[Federal Register Volume 75, Number 8 (Wednesday, January 13, 2010)]
[Proposed Rules]
[Pages 1735-1738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-415]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 31
[REG-137036-08]
RIN 1545-BI21
Section 3504 Agent Employment Tax Liability
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed regulations relating to
employment tax liability of agents authorized by the Secretary under
section 3504 of the Internal Revenue Code (Code) to perform acts
required of employers with respect to taxes under the Federal
Unemployment Tax Act on wages paid for home care services, as defined
in these regulations. These proposed regulations affect employers who
are home care service recipients, as defined in these regulations, and
their designated agents. These regulations also propose amendments to
modify the existing regulations under section 3504 to be consistent
with the organizational structure of the Internal Revenue Service
(IRS), and to update the citation to the Internal Revenue Code of 1986.
DATES: Written or electronic comments must be received by April 13,
2010.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-137036-08), Room
5203, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington DC 20044. Submissions may be hand delivered Monday through
Friday, between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
137036-08), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC. Additionally, taxpayers may submit
comments electronically via the Federal eRulemaking Portal at http://www.regulations.gov. (Indicate IRS and REG-137036-08.)
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
contact Selvan Boominathan at (202) 622-0047; concerning the submission
of comments or requests for a hearing, contact Oluwafunmilayo (Funmi)
Taylor, at (202) 622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
Federal, State, and local government programs seek to help elderly
or disabled individuals maintain their independence by funding home
health care and other personal services. See, for example, Deficit
Reduction Act of 2005, Public Law 109-171, se. 6071, 120 Stat. 4, 102-
110 (2006) (authorizing the Secretary of Health and Human Services to,
among other things, award grants to states to ``[i]ncrease the use of
home and community-based, rather than institutional, long-term care
services.'') The government agencies that administer the programs seek
to assist the service recipients with employment tax compliance by
helping the service recipients to designate agents to report, file, and
pay employment taxes on their behalf. The IRS and the Treasury
Department are proposing changes to the regulations under section 3504,
the section under which a third party can be authorized to act as an
agent for an employer, to permit designated agents to provide
comprehensive assistance to these service recipients who are employers.
1. Employment Taxes in General
Employers are generally required to withhold income tax and Federal
[[Page 1736]]
Insurance Contributions Act (FICA) taxes from their employees' wages
under sections 3402(a) and 3102(a), respectively, and are separately
liable for the employer's share of FICA taxes and Federal Unemployment
Tax Act (FUTA) taxes under sections 3111 and 3301, respectively
(collectively referred to herein as ``employment taxes''). Sections
3102(b), 3111, 3301, and 3403 provide that the employer is the person
liable for the withholding and payment of employment taxes;
additionally, the employer is required to make tax deposits, file
employment tax returns, and file and furnish Forms W-2, Wage and Tax
Statement, to employees (collectively referred to herein as
``employment tax obligations''). An employer is generally defined as
the person for whom an individual performs services as an employee. See
Sections 3121(d), 3306(a), and 3401(d).
FUTA tax is imposed under section 3301 on each employer in an
amount equal to a percentage of wages paid by the employer with respect
to employment. FUTA tax is imposed on the employer in an amount equal
to 6.2 percent of wages. Under section 3306(b), wages of an employee
subject to the FUTA tax are limited to $7,000 per calendar year.
Section 3302 provides for a credit against FUTA tax in the amount of
contributions paid by the employer into an unemployment fund maintained
during the taxable year under the unemployment law of a State. The
credit is limited to an amount equal to 90 percent of the FUTA tax.
2. Domestic Service Employment
The employment tax obligations of an employer are modified with
respect to domestic services provided in a private home of the
employer. Employers are not required to withhold income taxes on wages
paid for domestic services, but may enter into a voluntary withholding
agreement to withhold income taxes from one or more domestic employees.
