Payroll Management

General Payroll Information

Section 2050—Basic Disbursement Requirements

2050.10—General Requirements

The following requirements apply to all disbursements, whether in cash, checks, or electronic payments, that are issued on the U.S. Treasury or designated depositary banks for authorized and lawful payments and/or refunds of amounts collected:

  • Must support disbursements with sufficient information on the disbursement vouchers, or on documents attached to them, to enable the audit of the transactions of certifying and disbursing officers, as required by law,
  • Should mark vouchers or voucher schedules and supporting documents systematically, or manually when applicable, to prevent duplicate payments and to avoid mutilation, overwrite, inadvertent deletion, or destruction, and
  • If an original invoice has been lost or destroyed, the federal entity must obtain a duplicate from the original submitter of the invoice to support the voucher or voucher schedule. Then, the federal entity may process the voucher or voucher schedule through regular disbursement channels provided it places on or attaches to the duplicate invoice a full explanation as to the circumstances of the loss or destruction of the original invoice and a statement indicating that steps have been taken to prevent duplicate payment.

Note: Federal entities should be particularly alert to the possibility of duplicating payments whenever they:

  • Have delayed payments for extended periods of time after the due date,
  • Have received duplicate copies of invoices from vendors as follow-up claims and/or have submitted invoices or bills to more than one federal entity location for payment, or
  • Have received adjusted invoices after they have made payments.

2050.20—Cash Advances – Establishing Procedures for Cash Advances

It is the responsibility of grantor federal entities to monitor the cash management practices of their recipient organizations to ensure that federal cash is not maintained by them in excess of immediate disbursing needs. Federal entities must establish systems and procedures to assure that balances are maintained and commensurate with immediate disbursing needs, excess balances are promptly returned to the Treasury; and advance funding arrangements with recipient organizations unwilling or unable to comply are terminated.

Procedures established by federal entities should:

  • Specify that all contractual arrangements with recipient organizations provide that advance payments will be made only at times and in amounts necessary to meet immediate disbursing needs. This figure is calculated by the federal entity and should be reviewed quarterly. Federal entities should conduct independent annual reviews of the balances to ensure only amounts necessary to meet immediate disbursing needs are maintained. The results of the review should be shared with Treasury,
  • Monitor recipient organizations, and base evaluations on cash payments and not on accrued liabilities,
  • Require, except where specifically prohibited by law, all interest earned by recipient organizations on advances from federal funds be remitted to the federal entity. The federal entity will promptly return the funds to the Treasury, and
  • Immediately upon determination that an expenditure of advance funds is disallowable in accordance with the contractual arrangement, the federal entity should notify the recipient and require the return of such funds. Under no circumstances should funds be returned more than 30 days from the date of the notification by the federal entity.

2050.30—Preventing Payments Not Covered by an Appropriation or Continuing Resolution

Excluding payrolls in certain circumstances (see subsection 2045.20), the responsibility for preventing payments not covered by an appropriation or a continuing resolution rests with the federal entity certifying the payment. It is the responsibility of the federal entity’s CO to ensure that payments certified to disbursing officers are not improper. It is not the disbursing officer’s responsibility to investigate the date of the underlying obligation of certified scheduled payments.

2050.40—Payrolls – General

Responsibilities for the head of each federal entity include the following:

  • Establishing and maintaining an adequate payroll system, or
  • Using a payroll service provider with a system for covering pay, leave, and allowances, as a part of the system of accounting and internal control required by the Accounting and Auditing Act of 1950 (31 U.S.C. 3513). This system must conform to the principles, standards, and related requirements prescribed by the Comptroller General.

The Office of Personnel Management (OPM), the Office of Management and Budget (OMB), and the Department of Labor (DOL) issue regulations related to payroll voucher preparation.

2050.50—Payroll Creation

A disbursing officer who knows an obligation was incurred when funds were not available may not disburse a certified payment voucher. This circumstance can arise particularly in the case of payrolls when it is obvious that the time of obligation occurred after the appropriation or continuing resolution lapsed. Therefore, when annual appropriations have not been enacted and there is no continuing resolution under which obligations can be legally liquidated, disbursing officers should not knowingly release payrolls that extend beyond the period provided for in the appropriation or continuing resolution. The inclusive dates of a pay period serve as prima facie notice to disbursing officers of the date on which the obligation was incurred. Disbursing officers should not knowingly release payrolls for any pay period extending beyond or commencing after the expiration date of an appropriation or a continuing resolution, unless the chargeable appropriation is a no-year or unexpired multiple-year appropriation.

