[Code of Federal Regulations]
[Title 26, Volume 14]
[Revised as of January 1, 2001]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR31.3401(c)-1]
[Page 211-212]
TITLE 26--INTERNAL REVENUE
CHAPTER I--INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY--
(Continued)
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE--Table of Contents
Subpart E--Collection of Income Tax at Source
Sec. 31.3401(c)-1 Employee.†
(a) The term employee includes every individual performing services
if the relationship between him and the person for whom he performs such
services is the legal relationship of employer and employee. The term
includes officers and employees, whether elected or appointed, of the
United States, a State, Territory, Puerto Rico, or any political
subdivision thereof, or the District of Columbia, or any agency or
instrumentality of any one or more of the foregoing.†
(b) Generally the relationship of employer and employee exists when
the person for whom services are performed has the right to control and
direct the individual who performs the services, not only as to the
result to be accomplished by the work but also as to the details and
means by which that result is accomplished. That is, an employee is
subject to the will and control of the employer not only as to what
shall be done but how it shall be done. In this connection, it is not
necessary that the
[[Page 212]]
employer actually direct or control the manner in which the services are
performed; it is sufficient if he has the right to do so. The right to
discharge is also an important factor indicating that the person
possessing that right is an employer. Other factors characteristic of an
employer, but not necessarily present in every case, are the furnishing
of tools and the furnishing of a place to work to the individual who
performs the services. In general, if an individual is subject to the
control or direction of another merely as to the result to be
accomplished by the work and not as to the means and methods for
accomplishing the result, he is not an employee.
(c) Generally, physicians, lawyers, dentists, veterinarians,
contractors, subcontractors, public stenographers, auctioneers, and
others who follow an independent trade, business, or profession, in
which they offer their services to the public, are not employees.
(d) Whether the relationship of employer and employee exists will in
doubtful cases be determined upon an examination of the particular facts
of each case.
(e) If the relationship of employer and employee exists, the
designation or description of the relationship by the parties as
anything other than that of employer and employee is immaterial. Thus,
if such relationship exists, it is of no consequence that the employee
is designated as a partner, coadventurer, agent, independent contractor,
or the like.
(f) All classes or grades of employees are included within the
relationship of employer and employee. Thus, superintendents, managers
and other supervisory personnel are employees. Generally, an officer of
a corporation is an employee of the corporation. However, an officer of
a corporation who as such does not perform any services or performs only
minor services and who neither receives nor is entitled to receive,
directly or indirectly, any remuneration is not considered to be an
employee of the corporation. A director of a corporation in his capacity
as such is not an employee of the corporation.
(g) The term employee includes every individual who receives a
supplemental unemployment compensation benefit which is treated under
paragraph (b)(14) of Sec. 31.3401(a)-1 as if it were wages.
(h) Although an individual may be an employee under this section,
his services may be of such a nature, or performed under such
circumstances, that the remuneration paid for such services does not
constitute wages within the meaning of section 3401(a).
[T.D. 6516, 25 FR 13096, Dec. 20, 1960, as amended by T.D. 7068, 35 FR
17329, Nov. 11, 1970]
Sec. 31.3401(a)-2 Exclusions from wages.
(a) In general. (1) The term ``wages'' does not include any
remuneration for
[[Page 193]]
services performed by an employee for his employer which is specifically
excepted from wages under section 3401(a).
(2) The exception attaches to the remuneration for services
performed by an employee and not to the employee as an individual; that
is, the exception applies only to the remuneration in an excepted
category.
Example. A is an individual who is employed part time by B to
perform domestic service in his home (see Sec. 31.3401(a)(3)-1). A is
also employed by C part time to perform services as a clerk in a
department store owned by him. While no withholding is required with
respect to A's remuneration for services performed in the employ of B
(the remuneration being excluded from wages), the exception does not
embrace the remuneration for services performed by A in the employ of C
and withholding is required with respect to the wages for such services.
