USC Chapter 24

in effect

26 U.S.C. § 3401 Definitions

(a) WagesFor purposes of this chapter, the term “wages” means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash; except that such term shall not include remuneration paid—(1) for active service performed in a month for which such employee is entitled to the benefits of section 112 (relating to certain combat zone compensation of members of the Armed Forces of the United States) to the extent remuneration for such service is excludable from gross income under such section, (2) for agricultural labor (as defined in section 3121(g)) unless the remuneration paid for such labor is wages (as defined in section 3121(a)), (3) for domestic service in a private home, local college club, or local chapter of a college fraternity or sorority, (4) for service not in the course of the employer’s trade or business performed in any calendar quarter by an employee, unless the cash remuneration paid for such service is $50 or more and such service is performed by an individual who is regularly employed by such employer to perform such service. For purposes of this paragraph, an individual shall be deemed to be regularly employed by an employer during a calendar quarter only if—(A) on each of some 24 days during such quarter such individual performs for such employer for some portion of the day service not in the course of the employer’s trade or business, or (B) such individual was regularly employed (as determined under subparagraph (A)) by such employer in the performance of such service during the preceding calendar quarter, (5) for services by a citizen or resident of the United States for a foreign government or an international organization, (6) for such services, performed by a nonresident alien individual, as may be designated by regulations prescribed by the Secretary, [(7) Repealed. Pub. L. 89–809, title I, § 103(k), Nov. 13, 1966, 80 Stat. 1554] (8)(A) for services for an employer (other than the United States or any agency thereof)—(i) performed by a citizen of the United States if, at the time of the payment of such remuneration, it is reasonable to believe that such remuneration will be excluded from gross income under section 911, or (ii) performed in a foreign country or in a possession of the United States by such a citizen if, at the time of the payment of such remuneration, the employer is required by the law of any foreign country or possession of the United States to withhold income tax upon such remuneration, (B) for services for an employer (other than the United States or any agency thereof) performed by a citizen of the United States within a possession of the United States (other than Puerto Rico), if it is reasonable to believe that at least 80 percent of the remuneration to be paid to the employee by such employer during the calendar year will be for such services, (C) for services for an employer (other than the United States or any agency thereof) performed by a citizen of the United States within Puerto Rico, if it is reasonable to believe that during the entire calendar year the employee will be a bona fide resident of Puerto Rico, or (D) for services for the United States (or any agency thereof) performed by a citizen of the United States within a possession of the United States to the extent the United States (or such agency) withholds taxes on such remuneration pursuant to an agreement with such possession, (9) for services performed by a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry or by a member of a religious order in the exercise of duties required by such order, (10)(A) for services performed by an individual under the age of 18 in the delivery or distribution of newspapers or shopping news, not including delivery or distribution to any point for subsequent delivery or distribution, or (B) for services performed by an individual in, and at the time of, the sale of newspapers or magazines to ultimate consumers, under an arrangement under which the newspapers or magazines are to be sold by him at a fixed price, his compensation being based on the retention of the excess of such price over the amount at which the newspapers or magazines are charged to him, whether or not he is guaranteed a minimum amount of compensation for such services, or is entitled to be credited with the unsold newspapers or magazines turned back, (11) for services not in the course of the employer’s trade or business, to the extent paid in any medium other than cash, (12) to, or on behalf of, an employee or his beneficiary—(A) from or to a trust described in section 401(a) which is exempt from tax under section 501(a) at the time of such payment unless such payment is made to an employee of the trust as remuneration for services rendered as such employee and not as a beneficiary of the trust, (B) under or to an annuity plan which, at the time of such payment, is a plan described in section 403(a), (C) for a payment described in section 402(h)(1) and (2) if, at the time of such payment, it is reasonable to believe that the employee will be entitled to an exclusion under such section for payment, (D) under an arrangement to which section 408(p) applies, or (E) under or to an eligible deferred compensation plan which, at the time of such payment, is a plan described in section 457(b) which is maintained by an eligible employer described in section 