[Federal Register Volume 77, Number 234 (Wednesday, December 5, 2012)]
[Proposed Rules]
[Pages 72268-72277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-29237]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 31
[REG-130074-11]
RIN 1545-BK54
Rules Relating to Additional Medicare Tax
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations relating to
Additional Hospital Insurance Tax on income above threshold amounts
(``Additional Medicare Tax''), as added by the Affordable Care Act.
Specifically, these proposed regulations provide guidance for employers
and individuals relating to the implementation of Additional Medicare
Tax. This document also contains proposed regulations relating to the
requirement to file a return reporting Additional Medicare Tax, the
employer process for making adjustments of underpayments and
overpayments of Additional Medicare Tax, and the employer and employee
processes for filing a claim for refund for an overpayment of
Additional Medicare Tax. This document also provides notice of a public
hearing on these proposed rules.
DATES: Written or electronic comments must be received by March 5,
2013. Requests to speak (with outlines of topics to be discussed) at
the public hearing scheduled for April 4, 2013, must be received by
March 5, 2013.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-130074-11), Room
5205, Internal Revenue Service, P.O. Box 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-
130074-11), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue NW., Washington, DC, or sent electronically, via the Federal
eRulemaking Portal at www.regulations.gov (IRS REG-130074-11). The
public hearing will be held in the Auditorium, Internal Revenue
Building, 1111 Constitution Avenue NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Andrew K. Holubeck or Ligeia M. Donis at (202) 622-6040; concerning
submission of comments, the hearing, and/or to be placed on the
building access list to attend the hearing, please contact
Oluwafunmilayo (Funmi) Taylor at
[email protected] or (202) 622-7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these proposed
regulations was previously reviewed and approved by the Office of
Management and Budget in accordance with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)) under control number 1545-2097. Comments on
the collection of information should be sent to the Office of
Management and Budget, Attn: Desk Officer for the Department of the
Treasury, Office of Information and Regulatory Affairs, Washington, DC
20503, with copies to the Internal Revenue Service, Attn: IRS Reports
Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments
on the collection of information should be received by February 4,
2013. Comments are specifically requested concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the IRS, including whether the
information will have practical utility;
The accuracy of the estimated burden associated with the proposed
collection of information; and
Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
The collection of information in these proposed regulations is in
Sec. Sec. 31.6011(a)-1, 31.6011(a)-2, 31.6205-1, 31.6402(a)-2,
31.6413(a)-1, and 31.6413(a)-2. This information is required by the IRS
to verify compliance with return requirements under section 6011,
employment tax adjustments under sections 6205 and 6413, and claims for
refund of overpayments under section 6402. This information will be
used to determine whether the amount of tax has been reported and
calculated correctly. The likely respondents are employers and
individuals.
Estimated total annual reporting and/or recordkeeping burden:
1,900,000 hours.
Estimated average annual burden per respondent: 1 hour.
Estimated number of respondents: 1,900,000.
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
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
These proposed regulations are issued in connection with the
Additional Hospital Insurance Tax on income above threshold amounts
(``Additional Medicare Tax''), as added by section 9015 of the Patient
Protection and Affordable Care Act (PPACA), Public Law 111-148 (124
Stat. 119 (2010)), and as amended by section 10906 of the PPACA and
section 1402(b) of the Health Care and Education Reconciliation Act of
2010, Public Law 111-152 (124 Stat. 1029 (2010)) (collectively, the
``Affordable Care Act''). The proposed regulations include amendments
to Sec. 1.1401-1 of the Income Tax Regulations, and Sec. Sec.
31.3101-2, 31.3102-1, 31.3102-4, 31.3202-1, 31.6011(a)-1, 31.6011(a)-2,
31.6205-1, 31.6402(a)-2, 31.6413(a)-1, and 31.6413(a)-2 of the
Employment Tax Regulations. The proposed regulations provide guidance
for
[[Page 72269]]
employers and individuals relating to the implementation of Additional
Medicare Tax, including the requirement to withhold Additional Medicare
Tax on certain wages and compensation, the requirement to file a return
reporting Additional Medicare Tax, the employer process for adjusting
underpayments and overpayments of Additional Medicare Tax, and the
employer and employee processes for filing a claim for refund of
Additional Medicare Tax.
For purposes of these proposed regulations, the term employment
taxes means the Federal Insurance Contributions Act (FICA) tax imposed
on employers and employees, the Railroad Retirement Tax Act (RRTA) tax
imposed on employers and employees, and federal income tax withholding
(ITW).
Federal Insurance Contributions Act and Railroad Retirement Tax Act
Taxes
Tax under the FICA is composed of Old-Age, Survivors, and
Disability Insurance (OASDI) tax, also referred to as social security
tax, and Hospital Insurance (HI) tax, also referred to as Medicare tax.
The Medicare portion of FICA tax is imposed separately on the employer,
under section 3111(b), and the employee, under section 3101(b), in an
amount equal to a percentage of wages. Under section 3102, the employer
is required to collect the employee portion of FICA tax by deducting
the amount of the tax from wages, as and when paid, and is liable for
payment of the tax required to be collected. Until collected, the
employee also is liable for the employee portion of the tax. See Sec.
31.3102-1(d).
Under the RRTA, railroad employment is subject to a separate and
distinct system of taxes from those imposed under the FICA. The RRTA
serves as the functional equivalent of FICA for railroad employers,
employees, and employee representatives (a group unique to the railroad
industry). Tax under the RRTA is divided into tiers and each tier
finances different benefits. Tier 1 RRTA tax provides equivalent social
security and Medicare benefits. Section 3201(a) imposes Tier 1 RRTA tax
on employees and section 3211(a) imposes Tier 1 RRTA tax on employee
representatives, in an amount equal to the applicable percentage of
compensation. For employees, the applicable percentage under section
3201(a) is the sum of the rates of tax under section 3101(a) and (b).
For employee representatives, the applicable percentage under section
3211(a) is the sum of the rates of tax under sections 3101(a) and (b)
and 3111(a) and (b).
Under section 3202, the employer is required to collect the
employee portions of RRTA tax by deducting the amount of the taxes from
compensation as and when paid, and is liable for payment of the taxes
required to be collected. Until collected, the employee also is liable
for the employee portion of the tax. See Sec. 31.3202-1(e).
The Affordable Care Act added section 3101(b)(2). Section
3101(b)(2) increases the employee portion of Medicare tax for wages
received in any taxable year beginning after December 31, 2012, by an
additional 0.9 percent of FICA wages which are in excess of certain
threshold amounts. Additional Medicare Tax differs from Medicare tax in
that Additional Medicare Tax is not imposed until wages exceed a
threshold amount, and the threshold amount for application of the tax
is based on the filing status of the individual. Under section
3101(b)(2), the threshold amount is $250,000 in the case of a joint
return, $125,000 in the case of a married taxpayer filing a separate
return, and $200,000 in any other case. Additional Medicare Tax also
differs from Medicare Tax in that there is no employer portion to
correspond to the amount owed by the employee.
Additional Medicare Tax applies to RRTA compensation paid to
railroad employees and employee representatives. See reference to
section 3101(b) in sections 3201(a) and 3211(a). Accordingly, Tier 1
RRTA tax imposed under sections 3201(a) and 3211(a) will be increased
for compensation received in any taxable year beginning after December
31, 2012, by an additional 0.9 percent of RRTA compensation which is in
excess of certain threshold amounts as enumerated in section
3101(b)(2). The threshold amount for Additional Medicare Tax applies
separately to the FICA and the RRTA. Accordingly, an individual will
not combine FICA wages and RRTA compensation in determining whether
Additional Medicare Tax applies under FICA or under RRTA.