(3) For provisions relating to the circumstances under which
remuneration which is excepted is nevertheless deemed to be wages, and
relating to the circumstances under which remuneration which is not
excepted is nevertheless deemed not to be wages, see Sec. 31.3402(e)-1.
(4) For provisions relating to payments with respect to which a
voluntary withholding agreement is in effect, which are not defined as
wages in section 3401(a) but which are nevertheless deemed to be wages,
see Secs. 31.3401(a)-3 and 31.3402(p)-1.
(b) Fees paid a public official. (1) Authorized fees paid to public
officials such as notaries public, clerks of courts, sheriffs, etc., for
services rendered in the performance of their official duties are
excepted from wages and hence are not subject to withholding. However,
salaries paid such officials by the Government, or by a Government
agency or instrumentality, are subject to withholding.
(2) Amounts paid to precinct workers for services performed at
election booths in State, county, and municipal elections and fees paid
to jurors and witnesses are in the nature of fees paid to public
officials and therefore are not subject to withholding.
[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6654, 28 FR
5251, May 28, 1963; T.D. 7096, 36 FR 5216, Mar. 18, 1971]
Sec. 31.3401(a)-1 Wages.
(a) In general. (1) The term ``wages'' means all remuneration for
services performed by an employee for his employer unless specifically
excepted under section 3401(a) or excepted under section 3402(e).
(2) The name by which the remuneration for services is designated is
immaterial. Thus, salaries, fees, bonuses, commissions on sales or on
insurance premiums, pensions, and retired pay are wages within the
meaning of the statute if paid as compensation for services performed by
the employee for his employer.
(3) The basis upon which the remuneration is paid is immaterial in
determining whether the remuneration constitutes wages. Thus, it may be
paid on the basis of piecework, or a percentage of profits; and may be
paid hourly, daily, weekly, monthly, or annually.
(4) Generally the medium in which remuneration is paid is also
immaterial. It may be paid in cash or in something other than cash, as
for example, stocks, bonds, or other forms of property. (See, however,
Sec. 31.3401(a)(11)-1, relating to the exclusion from wages of
remuneration paid in any medium other than cash for services not in the
course of the employer's trade or business, and Sec. 31.3401(a)(16)-1,
relating to the exclusion from wages of tips paid in any medium other
than cash.) If services are paid for in a medium other than cash, the
fair market value of the thing taken in payment is the amount to be
included as wages. If the services were rendered at a stipulated price,
in the absence of evidence to the contrary, such price will be presumed
to be
[[Page 187]]
the fair value of the remuneration received. If a corporation transfers
to its employees its own stock as remuneration for services rendered by
the employee, the amount of such remuneration is the fair market value
of the stock at the time of the transfer.
(5) Remuneration for services, unless such remuneration is
specifically excepted by the statute, constitutes wages even though at
the time paid the relationship of employer and employee no longer exists
between the person in whose employ the services were performed and the
individual who performed them.
Example. A is employed by R during the month of January 1955 and is
entitled to receive remuneration of $100 for the services performed for
R, the employer, during the month. A leaves the employ of R at the close
of business on January 31, 1955. On February 15, 1955 (when A is no
longer an employee of R), R pays A the remuneration of $100 which was
earned for the services performed in January. The $100 is wages within
the meaning of the statute.
(b) Certain specific items--(1) Pensions and retirement pay. (i) In
general, pensions and retired pay are wages subject to withholding.
However, no withholding is required with respect to amounts paid to an
employee upon retirement which are taxable as annuities under the
provisions of section 72 or 403. So-called pensions awarded by one to
whom no services have been rendered are mere gifts or gratuities and do
not constitute wages. Those payments of pensions or other benefits by
the Federal Government under Title 38 of the United States Code which
are excluded from gross income are not wages subject to withholding.
