Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 71-53

1971-1 C.B. 279

IRS Headnote

Amounts paid to employees as "Christmas gifts" equal to a specified percentage of their regular monthly salaries are wages; S.S.T. 251 superseded.

Full Text

Rev. Rul. 71-53 /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. 251, C.B. 1938-1, 450.

The question presented is whether, under the circumstances described below, amounts paid to employees of a company as "Christmas gifts" 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 (Chapters 21, 23, and 24, respectively, subtitle C, Internal Revenue Code of 1954).

Each Christmas the company pays to its employees, in addition to their regular remuneration, an amount equal to a specified percentage of their regular monthly salaries. These amounts which are designated by the company as "Christmas gifts" are paid to all employees without regard to any distinctions based upon quality of work or length of service with the company.

Sections 3121(a) and 3306(b) of the Federal Insurance Contributions Act and the Federal Unemployment Tax Act, respectively, define the term "wages," with certain exceptions not material here, as "all remuneration for employment." Section 3401(a) of the Code relating to the withholding of income tax contains a similar definition of "wages."

Section 31.3121(a)-1(c) of the Employment Tax Regulations provides that the name by which the remuneration for employment is designated is immaterial in determining whether the remuneration constitutes wages. Thus, salaries, fees, bonuses, and commissions on sales or on insurance premiums are wages if paid as compensation for employment. Section 31.3306(b)-1(c) of the regulations contains a similar provision.

In the instant case the amounts designated by the company as "Christmas gifts" are paid in connection with, and as a result of, the employment relation existing between the company and its employees. The fact that such amounts are not based upon the quality of the employees' work or their length of service with the company is immaterial. Accordingly, it is held that such amounts 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.

Compare Revenue Ruling 59-58, C.B. 1959-1, 17, which holds that the value of a turkey, ham, or other merchandise of nominal value, distributed by an employer to his employees at Christmas, or a comparable holiday, is not wages for Federal employment tax purposes.

S.S.T. 251 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.