PROPOSED RULEMAKING
DEPARTMENT OF REVENUE
[61 PA. CODE CHS. 113 AND 121]
Personal Income Tax; Employer Withholding
[31 Pa.B. 4956] The Department of Revenue (Department), under authority contained in section 354 of the Tax Reform Code of 1971 (TRC) (72 P. S. § 7354), proposes amendments to Chapters 113 and 121 (relating to withholding of tax; and final returns) to read as set forth in Annex A.
Purpose of the Proposed Amendments
The proposed amendments are intended to serve the following purposes:
1. Section 113.3(c) and (f) (relating to computing withholding of Pennsylvania Personnal Income Tax) is being amended to add the provisions of the act of May 7, 1997 (P. L. 85, No. 7) (Act 7) relating to cafeteria plans and other employee compensation arrangements. See section 301(d) of the TRC (72 P. S. § 7301(d)).
2. The proposed amendments establish new employer identification number requirements to facilitate the Department's Keystone Integrated Tax System.
3. The proposed amendments establish new employer registration requirements to facilitate the common employer registration form of the Department and the Department of Labor and Industry.
4. The proposed amendments change W-2 filing requirements to facilitate the Department's new Infoimage System and make more use of electronic and magnetic media.
5. The Federal employee reporting and withholding requirements for tip income are being adopted so that businesses will not have to deal with conflicting requirements at the Federal and State level.
6. Section 113.3(d) and (e), pertaining to the statutory trust fund provisions, will enhance the Department's enforcement powers.
Explanation of Regulatory Requirements
Section 113.2 (relating to compensation subject to withholding) is amended by adding a new paragraph (3) pertaining to tips. Employers are required to deduct and withhold tax on tips of which the employer has the control, receipt, custody or payment or that are reported by the employee and only to the extent that the employer can collect the tax by deducting it from the employee's compensation exclusive of tips.
Section 113.3 is amended by adding a new subsection (c) that addresses special situations pertaining to the deduction or payment of amounts by an employer for or on behalf of an employee. A new subsection (d) provides that tax deducted from the State wages of an employee shall be considered to have been withheld at the time of payment of the State wages against which the deduction was charged.
A new § 113.3(e) addresses the situation where an employer fails or refuses to pay over any withheld tax or to deposit it in a separate account in trust for and payable to the Department or otherwise identify and segregate it from other funds.
A new § 113.3(f) provides that amounts specified in a cafeteria plan as being available to the employee for purposes of selecting or purchasing benefits under a plan or as additional cash remuneration received in lieu of coverage are excludible from tax and withholding if certain enumerated conditions are met.
A new § 113.3a (relating to employer identification number) is added to explain the various rules relating to Federal and State employer identification numbers.
A new § 113.3b (relating to registration) details when an employer must register with the Department.
Section 113.4 (relating to time and place for filing reconciliation and withholding statements) has been amended by deleting unnecessary language relating to the completion of W-2s for tax year 1971. Subsection (b) is updated to provide for the filing of quarterly withholding returns. Subsection (c) is amended by providing that reconciliation statements with accompanying withholding statements for each employee can be forwarded to the Department by means of first class mail or electronic or magnetic media. The subsection is further amended to provide that if an employer is required to file 250 or more withholding statements, the reconciliation statement with accompanying withholding statements shall be forwarded by means of electronic or magnetic media as specified in the instructions of the Department.
Finally, § 121.16 (relating to Form W-2) is deleted in its entirety, consistent with the changes regarding W-2 filing requirements previously referenced.
Affected Parties
Affected parties are employers, employees and tax professionals.
Fiscal Impact
The Department has determined that the proposed amendments will have no significant fiscal impact on the Commonwealth.
Paperwork
The proposed amendments will not require additional paperwork for the public or the Commonwealth. The proposed amendments will reduce paperwork requirements in that form W-2 will no longer be required to be filed with each individual return.
Effectiveness/Sunset Date
The proposed amendments will become effective upon final publication in the Pennsylvania Bulletin. The proposed amendments are scheduled for review within 5 years of final publication. No sunset date has been assigned.
