26 U.S.C. § 3405 — Special rules for pensions, annuities, and

Page 2849 TITLE 26—INTERNAL REVENUE CODE § 3405 of this Act [Mar. 15, 1966] and before May 1, 1966, shall take effect with respect to the first payment of wages made on or after May 1, 1966, or the 10th day after the date on which such certificate is furnished to the em- ployer, whichever is later, and at the election of the employer such certificate may be made effective with respect to any payment of wages made on or after the date on which such certificate is furnished.’’ MEANING OF TERMS Act Aug. 9, 1955, ch. 666, § 1, 69 Stat. 605, provided that: ‘‘The terms used in this Act [amending subsecs. (a) and (j) of this section] shall have the same meaning as when used in the Internal Revenue Code.’’ § 3403. Liability for tax The employer shall be liable for the payment of the tax required to be deducted and withheld under this chapter, and shall not be liable to any person for the amount of any such payment. (Aug. 16, 1954, ch. 736, 68A Stat. 469; Pub. L. 97–248, title III, §§ 307(a)(2), 308(a), Sept. 3, 1982, 96 Stat. 589, 591; Pub. L. 98–67, title I, § 102(a), Aug. 5, 1983, 97 Stat. 369.) Editorial Notes AMENDMENTS 1983—Pub. L. 98–67 repealed amendments made by Pub. L. 97–248. See 1982 Amendment note below. 1982—Pub. L. 97–248 provided that, applicable to pay- ments of interest, dividends, and patronage dividends paid or credited after June 30, 1983, this section is amended by striking out ‘‘this chapter’’ and inserting in lieu thereof ‘‘this subchapter’’. Section 102(a), (b) of Pub. L. 98–67, title I, Aug. 5, 1983, 97 Stat. 369, repealed subtitle A (§§ 301–308) of title III of Pub. L. 97–248 as of the close of June 30, 1983, and provided that the Inter- nal Revenue Code of 1954 [now 1986] [this title] shall be applied and administered (subject to certain excep- tions) as if such subtitle A (and the amendments made by such subtitle A) had not been enacted. § 3404. Return and payment by governmental em- ployer If the employer is the United States, or a State, or political subdivision thereof, or the District of Columbia, or any agency or instru- mentality of any one or more of the foregoing, the return of the amount deducted and withheld upon any wages may be made by any officer or employee of the United States, or of such State, or political subdivision, or of the District of Co- lumbia, or of such agency or instrumentality, as the case may be, having control of the payment of such wages, or appropriately designated for that purpose. (Aug. 16, 1954, ch. 736, 68A Stat. 469; Pub. L. 94–455, title XIX, § 1903(c), Oct. 4, 1976, 90 Stat. 1810.) Editorial Notes AMENDMENTS 1976—Pub. L. 94–455 struck out ‘‘Territory’’ after ‘‘or a State’’ and ‘‘of such State’’. § 3405. Special rules for pensions, annuities, and certain other deferred income (a) Periodic payments (1) Withholding as if payment were wages The payor of any periodic payment (as de- fined in subsection (e)(2)) shall withhold from such payment the amount which would be re- quired to be withheld from such payment if such payment were a payment of wages by an employer to an employee for the appropriate payroll period. (2) Election of no withholding An individual may elect to have paragraph (1) not apply with respect to periodic pay- ments made to such individual. Such an elec- tion shall remain in effect until revoked by such individual. (3) When election takes effect Any election under this subsection (and any revocation of such an election) shall take ef- fect as provided by subsection (f)(3) of section 3402 for withholding allowance certificates. (4) Amount withheld where no withholding al- lowance certificate in effect In the case of any payment with respect to which a withholding allowance certificate is not in effect, the amount withheld under para- graph (1) shall be determined under rules pre- scribed by the Secretary. (b) Nonperiodic distribution (1) Withholding The payor of any nonperiodic distribution (as defined in subsection (e)(3)) shall