Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 69-9

1969-1 C.B. 252

IRS Headnote

Amounts paid to certain employees by a company when its factory is not operating are wages even though it is reimbursed for such amounts by insurance companies; S.S.T. 167 superseded.

Full Text

Rev. Rul. 69-9 /1/

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in S.S.T. 167, C.B. 1937-2, 369.

The question presented is whether amounts paid by a company to certain employees when its factory is not operating are subject to the taxes under the Federal Insurance Contributions Act and the Federal Unemployment Tax Act and to the Collection of Income Tax at Source on Wages (chapters 21, 23, and 24, respectively, subtitle C, Internal Revenue Code of 1954).

Under insurance policies covering use and occupancy of property owned by the company, the insurance companies agree to bear the cost of salaries of certain employees of the company during the period the business is discontinued in the event of a shut-down due to fire, explosion, or certain other causes. The particular employees either are engaged in repairing and replacing damaged property, conducting correspondence, purchasing, advertising, and other work, or in some instances are not doing any work during the period of shut-down but are nevertheless receiving the amount of their regular salaries.

Under these circumstances, it is held that the individuals who remained on the payroll of the company during the shut-down retained their status as employees of the company during that period, whether or not they performed any services.

Accordingly, even though the company is reimbursed under the terms of the insurance policies for the amounts paid to the employees during the shut-down period, the amounts paid to them are wages for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages unless excepted from the term "wages" as defined in those chapters. For example, section 3121(a)(9) of the Federal Insurance Contributions Act excepts from "wages" under the Act any payment (other than vacation or sick pay) made to an employee after the month in which (A) in the case of a man, he attains the age of 65, or (B) in the case of a woman, she attains the age of 62, if such employee did not work for the employer in the period for which such payment is made. Section 3306(b)(8) of the Federal Unemployment Tax Act excepts from "wages" under the Act such a payment made to an employee after the month in which the employee after the month in which the employee attains the age of 65, if he did not work for the employer in the period for which the payment is made.

S.S.T. 167 is superseded, since the position set forth therein is restated under current law in this Revenue Ruling.

/1/ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.