(ii) Amounts received as retirement pay for service in the Armed
Forces of the United States, the Coast and Geodetic Survey, or the
Public Health Service or as a disability annuity paid under the
provisions of section 831 of the Foreign Service Act of 1946, as amended
(22) U.S.C. 1081; 60 Stat. 1021), are subject to withholding unless such
pay or disability annuity is excluded from gross income under section
104(a)(4), or is taxable as an annuity under the provisions of section
72. Where such retirement pay or disability annuity (not excluded from
gross income under section 104(a)(4) and not taxable as an annuity under
the provisions of section 72) is paid to a nonresident alien individual,
withholding is required only in the case of such amounts paid to a
nonresident alien individual who is a resident of Puerto Rico.
(2) Traveling and other expenses. Amounts paid specifically--either
as advances or reimbursements--for traveling or other bona fide ordinary
and necessary expenses incurred or reasonably expected to be incurred in
the business of the employer are not wages and are not subject to
withholding. Traveling and other reimbursed expenses must be identified
either by making a separate payment or by specifically indicating the
separate amounts where both wages and expense allowances are combined in
a single payment. For amounts that are received by an employee on or
after July 1, 1990, with respect to expenses paid or incurred on or
after July 1, 1990, see Sec. 31.3401 (a)-4.
(3) Vacation allowances. Amounts of so-called ``vacation
allowances'' paid to an employee constitute wages. Thus, the salary of
an employee on vacation, paid notwithstanding his absence from work,
constitutes wages.
(4) Dismissal payments. Any payments made by an employer to an
employee on account of dismissal, that is, involuntary separation from
the service of the employer, constitute wages regardless of whether the
employer is legally bound by contract, statute, or otherwise to make
such payments.
(5) Deductions by employer from remuneration of an employee. Any
amount deducted by an employer from the remuneration of an employee is
considered to be a part of the employee's remuneration and is considered
to be paid to the employee as remuneration at the time that the
deduction is made. It is immaterial that any act of Congress, or the law
of any State or of Puerto Rico, requires or permits such deductions and
the payment of the amounts thereof to the United States, a State, a
Territory, Puerto Rico, or the District of Columbia, or any political
subdivision of any one or more of the foregoing.
[[Page 188]]
(6) Payment by an employer of employee's tax, or employee's
contributions under a State law. The term ``wages'' includes the amount
paid by an employer on behalf of an employee (without deduction from the
remuneration of, or other reimbursement from, the employee) on account
of any payment required from an employee under a State unemployment
compensation law, or on account of any tax imposed upon the employee by
any taxing authority, including the taxes imposed by sections 3101 and
3201.
(7) Remuneration for services as employee of nonresident alien
individual or foreign entity. The term ``wages'' includes remuneration
for services performed by a citizen or resident (including, in regard to
wages paid after February 28, 1979, an individual treated as a resident
under section 6013 (g) or (h)) of the United States as an employee of a
nonresident alien individual, foreign partnership, or foreign
corporation whether or not such alien individual or foreign entity is
engaged in trade or business within the United States. Any person paying
wages on behalf of a nonresident alien individual, foreign partnership,
or foreign corporation, not engaged in trade or business within the
United States (including Puerto Rico as if a part of the United States),
is subject to all the provisions of law and regulations applicable with
respect to an employer. See Sec. 31.3401(d)-1, relating to the term
``employer'', and Sec. 31.3401(a)(8)(C)-1, relating to remuneration paid
for services performed by a citizen of the United States in Puerto Rico.
(8) Amounts paid under accident or health plans--(i) Amounts paid in
taxable years beginning on or after January 1, 1977--(a) In general.
Withholding is required on all payments of amounts includible in gross
income under section 105(a) and Sec. 1.105-1 (relating to amounts
attributable to employer contributions), made in taxable years beginning
on or after January 1, 1977, to an employee under an accident or health
plan for a period of absence from work on account of personal injuries
or sickness. Payments on which withholding is required by this
subdivision are wages as defined in section 3401(a), and the employer
shall deduct and withhold in accordance with the requirements of chapter
24 of subtitle C of the Code. Third party payments of sick pay, as
defined in section 3402(o) and the regulations thereunder, are not wages
for purposes of this section.
