26 U.S.C. § 3402 — Income tax collected at source

submitted 72 years ago by ch. 736 to r/title-26-INTERNAL-REVENUE-CODE · 6,237 words · no verdicts yet

in plain englishAI-generated · not legal advice

Employers must withhold income tax from employee wages using IRS-style tables the Secretary prescribes. The amount depends on the employee's withholding allowances, marital status, and pay period. This section also extends withholding to tips, gambling winnings, annuities, and other special payments.

(a) The basic withholding rule. Employers must take income tax out of every paycheck. The IRS (the Secretary) publishes tables or step-by-step methods employers use to figure the amount. These tables have to fit the actual pay periods employers use, and must be built to withhold the right amount under the tax rules in force at the time. When the tables figure "the amount of wages," they start with the wages paid and subtract the employee's withholding allowance for that pay period. (b) The percentage method. If wages are paid for an odd stretch that isn't a normal payroll period, the employee's allowance is based on a stand-in period with the same number of days — counting Sundays and holidays — as the actual period covered. If there's no set payroll period at all, the allowance is based on the number of days since the employee's last paycheck from that employer (or since they started that job, or since January 1, whichever is most recent). If that stretch is shorter than a week, the IRS can let the employer treat a full week's pay as if it were paid on a normal weekly schedule. Employers may round wages to the nearest dollar when doing this math. (c) The wage-bracket method. Instead of the method in (a), an employer may choose to look up the tax in wage-bracket tables the IRS publishes for each employee. The same stand-in-period rules from (b) apply for odd or missing payroll periods, and short periods can be folded into a weekly period the same way. Employers may round to the nearest dollar for wages above the top bracket. For wages paid after December 31, 1969, these wage-bracket tables must be built from the same annual-payroll-period table required under (a). (d) If the employer skips withholding but the employee still pays. If an employer illegally fails to withhold, and the employee later pays that same tax themselves, the IRS won't also collect it from the employer. But the employer can still be penalized for failing to withhold in the first place. (e) Splitting a pay period between wages and non-wages. For a payroll period of 31 days or less: if half or more of what an employer paid an employee for that period counts as wages, the whole payment counts as wages. If less than half counts as wages, none of it does. (f) Figuring the withholding allowance, and the paperwork behind it. (1) An employee's allowance on any given day depends on: whether someone else can claim the employee as a dependent (A); whether the employee's spouse is also entitled to an allowance and hasn't already claimed it on their own certificate (B); how many people the employee can reasonably expect to claim for the child tax credit that year (C); any extra amount the employee elects under subsection (m), unless the spouse already claims it (D); the employee's standard deduction — cut in half if the employee is married and the spouse also has wages withheld (E); and whether the employee has certificates in effect with more than one employer (F). (2) The employee must give the employer a signed certificate on or before their first day of work, claiming no more allowance than they're actually entitled to (A). If at any point the employee's certificate claims more than they're truly entitled to, they must file a corrected one within 10 days (B); if their true allowance goes up, they may — but don't have to — file a new certificate. If the employee's allowance for their next tax year will be different, they must file a certificate for that future year on whatever schedule the IRS sets (C). (3) A brand-new certificate (no prior one on file) takes effect at the start of the next payroll period or payment after it's filed (A). A certificate that replaces an existing one takes effect 30 days after filing, unless the employer chooses to make it effective sooner (B)(i)-(ii). A certificate that's only about a future year never takes effect for wages paid in the year it's filed (B)(iii). (4) A certificate stays in effect until replaced by a new one. (5) The IRS sets the form and required content. (6) A nonresident alien (with some exceptions defined elsewhere) gets only one withholding allowance, no matter what (1) would otherwise give them. (7) If an employee has a certificate claiming a certain allowance with one employer, they can't claim that same allowance again with a different employer. (g) Overlapping periods and payments through someone else. If wages are paid for a period that overlaps another period the same employer is also paying the employee for, or paid with no set period but before an overlapping period ends, or the period straddles two calendar years, or the payment comes through an agent or fiduciary who also handles wages another employer pays that same employee — in all these cases, the IRS sets rules so that, over the year, the employee's allowance works out to roughly what a normal annual payroll period would give. (h) Other ways to calculate withholding. The IRS may let an employer use: (1) Average wages — estimate what an employee will earn in a calendar quarter, withhold each check as if that estimated average were the actual wage, then true up the total at quarter's end (within 30 days for tips) so the right amount was withheld for the quarter. (2) Annualized wages — multiply one paycheck by the number of pay periods in a year, figure the tax on that annual amount as if it were paid over an annual payroll period, then divide the result back by the number of pay periods to get the amount to withhold from each check. (3) Cumulative wages — at an employee's request: add the new paycheck to everything paid so far that year, divide by the number of pay periods so far to get an average, figure the total tax that average would produce over all those periods, subtract what's already been withheld that year, and withhold the difference now. (4) Any other method that ends up withholding about the same total as the standard methods in (a) or (c), whether measured pay period by pay period or over the whole year. (i) Employees who want extra withheld. The IRS can let employees request more withholding than normally required. Any extra amount withheld this way still counts, for every purpose, as tax required to be withheld under this chapter. (j) Noncash pay for retail commission salespeople. If a retail salesperson is normally paid entirely by cash commission, but for some services is paid in something other than cash, the employer doesn't have to withhold from that noncash pay — as long as the employer reports it to the IRS as required by regulation. (k) Tips. Tax must be withheld from tips only to the extent the employee reported them to the employer in writing, and only up to the amount the employer can actually withhold — before the end of that calendar year — from the employee's other wages under the employer's control (this can include money the employee turns over specifically to cover the withholding, but not the tips themselves). There's a special rule allowing withholding from other wages even for a written tip