What counts as wages for federal income tax withholding? Answer in under 100 words. Cite only eCFR (www.ecfr.gov) sources.

Details / How it works

Per 26 CFR 31.3401(a)-1(a), 'wages' encompasses all remuneration for services performed by an employee for an employer, subject to statutory exceptions under IRC §§ 3401(a) and 3402(e). The label (salary, fee, bonus, commission, pension, or retired pay), the basis (piecework, hourly, percentage of profits), and the medium (cash, stock, bonds, or other property) are all immaterial in determining whether remuneration constitutes wages. When services are paid for in a medium other than cash, the fair market value of the thing taken in payment is the amount included as wages. For a corporation transferring its own stock, the amount is the fair market value at the time of transfer.

Numbers & thresholds

Exceptions & edge cases

Several specific items are addressed in 26 CFR 31.3401(a)-1(b). Pensions and retirement pay are generally wages subject to withholding, but no withholding is required on amounts taxable as annuities under IRC §§ 72 or 403, or on federal veterans' benefits under Title 38 excluded from gross income. Traveling and other bona fide ordinary and necessary expense reimbursements are not wages if properly identified. Vacation allowances, dismissal payments, employer-paid employee taxes (including FICA and RRTA), and tips received after December 31, 1965 are treated as wages. Remuneration for federal employees who are nonresident aliens resident in Puerto Rico, and supplemental unemployment compensation benefits paid after December 31, 1970, are also included as wages for withholding purposes.