26 U.S.C. § 3402; 26 CFR § 31.3401
On or before the date on which an individual commences employment with an employer, the individual shall furnish the employer with a signed withholding exemption certificate relating to his or her marital status and the number of withholding exemptions which he or she claims. See
26 C.F.R. § 31.3402(f)(2)-(1).
The employer is required to request a withholding exemption certificate from each employee, but if the employee fails to furnish such certificate, the employer shall consider that employee a single person claiming no withholding. On or before December 1 of each year, every employer should request of each employee a newly completed withholding exemption certificate for the ensuing calendar year.
Employers are require to keep records of employee payments, taxes withheld, and payments to state unemployment compensation funds for four years from date the tax return is due or paid, whichever is later. See 29 C.F.R. § 31.60001 et seq. Many other recordkeeping requirements apply that are not covered in this Summary of Federal Laws.
See Rev. Proc. 99-47, 1999-49 I.R.B. 624, for the requirements for filing Forms W-4 (employee’s withholding allowance certificate) on an electronic or magnetic media basis. Applies to Forms W-4 filed for quarters ending March 31, 2000 and all later filings.
Withholding of Income tax on Remuneration Paid to Employees working outside U.S.
April 4, 2008 ILM 200814010 Chief Counsel Advice from IRS: Remuneration for services paid to the employee who is a United States citizen are wages for income tax withholding purposes to the extent that they exceed the amount of the exclusion that the employee is entitled to under section 911 and are not subject to withholding under the laws of a foreign country.
Selected Case Law
In the Matter of Edward A. Zelinsky (November 2003) Professor of Cardozo School of Law in New York City contends New York State may not tax the entirety of his income because some of the work was performed from his home in Connecticut. The Appeals Tribunal upheld the doctrine that nonresidents employed in New York who work at home when not required to do so by employers must treat those days as if they had been present at their work station in New York, resulting in New York source income. The Court of Appeals (New York) upholding the New York Appellate Division, 3rd Department, and the Tax Appeals Tribunal rejected the taxpayer's argument that the convenience of the employer test, as applied to the taxpayer, violated the Commerce and Due Process Clause of the Federal Constitution.
Commentary below from Sean Scally, University Counsel and Tax Attorney, Vanderbilt University and Medical Center
In the excerpt below from the New York Law Journal, published November 25, 2003, you will find an article on the state income tax liability of a law professor who lives in Connecticut but works in New York. This is becoming a significant issue for states seeking tax revenue from high wage earners who reside in one state and work from home, but who also have an office or other work situs in another state. It has come up typically in the professional entertainer arena, including, in particular, professional sports. It presents significant problems when an institution expressly permits and expects an employee to work from another location, say a home office in a different state, and thereby requires the employer to comply with the tax withholding and reporting obligations of that other jurisdiction. As you will see in the excerpt below, Professor Zelinsky intends to fight on in this battle with an application for cert. to the US Supreme Court:
Law Professor Loses Tax Fight With State: 'Convenience of employer' allows New York to collect on earnings taxed in Connecticut, John Caher, New York Law Journal,11-25-2003 A controversial tax policy that enables New York to collect roughly $100 million from out-of-state residents -- but which forces a Cardozo Law School professor to pay tax to two states on the same income -- was upheld Monday by a unanimous Court of Appeals. Chief Judge Judith S. Kaye said the application of the so-called convenience of the employer test" in determining the taxes owed by professor Edward A. Zelinsky is constitutionally sound and consistent with reasonable public policy objectives. She said New York "need not subsidize" Zelinsky for opting to work at times from his Connecticut home. Allowing this taxpayer to allocate his income to Connecticut when he stays home to do his work in connection with his teaching activity would enable him to avoid paying taxes that his colleagues who do that work at home in New York -- or at the law school -- pay," Chief Judge Kaye wrote for the Court in Zelinsky v. New York State Tax Appeals Tribunal, 129 (rest of article available from the New York Law Journal. Note: this is a password protected site).