§ 3401. — Definitions.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 26USC3401]
TITLE 26--INTERNAL REVENUE CODE
Subtitle C--Employment Taxes
CHAPTER 24--COLLECTION OF INCOME TAX AT SOURCE ON WAGES
Sec. 3401. Definitions
(a) Wages
For purposes of this chapter, the term ``wages'' means all
remuneration (other than fees paid to a public official) for services
performed by an employee for his employer, including the cash value of
all remuneration (including benefits) paid in any medium other than
cash; except that such term shall not include remuneration paid--
(1) for active service performed in a month for which such
employee is entitled to the benefits of section 112 (relating to
certain combat zone compensation of members of the Armed Forces of
the United States) to the extent remuneration for such service is
excludable from gross income under such section; or
(2) for agricultural labor (as defined in section 3121(g))
unless the remuneration paid for such labor is wages (as defined in
section 3121(a)); or
(3) for domestic service in a private home, local college club,
or local chapter of a college fraternity or sorority; or
(4) for service not in the course of the employer's trade or
business performed in any calendar quarter by an employee, unless
the cash remuneration paid for such service is $50 or more and such
service is performed by an individual who is regularly employed by
such employer to perform such service. For purposes of this
paragraph, an individual shall be deemed to be regularly employed by
an employer during a calendar quarter only if--
(A) on each of some 24 days during such quarter such
individual performs for such employer for some portion of the
day service not in the course of the employer's trade or
business; or
(B) such individual was regularly employed (as determined
under subparagraph (A)) by such employer in the performance of
such service during the preceding calendar quarter; or
(5) for services by a citizen or resident of the United States
for a foreign government or an international organization; or
(6) for such services, performed by a nonresident alien
individual, as may be designated by regulations prescribed by the
Secretary; or
[(7) Repealed. Pub. L. 89-809, title I, Sec. 103(k), Nov. 13,
1966, 80 Stat. 1554]
(8)(A) for services for an employer (other than the United
States or any agency thereof)--
(i) performed by a citizen of the United States if, at the
time of the payment of such remuneration, it is reasonable to
believe that such remuneration will be excluded from gross
income under section 911; or
(ii) performed in a foreign country or in a possession of
the United States by such a citizen if, at the time of the
payment of such remuneration, the employer is required by the
law of any foreign country or possession of the United States to
withhold income tax upon such remuneration; or
(B) for services for an employer (other than the United States
or any agency thereof) performed by a citizen of the United States
within a possession of the United States (other than Puerto Rico),
if it is reasonable to believe that at least 80 percent of the
remuneration to be paid to the employee by such employer during the
calendar year will be for such services; or
(C) for services for an employer (other than the United States
or any agency thereof) performed by a citizen of the United States
within Puerto Rico, if it is reasonable to believe that during the
entire calendar year the employee will be a bona fide resident of
Puerto Rico; or
(D) for services for the United States (or any agency thereof)
performed by a citizen of the United States within a possession of
the United States to the extent the United States (or such agency)
withholds taxes on such remuneration pursuant to an agreement with
such possession; or
(9) for services performed by a duly ordained, commissioned, or
licensed minister of a church in the exercise of his ministry or by
a member of a religious order in the exercise of duties required by
such order; or
(10)(A) for services performed by an individual under the age of
18 in the delivery or distribution of newspapers or shopping news,
not including delivery or distribution to any point for subsequent
delivery or distribution; or
(B) for services performed by an individual in, and at the time
of, the sale of newspapers or magazines to ultimate consumers, under
an arrangement under which the newspapers or magazines are to be
sold by him at a fixed price, his compensation being based on the
retention of the excess of such price over the amount at which the
newspapers or magazines are charged to him, whether or not he is
guaranteed a minimum amount of compensation for such services, or is
entitled to be credited with the unsold newspapers or magazines
turned back; or
(11) for services not in the course of the employer's trade or
business, to the extent paid in any medium other than cash; or
(12) to, or on behalf of, an employee or his beneficiary--
(A) from or to a trust described in section 401(a) which is
exempt from tax under section 501(a) at the time of such payment
unless such payment is made to an employee of the trust as
remuneration for services rendered as such employee and not as a
beneficiary of the trust; or
(B) under or to an annuity plan which, at the time of such
payment, is a plan described in section 403(a); or
(C) for a payment described in section 402(h)(1) and (2) if,
at the time of such payment, it is reasonable to believe that
the employee will be entitled to an exclusion under such section
for payment; or
(D) under an arrangement to which section 408(p) applies; or
(E) under or to an eligible deferred compensation plan
which, at the time of such payment, is a plan described in
section 457(b) which is maintained by an eligible employer
described in section 457(e)(1)(A),\1\ or
---------------------------------------------------------------------------
\1\ So in original. The comma probably should be a semicolon.