See sections 3401(a)(3) and 3402(p). An employer is not liable for FICA
taxes with respect to cash wages for domestic services as long as the
cash wages are less than an applicable dollar threshold amount, which
is adjusted annually. Sections 3121(a)(7)(B) and 3121(x). When the cash
wages equal or exceed the threshold amount, all of the cash wages
(including amounts below the threshold) paid to that employee by the
employer are subject to FICA taxes. For example, the FICA wage
threshold for domestic services for 2009 is $1,700. This threshold
applies separately to each employer with respect to each employee. An
employer is liable for FUTA taxes with regard to domestic services if
the employer paid aggregate wages of $1,000 or more (for all domestic
employees) in any calendar quarter in the current or prior year.
Section 3306(c)(2).
3. Agency Relationship Under Code Section 3504
Section 3504 of the Code authorizes the Secretary of the Treasury
to promulgate regulations to authorize an agent to perform certain
specified acts required of employers. Under section 3504, all
provisions of law (including penalties) applicable with respect to
employers are applicable to the agent and remain applicable to the
employer. Accordingly, both the agent and employer are liable for the
employment taxes and penalties associated with the employer's
employment tax obligations undertaken by the agent. Section 31.3504-1
of the Employment Tax Regulations provides that the IRS may authorize
an agent to undertake the employment tax obligations of an employer
with respect to income tax withholding and FICA taxes. The agent is
required to file only one return for each tax return period using the
agent's own employer identification number (EIN) regardless of the
number of employers for whom the agent acts. The current regulations do
not authorize an agent to undertake the employment tax obligations of
an employer with respect to the FUTA tax. Thus, an authorized agent can
act on behalf of the employer for income tax withholding and FICA tax
purposes, but the employer must continue to meet its employment tax
obligations with respect to FUTA tax.
4. Home Care Service Recipients
Federal, State, and local governments fund programs to provide
elderly or disabled individuals with services to assist them with
health care or other personal needs in their homes or communities.
Following an evolution in policy that seeks to empower the individuals
receiving services to have autonomy, these programs generally give the
service recipients discretion in selecting the service providers and
directing their activities. See Deficit Reduction Act of 2005 section
6071(d)(2)(C)(ii), 120 Stat. at 108 (providing that the Secretary of
Health and Human Services shall give preference when awarding grants to
state applications proposing to provide eligible individuals with the
opportunity to receive home and community-based long-term care services
as self-directed services); also see ``Roadmap to Medicaid Reform,''
Centers for Medicare and Medicaid Services, available at http://www.cms.hhs.gov/smdl/downloads/Rvltcneeds.pdf. The programs authorize
the use of certain intermediaries to serve as agents to disburse
payments to service providers on the service recipient's behalf. The
federal, State, or local government agencies that administer these
programs screen intermediaries before they are entrusted with funds to
pay for the services. Intermediaries can be public or private entities.
Many are nonprofit organizations. The IRS addressed questions with
regard to certain intermediaries working with state or local government
agencies in previous guidance. See Notice 2003-70, 2003 CB 916. See
Sec. 601.601(d)(2).
The service recipient is generally the employer of the individuals
providing the services for employment tax purposes. However the Service
recognizes that there are some government programs under which parents,
grandparents, or guardians who are engaged in providing care for a
disabled child or grandchild receive funding that do not give rise to
an employment relationship between the service recipient and the care
provider. Although the services generally constitute domestic services
under section 3401(a)(3) such that income tax withholding is not
required, FICA tax and FUTA tax must still be paid subject to the
applicable thresholds, and some service recipients and their service
providers may agree to voluntarily withhold income tax under section
3402(p). In recent years, many home care service recipients have
applied to designate the intermediary that arranges to pay their
service providers as an agent under section 3504 so that the
intermediary can withhold, report, and pay income tax withholding and
FICA tax on the service recipient's behalf. Designating these
intermediaries as agents reduces the administrative burden on the
service recipient who may not otherwise have an obligation to report,
file, or pay employment taxes. The intermediaries have access to
training in compliance with employment tax requirements and have the
payroll information from the payments they make to the service
providers. An intermediary that is designated as an agent can
efficiently handle reporting, filing, and paying income tax withholding
and FICA on behalf of multiple service recipients on a single return. A
service recipient can complete the application to designate the
intermediary as agent at the time the recipient enrolls with the
intermediary.
