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Frequently Asked Questions Pay & Leave

How does the agency withhold employment taxes directly from a loan repayment?

To use this method, the agency must–

  1. Calculate the correct amount of employment tax withholding on the loan repayment using one of two methods–the regular method described in Question 6 or the flat rate method described in Question 7;
  2. Deduct the amount of employment tax withholding from the loan repayment; and
  3. Deposit the amounts withheld and report the employment tax withholding and wages on Forms 941 and W-2 in accordance with normal deposit 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.

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