The Affordable Care Act added section 3102(f). Section 3102(f)(1)
provides that an employer's obligation under section 3102(a) to
withhold Additional Medicare Tax applies only to the extent that the
wages the employee receives from the employer are in excess of $200,000
in a calendar year. Section 3102(f)(1) further provides that in
satisfying its obligation to withhold Additional Medicare Tax, the
employer may disregard the amount of wages received by the employee's
spouse.
Calculating wages for purposes of withholding Additional Medicare
Tax is no different than calculating wages for FICA generally. Thus,
for example, if an employee has amounts deferred under a nonqualified
deferred compensation plan and the nonqualified deferred compensation
(NQDC) is taken into account as wages for FICA tax purposes under the
special timing rule described in Sec. 31.3121(v)(2)-1(a)(2), the NQDC
would likewise be taken into account under the special timing rule for
purposes of determining an employer's obligation to withhold Additional
Medicare Tax.
Similarly, when an employee is concurrently employed by related
corporations and one of the corporations disburses wages for services
performed for each of the employers and the arrangement otherwise
satisfies the common paymaster provisions of section 3121(s), liability
for FICA tax with respect to the wages disbursed by the common
paymaster is computed as if there was a single employer. In this case,
the obligation to withhold Additional Medicare Tax on wages in excess
of $200,000 disbursed by the common paymaster would also be determined
as if there was a single employer.
Section 3102(f)(2) specifies that to the extent Additional Medicare
Tax is not withheld by the employer, the employee must pay the tax.
This is consistent with the general FICA rule in Sec. 31.3102-1(d),
which provides that the employee is liable for the employee portion of
FICA tax until collected by the employer.
Section 3102(f)(3) provides that if an employer fails to withhold
Additional Medicare Tax, and the tax is subsequently paid by the
employee, the IRS will not collect the tax from the employer. Section
3102(f)(3) specifies, however, that the employer would remain subject
to any applicable penalties or additions to tax for failure to withhold
Additional Medicare Tax as required. Section 3102(f)(3), reflecting
that Additional Medicare Tax is imposed only on employees and is
ultimately based on the employee's filing status, is similar to section
3402(d), which abates the employer's liability for ITW when the
employee has paid the income tax.
Self-Employment Contributions Act Taxes
Section 1401 imposes social security and Medicare taxes on the
self-employment income of every individual at the same combined
employer and employee rates applicable under the FICA.
The Affordable Care Act added section 1401(b)(2). Section
1401(b)(2)(A) increases the Medicare tax on self-
[[Page 72270]]
employment income for any taxable year beginning after December 31,
2012, by an additional 0.9 percent of self-employment income which is
in excess of certain threshold amounts. As with Additional Medicare Tax
under the FICA, the threshold amounts for an individual to be subject
to Additional Medicare Tax under the Self-Employment Contributions Act
(SECA) are determined by the individual's filing status. The threshold
amounts enumerated under section 1401(b)(2)(A), are $250,000 in the
case of a joint return, $125,000 in the case of a married taxpayer
filing a separate return, and $200,000 in any other case.
Section 1401(b)(2)(B) provides for coordination with Additional
Medicare Tax under the FICA and specifies that the threshold amounts
under section 1401(b)(2)(A) are reduced (but not below zero) by the
amount of wages taken into account in determining Additional Medicare
Tax under the FICA. Section 1401(b)(2)(B) does not provide for similar
coordination with Additional Medicare Tax under the RRTA. Therefore,
the amount of RRTA compensation taken into account in determining
Additional Medicare Tax under the RRTA will not reduce the threshold
amounts under section 1401(b)(2)(A) for determining Additional Medicare
Tax under the SECA.
Estimated Taxes
Section 6654 imposes an addition to tax in the case of an
individual's underpayment of estimated tax. Generally, the addition to
tax imposed under section 6654 will not apply to individuals who have
sufficient ITW on wages or who make estimated tax payments throughout
the year. Employees may request additional ITW on wages on Form W-4,
``Withholding Allowance Certificate,'' to reduce the need to make
estimated tax payments to cover the individual's tax liability.
Under section 6654(m), which was added by the Affordable Care Act,
Additional Medicare Tax is treated as a tax subject to estimated tax
payment requirements. In the case of employees, Additional Medicare Tax
is collected through withholding on FICA wages or RRTA compensation in
excess of $200,000 in a calendar year. In addition, employees may
request additional ITW on wages on Form W-4 and use this additional ITW
to apply against taxes shown on their return, including any Additional
Medicare Tax liability. To the extent not withheld, Additional Medicare
Tax must be included when making estimated tax payments.
Interest-Free Adjustments of Employment Taxes
The current regulations under section 6205 set forth the procedures
for making interest-free adjustments for underpayments of employment
taxes. Generally, under the regulations, if an employer ascertains an
underpayment of FICA or RRTA tax, the employer can make an underpayment
adjustment, within the period of limitations for assessment, by
reporting the additional amount due on an adjusted return for the
return period in which the wages or compensation was paid. For
underpayments of ITW, subject to limited exceptions for correcting
worker misclassification errors or for administrative errors (that is,
errors involving the inaccurate reporting of the amount actually
withheld) and for audit adjustments, an adjustment may be made only for
errors ascertained during the calendar year in which the wages were
paid.
The current regulations under section 6413(a) set forth the
procedures for making interest-free adjustments for overpayments of
employment taxes. Under the regulations, if an employer ascertains
within the applicable period of limitations on credit or refund that an
overpayment error was made, the employer is generally required to repay
or reimburse its employees the amount of overcollected employee FICA
tax or employee RRTA tax prior to the expiration of the applicable
period of limitations on credit or refund. The regulations further
provide that once an employer repays or reimburses an employee, the
employer may report both the employee and employer portions of FICA or
RRTA tax as an overpayment on an adjusted return within the period of
limitations on credit or refund. The employer must generally certify on
the adjusted return that it has repaid or reimbursed its employees.
Similar rules apply for making interest-free adjustments for
overpayments of ITW, except that an interest-free adjustment may only
be made if the employer ascertains the error and repays or reimburses
its employees within the same calendar year that the wages were paid,
unless the employer is correcting an administrative error.
Claims for Refund of Employment Taxes
In lieu of making an interest-free adjustment under section 6413(a)
for an overpayment, employers may file a claim for refund pursuant to
section 6402. Under section 6402(a), the IRS may credit the amount of
an overpayment, including any interest, against any tax liability of
the person who made the overpayment and shall, subject to certain
offsets, refund any balance to such person. A claim for refund under
section 6402(a) must be filed within the period of limitations on
credit or refund. Section 6414 permits refunds of ITW only to the
extent the amount of the ITW overpayment was not actually deducted and
withheld from an employee.
The current regulations under section 6402(a) set out the
procedures for filing a claim for refund of overpaid FICA and RRTA
taxes. The regulations permit an employer to file a claim for refund of
an overpayment of FICA or RRTA tax, but generally require the employer
to certify as part of the claim process that the employer has repaid or
reimbursed the employee's share of the overpayment of FICA or RRTA tax
to the employee or has secured the written consent of the employee to
allowance of the refund or credit.