Under the current regulations, a service recipient can designate an
intermediary as agent to handle income
[[Page 1737]]
tax withholding and FICA but cannot designate an intermediary as agent
to pay FUTA tax and file FUTA returns. As a result, separate FUTA
returns must be prepared for thousands of individual service recipients
reporting small amounts of wages and FUTA tax.
Explanation of Provisions
These proposed regulations would amend the current regulations to
allow a home care service recipient to designate an agent under section
3504 to report, file, and pay all employment taxes, including FUTA.
This change will allow an intermediary to file a single FUTA return on
behalf of multiple home care service recipients as the intermediary
does currently with respect to income tax withholding and FICA.
Specifically, the proposed regulation would amend the employment
tax regulations under section 3504 to provide that the IRS may
authorize a party to act as agent on behalf of employers who are home
care service recipients with respect to FUTA taxes imposed on wages
paid for home care services, provided that the party has been
authorized to act as an agent for those home care service recipients
for income tax withholding and FICA tax purposes. The agent is
permitted to act for FUTA tax purposes only on behalf of employers who
are home care service recipients, and not for any other type of
employer on whose behalf the agent is authorized to act for income tax
withholding and FICA tax purposes. Additionally, the agent is permitted
to act as an agent for FUTA tax purposes only with respect to wages
paid for home care services rendered to the home care service
recipient.
These regulations propose to define the term home care service
recipient as an individual who is an enrolled participant in a program
administered by a Federal, State, or local government agency that
provides Federal, State, or local government funds to pay, in whole or
in part, for the provision of home care services, as defined in the
proposed regulations. A participant qualifies as a home care service
recipient while enrolled in such a program and until the end of the
calendar year in which the participant ceases to be enrolled in the
program. In all such programs, intermediaries who are engaged to assist
beneficiaries to receive and distribute funds on the beneficiaries'
behalf are reviewed and approved by a state or local government agency.
These regulations propose to define home care services to include
health care and personal attendant care services rendered to a home
care service recipient in his home or local community. Services
provided outside the home care service recipient's private home may
qualify as home care services for purposes of these regulations even if
the services do not qualify as domestic service in a private home of
the employer for purposes of sections 3121(a)(7), 3306(c)(2), and
3401(a)(3), so long as the services are provided within the service
recipient's local community.
Because section 3504 provides that all provisions of law applicable
to an employer apply to the agent, the agent can report on its
aggregate FUTA tax return the state unemployment contributions paid
into a state unemployment fund on the home care service recipient's
behalf as a credit under section 3302 against the FUTA tax. The credit
can be reported by the agent regardless of whether the state
unemployment contributions are made under the name and state
identifying number of the home care service recipient or the agent.
These regulations also propose amendments to modify the existing
regulations under section 3504 to be consistent with the organizational
structure of the IRS and to update the citation to the Internal Revenue
Code of 1986.
Proposed Effective Date
These regulations are proposed to apply to wages paid on or after
January 1 of the calendar year following the date of publication of a
Treasury decision adopting these rules as final regulations in the
Federal Register. Taxpayers may rely on these proposed regulations for
guidance pending the issuance of final regulations. Additionally,
pursuant to section 7805(b)(7), taxpayers may apply these proposed
regulations to all taxable years for which a valid designation as an
agent has been in effect under Sec. 31.3504-1(a) of the Employment Tax
Regulations. Thus, prior to publication of a Treasury decision adopting
these rules as final regulations, any party already authorized under
section 3504 to serve as an agent for a home care service recipient, as
defined in the proposed regulations, or with an application pending,
will not need to file any additional application in order to expand the
scope of the agency to cover FUTA taxes.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It also has
been determined that section 553(b) of the Administrative Procedure Act
(5 U.S.C. chapter 5) does not apply to this regulation, and because the
regulation does not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the Internal Revenue Code, this
regulation has been submitted to the Chief Counsel for Advocacy of the
Small Business Administration for comment on its impact on small
business.