(b) Payments made by an agent of the employer. (1) Payments are
considered made by the employer if a third party makes the payments as
an agent of the employer. The determining factor as to whether a third
party is an agent of the employer is whether the third party bears any
insurance risk. If the third party bears no insurance risk and is
reimbursed on a cost plus fee basis, the third party is an agent of the
employer even if the third party is responsible for making
determinations of the eligibility of individual employees of the
employer for sick pay payments. If the third party is paid an insurance
premium and not reimbursed on a cost plus fee basis, the third party is
not an agent of the employer, but the third party is a payor of third
party sick pay for purposes of voluntary withholding from sick pay under
sections 3402(o) and 6051(f) and the regulations thereunder. If a third
party and an employer enter into an agency agreement as provided in
paragraph (c) of Sec. 31.6051-3 (relating to statements required in case
of sick pay paid by third parties), that agency agreement does not make
the third party an agent of the employer for purposes of this paragraph.
(2) Payments made by agents subject to this paragraph are
supplemental wages as defined in Sec. 31.3402(g)-1. Unless the agent is
also an agent for purposes of withholding tax from the employee's
regular wages, the agent may deem tax to have been withheld from the
employee's regular wages. Consequently, the agent may determine the tax
to be withheld from supplemental wages by using a flat percentage rate
of 20 percent as provided in Sec. 31.3402 (g)-1.
(3) This paragraph is only applicable to amounts paid on or after
May 25, 1983 unless the agent actually withheld taxes before that date.
(c) Exceptions to withholding. (1) Withholding is not required on
payments that are specifically excepted under the numbered paragraphs of
section 3401(a) (relating to the definition of wages), under section
3402(e) (relating
[[Page 189]]
to included and excluded wages), or under section 3402(n) (relating to
employees incurring no income tax liability).
(2) Withholding is not required on disability payments to the extent
that the payments are excludable from gross income under section 105(d).
In determining the excludable portion of the disability payments, the
employer may assume that payments that the employer makes to the
employee are the employee's sole source of income. This exception
applies only if the employee furnishes the employer with adequate
verification of disability. A certificate from a qualified physician
attesting that the employee is permanently and totally disabled (within
the meaning of section 105(d)) shall be deemed to constitute adequate
verification. This exception does not affect the requirement that a
statement (which includes any amount paid under section 105(d)) be
furnished under either section 6041 (relating to information at source)
or section 6051 (relating to receipts for employees) and the regulations
thereunder.
(ii) Amounts paid after December 31, 1955 and before January 1,
1977--(a) In general. The term ``wage continuation payment'', as used in
this subdivision, means any payment to an employee which is made after
December 31, 1955, and before January 1, 1977 under a wage continuation
plan (as defined in paragraph (a)(2)(i) of Sec. 1.105-4 and Sec. 1.105-5
of Part 1 of this chapter (Income Tax Regulations)) for a period of
absence from work on account of personal injuries or sickness, to the
extent such payment is attributable to contributions made by the
employer which were not includable in the employee's gross income or is
paid by the employer. Any such payment, whether or not excluded from the
gross income of the employee under section 105(d), constitutes ``wages''
(unless specifically excepted under any of the numbered paragraphs of
section 3401(a) or under section 3402(e) and withholding thereon is
required except as provided in paragraphs (b)(8)(ii) (b), (c), and (d)
of this section.
