[Code of Federal Regulations]
[Title 26, Volume 15]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR31.3402(n)-1]
[Page 243-244]
TITLE 26--INTERNAL REVENUE
CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
(CONTINUED)
PART 31_EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE--Table of Contents
Subpart E_Collection of Income Tax at Source
Sec. 31.3402(n)-1 Employees incurring no income tax liability.
Notwithstanding any other provision of this subpart, an employer
shall not deduct and withhold any tax under chapter 24 upon a payment of
wages made to an employee after April 30, 1970, if there is in effect
with respect to the payment a withholding exemption certificate
furnished to the employer by the employee which contains statements
that--
(a) The employee incurred no liability for income tax imposed under
subtitle A of the Code for his preceding taxable year; and
(b) The employee anticipates that he will incur no liability for
income tax imposed by subtitle A for his current taxable year.
For purposes of section 3402(n) and this section, an employee is not
considered to incur liability for income tax imposed under subtitle A if
the amount of such tax is equal to or less than the total amount of
credits against such tax which are allowable to him under part iv of
subchapter A of chapter 1 of the Code, other than those allowable under
section 31 or 39. For purposes of section 3402(n) and this section,
``liability for income tax imposed under subtitle A'' shall include
liability for a qualified State individual income tax which is treated
pursuant to section 6361(a) as if it were imposed by chapter 1 of the
Code. An employee is not considered to incur liability for such a State
income tax if the amount of such tax does not exceed the total amount of
the credit against such tax which is allowable to him under section
6362(b)(2) (B) or (C) or section 6362(c)(4). For purposes of this
section, an employee who files a joint return under section 6013 is
considered to incur liability for any tax shown on such return. An
employee who is entitled to file a joint return under such section shall
not certify that he anticipates that he will incur no liability for
income tax imposed by subtitle A for his current taxable year if such
statement would not be true in the event that he files a joint return
for such year, unless he filed a separate return for his preceding
taxable year and anticipates that he will file a separate return for his
current taxable year.
For rules relating to invalid withholding exemption certificates, see
Sec. 31.3402(f)(2)-1(e), and for rules relating to submission to the
Internal Revenue Service of withholding exemption certificates claiming
a complete exemption from withholding, see Sec. 31.3402(f)(2)-1(g).
Example 1. Employee A, an unmarried, calendar-year basis taxpayer,
files his income tax return for 1970 on April 15, 1971. A has adjusted
gross income of $1,200 and is not liable for any tax. He had $180 of
income tax withheld during 1970. A anticipates that his gross income for
1971 will be approximately the same amount, and that he will not incur
income tax liability for that year. On April 20, 1971, A commences
employment and furnishes his employer an exemption certificate stating
that he incurred no liability for income tax imposed under subtitle A
for 1970, and that he anticipates that he will incur no liability for
income tax imposed under subtitle A for 1971. A's employer shall not
deduct and withhold on payments of wages made to A on or after April 20,
1971. Under paragraph (c) of Sec. 31.3402(f)(4)-1, unless A files a new
exemption certificate with his employer, his employer is required to
deduct and withhold upon payments of wages to A made on or after May 1,
1972. (Under Sec. 31.3402(f)(3)-1(b), if A had been employed by his
employer prior to April 20, 1971, and had furnished his employer a
withholding exemption certificate not containing the statements
described in Sec. 31.3402(n)-1 prior to furnishing the withholding
exemption certificate containing such statements on April 20, 1971, his
employer would not be required to give effect to the new certificate
with respect to payments of wages made by him prior to July 1, 1971 (the
first status determination date which occurs at least 30 days after
April 20, 1971). However his employer could, if he chose, make the new
certificate effective with respect to any payment of wages made on or
after April 20 and before July 1, 1971.)
Example 2. Assume the facts are the same as in example 1 except that
for 1970 A has taxable income of $8,000, income tax liability of $1,630,
and income tax withheld of $1,700. Although A received a refund of $70
due to income tax withholding of $1,700, he may not
[[Page 244]]
state on his exemption certificate that he incurred no liability for
income tax imposed by subtitle A for 1970.
(86 Stat. 944, 26 U.S.C. 6364; and 68A Stat. 917, 26 U.S.C. 7805, 68A
Stat. 731, 26 U.S.C. 6001; 68A Stat. 732, 26 U.S.C. 6011)
[T.D. 7048, 35 FR 10292, June 24, 1970, as amended by T.D. 7577, 43 FR
59359, Dec. 20, 1978; T.D. 7598, 44 FR 14553, Mar. 13, 1979; T.D. 7682,
45 FR 15527, Mar. 11, 1980; T.D. 7803, 47 FR 3547, Jan. 26, 1982]