Contact Person
Interested persons are invited to submit in writing any comments, suggestions or objections regarding the proposed amendments to Anita M. Doucette, Office of Chief Counsel, Department of Revenue, Dept. 281061, Harrisburg, PA 17128-1061, within 30 days after the date of the publication of this notice in the Pennsylvania Bulletin.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on August 17, 2001, the Department submitted a copy of these proposed amendments to the Independent Regulatory Review Commission (IRRC) and to the Chairpersons of the House Committee on Finance and the Senate Committee on Finance. In addition to submitting the amendments, the Department has provided IRRC and the Committees with a copy of a detailed Regulatory Analysis Form prepared by the Department in compliance with Executive Order 1996-1, ''Regulatory Review and Promulgation.'' A copy of this material is available to the public upon request.
If IRRC has objections to any portion of the proposed rulemaking, it will notify the Department within 10 days of the close of the Committees' review period. The notification shall specify the regulatory review criteria which have not been met by that portion. The Regulatory Review Act specifies detailed procedures for review of objections raised, prior to final publication of the amendments, by the Department, the General Assembly and the Governor.
LARRY P. WILLIAMS,
SecretaryFiscal Note: 15-418. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 61. REVENUE
PART I. DEPARTMENT OF REVENUE
Subpart B. GENERAL FUND REVENUES
ARTICLE V. PERSONAL INCOME TAX
CHAPTER 113. WITHHOLDING OF TAX § 113.2. Compensation subject to withholding.
All compensation shall be subject to withholding of tax by an employer. Regulations for residents and nonresidents shall be as follows:
* * * * * (3) Tips.
(i) Every employee who, in the course of his employment, receives in any calendar month cash tips which are wages as defined in section 3401(a) of the IRC (26 U.S.C.A. § 3401(a)) shall report those tips in one or more written statements furnished to his employer on or before the 10th day following that month.
(ii) Employers are required to deduct and withhold tax only on tips of which the employer has the control, receipt, custody or payment or tips that are reported by the employee and only to the extent that the employer can collect the tax by deducting it from the employee's compensation exclusive of tips.
§ 113.3. Computing withholding of Pennsylvania Personal Income Tax.
* * * * * (c) Except as provided in subsection (f):
(1) Any amount lawfully deducted by an employer from the remuneration of an employee shall be deemed to be a part of the employee's remuneration and to have been paid to the employee as compensation at the time the deduction is made.
(2) Any amount paid by an employer on behalf of an employee without deduction from the remuneration of, or other reimbursement from, the employee on account of any liability or obligation of, or payment required from, an employee shall be deemed to be paid to the employee as compensation at the time the payment is made.
(3) Any payment made to an employee, third party or fund under a cash or deferred arrangement under which an employee may unilaterally elect to have the employer make payments to the third party or fund for the benefit of the employee or to the employee directly in cash shall be deemed to be paid to the employee as compensation at the time the payment is made.
(4) Any payment made to an employee, third party or fund under an arrangement under which an employee may unilaterally choose between two or more benefits consisting either of cash and coverage under a plan or coverage under two or more plans shall be deemed to be paid to the employee as compensation at the time the payment is made.
(d) Tax deducted from the State wages of an employee shall be considered to have been withheld at the time of payment of the State wages against which the deduction was charged.
(e) If an employer fails or refuses to pay over any withheld tax or to deposit it in a separate account in trust for and payable to the Department or otherwise identify and segregate it from other funds, it shall be deemed that:
(1) Withheld tax would be on deposit in the general operating account of the employer at the time of payment of the state wages from which deduction was made.
(2) The employer would disburse withheld tax last.
(3) Once withheld tax is disbursed, subsequent deposits would not replenish it.
(4) The lowest intermediate balance of cash on deposit in the general operating account is withheld tax that constitutes a trust fund for the Commonwealth that is enforceable against the employer or any person receiving any part of the fund.
(5) Any excess of the tax deducted over the lowest intermediate balance is withheld tax that has been received by the employer and disbursed.