report covering less than $20 in a month. In every case, the amount withheld for tips can never exceed the total of those other wages and turned-over funds, minus whatever Social Security or Medicare tax must also come out of that same money. (l) Marital status for withholding. (1) Unless the employee has filed a certificate saying they're married, the employer must treat them as single. (2) An employee may claim "married" on a certificate only if they're actually married that day (using the rules in (3)). If an employee's status changes from married to single, they must file a new certificate saying so, on whatever schedule the IRS requires. (3) For this purpose, an employee counts as not married if they're legally separated by divorce or separate-maintenance decree, or if either spouse was a nonresident alien at any point that year. An employee counts as married if their spouse died earlier that same tax year, or died in either of the two years before and the employee reasonably expects to qualify, at year's end, as a surviving spouse under section 2(a). (m) Extra allowances for expected deductions and credits. The IRS can let an employee claim an additional allowance, or a reduction in withholding, to account for: estimated itemized deductions and the section 199A deduction they expect (not counting personal exemptions or above-the-line deductions) (1); estimated tax credits they expect (2); and other amounts the IRS specifies, including the extra standard deduction for being 65 or older or blind (3). (n) Employees who owe no tax. An employer doesn't have to withhold anything if the employee certifies they owed no federal income tax last year and expect to owe none this year. The IRS coordinates this with the allowance rules in (f). (o) Withholding on certain payments that aren't wages. (1) These are treated as wages for withholding purposes: supplemental unemployment benefits (A); annuity payments, if the recipient asked for withholding (B); and sick pay that wouldn't otherwise count as wages, if the recipient asked for withholding (C). (2) "Supplemental unemployment compensation benefits" means amounts paid under an employer plan because of a layoff — a reduction in force, plant closing, or similar — but only the taxable part. "Annuity" means any pension or annuity payment. "Sick pay" means pay under an employer plan for time an employee is out sick or hurt. (3) The amount withheld from a requested annuity or sick pay payment is whatever the recipient specified (subject to an IRS-set minimum); a partial payment gets a proportionally smaller amount withheld. (4) A withholding request must be in writing, include the recipient's Social Security number (A), state the dollar amount to withhold from each full payment (B), and takes effect 7 days after being given to the payor for sick pay, or on whatever schedule the IRS sets for annuities (C). It can be changed or canceled the same way, though the payor can choose to make a change effective sooner. (5) For sick pay under certain union agreements: if the agreement itself says this rule applies and spells out the withholding amounts, no separate written request is needed — the agreement's terms control instead (subject to the no-liability exception in (n)), as long as the employee's Social Security number and enough information to confirm the payment falls under the agreement are given to the payor. (6) This subsection doesn't apply to "designated distributions" already covered by section 3405. (p) Voluntary withholding agreements. (1) Certain federal payments — Social Security benefits, certain insurance-type payments under section 451(d), amounts includible in income under section 77(a), and any other federal payment the IRS designates — are treated as wages if the recipient requested withholding. The amount withheld is a flat percentage the recipient chooses: 7%, a percentage matching one of the three lowest tax brackets, or another percentage the IRS allows. The same request rules that apply to annuities under (o)(4) apply here. (2) For unemployment compensation, if the recipient requests withholding, the payment is treated as wages and withheld at a flat 10%. (3) For any other payment, the IRS can allow withholding if both sides agree — an employer and employee for pay that wouldn't normally count as wages, or any other payor and payee for a payment the IRS decides fits. Once agreed to, those payments count as wages for as long as the agreement is in effect. (q) Withholding on gambling winnings. (1) Anyone paying out winnings "subject to withholding" — including government entities — must withhold tax equal to the third-lowest income tax rate multiplied by the winnings. (2) This doesn't apply to a payment to a nonresident alien or foreign corporation already subject to the separate withholding rules for nonresident aliens or foreign corporations. (3) "Winnings subject to withholding" means: generally, proceeds over $5,000 that are at least 300 times the amount wagered (A); state-run lottery proceeds over $5,000, but only if the bet was placed directly with the state lottery agency or its agents (B); and proceeds over $5,000 from sweepstakes, wagering pools, or other lotteries, or from pari-mutuel betting on horse racing, dog racing, or jai alai — with the 300-times rule also applying to the pari-mutuel case (C). (4) "Proceeds" means the amount received minus the amount wagered; non-cash proceeds are valued at fair market value. (5) This withholding never applies to slot machine, keno, or bingo winnings. (6) Anyone receiving withholdable winnings must give the payor a signed statement, under penalty of perjury, with their name, address, and taxpayer ID, and the same for anyone else sharing in the winnings. (7) For certain other purposes, these winnings are treated exactly like wages. (r) Withholding on Indian casino profit payments. (1) Anyone, including a tribe itself, that pays a tribal member from the net profits of a class II or III gaming operation the tribe runs or licenses must withhold a share of the "annualized tax." (2) This withholding doesn't apply if the payment, once annualized, is no more than the standard deduction plus the personal exemption amount. (3) "Annualized tax" means the tax that would apply — figured under section 1(c) but capped at the fourth-lowest rate — on the annualized payment, minus the threshold in (2). (4) Gaming terms used here take the meanings given in the Indian Gaming Regulatory Act. (5) Payments are annualized under IRS regulations. (6) A tribe can instead choose to use tables or procedures the IRS specifies, instead of the math in (2)-(3). (7) For other purposes, these payments are treated like wages. (s) Vehicle fringe benefits. (1) An employer can choose not to withhold on a fringe benefit that consists of letting an employee use a company vehicle, as long as the employer tells the employee about that choice and reports the benefit's value on the employee's W-2. (2) Even without withholding, the vehicle benefit's value still has to be reported as wages on the W-2. (3) A "vehicle fringe benefit" is a fringe benefit that counts as wages under section 3401 and consists of providing a highway motor vehicle for the employee's use. (t) Certain stock (section 83(i) elections). For stock that qualifies for the deferral election under section 83(i): the withholding rate can't be lower than the top individual tax rate, and the stock is treated the same as a noncash fringe benefit for purposes of section 3501(b).