457(e)(1)(A), (13) pursuant to any provision of law other than section 5(c) or 6(1) of the Peace Corps Act, for service performed as a volunteer or volunteer leader within the meaning of such Act, (14) in the form of group-term life insurance on the life of an employee, (15) to or on behalf of an employee if (and to the extent that) at the time of the payment of such remuneration it is reasonable to believe that a corresponding deduction is allowable under section 217 (determined without regard to section 274(n)), (16)(A) as tips in any medium other than cash,11 So in original. Probably should be followed by “or”. (B) as cash tips to an employee in any calendar month in the course of his employment by an employer unless the amount of such cash tips is $20 or more, (17) for service described in section 3121(b)(20), (18) for any payment made, or benefit furnished, to or for the benefit of an employee if at the time of such payment or such furnishing it is reasonable to believe that the employee will be able to exclude such payment or benefit from income under section 127, 129, 134(b)(4), or 134(b)(5), (19) for any benefit provided to or on behalf of an employee if at the time such benefit is provided it is reasonable to believe that the employee will be able to exclude such benefit from income under section 74(c), 108(f)(4), 117, or 132, (20) for any medical care reimbursement made to or for the benefit of an employee under a self-insured medical reimbursement plan (within the meaning of section 105(h)(6)), (21) for any payment made to or for the benefit of an employee if at the time of such payment it is reasonable to believe that the employee will be able to exclude such payment from income under section 106(b), (22) any payment made to or for the benefit of an employee if at the time of such payment it is reasonable to believe that the employee will be able to exclude such payment from income under section 106(d), or (23) for any benefit or payment which is excludable from the gross income of the employee under section 139B(b). The term “wages” includes any amount includible in gross income of an employee under section 409A and payment of such amount shall be treated as having been made in the taxable year in which the amount is so includible. (b) Payroll periodFor purposes of this chapter, the term “payroll period” means a period for which a payment of wages is ordinarily made to the employee by his employer, and the term “miscellaneous payroll period” means a payroll period other than a daily, weekly, biweekly, semimonthly, monthly, quarterly, semiannual, or annual payroll period. (c) EmployeeFor purposes of this chapter, the term “employee” includes an officer, employee, or elected official of the United States, a State, or any political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing. The term “employee” also includes an officer of a corporation. (d) EmployerFor purposes of this chapter, the term “employer” means the person for whom an individual performs or performed any service, of whatever nature, as the employee of such person, except that—(1) if the person for whom the individual performs or performed the services does not have control of the payment of the wages for such services, the term “employer” (except for purposes of subsection (a)) means the person having control of the payment of such wages, and (2) in the case of a person paying wages on behalf of a nonresident alien individual, foreign partnership, or foreign corporation, not engaged in trade or business within the United States, the term “employer” (except for purposes of subsection (a)) means such person. [(e) Repealed. Pub. L. 115–97, title I, § 11041(c)(2)(A), Dec. 22, 2017, 131 Stat. 2082] (f) TipsFor purposes of subsection (a), the term “wages” includes tips received by an employee in the course of his employment. Such wages shall be deemed to be paid at the time a written statement including such tips is furnished to the employer pursuant to section 6053(a) or (if no statement including such tips is so furnished) at the time received. (g) Crew leader rules to applyRules similar to the rules of section 3121(o) shall apply for purposes of this chapter. (h) Differential wage payments to active duty members of the uniformed services(1) In generalFor purposes of subsection (a), any differential wage payment shall be treated as a payment of wages by the employer to the employee. (2) Differential wage paymentFor purposes of paragraph (1), the term “differential wage payment” means any payment which—(A) is made by an employer to an individual with respect to any period during which the individual is performing service in the uniformed services (as defined in chapter 43 of title 38, United States Code) while on active duty for a period of more than 30 days, and (B) represents all or a portion of the wages the individual would have received from the employer if the individual were performing service for the employer. (i) Qualified stock for which an election is in effect under section 83(i)For purposes of subsection (a), qualified stock (as defined in section 83(i)) with respect to which an election is made under section 83(i) shall be treated as wages—(1) received on the earliest date described in section 83(i)(1)(B), and (2) in an amount equal to the amount included in income under section 83 for the taxable year which includes such date.