(13) pursuant to any provision of law other than section 5(c) or
6(1) of the Peace Corps Act, for service performed as a volunteer or
volunteer leader within the meaning of such Act; or
(14) in the form of group-term life insurance on the life of an
employee; or
(15) to or on behalf of an employee if (and to the extent that)
at the time of the payment of such remuneration it is reasonable to
believe that a corresponding deduction is allowable under section
217 (determined without regard to section 274(n)); or
(16)(A) as tips in any medium other than cash;
(B) as cash tips to an employee in any calendar month in the
course of his employment by an employer unless the amount of such
cash tips is $20 or more; \2\
---------------------------------------------------------------------------
\2\ So in original. Probably should be followed by ``or''.
---------------------------------------------------------------------------
(17) for service described in section 3121(b)(20); \2\
(18) for any payment made, or benefit furnished, to or for the
benefit of an employee if at the time of such payment or such
furnishing it is reasonable to believe that the employee will be
able to exclude such payment or benefit from income under section
127 or 129; \2\
(19) for any benefit provided to or on behalf of an employee if
at the time such benefit is provided it is reasonable to believe
that the employee will be able to exclude such benefit from income
under section 74(c), 117, or 132; \2\
(20) for any medical care reimbursement made to or for the
benefit of an employee under a self-insured medical reimbursement
plan (within the meaning of section 105(h)(6)); or
(21) for any payment made to or for the benefit of an employee
if at the time of such payment it is reasonable to believe that the
employee will be able to exclude such payment from income under
section 106(b).
(b) Payroll period
For purposes of this chapter, the term ``payroll period'' means a
period for which a payment of wages is ordinarily made to the employee
by his employer, and the term ``miscellaneous payroll period'' means a
payroll period other than a daily, weekly, biweekly, semimonthly,
monthly, quarterly, semiannual or annual payroll period.
(c) Employee
For purposes of this chapter, the term ``employee'' includes an
officer, employee, or elected official of the United States, a State, or
any political subdivision thereof, or the District of Columbia, or any
agency or instrumentality of any one or more of the foregoing. The term
``employee'' also includes an officer of a corporation.
(d) Employer
For purposes of this chapter, the term ``employer'' means the person
for whom an individual performs or performed any service, of whatever
nature, as the employee of such person, except that--
(1) if the person for whom the individual performs or performed
the services does not have control of the payment of the wages for
such services, the term ``employer'' (except for purposes of
subsection (a)) means the person having control of the payment of
such wages, and
(2) in the case of a 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, the term ``employer'' (except for purposes of subsection
(a)) means such person.
(e) Number of withholding exemptions claimed
For purposes of this chapter, the term ``number of withholding
exemptions claimed'' means the number of withholding exemptions claimed
in a withholding exemption certificate in effect under section 3402(f),
or in effect under the corresponding section of prior law, except that
if no such certificate is in effect, the number of withholding
exemptions claimed shall be considered to be zero.
(f) Tips
For purposes of subsection (a), the term ``wages'' includes tips
received by an employee in the course of his employment. Such wages
shall be deemed to be paid at the time a written statement including
such tips is furnished to the employer pursuant to section 6053(a) or
(if no statement including such tips is so furnished) at the time
received.
[(g) Repealed. Pub. L. 101-140, title II, Sec. 203(a)(2), Nov. 8, 1989,
103 Stat. 830]
(h) Crew leader rules to apply
Rules similar to the rules of section 3121(o) shall apply for
purposes of this chapter.
(Aug. 16, 1954, ch. 736, 68A Stat. 455; Aug. 9, 1955, ch. 681, 69 Stat.
616; Pub. L. 87-256, Sec. 110(g)(1), Sept. 21, 1961, 75 Stat. 537; Pub.