facts

- Codified at 26 U.S.C. § 3402, titled "Income tax collected at source," within the Internal Revenue Code's chapter on employment tax withholding. - Originally enacted August 16, 1954, by ch. 736, 68A Stat. 457. - The provision is lengthy, comprising 6,237 words across subsections (a) through (t). - The source-credit note reflects 35 amendments enacted between 1955 and 2021, including major revisions by Pub. L. 91–172 (1969), Pub. L. 94–455 (1976), Pub. L. 99–514 (1986), Pub. L. 107–16 (2001), and Pub. L. 115–97 (2017). - Most recent amendment listed is Pub. L. 117–2, § 9611(b)(3), enacted March 11, 2021.

the actual law source: uscode.house.gov ↗public domain

(a) Requirement of withholding

(1) In general

Except as otherwise provided in this section, every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with tables or computational procedures prescribed by the Secretary. Any tables or procedures prescribed under this paragraph shall—

(A)

apply with respect to the amount of wages paid during such periods as the Secretary may prescribe, and

(B)

be in such form, and provide for such amounts to be deducted and withheld, as the Secretary determines to be most appropriate to carry out the purposes of this chapter and to reflect the provisions of chapter 1 applicable to such periods.

(2) Amount of wages

For purposes of applying tables or procedures prescribed under paragraph (1), the term “the amount of wages” means the amount by which the wages exceed the taxpayer’s withholding allowance, prorated to the payroll period.

(b) Percentage method of withholding

(1)

If wages are paid with respect to a period which is not a payroll period, the withholding allowance allowable with respect to each payment of such wages shall be the allowance allowed for a miscellaneous payroll period containing a number of days (including Sundays and holidays) equal to the number of days in the period with respect to which such wages are paid.

(2)

In any case in which wages are paid by an employer without regard to any payroll period or other period, the withholding allowance allowable with respect to each payment of such wages shall be the allowance allowed for a miscellaneous payroll period containing a number of days equal to the number of days (including Sundays and holidays) which have elapsed since the date of the last payment of such wages by such employer during the calendar year, or the date of commencement of employment with such employer during such year, or January 1 of such year, whichever is the later.

(3)

In any case in which the period, or the time described in paragraph (2), in respect of any wages is less than one week, the Secretary, under regulations prescribed by him, may authorize an employer to compute the tax to be deducted and withheld as if the aggregate of the wages paid to the employee during the calendar week were paid for a weekly payroll period.

(4)

In determining the amount to be deducted and withheld under this subsection, the wages may, at the election of the employer, be computed to the nearest dollar.

(1)

At the election of the employer with respect to any employee, the employer shall deduct and withhold upon the wages paid to such employee a tax (in lieu of the tax required to be deducted and withheld under subsection (a)) determined in accordance with tables prescribed by the Secretary in accordance with paragraph (6).

(2)

If wages are paid with respect to a period which is not a payroll period, the amount to be deducted and withheld shall be that applicable in the case of a miscellaneous payroll period containing a number of days (including Sundays and holidays) equal to the number of days in the period with respect to which such wages are paid.

(3)

In any case in which wages are paid by an employer without regard to any payroll period or other period, the amount to be deducted and withheld shall be that applicable in the case of a miscellaneous payroll period containing a number of days equal to the number of days (including Sundays and holidays) which have elapsed since the date of the last payment of such wages by such employer during the calendar year, or the date of commencement of employment with such employer during such year, or January 1 of such year, whichever is the later.

(4)

In any case in which the period, or the time described in paragraph (3), in respect of any wages is less than one week, the Secretary, under regulations prescribed by him, may authorize an employer to determine the amount to be deducted and withheld under the tables applicable in the case of a weekly payroll period, in which case the aggregate of the wages paid to the employee during the calendar week shall be considered the weekly wages.

(5)

If the wages exceed the highest wage bracket, in determining the amount to be deducted and withheld under this subsection, the wages may, at the election of the employer, be computed to the nearest dollar.

(6)

In the case of wages paid after December 31, 1969, the amount deducted and withheld under paragraph (1) shall be determined in accordance with tables prescribed by the Secretary. In the tables so prescribed, the amounts set forth as amounts of wages and amounts of income tax to be deducted and withheld shall be computed on the basis of the table for an annual payroll period prescribed pursuant to subsection (a).

(d) Tax paid by recipient

If the employer, in violation of the provisions of this chapter, fails to deduct and withhold the tax under this chapter, and thereafter the tax against which such tax may be credited is paid, the tax so required to be deducted and withheld shall not be collected from the employer; but this subsection shall in no case relieve the employer from liability for any penalties or additions to the tax otherwise applicable in respect of such failure to deduct and withhold.

(e) Included and excluded wages

If the remuneration paid by an employer to an employee for services performed during one-half or more of any payroll period of not more than 31 consecutive days constitutes wages, all the remuneration paid by such employer to such employee for such period shall be deemed to be wages; but if the remuneration paid by an employer to an employee for services performed during more than one-half of any such payroll period does not constitute wages, then none of the remuneration paid by such employer to such employee for such period shall be deemed to be wages.

(f) Withholding allowance

(1) In general

Under rules determined by the Secretary, an employee receiving wages shall on any day be entitled to a withholding allowance determined based on—

(A)

whether the employee is an individual for whom a deduction is allowable with respect to another taxpayer under section 151;

(B)

if the employee is married, whether the employee’s spouse is entitled to an allowance, or would be so entitled if such spouse were an employee receiving wages, under subparagraph (A) or (D), but only if such spouse does not have in effect a withholding allowance certificate claiming such allowance;

(C)

the number of individuals with respect to whom, on the basis of facts existing at the beginning of such day, there may reasonably be expected to be allowable a credit under section 24 (determined after application of subsection (j) thereof) for the taxable year under subtitle A in respect of which amounts deducted and withheld under this chapter in the calendar year in which such day falls are allowed as a credit;

(D)

any additional amounts to which the employee elects to take into account under subsection (m), but only if the employee’s spouse does not have in effect a withholding allowance certificate making such an election;

(E)

the standard deduction allowable to such employee (one-half of such standard deduction in the case of an employee who is married (as determined under section 7703) and whose spouse is an employee receiving wages subject to withholding); and

(F)

whether the employee has withholding allowance certificates in effect with respect to more than 1 employer.

(2) Allowance certificates

(A) On commencement of employment

On or before the date of the commencement of employment with an employer, the employee shall furnish the employer with a signed withholding allowance certificate relating to the withholding allowance claimed by the employee, which shall in no event exceed the amount to which the employee is entitled.

(B) Change of status

If, on any day during the calendar year, an employee’s withholding allowance is in excess of the withholding allowance to which the employee would be entitled had the employee submitted a true and accurate withholding allowance certificate to the employer on that day, the employee shall within 10 days thereafter furnish the employer with a new withholding allowance certificate. If, on any day during the calendar year, an employee’s withholding allowance is greater than the withholding allowance claimed, the employee may furnish the employer with a new withholding allowance certificate relating to the withholding allowance to which the employee is so entitled, which shall in no event exceed the amount to which the employee is entitled on such day.

