To use this method, the agency must–
- Determine the correct amount of employment tax withholding on all
wages paid to the employee during the payroll period, including both the
loan repayment and regular wages. (The agency may use either the
regular method or the flat rate method to calculate the correct amount of employment tax
withholding on the loan repayment);
- Deduct the total amount of employment tax withholding from the employee's regular wages; and
- Deposit the amounts withheld and report them on Form 941,
Employer's Quarterly Federal Tax Return, and Form W-2 in accordance with
normal depositing and reporting procedures.
This answer was provided by the Internal Revenue Service (IRS). For further guidance/clarification on this issue, agency representatives may contact IRS (Federal, State and Local Governments) at (202) 283-9665.