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

(a) Requirement of withholding(1) In generalExcept 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 wagesFor 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. (c) Wage bracket withholding(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 recipientIf 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 wagesIf 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 generalUnder 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 employmentOn 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 statusIf, 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. (C) Change of status which affects next calendar yearIf 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 furnishedA 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 generalExcept 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 dateAt 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 yearAny 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 effectA 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 certificateWithholding allowance certificates shall be in such form and contain such information as the Secretary may by regulations prescribe. (6) Exemption of certain nonresident aliensNotwithstanding the provisions of paragraph (1), a nonresident alien individual (other than an individual described in section 3401(a)(6)(A) or (B) 11 See References in Text note below. ) shall be entitled to only one withholding exemption. (7) Allowance where certificate with another employer is in effectIf 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 fiduciaryIf 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 withheldThe Secretary may, under regulations prescribed by him, authorize—(1) Withholding on basis of average wagesAn 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 wagesAn 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 wagesAn 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 methodsAn 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 generalThe 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 taxAny 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 salesmanIn 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) TipsIn 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 employerFor 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 employeeAn 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 statusFor 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 allowancesUnder 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 liabilityNotwithstanding 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 ruleFor 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 benefitsFor 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) AnnuityFor purposes of this subsection, the term “annuity” means any amount paid to an individual as a pension or annuity. (C) Sick payFor 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 payIf 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 withholdingA 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 agreementsIn 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 3405This 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 generalIf, 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 withheldThe 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. (C) Specified Federal paymentsFor 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 withholdingRules 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 benefitsIf, 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 withholdingThe 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 ruleEvery 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 withheldIn 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 withholdingFor 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 generalExcept 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 lotteriesProceeds 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. (C) Sweepstakes, wagering pools, certain parimutuel pools, jai alai, and lotteriesProceeds 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 wagerFor 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 machinesThe tax imposed under paragraph (1) shall not apply to winnings from a slot machine, keno, and bingo. (6) Statement by recipientEvery 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 sectionsFor 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 generalEvery 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) ExceptionThe 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 taxFor 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) AnnualizationPayments shall be placed on an annualized basis under regulations prescribed by the Secretary. (6) Alternate withholding proceduresAt 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 sectionsFor 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 withholdThe 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–2Any 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 benefitFor 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 stockIn 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.

26 U.S.C. § 3403 Liability for tax

The employer shall be liable for the payment of the tax required to be deducted and withheld under this chapter, and shall not be liable to any person for the amount of any such payment.

26 U.S.C. § 3404 Return and payment by governmental employer

If the employer is the United States, or a State, or political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing, the return of the amount deducted and withheld upon any wages may be made by any officer or employee of the United States, or of such State, or political subdivision, or of the District of Columbia, or of such agency or instrumentality, as the case may be, having control of the payment of such wages, or appropriately designated for that purpose.

26 U.S.C. § 3405 Special rules for pensions, annuities, and certain other deferred income

(a) Periodic payments(1) Withholding as if payment were wagesThe payor of any periodic payment (as defined in subsection (e)(2)) shall withhold from such payment the amount which would be required to be withheld from such payment if such payment were a payment of wages by an employer to an employee for the appropriate payroll period. (2) Election of no withholdingAn individual may elect to have paragraph (1) not apply with respect to periodic payments made to such individual. Such an election shall remain in effect until revoked by such individual. (3) When election takes effectAny election under this subsection (and any revocation of such an election) shall take effect as provided by subsection (f)(3) of section 3402 for withholding allowance certificates. (4) Amount withheld where no withholding allowance certificate in effectIn the case of any payment with respect to which a withholding allowance certificate is not in effect, the amount withheld under paragraph (1) shall be determined under rules prescribed by the Secretary. (b) Nonperiodic distribution(1) WithholdingThe payor of any nonperiodic distribution (as defined in subsection (e)(3)) shall withhold from such distribution an amount equal to 10 percent of such distribution. (2) Election of no withholding(A) In generalAn individual may elect not to have paragraph (1) apply with respect to any nonperiodic distribution. (B) Scope of electionAn election under subparagraph (A)—(i) except as provided in clause (ii), shall be on a distribution-by-distribution basis, or (ii) to the extent provided in regulations, may apply