If on any day during the calendar year the withholding allowance to which the employee will be, or may reasonably be expected to be, entitled at the beginning of the employee’s next taxable year under subtitle A is different from the allowance to which the employee is entitled on such day, the employee shall, in such cases and at such times as the Secretary shall by regulations prescribe, furnish the employer with a withholding allowance certificate relating to the withholding allowance which the employee claims with respect to such next taxable year, which shall in no event exceed the withholding allowance to which the employee will be, or may reasonably be expected to be, so entitled.

(3) When certificate takes effect

(A) First certificate furnished

A withholding allowance certificate furnished the employer in cases in which no previous such certificate is in effect shall take effect as of the beginning of the first payroll period ending, or the first payment of wages made without regard to a payroll period, on or after the date on which such certificate is so furnished.

(B) Furnished to take place of existing certificate

(i) In general

Except as provided in clauses (ii) and (iii), a withholding allowance certificate furnished to the employer in cases in which a previous such certificate is in effect shall take effect as of the beginning of the 1st payroll period ending (or the 1st payment of wages made without regard to a payroll period) on or after the 30th day after the day on which such certificate is so furnished.

(ii) Employer may elect earlier effective date

At the election of the employer, a certificate described in clause (i) may be made effective beginning with any payment of wages made on or after the day on which the certificate is so furnished and before the 30th day referred to in clause (i).

(iii) Change of status which affects next year

Any certificate furnished pursuant to paragraph (2)(C) shall not take effect, and may not be made effective, with respect to any payment of wages made in the calendar year in which the certificate is furnished.

(4) Period during which certificate remains in effect

A withholding allowance certificate which takes effect under this subsection, or which on December 31, 1954, was in effect under the corresponding subsection of prior law, shall continue in effect with respect to the employer until another such certificate takes effect under this subsection.

(5) Form and contents of certificate

Withholding allowance certificates shall be in such form and contain such information as the Secretary may by regulations prescribe.

(6) Exemption of certain nonresident aliens

Notwithstanding the provisions of paragraph (1), a nonresident alien individual (other than an individual described in section 3401(a)(6)(A) or (B) 1 ) shall be entitled to only one withholding exemption.

(7) Allowance where certificate with another employer is in effect

If a withholding allowance certificate is in effect with respect to one employer, an employee shall not be entitled under a certificate in effect with any other employer to any withholding allowance which he has claimed under such first certificate.

(g) Overlapping pay periods, and payment by agent or fiduciary

If a payment of wages is made to an employee by an employer—

(1)

with respect to a payroll period or other period, any part of which is included in a payroll period or other period with respect to which wages are also paid to such employee by such employer, or

(2)

without regard to any payroll period or other period, but on or prior to the expiration of a payroll period or other period with respect to which wages are also paid to such employee by such employer, or

(3)

with respect to a period beginning in one and ending in another calendar year, or

(4)

through an agent, fiduciary, or other person who also has the control, receipt, custody, or disposal of, or pays, the wages payable by another employer to such employee,

the manner of withholding and the amount to be deducted and withheld under this chapter shall be determined in accordance with regulations prescribed by the Secretary under which the withholding allowance allowed to the employee in any calendar year shall approximate the withholding allowance allowable with respect to an annual payroll period.

(h) Alternative methods of computing amount to be withheld

The Secretary may, under regulations prescribed by him, authorize—

(1) Withholding on basis of average wages

An employer—

(A)

to estimate the wages which will be paid to any employee in any quarter of the calendar year,

(B)

to determine the amount to be deducted and withheld upon each payment of wages to such employee during such quarter as if the appropriate average of the wages so estimated constituted the actual wages paid, and

(C)

to deduct and withhold upon any payment of wages to such employee during such quarter (and, in the case of tips referred to in subsection (k), within 30 days thereafter) such amount as may be necessary to adjust the amount actually deducted and withheld upon the wages of such employee during such quarter to the amount required to be deducted and withheld during such quarter without regard to this subsection.

(2) Withholding on basis of annualized wages

An employer to determine the amount of tax to be deducted and withheld upon a payment of wages to an employee for a payroll period by—

(A)

multiplying the amount of an employee’s wages for a payroll period by the number of such payroll periods in the calendar year,

(B)

determining the amount of tax which would be required to be deducted and withheld upon the amount determined under subparagraph (A) if such amount constituted the actual wages for the calendar year and the payroll period of the employee were an annual payroll period, and

(C)

dividing the amount of tax determined under subparagraph (B) by the number of payroll periods (described in subparagraph (A)) in the calendar year.

(3) Withholding on basis of cumulative wages

An employer, in the case of any employee who requests to have the amount of tax to be withheld from his wages computed on the basis of his cumulative wages, to—

(A)

add the amount of the wages to be paid to the employee for the payroll period to the total amount of wages paid by the employer to the employee during the calendar year,

(B)

divide the aggregate amount of wages computed under subparagraph (A) by the number of payroll periods to which such aggregate amount of wages relates,

(C)

compute the total amount of tax that would have been required to be deducted and withheld under subsection (a) if the average amount of wages (as computed under subparagraph (B)) had been paid to the employee for the number of payroll periods to which the aggregate amount of wages (computed under subparagraph (A)) relates,

(D)

determine the excess, if any, of the amount of tax computed under subparagraph (C) over the total amount of tax deducted and withheld by the employer from wages paid to the employee during the calendar year, and

(E)

deduct and withhold upon the payment of wages (referred to in subparagraph (A)) to the employee an amount equal to the excess (if any) computed under subparagraph (D).

(4) Other methods

An employer to determine the amount of tax to be deducted and withheld upon the wages paid to an employee by any other method which will require the employer to deduct and withhold upon such wages substantially the same amount as would be required to be deducted and withheld by applying subsection (a) or (c), either with respect to a payroll period or with respect to the entire taxable year.

(i) Changes in withholding

(1) In general

The Secretary may by regulations provide for increases in the amount of withholding otherwise required under this section in cases where the employee requests such changes.