Comments and Requests for Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written or electronic comments that
are submitted timely to the IRS. The Treasury Department and the IRS
specifically request comments on the clarity of the proposed
regulations and how they can be made easier to understand. All comments
will be available for public inspection and copying. A public hearing
will be scheduled and held upon written request by any person who
submits written comments on the proposed regulation. If a public
hearing is scheduled, notice of the time and place for the hearing will
be published in the Federal Register.
Drafting Information
The principal author of these proposed regulations is Selvan
Boominathan, Office of Division Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities), Internal Revenue Service. However,
personnel from other offices of the IRS and Treasury participated in
their development.
List of Subjects in 26 CFR Part 31
Employment taxes, Income taxes, Penalties, Pensions, Reporting and
recordkeeping requirements, Railroad retirement, Social Security,
Unemployment compensation.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 31 is proposed to be amended as follows:
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE
Paragraph 1. The authority citation for part 31 continues to read
in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 31.3504-1 is revised to read as follows:
[[Page 1738]]
Sec. 31.3504-1 Designation of Agent by Application.
(a) In general. In the event wages as defined in chapter 21 or 24
of the Internal Revenue Code of 1986, or compensation as defined in
chapter 22 of the Code, of an employee or group of employees, employed
by one or more employers, is paid by a fiduciary, agent, or other
person (``agent''), or if that agent has the control, receipt, custody,
or disposal of those wages, or compensation, the Internal Revenue
Service may, subject to the terms and conditions as it deems proper,
authorize that agent to perform the acts required of the employer or
employers under those provisions of the Code and the regulations which
have application, for purposes of the taxes imposed by the chapter or
chapters, in respect of the wages or compensation. If the agent is
authorized by the Internal Revenue Service to perform such acts, all
provisions of law (including penalties) and of the regulations
applicable to an employer shall be applicable to the agent. However,
each employer for whom the agent acts shall remain subject to all
provisions of law (including penalties) and of the regulations
applicable to an employer. Any application to authorize an agent to
perform such acts, signed by the agent and the employer, shall be made
on the form prescribed by the Internal Revenue Service and shall be
filed with the Internal Revenue Service as prescribed in the
instructions to the form and other applicable guidance.
(b) Special rule for home care service recipients. (1) In general.
In the event a fiduciary, agent, or other person (``agent'') is
authorized pursuant to paragraph (a) of this section to perform the
acts required of an employer under chapters 21 or 24 on behalf of one
or more home care service recipients, as defined in paragraph (b)(3) of
this section, the Internal Revenue Service may authorize that agent to
perform the acts as are required of employers for purposes of the tax
imposed by chapter 23 of the Internal Revenue Code of 1986 with respect
to wages paid for home care services, as defined in paragraph (b)(2) of
this section, rendered to the home care service recipient. Each home
care service recipient for whom the agent performs the acts of an
employer and each agent authorized under this section to perform the
acts of an employer shall remain subject to all provisions of law
(including penalties) and of the regulations applicable to an employer
with respect to those wages paid.
(2) Home care services. For purposes of this section, the term home
care services includes health care and personal attendant care services
rendered in the home care service recipient's home or local community.
(3) Home care service recipient. For purposes of this section, the
term home care service recipient means any individual who receives home
care services, as defined in paragraph (b)(2) of this section, while
enrolled, and for the remainder of the calendar year after ceasing to
be enrolled, in a program administered by a Federal, state, or local
government agency that provides Federal, state, or local government
funds, to pay, in whole or in part, for the home care services for that
individual.
(c) Effective and applicability dates. An authorization under
paragraph (a) of this section in effect prior to the date of
publication of a Treasury decision adopting these rules as final
regulations in the Federal Register continues to be in effect after
that date. Paragraph (b) of this section applies to wages paid on or
after January 1 of the calendar year following the date of publication
of a Treasury decision adopting these rules as final regulations in the
Federal Register. However, pursuant to section 7805(b), taxpayers may
rely on paragraph (b) of this section for all taxable years for which a
valid designation is in effect under paragraph (a) of this section.
Linda M. Kroening,
Acting Deputy Commissioner for Services and Enforcement.
[FR Doc. 2010-415 Filed 1-12-10; 8:45 am]
BILLING CODE 4830-01-P