withhold from such distribution an amount equal to 10 percent of such distribution. (2) Election of no withholding (A) In general An individual may elect not to have para- graph (1) apply with respect to any nonperi- odic distribution. (B) Scope of election An election under subparagraph (A)— (i) except as provided in clause (ii), shall be on a distribution-by-distribution basis, or (ii) to the extent provided in regulations, may apply to subsequent nonperiodic dis- tributions made by the payor to the payee under the same arrangement. (c) Eligible rollover distributions (1) In general In the case of any designated distribution which is an eligible rollover distribution— (A) subsections (a) and (b) shall not apply, and (B) the payor of such distribution shall withhold from such distribution an amount equal to 20 percent of such distribution. (2) Exception Paragraph (1)(B) shall not apply to any dis- tribution if the distributee elects under sec- tion 401(a)(31)(A) to have such distribution paid directly to an eligible retirement plan. (3) Eligible rollover distribution For purposes of this subsection, the term ‘‘eligible rollover distribution’’ has the mean- ing given such term by section 402(f)(2)(A). (d) Liability for withholding (1) In general Except as provided in paragraph (2), the payor of a designated distribution (as defined Page 2850 TITLE 26—INTERNAL REVENUE CODE § 3405 in subsection (e)(1)) shall withhold, and be lia- ble for, payment of the tax required to be withheld under this section. (2) Plan administrator liable in certain cases (A) In general In the case of any plan to which this para- graph applies, paragraph (1) shall not apply and the plan administrator shall withhold, and be liable for, payment of the tax unless the plan administrator— (i) directs the payor to withhold such tax, and (ii) provides the payor with such infor- mation as the Secretary may require by regulations. (B) Plans to which paragraph applies This paragraph applies to any plan de- scribed in, or which at any time has been de- termined to be described in— (i) section 401(a), (ii) section 403(a), (iii) section 301(d) of the Tax Reduction Act of 1975, or (iv) section 457(b) and which is main- tained by an eligible employer described in section 457(e)(1)(A). (e) Definitions and special rules For purposes of this section— (1) Designated distribution (A) In general Except as provided in subparagraph (B), the term ‘‘designated distribution’’ means any distribution or payment from or under— (i) an employer deferred compensation plan, (ii) an individual retirement plan (as de- fined in section 7701(a)(37)), or (iii) a commercial annuity. (B) Exceptions The term ‘‘designated distribution’’ shall not include— (i) any amount which is wages without regard to this section, (ii) the portion of a distribution or pay- ment which it is reasonable to believe is not includible in gross income, and (iii) any amount which is subject to withholding under subchapter A of chapter 3 (relating to withholding of tax on non- resident aliens and foreign corporations) by the person paying such amount or which would be so subject but for a tax treaty, or (iv) any distribution described in section 404(k)(2). For purposes of clause (ii), any distribution or payment from or under an individual re- tirement plan (other than a Roth IRA) shall be treated as includible in gross income. (2) Periodic payment The term ‘‘periodic payment’’ means a des- ignated distribution which is an annuity or similar periodic payment. (3) Nonperiodic distribution The term ‘‘nonperiodic distribution’’ means any designated distribution which is not a periodic payment. [(4) Repealed. Pub. L. 102–318, title V, § 521(b)(38), July 3, 1992, 106 Stat. 312] (5) Employer deferred compensation plan The term ‘‘employer deferred compensation plan’’ means any pension, annuity, profit-shar- ing, or stock bonus plan or other plan defer- ring the receipt of compensation. (6) Commercial annuity The term ‘‘commercial annuity’’ means an