(f) Amounts specified in a cafeteria plan document as being available to the employee for the purpose of selecting or purchasing benefits under a plan or as additional cash remuneration received in lieu of coverage under a plan are excludible from tax and withholding if the following apply:
(1) They were not actually or constructively received, after taking section 125 of the IRC (26 U.S.C.A. § 125) into account.
(2) The benefits selected or purchased are nontaxable under the IRC when offered under a cafeteria plan described in section 125 of the IRC.
(3) The payments made for the plan would be nontaxable under the Pennsylvania Personal Income Tax if made by the employer outside a cafeteria plan described in section 125 of the IRC.
§ 113.3a. Employer identification number.
An employer shall use both the Federal and Pennsylvania employer identification numbers to report all Pennsylvania withholding. Employers who have not yet received a Federal employer identification number will be assigned a temporary Pennsylvania number until the Federal employer identification number is obtained, at which time the Department shall be notified. If an employer has multiple divisions using the same Pennsylvania employer identification number but remitting and reconciling withholding tax separately, the employer shall request a separate Pennsylvania number for each division.
§ 113.3b. Registration.
Every employer having an office or transacting business within this Commonwealth and making payment of wages for the first time to one or more nonresident individuals performing services on behalf of the employer within this Commonwealth or to one or more resident individuals shall, within 10 business days of the payment, register with the Department by completing and filing the form prescribed by instructions of the Department.
§ 113.4. Time and place for filing reconciliation and withholding statements.
(a) An employer shall submit a wage and tax withholding statement to each of his [employes] employees on or before January 31 following the year of payment of compensation, or within 30 days from the date of the last payment of compensation if employment or the business is terminated.
(1) An employer shall use the combined Federal-State Wage and Tax Withholding Statement (Form W-2) issued by the Internal Revenue Service or one that conforms thereto with the [name] word ''Commonwealth'' printed, stamped[,] or typed thereon.
[(i)] The statement shall show the name of employer, address and identification number of the employer; the name, address and Social Security number of [employe] the employee; the total compensation paid during the taxable year; and the total amount of Pennsylvania tax withheld during the taxable year.
[(ii) For the year 1971, the employer shall also show on Form W-2 the actual compensation paid, for example, on and after June 1, 1971, through December 31, 1971, or, in the alternative, actual compensation paid for the period July 1, 1971, through December 31, 1971, plus, 1/3 of the calendar quarter July 1, 1971, to September 30, 1971.]
* * * * * [(3) With prior approval of the director of the Commonwealth Personal Income Tax Bureau, an employer or his agent may be permitted to submit a magnetic tape or computer printed listing in lieu of copies of Form W-2.]
(b) A completed Reconciliation Statement (Return Form [RIT-W-3] PA-W3), reconciling Personal Income Tax withheld with related quarterly withholding returns and deposit and [employe] employee withholding statements shall be submitted by the following:
* * * * * (c) Reconciliation Statements (Form [RIT-W-3] PA-W3), with accompanying withholding statements (Form W-2) for each [employe] employee shall be forwarded via first class mail with sufficient postage [to Department of Revenue, Personal Income Tax Bureau, Harrisburg, Pennsylvania 17129] or electronic or magnetic media as specified in instructions of the Department to the Department. [If an employer has a large number of Form W-2's to be forwarded, he may use as many packages as are conveniently necessary which shall be numbered consecutively and contain the name of the employer and identification number thereon. If more than one package is forwarded, Form RIT-W-3 shall be placed in the package numbered one.] If an employer is required to file 250 or more withholding statements, the reconciliation statement, with accompanying withholding statements shall be forwarded by means of electronic or magnetic media as specified in the instructions of the Department.
CHAPTER 121. FINAL RETURNS § 121.16. [Form W-2] (Reserved).
[This form is a receipt for the taxes withheld from the salary of an employe. It shall accompany his return Form PA-40 as evidence of taxes withheld. If an employe works for more than one employer during the year, he shall usually have more than one Form W-2. A copy of each Form W-2 shall accompany his return. If a person is unable to furnish his Form W-2, a statement shall be attached to the return explaining the reason.]
[Pa.B. Doc. No. 01-1599. Filed for public inspection August 31, 2001, 9:00 a.m.]
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