to subsequent nonperiodic distributions made by the payor to the payee under the same arrangement. (c) Eligible rollover distributions(1) In generalIn the case of any designated distribution which is an eligible rollover distribution—(A) subsections (a) and (b) shall not apply, and (B) the payor of such distribution shall withhold from such distribution an amount equal to 20 percent of such distribution. (2) ExceptionParagraph (1)(B) shall not apply to any distribution if the distributee elects under section 401(a)(31)(A) to have such distribution paid directly to an eligible retirement plan. (3) Eligible rollover distributionFor purposes of this subsection, the term “eligible rollover distribution” has the meaning given such term by section 402(f)(2)(A). (d) Liability for withholding(1) In generalExcept as provided in paragraph (2), the payor of a designated distribution (as defined in subsection (e)(1)) shall withhold, and be liable for, payment of the tax required to be withheld under this section. (2) Plan administrator liable in certain cases(A) In generalIn the case of any plan to which this paragraph applies, paragraph (1) shall not apply and the plan administrator shall withhold, and be liable for, payment of the tax unless the plan administrator—(i) directs the payor to withhold such tax, and (ii) provides the payor with such information as the Secretary may require by regulations. (B) Plans to which paragraph appliesThis paragraph applies to any plan described in, or which at any time has been determined to be described in—(i) section 401(a), (ii) section 403(a), (iii) section 301(d) of the Tax Reduction Act of 1975, or (iv) section 457(b) and which is maintained by an eligible employer described in section 457(e)(1)(A). (e) Definitions and special rulesFor purposes of this section—(1) Designated distribution(A) In generalExcept as provided in subparagraph (B), the term “designated distribution” means any distribution or payment from or under—(i) an employer deferred compensation plan, (ii) an individual retirement plan (as defined in section 7701(a)(37)), or (iii) a commercial annuity. (B) ExceptionsThe term “designated distribution” shall not include—(i) any amount which is wages without regard to this section, (ii) the portion of a distribution or payment which it is reasonable to believe is not includible in gross income, and (iii) any amount which is subject to withholding under subchapter A of chapter 3 (relating to withholding of tax on nonresident aliens and foreign corporations) by the person paying such amount or which would be so subject but for a tax treaty, or (iv) any distribution described in section 404(k)(2). For purposes of clause (ii), any distribution or payment from or under an individual retirement plan (other than a Roth IRA) shall be treated as includible in gross income. (2) Periodic paymentThe term “periodic payment” means a designated distribution which is an annuity or similar periodic payment. (3) Nonperiodic distributionThe term “nonperiodic distribution” means any designated distribution which is not a periodic payment. [(4) Repealed. Pub. L. 102–318, title V, § 521(b)(38), July 3, 1992, 106 Stat. 312] (5) Employer deferred compensation planThe term “employer deferred compensation plan” means any pension, annuity, profit-sharing, or stock bonus plan or other plan deferring the receipt of compensation. (6) Commercial annuityThe term “commercial annuity” means an annuity, endowment, or life insurance contract issued by an insurance company licensed to do business under the laws of any State. (7) Plan administratorThe term “plan administrator” has the meaning given such term by section 414(g). (8) Maximum amount withheldThe maximum amount to be withheld under this section on any designated distribution shall not exceed the sum of the amount of money and the fair market value of other property (other than securities of the employer corporation) received in the distribution. No amount shall be required to be withheld under this section in the case of any designated distribution which consists only of securities of the employer corporation and cash (not in excess of $200) in lieu of financial shares. For purposes of this paragraph, the term “securities of the employer corporation” has the meaning given such term by section 402(e)(4)(E). (9) Separate arrangements to be treated separatelyIf the payor has more than 1 arrangement under which designated distributions may be made to any individual, each such arrangement shall be treated separately. (10) Time and manner of election(A) In generalAny election and any revocation under this section shall be made at such time and in such manner as the Secretary shall prescribe. (B) Payor required to notify payee of rights to elect(i) Periodic paymentsThe payor of any periodic payment—(I) shall transmit to the payee notice of the right to make an election under subsection (a) not earlier than 6 months before the first of such payments and not later than when making the first of such payments, (II) if such a notice is not transmitted under subclause (I) when making such first payment, shall transmit such a notice when making such first payment, and (III) shall transmit to payees, not less frequently than once each calendar year, notice of their rights to make elections under subsection (a) and to revoke such elections. (ii) Nonperiodic distributionsThe payor of any nonperiodic distribution shall transmit to the payee notice of the right to make any election provided in subsection (b) at the time of the distribution (or at such earlier time as may be provided in regulations). (iii) NoticeAny notice transmitted pursuant to this subparagraph shall be in such form and contain such information as the Secretary shall prescribe. (11) Withholding includes deductionThe terms “withholding”, “withhold”, and “withheld” include “deducting”, “deduct”, and “deducted”. (12) Failure to provide correct TINIf—(A) a payee fails to furnish his TIN to the payor in the manner required by the Secretary, or (B) the Secretary notifies the payor before any payment or distribution that the TIN furnished by the payee is incorrect, no election under subsection (a)(2) or (b)(2) shall be treated as in effect and subsection (a)(4) shall not apply to such payee. (13) Election may not be made with respect to certain payments outside the United States or its possessions(A) In generalExcept as provided in subparagraph (B), in the case of any periodic payment or nonperiodic distribution which is to be delivered outside of the United States and any possession of the United States, no election may be made under subsection (a)(2) or (b)(2) with respect to such payment. (B) ExceptionSubparagraph (A) shall not apply if the recipient certifies to the payor, in such manner as the Secretary may prescribe, that such person is not—(i) a United States citizen or a resident alien of the United States, or (ii) an individual to whom section 877 applies. (f) Withholding to be treated as wage withholding under section 3402 for other purposesFor purposes of this chapter (and so much of subtitle F as relates to this chapter)—(1) any designated distribution (whether or not an election under this section applies to such distribution) shall be treated as if it were wages paid by an employer to an employee with respect to which there has been withholding under section 3402, and (2) in the case of any designated distribution not subject to withholding under this section by reason of an election under this section, the amount withheld shall be treated as zero.