2050.50a—Payrolls Processed for the Entire Pay Period

Sometimes the expiration date of an appropriation or a continuing resolution does not coincide with the end of a pay period. Disbursing officers may not release payrolls that include salaries and wages earned beyond the expiration date of the appropriation or continuing resolution.

2050.50b—Payrolls Processed for a Portion of a Pay Period through the Expiration Date

Disbursing officers should make the usual advance release of payroll payments only to cover salaries and wages earned through the expiration date of an appropriation or a continuing resolution.

2050.50c—Payrolls for Pay Periods After the Expiration Date

For any partially covered pay period and all subsequent pay periods, federal entities should process payrolls for salaries and wages earned beyond the expiration date of an appropriation or a continuing resolution as usual. Disbursing officers may prepare payments for such payrolls and may hold them for immediate release upon approval of an appropriation or continuing resolution.

2050.60—Claims for Deceased Employees

In 1996, the procedures and forms to be used to process claims for deceased federal employees were transferred from GAO to OPM. In the “Determination with Respect to Transfer of Functions Pursuant to Public Law 104-53,” dated June 28, 1996, the Acting Director of OMB delegated this and other transferred functions to other federal entities. See 31 U.S.C. 3702 and 5 U.S.C. 5583 for claims involving federal civilian employees’ compensation and leave, and settlement of deceased employees’ accounts.

2050.70—Payee Information

Federal entities should uniformly follow the rules below in connection with the designation of the payee or payees of government payments.

2050.70a—Payments to Individuals

In all cases, use the first name, middle initials, if any, and surname of the payee. Omit punctuation marks except for the use of commas to set off the names of more than two payees.

2050.70b—Payments to Joint Accounts

Federal entities should carefully distinguish between using the term “joint” and “several” accounts in situations such as trust estates, decedents’ estates, trustees, executors, and administrators of the accounts.

Where two or more individuals are jointly entitled to receive the payment, the voucher should include all names as payees. Use the word “and” before the name of the last payee. Where the account is not a joint account but is held by two or more individuals, use “or” before the name of the last payee.

Note: Do not under any circumstances designate the word “estate” as the payee, for example, “Estate of A., deceased.” When the particular estate has only one trustee or one personal representative, designate the individual by name as the payee in that representative capacity, for example:

  • “T., trustee u/w of A., deceased” (in the case of a testamentary trust),
  • “T., trustee u/d from A. dated (date of trust indenture)” in the case of the transfer of the ownership of property between living persons (such as, inter vivos trust), and
  • “E., executor of the Estate of A. deceased” or “A., administrator of the Estate of B., deceased” (in the case of a decedent’s estate).

If the estate has several trustees or personal representatives, designate all trustees, administrators, or executors by name in their representative capacities as joint payees, for example, “A., B., and the X Trust Company, trustees u/w of D., deceased,” etc.

2050.80—Corporate Trustee or Executor in Receivership or in the Hands of the Local Banking Department

The federal entity should make the payment payable to the liquidating officer (Receiver, Secretary of Banking, Commissioner of Banking, etc.) as payee. The names of the corporate trustee or executor and the estate should appear in such designation, for example, “Secretary of Banking, in possession of the business and property of the X Trust Company, trustee u/w of D.” (This form varies according to the designation given the proper liquidating officer under the local law.)

The federal entity CO must be furnished a certified copy of the grant-of-letters testamentary, the will, or trust indenture stating that the intended payee is duly appointed, qualified, and acting trustee or executor. In instances where the administration of the estate is closed and the trustee or personal representative has been discharged, designate the legatees, distributees, or beneficiaries entitled to receive the payment in question as joint payees. The CO must be furnished first with a certified copy of the decree of distribution or other proper evidence from the court having jurisdiction of the particular estate showing the persons entitled to receive payment.