(2) Treatment as tax

Any increased withholding under paragraph (1) shall for all purposes be considered tax required to be deducted and withheld under this chapter.

(j) Noncash remuneration to retail commission salesman

In the case of remuneration paid in any medium other than cash for services performed by an individual as a retail salesman for a person, where the service performed by such individual for such person is ordinarily performed for remuneration solely by way of cash commission an employer shall not be required to deduct or withhold any tax under this subchapter with respect to such remuneration, provided that such employer files with the Secretary such information with respect to such remuneration as the Secretary may by regulation prescribe.

(k) Tips

In the case of tips which constitute wages, subsection (a) shall be applicable only to such tips as are included in a written statement furnished to the employer pursuant to section 6053(a), and only to the extent that the tax can be deducted and withheld by the employer, at or after the time such statement is so furnished and before the close of the calendar year in which such statement is furnished, from such wages of the employee (excluding tips, but including funds turned over by the employee to the employer for the purpose of such deduction and withholding) as are under the control of the employer; and an employer who is furnished by an employee a written statement of tips (received in a calendar month) pursuant to section 6053(a) to which paragraph (16)(B) of section 3401(a) is applicable may deduct and withhold the tax with respect to such tips from any wages of the employee (excluding tips) under his control, even though at the time such statement is furnished the total amount of the tips included in statements furnished to the employer as having been received by the employee in such calendar month in the course of his employment by such employer is less than $20. Such tax shall not at any time be deducted and withheld in an amount which exceeds the aggregate of such wages and funds (including funds turned over under section 3102(c)(2) or section 3202(c)(2)) minus any tax required by section 3102(a) or section 3202(a) to be collected from such wages and funds.

(l) Determination and disclosure of marital status

(1) Determination of status by employer

For purposes of applying the tables in subsections (a) and (c) to a payment of wages, the employer shall treat the employee as a single person unless there is in effect with respect to such payment of wages a withholding allowance certificate furnished to the employer by the employee after the date of the enactment of this subsection indicating that the employee is married.

(2) Disclosure of status by employee

An employee shall be entitled to furnish the employer with a withholding allowance certificate indicating he is married only if, on the day of such furnishing, he is married (determined with the application of the rules in paragraph (3)). An employee whose marital status changes from married to single shall, at such time as the Secretary may by regulations prescribe, furnish the employer with a new withholding allowance certificate.

(3) Determination of marital status

For purposes of paragraph (2), an employee shall on any day be considered—

(A)

as not married, if (i) he is legally separated from his spouse under a decree of divorce or separate maintenance, or (ii) either he or his spouse is, or on any preceding day within the calendar year was, a nonresident alien; or

(B)

as married, if (i) his spouse (other than a spouse referred to in subparagraph (A)) died within the portion of his taxable year which precedes such day, or (ii) his spouse died during one of the two taxable years immediately preceding the current taxable year and, on the basis of facts existing at the beginning of such day, the employee reasonably expects, at the close of his taxable year, to be a surviving spouse (as defined in section 2(a)).

(m) Withholding allowances

Under regulations prescribed by the Secretary, an employee shall be entitled to an additional withholding allowance or additional reductions in withholding under this subsection. In determining the additional withholding allowance or the amount of additional reductions in withholding under this subsection, the employee may take into account (to the extent and in the manner provided by such regulations)—

(1)

estimated itemized deductions allowable under chapter 1 and the estimated deduction allowed under section 199A (other than the deductions referred to in section 151 and other than the deductions required to be taken into account in determining adjusted gross income under section 62(a)),

(2)

estimated tax credits allowable under chapter 1, and

(3)

such additional deductions (including the additional standard deduction under section 63(c)(3) for the aged and blind) and other items as may be specified by the Secretary in regulations.

(n) Employees incurring no income tax liability

Notwithstanding any other provision of this section, an employer shall not be required to deduct and withhold any tax under this chapter upon a payment of wages to an employee if there is in effect with respect to such payment a withholding allowance certificate (in such form and containing such other information as the Secretary may prescribe) furnished to the employer by the employee certifying that the employee—

(1)

incurred no liability for income tax imposed under subtitle A for his preceding taxable year, and

(2)

anticipates that he will incur no liability for income tax imposed under subtitle A for his current taxable year.

The Secretary shall by regulations provide for the coordination of the provisions of this subsection with the provisions of subsection (f).

(o) Extension of withholding to certain payments other than wages

(1) General rule

For purposes of this chapter (and so much of subtitle F as relates to this chapter)—

(A)

any supplemental unemployment compensation benefit paid to an individual,

(B)

any payment of an annuity to an individual, if at the time the payment is made a request that such annuity be subject to withholding under this chapter is in effect, and

(C)

any payment to an individual of sick pay which does not constitute wages (determined without regard to this subsection), if at the time the payment is made a request that such sick pay be subject to withholding under this chapter is in effect,

shall be treated as if it were a payment of wages by an employer to an employee for a payroll period.

(2) Definitions

(A) Supplemental unemployment compensation benefits

For purposes of paragraph (1), the term “supplemental unemployment compensation benefits” means amounts which are paid to an employee, pursuant to a plan to which the employer is a party, because of an employee’s involuntary separation from employment (whether or not such separation is temporary), resulting directly from a reduction in force, the discontinuance of a plant or operation, or other similar conditions, but only to the extent such benefits are includible in the employee’s gross income.

(B) Annuity

For purposes of this subsection, the term “annuity” means any amount paid to an individual as a pension or annuity.

For purposes of this subsection, the term “sick pay” means any amount which—

(i)

is paid to an employee pursuant to a plan to which the employer is a party, and

(ii)

constitutes remuneration or a payment in lieu of remuneration for any period during which the employee is temporarily absent from work on account of sickness or personal injuries.

(3) Amount withheld from annuity payments or sick pay

If a payee makes a request that an annuity or any sick pay be subject to withholding under this chapter, the amount to be deducted and withheld under this chapter from any payment to which such request applies shall be an amount (not less than a minimum amount determined under regulations prescribed by the Secretary) specified by the payee in such request. The amount deducted and withheld with respect to a payment which is greater or less than a full payment shall bear the same relation to the specified amount as such payment bears to a full payment.

