 811(j), DEA is not required to
publish a general notice of proposed
rulemaking. Consequently, the RFA
does not apply to this interim final rule.
Unfunded Mandates Reform Act of 1995
In accordance with the Unfunded
Mandates Reform Act (UMRA) of 1995,
2 U.S.C. 1501 et seq., DEA has
determined that this action would not
result in any Federal mandate that may
result ‘‘in the expenditure by State,
local, and tribal governments, in the
aggregate, or by the private sector, of
$100 million or more (adjusted annually
for inflation) in any 1 year.’’ Therefore,
neither a Small Government Agency
Plan nor any other action is required
under UMRA of 1995.

List of Subjects in 21 CFR Part 1308
Administrative practice and
procedure, Drug traffic control,
Reporting and recordkeeping
requirements.
For the reasons set out above, DEA
amends 21 CFR part 1308 as follows:
PART 1308—SCHEDULES OF
CONTROLLED SUBSTANCES
1. The authority citation for 21 CFR
part 1308 continues to read as follows:

■

Authority: 21 U.S.C. 811, 812, 871(b),
956(b) unless otherwise noted.

2. In § 1308.14:
a. Redesignate paragraphs (c)(51)
through (c)(57) as (c)(52) through (c)(58);
and
■ b. Add new paragraph (c)(51).
The addition reads as follows:
■
■

§ 1308.14

*

Schedule IV.

*
*
(c) * * *

*

*

(51) Remimazolam .....................

*

*

*

*

2846

*

Timothy J. Shea,
Acting Administrator.
[FR Doc. 2020–19313 Filed 10–5–20; 8:45 am]

Paperwork Reduction Act of 1995

BILLING CODE 4410–09–P

This action does not impose a new
collection of information requirement
under the Paperwork Reduction Act of
1995. 44 U.S.C. 3501–3521. This action
would not impose recordkeeping or
reporting requirements on State or local
governments, individuals, businesses, or
organizations. An agency may not
conduct or sponsor, and a person is not
required to respond to, a collection of
information unless it displays a
currently valid OMB control number.

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This rule is not a major rule as
defined by the Congressional Review
Act (CRA), 5 U.S.C. 804. This rule will
not result in: An annual effect on the
economy of $100,000,000 or more; a
major increase in costs or prices for
consumers, individual industries,
Federal, State, or local government
agencies, or geographic regions; or
significant adverse effects on
competition, employment, investment,
productivity, innovation, or on the
ability of United States-based
companies to compete with foreignbased companies in domestic and
export markets. However, pursuant to
the CRA, DEA has submitted a copy of
this interim final rule to both Houses of
Congress and to the Comptroller
General.

16:34 Oct 05, 2020

Internal Revenue Service
26 CFR Part 31
[TD 9924]
RIN 1545–B032

Income Tax Withholding From Wages
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
AGENCY:

Congressional Review Act

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This document sets forth final
regulations that provide guidance for
employers concerning income tax
withholding from employees’ wages.
These final regulations concern the
amount of Federal income tax
employers withhold from employees’
wages, implement changes in the
Internal Revenue Code made by the Tax
Cuts and Jobs Act, and reflect the
redesigned withholding allowance
certificate (Form W–4) and related IRS
publications. These final regulations
affect employers that pay wages subject
to Federal income tax withholding and
employees who receive wages subject to
Federal income tax withholding.
DATES:
SUMMARY:

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63019

Effective date: These final regulations
are effective on October 6, 2020.
Applicability dates: For dates of
applicability see §§ 31.3402(a)–1(h),
31.3402(b)–1(b), 31.3402(c)–1(f),
31.3402(f)(1)–1(c), 31.3402(f)(2)–1(h),
31.3402(f)(3)–1(d), 31.3402(f)(4)–1(e),
31.3402(f)(5)–1(d), 31.3402(f)(6)–1(c),
31.3402(g)–1(d), 31.3402(h)(4)–1(c),
31.3402(i)–1(b), 31.3402(l)–1(e),
31.3402(m)–1(f), and 31.3402(n)–1(f).
FOR FURTHER INFORMATION CONTACT:
Concerning these final regulations,
Mikhail Zhidkov of the Office of
Associate Chief Counsel (Employee
Benefits, Exempt Organizations, and
Employment Taxes), (202) 317–4774
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 3402(a)(1) provides that,
except as otherwise provided in section
3402, every employer making a payment
of wages shall deduct and withhold
from such wages a tax determined in
accordance with tables or computational
procedures prescribed by the Secretary
of the Treasury. Section 3402(a)(1)
further provides that any tables or
procedures prescribed under section
3402(a)(1) shall be in such form, and
provide for such amounts to be
deducted and withheld, as the Secretary
determines to be most appropriate to
carry out the purposes of chapter 1
(imposition of individual income tax).
Section 3402 sets forth certain methods
of withholding but also gives the
Secretary broad regulatory authority in
providing for tables or computational
procedures for income tax withholding.
Generally, employers apply the
withholding tables or computational
procedures based on the entries on the
Form W–4 the employee furnishes the
employer. An employee who receives
wages subject to withholding under
section 3402 is required to furnish his
or her employer a Form W–4 on
commencement of employment or,
generally, within 10 days after the
employee experiences a ‘‘change of
status’’ that reduces the ‘‘withholding
allowance’’ to which the employee is
entitled. See section 3402(f)(2).
An employee completes Form W–4
based on the employee’s personal tax
situation by applying the factors listed
in section 3402(f)(1). Section 3402(f)(1)
describes the combination of these
factors as the employee’s ‘‘withholding
allowance.’’ Once an employee
completes a valid Form W–4, the
employee must furnish the Form W–4 to
the employer. The employer puts the
Form W–4 into effect in accordance
with the timing rules in section

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3402(f)(3). Once in effect, the employer
generally applies the entries on an
employee’s Form W–4 (the withholding
allowance) to compute the amount of
income tax to withhold from the
employee’s regular wages under either
the percentage method of withholding
or the wage bracket method of
withholding. See section 3402(b) and
(c).1
In certain cases, the IRS may issue an
employer a lock-in letter that notifies
the employer in writing that an
employee is not entitled to claim
exemption from withholding or is not
entitled to the withholding allowance
claimed on the employee’s Form W–4
and prescribes the withholding
allowance the employer must use to
figure withholding. If the employer
employs the employee at the time the
employer receives the lock-in letter, the
employer must furnish the employee
notice of the lock-in letter within 10
days of receipt of the lock-in letter. In
this case, the employer must withhold
in accordance with the lock-in letter as
of the date specified in the lock-in letter,
which cannot be any earlier than 45
calendar days after the date of issuance
of the lock-in letter.
After the lock-in letter becomes
effective, the IRS may issue a
subsequent notice (modification notice)
modifying the lock-in letter. Generally,
a modification notice is issued only
after the employee contacts the IRS to
request an adjustment to the
withholding prescribed in the lock-in
letter. In certain cases, if warranted, the
IRS may issue a notice releasing the
employee from the lock-in program. If
the employee is subject to a lock-in
letter or modification notice, the
employer may put in effect a Form W–
4 only if doing so results in more
withholding than specified by the lockin letter or modification notice. Finally,
an employee who was subject to a lockin letter or modification notice, who
terminates employment and then
resumes employment with the same
employer within 12 months of
termination, remains subject to the lockin letter or the modification notice
withholding instructions upon resuming
the employment.
1 Special rules under § 31.3402(g)–1 of the current
regulations apply to ‘‘supplemental wages’’. In the
case of supplemental wages in excess of $1,000,000,
employers must disregard the entries on the
employee’s Form W–4 and apply a mandatory flat
rate of withholding. In the case of supplemental
wages of less than $1,000,000, employers may
either disregard the entries on the employee’s Form
W–4 and withhold using the optional flat rate or
may use an aggregate procedure, taking into
consideration the entries on the Form W–4
furnished by the employee.

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TCJA Changes
Prior to the Tax Cuts and Jobs Act,
Public Law 115–97, 131 Stat. 2054
(2017) (TCJA), one withholding
exemption was equal to the amount of
one personal exemption provided in
section 151(b), prorated to the payroll
period. See section 3402(a)(2) (2017).
TCJA enacted section 151(d)(5), which
reduced the personal exemption amount
to zero for the years 2018–2025. See
TCJA section 11041(a). TCJA also
increased the standard deduction under
section 63, increased the child tax credit
under section 24, and created a new
credit under section 24 for other
dependents. See TCJA sections 11021
and 11022.
TCJA permanently modified the wage
withholding rules in section 3402(a)(2)
and, replaced ‘‘withholding
exemptions’’ with a ‘‘withholding
allowance, prorated to the payroll
period.’’ See TCJA section 11041(c)(1).
TCJA also repealed section 3401(e),
which, prior to TCJA, provided, for
purposes of chapter 24 (relating to
collection of income tax at source on
wages), that the ‘‘number of withholding
exemptions claimed’’ meant the number
of withholding exemptions claimed in a
withholding exemption certificate in
effect under section 3402(f) or in effect
under the corresponding section of prior
law, except that if no such certificate
was in effect, the number of
withholding exemptions claimed was
considered zero. See TCJA section
11041(c)(2)(A).
TCJA modified section 3402(f), and
defined a ‘‘withholding allowance,’’
which is determined based on the
factors listed in section 3402(f)(1). See
TCJA section 11041(c)(2)(B). TCJA
further changed the list of factors on
which the withholding allowance is
based and added that the withholding
allowance is determined based on rules
determined by the Secretary. See TCJA
section 11041(c)(2)(B). This change to
section 3402(f)(1) revised section
3402(f)(1)(C), entitling an employee to
take into account the number of
individuals for which the employee
expects to take an income tax credit
under section 24 instead of the number
of individuals with respect to whom the
employee reasonably expects to claim a
deduction under section 151. Section
3402(f)(1)(D) also changed an
employee’s entitlement to take into
account the standard deduction from an
amount generally equal to one
withholding exemption to the standard
deduction allowable to such employee
(one-half of the standard deduction in
the case of an employee who is married
and whose spouse is an employee

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receiving wages subject to withholding).
Finally, TCJA added section
3402(f)(1)(F), which provides that the
employee’s withholding allowance also
takes into account ‘‘whether the
employee has withholding allowance
certificates in effect with respect to
more than one employer.’’ See TCJA
section 11041(c)(2)(B).
TCJA also made conforming changes
to the ‘‘change of status’’ rules in section
3402(f)(2), changing ‘‘withholding
exemptions’’ to ‘‘withholding
allowance’’ and striking out
‘‘exemption’’ and inserting ‘‘allowance’’
in various subsections of section 3402.
This resulted in a conforming change to
the statutory name of the withholding
exemption certificate in section
3402(f)(5) to the withholding allowance
certificate. See TCJA sections
11041(c)(2)(B) and (C).
TCJA amended section 3402(m) by
changing the reference from
‘‘withholding allowances’’ to
‘‘withholding allowance.’’ See TCJA
sections 11041(c)(2)(D) and (E). TCJA
added the section 199A deduction to the
list of deductions in section 3402(m)(1)
that an employee may take into account
in determining the additional
withholding allowance that the
employee is entitled to claim on Form
W–4, and struck the reference to section
62(a)(10) in section 3402(m)(1) with
respect to certain payments made under
divorce or separation instruments
previously described in section
62(a)(10). See TCJA sections 11011(b)(4)
and 11051(b)(2)(B).
The legislative history of TCJA states
that ‘‘the Secretary of the Treasury is to
develop rules to determine the amount
of tax required to be withheld by
employers from a taxpayer’s wages.’’
H.R. Rep. No. 115–466, at 203 (2017).
Guidance Addressing TCJA
TCJA allowed the Secretary of the
Treasury to administer section 3402
before January 1, 2019, without regard
to the changes described above. See
TCJA section 11041(f)(2). Nevertheless,
on January 11, 2018, the Treasury
Department and the IRS released Notice
1036, ‘‘Early Release Copies of the 2018
Percentage Method Tables for Income
Tax Withholding,’’ which implemented
TCJA’s tax rate changes, standard
deduction, and suspension of the
deduction under section 151. The
Treasury Department and the IRS
designed the 2018 withholding tables to
work with the Forms W–4 that
employees had already furnished their
employers. On February 28, 2018, the
Treasury Department and the IRS
updated Form W–4, ‘‘Employee’s
Withholding Allowance Certificate,’’

