Withholding of District of Columbia, State, City and County Income or Employment Taxes by Federal Agencies

AGENCY:

Financial Management Service, Fiscal Service, Treasury.

ACTION:

Final rule.

SUMMARY:

The Financial Management Service is issuing this final rule which governs the withholding of District of Columbia, State, City and County income or employment taxes by Federal agencies. This rule revises the office within the Department of the Treasury which will correspond with government entities requesting that the Secretary of the Treasury enter into an agreement with them for the mandatory withholding of the requesting entity's taxes from Federal employees' salaries. The revision is necessary in order to streamline the process by which Treasury receives such requests and responds to them. The revision also updates the regulation by removing outdated provisions no longer applicable.

EFFECTIVE DATE:

January 13, 2006.

FOR FURTHER INFORMATION CONTACT:

James E. Knox, Financial Program Specialist, at (202) 874-6809; or Marc I. Seldin, Senior Attorney, at (202) 874-6863.

SUPPLEMENTARY INFORMATION:

Background

Pursuant to 5 U.S.C. 5516, 5 U.S.C. 5517, 5 U.S.C. 5520 and Executive Order 11997, the Secretary of the Treasury enters into withholding agreements with the District of Columbia, States, cities, and counties for the mandatory withholding of a jurisdiction's taxes from the salaries of Federal employees within a taxing jurisdiction. When a taxing jurisdiction wishes to enter into such a withholding agreement, it forwards a request to the Department of the Treasury (Treasury). Treasury reviews the request, determines whether it meets the statutory and regulatory requirements for such an agreement, and notifies the requesting taxing jurisdiction of Treasury's determination as to whether it will enter into a withholding agreement with the requesting taxing jurisdiction. Currently, Treasury's governing regulation, 31 CFR part 215, lists Treasury's Fiscal Assistant Secretary as the point of contact for such requests. Following receipt of such requests by that office, the requests are forwarded to Treasury's Financial Management Service (FMS), to which the Fiscal Assistant Secretary has delegated the authority to enter into such withholding agreements. In order to streamline the process by which Treasury receives and responds to requests to enter into withholding agreements, the revised rule amends § 215.4 (which is redesignated as § 215.3, as described below) to provide that requesting taxing jurisdictions will forward their requests directly to FMS, and FMS will respond to the requests. The revised rule also makes a conforming change to a definition set forth in § 215.2(l).

Additionally, the revised rule updates §§ 215.1, 215.3, 215.4, and 215.5 by deleting several outdated provisions which are no longer effective. Section 215.3, codified on July 1, 1977 and effective on that date, provided actions which could be taken within 90 days of that date. Section 215.5 provided details on the actions set forth in § 215.3. The last sentence of § 215.1 referenced the actions described in §§ 215.3 and 215.5. Since the time for any such actions has long since expired, and for clarity, the revised rule deletes outdated provisions from §§ 215.1 and 215.3, deletes § 215.5 in its entirety (as it is no longer applicable), and makes conforming changes to § 215.4. For convenience to the reader, § 215.3 and § 215.4 are redesignated as § 215.4 and § 215.3, respectively. As a result of § 215.5 being deleted, subsequent sections § 215.6 through § 215.13 are redesignated as § 215.5 through § 215.12. In addition, the current rule references a “Standard Agreement” for withholding, and a long-since expired opportunity in 1977 for requesting entities to request deviations from the Standard Agreement. Since there is only one withholding agreement which requesting entities may seek currently, for clarity, the term “Standard Agreement” has been replaced by the term “Withholding Agreement.”

The revised rule also updates two definitions in § 215.2 in order to conform to revisions made to an underlying statute, 5 U.S.C. 5517, since the rule was last revised. The definition of “State” now specifically includes a territory, possession, or commonwealth of the United States. The citations referenced in the definition of “Members of the Armed Forces” are also updated. Neither of these conforming changes revises current law, as they merely conform the rule to the underlying law. The revised rule also makes nomenclature revisions to the authority citation.

Regulatory Analyses

This final rule is not a significant regulatory action as defined in Executive Order 12866. Therefore, a Regulatory Assessment is not required.

Because this regulation merely affects internal agency organization, procedure and practice, and does not substantively change the current rule, no notice of proposed rulemaking is required by 5 U.S.C. 553.

Because no notice of proposed rulemaking is required, the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) do not apply.

This final rule is being issued effective upon publication because it merely affects internal agency organization, procedure and practice, and does not substantively change the current rule. Consequently, there is no requirement under 5 U.S.C. 553(d) for a 30-day or more period between the publication date and effective date of this rule.

List of Subjects in 31 CFR Part 215

• State and local tax withholding
• Federal employees

Table of Contents, Authority and Issuance

For the reasons set forth in the preamble, 31 CFR part 215 is amended as follows:

PART 215—WITHHOLDING OF DISTRICT OF COLUMBIA, STATE, CITY AND COUNTY INCOME OR EMPLOYMENT TAXES BY FEDERAL AGENCIES

1. The table of contents for part 215 is revised to read as follows:

Authority: 5 U.S.C. 5516, 5517, 5520; E.O. 11997, 42 FR 31759.

2. Revise § 215.1 to read as follows:

3. Amend § 215.2 to revise paragraphs (h)(2)(i), (l), and (m) to read as follows:

4. Revise § 215.3 to read as follows:

5. Revise § 215.4 to read as follows:

6. Remove § 215.5 and redesignate §§ 215.6 through 215.13 as §§ 215.5 through 215.12, respectively.

7. Revise the heading for Subpart C to read:

Subpart C—Withholding Agreement

8. In newly redesignated § 215.5, remove the words “Standard Agreement” and add, in their place, the words “Withholding Agreement”.