L. 87-293, title II, Sec. 201(c), Sept. 22, 1961, 75 Stat. 625; Pub. L.
87-792, Sec. 7(l), Oct. 10, 1962, 76 Stat. 830; Pub. L. 88-272, title
II, Secs. 204(b), 213(c), Feb. 26, 1964, 78 Stat. 36, 52; Pub. L. 89-97,
title III, Sec. 313(d)(1), (2), July 30, 1965, 79 Stat. 383, 384; Pub.
L. 89-809, title I, Sec. 103(k), Nov. 13, 1966, 80 Stat. 1554; Pub. L.
92-279, Sec. 2, Apr. 26, 1972, 86 Stat. 125; Pub. L. 93-406, title II,
Sec. 2002(g)(7), Sept. 2, 1974, 88 Stat. 970; Pub. L. 94-455, title XII,
Sec. 1207(e)(1)(C), title XV, Sec. 1501(b)(7), title XIX, Secs. 1903(c),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1707, 1736, 1810, 1834; Pub. L.
95-600, title I, Sec. 164(b)(1), Nov. 6, 1978, 92 Stat. 2813; Pub. L.
95-615, Sec. 207(a), Nov. 8, 1978, 92 Stat. 3108; Pub. L. 96-222, title
I, Sec. 103(a)(13)(A), Apr. 1, 1980, 94 Stat. 213; Pub. L. 97-34, title
I, Secs. 112(b)(5), 124(e)(2)(A), title III, Sec. 311(h)(6), Aug. 13,
1981, 95 Stat. 195, 200, 282; Pub. L. 97-448, title I,
Sec. 103(c)(12)(B), Jan. 12, 1983, 96 Stat. 2377; Pub. L. 98-369, div.
A, title IV, Sec. 491(d)(38), title V, Sec. 531(d)(4), July 18, 1984, 98
Stat. 851, 885; Pub. L. 99-514, title I, Sec. 122(e)(4), title XII,
Sec. 1272(c), Oct. 22, 1986, 100 Stat. 2112, 2594; Pub. L. 100-647,
title I, Secs. 1001(g)(4)(B)(iii), 1011(f)(9), 1011B(a)(22)(D), (33),
Nov. 10, 1988, 102 Stat. 3352, 3463, 3486, 3488; Pub. L. 101-140, title
II, Sec. 203(a)(2), Nov. 8, 1989, 103 Stat. 830; Pub. L. 101-239, title
VII, Sec. 7631(a), (b), Dec. 19, 1989, 103 Stat. 2378; Pub. L. 101-508,
title XI, Sec. 11703(f)(1), Nov. 5, 1990, 104 Stat. 1388-517; Pub. L.
104-117, Sec. 1(c), Mar. 20, 1996, 110 Stat. 828; Pub. L. 104-188, title
I, Secs. 1421(b)(8)(D), 1704(t)(4)(C), Aug. 20, 1996, 110 Stat. 1798,
1887; Pub. L. 104-191, title III, Sec. 301(c)(2)(C), Aug. 21, 1996, 110
Stat. 2049; Pub. L. 105-206, title VI, Sec. 6023(14), (15), July 22,
1998, 112 Stat. 825; Pub. L. 107-16, title VI, Sec. 641(a)(1)(D)(i),
June 7, 2001, 115 Stat. 119.)
Amendment of Section
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
References in Text
Sections 5(c) and 6(1) of the Peace Corps Act, referred to in
subsec. (a)(13), are classified to sections 2504(c) and 2505(1),
respectively, of Title 22, Foreign Relations and Intercourse.
Amendments
2001--Subsec. (a)(12)(E). Pub. L. 107-16, Secs. 641(a)(1)(D)(i),
901, temporarily added subpar. (E). See Effective and Termination Dates
of 2001 Amendment note below.
1998--Subsec. (a)(19), (21). Pub. L. 105-206 inserted ``for'' after
par. designation.
1996--Subsec. (a)(1). Pub. L. 104-188, Sec. 1704(t)(4)(C),
substituted ``combat zone compensation'' for ``combat pay''.
Pub. L. 104-117 inserted before semicolon ``to the extent
remuneration for such service is excludable from gross income under such
section''.
Subsec. (a)(12)(D). Pub. L. 104-188, Sec. 1421(b)(8)(D), added
subpar. (D).
Subsec. (a)(21). Pub. L. 104-191 added par. (21).
1990--Subsec. (a)(20). Pub. L. 101-508 added par. (20).
1989--Subsec. (a)(2). Pub. L. 101-239, Sec. 7631(a), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: ``for
agricultural labor (as defined in section 3121(g)); or''.