Generally, under the current section 6402 regulations, an employee
may file a claim for refund of overpaid FICA or RRTA tax as long as the
employee has not been repaid or reimbursed by the employer and does not
give the employer consent to file a claim on his or her behalf, and the
employee has not taken the overcollection into account in claiming a
credit against, or refund of, his or her income tax, in the case of a
claim under section 6413(c) for overpaid employee social security tax.
The current regulations under section 6414 set out the procedures
for filing a claim for refund of overpaid ITW and provide that an
employer may not file a claim for refund of an overpayment of ITW to
the extent the amount was deducted or withheld from an employee.
Explanation of Provisions
The proposed regulations provide rules for the withholding,
computation, reporting, and payment of Additional Medicare Tax on
wages, self-employment income, and RRTA compensation. The proposed
regulations also provide rules for when and how employers may make an
interest-free adjustment to correct an overpayment or an underpayment
of Additional Medicare Tax and how employers and employees may claim
refunds for overpayments of Additional Medicare Tax. These procedural
rules for interest-free adjustments and claims for refund track the
existing rules that apply to ITW rather than the rules that apply to
FICA tax. The regulations take this approach because Additional
Medicare Tax, like ITW, does not include an employer portion, and the
[[Page 72271]]
ultimate liability is reconciled on the individual employee's income
tax return.
Rates and Computation of Employee FICA Tax
The proposed regulations under section 3101(b) update the rates of
tax for the social security and Medicare tax on employees, and add a
paragraph describing the rate of Additional Medicare Tax. The proposed
regulations also provide an updated example illustrating that the
social security and Medicare rates applicable to the calendar year in
which wages are received apply to compute the tax liability.
Employer's Obligation To Withhold Additional Medicare Tax
The proposed regulations under sections 3102 and 3202(a) describe
the extent to which an employer is required to withhold Additional
Medicare Tax. The proposed regulations under section 3102(f) provide
that an employer must withhold Additional Medicare Tax from an
employee's wages only to the extent that the employee receives wages
from the employer in excess of $200,000 in a calendar year. In
determining whether wages exceed $200,000, an employer does not take
into account the employee's filing status or other wages or
compensation which may impact the employee's liability for the tax. An
employee may not request that the employer deduct and withhold
Additional Medicare Tax on wages of $200,000 or less. However, an
employee who anticipates liability for Additional Medicare Tax may
request that the employer deduct and withhold an additional amount of
ITW under Sec. 31.3402(i)-2 on Form W-4. This additional ITW can apply
against taxes shown on Form 1040, ``U.S. Individual Tax Return,''
including any Additional Medicare Tax liability. An employee might
request that the employer deduct and withhold an additional amount of
ITW on wages that are not in excess of $200,000 if, for example, the
employee is married and files a joint return, and anticipates liability
for Additional Medicare Tax because the combined wages of the employee
and the employee's spouse will exceed $250,000. The proposed
regulations under sections 3102(f) and 3202(a) include examples
illustrating the extent of the employer's obligation to withhold
Additional Medicare Tax.
Further, the proposed regulations under section 3102(f) provide
that to the extent Additional Medicare Tax is not withheld by the
employer, the employee is liable for the tax. The proposed regulations
also provide that the IRS will not collect from an employer the amount
of Additional Medicare Tax it failed to withhold from wages paid to an
employee if the employee subsequently pays the Additional Medicare Tax.
However, the proposed regulations also specify that the employer would
remain subject to any applicable penalties or additions to tax for
failure to withhold Additional Medicare Tax as required.
Although Additional Medicare Tax applies to RRTA compensation, the
Affordable Care Act did not add provisions similar to section 3102(f)
to the RRTA, nor does the RRTA cross-reference section 3102(f).
However, in light of the general similarities between the FICA and the
RRTA and the principles discussed above, and in order to provide
guidance to railroad employers regarding their liability to withhold
Additional Medicare Tax, the proposed regulations under section 3202(a)
incorporate the same rules as provided in section 3102(f). Therefore,
the proposed regulations under section 3202(a) provide that railroad
employers must withhold Additional Medicare Tax from an employee's
compensation only to the extent the employee receives compensation from
the employer in excess of $200,000 in a calendar year. Similar to the
FICA rule, an employee may not request that the employer deduct and
withhold Additional Medicare Tax on compensation of $200,000 or less.
Instead, an employee who anticipates liability for Additional Medicare
Tax may request that the employer deduct and withhold an additional
amount of ITW under Sec. 31.3402(i)-2 on Form W-4 to apply against
taxes shown on Form 1040, including any Additional Medicare Tax
liability. The regulations under section 3202 further provide that: (1)
To the extent Additional Medicare Tax is not withheld by the employer,
the employee is liable for the tax; (2) the IRS will not collect
Additional Medicare Tax from an employer who fails to withhold
Additional Medicare Tax on compensation paid by the employer, if the
tax is subsequently paid by the employee; and (3) the employer will
remain subject to any applicable penalties or additions to tax for
failure to withhold Additional Medicare Tax as required.
Employee's Obligation To Report and Pay Additional Medicare Tax
The proposed regulations under sections 3102(f) and 3202(a) provide
that an employee is liable for Additional Medicare Tax on wages or
compensation to the extent that the tax is not withheld by the
employee's employer. This is consistent with the general rule in
Sec. Sec. 31.3102-1(d) and 31.3202-1(e) for FICA and RRTA purposes,
respectively, that provides that the employee is liable for the tax
until collected by the employer. Under the proposed regulations under
section 6011, an individual must report Additional Medicare Tax on Form
1040. An individual will claim credit for any withheld Additional
Medicare Tax on Form 1040 and pay any such tax due that was not
previously paid through withholding or estimated tax. For example, if
an employee and his or her spouse each had wages of $200,000 or less,
such that their employers did not withhold Additional Medicare Tax from
the employee's or the spouse's wages, but the combined wages of the
employee and the employee's spouse exceed the threshold for a joint
return under section 3101(b)(2) (that is, exceed $250,000), the
proposed regulations indicate that the employee and the employee's
spouse are liable to pay Additional Medicare Tax. The proposed
regulations under sections 3102(f) and 3202(a) include examples
illustrating this principle for FICA wages and RRTA compensation,
respectively.
Self-Employed Individual's Obligation To Pay Additional Medicare Tax
The proposed regulations under section 1401(b) describe the extent
to which an individual who has self-employment income is liable for
Additional Medicare Tax. Specifically, the proposed regulations
describe how the applicable threshold amounts under section
1401(b)(2)(A) are reduced (but not below zero) by the amount of FICA
wages taken into account in determining Additional Medicare Tax
liability. Thus, the proposed regulations under section 1401(b)(2)
illustrate the application of the reduced threshold amounts for
purposes of determining liability for Additional Medicare Tax
attributable to the individual's self-employment income.
The Affordable Care Act did not provide for a reduction in the
self-employment income threshold amounts by the amount of any RRTA
compensation taken into account in determining liability for Additional
Medicare Tax. Accordingly, an individual who receives both RRTA
compensation and self-employment income would not reduce the self-
employment income threshold amounts under section 1401(b)(2)(A) by the
amount of RRTA compensation taken into account in determining
Additional Medicare Tax liability.
[[Page 72272]]
Interest-Free Adjustments of Additional Medicare Tax
The proposed regulations under sections 6205 provide that
adjustments of underpayments of Additional Medicare Tax may be made
only if the error is ascertained in the same year the wages or
compensation was paid, unless: (1) The underpayment is attributable to
an administrative error, (2) section 3509 applies to determine the
amount of the underpayment, due to the employer's failure to treat the
individual as an employee, or (3) the adjustment is the result of an
IRS examination.