annuity, endowment, or life insurance con- tract issued by an insurance company licensed to do business under the laws of any State. (7) Plan administrator The term ‘‘plan administrator’’ has the meaning given such term by section 414(g). (8) Maximum amount withheld The maximum amount to be withheld under this section on any designated distribution shall not exceed the sum of the amount of money and the fair market value of other property (other than securities of the em- ployer corporation) received in the distribu- tion. No amount shall be required to be with- held under this section in the case of any des- ignated distribution which consists only of se- curities of the employer corporation and cash (not in excess of $200) in lieu of financial shares. For purposes of this paragraph, the term ‘‘securities of the employer corporation’’ has the meaning given such term by section 402(e)(4)(E). (9) Separate arrangements to be treated sepa- rately If the payor has more than 1 arrangement under which designated distributions may be made to any individual, each such arrange- ment shall be treated separately. (10) Time and manner of election (A) In general Any election and any revocation under this section shall be made at such time and in such manner as the Secretary shall pre- scribe. (B) Payor required to notify payee of rights to elect (i) Periodic payments The payor of any periodic payment— (I) shall transmit to the payee notice of the right to make an election under subsection (a) not earlier than 6 months before the first of such payments and not later than when making the first of such payments, (II) if such a notice is not transmitted under subclause (I) when making such first payment, shall transmit such a no- tice when making such first payment, and (III) shall transmit to payees, not less frequently than once each calendar year, notice of their rights to make elections under subsection (a) and to revoke such elections. (ii) Nonperiodic distributions The payor of any nonperiodic distribu- tion shall transmit to the payee notice of Page 2851 TITLE 26—INTERNAL REVENUE CODE § 3405 the right to make any election provided in subsection (b) at the time of the distribu- tion (or at such earlier time as may be pro- vided in regulations). (iii) Notice Any notice transmitted pursuant to this subparagraph shall be in such form and contain such information as the Secretary shall prescribe. (11) Withholding includes deduction The terms ‘‘withholding’’, ‘‘withhold’’, and ‘‘withheld’’ include ‘‘deducting’’, ‘‘deduct’’, and ‘‘deducted’’. (12) Failure to provide correct TIN If— (A) a payee fails to furnish his TIN to the payor in the manner required by the Sec- retary, or (B) the Secretary notifies the payor before any payment or distribution that the TIN furnished by the payee is incorrect, no election under subsection (a)(2) or (b)(2) shall be treated as in effect and subsection (a)(4) shall not apply to such payee. (13) Election may not be made with respect to certain payments outside the United States or its possessions (A) In general Except as provided in subparagraph (B), in the case of any periodic payment or nonperi- odic distribution which is to be delivered outside of the United States and any posses- sion of the United States, no election may be made under subsection (a)(2) or (b)(2) with respect to such payment. (B) Exception Subparagraph (A) shall not apply if the re- cipient certifies to the payor, in such man- ner as the Secretary may prescribe, that such person is not— (i) a United States citizen or a resident alien of the United States, or (ii) an individual to whom section 877 ap- plies. (f) Withholding to be treated as wage with- holding under section 3402 for other pur- poses For purposes of this chapter (and so much of subtitle F as relates to this chapter)— (1) any designated distribution (whether or not an election under this section applies to such distribution) shall be treated as if it were wages paid by an employer to an employee with respect to which