Subsec. (g). Pub. L. 101-140 amended this section to read as if
amendments by Pub. L. 100-647, Sec. 1011B(a)(22)(D), had not been
enacted, see 1988 Amendment note below.
Subsec. (h). Pub. L. 101-239, Sec. 7631(b), added subsec. (h).
1988--Subsec. (a)(12)(C). Pub. L. 100-647, Sec. 1011(f)(9),
substituted ``section 402(h)(1) and (2)'' for ``section 219'' and ``an
exclusion'' for ``a deduction''.
Subsec. (a)(15). Pub. L. 100-647, Sec. 1001(g)(4)(B)(iii), inserted
``(determined without regard to section 274(n))'' after ``section 217''.
Subsec. (a)(19), (20). Pub. L. 100-647, Sec. 1011B(a)(33),
redesignated par. (20) as (19) and struck out former par. (19) which
excluded medical care reimbursement made to or for benefit of employee
under self-insured medical reimbursement plan.
Subsec. (g). Pub. L. 100-647, Sec. 1011B(a)(22)(D), added subsec.
(g) relating to benefits provided under certain employee benefit plans.
1986--Subsec. (a)(8)(D). Pub. L. 99-514, Sec. 1272(c), added subpar.
(D).
Subsec. (a)(20). Pub. L. 99-514, Sec. 122(e)(4), inserted reference
to section 74(c).
1984--Subsec. (a). Pub. L. 98-369, Sec. 531(d)(4)(A), inserted
``(including benefits)'' in introductory provisions.
Subsec. (a)(12). Pub. L. 98-369, Sec. 491(d)(38), struck out subpar.
(C) which provided: ``under or to a bond purchase plan which, at the
time of such payment, is a qualified bond purchase plan described in
section 405(a);'' and redesignated subpar. (D) as (C).
Subsec. (a)(20). Pub. L. 98-369, Sec. 531(d)(4)(B), added par. (20).
1983--Subsec. (a)(12)(D). Pub. L. 97-448 substituted ``section 219''
for ``section 219(a)''.
1981--Subsec. (a)(12)(D). Pub. L. 97-34, Sec. 311(h)(6), substituted
``section 219(a)'' for ``section 219(a) or 220(a)''.
Subsec. (a)(18). Pub. L. 97-34, Sec. 124(e)(2)(A), substituted
``section 127 or 129'' for ``section 127''.
Pub. L. 97-34, Sec. 112(b)(5), redesignated par. (19) as (18).
Former par. (18), relating to remuneration paid to or on behalf of an
employee if (and to the extent that) at the time of the payment of such
remuneration it was reasonable to believe that a corresponding deduction
was allowable under section 913 (relating to deduction for certain
expenses of living abroad), was struck out.
Subsec. (a)(19), (20). Pub. L. 97-34, Sec. 112(b)(5), redesignated
par. (20) as (19). Former par. (19) redesignated (18).
1980--Subsec. (a)(18) to (20). Pub. L. 96-222 redesignated par.
(18), added by Pub. L. 95-600, as (19), in par. (19) as so redesignated,
substituted ``section 127; or'' for ``section 124.'', and added par.
(20).
1978--Subsec. (a)(18). Pub. L. 95-615 added par. (18) relating to
payments or benefits excludable from income under section 124.
Pub. L. 95-600 added par. (18) relating to remuneration for which a
corresponding deduction is allowable under section 913.
1976--Subsec. (a)(6). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out ``or his delegate'' after ``Secretary''.
Subsec. (a)(12)(D). Pub. L. 94-455, Sec. 1501(b)(7), inserted ``or
220(a)'' after ``section 219(a)''.
Subsec. (a)(17). Pub. L. 94-455, Sec. 1207(e)(1)(C), added par.
(17).
Subsec. (c). Pub. L. 94-455, Sec. 1903(c), struck out ``Territory''
after ``a State''.
1974--Subsec. (a)(12)(D). Pub. L. 93-406 added subpar. (D).
1972--Subsec. (a)(1). Pub. L. 92-279 struck out ``as a member of the
Armed Forces of the United States'' after ``active service'',
substituted ``employee'' for ``member'', and parenthetical text
``(relating to certain combat pay of members of the Armed Forces of the
United States)''.