Similarly, the proposed regulations under section 6413 provide that
an adjustment of overpaid Additional Medicare Tax may only be made if
the employer ascertains the error in the year the wages or compensation
was paid and repays or reimburses the employee the amount of the
overcollection prior to the end of the calendar year. As in the case of
all overpayment adjustments, the requirement to repay or reimburse does
not apply to the extent that, after reasonable efforts, the employer
cannot locate the employee. However, if an employer has not repaid or
reimbursed the amount of the overcollection to the employee, an
adjustment cannot be made.
Claims for Refund of Additional Medicare Tax
The proposed regulations under section 6402 provide a process by
which employers and employees claim refunds of overpaid Additional
Medicare Tax. Under the proposed regulations, employers may claim
refunds of overpaid Additional Medicare Tax only if the employer did
not deduct or withhold the overpaid Additional Medicare Tax from the
employee's wages or compensation.
For employees, the proposed regulations eliminate the requirements
that the employee first seek a refund from the employer and provide a
statement in support of the employee's claim. Further, the proposed
regulations direct the employee to claim the refund or credit of
overpaid Additional Medicare Tax by taking the overpayment into account
in claiming a credit against, or refund of, tax on an individual tax
return (for example, Form 1040) for the year in which the overpayment
was made, or for a taxable year for which a tax return has been filed,
by filing Form 1040X, ``Amended U.S. Individual Income Tax Return.''
This process is in lieu of filing a claim for refund for overpaid
Additional Medicare Tax on Form 843, ``Claim for Refund and Request for
Abatement.'' Employees may only claim a refund of Additional Medicare
Tax if they have not received repayment or reimbursement from their
employer in the context of an interest-free adjustment.
Proposed Effective/Applicability Dates
These regulations are proposed to be effective the date the final
regulations are published in the Federal Register. The regulations
under the Internal Revenue Code (Code) sections 1401, 3101, 3102, and
3202 are proposed to apply to quarters beginning after the date the
final regulations are published in the Federal Register. The
regulations under Code section 6011 are proposed to apply to taxable
years beginning after the date the final regulations are published in
the Federal Register. The regulations under Code sections 6205, 6402,
and 6413 are proposed to apply to adjustments made and claims for
refund filed after the date the final regulations are published in the
Federal Register.
The Treasury Department and IRS intend to finalize these proposed
regulations in 2013. Taxpayers may rely on these proposed regulations
for tax periods beginning before the date that the final regulations
are published in the Federal Register.
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 has also
been determined that section 553(b) of the Administrative Procedure Act
(5 U.S.C. chapter 5) does not apply to these regulations.
The proposed regulations under section 6011 affect all taxpayers
that file individual tax returns and are subject to Additional Medicare
Tax. The proposed regulations under sections 6205, 6402, and 6413
affect all taxpayers that file employment tax returns, as well as
taxpayers that file claims for refund of employment taxes. Therefore,
the IRS has determined that these proposed regulations will have an
impact on a substantial number of small entities.
The IRS has determined, however, that the impact on entities
affected by the proposed regulations will not be significant. The
proposed regulations require taxpayers who file employment tax returns
and who make interest-free adjustments to their employment taxes for
either underpayments or overpayments of Additional Medicare Tax or who
file claims for refund for an overpayment of Additional Medicare Tax to
provide an explanation setting forth the basis for the correction or
the claim in detail, designating the return period in which the error
was ascertained and the return period being corrected, and setting
forth such other information as may be required by the instructions to
the form. In addition, for adjustments of overpayments of Additional
Medicare Tax, employers must also obtain and retain the written receipt
of the employee showing the date and amount of the repayment to the
employee or retain evidence of reimbursement. This collection of
information is not new to the proposed regulations. The proposed
regulations merely apply the existing procedural requirements, with
appropriate modifications, to corrections of Additional Medicare Tax.
The filing of a claim for refund and the making of an interest-free
adjustment pursuant to the proposed regulations are voluntary on the
part of taxpayers.
Based on these facts, the IRS hereby certifies that the collection
of information contained in these proposed regulations will not have a
significant economic impact on a substantial number of small entities.
Accordingly, a regulatory flexibility analysis is not required.
Pursuant to section 7805(f) of the Code, this notice of proposed
rulemaking has been submitted to the Chief Counsel for Advocacy of the
Small Business Administration for comment on its impact on small
business.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed original
and eight (8) copies) 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 rules and how they can be made
easier to understand. All comments will be available for public
inspection and copying. All comments that are submitted by the public
will be available for public inspection and copying at http://www.regulations.gov. or upon request. A public hearing has been
scheduled for April 4, 2013, beginning at 10 a.m., in the Auditorium,
Internal Revenue Building, 1111 Constitution Avenue NW., Washington,
DC. Due to building security procedures, visitors must enter at the
Constitution Avenue entrance. In addition, all visitors must present
photo identification to enter the building. Because of access
restrictions, visitors will not be admitted beyond the immediate
entrance area more than 30 minutes before the hearing starts.
[[Page 72273]]
For information about having your name placed on the building
access list to attend the hearing, see the FOR FURTHER INFORMATION
CONTACT section of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments at the hearing must submit comments and
an outline of the topics to be discussed and the time to be devoted to
each topic by February 28, 2013.
A period of 10 minutes will be allotted to each person for making
comments. An agenda showing the scheduling of the speakers will be
prepared after the deadline for receiving outlines has passed. Copies
of the agenda will be available free of charge at the hearing.
Drafting Information
The principal authors of these proposed regulations are Sydney L.
Gernstein and Ligeia M. Donis of the Office of the Division Counsel/
Associate Chief Counsel (Tax Exempt and Government Entities). However,
other personnel from the IRS and the Treasury Department participated
in their development.
List of Subjects
26 CFR Part 1
Income Taxes, Reporting and recordkeeping requirements.
26 CFR Part 31
Employment taxes, Income taxes, Penalties, Pensions, Railroad
retirement, Reporting and recordkeeping requirements, Social Security,
Unemployment compensation.
Proposed Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 31 are proposed to be amended as
follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1401-1 is amended by revising paragraph (b) and
adding new paragraphs (d) and (e) to read as follows:
Sec. 1.1401-1 Tax on self-employment income.
* * * * *
(b) The rates of tax on self-employment income are as follows
(these regulations do not reflect off-Code revisions to the below
rates):
(1) For Old-age, Survivors, and Disability Insurance:
------------------------------------------------------------------------
Taxable year Percent
------------------------------------------------------------------------
Beginning after December 31, 1983 and before January 1, 11.40
1988......................................................
Beginning after December 31, 1987 and before January 1, 12.12
1990......................................................
Beginning after December 31, 1989.......................... 12.40
------------------------------------------------------------------------
(2)(i) For Hospital Insurance:
------------------------------------------------------------------------
Taxable year Percent
------------------------------------------------------------------------
Beginning after December 31, 1983 and before January 1, 2.60
1985......................................................
Beginning after December 31, 1984 and before January 1, 2.70
1986......................................................
Beginning after December 31, 1985.......................... 2.90
------------------------------------------------------------------------
(ii) For Additional Medicare Tax:
------------------------------------------------------------------------
Taxable year Percent
------------------------------------------------------------------------
Beginning after December 31, 2012.......................... 0.9
------------------------------------------------------------------------
* * * * *
(d) Special rules regarding Additional Medicare Tax. (1) General
rule. An individual is liable for Additional Medicare Tax to the extent
that his or her self-employment income exceeds the following threshold
amounts.