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Federal Register / Vol. 85, No. 194 / Tuesday, October 6, 2020 / Rules and Regulations
incorporating TCJA’s changes in the
2018 Form W–4’s worksheets and
updated the online withholding
calculator (now called the Tax
Withholding Estimator) to reflect TCJA
changes. Notice 2018–14, 2018–7 I.R.B.
353, published February 12, 2018,
allowed continued use of the 2017 Form
W–4 temporarily in 2018 and included
a relief provision for employees who
experienced changes in their tax
circumstances solely attributable to
TCJA.
Notice 2018–92, 2018–51 I.R.B. 1038,
published December 17, 2018,
addressed some of TCJA’s changes to
section 3402 and provided interim rules
for the 2019 calendar year. Section 3 of
Notice 2018–92 addressed TCJA’s use of
‘‘withholding allowance’’ (singular) and
provided that withholding allowances
(plural) were to be used for wage
withholding computational procedures
in 2019. Under section 3 of Notice
2018–92, any reference to a withholding
exemption in the regulations and other
guidance under section 3402 was to be
applied as if it were a reference to a
withholding allowance. Section 4 of
Notice 2018–92 extended the relief
provided in Notice 2018–14 for changes
in tax circumstances solely attributable
to TCJA. Section 5 of Notice 2018–92
addressed the repeal of section 3401(e)
and provided rules for employees who
fail to furnish a valid Form W–4.
Section 6 of Notice 2018–92 allowed
employees to include the employee’s
estimated deduction under section 199A
in determining the additional
withholding allowance under section
3402(m) that the employee is entitled to
claim on Form W–4. Section 7 of Notice
2018–92 allowed taxpayers to use the
online withholding calculator (now
called the Tax Withholding Estimator)
or Publication 505, ‘‘Tax Withholding
and Estimated Tax,’’ in lieu of the Form
W–4 worksheets. Section 8 of Notice
2018–92 requested comments on
alternative withholding methods under
section 3402(h) and announced that the
IRS and the Treasury Department
intended to eliminate the combined
income tax withholding and employee
Federal Insurance Contributions Act
(FICA) tax withholding tables under
§ 31.3402(h)(4)–1(b). Section 9 of Notice
2018–92 confirmed that an employer in
receipt of a lock-in letter should not
send a response to the IRS when the
employer no longer employs the
employee (within the meaning of
§ 31.3402(f)(2)–1(g)(2)(iii)).
2019 Form W–4
In June 2018, the Treasury
Department and the IRS released a draft
2019 Form W–4 and draft instructions

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for public comment. The 2019 draft
Form W–4 and instructions
incorporated significant changes
intended to improve the accuracy of
income tax withholding and make the
withholding system more transparent
for employees. Many comments were
received on the draft form and
instructions. In response to comments
received from stakeholders, the
Treasury Department and the IRS
announced on September 20, 2018, that
implementation of the redesigned form
would be postponed until 2020, and
that the Treasury Department and the
IRS would continue working closely
with stakeholders as additional changes
were made to the form for 2020. For
2019, however, Notice 2018–92
announced that the 2019 Form W–4
would include minimal changes to the
2018 Form W–4 and would continue to
apply section 3402 by using the existing
withholding system under which
employees claimed a number of
withholding allowances on a valid Form
W–4.
In addition, the amount of each
withholding allowance for 2019, like for
the years before it, was set to what
would have been the value of a personal
or dependency exemption under section
151(b) prior to enactment of TCJA. See
Rev. Proc. 2018–57, 2018–49 I.R.B. 827,
sections 2.03 and 3.25. For calendar
years 2018 through 2025, however, the
exemption amount is zero. See section
151(d)(5)(A). Moreover, the high value
of each withholding allowance ($4,050
for 2017, $4,150 for 2018, and $4,200 for
2019) led to rounding errors that made
it difficult for some employees to have
their withholding equal their tax
liability for the year. Accuracy was even
more difficult to achieve for employees
claiming tax credits, as these amounts
first had to be converted into tax
deductions and then expressed as a
number of withholding allowances. In
addition to limiting accuracy, the use of
withholding allowances to compute
withholding is not intuitive, given that
wages, deductions, credits, and taxes are
all expressed as dollar amounts, rather
than as a number of withholding
allowances. Although the 2019 or earlier
Forms W–4 allowed an employee to
achieve a high degree of accuracy if the
employee requested an additional dollar
amount to be withheld and/or used the
online withholding calculator (now
called the Tax Withholding Estimator)
or Publication 505 in completing the
Form W–4, most employees did not use
these options.

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Redesigned Form W–4, Employee’s
Withholding Certificate
To address the limitations of the 2019
Form W–4, on May 31, 2019, a draft of
a redesigned 2020 Form W–4 was
released for public comment. The
redesigned Form W–4 was intended to
reduce the combined complexity of the
form, instructions, and worksheets and
to increase the transparency and
accuracy of the withholding system. The
redesigned Form W–4 uses the same
underlying information as the 2019
Form W–4 but replaces complex
worksheets with more straightforward
questions. The redesigned Form W–4
was released on December 4, 2019, and
then was rereleased on December 31,
2019, to reflect a change in the medical
expense deduction threshold under
section 213 for 2020 made by the
Further Consolidated Appropriations
Act, 2020, Public Law 116–94, 133 Stat.
2534, 3228 (2019).
The redesigned Form W–4 does not
use withholding allowances. An
employee selects a filing status (single,
married filing separately, head of
household, married filing jointly, or
qualifying widow(er)) on the Form W–
4, and this entry generally results in the
basic standard deduction relating to the
filing status being taken into account in
determining the amount of tax withheld
from the employee’s pay. In addition,
the redesigned Form W–4 streamlines
the multiple jobs procedures and gives
employees three options to account for
a working spouse or multiple jobs held
concurrently. Specifically, employees
may (1) use the Tax Withholding
Estimator to achieve accurate
withholding; (2) complete the Multiple
Jobs Worksheet and enter an additional
amount to withhold from pay for each
pay period; or (3) check the box in Step
2(c) on the redesigned Form W–4 to
request withholding using higher
withholding rate tables. For married
taxpayers filing jointly with two jobs
held concurrently, the effect of checking
the box in Step 2(c) is similar to
selecting ‘‘Married, but withhold at
higher Single rate’’ on a 2019 or earlier
Form W–4. The redesigned Form W–4
also allows an employee to enter dollar
amounts for tax credits, other income,
and deductions the employee expects to
claim on his or her income tax return to
reflect the permitted allowance under
sections 3402(f)(1)(C) and (f)(1)(D) and
the increase in the amount of
withholding under section 3402(i).
Publication 15–T, Federal Income Tax
Withholding Methods
On June 7, 2019, the IRS released for
public comment a draft of Publication

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15–T, ‘‘Federal Income Tax Withholding
Methods,’’ which provided percentage
method tables, wage bracket
withholding tables, and other
computational procedures for employers
to use to compute withholding for
employees for the 2020 calendar year,
including for employees who furnished
a redesigned Form W–4 to be effective
for 2020. After stakeholder feedback,
Publication 15–T was revised and
rereleased on August 13, 2019, and was
rereleased on November 4, 2019.
Publication 15–T was finalized and
released on December 24, 2019.
Publication 15–T prescribes
percentage method tables, wage bracket
withholding tables, discussion on
alternative withholding methods, and
Tables for Withholding on Distributions
of Indian Gaming Profits to Tribal
Members. These tables and discussions,
which were formerly published in
Publication 15 (Circular E), ‘‘Employer’s
Tax Guide,’’ Publication 15–A,
‘‘Employer’s Supplemental Tax Guide,’’
and Publication 51, ‘‘Agricultural
Employer’s Tax Guide,’’ are now
published only in Publication 15–T,
‘‘Federal Income Tax Withholding
Methods.’’ However, in 2020, the IRS
discontinued publishing Formula
Tables for Percentage Method
Withholding (for Automated Payroll
Systems), Wage Bracket Percentage
Method Tables (for Automated Payroll
Systems), and Combined Federal
Income Tax, Employee Social Security
Tax, and Employee Medicare Tax
Withholding Tables. In addition, the IRS
has discontinued publishing Notice
1036, ‘‘Early Release Copies of the
Percentage Method Tables for Income
Tax Withholding,’’ effective beginning
with calendar year 2020, and instead
will post information previously
included in Notice 1036 in early release
drafts of Publication 15 (www.irs.gov/
Pub15) and Publication 15–T
(www.irs.gov/Pub15T) for use by
employers and the payroll community.
For percentage method and wage
bracket withholding tables, Publication
15–T describes different withholding
computational procedures and different
tables for 2019 or earlier Forms W–4
than for Forms W–4 from 2020 or later
(the redesigned Forms W–4).
Notice of Proposed Rulemaking
On February 13, 2020, a notice of
proposed rulemaking (proposed
regulations) (REG–132741–17) was
published in the Federal Register (85
FR 8344) to update the regulations
under sections 3401 and 3402 for
legislative changes, including TCJA, and
expand the rules in the regulations to
accommodate the changes necessary to

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fully implement the redesigned Form
W–4 and its related computational
procedures, along with most existing
computational procedures applicable to
2019 or earlier Forms W–4. These
changes are explained in detail in the
preamble to the proposed regulations.
The IRS did not receive any requests
for a public hearing on the proposed
regulations, and therefore no public
hearing was held. Written comments
responding to the proposed regulations
were received and are available for
public inspection and copying at http://
www.regulations.gov or upon request.
After full consideration of the comments
received on the proposed regulations,
this Treasury decision adopts the
proposed regulations with revisions as
described in the Summary of Comments
and Explanation of Revisions.
Summary of Comments and
Explanation of Revisions
The Treasury Department and the IRS
received seven written comments in
response to the proposed regulations.
Some of the comments propose changes
to the Form W–4 or related instructions,
publications, or other guidance that
would not require a change to the
proposed regulations themselves. One
commenter made a general comment
about the complexity of income tax
withholding from wages but did not
offer any comments specific to the
proposed regulations. Except to the
extent that the comments raise issues
related to the proposed regulations, the
comments are beyond the scope of the
proposed regulations, and therefore are
not addressed in this Summary of
Comments and Explanation of
Revisions. However, the comments will
remain under consideration for future
revisions to forms, instructions,
publications, and other guidance
relating to income tax withholding from
wages, including revisions to the Form
W–4.
1. Requirement To Maintain Two
Systems To Determine Withholding
Two commenters expressed concern
that the proposed regulations and the
related forms, instructions, publications,
and other guidance require maintenance
of two different systems for computing
income tax withholding from wages:
One system for 2019 or earlier Forms
W–4, and another system for redesigned
Forms W–4. According to these
commenters, these two systems
complicate computer programming and
exacerbate inaccuracy of employees’
withholding determined using 2019 or
earlier Forms W–4. These commenters
requested that all employees should be
required to furnish a redesigned Form

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W–4. One commenter stated that
requiring all employees to furnish a
redesigned Form W–4 would simplify
computer programming and make
employees more aware of TCJA changes
to the wage withholding rules. The
other commenter stated that not
requiring employees to furnish a
redesigned Form W–4 would increase
burden on employers and would
confuse employees who commence
employment with a second or third
employer that pays wages subject to
income tax withholding for which the
employee has to complete a redesigned
Form W–4 while the employee still has
2019 or earlier Form(s) W–4 in effect
with one or more employers.
The Treasury Department and the IRS
note that section 3402(f)(4) generally
requires that a Form W–4 continue in
effect with respect to an employer until
another Form W–4, furnished by the
employee, takes effect under the rules in
section 3402. Thus, an employer must
continue withholding according to the
Form W–4 submitted by an employee
until the employee furnishes the
employer a new Form W–4. In addition,
section 11041 of TCJA does not require
all employees to submit new Forms W–
4 to conform to changes to the wage
withholding rules in TCJA. In contrast,
section 1581 of the Tax Reform Act of
1986, Public Law 99–514, 100 Stat.
2085, 2101 (1987), explicitly required
all employees to furnish new Forms W–
4 as a result of the changes made to the
statute. In other words, although TCJA
and the Tax Reform Act of 1986 both
enacted significant changes to the
income tax withholding rules in chapter
1, only the Tax Reform Act of 1986
mandated that employees furnish new
Forms W–4. Therefore, the final
regulations do not require all employees
with a 2019 or earlier Form W–4 in
effect to furnish a redesigned Form W–
4.
Nevertheless, the Treasury
Department and the IRS acknowledge
the commenters’ concerns and address
them in two ways: (1) Through
instructions to the redesigned Form W–
4 for employees with multiple jobs and
(2) through optional computational
‘‘bridge’’ entries permitted under these
regulations and described in Publication
15–T.
First, in redesigning the Form W–4,
the Treasury Department and the IRS
were aware of the challenges facing
employees who have multiple
employers paying wages subject to
withholding and who have 2019 or
earlier Form(s) W–4 in effect in
completing the redesigned Form W–4.
The redesigned 2020 Form W–4
includes instructions advising