1966--Subsec. (a)(6), (7). Pub. L. 89-809, Sec. 103(k), struck out
par. (6) dealing with services performed by nonresident alien
individuals other than residents of contiguous countries who enter and
leave the United States at frequent intervals, residents of Puerto Rico
if such services are performed as an employee of the United States or
any agency thereof, or individuals temporarily present in the United
States as nonimmigrants under certain conditions, redesignated par. (7)
as (6), and in par (6) as so redesignated, struck out ``who is a
resident of a contiguous country and who enters and leaves the United
States at frequent intervals'' after ``nonresident alien individual''.
1965--Subsec. (a)(16). Pub. L. 89-97, Sec. 313(d)(2), added par.
(16).
Subsec. (f). Pub. L. 89-97, Sec. 313(d)(1), added subsec. (f).
1964--Subsec. (a)(14). Pub. L. 88-272, Sec. 204(b), added par. (14).
Subsec. (a)(15). Pub. L. 88-272, Sec. 213(c), added par. (15).
1962--Subsec. (a)(12)(B), (C). Pub. L. 87-792 substituted ``is a
plan described in section 403(a)'' for ``meets the requirements of
section 401(a)(3), (4), (5), and (6)'', in subpar. (B), and added
subpar. (C).
1961--Subsec. (a)(6)(C). Pub. L. 87-256 added subpar. (C).
Subsec. (a)(13). Pub. L. 87-293 added par. (13).
1955--Subsec. (a). Act Aug. 9, 1955, excluded from definition of
wages, remuneration paid for services performed in a possession of the
United States by a United States citizen if the employer is required by
the law of the possession to withhold income tax on the remuneration.
Effective and Termination Dates of 2001 Amendment
Amendment by Pub. L. 107-16 applicable to distributions after Dec.
31, 2001, see section 641(f)(1) of Pub. L. 107-16, set out as a note
under section 402 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal Revenue
Code of 1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 901 of Pub. L. 107-16, set
out as a note under section 1 of this title.
Effective Date of 1996 Amendments
Amendment by Pub. L. 104-191 applicable to taxable years beginning
after Dec. 31, 1996, see section 301(j) of Pub. L. 104-191, set out as a
note under section 62 of this title.
Amendment by section 1421(b)(8)(D) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1996, see section 1421(e) of Pub.
L. 104-188, set out as a note under section 72 of this title.
Amendment by Pub. L. 104-117 applicable to remuneration paid after
Mar. 20, 1996, see section 1(e) of Pub. L. 104-117, set out in a
Treatment of Certain Individuals Performing Services in Certain
Hazardous Duty Areas; Effective Date note under section 112 of this
title.
Effective Date of 1990 Amendment
Section 11703(f)(2) of Pub. L. 101-508 provided that: ``The
amendment made by paragraph (1) [amending this section] shall apply as
if included in the amendments made by section 1151 of the Tax Reform Act
of 1986 [Pub. L. 99-514, see Effective Date of 1986 Amendment note set
out under section 79 of this title] but shall not apply to any amount
paid before the date of the enactment of this Act [Nov. 5, 1990] which
the employer treated as wages for purposes of chapter 24 of the Internal
Revenue Code of 1986 when paid.''
Effective Date of 1989 Amendments
Section 7631(c) of Pub. L. 101-239 provided that: ``The amendments
made by this section [amending this section] shall apply to remuneration
paid after December 31, 1989.''
Amendment by Pub. L. 101-140 effective as if included in section
1151 of Pub. L. 99-514, see section 203(c) of Pub. L. 101-140, set out
as a note under section 79 of this title.
Effective Date of 1988 Amendment
Amendment by sections 1001(g)(4)(B)(iii), 1011(f)(9), and
1011B(a)(33) of Pub. L. 100-647 effective, except as otherwise provided,
as if included in the provision of the Tax Reform Act of 1986, Pub. L.
99-514, to which such amendment relates, see section 1019(a) of Pub. L.
100-647, set out as a note under section 1 of this title.
Amendment by section 1011B(a)(22)(D) of Pub. L. 100-647 not
applicable to any individual who separated from service with the
employer before Jan. 1, 1989, see section 1011B(a)(22)(F) of Pub. L.
100-647, set out as a note under section 3121 of this title.
Effective Date of 1986 Amendment
Amendment by section 122(e)(4) of Pub. L. 99-514 applicable to
prizes and awards granted after Dec. 31, 1986, see section 151(c) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 1272(c) of Pub. L. 99-514 applicable to taxable
years beginning after Dec. 31, 1986, with certain exceptions and
qualifications, see section 1277 of Pub. L. 99-514, set out as a note
under section 931 of this title.