2050.90—Guardians of Minors

Because of differences in local law, there is no all-inclusive rule to determine the guardian to whom payment should be made. Some states require the guardian of the estate of a minor to be someone other than the guardian of his/her person, while others combine both functions in the same individual. The local law must be examined in each case. The CO must be furnished with a certified copy of the appointment that the particular individual is authorized to receive the payment on behalf of the individual’s ward.

The designation of the payee may be in many forms, depending on the circumstances of the particular case. The following are three examples:

  • “G., guardian of M., a minor”,
  • “G., guardian of the estate of M., a minor”, or
  • “G., guardian of the person and estate of M., a minor”.

These examples are not all-inclusive. In every case, designate the guardian according to title under the local law. Ordinarily, parents or persons standing in place of parents (loco parentis) are not entitled to receive payments on behalf of their minor children. This question also is one of local law. Where the appointment of a guardian is not required and payment may properly be made to the parent, designate the payee in the following form: “F., father of M., a minor.”


As in the case of guardians of minors, the designation in this class of cases is governed by the local law according to the title given the representative, for example:

  • “C., conservator of the estate of X., incompetent”,
  • “A. and B., committee for X., incompetent”, and
  • “G., guardian of X., incompetent,” etc.

As proof of authority to receive payment, the CO should require a certified copy of the appointment.


When there has been a change in the corporate name as a result of a merger, consolidation, or other proceeding, and a certificate verifying such a change has been obtained from the proper state official, the federal entity should draw the voucher for payment in the new name.

The federal entity should draw the voucher to the order of the successor company where it is established that:

  • The original claimant has been dissolved,
  • Its assets have been distributed to the new company, and
  • The liquidating trustees have been discharged.

Where a company has been dissolved and its affairs are being liquidated by liquidating trustees, the designation depends on the local law. In most jurisdictions, the corporation continues for the purposes of liquidation, and it may be proper to designate the corporation rather than the liquidating trustees as the payee. No hard and fast rule can be established to cover all such cases. Federal entities should refer any uncertainties or doubts concerning the payee to be designated to the proper legal officer of the department or establishment for consideration.

2050.120—Unincorporated Associations

Federal entities should make the vouchers payable to the order of the associations, using their official names. They should draw partnership vouchers in the firm’s name. Federal entities should refer any doubts as to form to the proper legal officer of the department or establishment for special consideration.

Withholding of District of Columbia, State, City, and County Income or Employment Taxes


This chapter prescribes instructions for withholding state, city, or county income taxes when an agreement has been reached between a state, city, or county and the Secretary of the Treasury (Secretary).

Section 5010—Scope and Applicability

Agreements between the Secretary and states, cities, or counties prescribe how federal agencies withhold income or employment taxes from the compensation of federal employees and armed forces members (see 31 CFR Part 215).

Included in Appendix 1 is a list of states that entered into agreements, the effective date of the agreement, and the designated state tax offices to receive inquiries. Included in Appendix 2 is a list of cities and counties that entered into agreements, the effective date of the agreement, the type of withheld tax for each city or county, and the designated city or county tax offices to receive inquiries. Appendix 3 includes a list of states, cities, and counties with other-than-standard agreements.

Section 5015—Authority

5 U.S.C. § 5517 and Executive Order 11997 (June 22, 1977) provide for withholding state income taxes from the compensation of federal employees and members of the armed forces when an agreement is made between the Secretary and the proper state official.

To comply with 5 U.S.C. § 5516 (47 D.C. Code 15862) and Executive Order 11997 (June 22, 1977), the Secretary and an official of the District of Columbia entered into an agreement for withholding District of Columbia income taxes from the compensation of federal employees and armed forces members.

5 U.S.C. § 5520 and Executive Order 11997 (June 22, 1977) authorize the Secretary to make an agreement with the proper official of an eligible state, city, or county for withholding city or county income or employment taxes from federal employees’ compensation.

The Code of Federal Regulations (31 CFR Part 215) governs withholding of state, city, and county taxes. It prescribes requirements for making agreements and contains the text of a standard agreement.