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Federal Register / Vol. 85, No. 194 / Tuesday, October 6, 2020 / Rules and Regulations
employees that, ‘‘[t]o be accurate,
submit a 2020 Form W–4 for all other
jobs.’’ The IRS intends to continue
providing an updated version of this
instruction on Forms W–4 for future
years.
Second, to address commenters’
concerns relating to employers
maintaining separate withholding
systems, these regulations adopt
optional computational bridge entries
that will allow employers to continue in
effect 2019 or earlier Forms W–4 as if
the employees had furnished redesigned
Forms W–4. This will allow employers
to use one process for both 2019 and
earlier Forms W–4 and 2020 and later
Forms W–4 and free employers from the
need to use the number of allowances
data field from 2019 and earlier Forms
W–4 once the employers apply the
appropriate computational bridge
entries for their employees.
Accordingly, starting for calendar year
2021, the IRS intends to include
instructions in Publication 15–T for
these optional computational bridge
entries. The computational bridge
entries will allow employers to use the
computational procedures and data
fields for the redesigned Form W–4 to
arrive at the equivalent withholding for
an employee that would have applied
using the computational procedures and
data fields related to a 2019 or earlier
Form W–4 furnished by the employee.
Specifically, Publication 15–T will
provide for four adjustments to
accurately implement the computational
bridge entries. First, Publication 15–T
will provide for treating an employee as
having made an entry on line 1(c) (filing
status) of the redesigned Form W–4 that
most accurately reflects the employee’s
entry on line 3 (marital status) of a 2019
or earlier Form W–4. In this regard, an
employee will be treated as having
selected ‘‘single or married filing
separately’’ on the redesigned form if
the employee selected either ‘‘single’’ or
‘‘married, but withhold at higher single
rate’’ on a 2019 or prior Form W–4. An
employee will be treated as having
selected ‘‘married filing jointly’’ on the
redesigned form if the employee
selected ‘‘married’’ on a 2019 or prior
Form W–4.
Second, Publication 15–T will
provide for treating an employee as also
having made an entry in step 4(a) (other
income (not from jobs)) on the
redesigned Form W–4 based on the
marital status on line 3 of a 2019 or
earlier Form W–4 to help offset the full
basic standard deduction that has
otherwise been incorporated in tables
related to the various filing statuses in
step 1(c) of the redesigned Form W–4.
In particular, the employer would treat

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the employee as having entered the
value of two allowances corresponding
to a single employee’s filing status and
the value of three allowances
corresponding to a married employee’s
filing status in Step 4(a) of the
redesigned Form W–4.
Third, Publication 15–T will provide
for treating an employee as having made
an entry in step 4(b) (deductions) of the
redesigned Form W–4 to replicate the
effect of allowances claimed on line 5
(number of allowances) of a 2019 or
earlier Form W–4. In particular, the
employer would multiply the number of
allowances claimed on line 5 of a 2019
or earlier Form W–4 by $4,300 and treat
the employee as having entered the
product in Step 4(b) of the redesigned
Form W–4.
Finally, fourth, Publication 15–T will
provide for treating an employee as
having made an entry in step 4(c) (extra
withholding) of the redesigned Form
W–4 to replicate the effect of any
additional amount that the employee
requested to have withheld using line 6
(additional amount withheld from each
paycheck) on a 2019 or earlier Form W–
4. In particular, the employer would
treat the employee as having entered
any additional amount the employee
requested to have withheld from each
paycheck on line 6 of a 2019 or earlier
Form W–4 in Step 4(c) of the redesigned
Form W–4.2
To facilitate the use of the
computational bridge entries, starting in
2021, the IRS will no longer index the
withholding allowance to reflect cost-ofliving adjustments to what would have
been the value of a personal or
dependency exemption in section
151(b) prior to enactment of TCJA. The
withholding allowance will be fixed at
$4,300 in 2021. Thus, employers that
choose to implement the computational
bridge entries starting in 2021 will not
have to make any adjustments to
employees’ withholding entries that the
employee is treated as having made on
the redesigned Form W–4 within their
system unless the employee furnishes a
new, redesigned Form W–4.
For example, for the year 2021 and its
withholding allowance of $4,300, an
2 For employers that use the computational bridge
entries for nonresident alien employees with 2019
or earlier Forms W–4 in effect, the procedures in
Publication 15–T will provide for an entries on the
redesigned form to replicate the effect of allowances
claimed on a 2019 or earlier Form W–4, as well as
an entry for any additional amount the nonresident
alien requested to be withheld on a 2019 or earlier
Form W–4. Publication 15–T will instruct
employers that choose to use the computational
bridge entries for nonresident alien employees with
a 2019 or earlier Form W–4 in effect to apply the
general procedures applicable to nonresident alien
employees who furnish a redesigned Form W–4.

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employer determining withholding from
wages for an employee with a 2019
Form W–4 in effect on which the
employee reported a marital status of
single (or married, but withhold at a
higher single rate) and one withholding
allowance would compute withholding
for the employee as if the employee had
made the following entries on a 2021
Form W–4: Single or married filing
separately in Step 1(c) (filing status), an
entry of $8,600 in Step 4(a) (other
income (not from jobs)) and an entry of
$4,300 in Step 4(b) (deductions) to
determine withholding from wages for
this employee. In this case, the
computational bridge entries that the
employee is treated as having made in
Step 1(c), Step 4(a), and Step 4(b) of the
2021 Form W–4 replicate the effect of
selecting single and one withholding
allowance on the 2019 Form W–4.
Use of the computational bridge
entries will be optional; the IRS intends
to continue publishing withholding
tables and procedures for employers
that choose to continue computing
withholding using the computational
procedures related to 2019 or earlier
Forms W–4 furnished by employees.
The computational bridge entries apply
only for Forms W–4 that were properly
put in effect on or before December 31,
2019, and that continue in effect under
section 3402(f)(4). The computational
bridge entries are not intended to
continue 2019 or earlier computational
procedures, including the use of a
number of withholding allowances, for
redesigned Forms W–4. Furthermore, if
an employee is either required, or
chooses, to furnish a new Form W–4,
the use of the computational bridge
entries by an employer does not change
the requirement that the employee must
use the current year’s revision of the
Form W–4 when furnishing a new Form
W–4 to his or her employer.3
Accordingly, these final regulations
revise § 31.3402(f)(4)–1(a) to provide
that an employer’s use of the
computational bridge entries to adapt a
2019 or earlier Form W–4 to the
redesigned computational procedures as
if using entries on a redesigned Form
W–4 will continue in effect, within the
meaning of section 3402(f)(4), a 2019 or
earlier Form W–4 that was properly in
effect on or before December 31, 2019.
2. Lock-in Letters or Modification
Notices
One commenter expressed concern
about whether a lock-in letter under
which an employer is required to
3 Near the end of a year, an employee may furnish
the Form W–4 revision for the following calendar
year to take effect for the following calendar year.

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withhold based on instructions using
2019 or earlier Form W–4
computational procedures ceases to be
effective because of the redesign of the
Form W–4 until a new lock-in letter
using redesigned Form W–4
computational procedures is issued to
the employer. Under current
regulations, once an employer is
required to furnish the employee a copy
of the lock-in letter, the lock-in letter
becomes effective. It remains effective
until the IRS issues the employer a
modification notice, including a
modification notice releasing the
employee from a lock-in letter or a prior
modification notice, or until the
employee furnishes the employer a
Form W–4 that requests more
withholding than required under the
lock-in letter or modification notice. If
the employee is no longer employed by
the employer, the lock-in letter
generally does not apply because the
employer generally is not paying wages
subject to withholding. Under the
proposed regulations and these final
regulations, employers are no longer
required to notify the IRS that they no
longer employ an employee for whom a
lock-in letter was issued.
These final regulations follow the
proposed regulations and do not require
the IRS to reissue lock-in letters or
modification notices solely because of
the redesign of the Form W–4.
Employers may not assume that a lockin letter or modification notice ceases to
be effective because of changes resulting
from the redesigned Form W–4 and
related withholding procedures. Unless
the employee furnishes the employer a
Form W–4 that results in more
withholding than under the lock-in
letter or modification notice, the
employer must continue following any
lock-in letter or modification notice
until the IRS releases the employee from
the program.
For ease of administering the
withholding instructions in lock-in
letters or modification notices that were
based on 2019 or earlier Forms W–4,
employers may use the optional
computational bridge entries discussed
in section 1 of this Summary of
Comments and Explanation of Revisions
to comply with the requirement to
withhold based on the maximum
withholding allowance and filing status
permitted in a lock-in letter or
modification notice and to adapt to the
redesigned Form W–4 and
computational procedures. For example,
for calendar year 2021, based on a
withholding allowance of $4,300, an
employer that is determining
withholding from wages for an
employee subject to a lock-in letter that

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uses 2019 computational procedures
and instructs the employer use a filing
status of single and a maximum
withholding allowance of zero
allowances, may comply with the lockin letter by using the following
computational bridge entries on a 2021
Form W–4: An entry of single or
married filing separately in Step 1(c), an
entry of $8,600 in Step 4(a) (other
income (not from jobs)) to further
account for the effect of the withholding
instructions directing an employer to
withhold from the employee using the
single filing status, and an entry of $0
in Step 4(b) (deductions) to replicate the
effect of the employee’s maximum
withholding allowance of zero
withholding allowances.
These final regulations revise the
rules in § 31.3402(f)(2)–1(g)(2)(iv)
(relating to lock-in letters) and (vii)
(relating to modification notices) to
provide that an employer may comply
with a lock-in letter or modification
notice that is based on a 2019 or earlier
Form W–4, as required by the
regulations, if the employer implements
the maximum withholding allowance
and filing status permitted in a lock-in
letter or modification notice by using
the computational bridge entries as set
forth in forms, instructions,
publications, and other guidance
prescribed by the Commissioner to
calculate withholding for a 2019 or
earlier Form W–4.
Another commenter stated that lockin letters and modification notices
should be revised in such a way that
makes it easier for employers to
compare withholding based on a lock-in
letter or modification notice to
withholding based on the redesigned
Form W–4. Specifically, this commenter
notes that the new entries on the
redesigned Form W–4 make it more
difficult for employers to determine
whether a newly furnished Form W–4
results in more withholding than a lockin letter or modification notice that the
employer was required to put in effect.
The commenter’s suggestions regarding
the contents of the lock-in letters or
modifications notices do not require
changes to the proposed regulations
because the language of the proposed
regulations is broad enough to
accommodate the commenter’s
suggestions to the letters and notices.
Accordingly, the proposed regulations
regarding the contents of the lock-in
letter or modification notice will be
adopted as final without change.
However, these comments will be
considered in future revisions of the
lock-in letter and modification notice.
Furthermore, to ease the employer’s
burden in determining whether a Form

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W–4 furnished by an employee for
whom a lock-in letter or modification
notice is in effect results in more
withholding (and thus may be put into
effect), the Treasury Department and the
IRS note that employers may use the
Income Tax Withholding Assistant for
employers available on www.irs.gov.
The Income Tax Withholding Assistant
can aid in estimating the amount of tax
to be withheld from employee’s wages
based on a Form W–4 furnished by the
employee, which can be compared to
the withholding required pursuant to a
lock-in letter or modification notice.
The Income Tax Withholding Assistant
is a software tool that is designed to
help small employers with manual
payroll systems compute the amount of
income tax to withhold from employees’
wages. Employers enter the employees’
pay frequency, wages, and Form W–4
entries, and the software tool computes
the amount of income tax that is
required to be withheld from
employees’ wages. This software tool is
compatible with 2019 or earlier Forms
W–4, as well as with the 2020 Form W–
4, and is designed to be used by
employers that use the income tax
withholding tables in Publication 15–T.
The same commenter also suggested
that employees who are subject to a
lock-in letter or modification notice be
restricted from making certain entries
on a Form W–4 that they furnish to an
employer that must withhold pursuant
to a lock-in letter or modification notice.
However, because each entry on Form
W–4 is intended to foster accuracy and
simplicity in income tax withholding,
an employee who is subject to a lockin letter or modification notice should
be able to use all entries on Form W–
4 when appropriate. Due to the
circumstances under which a lock-in
letter or modification notice is issued
(i.e., the employee’s history of
noncompliance with withholding
requirements), and that any decrease in
withholding from a lock-in letter or
modification notice may only be
accomplished by seeking a modification
notice from the IRS, the employee
would be furnishing a redesigned Form
W–4 only to request an increase in
withholding.
3. Effective Period of a Withholding
Allowance Certificate
The proposed regulations provide that
when an employee is released from a
lock-in letter or modification notice, the
employee would generally be required
to furnish a new Form W–4, and if the
employee fails to do so, the employee
would be treated as single but having
the withholding allowance provided in
forms, instructions, publications, and

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other guidance prescribed by the
Commissioner that applies to other
employees who fail to furnish a new
Form W–4.4 Under the redesigned
computational procedures, this means
that the employee would be treated as
single or married filing separately in
Step 1(c) of the 2020 Form W–4 with no
entries in Step 2, Step 3, or Step 4.
One commenter recommended that
this rule be modified to require an
employee to furnish a new Form W–4,
but, in the event the employee fails to
do so, the withholding according to the
lock-in letter or modification notice
would continue. The commenter
recommended this approach to reduce
the administrative burden on employers
in administering lock-in letters and
modification notices, especially upon
the employee’s release from a lock-in
letter or modification notice. After
careful consideration of the comment,
the Treasury Department and the IRS do
not agree that this approach is
appropriate. To foster accuracy, the
Treasury Department and IRS are of the
view that an employee released from a
lock-in letter should be subject to the
normal default rule until the employee
furnishes a new Form W–4.
Accordingly, these final regulations
adopt the rule in § 31.3402(f)(4)–1 as set
forth in the proposed regulations.