Effective Date of 1984 Amendment
Amendment by section 491(d)(38) of Pub. L. 98-369 applicable to
obligations issued after Dec. 31, 1983, see section 491(f)(1) of Pub. L.
98-369, set out as a note under section 62 of this title.
Amendment by section 531(d)(4) of Pub. L. 98-369 effective Jan. 1,
1985, see section 531(h) of Pub. L. 98-369, set out as an Effective Date
note under section 132 of this title.
Effective Date of 1983 Amendment
Amendment by Pub. L. 97-448 effective, except as otherwise provided,
as if it had been included in the provision of the Economic Recovery Tax
Act of 1981, Pub. L. 97-34, to which such amendment relates, see section
109 of Pub. L. 97-448, set out as a note under section 1 of this title.
Effective Date of 1981 Amendment
Amendment by section 112(b)(5) of Pub. L. 97-34 applicable with
respect to taxable years beginning after Dec. 31, 1981, see section 115
of Pub. L. 97-34, set out as a note under section 911 of this title.
Amendment by section 124(e)(2)(A) of Pub. L. 97-34 applicable to
remuneration paid after Dec. 31, 1981, see section 124(f)(2) of Pub. L.
97-34, set out as a note under section 21 of this title.
Amendment by section 311(h)(6) of Pub. L. 97-34 applicable to
taxable years beginning after Dec. 31, 1981, see section 311(i)(1) of
Pub. L. 97-34, set out as a note under section 219 of this title.
Effective Date of 1980 Amendment
Amendment by Pub. L. 96-222 effective, except as otherwise provided,
as if it had been included in the provisions of the Revenue Act of 1978,
Pub. L. 95-600, to which such amendment relates, see section 201 of Pub.
L. 96-222, set out as a note under section 32 of this title.
Effective Date of 1978 Amendments
Amendment by Pub. L. 95-615 applicable to remuneration paid after
Nov. 8, 1978, but with taxpayers allowed to elect not to have the
amendment apply with respect to any taxable year beginning after Dec.
31, 1977, and before Jan. 1, 1979, see section 209(b), (c) of Pub. L.
95-615, set out as a note under section 911 of this title.
Amendment by Pub. L. 95-600 applicable with respect to taxable years
beginning after Dec. 31, 1978, see section 164(d) of Pub. L. 95-600, set
out as a note under section 127 of this title.
Effective Date of 1976 Amendment
Amendment by section 1501(b)(7) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1501(d) of Pub.
L. 94-455, set out as a note under section 62 of this title.
Effective Date of 1974 Amendment
Amendment by Pub. L. 93-406 effective on Jan. 1, 1975, see section
2002(i)(2) of Pub. L. 93-406, set out as an Effective Date note under
section 4973 of this title.
Effective Date of 1972 Amendment
Section 3(b) of Pub. L. 92-279 provided that: ``The amendments made
by section 2 [amending this section] shall apply to wages paid on or
after the first day of the first calendar month which begins more than
30 days after the date of the enactment of this Act [Apr. 26, 1972].''
Effective Date of 1966 Amendment
Amendment by Pub. L. 89-809 applicable with respect to remuneration
paid after Dec. 31, 1966, see section 103(n)(4) of Pub. L. 89-809, set
out as a note under section 871 of this title.
Effective Date of 1965 Amendment
Amendment by section 313(d)(1), (2) of Pub. L. 89-97 applicable only
with respect to tips received by employees after 1965, see section
313(f) of Pub. L. 89-97, set out as a note under section 6053 of this
title.
Effective Date of 1964 Amendment
Amendment by section 204(b) of Pub. L. 88-272 applicable to
remuneration paid after Dec. 31, 1963, in the form of group-term life
insurance provided after such date, see section 204(d) of Pub. L. 88-
272, set out as an Effective Date note under section 79 of this title.
Amendment by section 213(c) of Pub. L. 88-272 applicable to
remuneration paid after the seventh day following Feb. 26, 1964, see
section 213(d) of Pub. L. 88-272, set out as a note under section 62 of
this title.
Effective Date of 1962 Amendment
Amendment by Pub. L. 87-792 applicable to taxable years beginning
after Dec. 31, 1962, see section 8 of Pub. L. 87-792, set out as a note
under section 22 of this title.
