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

Under 26 CFR 31.3401(a)-1, the term 'wages' for federal income tax withholding means all remuneration for services performed by an employee for an employer, unless specifically excepted under IRC section 3401(a) or section 3402(e). The designation, basis, or medium of payment is immaterial; salaries, fees, bonuses, commissions, pensions, and retired pay are all wages if paid as compensation for services. Fair market value is used when payment is made in property other than cash.
Last verified: 2026-08-27 · Sources checked: 3/3 resolving · Next scheduled review: 2026-11-25

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

Item Rule Source
Definition of wages All remuneration for services unless excepted under IRC § 3401(a) or § 3402(e) 26 CFR 31.3401(a)-1(a)(1)
Remuneration types included Salaries, fees, bonuses, commissions, pensions, retired pay 26 CFR 31.3401(a)-1(a)(2)
Payment basis Piecework, hourly, weekly, monthly, annually, or % of profits 26 CFR 31.3401(a)-1(a)(3)
Non-cash payment valuation Fair market value at time of payment/transfer 26 CFR 31.3401(a)-1(a)(4)
Withholding obligation Employer deducts and withholds per chapter 24 of subtitle C 26 CFR 31.3402(a)-1
Return for wages Employer reports wages subject to FICA on the prescribed return 26 CFR 31.6011(a)-1

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.

Sources

  1. [1]U.S. Government Publishing Office / Internal Revenue Service — 26 CFR 31.3401(a)-1 — Definition of wages for income tax withholding · as of 2026-08-27
  2. [2]U.S. Government Publishing Office / Internal Revenue Service — 26 CFR 31.3402(a)-1 — Requirement of income tax withholding from wages · as of 2026-08-27
  3. [3]U.S. Government Publishing Office / Internal Revenue Service — 26 CFR 31.6011(a)-1 — Returns required under the Federal Insurance Contributions Act · as of 2026-08-27

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