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4. Head of Household Filing Status
One commenter questioned whether
employees who were eligible for the
head of household filing status but
claimed single filing status on a 2019 or
earlier Form W–4 must be withheld as
head of household using tables
applicable to redesigned Forms W–4.
Under the proposed regulations, the
adoption of the head of household filing
status and the use of related tables is
limited to redesigned Forms W–4. The
head of household filing status and
related tables are not available for 2019
or earlier Forms W–4. These final
regulations adopt the filing status rules
set forth in the proposed regulations.
5. Amount of Income Tax Withheld
Using the Redesigned Form W–4
One commenter noted that in
processing 2020 Forms W–4 for
employees, it appeared that no tax
would be withheld from employees’
pay, in certain circumstances, such as
when employees enter an amount in
Step 3 to reflect the child or other
4 If the employee’s Form W–4 results in more
withholding than prescribed by the lock-in letter or
modification notice, the proposed regulations
provide that the employer should continue
withholding according to the employee’s Form W–
4, even after the employee is released from the lockin letter or modification notice.

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dependent credits. The commenter
further noted that it appeared that no
tax would be withheld in these
circumstances despite the Tax
Withholding Estimator showing that the
employee would have a tax liability.
The Treasury Department and the IRS
cannot comment on specific factual
situations; however, the Treasury
Department and the IRS note that the
redesigned Form W–4 is intended to
result in more accurate withholding.
Prior to the redesign of the Form W–
4, approximately 30% of income tax
returns that reported gross income from
wages did not report any income tax
liability, yet approximately 93% of
these taxpayers with no income tax
liability still had federal income tax
withheld from wages. Accordingly, the
redesigned Form W–4 was designed to
consider all the deductions and credits
an employee is entitled to, which often
results in no income tax withholding
from the employee’s wages. This is
consistent with the goal of increased
accuracy in withholding, which
includes minimizing overwithholding
from employees who owe little or no
income tax, especially after tax credits
reduce the employees’ income tax
liability.
6. Estimated Tax Payments
Under the proposed regulations,
employees who are not subject to a lockin letter or modification notice may take
into account estimated tax payments
already made, provided that they take
into account nonwage income and
follow the instructions to the Tax
Withholding Estimator. Although no
comments were received on this issue,
the Treasury Department and the IRS
have determined that certain employees,
especially those employees with a
higher amount of nonwage income
relative to wage income, should also be
able to take into account planned
estimated tax payments not yet made
provided that the employee (1) takes
into account all wage and nonwage
income in determining withholding, (2)
follows the instructions to the Tax
Withholding Estimator, and (3) does not
use planned estimated tax payments to
reduce income tax withholding from
wages below the pro-rata share of
chapter 1 income tax attributable to the
estimated annual wages. The pro-rata
share of chapter 1 tax attributable to
estimated annual wages will be
determined under forms, instructions,
publications, and other guidance
prescribed by the Commissioner. The
Treasury Department and the IRS have
determined that this rule furthers
accuracy in withholding without
encouraging inappropriate

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underwithholding on wages by shifting
withholding from wages to estimated
tax payments.
In addition, the Treasury Department
and the IRS have determined that
employees who do not use the Tax
Withholding Estimator and instead use
IRS Publication 505 to determine their
withholding should be able to take into
account estimated tax payments subject
to the applicable requirements,
provided that the employees use
Publication 505 instructions.
Accordingly, these final regulations
revise § 31.3402(m)–1(d) to allow
employees to take into account
estimated tax payments provided that
the employee (1) follows the
instructions to the Tax Withholding
Estimator or Publication 505, (2) is not
subject to a lock-in letter or
modification notice, and (3) does not
request withholding from wages that
falls below the pro rata share of chapter
1 taxes attributable to wages as
determined under forms, instructions,
publications, and other guidance
prescribed by the Commissioner. The
IRS intends to update the Tax
Withholding Estimator and Publication
505 to reflect this rule.
7. Applicability Date
Consistent with the applicability date
provisions in the proposed regulations,
these final regulations generally apply
on and after October 6, 2020. However,
as in the proposed regulations,
§ 31.3402(f)(2)–1(g), relating to
withholding compliance, applies as of
February 13, 2020, the date the notice of
proposed rulemaking was published in
the Federal Register; § 31.3402(f)(5)–
1(a)(3), regarding the requirement to use
the current version of Form W–4,
applies as of March 16, 2020, 30 days
after the date the notice of proposed
rulemaking was published in the
Federal Register; and the removal of
§ 31.3402(h)(4)–1(b), relating to the
combined income tax withholding and
employee FICA tax withholding tables,
applies on and after January 1, 2020.
Except with regard to the removal of
§ 31.3402(h)(4)–1(b), taxpayers may also
choose to apply the final regulations, on
and after January 1, 2020 and before
their applicability date as set forth in
the regulations. See section 7805(b)(7).
Special Analyses
I. Regulatory Planning and Review
These final regulations are not subject
to review under section 6(b) of
Executive Order 12866 pursuant to the
Memorandum of Agreement (April 11,
2018) between the Treasury Department
and the Office of Management and

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Budget regarding review of tax
regulations.

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II. Regulatory Flexibility Act
Under the Regulatory Flexibility Act
(RFA) (5 U.S.C. chapter 6), it is hereby
certified that these final regulations do
not have a significant economic impact
on a substantial number of small entities
that are directly affected by these final
regulations. These final regulations will
apply to all employers that have an
income tax withholding obligation and,
therefore, are likely to affect a
substantial number of small entities.
Although these final regulations are
likely to affect a substantial number of
small entities, the economic impact of
these final regulations will not be
significant.
These final regulations do not
independently impact employers or
employees because these final
regulations support both the 2019 and
2020 Form W–4 and related
withholding procedures, and employees
are not required to furnish a new Form
W–4 solely because of the redesign of
the Form W–4. Employees who have a
Form W–4 on file with their employer
from years prior to 2020 generally will
continue to have their withholding
determined based on that form. These
final regulations incorporate the
changes made by TCJA to sections 3401
and 3402 and provide flexible and
administrable rules for income tax
withholding from wages to implement
the 2020 Form W–4 and its related
tables and computational procedures
described in Publication 15–T and to
work with 2019 or earlier Forms W–4.
Any economic impact on small entities
that have an income tax withholding
obligation is generally a result of the
change in underlying substantive tax
rules which led to revisions in the
method of computing withholding, not
these final regulations. Because the final
regulations preserve the option of
continuing to use old Forms W–4 for
existing employees who have not had
significantly changed circumstances,
and provide for optional computational
bridge entries for employers to facilitate
continued use of Forms W–4 provided
in 2019 or earlier years that eliminates
the need for employers to maintain
separate withholding systems, these
final regulations minimize impact of the
statutory changes on employers,
including small entities. Accordingly,
the Treasury Department and the IRS
certify that these final regulations will
not have a significant economic impact
on a substantial number of small entities
pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6).

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Pursuant to section 7805(f) of the
Internal Revenue Code, the notice of
proposed rulemaking preceding this
regulation was submitted to the Chief
Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small business, and no
comments were received.
III. Paperwork Reduction Act
Any collection of information
associated with these final regulations
has been submitted to the Office of
Management and Budget for review
under OMB control number 1545–0074
in accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C.
3507(d)). In general, the collection of
information is required under section
3402 of the Internal Revenue Code. The
Treasury Department and the IRS
request comments on all aspects of
information collection burdens related
to these final regulations, including
estimates for how much time it would
take to comply with the paperwork
burdens described in OMB control
number 1545–0074 and ways for the IRS
to minimize the paperwork burden. 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 OMB control number.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded
Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated
costs and benefits and take certain other
actions before issuing a final rule that
includes any Federal mandate that may
result in expenditures in any one year
by a state, local, or tribal government, in
the aggregate, or by the private sector, of
$100 million in 1995 dollars, updated
annually for inflation. This rule does
not include any Federal mandate that
may result in expenditures by state,
local, or tribal governments, or by the
private sector in excess of that
threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (entitled
‘‘Federalism’’) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes
substantial, direct compliance costs on
state and local governments, and is not
required by statute, or preempts state
law, unless the agency meets the
consultation and funding requirements
of section 6 of the Executive order. This
final rule does not have federalism
implications and does not impose
substantial direct compliance costs on
state and local governments or preempt
state law within the meaning of the
Executive order.

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Statement of Availability of IRS
Documents
IRS Revenue Procedures, Revenue
Rulings, and Notices cited in this
preamble are published in the Internal
Revenue Bulletin (or Cumulative
Bulletin) and are available from the
Superintendent of Documents, U.S.
Government Publishing Office,
Washington, DC 20402, or by visiting
the IRS website at http://www.irs.gov.
Drafting Information
The principal author of these final
regulations is Mikhail Zhidkov, Office
of the Associate Chief Counsel
(Employee Benefits, Exempt
Organizations, and Employment Taxes).
Other personnel from the Treasury
Department and the IRS participated in
their development.
List of Subjects in 26 CFR Part 31
Employment taxes, Fishing vessels,
Gambling, Income taxes, Penalties,
Pensions, Railroad retirement, Reporting
and recordkeeping requirements, Social
security, Unemployment compensation.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 31 is
amended as follows:
PART 31—EMPLOYMENT TAXES AND
COLLECTION OF INCOME TAX AT
SOURCE
Paragraph 1. The authority citation
for part 31 is amended by adding an
entry for § 31.3402 in numerical order to
read in part as follows:

■

Authority: 26 U.S.C. 7805.

*

*

*

*

*

Section 31.3402 also issued under 26
U.S.C. 3402(i) and (m).

*

*

*

§ 31.3401(e)–1

*

*

[Removed]

Par. 2. Section 31.3401(e)–1 is
removed.
■ Par. 3. Section 31.3402(a)–1 is
amended by adding paragraphs (g) and
(h) to read as follows:
■

§ 31.3402(a)–1
withholding.

*

Requirement of

*
*
*
*
(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

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Federal Register / Vol. 85, No. 194 / Tuesday, October 6, 2020 / Rules and Regulations
paragraph (g) of this section on or after
January 1, 2020 and before October 6,
2020.
Par. 4. Section 31.3402(b)–1 is revised
to read as follows:

■

§ 31.3402(b)–1
withholding.

Percentage method of

(a) Percentage method of withholding.
The amount of tax to be deducted and
withheld from an employee’s wages
under the percentage 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 percentage 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.
(b) Applicability date. The provisions
of this section apply on and after
October 6, 2020. Taxpayers may choose
to apply this section on or after January
1, 2020 and before October 6, 2020. For
rules that apply before October 6, 2020,
see 26 CFR part 31, revised as of April
1, 2020.
Par. 5. Section 31.3402(c)–1 is
amended:
■ 1. By revising paragraph (a)(1).
■ 2. By redesignating paragraph (a)(2) as
paragraph (a)(3).
■ 3. By adding a new paragraph (a)(2).
■ 4. By revising paragraph (b).
■ 5. In paragraph (c)(1), by revising the
first sentence.
■ 6. By adding paragraph (f).
■ 7. By removing the parenthetical
authority citation at the end of the
section.
The revisions and additions read as
follows:
■

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§ 31.3402(c)–1

Wage bracket withholding.

(a) * * *
(1) The employer may elect to use the
wage bracket method provided in
section 3402(c) instead of the percentage
method with respect to any employee.
The tax computed under the wage
bracket method shall be in lieu of the
tax required to be deducted and
withheld under section 3402(a).
(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

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in the applicable forms, instructions,
publications, and other guidance
prescribed by the Commissioner issued
with respect to the period in which
wages are paid.
*
*
*
*
*
(b) Established payroll periods, other
than daily or miscellaneous, covered by
wage bracket withholding tables. The
wage bracket withholding tables
applicable to the employee’s filing
status set forth in forms, instructions,
publications, and other guidance
prescribed by the Commissioner for
established periods other than daily or
miscellaneous should be used in
determining the tax to be deducted and
withheld for any such period without
reference to the time the employee is
actually engaged in the performance of
services during such payroll period.
(c) * * *
(1) * * * The tables applicable to a
daily or miscellaneous payroll period
show the tentative amount of tax to be
deducted and withheld from an
employee’s wages for the employee’s
filing status for one day. * * *
*
*
*
*
*
(f) Applicability date. The provisions
of this section apply on and after
October 6, 2020. Taxpayers may choose
to apply this section on or after January
1, 2020 and before October 6, 2020. For
rules that apply before October 6, 2020,
see 26 CFR part 31, revised as of April
1, 2020.
Par. 6. Section 31.3402(f)(1)–1 is
revised to read as follows:

■

§ 31.3402(f)(1)–1

Withholding allowance.