26 U.S.C. § 3406 Backup withholding

(a) Requirement to deduct and withhold(1) In generalIn the case of any reportable payment, if—(A) the payee fails to furnish his TIN to the payor in the manner required, (B) the Secretary notifies the payor that the TIN furnished by the payee is incorrect, (C) there has been a notified payee underreporting described in subsection (c), or (D) there has been a payee certification failure described in subsection (d), then the payor shall deduct and withhold from such payment a tax equal to the product of the fourth lowest rate of tax applicable under section 1(c) 11 See References in Text note below. and such payment. (2) Subparagraphs (C) and (D) of paragraph (1) apply only to interest and dividend paymentsSubparagraphs (C) and (D) of paragraph (1) shall apply only to reportable interest or dividend payments. (b) Reportable payment, etc.For purposes of this section—(1) Reportable paymentThe term “reportable payment” means—(A) any reportable interest or dividend payment, and (B) any other reportable payment. (2) Reportable interest or dividend payment(A) In generalThe term “reportable interest or dividend payment” means any payment of a kind, and to a payee, required to be shown on a return required under—(i) section 6049(a) (relating to payments of interest), (ii) section 6042(a) (relating to payments of dividends), or (iii) section 6044 (relating to payments of patronage dividends) but only to the extent such payment is in money. (B) Special rule for patronage dividendsFor purposes of subparagraphs (C) and (D) of subsection (a)(1), the term “reportable interest or dividend payment” shall not include any payment to which section 6044 (relating to patronage dividends) applies unless 50 percent or more of such payment is in money. (3) Other reportable paymentThe term “other reportable payment” means any payment of a kind, and to a payee, required to be shown on a return required under—(A) section 6041 (relating to certain information at source), (B) section 6041A(a) (relating to payments of remuneration for services), (C) section 6045 (relating to returns of brokers), (D) section 6050A (relating to reporting requirements of certain fishing boat operators), but only to the extent such payment is in money and represents a share of the proceeds of the catch, (E) section 6050N (relating to payments of royalties), or (F) section 6050W (relating to returns relating to payments made in settlement of payment card transactions). (4) Whether payment is of reportable kind determined without regard to minimum amountThe determination of whether any payment is of a kind required to be shown on a return described in paragraph (2) or (3) shall be made without regard to any minimum amount which must be paid before a return is required. (5) Exception for certain small paymentsTo the extent provided in regulations, the term “reportable payment” shall not include any payment which—(A) does not exceed $10, and (B) if determined for a 1-year period, would not exceed $10. (6) Other reportable payments include payments described in section 6041(a) or 6041A(a) only where in excess of thresholdAny payment of a kind required to be shown on a return required under section 6041(a) or 6041A(a) which is made during any calendar year shall be treated as a reportable payment only if—(A) the aggregate amount of such payment and all previous payments described in such sections by the payor to the payee during such calendar year equals or exceeds the dollar amount in effect for such calendar year under section 6041(a), (B) the payor was required under section 6041(a) or 6041A(a) to file a return for the preceding calendar year with respect to payments to the payee, or (C) during the preceding calendar year, the payor made reportable payments to the payee with respect to which amounts were required to be deducted and withheld under subsection (a). (7) Exception for certain window payments of interest, etc.For purposes of subparagraphs (C) and (D) of subsection (a)(1), the term “reportable interest or dividend payment” shall not include any payment—(A) in redemption of a coupon on a bearer instrument or in redemption of a United States savings bond, or (B) to the extent provided in regulations, of interest on instruments similar to those described in subparagraph (A). The preceding sentence shall not apply for purposes of determining whether there is payee underreporting described in subsection (c). (8) Other reportable payments include payments in settlement of third party network transactions only where aggregate transactions exceed reporting threshold for the calendar year(A) In generalAny payment in settlement of a third party network transaction required to be shown on a return required under section 6050W which is made during any calendar year shall be treated as a reportable payment only if—(i) the aggregate number of transactions with respect to the participating payee during such calendar year exceeds the number of transactions specified in section 6050W(e)(2), and (ii) the aggregate amount of transactions with respect to the participating payee during such calendar year exceeds the dollar amount specified in section 6050W(e)(1) at the time of such payment. (B) Exception if third party network transactions made in prior year were reportableSubparagraph (A) shall not apply with respect to payments to any participating