Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 73-22

1973-1 C.B. 410

IRS Headnote

Payments to union member employees under a guaranteed annual wage plan negotiated and administered by an employer association are wages for purposes of FICA, FUTA, and the withholding of income tax.

Full Text

Rev. Rul. 73-22

Advice has been requested whether payments made pursuant to a guaranteed income plan under the circumstances described below 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). An association, composed of a group of employers, has among its functions the negotiation and administration of collective bargaining agreements on behalf of the member employers with the union to which their employees belong. One such agreement set up a guaranteed annual income plan pursuant to which all eligible employees represented by the union are guaranteed a minimum number of hours of employment per contract year multiplied by the then current straight-time hourly rate. Any gross earnings, vacation pay, paid holiday, and unemployment compensation received by the employee during the contract year are deducted from the guaranteed amount. In addition, a formula is provided to reduce the minimum number of hours by any time a union member fails to report for work when work is available.

In order to be eligible for receipt of the guaranteed annual income, the employee must report for work and find no assignment available. If this happens, the employee applies for benefits directly to the association. The association pays the guaranteed amount on an annual basis, within a reasonable period after the close of the contract year. However, quarterly payments of up to 75 percent of the guaranteed amount may be made. The plan contains a reimbursement provision in the event of an overpayment to an employee.

The employers are assessed specific yearly amounts based on the maximum benefits that may become payable. Employer contributions to the association are placed in a special bank account, and additional assessments are made in the event additional funds are required. In no event are any contributions ever returned to an employer.

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

Revenue Ruling 56-249, 1956-1 C.B. 488, holds that benefits paid to certain former employees of a company by the trustees of a trust created pursuant to the provisions of a supplemental unemployment benefit plan established by the company are not "wages" for Federal employment tax purposes. Revenue Ruling 60-330, 1960-2 C.B. 46, extends the holding of Revenue Ruling 56-249 to a case in which the benefit payments are made directly by the employing company without the use of a trust.

However, for purposes of income tax withholding, supplemental unemployment compensation benefits are treated as "wages" if paid after December 31, 1970, as provided by section 3402(o) of the Code, which was added by section 805(g) of the Tax Reform Act of 1969, Public Law 91-172, 1969-3 C.B. 10 at 145 and 146.

Revenue Ruling 61-68, 1961-1 C.B. 429, holds that payments made to certain designated employees by their employer during periods of unemployment, pursuant to the provisions of a collective bargaining agreement that guarantees such employees employment or employment allowances for a number of hours of "straight time" equivalent to a normal work year, are "wages" for Federal employment tax purposes.

Although in this case the guaranteed annual income plan is administered by an association of employers while in Revenue Ruling 61-68 it is administered directly by the individual employer there involved, the basic purpose of the plan in each case is to provide the employees with a guaranteed annual salary. Under the terms of the plan in this case, each employee is provided with a guaranteed annual amount, reduced only by the compensation that he actually receives. The fact that the guaranteed amount may be reduced under certain prescribed circumstances, such as his failing to report for work when work is available, in no way alters the basic or fundamental purpose of the plan. Thus, it is concluded that the guaranteed annual wage plan in question is not a supplemental unemployment compensation plan such as the plan described in Revenue Ruling 56-249 or the plan described in Revenue Ruling 60-330.

Accordingly, it is held that, under the provisions of the guaranteed annual income plan in the instant case, the payments made by the association to the employees 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.