(a) In general. (1) Except as otherwise
provided in section 3402(f)(6) (see
§ 31.3402(f)(6)–1), an employee
receiving wages will, on any day, be
entitled to a withholding allowance as
provided in section 3402(f)(1) and
paragraph (b) of this section. In order to
receive the benefit of the withholding
allowance, the employee must furnish
to the employer a valid withholding
allowance certificate in effect for the
calendar year as provided in section
3402(f)(2) and § 31.3402(f)(2)–1.
(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

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63027

allowance permitted, see
§ 31.3402(f)(2)–1(g)(2).
(b) Withholding allowance defined.
(1) Generally, the withholding
allowance to which an employee is
entitled is determined under the
computational procedures prescribed by
the Commissioner in forms,
instructions, publications, and other
guidance for the calendar year for which
the withholding allowance certificate is
in effect.
(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

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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. The provisions
of this section apply on and after
October 6, 2020. Taxpayers may choose
to apply this section on or after January
1, 2020 and before October 6, 2020. For
rules that apply before October 6, 2020,
see 26 CFR part 31, revised as of April
1, 2020.
■ Par. 7. Section 31.3402(f)(2)–1 is
revised to read as follows:

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§ 31.3402(f)(2)–1 Furnishing of withholding
allowance certificates.

(a) On commencement of
employment. (1) On or before the date
on which an individual commences
employment with an employer, the
individual must furnish the employer
with a signed withholding allowance
certificate (see § 31.3402(f)(5)–1) relating
to the filing status the employee
reasonably expects to claim under
§ 31.3402(l)–1(b) for the calendar year
for which the withholding allowance
certificate is in effect and the
withholding allowance under
§ 31.3402(f)(1)–1(b) that the employee
claims.
(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—(1) General rule. If, on

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any day during the calendar year, the
employee experiences a change of status
that reduces the employee’s
withholding allowance or withholding
allowances, in the manner described in
paragraph (b)(2) of this section, the
employee must, within 10 days after the
change occurs, furnish the employer
with a new withholding allowance
certificate claiming the withholding
allowance to which the employee is
entitled under § 31.3402(f)(1)–1(b),
unless paragraph (b)(3) of this section
applies to the employee.
(2) Changes of status. A change of
status occurs if any of the following
changes occur on any day during the
calendar year:
(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

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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. If one or more of the
changes described in paragraph (b)(2) of
this section occurs, but the total effect
of the changes together with any other
changes affecting the employee’s
anticipated tax liability under subtitle A
is not anticipated to result in an amount
of tax to be deducted and withheld from
the employee’s wages under section
3402 for the year that is less than the
employee’s anticipated tax liability
under subtitle A, the employee is not
required to furnish a new withholding
allowance certificate.
(c) Increase in withholding allowance.
If, on any day during the calendar year,
the employee experiences a change of
status that increases the employee’s
withholding allowance, the employee
may furnish the employer with a new
withholding allowance certificate
claiming the withholding allowance the
employee is entitled to under
§ 31.3402(f)(1)–1(b).
(d) Exemption from withholding. If,
on any day during the calendar year, the
certifications described in section
3402(n) and § 31.3402(n)–1(a)(1) and (2)
are true with respect to an employee,
the employee may furnish the employer
with a withholding allowance certificate
claiming exemption from withholding
in the manner described in forms,
instructions, publications, and other
guidance prescribed by the
Commissioner.
(e) Change of status which affects next
calendar year—(1) General rule. If, on
any day during the calendar year, the
withholding allowance to which the
employee will be, or may reasonably be
expected to be, entitled under
§ 31.3402(f)(1)–1(b) for the next calendar
year, but not for the current calendar
year, decreases in the manner
prescribed in paragraph (b)(2) of this
section, the employee must furnish a
new withholding allowance certificate
claiming the withholding allowance the
employee is entitled to under
§ 31.3402(f)(1)–1(b) to take effect in the
next calendar year by the later of

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Federal Register / Vol. 85, No. 194 / Tuesday, October 6, 2020 / Rules and Regulations
December 1 of the calendar year of the
year in which the change occurs or
within 10 days after the change occurs,
unless paragraph (e)(2) of this section
applies to the employee.
(2) Exception. If one or more of the
changes in paragraph (b)(2) of this
section occurs, but the total effect of the
changes together with any other changes
affecting the employee’s anticipated tax
liability under subtitle A is not
anticipated to result in an amount of tax
to be deducted and withheld from the
employee’s wages under section 3402
for the employee’s next year that is less
than the employee’s anticipated tax
liability under subtitle A, the employee
is not required to furnish a new
withholding allowance certificate.
(f) Special rules—(1) Employer
requests. Before December 1 of each
year, every employer should request
each employee to furnish a new
withholding allowance certificate for
the next calendar year, in the event of
a change to the employee’s withholding
allowance.
(2) Social security account numbers.
Every individual to whom a social
security number has been assigned must
include such number on any
withholding allowance certificate
furnished to an employer. An employee
may not use a truncated social security
number (see § 301.6109–4 of this
chapter) in completing the withholding
allowance certificate. For provisions
relating to the obtaining of an account
number from the Social Security
Administration, see § 31.6011(b)–2.
(3) Invalid withholding allowance
certificates—(i) General rule. Any
alteration of or unauthorized addition to
a withholding allowance certificate
causes such certificate to be invalid; see
§ 31.3402(f)(5)–1(b) for the definitions of
alteration and unauthorized addition.
Any withholding allowance certificate
which the employee clearly indicates to
be false by an oral statement or by a
written statement (other than one made
on the withholding allowance certificate
itself) made by the employee to the
employer on or before the date on which
the employee furnishes such certificate
is also invalid. For purposes of the
preceding sentence, the term
‘‘employer’’ includes any individual
authorized by the employer either to
receive withholding allowance
certificates, to make withholding
computations, or to make payroll
distributions.
(ii) Employer disregard of invalid
withholding allowance certificate. If an
employer receives an invalid
withholding allowance certificate, the
employer must disregard it for purposes
of computing withholding. The

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employer must inform the employee
who furnished the certificate that it is
invalid and must request another
withholding allowance certificate from
the employee. If the employee who
furnished the invalid certificate fails to
comply with the employer’s request, the
employer must treat the employee as
single but having the withholding
allowance provided by the forms,
instructions, publications, and other
guidance prescribed by the
Commissioner. If, however, a prior
certificate is in effect with respect to the
employee, the employer must continue
to withhold in accordance with the
prior certificate.
(g) Submission of certain withholding
allowance certificates and notice of
maximum withholding allowance
permitted—(1) Submission of certain
withholding allowance certificates—(i)
In general. An employer must submit to
the Internal Revenue Service (IRS) a
copy of any currently effective
withholding allowance certificate as
directed in a written notice to the
employer from the IRS or as directed in
published guidance.
(A) Notice to submit withholding
allowance certificates. A notice to the
employer to submit withholding
allowance certificates may relate either
to one or more named employees, to one
or more reasonably segregable units of
the employer, or to withholding
allowance certificates under certain
specified criteria. The notice will
designate the IRS office to which the
copies of the withholding allowance
certificates must be submitted.
Alternatively, upon notice from the IRS,
the employer must make available for
inspection by an IRS employee
withholding allowance certificates
received from one or more named
employees, from one or more reasonably
segregable units of the employer, or
from employees who have furnished
withholding allowance certificates
under certain specified criteria.
(B) Published guidance. Employers
may also be required to submit copies
of withholding allowance certificates
under certain specified criteria when
directed to do so by the IRS in
published guidance in the Internal
Revenue Bulletin (see § 601.601(d)(2) of
this chapter).
(ii) Withholding after submission of
withholding allowance certificate. After
a copy of a withholding allowance
certificate has been submitted to the IRS
under this paragraph (g)(1), the
employer must withhold tax on the
basis of the withholding allowance
certificate, if the withholding allowance
certificate meets the requirements of
§ 31.3402(f)(5)–1. However, the

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63029

employer may not withhold on the basis
of the withholding allowance certificate
if the certificate must be disregarded
based on a notice of the maximum
withholding allowance permitted under
the provisions of paragraph (g)(2) of this
section.
(2) Notice of the maximum
withholding allowance permitted—(i)
Notice to employer. The IRS may notify
the employer in writing that the
employee is not entitled to claim a
complete exemption from withholding
or more than the maximum withholding
allowance specified by the IRS in the
written notice. The notice will also
specify the applicable filing status for
purposes of calculating the required
amount of withholding. The notice will
specify the IRS office to be contacted for
further information. The notice of
maximum withholding allowance
permitted may be issued if—
(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. If the IRS
provides a notice to the employer under
this paragraph (g)(2), the IRS will also
provide the employer with a similar
notice for the employee (employee
notice) that identifies the maximum
withholding allowance permitted and
specifies the filing status to be used for
calculating the required amount of
withholding for the employee. The
employee notice will indicate the
process by which the employee can
provide additional information to the
IRS for purposes of determining the
appropriate withholding allowance and/
or modifying the specified filing status.
The IRS will also mail a similar notice
to the employee’s last known address.
For further guidance regarding the
definition of last known address, see
§ 301.6212–2 of this chapter. If the IRS
is unable to determine a last known
address for the employee, the IRS will
use other available information as
appropriate to mail the notice to the
employee.
(iii) Requirement to furnish. If the
employee is employed by the employer
as of the date of the notice, the employer

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must furnish the employee notice to the
employee within 10 business days of
receipt. The employer may follow any
reasonable business practice to furnish
the copy of the notice to the employee.
For purposes of this paragraph (g)(2)(iii),
the determination of whether an
employee is employed as of the date of
the notice is based on all the facts and
circumstances, including whether the
employer has treated the employment
relationship as terminated for other
purposes. An employee who is not
performing services for the employer as
of the date of the notice is employed by
the employer as of the date of the notice
for purposes of this paragraph (g)(2)(iii)
if—
(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. If the employer is required to
furnish the employee notice to the
employee under paragraph (g)(2)(iii) of
this section, then the employer must
withhold tax on the basis of the
maximum withholding allowance and
the filing status specified in the notice
for any wages paid after the date
specified in the notice, except as
provided in paragraphs (g)(2)(v) through
(ix) of this section. The employer must
withhold tax in accordance with the
notice as of the date specified in the
notice, which shall be no earlier than 45
calendar days after the date of the
notice. If the notice was provided to the
employer based on computational
procedures applicable to a withholding
allowance certificate that was in effect
on December 31, 2019 or earlier, the
employer may comply with the
requirement in this paragraph (g)(2)(iv)
to withhold on the basis of the notice by
implementing the maximum
withholding allowance and filing status
permitted by using the computational
bridge entries as set forth in forms,
instructions, publications, and other
guidance prescribed by the
Commissioner to calculate withholding
for a withholding allowance certificate
that was in effect on December 31, 2019
or earlier.