------------------------------------------------------------------------
Filling status Threshold
------------------------------------------------------------------------
Married individual filing a joint return................... $250,000
Married individual filing a separate return................ 125,000
Any other case............................................. 200,000
------------------------------------------------------------------------
Note: These threshold amounts are specified under section 1401(b)(2)(A).
(2) Coordination with Federal Insurance Contributions Act. (i)
General rule. Under section 1401(b)(2)(B), the applicable threshold
specified under section 1401(b)(2)(A) is reduced (but not below zero)
by the amount of wages (as defined in section 3121(a)) taken into
account in determining Additional Medicare Tax under section 3101(b)(2)
with respect to the taxpayer. This rule does not apply to Railroad
Retirement Tax Act (RRTA) compensation (as defined in section 3231(e)).
(ii) Examples. The rules provided in paragraph (d)(2)(i) of this
section are illustrated by the following examples:
Example 1. A, a single filer, has $130,000 in self-employment
income and $0 in wages. A is not liable to pay Additional Medicare
Tax.
Example 2. B, a single filer, has $220,000 in self-employment
income and $0 in wages. B is liable to pay Additional Medicare Tax
on $20,000 ($220,000 in self-employment income minus the threshold
of $200,000).
Example 3. C, a single filer, has $145,000 in self-employment
income and $130,000 in wages. C's wages are not in excess of
$200,000 so C's employer did not withhold Additional Medicare Tax.
However, the $130,000 of wages reduces the self-employment income
threshold to $70,000 ($200,000 threshold minus the $130,000 of
wages). C is liable to pay Additional Medicare Tax on $75,000 of
self-employment income ($145,000 in self-employment income minus the
reduced threshold of $70,000).
Example 4. E, who is married and files a joint return, has
$140,000 in self-employment income. F, E's spouse, has $130,000 in
wages. F's wages are not in excess of $200,000 so F's employer did
not withhold Additional Medicare Tax. However, the $130,000 of F's
wages reduces E's self-employment income threshold to $120,000
($250,000 threshold minus the $130,000 of wages). E and F are liable
to pay Additional Medicare Tax on $20,000 of E's self-employment
income ($140,000 in self-employment income minus the reduced
threshold of $120,000).
Example 5. D, who is married and files married filing
separately, has $150,000 in self-employment income and $200,000 in
wages. D's wages are not in excess of $200,000 so D's employer did
not withhold Additional Medicare Tax. However, the $200,000 of wages
reduces the self-employment income threshold to $0 ($125,000
threshold minus the $200,000 of wages). D is liable to pay
Additional Medicare Tax on $75,000 of wages ($200,000 in wages minus
the $125,000 threshold for a married filing separately return) and
on $150,000 of self-employment income ($150,000 in self-employment
income minus the reduced threshold of $0).
(e) Effective/applicability date. Paragraphs (b) and (d) of this
section apply to quarters beginning after the date of publication of
the Treasury decision adopting these rules as final regulations in the
Federal Register.
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT THE
SOURCE
Par. 3. The authority citation for part 31 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 4. Revise Sec. 31.3101-2 to read as follows:
Sec. 31.3101-2 Rates and computation of employee tax.
(a) Old-Age, Survivors, and Disability Insurance. The rates of
employee tax for Old-Age, Survivors, and Disability Insurance (OASDI)
with respect to wages received in calendar years after 1983 are as
follows (these regulations do not reflect off-Code revisions to the
below rates):
[[Page 72274]]
------------------------------------------------------------------------
Calendar year Percent
------------------------------------------------------------------------
1984, 1985, 1986, or 1987................................. 5.7
1988 or 1989.............................................. 6.06
1990 and subsequent years................................. 6.2
------------------------------------------------------------------------
(b)(1) Hospital Insurance. The rates of employee tax for Hospital
Insurance (HI) with respect to wages received in calendar years after
1973 are as follows:
------------------------------------------------------------------------
Calendar year Percent
------------------------------------------------------------------------
1974, 1975, 1976, or 1977.................................. 0.90
1978....................................................... 1.00
1979 or 1980............................................... 1.05
1981, 1982, 1983, or 1984.................................. 1.30
1985....................................................... 1.35
1986 and subsequent years.................................. 1.45
------------------------------------------------------------------------
(2) Additional Medicare Tax. (i) The rate of Additional Medicare
Tax with respect to wages received in taxable years beginning after
December 31, 2012, is as follows:
------------------------------------------------------------------------
Taxable year Percent
------------------------------------------------------------------------
Beginning after December 31, 2012.......................... 0.9
------------------------------------------------------------------------
(ii) Individuals are liable for Additional Medicare Tax with
respect to wages received in taxable years beginning after December 31,
2012, which are in excess of:
------------------------------------------------------------------------
Filling status Threshold
------------------------------------------------------------------------
Married individual filing a joint return................... $250,000
Married individual filing a separate return................ 125,000
Any other case............................................. 200,000
------------------------------------------------------------------------
(c) Computation of employee tax. The employee tax is computed by
applying to the wages received by the employee the rates in effect at
the time such wages are received.
Example. In 1989, A performed services for X which constituted
employment (see Sec. 31.3121(b)-2). In 1990 A receives from X
$1,000 as remuneration for such services. The tax is payable at the
6.2 percent OASDI rate and the 1.45 percent HI rate in effect for
the calendar year 1990 (the year in which the wages are received)
and not at the 6.06 percent OASDI rate and the 1.45 percent HI rate
which were in effect for the calendar year 1989 (the year in which
the services were performed).
(d) Effective/applicability date. Paragraphs (a), (b), and (c) of
this section apply to quarters beginning after the date of publication
of the Treasury decision adopting these rules as final regulations in
the Federal Register.
Par. 5. Section 31.3102-1 is amended by adding a new sentence at
the end of paragraph (a) and a new paragraph (f) to read as follows:
Sec. 31.3102-1 Collection of, and liability for, employee tax; in
general.
(a) * * * For special rules relating to Additional Medicare Tax
imposed under section 3101(b)(2), see Sec. 31.3102-4.
* * * * *
(f) Effective/applicability date. Paragraph (a) of this section
applies to quarters beginning after the date of publication of the
Treasury decision adopting these rules as final regulations in the
Federal Register.
Par. 6. Section 31.3102-4 is added to read as follows:
Sec. 31.3102-4 Special rules regarding Additional Medicare Tax.
(a) Collection of tax from employee. An employer is required to
collect from each of its employees the tax imposed by section
3101(b)(2) (Additional Medicare Tax) with respect to wages for
employment performed for the employer by the employee only to the
extent the employer pays wages to the employee in excess of $200,000 in
a calendar year. This rule applies regardless of the employee's filing
status or other income. Thus, the employer disregards any amount of
wages or Railroad Retirement Tax Act (RRTA) compensation paid to the
employee's spouse. The employer also disregards any RRTA compensation
paid by the employer to the employee or any wages or RRTA compensation
paid to the employee by another employer.
Example. H, who is married and files a joint return, receives
$100,000 in wages from his employer for the calendar year. I, H's
spouse, receives $300,000 in wages from her employer for the same
calendar year. H's wages are not in excess of $200,000, so H's
employer does not withhold Additional Medicare Tax. I's employer is
required to collect Additional Medicare Tax only with respect to
wages it pays which are in excess of the $200,000 threshold (that
is, $100,000) for the calendar year.