(4) Request for withholding

A request that an annuity or any sick pay be subject to withholding under this chapter—

(A)

shall be made by the payee in writing to the person making the payments and shall contain the social security number of the payee,

(B)

shall specify the amount to be deducted and withheld from each full payment, and

(C)

shall take effect—

(i)

in the case of sick pay, with respect to payments made more than 7 days after the date on which such request is furnished to the payor, or

(ii)

in the case of an annuity, at such time (after the date on which such request is furnished to the payor) as the Secretary shall by regulations prescribe.

Such a request may be changed or terminated by furnishing to the person making the payments a written statement of change or termination which shall take effect in the same manner as provided in subparagraph (C). At the election of the payor, any such request (or statement of change or revocation) may take effect earlier than as provided in subparagraph (C).

(5) Special rule for sick pay paid pursuant to certain collective-bargaining agreements

In the case of any sick pay paid pursuant to a collective-bargaining agreement between employee representatives and one or more employers which contains a provision specifying that this paragraph is to apply to sick pay paid pursuant to such agreement and contains a provision for determining the amount to be deducted and withheld from each payment of such sick pay—

(A)

the requirement of paragraph (1)(C) that a request for withholding be in effect shall not apply, and

(B)

except as provided in subsection (n), the amounts to be deducted and withheld under this chapter shall be determined in accordance with such agreement.

The preceding sentence shall not apply with respect to sick pay paid pursuant to any agreement to any individual unless the social security number of such individual is furnished to the payor and the payor is furnished with such information as is necessary to determine whether the payment is pursuant to the agreement and to determine the amount to be deducted and withheld.

(6) Coordination with withholding on designated distributions under section 3405

This subsection shall not apply to any amount which is a designated distribution (within the meaning of section 3405(e)(1)).

(p) Voluntary withholding agreements

(1) Certain Federal payments

(A) In general

If, at the time a specified Federal payment is made to any person, a request by such person is in effect that such payment be subject to withholding under this chapter, then for purposes of this chapter and so much of subtitle F as relates to this chapter, such payment shall be treated as if it were a payment of wages by an employer to an employee.

(B) Amount withheld

The amount to be deducted and withheld under this chapter from any payment to which any request under subparagraph (A) applies shall be an amount equal to the percentage of such payment specified in such request. Such a request shall apply to any payment only if the percentage specified is 7 percent, any percentage applicable to any of the 3 lowest income brackets in the table under section 1(c),¹ or such other percentage as is permitted under regulations prescribed by the Secretary.

For purposes of this paragraph, the term “specified Federal payment” means—

(i)

any payment of a social security benefit (as defined in section 86(d)),

(ii)

any payment referred to in the second sentence of section 451(d) ¹ which is treated as insurance proceeds,

(iii)

any amount which is includible in gross income under section 77(a), and

(iv)

any other payment made pursuant to Federal law which is specified by the Secretary for purposes of this paragraph.

(D) Requests for withholding

Rules similar to the rules that apply to annuities under subsection (o)(4) shall apply to requests under this paragraph and paragraph (2).

(2) Voluntary withholding on unemployment benefits

If, at the time a payment of unemployment compensation (as defined in section 85(b)) is made to any person, a request by such person is in effect that such payment be subject to withholding under this chapter, then for purposes of this chapter and so much of subtitle F as relates to this chapter, such payment shall be treated as if it were a payment of wages by an employer to an employee. The amount to be deducted and withheld under this chapter from any payment to which any request under this paragraph applies shall be an amount equal to 10 percent of such payment.

(3) Authority for other voluntary withholding

The Secretary is authorized by regulations to provide for withholding—

(A)

from remuneration for services performed by an employee for the employee’s employer which (without regard to this paragraph) does not constitute wages, and

(B)

from any other type of payment with respect to which the Secretary finds that withholding would be appropriate under the provisions of this chapter,

if the employer and employee, or the person making and the person receiving such other type of payment, agree to such withholding. Such agreement shall be in such form and manner as the Secretary may by regulations prescribe. For purposes of this chapter (and so much of subtitle F as relates to this chapter), remuneration or other payments with respect to which such agreement is made shall be treated as if they were wages paid by an employer to an employee to the extent that such remuneration is paid or other payments are made during the period for which the agreement is in effect.

(q) Extension of withholding to certain gambling winnings

(1) General rule

Every person, including the Government of the United States, a State, or a political subdivision thereof, or any instrumentalities of the foregoing, making any payment of winnings which are subject to withholding shall deduct and withhold from such payment a tax in an amount equal to the product of the third lowest rate of tax applicable under section 1(c) ¹ and such payment.

(2) Exemption where tax otherwise withheld

In the case of any payment of winnings which are subject to withholding made to a nonresident alien individual or a foreign corporation, the tax imposed under paragraph (1) shall not apply to any such payment subject to tax under section 1441(a) (relating to withholding on nonresident aliens) or tax under section 1442(a) (relating to withholding on foreign corporations).

(3) Winnings which are subject to withholding

For purposes of this subsection, the term “winnings which are subject to withholding” means proceeds from a wager determined in accordance with the following:

(A) In general

Except as provided in subparagraphs (B) and (C), proceeds of more than $5,000 from a wagering transaction, if the amount of such proceeds is at least 300 times as large as the amount wagered.

(B) State-conducted lotteries

Proceeds of more than $5,000 from a wager placed in a lottery conducted by an agency of a State acting under authority of State law, but only if such wager is placed with the State agency conducting such lottery, or with its authorized employees or agents.

Proceeds of more than $5,000 from—

(i)

a wager placed in a sweepstakes, wagering pool, or lottery (other than a wager described in subparagraph (B)), or

(ii)

a wagering transaction in a parimutuel pool with respect to horse races, dog races, or jai alai if the amount of such proceeds is at least 300 times as large as the amount wagered.

(4) Rules for determining proceeds from a wager

For purposes of this subsection—

(A)

proceeds from a wager shall be determined by reducing the amount received by the amount of the wager, and

(B)

proceeds which are not money shall be taken into account at their fair market value.

(5) Exemption for bingo, keno, and slot machines

The tax imposed under paragraph (1) shall not apply to winnings from a slot machine, keno, and bingo.