(b) Amounts paid before January 1, 1977, by employer for whom
services are performed for period of absence beginning after December
31, 1963. (1) Withholding is not required upon the amount of any wage
continuation payment for a period of absence beginning after December
31, 1963, paid before January 1, 1977, to an employee directly by the
employer for whom he performs services to the extent that such payment
is excludable from the gross income of the employee under the provisions
of section 105(d) in effect with respect to such payments, provided the
records maintained by the employer--
(i) Separately show the amount of each such payment and the
excludable portion thereof, and
(ii) Contain data substantiating the employee's entitlement to the
exclusion provided in section 105(d) with respect to such amount, either
by a written statement from the employee specifying whether his absence
from work during the period for which the payment was made was due to a
personal injury or to sickness and whether he was hospitalized for at
least one day during this period; or by any other information which the
employer reasonably believes establishes the employee's entitlement to
the exclusion under section 105(d). Employers shall not be required to
ascertain the accuracy of any written statement submitted by an employee
in accordance with this subdivision (b)(1)(ii).
For purposes of this subdivision (b)(1), wage continuation payments
reasonably expected by the employer to be made on behalf of the employer
by another person shall be taken into account in determining whether the
75 percent test contained in section 105(d) is met and in computing the
amount of any wage continuation payment made directly by the employer
for whom services are performed by the employee which is within the $75
or $100 weekly rate of exclusion from the gross income of the employee
provided in section 105(d). In making this latter computation, the
amount excludable under section 105(d) shall be applied first against
payments reasonably expected to be made on behalf of the employer by the
other person and then, to the extent any part of the exclusion remains,
against the payments made directly by the employer. In a case in which
wage continuation payments are not paid at a constant rate for the first
30 calendar
[[Page 190]]
days of the period of absence, the determination of whether the 75
percent test contained in section 105(d) is met shall be based upon the
length of the employee's absence as of the end of the period for which
the payment by the employer is made, without regard to the effect which
any further extension of such absence may have upon the excludability of
the payment.
(2) The computation of the amount of any wage continuation payment
with repect to which the employer may refrain from withholding may be
illustrated by the following examples:
Example 1. A, an employee of B, normally works Monday through Friday
and has a regular weekly rate of wages of $100. On Monday, November 5,
1974, A becomes ill, and as a result is absent from work for two weeks,
returing to work on Monday, November 19, 1974. A is not hospitalized.
Under B's noncontributory wage continuation plan, A receives no benefits
for the first three working days of absence and is paid benefits
directly by B at the rate of $85 a week thereafter ($34 for the last two
days of the first week of absence and $85 for the second week of
absence). No wage continuation payment is made by any other person.
Since the benefits are entirely attributable to contributions to the
plan by B, such benefits are wage continuation payments in their
entirety. The wage continuation payments for the first seven calender
days of absence are not excludable from A's gross income because A was
not hospitalized for at least one day during his period of absence, and
therefore B must withhold with respect to such payments. Under section
105(a), the wage continuation payments attributable to absence after the
first seven calendar days of absence are excludable to the extent that
they do not exceed a rate of $75 a week. Under the principles stated in
paragraph (e)(6)(iv) of Sec. 1.105-4 of this chapter (Income Tax
Regulations), the wage continuation payments in this case are at a rate
not in excess of 75 percent (\119/200\ or 59.5 percent) of A's regular
weekly rate of wages. Accordingly, B may refrain from withholding with
respect to $75 of the wage continuation payment attributable to the
second week of absence.
Example 2. Assume the facts in example 1 except that A is unable to
return to work until Monday, February 11, 1975, and that, of the $85 a
week of wage continuation payments $35 is paid directly by B and $50 is
reasonably expected by B to be paid by C, an insurance company, on
behalf of B. In such a case, both the $50 and the $35 payments
constitute wage continuation payments and the amount of such payments
which is attributable to the first 30 calendar days of absence is at a
rate not in excess of 75 percent (\323/440\ or 73.4 percent) of A's
regular weekly rate of wages. Therefore, under section 105(d), the
portion of such payments which is attributable to absence after the
first seven calendar days of absence is excludable to the extent that it
does not exceed a rate of $75 a week for the eighth through the
thirtieth calendar day of absence and does not exceed a rate of $100 a
week thereafter. B may refrain from withholding with repect to $25 a
week (the amount by which the $75 maximum excludable amount exceeds the
$50 reasonably expected by B to be paid by C) of his direct payments for
the eighth through the thirtieth calendar day of absence. Thereafter, B
may refrain from withholding with respect to the entire $35 paid
directly by him since the maximum excludable amount ($100 a week)
exceeds the total of payments made by B and payments which B reasonably
expects will be made by C.