Section 5025—Severance Pay

Federal employees’ compensation subject to withholding of state, city, or county income or employment taxes includes severance pay, according to 5 U.S.C. § 5595, if paid to a former employee. Severance pay remaining unpaid upon the death of a former employee is not subject to such withholding upon payment to a survivor or survivors.

Section 5030—Administration of Agreements

5030.10 Agency Responsibility

The heads (or designees) of agencies must comply with the provisions in the agreements and with state laws, city or county ordinances, regulations, and instructions concerning withholding taxes, filing returns, and paying taxes. Agencies should consult directly with tax authorities for obtaining forms and instructions. Agencies are to withhold the state, city, or county income or employment taxes only for those states, cities, and counties identified in Appendices 2 and 3. The E-Commerce Division (see contacts) will be consulted when an agency is requested to withhold a tax not identified in the appendices to this chapter as eligible for withholding.

5030.20—Reciprocal Agreements

Reciprocal agreements between states may modify requirements for withholding state income tax. These agreements generally relieve nonresident employees of their tax liability to the state in which they are employed. They also relieve their employer of the duty to withhold such taxes. To comply with Treasury-State withholding agreements, agencies must conform to the withholding provisions of reciprocal agreements.

5030.30—Withholding Agent

Agencies may use the same designated officers or employees for withholding state and city or county income or employment taxes as they use for withholding federal taxes. When required by the state, city, or county, agencies will provide the appropriate authorities the names of the designated federal officers or employees who perform the withholding duties.

5030.40—Report of Noncompliance

At the request of the Secretary, agency heads will furnish a report of noncompliance with provisions of any agreement or any information connected with the administration of the agreement.

Section 5035—Withholding Requirements

5035.10—State Tax Withholding

State tax withholding is a requirement for agency employees who are subject to the tax and whose regular place of federal employment is within the political boundaries of the state that has entered into an agreement. (See Section 5045 for military withholding instructions.)

5035.20—City or County Tax Withholding

City or county tax withholding is required for agency employees who are subject to the tax and (1) whose regular place of federal employment is within the city or county that has entered into an agreement or (2) is a resident of the city or county.

5035.30—Regular Place of Federal Employment

Generally, a designated “official duty station” is where federal employees report regularly to perform their duties. In the case of federal employees who regularly perform their duties at a place other than their “official duty station,” the jurisdiction in which the employee regularly performs their duties will be considered the regular place of federal employment.

5035.40—Services Performed Outside a City or County

Many city and county ordinances provide that withholding will be based on compensation paid for services performed only within the city or county. In most cases, this provision applies only to nonresidents of the city or county. Employees affected by this provision, who perform part of their services outside of the city or county away from their regular place of employment, must complete a withholding certificate. The certificate is to estimate the percentage of their annual compensation for services performed outside the city or county so withholdings may be reduced accordingly. In the absence of such certification, tax must be withheld based on the employees’ entire compensation.

To avoid large numbers of withholding actions, when only a moderate difference between the employees’ annual compensation and the estimated percent paid for services performed within the city or county exists, agencies should reduce withholdings only when employees perform 25 percent or more of their services outside the city or county. FS Form 7311: Employee’s Withholding Certificate for Local Taxes—City or County (Appendix 4), contains these instructions. See Subsection 5040.40 for more information on FS Form 7311.

5035.50—Withholding Methods

The amount of state, city, or county income or employment tax withheld from the compensation of an employee or member of the armed forces must, at a minimum, approximate the tax required to be withheld.

Agencies may accomplish withholding by one of the following methods:

  • based on the applicable tax withholding rate(s) specified in the state, city, or county instructions,
  • based on any other percentage or formula method, or
  • by calculating the fixed amount deducted each pay period from the compensation of the employee or member of the armed forces.
Section 5040—Tax Withholding Certificates

5040.10—Withholding Certificate Requirement

Each agency may require its employees to complete a withholding certificate as the basis to properly withhold state and local taxes. The certificate should specify if the employee is subject to the tax, the employee’s residence and regular place of employment, exemptions, allowances (if applicable), and if an out-of-state employee consents to have city or county taxes withheld. A supervisor or designated employee should verify that the withholding certificate has been properly prepared. An agency may rely on the withholding certificate information unless it is contrary to information already held by the agency. The certificate will remain in effect until superseded by a new certificate prepared by the employee.