(6) Statement by recipient

Every person who is to receive a payment of winnings which are subject to withholding shall furnish the person making such payment a statement, made under the penalties of perjury, containing the name, address, and taxpayer identification number of the person receiving the payment and of each person entitled to any portion of such payment.

(7) Coordination with other sections

For purposes of sections 3403 and 3404 and for purposes of so much of subtitle F (except section 7205) as relates to this chapter, payments to any person of winnings which are subject to withholding shall be treated as if they were wages paid by an employer to an employee.

(r) Extension of withholding to certain taxable payments of Indian casino profits

(1) In general

Every person, including an Indian tribe, making a payment to a member of an Indian tribe from the net revenues of any class II or class III gaming activity conducted or licensed by such tribe shall deduct and withhold from such payment a tax in an amount equal to such payment’s proportionate share of the annualized tax.

(2) Exception

The tax imposed by paragraph (1) shall not apply to any payment to the extent that the payment, when annualized, does not exceed an amount equal to the sum of—

(A)

the basic standard deduction (as defined in section 63(c)) for an individual to whom section 63(c)(2)(C) ¹ applies, and

(B)

the exemption amount (as defined in section 151(d)).

(3) Annualized tax

For purposes of paragraph (1), the term “annualized tax” means, with respect to any payment, the amount of tax which would be imposed by section 1(c) ¹ (determined without regard to any rate of tax in excess of the fourth lowest rate of tax applicable under section 1(c) ¹ ) on an amount of taxable income equal to the excess of—

(A)

the annualized amount of such payment, over

(B)

the amount determined under paragraph (2).

(4) Classes of gaming activities, etc.

For purposes of this subsection, terms used in paragraph (1) which are defined in section 4 of the Indian Gaming Regulatory Act (25 U.S.C. 2701 et seq.), as in effect on the date of the enactment of this subsection, shall have the respective meanings given such terms by such section.

(5) Annualization

Payments shall be placed on an annualized basis under regulations prescribed by the Secretary.

(6) Alternate withholding procedures

At the election of an Indian tribe, the tax imposed by this subsection on any payment made by such tribe shall be determined in accordance with such tables or computational procedures as may be specified in regulations prescribed by the Secretary (in lieu of in accordance with paragraphs (2) and (3)).

(7) Coordination with other sections

For purposes of this chapter and so much of subtitle F as relates to this chapter, payments to any person which are subject to withholding under this subsection shall be treated as if they were wages paid by an employer to an employee.

(s) Exemption from withholding for any vehicle fringe benefit

(1) Employer election not to withhold

The employer may elect not to deduct and withhold any tax under this chapter with respect to any vehicle fringe benefit provided to any employee if such employee is notified by the employer of such election (at such time and in such manner as the Secretary shall by regulations prescribe). The preceding sentence shall not apply to any vehicle fringe benefit unless the amount of such benefit is included by the employer on a statement timely furnished under section 6051.

(2) Employer must furnish W–2

Any vehicle fringe benefit shall be treated as wages from which amounts are required to be deducted and withheld under this chapter for purposes of section 6051.

(3) Vehicle fringe benefit

For purposes of this subsection, the term “vehicle fringe benefit” means any fringe benefit—

(A)

which constitutes wages (as defined in section 3401), and

(B)

which consists of providing a highway motor vehicle for the use of the employee.

(t) Rate of withholding for certain stock

In the case of any qualified stock (as defined in section 83(i)(2)) with respect to which an election is made under section 83(i)—

(1)

the rate of tax under subsection (a) shall not be less than the maximum rate of tax in effect under section 1, and

(2)

such stock shall be treated for purposes of section 3501(b) in the same manner as a non-cash fringe benefit.

Source credit: (Aug. 16, 1954, ch. 736, 68A Stat. 457; Aug. 9, 1955, ch. 666, § 2, 69 Stat. 605; Pub. L. 87–256, § 110(g)(2), Sept. 21, 1961, 75 Stat. 537; Pub. L. 88–272, title III, § 302(a), (b), Feb. 26, 1964, 78 Stat. 140; Pub. L. 89–97, title III, § 313(d)(3)–(5), July 30, 1965, 79 Stat. 384; Pub. L. 89–212, § 2(c), Sept. 29, 1965, 79 Stat. 859; Pub. L. 89–368, title I, § 101(a)–(e)(3), Mar. 15, 1966, 80 Stat. 38–61; Pub. L. 90–364, title I, § 102(c), June 28, 1968, 82 Stat. 256; Pub. L. 91–36, § 2(a), June 30, 1969, 83 Stat. 42; Pub. L. 91–53, § 6(a), Aug. 7, 1969, 83 Stat. 96; Pub. L. 91–172, title VIII, § 805(a)–(e), (f)(1), (g), Dec. 30, 1969, 83 Stat. 686, 704–708; Pub. L. 92–178, title II, § 208(a), (b)(1), (c)–(h)(1), Dec. 10, 1971, 85 Stat. 512–517; Pub. L. 94–12, title II, §§ 202(b), 205, Mar. 29, 1975, 89 Stat. 29, 32; Pub. L. 94–164, §§ 2(b)(2), 5(a)(1), Dec. 23, 1975, 89 Stat. 971, 975; Pub. L. 94–331, § 3(a)(1), June 30, 1976, 90 Stat. 782; Pub. L. 94–396, § 2(a)(1), Sept. 3, 1976, 90 Stat. 1201; Pub. L. 94–414, § 3(a)(1), Sept. 17, 1976, 90 Stat. 1273; Pub. L. 94–455, title IV, § 401(d), title V, §§ 502(b), 504(c)(3), title XII, § 1207(d), title XIX, §§ 1903(a)(17), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1557, 1559, 1566, 1705, 1810, 1834; Pub. L. 95–30, title I, § 105, title IV, § 405(a), May 23, 1977, 91 Stat. 140, 156; Pub. L. 95–600, title I, §§ 101(e), 102(c), title VI, § 601(b)(2), Nov. 6, 1978, 92 Stat. 2770, 2771, 2896; Pub. L. 96–601, § 4(a)–(d), Dec. 24, 1980, 94 Stat. 3496, 3497; Pub. L. 97–34, title I, § 101(e), Aug. 13, 1981, 95 Stat. 184; Pub. L. 97–248, title III, §§ 317(a), 334(d), Sept. 3, 1982, 96 Stat. 607, 627; Pub. L. 98–67, title I, § 104(d)(3), Aug. 5, 1983, 97 Stat. 380; Pub. L. 99–44, § 3, May 24, 1985, 99 Stat. 77; Pub. L. 99–514, title I, § 104(b)(15), title XIII, §§ 1301(j)(8), 1303(b)(4), title XV, § 1581(b), Oct. 22, 1986, 100 Stat. 2106, 2658, 2766; Pub. L. 100–203, title X, § 10302(a), Dec. 22, 1987, 101 Stat. 1330–429; Pub. L. 100–647, title I, § 1003(a)(2), Nov. 10, 1988, 102 Stat. 3382; Pub. L. 101–508, title XI, § 11801(a)(41), Nov. 5, 1990, 104 Stat. 1388–521; Pub. L. 102–318, title V, § 522(b)(2)(D), July 3, 1992, 106 Stat. 314; Pub. L. 102–486, title XIX, §§ 1934(a), 1942(a), Oct. 24, 1992, 106 Stat. 3031, 3036; Pub. L. 103–465, title VII, §§ 701(a), 702(a), Dec. 8, 1994, 108 Stat. 4995, 4996; Pub. L. 107–16, title I, § 101(c)(6)–(9), June 7, 2001, 115 Stat. 43, 44; Pub. L. 109–222, title V, § 511(a), May 17, 2006, 120 Stat. 364; Pub. L. 112–56, title I, § 102(a), Nov. 21, 2011, 125 Stat. 712; Pub. L. 115–97, title I, §§ 11011(b)(4), 11041(c)(1), (2)(B)–(E), 11051(b)(2)(B), 13603(b)(2), Dec. 22, 2017, 131 Stat. 2070, 2082–2084, 2089, 2163; Pub. L. 117–2, title IX, § 9611(b)(3), Mar. 11, 2021, 135 Stat. 149.)

