Division of Revenue
NOTICE OF PUBLIC COMMENT PERIOD
Regulation 1151-1 Personal Income Tax Withholding Exemption Certificates
Title of Regulation
Regulation 1151-1 Personal Income Tax Withholding Exemption Certificates
Nature of Proceedings; Synopsis of the Subject and Substance of the Proposed Regulation
In accordance with procedures set forth in 29 Del.C. Ch. 11, Subch. III and 29 Del.C. Ch. 101, the Director of Revenue of the Division of Revenue in the Department of Finance is proposing to adopt an amendment to the existing regulation pertaining to the treatment by employers of employees’ claims for exemptions from withholding of Delaware personal income tax. The existing regulation, “Personal Income Tax Withholding Exemption Certificates,” is set forth in the Division of Revenue’s Tax Ruling 83-3 (February 9, 1983), which modified Tax Ruling 80-4 (December 15, 1980). Tax Ruling 83-3 provides generally that employers must submit copies of withholding exemption certificates (currently submitted to employers by employees on Internal Revenue Service Form W-4 or an approved substitute form) that either (i) claim more than 14 withholding exemptions for purposes of the Delaware personal income tax, or (ii) claim exemption from withholding of Delaware personal income tax where the employer reasonably expects that the employee’s wages will exceed $100 per week. In such circumstances, pending receipt of a notice from the Division of Revenue with respect to a copy of any withholding exemption certificate, the employer must withhold on the basis of the number of exemptions claimed in the certificate. If the Division of Revenue finds that the certificate submitted contains materially incorrect statements, or, after seeking verification from the employee, determines that it lacks sufficient information to find that the withholding exemption certificate is correct, and if the Division notifies the employer of these findings, the employer must thereafter withhold from the employee’s wages as if the employee were a single person claiming no withholding exemptions. The employer is required to notify the employee of the action taken by the Division of Revenue and request that the employee file another withholding exemption certificate. The Director of Revenue proposes to supersede Tax Ruling 83-3 and Tax Ruling 80-4 on and after the effective date of the regulation being proposed here.
The new regulation conforms the administrative practice of the Division of Revenue with respect to withholding exemption certificates to the current administrative practice of the Internal Revenue Service, as set forth in Temporary Treasury Regulation §31.3402(f)(2)-1T, 26 CFR §31.3402(f)(2)-1T. The new regulation relieves employers of the burden of automatically having to submit for review by the Division of Revenue copies of an employee’s withholding exemption certificate, if an employee (i) claims more than 14 withholding exemptions, or (ii) claims exemption from withholding of Delaware personal income tax where the employer reasonably expects that the employee’s wages will exceed $100 per week. Instead, under the new regulation, an employer must submit copies of the employee’s withholding exemption certificate only when directed to do so in a written notice from the Division of Revenue or as directed in general published guidance issued by the Division of Revenue.
The new regulation also enables the Division of Revenue to notify the employer in writing that an employee is not entitled to claim either (i) a complete exemption from withholding, or (ii) more than the maximum number of withholding exemptions specified in the notice to the employer. The Division of Revenue may issue such a notice to an employer even if the employer has not previously submitted to the Division of Revenue a copy of the withholding exemption certificate of the employee in question. After receipt of this notice and after the effective date of the notice, the employer must generally withhold from the employee’s wages based on the number of withholding exemptions specified in the notice. The new regulation provides that the Division of Revenue may issue a notice to an employer only if it has determined that (i) the employee’s current withholding exemption certificate contains a materially incorrect statement or (ii) after requesting the employee to verify the statements on the withholding exemption certificate, the Division of Revenue lacks sufficient information to determine if the certificate is correct. The new regulation also sets forth actions that the employer and the Division of Revenue must take to notify the employee of the proposed action and actions that the employee may take to avoid the effect of the notice.
How to Comment on the Proposed Regulation
Members of the public may receive a copy of the proposed amendments to the regulation at no charge by United States Mail by writing or calling Carol Thomas, Delaware Division of Revenue, C900 Carvel State Office Building, 820 N. French St., Wilmington, DE 19801, phone (302) 577-8688. Members of the public may present written comments on the proposed regulation by submitting such written comments to John S. McDaniel, Esquire, at the address of the Division of Revenue set forth above. Written comments must be received on or before 4:30 p.m. on October 1, 2007.