Effective Date of 1961 Amendments
Amendment by Pub. L. 87-293 applicable with respect to remuneration
paid after Sept. 22, 1961, see section 201(d) of Pub. L. 87-293, set out
as a note under section 912 of this title.
Section 110(h)(4) of Pub. L. 87-256 provided that: ``The amendments
made by subsection (g) of this section [amending this section and
section 3402 of this title] shall apply with respect to wages paid after
December 31, 1961.''
Short Title of 1966 Amendment
Pub. L. 89-368, Sec. 1, Mar. 15, 1966, 80 Stat. 38, provided that:
``This Act [enacting sections 276 and 6682 of this title and section 428
of Title 42, The Public Health and Welfare, amending sections 1402,
1403, 3402, 4061, 4251, 4253, 6015, 6154, 6211, 6412, 6654, 7205, and
7701 of this title and section 1202 of Title 19, Customs Duties, and
enacting provisions set out as notes under sections 276, 3402, 4061,
4251, 6154, and 6654 of this title and section 428 of Title 42] may be
cited as the `Tax Adjustment Act of 1966'.''
Repeals; Amendments and Application of Amendments Unaffected
Section 201(c) of Pub. L. 87-293, cited as a credit to this section,
was repealed by Pub. L. 89-572, Sec. 5(a), Sept. 13, 1966, 80 Stat. 765.
Such repeal not deemed to affect amendments to this section contained in
such provisions, and continuation in full force and effect until
modified by appropriate authority of all determinations, authorization,
regulations, orders, contracts, agreements, and other actions issued,
undertaken, or entered into under authority of the repealed provisions,
see section 5(b) of Pub. L. 89-572, set out as a note under former
section 2515 of Title 22, Foreign Relations and Intercourse.
Controversies Involving Whether Individuals Are Employees for Purposes
of Employment Taxes
Section 530 of Pub. L. 95-600, as amended by Pub. L. 96-167,
Sec. 9(d), Dec. 29, 1979, 93 Stat. 1278; Pub. L. 96-541, Sec. 1, Dec.
17, 1980, 94 Stat. 3204; Pub. L. 97-248, title II, Sec. 269(c)(1), (2),
96 Stat. 552; Pub. L. 99-514, Sec. 2, title XVII, Sec. 1706(a), Oct. 22,
1986, 100 Stat. 2095, 2781; Pub. L. 104-188, title I, Sec. 1122(a), Aug.
20, 1996, 110 Stat. 1766, provided that:
``(a) Termination of Certain Employment Tax Liability.--
``(1) In general.--If--
``(A) for purposes of employment taxes, the taxpayer did not
treat an individual as an employee for any period, and
``(B) in the case of periods after December 31, 1978, all
Federal tax returns (including information returns) required to
be filed by the taxpayer with respect to such individual for
such period are filed on a basis consistent with the taxpayer's
treatment of such individual as not being an employee,
then, for purposes of applying such taxes for such period with
respect to the taxpayer, the individual shall be deemed not to be an
employee unless the taxpayer had no reasonable basis for not
treating such individual as an employee.
``(2) Statutory standards providing one method of satisfying the
requirements of paragraph (1).--For purposes of paragraph (1), a
taxpayer shall in any case be treated as having a reasonable basis
for not treating an individual as an employee for a period if the
taxpayer's treatment of such individual for such period was in
reasonable reliance on any of the following:
``(A) judicial precedent, published rulings, technical
advice with respect to the taxpayer, or a letter ruling to the
taxpayer;
``(B) a past Internal Revenue Service audit of the taxpayer
in which there was no assessment attributable to the treatment
(for employment tax purposes) of the individuals holding
positions substantially similar to the position held by this
individual; or
``(C) long-standing recognized practice of a significant
segment of the industry in which such individual was engaged.
``(3) Consistency required in the case of prior tax treatment.--
Paragraph (1) shall not apply with respect to the treatment of any
individual for employment tax purposes for any period ending after
December 31, 1978, if the taxpayer (or a predecessor) has treated
any individual holding a substantially similar position as an
employee for purposes of the employment taxes for any period
beginning after December 31, 1977.
``(4) Refund or credit of overpayment.--If refund or credit of
any overpayment of an employment tax resulting from the application
of paragraph (1) is not barred on the date of the enactment of this
Act [Nov. 6, 1978] by any law or rule of law, the period for filing
a claim for refund or credit of such overpayment (to the extent
attributable to the application of paragraph (1)) shall not expire
before the date 1 year after the date of the enactment of this Act.
