“Wages” are defined in § 3121 as all compensation from employment including dismissal or involuntary separation (even if not legally bound to make such payments).
Amounts are constructively paid to an employee when credited to the employee’s account or set aside for the employee so it may be drawn upon at any time without substantial limitation or restriction, although not actually reduced to the employee’s possession.
If the employer’s usual payday is after the period for which employee’s services are rendered, employee is not in constructive receipt until the normal time for making a payment of wages.
Advance payments of wages are treated as wages when made available if later charged against salary, commissions, or other remuneration subsequently earned, unless actually a loan, then wages are not considered to be paid at the time of the loan.
“Wages” subject to contribution include all amounts except:
- Separation pay (except payments for cancellation of an employment contract, judgments or awards in a suit (except designated as “back-pay”))
- Limited retirement benefits:
- stock bonus, profit sharing plan under § 401(a)
- annuity plan under § 403(a) or (b)
- simplified employee plan under § 408(k)
- simple retirement account under § 408(p)
- Certain death benefits, and medical, disability & survivors’ benefits
- Children of the “employer” under 18
- Some forms of deferred compensation under “qualified arrangements” (§ § 401(a) and 403(a) and (b), 401(k), and 408(k) if excluded under § 402(h))
- Moving expenses
- Dependent care assistance
- Fringe benefits reasonably believed not to be includible in income
- Death benefits providing benefits for employees or a class of employees generally
- “Casual workers” NOT:
- in the course of employer’s business
- regularly performed, or
- in cash or less than $50
- Accident and health plan payments attributable to employer contributions NOT INCLUDIBLE in income under IRC § 105(a) (determining factor is if third-party payor qualifies as employer’s agent) – i.e., amounts paid to reimburse employee for actual medical expenses
- Moving expenses under § 217
- Dependent care assistance under § 129
- Scholarships, fellowship grants and educational assistance programs under § 117
- Meals and lodging under § 119 (only 50% deductible to employer)
- Any fringe benefits under § 132:
- no-additional-cost services;
- qualified employee discounts;
- working condition fringe benefits;
- de minimis fringe benefits;
- qualified transportation fringe benefits;
- qualified moving expense reimbursements; and
- qualified retirement planning services.
- Employer reimbursements under § 62(c), IF paid under an “accountable plan”:
- the employee must substantiate his expenses;
- amounts in excess of substantiated expenses must be returned to the employer; and
- there is a business connection or “nexus” between the amounts advanced and the expenses incurred.
Otherwise amounts paid under a “nonaccountable” plan are subject to FICA and FUTA.
- Cafeteria plans allowing participating employees to choose among certain fringe benefits and cash – essentially to purchase taxable and nontaxable benefits by allocating benefit dollars or by reducing their salary by means of a salary reduction agreement under § 125.
- Medical savings accounts to defray the cost of medical expenses under § 106(b).