(b) Collection of amounts not withheld. To the extent the employer
does not collect Additional Medicare Tax imposed on the employee by
section 3101(b)(2), the employee is liable to pay the tax.
Example. J, who is married and files a joint return, receives
$190,000 in wages from his employer for the calendar year. K, J's
spouse, receives $150,000 in wages from her employer for the same
calendar year. Neither J's nor K's wages are in excess of $200,000,
so neither J's nor K's employers are required to withhold Additional
Medicare Tax. J and K are liable to pay Additional Medicare Tax on
$90,000 ($340,000 minus the $250,000 threshold for a joint return).
(c) Employer's liability for tax. If the employer deducts less than
the correct amount of Additional Medicare Tax, or if it fails to deduct
any part of Additional Medicare Tax, it is nevertheless liable for the
correct amount of tax that it was required to withhold, until the
employee pays the tax. If an employee subsequently pays the tax that
the employer failed to deduct, the tax will not be collected from the
employer. The employer, however, will remain subject to any applicable
penalties or additions to tax resulting from the failure to withhold as
required.
(d) Effective/applicability date. This section applies to quarters
beginning after the date of publication of the Treasury decision
adopting these rules as final regulations in the Federal Register.
Par. 7. Section 31.3202-1 is amended by adding new paragraphs (g)
and (h) to read as follows:
Sec. 31.3202-1 Collection of, and liability for, employee tax.
* * * * *
(g) Special rules regarding Additional Medicare Tax. (1) An
employer is required to collect from each of its employees the portion
of the tax imposed by section 3201(a) (as calculated under section
3101(b)(2)) (Additional Medicare Tax) with respect to compensation for
employment performed for the employer by the employee only to the
extent the employer pays compensation to the employee in excess of
$200,000 in a calendar year. This rule applies regardless of the
employee's filing status or other income. Thus, the employer disregards
any amount of compensation or Federal Insurance Contributions Act
(FICA) wages paid to the employee's spouse. The employer also
disregards any FICA wages paid by the employer to the employee or any
compensation or FICA wages paid to the employee by another employer.
Example. A, who is married and files a joint return, receives
$100,000 in compensation from her employer for the calendar year. B,
A's spouse, receives $300,000 in compensation from his employer for
the same calendar year. A's compensation is not in excess of
$200,000, so A's employer does not withhold Additional Medicare Tax.
B's employer is required to collect Additional Medicare Tax only
with respect to compensation it pays to B that is in excess of the
$200,000 threshold (that is, $100,000) for the calendar year.
(2) To the extent the employer does not collect Additional Medicare
Tax imposed on the employee by section 3201(a) (as calculated under
section 3101(b)(2)), the employee is liable to pay the tax.
[[Page 72275]]
Example. C, who is married and files a joint return, receives
$190,000 in compensation from her employer for the calendar year. D,
C's spouse, receives $150,000 in compensation from his employer for
the same calendar year. Neither C's nor D's compensation is in
excess of $200,000, so neither C's nor D's employers are required to
withhold Additional Medicare Tax. C and D are liable to pay
Additional Medicare Tax on $90,000 ($340,000 minus the $250,000
threshold for a joint return).
(3) If the employer deducts less than the correct amount of
Additional Medicare Tax, or if it fails to deduct any part of
Additional Medicare Tax, it is nevertheless liable for the correct
amount of tax that it was required to withhold, until the employee pays
the tax. If an employee subsequently pays the tax that the employer
failed to deduct, the tax will not be collected from the employer. The
employer, however, will remain subject to any applicable penalties or
additions to tax resulting from the failure to withhold as required.
(h) Effective/applicability date. Paragraph (g) of this section
applies to quarters beginning after the date of publication of the
Treasury decision adopting these rules as final regulations in the
Federal Register.
Par. 8. Section 31.6011(a)-1 is amended by adding new paragraphs
(h) and (i) to read as follows:
Sec. 31.6011(a)-1 Returns under Federal Insurance Contributions Act.
* * * * *
(h) Returns by employees in respect of Additional Medicare Tax. An
employee who is paid wages, as defined in sections 3121(a), subject to
the tax under section 3101(b)(2) (Additional Medicare Tax), must make a
return for the taxable year in respect of such tax. The return shall be
made on Form 1040. The form to be used by residents of the U.S. Virgin
Islands, Guam, American Samoa, or the Northern Mariana Islands is Form
1040-SS, ``U.S. Self-Employment Tax Return (Including Additional Child
Tax Credit for Bona Fide Residents of Puerto Rico).'' The form to be
used by residents of Puerto Rico is either Form 1040-SS or Form 1040-
PR, ``Planilla para la Declaraci[oacute]n de la Contribuci[oacute]n
Federal sobre el Trabajo por Cuenta Propia (Incluyendo el
Cr[eacute]dito Tributario Adicional por Hijos para Residentes Bona Fide
de Puerto Rico).''
(i) Effective/applicability date. Paragraph (h) of this section
applies to taxable years beginning after the date of publication of the
Treasury decision adopting these rules as final regulations in the
Federal Register.
Par. 9. Section 31.6011(a)-2 is amended by adding new paragraphs
(d) and (e) to read as follows:
Sec. 31.6011(a)-2 Returns under Railroad Retirement Tax Act.
* * * * *
(d) Returns by employees and employee representatives in respect of
Additional Medicare Tax. An employee or employee representative who is
paid compensation, as defined in section 3231(e), subject to the tax
under sections 3201(a) (as calculated under section 3101(b)(2)) or
section 3211(a) (as calculated under section 3101(b)(2)) (Additional
Medicare Tax), must make a return for the taxable year in respect of
such tax. The return shall be made on Form 1040. The form to be used by
residents of the U.S. Virgin Islands, Guam, American Samoa, or the
Northern Mariana Islands is Form 1040-SS, ``U.S. Self-Employment Tax
Return (Including Additional Child Tax Credit for Bona Fide Residents
of Puerto Rico).'' The form to be used by residents of Puerto Rico is
either Form 1040-SS or Form 1040-PR, ``Planilla para la
Declaraci[oacute]n de la Contribuci[oacute]n Federal sobre el Trabajo
por Cuenta Propia (Incluyendo el Cr[eacute]dito Tributario Adicional
por Hijos para Residentes Bona Fide de Puerto Rico).''
(e) Effective/applicability date. Paragraph (d) of this section
applies to taxable years beginning after the date of publication of the
Treasury decision adopting these rules as final regulations in the
Federal Register.
Par. 10. Section 31.6205-1 is amended by:
1. Revising the first sentence in paragraph (b)(2)(i).
2. Adding a new second sentence to paragraphs (b)(2)(ii) and
(b)(2)(iii).
3. Adding two new sentences after the sixth sentence in paragraph
(b)(3).
4. Adding a new paragraph (b)(4).
5. Revising paragraph (d)(1).
6. Adding a new paragraph (e).
The revisions and additions read as follows:
Sec. 31.6205-1 Adjustments of underpayments.
