(1) Employee contributions to pension, profit sharing, stock bonus, or annuity plans, deferred compensation and cafeteria plans where the payments are not otherwise considered wages, an IRA, or a commercial annuity contract are exempt from withholding to the extent that the contributions are not includable in the employee's adjusted gross income for federal income tax purposes.

(2) Third party sick pay, paid by an employer's agent, is subject to withholding tax if requested in writing by the employee.

(a) A third party may be an employer's agent even if the third party is responsible for determining which employees are eligible to receive payments. Whether an insurance company or the other third party is the employer's agent depends on the terms of the agreement.

(b) A third party that makes payments of sick pay as the employer's agent is not considered the employer and generally has no responsibility for withholding taxes. This responsibility remains with the employer. However, under an exception to this rule, the parties may enter into an agreement that makes the third party agent responsible for reporting and payment of these taxes. In this situation, the third party agent should use its own name and customer identification number rather than the employer's.

(3) Payment of sick pay by a third party, other than an employer's agent, is not subject to withholding tax unless requested in writing by the recipient of the sick pay, or as described in (2).

(4) A recipient of any designated distribution may elect to have the payor withhold state income tax from such payments by filing a written election with the payor. Such tax withholding election shall specify a flat dollar amount of income tax to be withheld by the payor from each designated distribution. Such election shall also specify the name, current address, and taxpayer identification number of the recipient. Any change or revocation of a previously filed election shall include the same information as required in this section for an initial election except the recipient should indicate whether a change or revocation of a previously filed election is being made. In this case, the payor shall remit the withholding tax to the department as required in ARM 42.17.113.

(5) The payor has the option to choose not to withhold from any designated distribution if the amount to be deducted and withheld is less than $10. Additionally, income tax withholding by the payor from any designated distribution shall not be required if the amount to be withheld would reduce the net amount of such distribution to less than $10.

(6) The payor of distributions, made up in whole or in part of contributions made pursuant to (1) or solely of employer contributions, shall notify the recipients of the availability to state withholding and the requirements for the payment to state income tax on the taxable portion of a distribution.

(a) Payors shall notify recipients of the state requirements at the same time recipients are notified of the federal election requirements under IRC 3405(d)(10)(B).

(b) Payors shall notify recipients at the time of distribution and yearly thereafter.