there has been with- holding under section 3402, and (2) in the case of any designated distribution not subject to withholding under this section by reason of an election under this section, the amount withheld shall be treated as zero. (Added Pub. L. 97–248, title III, § 334(a), Sept. 3, 1982, 96 Stat. 623; amended Pub. L. 98–369, div. A, title V, § 542(c), title VII, §§ 714(j)(1), (4), (5), 722(h)(4)(A), July 18, 1984, 98 Stat. 891, 962, 963, 976; Pub. L. 99–514, title XI, § 1102(e)(1), title XII, § 1234(b)(1), title XVIII, § 1875(c)(10), Oct. 22, 1986, 100 Stat. 2416, 2566, 2895; Pub. L. 100–647, title I, § 1012(bb)(2)(A)–(C), Nov. 10, 1988, 102 Stat. 3534; Pub. L. 102–318, title V, §§ 521(b)(36)–(40), 522(b)(1)–(2)(C), July 3, 1992, 106 Stat. 312–314; Pub. L. 104–188, title I, § 1704(t)(71), Aug. 20, 1996, 110 Stat. 1891; Pub. L. 106–554, § 1(a)(7) [title III, § 314(b)], Dec. 21, 2000, 114 Stat. 2763, 2763A–643; Pub. L. 107–16, title VI, § 641(a)(1)(D)(ii), (iii), June 7, 2001, 115 Stat. 119; Pub. L. 115–97, title I, § 11041(c)(2)(F), (G), Dec. 22, 2017, 131 Stat. 2084.) Editorial Notes REFERENCES IN TEXT Section 301(d) of the Tax Reduction Act of 1975, re- ferred to in subsec. (d)(2)(B)(iii), is section 301(d) of Pub. L. 94–12, Mar. 29, 1975, 89 Stat. 26, relating to plan requirements for taxpayers electing additional credits, which was set out as a note under section 46 of this title and was repealed by Pub. L. 95–600, title I, § 141(f)(1), Nov. 6, 1978, 92 Stat. 2795. AMENDMENTS 2017—Subsec. (a)(3). Pub. L. 115–97, § 11041(c)(2)(F), substituted ‘‘allowance’’ for ‘‘exemption’’. Subsec. (a)(4). Pub. L. 115–97, in heading, substituted ‘‘allowance’’ for ‘‘exemption’’ and in text, substituted ‘‘allowance’’ for ‘‘exemption’’ and ‘‘shall be determined under rules prescribed by the Secretary’’ for ‘‘shall be determined by treating the payee as a married indi- vidual claiming 3 withholding exemptions’’. 2001—Subsec. (c)(3). Pub. L. 107–16, § 641(a)(1)(D)(ii), re- enacted heading without change and amended text of par. (3) generally. Prior to amendment, text read as fol- lows: ‘‘For purposes of this subsection, the term ‘eligi- ble rollover distribution’ has the meaning given such term by section 402(f)(2)(A) (or in the case of an annuity contract under section 403(b), a distribution from such contract described in section 402(f)(2)(A)).’’ Subsec. (d)(2)(B)(iv). Pub. L. 107–16, § 641(a)(1)(D)(iii), added cl. (iv). 2000—Subsec. (e)(1)(B). Pub. L. 106–554 inserted ‘‘(other than a Roth IRA)’’ after ‘‘individual retirement plan’’ in concluding provisions. 1996—Subsec. (e)(12). Pub. L. 104–188 substituted ‘‘(b)(2)’’ for ‘‘(b)(3)’’ in closing provisions. 1992—Subsec. (a). Pub. L. 102–318, § 521(b)(36), sub- stituted ‘‘Periodic payments’’ for ‘‘Pensions, annuities, etc.’’ in heading. Subsec. (a)(1). Pub. L. 102–318, § 522(b)(2)(A), sub- stituted ‘‘subsection (e)(2)’’ for ‘‘subsection (d)(2)’’. Subsec. (b)(1). Pub. L. 102–318, §§ 521(b)(37)(A), 522(b)(2)(B), substituted ‘‘subsection (e)(3)’’ for ‘‘sub- section (d)(3)’’ and ‘‘an amount equal to 10 percent of such distribution’’ for ‘‘the amount determined under paragraph (2)’’. Subsec. (b)(2), (3). Pub. L. 102–318, § 521(b)(37)(B), re- designated par. (3) as (2) and struck out former par. (2) which related to amount of withholding. Subsec. (c). Pub. L. 102–318, § 522(b)(1), added subsec. (c). Former subsec. (c) redesignated (d). Subsec. (d). Pub. L. 102–318, § 522(b)(1), (2)(C), redesig- nated subsec. (c) as (d) and substituted ‘‘subsection (e)(1)’’ for ‘‘subsection (d)(1)’’ in par. (1). Former subsec. (d) redesignated (e). Pub. L. 102–318, § 521(b)(40), substituted ‘‘(b)(2)’’ for ‘‘(b)(3)’’ in par. (13)(A). Pub. L. 102–318, § 521(b)(39), amended par. (8) gen- erally. Prior to amendment, par. (8) read as follows: ‘‘The maximum amount to be withheld under this sec- tion on any designated distribution shall not exceed the sum of the amount of money and the fair market value of other property (other than employer securities of the employer corporation (within the meaning of section 402(a)(3))) received in the distribution. No amount shall be required to be withheld under this sec- tion in the case of any designated distribution which consists only of employer securities of the employer corporation (within the meaning of section 402(a)(3)) Page 2852 TITLE 26—INTERNAL REVENUE CODE § 3405 and cash (not in excess of $200) in lieu of fractional shares.’’ Pub. L. 102–318, § 521(b)(38), struck out par. (4) which defined ‘‘qualified total distribution’’ and provided spe- cial rule for accumulated deductible employee con- tributions in determining qualified total distribution. Subsecs. (e), (f). Pub. L. 102–318, § 522(b)(1), redesig- nated subsecs. (d) and (e) as (e) and (f), respectively. 1988—Subsec. (d)(13). Pub. L. 100–647, § 1012(bb)(2)(C), substituted ‘‘United States or its possessions’’ for ‘‘United States’’ in heading. Subsec. (d)(13)(A). Pub. L. 100–647, § 1012(bb)(2)(A), sub- stituted ‘‘the United States and any possession of the United States’’ for ‘‘the United States’’. Subsec. (d)(13)(B)(i). Pub. L. 100–647, § 1012(bb)(2)(B), amended cl. (i) generally, substituting ‘‘or a resident alien of the United States’’ for ‘‘who is a bona fide resi- dent of a foreign country’’. 1986—Subsec. (d)(1)(B). Pub. L. 99–514, § 1102(e)(1), in- serted last sentence for ‘‘For purposes of clause (ii), any distribution or payment from or under an indi- vidual retirement plan shall be treated as includible in gross income.’’ Subsec. (d)(1)(B)(iii), (iv). Pub. L. 99–514, § 1875(c)(10), reenacted cl. (iii) relating to amounts subject to with- holding under subchapter A of chapter 3 as cl. (iii) and reenacted cl. (iii) relating to distribution described in section 404(k)(2) as cl. (iv). Subsec. (d)(13). Pub. L. 99–514, § 1234(b)(1), added par. (13). 1984—Subsec. (b)(2)(C). Pub. L. 98–369, § 714(j)(1), sub- stituted ‘‘nonperiodic distribution’’ for ‘‘distribution described in subparagraph (B)’’ and ‘‘subparagraph (A) or (B) (as the case may be) shall be applied by taking into account’’ for ‘‘the Secretary, in prescribing tables or procedures under paragraph (1), shall take into ac- count’’, designated phrase ‘‘which is made by reason of a participant’s death’’ as cl. (i) and added cl. (ii). Subsec. (d)(1)(B)(iii). Pub. L. 98–369, § 714(j)(4), added cl. (iii) relating to amounts subject to withholding under subchapter A of chapter 3. Pub. L. 98–369, § 542(c), added cl. (iii) relating to dis- tributions described in section 404(k)(2). Directory lan- guage that section (d)(1)(B) be amended by striking out ‘‘and’’ at end of cl. (i) and substituting ‘‘, or’’ for the period at end of cl. (ii) could not be executed in view of prior amendment by section 714(j)(4) of Pub. L. 98–369, which struck out ‘‘and’’ at end of cl. (i) and substituted ‘‘, and’’ for the period at end of cl. (ii). Subsec. (d)(8). Pub. L. 98–369, § 714(j)(5), freed from withholding requirement any designated distribution which consists only of employer securities of the em- ployer corporation (within the meaning of section 402(a)(3)) and cash (not in excess of $200) in lieu of frac- tional shares. Subsec. (d)(12). Pub. L. 98–369, § 722(h)(4), added par. (12). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2017 AMENDMENT Amendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 11041(f)(1) of Pub. L. 115–97, set out as a note under sec- tion 151 of this title. EFFECTIVE DATE OF 2001 AMENDMENT Amendment by Pub. L. 107–16 applicable to distribu- tions after Dec. 31, 2001, see section 641(f)(1) of Pub. L. 107–16, set out as a note under section 402 of this title. EFFECTIVE DATE OF 2000 AMENDMENT Amendment by Pub. L. 106–554 effective as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 1(a)(7) [title III, § 314(g)] of Pub. L. 106–554, set out as a note under section 56 of this title. EFFECTIVE DATE OF 1992 AMENDMENT Amendment by section 521(b)(36)–(40) of Pub. L. 102–318 applicable to distributions after Dec. 31, 1992, see section 521(e) of Pub. L. 102–318, set out as a note under section 402 of this title. Amendment by section 522(b)(1)–(2)(C) of Pub. L. 102–318 applicable, except as otherwise provided, to dis- tributions after Dec. 31, 1992, see section 522(d) of Pub. L. 102–318, set out as a note under section 401 of this title. EFFECTIVE DATE OF 1988 AMENDMENT Pub. L. 100–647, title I, § 1012(bb)(2)(D), Nov. 10, 1988, 102 Stat. 3534, provided that: ‘‘The amendments made by this paragraph [amending this section] shall apply to distributions made after the date of the enactment of this Act [Nov. 10, 1988].’’ EFFECTIVE DATE OF 1986 AMENDMENT Amendment by section 1102(e)(1) of Pub. L. 99–514 ap- plicable to contributions and distributions for taxable years beginning after Dec. 31, 1986, see section 1102(g) of Pub. L. 99–514, set out as a note under section 219 of this title. Pub. L. 99–514, title XII, § 1234(b)(2), Oct. 22, 1986, 100 Stat. 2566, provided that: ‘‘The amendment made by this subsection [amending this section] shall apply to payments after December 31, 1986.’’ Amendment by section 1875(c)(10) of Pub. L. 99–514 ef- fective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by section 542(c) of Pub. L. 98–369 appli- cable to taxable years beginning after July 18, 1984, see section 542(d) of Pub. L. 98–369, set out as a note under section 404 of this title. Amendment by section 714(j)(1), (4), (5) of Pub. L. 98–369 effective as if included in the provision of the Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97–248, to which such amendment relates, see section 715 of Pub. L. 98–369, set out as a note under section 31 of this title. Amendment by section 722(h)(4)(A) of Pub. L. 98–369 applicable to payments or distributions after Dec. 31, 1984, unless the payor elects to have such amendment apply to payments or distributions before Jan. 1, 1985, see section 722(h)(5)(B) of Pub. L. 98–369, set out as a note under section 643 of this title. EFFECTIVE DATE Pub. L. 97–248, title III, § 334(e), Sept. 3, 1982, 96 Stat. 627, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘(1) AMENDMENT MADE BY SUBSECTIONS (a) AND (d).— Except as provided in paragraph (4), the amendment made by subsections (a) [enacting this section] and (d) [amending section 3402 of this title] shall apply to pay- ments or other distributions made after December 31, 1982. ‘‘(2) AMENDMENTS MADE BY SUBSECTION (b).—Except as provided in paragraph (4), the amendments made by subsection (b) [amending section 6047 of this title] shall take effect on January 1, 1983. ‘‘(3) AMENDMENTS MADE BY SUBSECTION (c).—The amendments made by subsection (c) [enacting section 6704 of this title] shall take effect on January 1, 1985. ‘‘(4) PERIODIC PAYMENTS BEGINNING BEFORE JANUARY 1, 1983.—For purposes of section 3405(a) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], in the case of periodic payments beginning before January 1, 1983, the first periodic payment after December 31, 1982, shall be treated as the first such periodic payment. ‘‘(5) DELAY IN APPLICATION.—The Secretary of the Treasury shall prescribe such regulations which delay (but not beyond June 30, 1983) the application of some or all of the amendments made by this section with re- spect to any payor until such time as such payor is able to comply without undue hardship with the require- ments of such provisions. Page 2853 TITLE 26—INTERNAL REVENUE CODE § 3406 1 See References in Text note below. ‘‘(6) WAIVER OF PENALTY.—No penalty shall be as- sessed under section 6672 with respect to any failure to withhold as required by the amendments made by this section if such failure was before July 1, 1983, and if the person made a good faith effort to comply with such withholding requirements.’’ PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994 For provisions directing that if any amendments made by subtitle B [§§ 521–523] of title V of Pub. L. 102–318 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1994, see section 523 of Pub. L. 102–318, set out as a note under section 401 of this title. PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989 For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title. § 3406. Backup withholding (a) Requirement to deduct and withhold (1) In general In the case of any reportable payment, if— (A) the payee fails to furnish his TIN to the payor in the manner required, (B) the Secretary notifies the payor that the TIN furnished by the payee is incorrect, (C) there has been a notified payee under- reporting described in subsection (c), or (D) there has been a payee certification failure described in subsection (d), then the payor shall deduct and withhold from such payment a tax equal to the product of the fourth lowest rate of tax applicable under sec- tion 1(c) 1 and such payment. (2) Subparagraphs (C) and (D) of paragraph (1) apply only to interest and dividend pay- ments Subparagraphs (C) and (D) of paragraph (1) shall apply only to reportable interest or divi- dend payments. (b) Reportable payment, etc. For purposes of this section— (1) Reportable payment The term ‘‘reportable payment’’ means— (A) any reportable interest or dividend payment, and (B) any other reportable payment. (2) Reportable interest or dividend payment (A) In general The term ‘‘reportable interest or dividend payment’’ means any payment of a kind, and to a payee, required to be shown on a return required under— (i) section 6049(a) (relating to payments of interest), (ii) section 6042(a) (relating to payments of dividends), or (iii) section 6044 (relating to payments of patronage dividends) but only to the ex- tent such payment is in money. (B) Special rule for patronage dividends For purposes of subparagraphs (C) and (D) of subsection (a)(1), the term ‘‘reportable in- terest or dividend payment’’ shall not in- clude any payment to which section 6044 (re- lating to patronage dividends) applies unless 50 percent or more of such payment is in money. (3) Other reportable payment The term ‘‘other reportable payment’’ means any payment of a kind, and to a payee, required to be shown on a return required under— (A) section 6041 (relating to certain infor- mation at source), (B) section 6041A(a) (relating to payments of remuneration for services), (C) section 6045 (relating to returns of bro- kers), (D) section 6050A (relating to reporting re- quirements of certain fishing boat opera- tors), but only to the extent such payment is in money and represents a share of the pro- ceeds of the catch, (E) section 6050N (relating to payments of royalties), or (F) section 6050W (relating to returns re- lating to payments made in settlement of payment card transactions). (4) Whether payment is of reportable kind de- termined without regard to minimum amount The determination of whether any payment is of a kind required to be shown on a return described in paragraph (2) or (3) shall be made without regard to any minimum amount which must be paid before a return is required. (5) Exception for certain small payments To the extent provided in regulations, the term ‘‘reportable payment’’ shall not include any payment which— (A) does not exceed $10, and (B) if determined for a 1-year period, would not exceed $10. (6) Other reportable payments include pay- ments described in section 6041(a) or 6041A(a) only where aggregate for calendar year is $600 or more Any payment of a kind required to be shown on a return required under section 6041(a) or 6041A(a) which is made during any calendar year shall be treated as a reportable payment only if— (A) the aggregate amount of such payment and all previous payments described in such sections by the payor to the payee during such calendar year equals or exceeds $600, (B) the payor was required under section 6041(a) or 6041A(a) to file a return for the preceding calendar year with respect to pay- ments to the payee, or (C) during the preceding calendar year, the payor made reportable payments to the payee with respect to which amounts were required to be deducted and withheld under subsection (a).