* * * * *
(b) * * *
(2) * * * (i) If an employer files a return on which FICA tax or
RRTA tax is required to be reported, and reports on the return less
than the correct amount of employee or employer FICA or RRTA tax with
respect to a payment of wages or compensation, and if the employer
ascertains the error after filing the return, the employer shall
correct the error through an interest-free adjustment as provided in
this section, except as provided in paragraph (b)(4) of this section
for Additional Medicare Tax. * * *
(ii) * * * However, if the employer also reported less than the
correct amount of Additional Medicare Tax, the employer shall correct
the underwithheld and underpaid Additional Medicare Tax in accordance
with paragraph (b)(4) of this section. * * *
(iii) * * * However, if the employer also reported less than the
correct amount of Additional Medicare Tax, the employer shall correct
the underwithheld and underpaid Additional Medicare Tax in accordance
with paragraph (b)(4) of this section. * * *
(3) * * * However, an adjustment of Additional Medicare Tax
required to be withheld under section 3101(b)(2) or section 3201(a) may
only be reported pursuant to this section if the error is ascertained
within the same calendar year that the wages were paid to the employee,
or if section 3509 applies to determine the amount of the underpayment,
or if the adjustment is reported on a Form 2504 or Form 2504-WC. See
paragraph (b)(4) of this section. * * *
(4) Additional Medicare Tax. If an employer files a return on which
FICA tax or RRTA tax is required to be reported, and reports on the
return less than the correct amount of Additional Medicare Tax required
to be withheld with respect to a payment of wages or compensation, and
if the employer ascertains the error after filing the return, the
employer shall correct the error through an interest-free adjustment as
provided in this section. An adjustment of Additional Medicare Tax may
only be reported pursuant to this paragraph (b)(4) if the error is
ascertained within the same calendar year that the wages or
compensation were paid to the employee, unless the underpayment is
attributable to an administrative error (that is, an error involving
the inaccurate reporting of the amount actually withheld), section 3509
applies to determine the amount of the underpayment, or the adjustment
is reported on a Form 2504 or Form 2504-WC. The employer shall adjust
the underpayment of Additional Medicare Tax by reporting the additional
amount due on an adjusted return for the return period in which the
wages or compensation were paid, accompanied by a detailed explanation
of the amount being reported on the adjusted return and any other
information as may be required by this section and by the instructions
relating to the adjusted return. The reporting of the
[[Page 72276]]
underpayment on an adjusted return constitutes an adjustment within the
meaning of this section only if the adjusted return is filed within the
period of limitations for assessment for the return period being
corrected, and by the due date for filing the return for the return
period in which the error is ascertained. For purposes of the preceding
sentence, the due date for filing the adjusted return is determined by
reference to the return being corrected, without regard to the
employer's current filing requirements. For example, an employer with a
current annual filing requirement who is correcting an error on a
previously filed quarterly return must file the adjusted return by the
due date for filing a quarterly return for the quarter in which the
error is ascertained. The amount of the underpayment adjusted in
accordance with this section must be paid to the IRS by the time the
adjusted return is filed. If an adjustment is reported pursuant to this
section, but the amount of the adjustment is not paid when due,
interest accrues from that date (see section 6601).
* * * * *
(d) * * * (1) Federal Insurance Contributions Tax Act and Railroad
Retirement Tax Act. If an employer collects less than the correct
amount of employee FICA or RRTA tax from an employee with respect to a
payment of wages or compensation, the employer must collect the amount
of the undercollection by deducting the amount from remuneration of the
employee, if any, paid after the employer ascertains the error. If an
employer collects less than the correct amount of Additional Medicare
Tax required to be withheld under section 3101(b)(2) or section
3201(a), the employer must collect the amount of the undercollection on
or before the last day of the calendar year by deducting the amount
from remuneration of the employee, if any, paid after the employer
ascertains the error. Such deductions may be made even though the
remuneration, for any reason, does not constitute wages or
compensation. The correct amount of employee tax must be reported and
paid, as provided in paragraph (b) of this section, whether or not the
undercollection is corrected by a deduction made as prescribed in this
paragraph (d)(1), and even if the deduction is made after the return on
which the employee tax must be reported is due. If such a deduction is
not made, the obligation of the employee to the employer with respect
to the undercollection is a matter for settlement between the employee
and the employer. If an employer makes an erroneous collection of
employee tax from two or more of its employees, a separate settlement
must be made with respect to each employee. An overcollection of
employee tax from one employee may not be used to offset an
undercollection of such tax from another employee. For provisions
relating to the employer's liability for the tax, whether or not it
collects the tax from the employee, see Sec. Sec. 31.3102-1(d),
31.3102-4(c), and 31.3202-1. This paragraph (d)(1) does not apply if
section 3509 applies to determine the employer's liability.
* * * * *
(e) Effective/applicability date. Paragraphs (b) and (d) of this
section apply to adjustments made after the date of publication of the
Treasury decision adopting these rules as final regulations in the
Federal Register.
Par. 11. Section 31.6402(a)-2 is amended by:
1. Revising paragraph (a)(1)(i) and the first sentence in paragraph
(a)(1)(ii).
2. Re-designating paragraphs (a)(1)(iii), (a)(1)(iv), (a)(1)(v),
and (a)(1)(vi), as new paragraphs (a)(1)(iv), (a)(1)(v), (a)(1)(vi),
and (a)(1)(vii), respectively.
3. Adding a new paragraph (a)(1)(iii).
4. Revising newly-designated paragraphs (a)(1)(iv) and (a)(1)(v).
5. Revising paragraph (b).
6. Adding a new paragraph (c).
Sec. 31.6402(a)-2 Credit or refund of tax under Federal Insurance
Contributions Act or Railroad Retirement Tax Act.
(a) * * * (1) * * *
(i) Except as provided in paragraph (a)(1)(iii) of this section,
any person may file a claim for credit or refund for an overpayment
(except to the extent that the overpayment must be credited pursuant to
Sec. 31.3503-1) if the person paid to the Internal Revenue Service
(IRS) more than the correct amount of employee Federal Insurance
Contributions Act (FICA) tax under section 3101 or employer FICA tax
under section 3111, employee Railroad Retirement Tax Act (RRTA) tax
under section 3201, employee representative RRTA tax under section
3211, or employer RRTA tax under section 3221, or interest, addition to
the tax, additional amount, or penalty with respect to any such tax.
(ii) Except as provided in paragraph (a)(1)(iii) of this section,
the claim for credit or refund must be made in the manner and subject
to the conditions stated in this section. * * *
(iii) Additional Medicare Tax. No refund or credit to the employer
will be allowed for the amount of any overpayment of Additional
Medicare Tax imposed under section 3101(b)(2) or section 3201(a) (as
calculated under section 3101(b)(2)), which the employer deducted or
withheld from an employee.
(iv) For adjustments without interest of overpayments of FICA or
RRTA taxes, including Additional Medicare Tax, see Sec. 31.6413(a)-2.
(v) For corrections of FICA and RRTA tax paid under the wrong
chapter, see Sec. 31.6205-1(b)(2)(ii) and (b)(2)(iii) and Sec.
31.3503-1.
* * * * *
(b) Claim by employee--(1) In general. Except as provided in (b)(3)
of this section, if more than the correct amount of employee tax under
section 3101 or section 3201 is collected by an employer from an
employee and paid to the IRS, the employee may file a claim for refund
of the overpayment if--
(i) The employee does not receive repayment or reimbursement in any
manner from the employer and does not authorize the employer to file a
claim and receive refund or credit,
(ii) The overcollection cannot be corrected under Sec. 31.3503-1,
and
(iii) In the case of overpaid employee social security tax due to
having received wages or compensation from multiple employers, the
employee has not taken the overcollection into account in claiming a
credit against, or refund of, his or her income tax, or if so, such
claim has been rejected. See Sec. 31.6413(c)-1.