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(v) Employment resumes after twelve
months. If the employer is required to
furnish the employee notice to the
employee only pursuant to paragraph
(g)(2)(iii)(B) of this section and the
employee resumes the performance of
services for the employer more than 12
months after the date of the notice, then
the employer is not required to
withhold based on the notice.
(vi) Requirement to withhold based on
an existing Form W–4. If a withholding
allowance certificate is in effect with
respect to the employee before the
employer receives a notice of the
maximum withholding allowance
permitted under this paragraph (g)(2),
the employer must continue to withhold
tax in accordance with the existing
withholding allowance certificate,
rather than on the basis of the notice, if
the existing withholding allowance
certificate does not claim complete
exemption from withholding and claims
a filing status, a withholding allowance,
and any additional amount under
§ 31.3402(i)–1(a)(1) and (2) that results
in more withholding than would result
from applying the filing status and
withholding allowance specified in the
notice.
(vii) Modification notice. After issuing
the notice specifying the maximum
withholding allowance permitted and
the filing status, the IRS may issue a
subsequent notice to the employer and
the employee that modifies the original
notice (modification notice). The
modification notice may change the
filing status and/or the withholding
allowance permitted. The employer
must withhold based on the
modification notice as of the date
specified in the modification notice. If
the modification notice was provided to
the employer based on computational
procedures applicable to a withholding
allowance certificate that was in effect
on December 31, 2019 or earlier, the
employer may comply with the
requirement in this paragraph (g)(2)(vii)
to withhold on the basis of the
modification notice by implementing
the maximum withholding allowance
and filing status permitted by using the
optional computational bridge entries as
set forth in forms, instructions,
publications, and other guidance
prescribed by the Commissioner to
calculate withholding for a withholding
allowance certificate that was in effect
on December 31, 2019 or earlier.
(viii) Requirement to withhold after
termination of employment. If the
employee is employed as of the date of
the notice under paragraph (g)(2)(iii) of
this section but the employer or
employee terminates the employment
relationship after the date of the notice,

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the employer must continue to withhold
based on the maximum withholding
allowance and the filing status specified
in the notice or a modification notice if
any wages subject to income tax
withholding are paid with respect to the
prior employment after such date.
Furthermore, the employer must
withhold based on the notice or
modification notice if the employee
resumes an employment relationship
with the employer within 12 months
after the termination of the employment
relationship. Whether the employment
relationship is terminated is based on
all the facts and circumstances.
(ix) Requirement to withhold based on
new Form W–4. The employee may
furnish a new withholding allowance
certificate after the employer receives a
notice or modification notice from the
IRS of the maximum withholding
allowance permitted under this
paragraph (g)(2).
(A) Employee requests more
withholding. If the employee furnishes a
new withholding allowance certificate
after the employer receives the notice or
modification notice, the employer must
withhold tax on the basis of that new
certificate only if the new certificate
does not claim complete exemption
from withholding and claims a filing
status, a withholding allowance, and
any additional amount under
§ 31.3402(i)–1(a)(1) and (2) that results
in more withholding than would result
under the notice or modification notice.
(B) Employee requests less
withholding. If the employee furnishes a
new withholding allowance certificate
after the employer receives the notice or
modification notice, the employer must
disregard the new certificate and
withhold on the basis of the notice or
modification notice if the employee
claims complete exemption from
withholding or claims a filing status, a
withholding allowance, and any
additional amount under § 31.3402(i)–
1(a)(1) and (2) that results in less
withholding than would result under
the notice or modification notice. If the
employee wants to put a new certificate
into effect that results in less
withholding than that required under
the notice or modification notice, the
employee must contact the IRS. The
employer must withhold on the basis of
the notice or modification notice unless
the IRS subsequently notifies the
employer to withhold based on the new
certificate.
(3) Definition of employer. For
purposes of this paragraph (g), the term
‘‘employer’’ includes any person
authorized by the employer to receive
withholding allowance certificates, to

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make withholding computations, or to
make payroll distributions.
(4) Examples. The following examples
illustrate the rules of this section.
(i) Example 1. Employer U receives a
notice from the IRS that identifies the
maximum withholding allowance permitted
and specifies the filing status for Employee
A. Employee A is not currently performing
any services for Employer U. However,
Employer U is continuing to make certain
wage payments to Employee A. Employer U
must furnish the employee notice to
Employee A within 10 business days of
receipt and must withhold based on the
notice on any wages paid to Employee A on
or after the date specified in the notice.
(ii) Example 2. Employer V receives a
notice in October of Year 1 from the IRS that
identifies the maximum withholding
allowance permitted and specifies the filing
status for Employee B. Employee B has not
performed services for Employer V since
August of Year 1. However, since Employee
B has performed services for Employer V for
several years on a seasonal basis, Employer
V reasonably expects Employee B to resume
the performance of services for Employer V
in June of Year 2, a date that is within 12
months of the date of the notice. Employer
V is required to furnish the notice to
Employee B within 10 business days of
receipt. Employee B does not resume the
performance of services with Employer V
until June of Year 3. Employer V is not
required to withhold based on the notice.
(iii) Example 3. Employer W receives a
notice from the IRS that identifies the
maximum withholding allowance permitted
and specifies the filing status for Employee
C. Employee C began a 4-month unpaid
maternity leave of absence three weeks before
Employer W received the notice. Employer W
must furnish the employee notice to
Employee C within 10 business days of
receipt. When her maternity leave ends and
Employee C resumes performing services for
Employer W, Employer W must withhold
based on the notice.
(iv) Example 4. Employer X receives a
notice from the IRS in Year 1 that identifies
the maximum withholding allowance
permitted and specifies the filing status for
Employee D. Employer X must furnish the
employee notice to Employee D within 10
business days of receipt and withhold based
on the notice. In Year 2, Employee D
terminates the employment relationship.
Employee D applies for a different position
with Employer X and resumes employment
10 months after having left her previous
position with Employer X. Since Employer X
rehired Employee D within 12 months after
the termination of employment, Employer X
must withhold based on the notice.
(v) Example 5. Employer Y receives a
notice from the IRS that identifies the
maximum withholding allowance permitted
and specifies the filing status for Employee
E. Employer Y must furnish the employee
notice to Employee E within 10 business
days of receipt. After receipt of this notice,
Employee E contacts the IRS and establishes
that the employee is entitled to claim a
modified filing status and withholding

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allowance. Employer Y receives a
modification notice from the IRS that
changes the maximum withholding
allowance permitted for Employee E.
Employer Y must withhold tax based on the
modification notice as of the date specified
in such notice.
(vi) Example 6. Employer Z pays
remuneration to Employee F, a United States
citizen, for services performed in Country M.
Employer Z receives a notice from the IRS in
Year 1 that identifies the maximum
withholding allowance permitted and
specifies the filing status for Employee F.
Employer Z must furnish the employee
notice to Employee F within 10 business
days of receipt. Employer Z reasonably
believes all the remuneration paid to
Employee F in Year 1 is excluded from
Employee F’s gross income under section
911. Since section 3401(a)(8)(B) excludes
such remuneration from wages for income
tax withholding purposes, Employer X does
not have to withhold on such remuneration,
notwithstanding the maximum withholding
allowance permitted and filing status
specified in the notice. In Year 2, Employee
F returns to the United States to perform
services. Employer Z does not reasonably
believe any part of Employee F’s
remuneration paid in Year 2 is excluded from
Employee F’s gross income under section
911. Rather, Employer Z reasonably believes
that remuneration paid to Employee F in
Year 2 is subject to income tax withholding.
Employer Z must withhold on the
remuneration paid to Employee F in Year 2
based on the notice.

(h) Applicability date. The provisions
of paragraph (g) of this section apply on
February 13, 2020. Taxpayers may
choose to apply paragraph (g) of this
section on or after January 1, 2020 and
before February 13, 2020. For rules that
apply under paragraph (g) of this section
before February 13, 2020, see 26 CFR
part 31, revised as of April 1, 2020. The
provisions of paragraphs (a) through (f)
of this section apply on and after
October 6, 2020. Taxpayers may choose
to apply the provisions of paragraph (a)
through (f) of this section on or after
January 1, 2020 and before October 6,
2020. For rules that apply before
October 6, 2020, see 26 CFR part 31,
revised as of April 1, 2020.
■ Par. 8. Section 31.3402(f)(3)–1 is
revised to read as follows:
§ 31.3402(f)(3)–1 When withholding
allowance certificate takes effect.

(a) No withholding allowance
certificate on file. A withholding
allowance certificate furnished to the
employer in any case in which no
previous withholding allowance
certificate is in effect with such
employer, takes effect as of the
beginning of the first payroll period
ending, or the first payment of wages
made without regard to a payroll period,
on or after the date on which such
certificate is so furnished.

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(b) Withholding allowance certificate
on file. Except as provided in paragraph
(c) of this section, a withholding
allowance certificate furnished to the
employer in any case in which a
previous withholding allowance
certificate is in effect with such
employer takes effect as of the beginning
of the first payroll period ending (or the
first payment of wages made without
regard to a payroll period) on or after
the 30th day after the day on which
such certificate is so furnished.
However, the employer may elect to put
a withholding allowance certificate into
effect earlier, beginning with any
payment of wages on or after the day on
which the certificate is so furnished.
(c) Withholding allowance certificate
furnished to take effect in next calendar
year. A withholding allowance
certificate furnished to the employer
pursuant to section 3402(f)(2)(C) (see
§ 31.3402(f)(2)–1(e) or § 31.3402(l)–1(c))
which effects a change for the next
calendar year, does not take effect, and
may not be made effective, with respect
to the calendar year in which the
certificate is furnished.
(d) Applicability date. The provisions
of this section apply on and after
October 6, 2020. Taxpayers may choose
to apply this section on or after January
1, 2020 and before October 6, 2020. For
rules that apply before October 6, 2020,
see 26 CFR part 31, revised as of April
1, 2020.
§ 31.3402(f)(4)–1

[Removed]

Par. 9. Section 31.3402(f)(4)–1 is
removed.

■

§ 31.3402(f)(4)–2 [Redesignated as
§ 31.3402(f)(4)–1]

Par. 10. Section 31.3402(f)(4)–2 is
redesignated as § 31.3402(f)(4)–1.
■ Par. 11. Newly redesignated
§ 31.3402(f)(4)–1 is revised to read as
follows:
■

§ 31.3402(f)(4)–1 Effective period of a
withholding allowance certificate.

(a) In general. Except as provided in
paragraph (b) of this section and
§ 31.3402(f)(2)–1(g)(2), a withholding
allowance certificate that takes effect
under section 3402(f) of the Internal
Revenue Code of 1986 continues in
effect with respect to the employee until
another withholding allowance
certificate takes effect under section
3402(f). An employer’s use of
computational bridge entries as set forth
in forms, instructions, publications, and
other guidance prescribed by the
Commissioner to calculate withholding
for a withholding allowance certificate
that was in effect on December 31, 2019
or earlier continues in effect an

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employee’s withholding allowance
certificate under this paragraph (a).
(b) Certifications under section
3402(n) eliminating requirement of
withholding. The certifications
described in § 31.3402(n)–1(a) made by
an employee with respect to the
employee’s preceding taxable year and
current taxable year are effective until
either a new withholding allowance
certificate furnished by the employee
takes effect or the existing certificate
that relies upon such certifications
expires. If an employee’s certificate
expires and the employee fails to
furnish a valid withholding allowance
certificate, the employee will be treated
as single but having the withholding
allowance provided in forms,
instructions, publications, and other
guidance prescribed by the
Commissioner. In no case shall a
withholding allowance certificate that
relies upon such certifications be
effective with respect to any payment of
wages made to an employee:
(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. 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 will be the taxable year including
that specified future date.
(d) Applicability to notice of
maximum withholding allowance. If a
withholding allowance certificate is no
longer in effect because of the
application of § 31.3402(f)(2)–1(g)(2),
the employer is no longer required to
withhold pursuant to any notice under
§ 31.3402(f)(2)–1(g)(2), and the
employee fails to furnish the employer
a valid withholding allowance
certificate, then the employee will be
treated as single but having the
withholding allowance provided in
forms, instructions, publications, and
other guidance prescribed by the
Commissioner, in accordance with
§ 31.3402(f)(2)–1(a)(4).
(e) Applicability date. The provisions
of this section apply on and after
October 6, 2020. Taxpayers may choose
to apply this section on or after January

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1, 2020 and before October 6, 2020. For
rules that apply before October 6, 2020,
see 26 CFR part 31, revised as of April
1, 2020.
■ Par. 12. Section 31.3402(f)(5)–1 is
revised to read as follows:
§ 31.3402(f)(5)–1 Form and contents of
withholding allowance certificates.

(a) In general—(1) Form W–4. Form
W–4, ‘‘Employee’s Withholding
Certificate,’’ previously called
‘‘Employee’s Withholding Allowance
Certificate,’’ is the form prescribed for
the withholding allowance certificate
required to be furnished under section
3402(f)(2). A withholding allowance
certificate must be prepared in
accordance with the instructions
applicable thereto and must set forth
fully and clearly the information that is
called for therein. In lieu of the
prescribed form, an employer may
prepare and provide to employees a
form the provisions of which are
identical to those of the prescribed form,
but only if the employer also provides
employees with all the tables,
instructions, and worksheets set forth in
the Form W–4 in effect at that time, and
only if the employer complies with all
revenue procedures and other guidance
prescribed by the Commissioner relating
to substitute forms in effect at that time.
(2) Employee substitute forms.
Employers are prohibited from
accepting a substitute form developed
by an employee, and an employee
furnishing such form will be treated as
failing to furnish a withholding
allowance certificate. For further
guidance regarding the employer’s
obligations when an employee is treated
as failing to furnish a withholding
allowance certificate, see
§ 31.3402(f)(2)–1.
(3) Current year revision. Only the
Form W–4 revision in effect for a
calendar year may be furnished by an
employee in that calendar year and
given legal effect by the employer,
unless provided otherwise in forms,
instructions, publications, or other
guidance, except that an employee may
furnish the Form W–4 revision for the
following calendar year in the current
calendar year to take effect for the
following calendar year.
(4) Examples. The following examples
illustrate the rule in paragraph (a)(3) of
this section.
(i) Example 1. Employee A furnishes a
2019 Form W–4 to Employer X in calendar
year 2020. The 2019 Form W–4 furnished by
Employee A in 2020 has no legal effect.
Employer X must disregard this 2019 Form
W–4 furnished in 2020 and continue to
withhold based on a previously furnished
Form W–4 that has been in effect for

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Employee A, if any. If Employee A has no
Form W–4 in effect, she is treated as having
no valid withholding allowance certificate in
effect.
(ii) Example 2. Employee A furnishes a
2021 Form W–4 to Employer X in calendar
year 2020 to take effect in calendar year 2021.
The 2021 Form W–4 is valid, and the
employer must put this form into effect in
2021 in accordance with the timing rules in
§ 31.3402(f)(3)–1.

