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Notes from the withholding at source interested parties meeting

On August 13, FTB staff held an interested parties meeting at our headquarters in Sacramento. The meeting's purpose was to discuss coming changes to regulations and forms used in administering FTB's Withholding at Source program. Withholding at source is an essential part of our tax gap compliance initiative. The "pay as you go" withholding process helps taxpayers by ensuring that tax is collected as income is received. It helps the state by ensuring that tax is paid as it is incurred on specific transactions, and by encouraging taxpayers to file returns at the end of the year.

The text of the existing regulations has been rewritten and reorganized into a simpler, more descriptive order. The revised text contains a table of contents, and the draft regulations begin with definitions and general rules applicable to all types of withholding at source, then provide specific guidance for the two major withholding areas that FTB administers: Real estate withholding, and withholding on payments (nonresident withholding). Withholding on payments is then further broken down into the three major program areas currently addressed in FTB publications:

  • Non-wage independent contractor, rent and royalty guidelines.
  • Entertainers and athletes.
  • Pass-through entities.

You can view the draft forms and regulations by following the links in the original interested parties meeting memo.

Reporting and remitting withholding rules have been consolidated into a single section. Finally, existing regulation Section 25410b would be renumbered as regulation Section 19002 and revised to add rules that are more specific for crediting withheld amounts.

Procedures and forms for real estate withholding will not be significantly changed. Withholding on payments to nonresidents will be streamlined so that due dates for nonresident withholding reporting and remittance will match quarterly estimated tax due dates. Credits for specific taxpayers will be identified with remittances at the time of payment so that the proper accounts can be updated.

At the meeting, members of the public had questions about the proposed changes and raised some practical concerns. In general, they were supportive of the changes from monthly to quarterly due dates. They understood the advantages of FTB having information about credits for specific taxpayers during the tax year. Problems arise when taxpayers file returns before the withholding agent has filed its information return and identified the withholding as a credit for the taxpayer.

FTB staff is collecting the written comments provided by members of the public, and will report to the three-member Franchise Tax Board at a future meeting with revised language to begin the formal regulatory process.