5040.20—Submission or Non-submission of Withholding Certificate

A withholding certificate completed by an employee gives the agency all the information to properly withhold tax. If an employee does not furnish a withholding certificate as requested by the agency, the agency will withhold at the maximum level applicable to the employee’s annual compensation. This latter provision does not apply to an employee who may opt for voluntary withholding; in this case, failure to submit a withholding certificate is a refusal of the withholding option available to the employee (Section 5065).

5040.30—Forms To Be Used

Agencies may use a withholding or exemption certificate furnished by a state, city, or county, if that document provides all the required information. If it does not, agencies may use a certificate approved by Treasury.

5040.40—FS Form 7311: Employee's Withholding Certificate for Local Taxes

Agencies may use FS Form 7311 if a local taxing authority does not furnish an appropriate certificate. This may require agencies to reproduce the FS Form 7311 for their own use. Any revision to the form must be approved in advance as required by TFM Volume I, Part 1, Chapter 2000. However, overprinting the form does not require clearance from Treasury. Obtain a copy of DD Form 2058 - State of Legal Residence Certificate from our website.

5040.50—Information for States, Cities, or Counties

Agencies may furnish copies of completed withholding certificates when requested by the taxing authority withholding the tax.

Section 5045—Military Withholding

5045.10—Basis for Withholding

When a state has made an agreement with the Secretary, state income taxes will be withheld from the compensation of members of the armed forces, based on the state of legal residence. Local taxes will be withheld from the compensation of (1) members of the National Guard participating in exercises or performing duty under 32 U.S.C. § 502, and (2) members of the Ready Reserve participating in scheduled drills or training periods, or serving on active duty for training under 10 U.S.C. § 10147 if the local taxing jurisdiction has made an agreement with the Secretary.

5045.20—Certification of Legal Residence

Agencies will use DD Form 2058: State of Legal Residence Certificate, (Appendix 5), to:

  • determine the state of legal residence for purposes of withholding,
  • record changes of the state of legal residence, and
  • notify the states of changes of legal residence according to the terms of the agreements.
Section 5050—Accounting for Withheld Taxes

The agency should record the amount withheld each pay period from the compensation of employees or members of the armed forces on their individual earnings records. The agency should disburse the total amount withheld each pay period from the appropriations from which the payroll is paid and credited to the deposit fund--X6275 “Withheld State and Local Taxes,” pending payment to the taxing authority. Agencies will maintain appropriate internal subsidiary records to show (1) the amounts withheld for each tax class and (2) a breakdown of the total taxes withheld for each taxing authority.

Section 5055—Correction of Errors

An error made in a prior pay period of the current calendar year will be corrected if the employee is still on the agency’s payroll. Corrections are to be made by adjusting the deduction for the current pay period by an amount sufficient to offset the error in the withheld taxes and the net pay of the employee. If the error occurred in a prior calendar year or the employee is no longer on the payroll, make no adjustment.

Section 5060—Payment of Withheld Taxes

5060.10—Timing of Payments

The basic provision in the Treasury agreements is that each agency will comply with the withholding requirements of the state, city, or county tax laws. Therefore, each agency must observe the payment requirements (biweekly, monthly, or quarterly) of the state, city, or county tax laws currently in effect. However, payment will not be made more frequently than required by the state, city, or county, or more frequently than the payroll is paid by the agency.

5060.20—Payment Identification

Checks will be issued by the disbursing office based on an SF 1166: Voucher and Schedule of Payments, or other approved voucher form. For more information on the use of the SF 1166, see TFM Volume I, Part 4A, Chapter 3000. Related tax payment documents prescribed by the states, cities, or counties will accompany checks sent to states, cities, counties, or their collection agents. If using an SF 1166, a copy of the tax payment document will be considered a basic voucher for the payment, and no other voucher is required. The word “Taxes” should be entered in the “Voucher No.” column of the SF 1166.

Section 5065—Voluntary Withholding

5065.10—Statutory Election

When a state tax statute provides for voluntary withholding, agencies will withhold state taxes only from those employees or members of the armed forces who elect such withholding.