(c) Amounts paid by employer for whom services are performed for
period of absence beginning before January 1, 1964. Withholding is not
required upon the amount of any wage continuation payment for a period
of absence beginning before January 1, 1964, made to an employee
directly by the employer for whom he performs services to the extent
that such payment is excludable from the gross income of the employee
under the provisions of section 105(d) in effect with respect to such
payments, provided the records maintained by the employer--
(1) Separately show the amount of each such payment and the
excludable portion thereof, and
(2) Contain data substantiating the employee's entitlement to the
exclusion provided in section 105(d) with respect to such amount, either
by a written statement from the employee specifying whether his absence
from work during the period for which the payment was made was due to a
personal injury or whether such absence was due to sickness, and, if the
latter, whether he was hospitalized for at least one day during this
period; or by any other information which the employer reasonably
believes establishes the employee's entitlement to the exclusion under
section 105(d). Employers shall not be required to ascertain the
accuracy of the information contained in any written statement submitted
by an employee in accordance with this paragraph (b)(8)(ii) (c)(2). For
purposes
[[Page 191]]
of this paragraph (b)(8) (ii)(c), the computation of the amount
excludable form the gross income of the employee under section 105(d)
may be made either on the basis of the wage continuation payments which
are made directly by the employer for whom the employee performs
services, or on the basis of such payments in conjunction with any wage
continuation payments made on behalf of the employer by a person who is
regarded as an employer under section 3401(d)(1).
(d) Amounts paid before January 1, 1977 by person other than the
employer for whom services are performed. No tax shall be withheld upon
any wage continuation payment made to an employee by or on behalf of a
person who is not the employer for whom the employee performs services
but who is regarded as an employer under section 3401(d)(1). For
example, no tax shall be withheld with respect to wage continuation
payments made on behalf of an employer by an insurance company under an
accident or health policy, by a separate trust under an accident or
health plan, or by a State agency from a sickness and disability fund
maintained under State law.
(e) Cross references. See sections 6001 and 6051 and the regulations
thereunder for rules with respect to the records which must be
maintained in connection with wage continuation payments and for rules
with respect to the statements which must be furnished an employee in
connection with wage continuation payments, respectively. See also
section 105 and Sec. 1.105-4 of this chapter (Income Tax Regulations).
(9) Value of meals and lodging. The value of any meals or lodging
furnished to an employee by his employer is not subject to withholding
if the value of the meals or lodging is excludable from the gross income
of the employee. See Sec. 1.119-1 of this chapter (Income Tax
Regulations).
(10) Facilities or privileges. Ordinarily, facilities or privileges
(such as entertainment, medical services, or so-called ``courtesy''
discounts on purchases), furnished or offered by an employer to his
employees generally, are not considered as wages subject to withholding
if such facilities or privileges are of relatively small value and are
offered or furnished by the employer merely as a means of promoting the
health, good will, contentment, or efficiency of his employees.
(11) Tips or gratuities. Tips or gratuities paid, prior to January
1, 1966, directly to an employee by a customer of an employer, and not
accounted for by the employee to the employer are not subject to
withholding. For provisions relating to the treatment of tips received
by an employee after December 31, 1965, as wages, see Secs. 31.3401(f)-1
and 31.3402(k)-1.
(12) Remuneration for services performed by permanent resident of
Virgin Islands--(i) Exemption from withholding. No tax shall be withheld
for the United States under chapter 24 from a payment of wages by an
employer, including the United States or any agency thereof, to an
employee if at the time of payment it is reasonable to believe that the
employee will be required to satisfy his income tax obligations with
respect to such wages under section 28(a) of the Revised Organic Act of
the Virgin Islands (68 Stat. 508). That section provides that all
persons whose permanent residence is in the Virgin Islands ``shall
satisfy their income tax obligations under applicable taxing statutes of
the United States by paying their tax on income derived from all sources
both within and outside the Virgin Islands into the treasury of the
Virgin Islands''.
