This document contains corrections to final regulations (T.D. 9276, 2006-37 I.R.B. 423) that were published in the Federal Register on Tuesday, July 25, 2006 (71 FR 42049), amending the regulations that provide for determining the amount of income tax withholding on supplemental wages. These regulations apply to all employers and others making supplemental wage payments to employees.
The final regulations that are the subject of these corrections are under sections 3401 and 3402 of the Internal Revenue Code.
As published, final regulations (T.D. 9276) contain errors that may prove to be misleading and are in need of clarification.
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Accordingly, 26 CFR part 31 is corrected by making the following correcting amendments:
Paragraph 1. The authority citation for part 31 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 31.3402(g)-1(a)(8) is amended by revising the fifth sentence of Example 1 paragraph (iii), the fifth sentence of Example 3 paragraph (i), the last sentence of Example 3 paragraph (iv) and the third sentence of Example 3 paragraph (vi). The revisions read as follows:
(a) * * *
(8) * * *
Example 1. * * *
(iii) * * * If Y elected to withhold income tax using paragraph (a)(7) of this section, Y would withhold on the $400,000 component at 25 percent (pursuant to paragraph (a)(7)(iii)(F) of this section), which would result in $100,000 tax withheld. * * *
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Example 3. (i) * * * Unrelated company U pays D sick pay as an agent of the employer R and such sick pay is supplemental wages pursuant to § 31.3401(a)-1(b)(8)(i)(b)(2). * * *
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(iv) * * * If R elects to use optional flat rate withholding provided under paragraph (a)(7)(iii)(f) of this section, withholding would be calculated at 25 percent of the $1,000,000 portion of the payment and would be $250,000.
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(vi) * * * If U elects to withhold income tax at the flat rate provided under paragraph (a)(7)(iii)(F) of this section, withholding on the $50,000 of sick pay would be calculated at 25 percent of the $50,000 payment and would be $12,500. * * *
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LaNita Van Dyke,The Internal Revenue Bulletin is produced and published by the Internal Revenue Service and contains IRS pronouncements affecting tax analysis under the Code and the Regulations, including but not limited to Revenue Procedures, Revenue Rulings, Notices and Announcements. Access the IRS site at https://www.irs.gov/help/irsgov-accessibility for information concerning accessibility of IRS materials. While every effort has been made to ensure that the IRB database files available through the TouchTax application are accurate, those using TouchTax for legal research should verify their results against the printed versions of the IRBs available from the IRS.