5065.20—Regulations Providing for Voluntary Allotments

The Office of Personnel Management (OPM) pay regulations 5 CFR § 550.351 provide for voluntary payroll deductions of state, District of Columbia, or local income or employment taxes from salaries of federal employees who have a legal obligation to pay, whether or not Treasury has a withholding agreement with their taxing jurisdiction. Agencies may also refer to the Federal Personnel Manual (FPM) Supplement 990-2 of May 11, 1981.

5065.30—Accounting for Voluntary Withholding

Agencies should deposit the amount of voluntary withholding in the deposit fund--X6275 “Withheld State and Local Taxes” and accounted for as prescribed in Section 5050.

Section 5070—Disclosure of Withholding Information

5070.10—Annual Wage and Tax Information Returns

Annual wage and tax information furnished to taxing authorities must comply with the Privacy Act of 1974 (Public Law 93-579 codified as 5 U.S.C. § 552(a) - "Records maintained on individuals"). If an agency has not obtained prior written consent of an employee or has not published a routine use in the Federal Register, an agency will furnish wage and tax information, under this section only, to taxing authorities with whom the Secretary has entered into agreements (Appendices 2 and 3).

The information returns will consist of the name, address, social security number, wages (as defined in 26 U.S.C. § 340l(a) of the Internal Revenue Code), and the amount of tax withheld, if any.

5070.10a—Disclosure to States

In the case of an agreement with a State, agencies will provide the indicated information with respect to those employees who (1) are subject to mandatory withholding, or (2) may elect withholding under a state law.

5070.10b—Disclosure to Cities or Counties

Agencies that have an agreement with a city or county will provide the indicated information with respect to employees who are subject to (1) mandatory withholding or (2) city or county taxes, but not subject to mandatory withholding because they are not residents or not employed in the state in which the city or county is located, whether or not they have opted for voluntary withholding (Section 5065).

5070.10c—Notices of Routine Use

Each agency must publish notices of routine use in the Federal Register to comply with the Privacy Act of 1974, indicating the information under this subsection routinely disclosed by such agency to state, city, or county authorities and the circumstances under which such disclosure is made.

5070.10d—Additional Disclosure and Inspection of Records

Agencies are not required by the terms of Treasury’s withholding agreements to provide any additional information or more frequent wage and tax information returns to State, city, or county taxing authorities than is outlined in this section, or to submit to any inspection or audit of payroll records by State, city, or county taxing authorities.

5070.20—Exemption Certificates

Employees who would otherwise be subject to mandatory withholding pursuant to an agreement between the Secretary and an applicable state, city, or county authority, may file a certificate indicating that they are not subject to the tax. In such cases, the agency may provide, to the designated official of the state, city, or county imposing the tax, information concerning employees who claim to be exempt from the tax. Such information will include the name, social security number, and the claimed basis for exemption.

Each agency must determine the basis for exemption from the tax that are acceptable under the law. Agencies should ensure compliance by requiring the use of appropriate tax exemption certificates.

5070.30—Notice to Employees

Agency forms, including withholding and exemption certificates, will comply with the Privacy Act of 1974. When using a state, city, or county form, each agency must provide the employee from whom the information is solicited a Privacy Act Notice, either on the applicable form or on a separate sheet of paper. A suggested statement follows:

The following information is provided to comply with the Privacy Act of 1974 (Public Law 93-579). The social security number is required under the authority of Executive Order 9397 to provide taxpayer identification. The other information is required under the provisions of 5 U.S.C. 5516, 5517, or 5520 for the purpose of implementing a federal agreement with the state, city, or county relating to withholding of state, city, or county income or employment taxes to comply with a state law or municipal or county ordinance. The information provided may be disclosed to state, city, or county officials to ensure that the taxpayer’s account has been properly credited for the amounts withheld. Failure to disclose the information requested may affect the determination of the accuracy of the amount withheld.

Contact Us

Detailed Contacts

Direct inquiries concerning this chapter to:

Department of the Treasury 
Bureau of the Fiscal Service 
Payment Management 
E-Commerce Division (LCB-RM 349B)

3201 Pennsy Drive, Building E 
Landover, MD 20785