(ii) Claiming exemption. If the employee furnishes to the employer a
statement in duplicate that he expects to satisfy his income tax
obligations under section 28(a) of the Revised Organic Act of the Virgin
Islands with respect to all wages subsequently to be paid to him by the
employer during the taxable year to which the statement relates, the
employer may, in the absence of information to the contrary, rely on
such statement as establishing reasonable belief that the employee will
so satisfy his income tax obligations. The employee's statement shall
identify the taxable year to which it relates, and both the original and
the duplicate copy thereof shall be signed and dated by the employee.
[[Page 192]]
(iii) Disposition of statement. The original of the statement shall
be retained by the employer. The duplicate copy of the statement shall
be sent by the employer to the Director of International Operations,
Washington, D.C. 20225, on or before the last day of the calendar year
in which the employer receives the statement from the employee.
(iv) Applicability of subparagraph. This subparagraph has no
application with respect to any payment of remuneration which is not
subject to withholding by reason of any other provision of the
regulations in this subpart.
(13) Federal employees resident in Puerto Rico. Except as provided
in paragraph (d) of Sec. 31.3401(a)(6)-1, the term ``wages'' includes
remuneration for services performed by a nonresident alien individual
who is a resident of Puerto Rico if such services are performed as an
employee of the United States or any agency thereof. The place where the
services are performed is immaterial for purposes of this subparagraph.
(14) Supplemental unemployment compensation benefits. (i)
Supplemental unemployment compensation benefits paid to an individual
after December 31, 1970, shall be treated (for purposes of the
provisions of Subparts E, F, and G of this part which relate to
withholding of income tax) as if they were wages, to the extent such
benefits are includible in the gross income of such individual.
(ii) For purposes of this subparagraph, the term ``supplemental
unemployment compensation benefits'' means amounts which are paid to an
employee, pursuant to a plan to which the employer is a party, because
of the employee's involuntary separation from the employment of the
employer, whether or not such separation is temporary, but only when
such separation is one resulting directly from a reduction in force, the
discontinuance of a plant or operation, or other similar conditions.
(iii) For the meanings of the terms ``involuntary separation from
the employment of the employer'' and ``other similar conditions'', see
subparagraphs (3) and (4) of Sec. 1.501(c)(17)-1(b) of this chapter
(Income Tax Regulations).
(iv) As used in this subparagraph, the term ``employee'' means an
employee within the meaning of paragraph (a) of Sec. 31.3401(c)-1, the
term ``employer'' means an employer within the meaning of paragraph (a)
of Sec. 31.3401(d)-1, and the term ``employment'' means employment as
defined under the usual common law rules.
(v) References in this chapter to wages as defined in section
3401(a) shall be deemed to refer also to supplemental unemployment
compensation benefits which are treated under this subparagraph as if
they were wages.
(c) Geographical definitions. For definition of the term ``United
States'' and for other geographical definitions relating to the
Continental Shelf see section 638 and Sec. 1.638-1 of this chapter.
[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6654, 28 FR
5251, May 28, 1963; T.D. 6908, 31 FR 16775, Dec. 31, 1966; T.D. 7001, 34
FR 1000, Jan. 23, 1969; T.D. 7068, 35 FR 17328, Nov. 11, 1970; T.D.
7277, 38 FR 12742, May 15, 1973; T.D. 7493, 42 FR 33728, July 1, 1977;
T.D. 7670, 45 FR 6932, Jan. 31, 1980; T.D. 7888, 48 FR 17587, Apr. 25,
1983; T.D. 8276, 54 FR 51028, Dec. 12, 1989; T.D. 8324, 55 FR 51697,
Dec. 17, 1990]