(b) Invalid Form W–4. A Form W–4
does not meet the requirements of
section 3402(f)(5) or this section and is
invalid if it includes an alteration or
unauthorized addition. For purposes of
§ 31.3402(f)(2)–1(f)(3) and this
paragraph (b)—
(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., name, address, and filing status) or
permitted by instructions or other
guidance. For purposes of this
paragraph (b)(2), an entry claiming
exemption from withholding that is
accompanied by other entries on the
Form W–4 (other than the employee’s
filing status) that could potentially
affect the amount of income tax
deducted and withheld from the
employee’s pay is an unauthorized
addition; consequently, the employer
must treat the Form W–4 as an invalid
Form W–4.
(c) Electronic Form W–4—(1) In
general. An employer may establish a
system for its employees to furnish
withholding allowance certificates
electronically.
(2) Requirements—(i) In general. The
electronic system must ensure that the
information received is the information
sent and must document all occasions of
employee access that result in the
furnishing of a Form W–4. In addition,
the design and operation of the
electronic system, including access
procedures, must make it reasonably
certain that the person accessing the
system and furnishing the Form W–4 is
the employee identified in the form.
(ii) Information to employer. The
electronic furnishing must provide the
employer with exactly the same
information as the current version of the
official Internal Revenue Service (IRS)
Form W–4 available on irs.gov.
(iii) Information to employee. The
electronic Form W–4 system must

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Federal Register / Vol. 85, No. 194 / Tuesday, October 6, 2020 / Rules and Regulations
provide the employee with the same
information as the current version of the
official IRS Form W–4 available on
irs.gov and must satisfy any
requirements specified by the IRS in
forms, publications, and other guidance.
The electronic Form W–4 system must
provide employees the ability to claim
exemption from withholding under
section 3402(n) and must include the
two certifications described in
§ 31.3402(n)–1(a).
(iv) Jurat and signature requirements.
The electronic furnishing must be
signed by the employee under penalties
of perjury.
(A) Jurat. The jurat (perjury statement)
must contain the language that appears
on the paper Form W–4. The electronic
program must inform the employee that
he or she must make the declaration set
forth in the jurat and that the
declaration is made by signing the Form
W–4. The instructions and the language
of the jurat must immediately follow the
employee’s income tax withholding
selections and immediately precede the
employee’s electronic signature.
(B) Electronic signature. The
electronic signature must identify the
employee furnishing the electronic
Form W–4 and authenticate and verify
the furnishing. For purposes of this
paragraph (c)(2)(iv)(B), the terms
‘‘authenticate’’ and ‘‘verify’’ have the
same meanings as they do when applied
to a written signature on a paper Form
W–4. An electronic signature can be in
any form that satisfies the foregoing
requirements. The electronic signature
must be the final entry in the
employee’s Form W–4 furnished
electronically.
(v) Copies of electronic Forms W–4.
Upon request by the Internal Revenue
Service, the employer must supply a
hard copy of the electronic Form W–4
and a statement that, to the best of the
employer’s knowledge, the electronic
Form W–4 was furnished by the named
employee. The hardcopy of the
electronic Form W–4 must provide
exactly the same information as, but
need not be a facsimile of, the paper
Form W–4.
(d) Applicability date. The provisions
of paragraphs (a)(3) and (4) of this
section apply on and after March 16,
2020. Taxpayers may choose to apply
the provisions of paragraphs (a)(3) and
(4) of this section on or after January 1,
2020 and before March 16, 2020. For the
provision of paragraph (a)(3) of this
section that applies before March 16,
2020, see 26 CFR part 31, revised as of
April 1, 2020. The provisions of
paragraphs (a)(1) and (2), (b), and (c) of
this section apply on and after October
6, 2020. Taxpayers may choose to apply

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paragraphs (a)(1) and (2), (b), and (c) of
this section on or after January 1, 2020
and before October 6, 2020. For rules
that apply before October 6, 2020, see 26
CFR part 31, revised as of April 1, 2020.
■ Par. 13. Section 31.3402(f)(6)–1 is
revised to read as follows:
§ 31.3402(f)(6)–1 Withholding exemptions
for nonresident alien individuals.

(a) In general. (1) A nonresident alien
individual (other than a nonresident
alien individual treated as a resident
under section 6013(g) or (h)) subject to
withholding under section 3402 is on
any one day entitled to the number of
withholding exemptions corresponding
to the number of personal exemptions to
which the nonresident alien is entitled
on such day by reason of the application
of section 873(b)(3) or section 876,
whichever applies. Thus, a nonresident
alien individual who is not a resident of
Canada or Mexico and who is not a
resident of Puerto Rico during the entire
taxable year, is allowed only one
withholding exemption.
(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. A
nonresident alien individual (other than
a nonresident alien individual treated as
a resident under section 6013(g) or (h))
subject to withholding must follow
administrative guidance such as forms,
instructions, publications, or other
guidance prescribed by the
Commissioner to determine the
nonresident alien’s withholding
allowance.
(c) Applicability date. The provisions
of this section apply on and after
October 6, 2020. Taxpayers may choose
to apply this section on or after January
1, 2020 and before October 6, 2020. For
rules that apply before October 6, 2020,
see 26 CFR part 31, revised as of April
1, 2020.
■ Par. 14. Section 31.3402(g)–1 is
amended:
■ 1. In paragraph (a)(2), by revising the
second sentence.
■ 2. In paragraph (a)(7)(ii), by revising
the first sentence.
■ 3. By adding paragraph (d).
The revisions and addition read as
follows:
§ 31.3402(g)–1
payments.

Supplemental wage

(a) * * *
(2) * * * This flat rate shall be
applied without regard to whether
income tax has been withheld from the
employee’s regular wages, and without
regard to any entries on Form W–4,

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63033

including whether the employee has
claimed exempt status on Form W–4 or
whether the employee has requested
additional withholding on Form W–4,
and without regard to the withholding
method used by the employer. * * *
*
*
*
*
*
(7) * * *
(ii) * * * The determination of the
tax to be withheld under paragraph
(a)(7)(iii) of this section is made without
reference to any payment of regular
wages and without regard to any entries
on the Form W–4 other than the entry
claiming exempt status on Form W–4
(see § 31.3402(n)–1(b)). * * *
*
*
*
*
*
(d) Applicability date. The provisions
of paragraphs (a)(2) and (a)(7)(ii) of this
section apply on and after October 6,
2020. Taxpayers may choose to apply
paragraphs (a)(2) and (a)(7)(ii) of this
section on or after January 1, 2020 and
before October 6, 2020. For the
provisions of paragraphs (a)(2) and
(a)(7)(ii) of this section that apply before
October 6, 2020, see 26 CFR part 31,
revised as of April 1, 2020.
■ Par. 15. Section 31.3402(h)(4)–1 is
amended by:
■ 1. Removing paragraph (b).
■ 2. Redesignating paragraph (c) as
paragraph (b).
■ 3. Adding a new paragraph (c).
■ 4. Removing the parenthetical
authority citation at the end of the
section.
The addition reads as follows:
§ 31.3402(h)(4)–1

Other methods.

*

*
*
*
*
(c) Applicability date. The removal of
paragraph (b) from this section as of
October 6, 2020, which provided for
combined FICA and income tax
withholding tables, applies on and after
January 1, 2020. For rules that apply
before January 1, 2020, see 26 CFR part
31, revised as of April 1, 2020.
§ 31.3402(i)–1

[Removed]

Par. 16. Section 31.3402(i)–1 is
removed.

■

§ 31.3402(i)–2 [Redesignated as
§ 31.3402(i)–1]

Par. 17. Section 31.3402(i)–2 is
redesignated as § 31.3402(i)–1.
■ Par. 18. Newly redesignated
§ 31.3402(i)–1 is amended by:
■ 1. Revising the section heading and
paragraph (a)(2).
■ 2. Adding paragraph (a)(3).
■ 3. Revising paragraph (b).
■ 4. Removing the parenthetical
authority citation at the end of the
section.
The revisions and addition read as
follows:
■

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§ 31.3402(i)–1

Increases in withholding.

(a) * * *
(2) Increases in withholding based on
additional income. (i) The employee
may request that the employer add an
additional amount to the employee’s
wages and that the employer deduct and
withhold an additional amount of
income tax resulting from this addition
under the computational procedures
prescribed by the Commissioner in
forms, instructions, publications, and
other guidance for the calendar year for
which the withholding allowance
certificate claiming an additional
amount to add to the employee’s wages
is furnished;
(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.
The amount deducted and withheld
pursuant to paragraphs (a)(1) and (2) of
this section shall be treated as tax
required to be deducted and withheld
under section 3402.
(b) Applicability date. The provisions
of paragraphs (a)(2) and (3) of this
section apply on and after October 6,
2020. Taxpayers may choose to apply
paragraphs (a)(2) and (3) this section on
or after January 1, 2020 and before
October 6, 2020.
Par. 18. Section 31.3402(l)–1 is
revised to read as follows:

■

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§ 31.3402(l)–1 Determination and
disclosure of marital or filing status.

(a) In general. An employer shall
apply the applicable percentage method
or wage bracket method withholding
tables corresponding to the marital
status or filing status that the employee
selects on a valid withholding
allowance certificate as set forth in
forms, instructions, publications, and
other guidance prescribed by the
Commissioner.
(b) Employee’s filing status. An
employee will be treated as single
unless the employee selects head of
household or married filing jointly filing
status on a valid withholding allowance
certificate. Employees may select a
filing status other than single, subject to
the following conditions:
(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—(1) In
general. Unless paragraph (c)(2) of this
section applies, the employee must
within 10 days furnish the employer
with a new withholding allowance
certificate if the employee’s filing status
changes—
(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. If the employee’s filing
status changes in the manner described
in paragraph (c)(1)(i) or (ii) of this
section, but the total effect of the
changes together with other changes
affecting the employee’s anticipated tax
liability under subtitle A does not result
in an amount of tax to be deducted and
withheld from the employee’s wages for
the taxable year that is less than the
employee’s anticipated tax liability
under subtitle A, the employee is not

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required to furnish a new withholding
allowance certificate within 10 days.
However, the employee must furnish a
new withholding allowance certificate
to take effect the following calendar year
by the later of December 1 of the
calendar year in which the employee’s
filing status changes, or within 10 days
of such change.
(d) Determination of marital status.
For the purposes of section 3402(l)(2)
and paragraph (b) of this section,
paragraphs (d)(1) and (2) of this section
shall be applied in determining whether
an employee is a single person or a
married person:
(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. The provisions
of this section apply on and after
October 6, 2020. Taxpayers may choose
to apply paragraphs (a)(2) and (3) this
section on or after January 1, 2020 and
before October 6, 2020. For rules that
apply before October 6, 2020, see 26
CFR part 31, revised as of April 1, 2020.
■ Par. 20. Section 31.3402(m)–1 is
revised to read as follows:
§ 31.3402(m)–1
allowance.