history & why it existsrecord from the source credit

1954Enacted · Act of Aug. 16, 1954, ch. 736
1955Amended · Act of Aug. 9, 1955, ch. 666 · 69 Stat. 605
1961Amended · Pub. L. 87-256 · 75 Stat. 537
1964Amended · Pub. L. 88-272 · 78 Stat. 140
1965Amended · Pub. L. 89-97 · 79 Stat. 384
1965Amended · Pub. L. 89-212 · 79 Stat. 859
1966Amended · Pub. L. 89-368 · 80 Stat. 38
1968Amended · Pub. L. 90-364 · 82 Stat. 256
1969Amended · Pub. L. 91-36 · 83 Stat. 42
1969Amended · Pub. L. 91-53 · 83 Stat. 96
1969Amended · Pub. L. 91-172 · 83 Stat. 686, 704
1971Amended · Pub. L. 92-178 · 85 Stat. 512
1975Amended · Pub. L. 94-12 · 89 Stat. 29, 32
1975Amended · Pub. L. 94-164 · 89 Stat. 971, 975
1976Amended · Pub. L. 94-331 · 90 Stat. 782
1976Amended · Pub. L. 94-396 · 90 Stat. 1201
1976Amended · Pub. L. 94-414 · 90 Stat. 1273
1976Amended · Pub. L. 94-455 · 90 Stat. 1557, 1559, 1566, 1705, 1810, 1834
1977Amended · Pub. L. 95-30 · 91 Stat. 140, 156
1978Amended · Pub. L. 95-600 · 92 Stat. 2770, 2771, 2896
1980Amended · Pub. L. 96-601 · 94 Stat. 3496, 3497
1981Amended · Pub. L. 97-34 · 95 Stat. 184
1982Amended · Pub. L. 97-248 · 96 Stat. 607, 627
1983Amended · Pub. L. 98-67 · 97 Stat. 380
1985Amended · Pub. L. 99-44 · 99 Stat. 77
1986Amended · Pub. L. 99-514 · 100 Stat. 2106, 2658, 2766
1987Amended · Pub. L. 100-203 · 101 Stat. 1330
1988Amended · Pub. L. 100-647 · 102 Stat. 3382
1990Amended · Pub. L. 101-508 · 104 Stat. 1388
1992Amended · Pub. L. 102-318 · 106 Stat. 314
1992Amended · Pub. L. 102-486 · 106 Stat. 3031, 3036
1994Amended · Pub. L. 103-465 · 108 Stat. 4995, 4996
2001Amended · Pub. L. 107-16 · 115 Stat. 43, 44
2006Amended · Pub. L. 109-222 · 120 Stat. 364
2011Amended · Pub. L. 112-56 · 125 Stat. 712
2017Amended · Pub. L. 115-97 · 131 Stat. 2070, 2082
2021Amended · Pub. L. 117-2 · 135 Stat. 149

The record shows that this section was originally enacted as part of the Internal Revenue Code of 1954, chapter 736, on August 16, 1954, appearing at 68A Stat. 457. The source credit indicates the section has been amended repeatedly and extensively in the decades since, with more than thirty separate amendment entries listed, spanning legislation from 1955 through at least 2021, including major tax acts such as Public Law 91-172 (1969), Public Law 94-455 (1976), Public Law 99-514 (1986), Public Law 107-16 (2001), and Public Law 115-97 (2017). This pattern reflects sustained and recurring congressional attention to the section over nearly seven decades. Historical context for the section's origin is tied to the broader 1954 recodification of the Internal Revenue Code, which reorganized and restated federal tax law then in effect, including preexisting wage-withholding provisions. Income tax withholding at the source of wage payment is generally understood to trace to the wartime-era Current Tax Payment Act of 1943, which established pay-as-you-earn withholding to improve tax collection efficiency and align payment of tax liability with the earning of income; the 1954 Code reenacted and consolidated that withholding framework as section 3402. The subsequent decades of amendment are consistent with the general pattern of federal tax law, which Congress revises frequently to adjust rates, allowances, and administrative mechanics in response to changing tax policy. However, the record here does not establish the specific legislative purpose behind each individual amendment listed, and no more particular intent should be inferred beyond what the statutory text itself provides.

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