(2) Statements supporting employee's claim. (i) Except as provided
in (b)(3) of this section, each employee who makes a claim under
paragraph (b)(1) of this section shall submit with such claim a
statement setting forth (a) the extent, if any, to which the employer
has repaid or reimbursed the employee in any manner for the
overcollection, and (b) the amount, if any, of credit or refund of such
overpayment claimed by the employer or authorized by the employee to be
claimed by the employer. The employee shall obtain such statement, if
possible, from the employer, who should include in such statement the
fact that it is made in support of a claim against the United States to
be filed by the employee for refund of employee tax paid by such
employer to the IRS. If the employer's statement is not submitted with
the claim, the employee shall make the statement to the best of his or
her knowledge and belief, and shall include therein an explanation of
his or her inability to obtain the statement from the employer.
(ii) Except as provided in paragraph (b)(3) of this section, each
individual
[[Page 72277]]
who makes a claim under paragraph (b)(1) of this section also shall
submit with such claim a statement setting forth whether the individual
has taken the amount of the overcollection into account in claiming a
credit against, or refund of, his or her income tax, and the amount, if
any, so claimed (see Sec. 31.6413(c)-1).
(3) Additional Medicare Tax. (i) If more than the correct amount of
Additional Medicare Tax under section 3101(b)(2) or section 3201(a) (as
calculated under section 3101(b)(2)), is collected by an employer from
an employee and paid to the IRS, the employee may file a claim for
refund of the overpayment and receive a refund or credit if the
overcollection cannot be corrected under Sec. 31.3503-1 and if the
employee has not received repayment or reimbursement from the employer
in the context of an interest-free adjustment. The claim for refund
shall be made on Form 1040, ``U.S. Individual Income Tax Return,'' by
taking the overcollection into account in claiming a credit against, or
refund of, tax. The form to be used by residents of the U.S. Virgin
Islands, Guam, American Samoa, or the Northern Mariana Islands is Form
1040-SS, ``U.S. Self-Employment Tax Return (Including Additional Child
Tax Credit for Bona Fide Residents of Puerto Rico).'' The form to be
used by residents of Puerto Rico is either Form 1040-SS or Form 1040-
PR, ``Planilla para la Declaraci[oacute]n de la Contribuci[oacute]n
Federal sobre el Trabajo por Cuenta Propia (Incluyendo el
Cr[eacute]dito Tributario Adicional por Hijos para Residentes Bona Fide
de Puerto Rico).'' The employee may not authorize the employer to claim
the credit or refund for the employee. See Sec. 31.6402(a)-
2(a)(1)(iii).
(ii) In the case of an overpayment of Additional Medicare Tax under
section 3101(b)(2) or section 3201(a) for a taxable year of an
individual for which a Form 1040 (or other applicable return in the
Form 1040 series) has been filed, a claim for refund shall be made by
the individual on Form 1040X, ``Amended U.S. Individual Income Tax
Return.''
(c) Effective/applicability date. This section applies to claims
for refund filed after the date of publication of the Treasury decision
adopting these rules as final regulations in the Federal Register.
Par. 12. Section 31.6413(a)-1 is amended by:
1. Revising the first sentence in paragraph (a)(2)(i).
2. Re-designating paragraphs (a)(2)(ii), (a)(2)(iii), (a)(2)(iv),
(a)(2)(v), (a)(2)(vi), and (a)(2)(vii), as new paragraphs (a)(2)(iii),
(a)(2)(iv), (a)(2)(v), (a)(2)(vi), (a)(2)(vii), and (a)(2)(viii),
respectively.
3. Adding a new paragraph (a)(2)(ii).
4. Adding a new sentence after the first sentence in newly-
designated paragraph (a)(2)(iv).
5. Adding a new sentence after the second sentence in newly-
designated paragraph (a)(2)(v).
6. Revising newly-designated paragraph (a)(2)(viii).
7. Adding a new paragraph (c).
The revisions and additions read as follows:
Sec. 31.6413(a)-1 Repayment or reimbursement by employer of tax
erroneously collected from employee.
(a) * * *
(2) * * * (i) Except as provided in paragraph (a)(2)(ii) of this
section, if an employer files a return for a return period on which
FICA tax or RRTA tax is reported, collects from an employee and pays to
the IRS more than the correct amount of the employee FICA or RRTA tax,
and if the employer ascertains the error after filing the return and
within the applicable period of limitations on credit or refund, the
employer shall repay or reimburse the employee in the amount of the
overcollection prior to the expiration of such limitations period. * *
*
(ii) If an employer files a return for a return period on which
Additional Medicare Tax under section 3101(b)(2) or section 3201(a) is
reported, collects from an employee and pays to the IRS more than the
correct amount of Additional Medicare Tax required to be withheld from
wages or compensation, and if the employer ascertains the error after
filing the return but before the end of the calendar year in which the
wages were paid, the employer shall repay or reimburse the employee in
the amount of the overcollection prior to the end of the calendar year.
However, this paragraph does not apply to the extent that, after
reasonable efforts, the employer cannot locate the employee.
* * * * *
(iv) * * * However, for purposes of overcollected Additional
Medicare Tax under section 3101(b)(2) or section 3201(a), the employer
shall reimburse the employee by applying the amount of the
overcollection against the employee FICA or RRTA tax which attaches to
wages or compensation paid by the employer to the employee in the
calendar year in which the overcollection is made. * * *
(v) * * * This paragraph (a)(2)(v) does not apply for purposes of
overcollected Additional Medicare Tax under section 3101(b)(2) or
section 3201(a) which must be repaid or reimbursed to the employee in
the calendar year in which the overcollection is made. * * *
* * * * *
(viii) For corrections of FICA and RRTA tax paid under the wrong
chapter, see Sec. 31.6205-1(b)(2)(ii) and (b)(2)(iii) and Sec.
31.3503-1.
* * * * *
(c) Effective/applicability date. Paragraph (a) of this section
applies to adjustments made after the date of publication of the
Treasury decision adopting these rules as final regulations in the
Federal Register.
Par. 13. Section 31.6413(a)-2 is amended by:
1. Adding a new sentence after the first sentence in paragraph
(a)(1).
2. Adding a new sentence after the second sentence in paragraph
(b)(2)(i).
3. Adding a new paragraph (e).
The revisions and additions read as follows:
Sec. 31.6413(a)-2 Adjustments of overpayments.
(a) * * *
(1) * * * However, this section only applies to overcollected or
overpaid Additional Medicare Tax under section 3101(b)(2) or section
3201(a) if the employer has repaid or reimbursed the amount of the
overcollection of such tax to the employee in the year in which the
overcollection was made. * * *
* * * * *
(b) * * *
(2) * * * (i) * * * However, for purposes of Additional Medicare
Tax under section 3101(b)(2) or section 3201(a), if the amount of the
overcollection is not repaid or reimbursed to the employee under Sec.
31.6413(a)-1(a)(2)(ii), there is no overpayment to be adjusted under
this section and the employer may only adjust an overpayment of such
tax attributable to an administrative error, that is, an error
involving the inaccurate reporting of the amount withheld, pursuant to
this section. * * *
* * * * *
(e) Effective/applicability date. Paragraphs (a) and (b) of this
section apply to adjustments made after the date of publication of the
Treasury decision adopting these rules as final regulations in the
Federal Register.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2012-29237 Filed 11-30-12; 2:00 pm]
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