payee during any calendar year if one or more payments in settlement of third party network transactions made by the payor to the participating payee during the preceding calendar year were reportable payments. (c) Notified payee underreporting with respect to interest and dividends(1) Notified payee underreportingIf—(A) the Secretary determines with respect to any payee that there has been payee underreporting, (B) at least 4 notices have been mailed by the Secretary to the payee (over a period of at least 120 days) with respect to the underreporting, and (C) in the case of any payee who has filed a return for the taxable year, any deficiency of tax attributable to such failure has been assessed, the Secretary may notify payors of reportable interest or dividend payments with respect to such payee of the requirement to deduct and withhold under subsection (a)(1)(C) (but not the reasons for the withholding under subsection (a)(1)(C)). (2) Payee underreporting definedFor purposes of this section, there has been payee underreporting if for any taxable year the Secretary determines that—(A) the payee failed to include in his return of tax under chapter 1 for such year any portion of a reportable interest or dividend payment required to be shown on such return, or (B) the payee may be required to file a return for such year and to include a reportable interest or dividend payment in such return, but failed to file such return. (3) Determination by Secretary to stop (or not to start) withholding(A) In generalIf the Secretary determines that—(i) there was no payee underreporting, (ii) any payee underreporting has been corrected (and any tax, penalty, or interest with respect to the payee underreporting has been paid), (iii) withholding under subsection (a)(1)(C) has caused (or would cause) undue hardship to the payee and it is unlikely that any payee underreporting by such payee will occur again, or (iv) there is a bona fide dispute as to whether there has been any payee underreporting, then the Secretary shall take the action described in subparagraph (B). (B) Secretary to take action to stop (or not to start) withholdingFor purposes of subparagraph (A), if at the time of the Secretary’s determination under subparagraph (A)—(i) no notice has been given under paragraph (1) to any payor with respect to the underreporting, the Secretary shall not give any such notice, or (ii) if such notice has been given, the Secretary shall—(I) provide the payee with a written certification that withholding under subsection (a)(1)(C) is to stop, and (II) notify the applicable payors (and brokers) that such withholding is to stop. (C) Time for taking action where notice to payor has been givenIn any case where notice has been given under paragraph (1) to any payor with respect to any underreporting, if the Secretary makes a determination under subparagraph (A) during the 12-month period ending on October 15 of any calendar year—(i) except as provided in clause (ii), the Secretary shall take the action described in subparagraph (B)(ii) to bring about the stopping of withholding no later than December 1 of such calendar year, or (ii) in the case of—(I) a no payee underreporting determination under clause (i) of subparagraph (A), or (II) a hardship determination under clause (iii) of subparagraph (A), such action shall be taken no later than the 45th day after the day on which the Secretary made the determination. (D) Opportunity to request determinationThe Secretary shall prescribe procedures under which—(i) a payee may request a determination under subparagraph (A), and (ii) the payee may provide information with respect to such request. (4) Payor notifies payee of withholding because of payee underreportingAny payor required to withhold any tax under subsection (a)(1)(C) shall, at the time such withholding begins, notify the payee of such withholding. (5) Payee may be required to notify Secretary who his payors and brokers areFor purposes of this section, the Secretary may require any payee of reportable interest or dividend payments who is subject to withholding under subsection (a)(1)(C) to notify the Secretary of—(A) all payors from whom the payee receives reportable interest or dividend payments, and (B) all brokers with whom the payee has accounts which may involve reportable interest or dividend payments. The Secretary may notify any such broker that such payee is subject to withholding under subsection (a)(1)(C). (d) Interest and dividend backup withholding applies to new accounts and instruments unless payee certifies that he is not subject to such withholding(1) In generalThere is a payee certification failure unless the payee has certified to the payor, under penalty of perjury, that such payee is not subject to withholding under subsection (a)(1)(C). (2) Special rules for readily tradable instruments(A) In generalSubsection (a)(1)(D) shall apply to any reportable interest or dividend payment to any payee on any readily tradable instrument if (and only if) the payor was notified by a broker under subparagraph (B) or no certification was provided to the payor by the payee under paragraph (1) and—(i) such instrument was acquired directly by the payee from the payor, or (ii) such instrument is held by the payor as nominee for the payee. (B) Broker notifies payorIf—(i) a payee acquires any readily tradable instrument through a broker, and (ii) with respect to such acquisition—(I) the payee fails to furnish his TIN to the broker in the manner required under subsection (a)(1)(A), (II) the Secretary notifies such broker before such acquisition that the TIN furnished by the payee is incorrect, (III) the Secretary notifies such broker before such acquisition that such payee is subject to withholding under subsection (a)(1)(C), or (IV) the payee does not provide a certification to such broker under subparagraph (C), such broker shall, within such period as the Secretary may prescribe by regulations (but not later than 15 days after such acquisition), notify the payor that such payee is subject to withholding under subparagraph (A), (B), (C), or (D) of subsection (a)(1), respectively. (C) Time for payee to provide certification to brokerIn the case of any readily tradable instrument acquired by a payee through a broker, the certification described in paragraph (1) may be provided by the payee to such broker—(i) at any time after the payee’s account with the broker was established and before the acquisition of such instrument, or (ii) in connection with the acquisition of such instrument. (3) Exception for existing accounts, etc.This subsection and subsection (a)(1)(D) shall not apply to any reportable interest or dividend payment which is paid or credited—(A) in the case of interest or any other amount of a kind reportable under section 6049, with respect to any account (whatever called) established before January 1, 1984, or with respect to any instrument acquired before January 1, 1984, (B) in the case of dividends or any other amount reportable under section 6042, on any stock or other instrument acquired before January 1, 1984, or (C) in the case of patronage dividends or other amounts of a kind reportable under section 6044, with respect to any membership acquired, or contract entered into, before January 1, 1984. (4) Exception for readily tradable instruments acquired through existing brokerage accountsSubparagraph (B) of paragraph (2) shall not apply with respect to a readily tradable instrument which was acquired through an account with a broker if—(A) such account was established before January 1, 1984, and (B) during 1983, such broker bought or sold instruments for the payee (or acted as a nominee for the payee) through such account. The preceding sentence shall not apply with respect to any readily tradable instrument acquired through such account after the broker was notified by the Secretary that the payee is subject to withholding under subsection (a)(1)(C). (e) Period for which withholding is in effect(1) Failure to furnish TINIn the case of any failure by a payee to furnish his TIN to a payor in the manner required, subsection (a) shall apply to any reportable payment made by such payor during the period during which the TIN has not been furnished in the manner required. The Secretary may require that a TIN required to be furnished under subsection (a)(1)(A) be provided under penalties of perjury only with respect to interest, dividends, patronage dividends, and amounts subject to broker reporting. (2) Notification of incorrect numberIn any case in which the Secretary notifies the payor that the TIN furnished by the payee is incorrect, subsection (a) shall apply to any reportable payment made by such payor—(A) after the close of the 30th day after the day on which the payor received such notification, and (B) before the payee furnishes another TIN in the manner required. (3) Notified payee underreporting described in subsection (c)(A) In generalIn the case of any notified payee underreporting described in subsection (c), subsection (a) shall apply to any reportable interest or dividend payment made—(i) after the close of the 30th day after the day on which the payor received notification from the Secretary of such underreporting, and (ii) before the stop date. (B) Stop dateFor purposes of this subsection, the term “stop date” means the determination effective date or, if later, the earlier of—(i) the day on which the payor received notification from the Secretary under subsection (c)(3)(B) to stop withholding, or (ii) the day on which the payor receives from the payee a certification provided by the Secretary under subsection (c)(3)(B). (C) Determination effective dateFor purposes of this subsection—(i) In generalExcept as provided in clause (ii), the determination effective date of any determination under subsection (c)(3)(A) which is made during the 12-month period ending on October 15 of any calendar year shall be the first January 1 following such October 15. (ii) Determination that there was no underreporting; hardshipIn the case of any determination under clause (i) or (iii) of subsection (c)(3)(A), the determination effective date shall be the date on which the Secretary’s determination is made. (4) Failure to provide certification that payee is not subject to withholding(A) In generalIn the case of any payee certification failure described in subsection (d)(1), subsection (a) shall apply to any reportable interest or dividend payment made during the period during which the certification described in subsection (d)(1) has not been furnished to the payor. (B) Special rule for readily tradable instruments acquired through broker where notificationIn the case of any readily tradable instrument acquired by the payee through a broker, the period