Additional withholding

(a) In general. In determining the
withholding allowance or additional

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Federal Register / Vol. 85, No. 194 / Tuesday, October 6, 2020 / Rules and Regulations
reductions in withholding under section
3402(m) on employee withholding
allowance certificates furnished to the
employer to be effective on or after
January 1, 2020, employees may take
into account the estimated tax
deductions described in paragraph (b) of
this section, the estimated tax credits
described in paragraph (c) of this
section, and estimated tax payments
described in paragraph (d) of this
section. Employees may only claim
items in paragraphs (b), (c), and (d) of
this section to the extent provided in
paragraph (e) of this section.
(b) Estimated tax deductions.
Employees may take into account the
following income tax deductions in
chapter 1 of the Code:
(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. Employees
may take into account the estimated
income tax credits allowable under
chapter 1, except for—
(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

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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) or Publication 505 (or
successor), and the employee is not an
employee whose employer must
withhold for that employee pursuant to
a notice under § 31.3402(f)(2)–1(g)(2);
(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.
Employees may take into account
estimated tax payments only if—
(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—(1)
Estimated. The term ‘‘estimated’’ as
used in this section to modify the terms
‘‘deduction,’’ ‘‘deductions,’’ ‘‘credits,’’
‘‘losses,’’ and ‘‘amount of decrease’’
means with respect to an employee the
aggregate dollar amount of a particular
item that the employee reasonably
expects will be allowable to the
employee on the employee’s income tax
return for the estimation year under the
section of the Code specified for each
item. In no event shall that amount
exceed the sum of:

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63035

(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. The employee must
offset any deduction described in
paragraph (b) of this section with items

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Federal Register / Vol. 85, No. 194 / Tuesday, October 6, 2020 / Rules and Regulations

includible in the employee’s gross
income for which no Federal income tax
is withheld in accordance with forms,
instructions, publications, and other
guidance prescribed by the
Commissioner. 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 any deduction
or credit described in paragraph (b) or
(c) of this section with the anticipated
income tax attributable to items other
than wages includible in the employee’s
gross income in the manner determined
by the Commissioner.
(3) Multiple withholding allowance
certificates—(i) In general. The
employee may not take into account
deductions, credits, or estimated tax
payments described in paragraph (b),
(c), or (d) of this section if these
deductions, credits, or estimated tax
payments are claimed on another valid
withholding allowance certificate in
effect with respect to another employer
of the employee or any employer of the
employee’s spouse.
(ii) Married taxpayers filing jointly.
Married taxpayers who reasonably
expect to file as married filing jointly on
their Federal income tax return for the
estimation year determine the
withholding allowance to which they
are entitled under section 3402(m) on
the basis of their combined wages,
allowable credits or deductions, and
estimated tax payments permitted to be
taken into account. The deductions,
credits, or estimated tax payments
described in paragraphs (b), (c), and (d)
of this section to which either spouse is
entitled may be claimed by either
spouse or may be allocated between
both spouses. However, one spouse may
not claim deductions, credits, or
estimated tax payments described in
paragraphs (b), (c), and (d) of this
section claimed on the other spouse’s
withholding allowance certificate.
(iii) Married taxpayers filing
separately. A married taxpayer who
reasonably expects to file a separate
income tax return from the employee’s
spouse for the estimation year
determines the withholding allowance
deductions, credits, or estimated tax
payments described in paragraphs (b),
(c), and (d) of this section on the basis
of the employee’s individual wages,
deductions, credits, and estimated tax
payments.
(4) IRS instructions. An employee
must follow the instructions to the Form
W–4, and other IRS forms, instructions,
publications, and related guidance in
determining the employee’s
withholding allowance or other
reductions in withholding permitted

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under section 3402(m) for deductions,
credits, or estimated tax payments
described in paragraphs (b), (c), and (d)
of this section.
(f) Applicability date. The provisions
of this section apply on or after October
6, 2020. Taxpayers may choose to apply
paragraphs (a)(2) and (3) this section on
or after January 1, 2020 and before
October 6, 2020. For rules that apply
before October 6, 2020, see 26 CFR part
31, revised as of April 1, 2020.
■ Par. 21. Section 31.3402(n)–1 is
revised to read as follows:
§ 31.3402(n)–1 Employees incurring no
income tax liability.

(a) In general. Notwithstanding any
other provision of this subpart (except
to the extent a payment of wages is
subject to withholding under
§ 31.3402(g)–1(a)(2)), an employer shall
not deduct and withhold any tax under
chapter 24 of the Code upon a payment
of wages made to an employee, if there
is in effect with respect to the payment
a withholding allowance certificate
furnished to the employer by the
employee which certifies that—
(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.
To the extent wages are subject to
income tax withholding under
§ 31.3402(g)–1(a)(2), such wages are
subject to such income tax withholding
regardless of whether a withholding
allowance certificate under section
3402(n) and this section has been
furnished to the employer.
(c) Liability for income tax. For
purposes of section 3402(n) and this
section, an employee is not considered
to incur liability for income tax imposed
under subtitle A if the amount of such
tax imposed is equal to or less than the
total amount of credits against such tax
which are allowable under chapter 1 of
the Internal Revenue Code, other than
those credits allowable under section 31
or 34. For purposes of this section, an
employee who files a joint return under
section 6013 is considered to incur
liability for any tax shown on such
return. An employee who is entitled to
file a joint return under section 6013
shall not certify that the employee
anticipates that he or she will incur no
liability for income tax imposed by
subtitle A for the employee’s current
taxable year if such statement would not
be true in the event that the employee
files a joint return for such year, unless

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the employee filed a separate return for
the preceding taxable year and
anticipates that the employee will file a
separate return for the current taxable
year.
(d) Rules about withholding
allowance certificates. For rules relating
to invalid withholding allowance
certificates, see § 31.3402(f)(2)–1(h), and
for rules relating to disregarding certain
withholding allowance certificates on
which an employee claims a complete
exemption from withholding, see
§ 31.3402(f)(2)–1(i).
(e) Examples. The following examples
illustrate this section:
(1) Example 1. A, an unmarried, calendaryear basis taxpayer, files an income tax
return for 2020 on April 10, 2021, showing
that A had adjusted gross income of $5,000
and is not liable for any income tax for 2020.
A had $180 of income tax withheld during
2020. A anticipates that A’s gross income for
2021 will be approximately the same amount,
and that A will not incur income tax liability
for that year. On April 20, 2021, A
commences employment and furnishes the
employer a withholding allowance certificate
certifying that A incurred no liability for
income tax imposed under subtitle A for
2020, and that A anticipates that A will incur
no liability for income tax imposed under
subtitle A for 2021. A’s employer shall not
deduct and withhold on payments of wages
made to A on or after April 20, 2021. Under
§ 31.3402(f)(4)–1(b), unless A furnishes a new
withholding allowance certificate including
the certifications described in paragraph (a)
of this section to the employer, the employer
is required to deduct and withhold upon
payments of wages to A made after February
15, 2022.
(2) Example 2. Assume the facts are the
same as in paragraph (e)(1) of this section
(Example 1) except that A had been
employed by the employer prior to April 20,
2021, and had furnished the employer a
withholding allowance certificate prior to
furnishing the withholding allowance
certificate including the certifications
described in paragraph (a) of this section on
April 20, 2021. Under § 31.3402(f)(3)–1(b),
the employer would be required to give effect
to the new withholding allowance certificate
no later than the beginning of the first payroll
period ending (or the first payment of wages
made without regard to a payroll period) on
or after May 20, 2021. However, under
§ 31.3402(f)(3)–1(b), the employer could, if it
chose, make the new withholding allowance
certificate effective with respect to any
payment of wages made on or after April 20,
2021, and before the effective date mandated
by section 3402(f)(3)(B)(i) and
§ 31.3402(f)(3)–1(b). Under § 31.3402(f)(4)–
1(b), unless A furnishes a new withholding
allowance certificate including the
certifications described in § 31.3402(n)–1(a)
to A’s employer, the employer is required to
deduct and withhold upon payments of
wages to A made after February 15, 2022.
(3) Example 3. Assume the facts are the
same as in paragraph (e)(1) of this section
(Example 1) except that for 2020 A has

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Federal Register / Vol. 85, No. 194 / Tuesday, October 6, 2020 / Rules and Regulations
taxable income of $8,000, income tax liability
of $839, and income tax withheld of $1,195.
Although A received a refund of $356 due to
income tax withholding of $1,195, A may not
certify on A’s withholding allowance
certificate that A incurred no liability for
income tax imposed by subtitle A for 2020.

(f) Applicability date. The provisions
of this section apply on and after
October 6, 2020. Taxpayers may choose
to apply paragraphs (a)(2) and (3) this
section on or after January 1, 2020 and
before October 6, 2020. For rules that
apply before October 6, 2020, see 26
CFR part 31, revised as of April 1, 2020.
Sunita Lough,
Deputy Commissioner for Services and
Enforcement.
Approved: September 29, 2020.
David J. Kautter,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2020–22071 Filed 10–5–20; 8:45 am]
BILLING CODE 4830–01–P

DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric
Administration

Classification

50 CFR Part 679
[Docket No. 200227–0066; RTID 0648–
XA365]

Fisheries of the Exclusive Economic
Zone Off Alaska; Pacific Ocean Perch
in the Bering Sea and Aleutian Islands
Management Area
National Marine Fisheries
Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA),
Commerce.
ACTION: Temporary rule; closure.
AGENCY:

NMFS is prohibiting directed
fishing for Pacific ocean perch in the
Central Aleutian district (CAI) of the
Bering Sea and Aleutian Islands
management area (BSAI) by vessels
participating in the BSAI trawl limited
access sector fishery. This action is
necessary to prevent exceeding the 2020
total allowable catch (TAC) of Pacific
ocean perch in the CAI allocated to
vessels participating in the BSAI trawl
limited access sector fishery.
DATES: Effective 1200 hrs, Alaska local
time (A.l.t.), October 1, 2020, through
2400 hrs, A.l.t., December 31, 2020.
FOR FURTHER INFORMATION CONTACT:
Steve Whitney, 907–586–7228.
SUPPLEMENTARY INFORMATION: NMFS
manages the groundfish fishery in the
BSAI exclusive economic zone
according to the Fishery Management
Plan for Groundfish of the Bering Sea

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SUMMARY:

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and Aleutian Islands Management Area
(FMP) prepared by the North Pacific
Fishery Management Council under
authority of the Magnuson-Stevens
Fishery Conservation and Management
Act. Regulations governing fishing by
U.S. vessels in accordance with the FMP
appear at subpart H of 50 CFR part 600
and 50 CFR part 679.
The 2020 TAC of Pacific ocean perch,
in the CAI, allocated to vessels
participating in the BSAI trawl limited
access sector fishery was established as
a directed fishing allowance of 717
metric tons by the final 2020 and 2021
harvest specifications for groundfish in
the BSAI (85 FR 13553, March 9, 2020).
In accordance with § 679.20(d)(1)(iii),
the Regional Administrator finds that
this directed fishing allowance has been
reached. Consequently, NMFS is
prohibiting directed fishing for Pacific
ocean perch in the CAI by vessels
participating in the BSAI trawl limited
access sector fishery. While this closure
is effective, the maximum retainable
amounts at § 679.20(e) and (f) apply at
any time during a trip.

This action responds to the best
available information recently obtained
from the fishery. The Assistant
Administrator for Fisheries, NOAA,
(AA) finds good cause to waive the
requirement to provide prior notice and
opportunity for public comment
pursuant to the authority set forth at 5
U.S.C. 553(b)(B) as such a requirement
is impracticable and contrary to the
public interest. This requirement is
impracticable and contrary to the public
interest as it would prevent NMFS from
responding to the most recent fisheries
data in a timely fashion and would
delay the closure of the Pacific ocean
perch directed fishery in the CAI for
vessels participating in the BSAI trawl
limited access sector fishery. NMFS was
unable to publish a notice providing
time for public comment because the
most recent, relevant data only became
available as of September 30, 2020.
The AA also finds good cause to
waive the 30-day delay in the effective
date of this action under 5 U.S.C.
553(d)(3). This finding is based upon
the reasons provided above for waiver of
prior notice and opportunity for public
comment.
This action is required by § 679.20
and is exempt from review under
Executive Order 12866.
Authority: 16 U.S.C. 1801 et seq.

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63037

Dated: October 1, 2020.
Jennifer M. Wallace,
Acting Director, Office of Sustainable
Fisheries, National Marine Fisheries Service.
[FR Doc. 2020–22031 Filed 10–1–20; 4:15 pm]
BILLING CODE 3510–22–P

DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric
Administration
50 CFR Part 679
[Docket No. 200227–0066; RTID 0648–
XA364]

Fisheries of the Exclusive Economic
Zone Off Alaska; Atka Mackerel in the
Bering Sea and Aleutian Islands
Management Area
National Marine Fisheries
Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA),
Commerce.
ACTION: Temporary rule; closure.
AGENCY:

NMFS is prohibiting directed
fishing for Atka mackerel in the Central
Aleutian district (CAI) of the Bering Sea
and Aleutian Islands management area
(BSAI) by vessels participating in the
BSAI trawl limited access sector fishery.
This action is necessary to prevent
exceeding the 2020 total allowable catch
(TAC) of Atka mackerel in the CAI
allocated to vessels participating in the
BSAI trawl limited access sector fishery.
DATES: Effective 1200 hrs, Alaska local
time (A.l.t.), October 1, 2020, through
2400 hrs, A.l.t., December 31, 2020.
FOR FURTHER INFORMATION CONTACT:
Steve Whitney, 907–586–7228.
SUPPLEMENTARY INFORMATION: NMFS
manages the groundfish fishery in the
BSAI exclusive economic zone
according to the Fishery Management
Plan for Groundfish of the Bering Sea
and Aleutian Islands Management Area
(FMP) prepared by the North Pacific
Fishery Management Council under
authority of the Magnuson-Stevens
Fishery Conservation and Management
Act. Regulations governing fishing by
U.S. vessels in accordance with the FMP
appear at subpart H of 50 CFR part 600
and 50 CFR part 679.
The 2020 TAC of Atka mackerel, in
the CAI, allocated to vessels
participating in the BSAI trawl limited
access sector fishery was established as
a directed fishing allowance of 1,307
metric tons by the final 2020 and 2021
harvest specifications for groundfish in
the BSAI (85 FR 13553, March 9, 2020).
In accordance with § 679.20(d)(1)(iii),
the Regional Administrator finds that
SUMMARY:

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