described in subparagraph (A) shall start with payments to the payee made after the close of the 30th day after the payor receives notification from a broker under subsection (d)(2)(B). (5) 30-day grace periods(A) Start-upIf the payor elects the application of this subparagraph with respect to the payee, subsection (a) shall also apply to any reportable payment made during the 30-day period described in paragraph (2)(A), (3)(A), or (4)(B). (B) StoppingUnless the payor elects not to have this subparagraph apply with respect to the payee, subsection (a) shall also apply to any reportable payment made after the close of the period described in paragraph (1), (2), or (4) (as the case may be) and before the 30th day after the close of such period. A similar rule shall also apply with respect to the period described in paragraph (3)(A) where the stop date is determined under clause (i) or (ii) of paragraph (3)(B). (C) Election of shorter grace periodThe payor may elect a period shorter than the grace period set forth in subparagraph (A) or (B), as the case may be. (f) Confidentiality of information(1) In generalNo person may use any information obtained under this section (including any failure to certify under subsection (d)) except for purposes of meeting any requirement under this section or (subject to the safeguards set forth in section 6103) for purposes permitted under section 6103. (2) Cross referenceFor provision providing for civil damages for violation of paragraph (1), see section 7431. (g) Exceptions(1) Payments to certain payeesSubsection (a) shall not apply to any payment made to—(A) any organization or governmental unit described in subparagraph (B), (C), (D), (E), or (F) of section 6049(b)(4), or (B) any other person specified in regulations. (2) Amounts for which withholding otherwise requiredSubsection (a) shall not apply to any amount for which withholding is otherwise required by this title. (3) Exemption while waiting for TINThe Secretary shall prescribe regulations for exemptions from the tax imposed by subsection (a) during the period during which a person is waiting for receipt of a TIN. (h) Other definitions and special rulesFor purposes of this section—(1) Obviously incorrect numberA person shall be treated as failing to furnish his TIN if the TIN furnished does not contain the proper number of digits. (2) Payee furnishes 2 incorrect TINsIf the payee furnishes the payor 2 incorrect TINs in any 3-year period, the payor shall, after receiving notice of the second incorrect TIN, treat the payee as not having furnished another TIN under subsection (e)(2)(B) until the day on which the payor receives notification from the Secretary that a correct TIN has been furnished. (3) Joint payeesExcept to the extent otherwise provided in regulations, any payment to joint payees shall be treated as if all the payment were made to the first person listed in the payment. (4) Payor definedThe term “payor” means, with respect to any reportable payment, a person required to file a return described in paragraph (2) or (3) of subsection (b) with respect to such payment. (5) Broker(A) In generalThe term “broker” has the meaning given to such term by section 6045(c)(1). (B) Only 1 broker per acquisitionIf, but for this subparagraph, there would be more than 1 broker with respect to any acquisition, only the broker having the closest contact with the payee shall be treated as the broker. (C) Payor not treated as brokerIn the case of any instrument, such term shall not include any person who is the payor with respect to such instrument. (D) Real estate broker not treated as a brokerExcept as provided by regulations, such term shall not include any real estate broker (as defined in section 6045(e)(2)). (6) Readily tradable instrumentThe term “readily tradable instrument” means—(A) any instrument which is part of an issue any portion of which is traded on an established securities market (within the meaning of section 453(f)(5)), and (B) except as otherwise provided in regulations prescribed by the Secretary, any instrument which is regularly quoted by brokers or dealers making a market. (7) Original issue discountTo the extent provided in regulations, rules similar to the rules of paragraph (6) of section 6049(d) shall apply. (8) Requirement of notice to payeeWhenever the Secretary notifies a payor under paragraph (1)(B) of subsection (a) that the TIN furnished by any payee is incorrect, the Secretary shall at the same time furnish a copy of such notice to the payor, and the payor shall promptly furnish such copy to the payee. (9) Requirement of notice to SecretaryIf the Secretary notifies a payor under paragraph (1)(B) of subsection (a) that the TIN furnished by any payee is incorrect and such payee subsequently furnishes another TIN to the payor, the payor shall promptly notify the Secretary of the other TIN so furnished. (10) Coordination with other sectionsFor purposes of section 31, this chapter (other than section 3402(n)), and so much of subtitle F (other than section 7205) as relates to this chapter, payments which are subject to withholding under this section shall be treated as if they were wages paid by an employer to an employee (and amounts deducted and withheld under this section shall be treated as if deducted and withheld under section 3402). (i) RegulationsThe Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.