``(b) Prohibition Against Regulations and Rulings on Employment
Status.--No regulation or Revenue Ruling shall be published on or after
the date of the enactment of this Act [Nov. 6, 1978] and before the
effective date of any law hereafter enacted clarifying the employment
status of individuals for purposes of the employment taxes by the
Department of the Treasury (including the Internal Revenue Service) with
respect to the employment status of any individual for purposes of the
employment taxes.
``(c) Definitions.--For purposes of this section--
``(1) Employment tax.--The term `employment tax' means any tax
imposed by subtitle C of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954, section 3101 et seq. of this title].
``(2) Employment status.--The term `employment status' means the
status of an individual, under the usual common law rules applicable
in determining the employer-employee relationship, as an employee or
as an independent contractor (or other individual who is not an
employee).
``(d) Exception.--This section shall not apply in the case of an
individual who, pursuant to an arrangement between the taxpayer and
another person, provides services for such other person as an engineer,
designer, drafter, computer programmer, systems analyst, or other
similarly skilled worker engaged in a similar line of work.
``(e) Special Rules for Application of Section.--
``(1) Notice of availability of section.--An officer or employee
of the Internal Revenue Service shall, before or at the commencement
of any audit inquiry relating to the employment status of one or
more individuals who perform services for the taxpayer, provide the
taxpayer with a written notice of the provisions of this section.
``(2) Rules relating to statutory standards.--For purposes of
subsection (a)(2)--
``(A) a taxpayer may not rely on an audit commenced after
December 31, 1996, for purposes of subparagraph (B) thereof
unless such audit included an examination for employment tax
purposes of whether the individual involved (or any individual
holding a position substantially similar to the position held by
the individual involved) should be treated as an employee of the
taxpayer,
``(B) in no event shall the significant segment requirement
of subparagraph (C) thereof be construed to require a reasonable
showing of the practice of more than 25 percent of the industry
(determined by not taking into account the taxpayer), and
``(C) in applying the long-standing recognized practice
requirement of subparagraph (C) thereof--
``(i) such requirement shall not be construed as
requiring the practice to have continued for more than 10
years, and
``(ii) a practice shall not fail to be treated as long-
standing merely because such practice began after 1978.
``(3) Availability of safe harbors.--Nothing in this section
shall be construed to provide that subsection (a) only applies where
the individual involved is otherwise an employee of the taxpayer.
``(4) Burden of proof.--
``(A) In general.--If--
``(i) a taxpayer establishes a prima facie case that it
was reasonable not to treat an individual as an employee for
purposes of this section, and
``(ii) the taxpayer has fully cooperated with reasonable
requests from the Secretary of the Treasury or his delegate,
then the burden of proof with respect to such treatment shall be on
the Secretary.
``(B) Exception for other reasonable basis.--In the case of
any issue involving whether the taxpayer had a reasonable basis
not to treat an individual as an employee for purposes of this
section, subparagraph (A) shall only apply for purposes of
determining whether the taxpayer meets the requirements of
subparagraph (A), (B), or (C) of subsection (a)(2).
``(5) Preservation of prior period safe harbor.--If--
``(A) an individual would (but for the treatment referred to
in subparagraph (B)) be deemed not to be an employee of the
taxpayer under subsection (a) for any prior period, and
``(B) such individual is treated by the taxpayer as an
employee for employment tax purposes for any subsequent period,
then, for purposes of applying such taxes for such prior period with
respect to the taxpayer, the individual shall be deemed not to be an
employee.
``(6) Substantially similar position.--For purposes of this
section, the determination as to whether an individual holds a
position substantially similar to a position held by another
individual shall include consideration of the relationship between
the taxpayer and such individuals.''
[Section 1122(b) of Pub. L. 104-188 provided that:
[``(1) In general.--The amendment made by this section [amending
section 530 of Pub. L. 95-600, set out above] shall apply to periods
after December 31, 1996.
[``(2) Notice by internal revenue service.--Section 530(e)(1) of the
Revenue Act of 1978 [Pub. L. 95-600] (as added by subsection (a)) shall
apply to audits which commence after December 31, 1996.
[``(3) Burden of proof.--
[``(A) In general.--Section 530(e)(4) of the Revenue Act of 1978
(as added by subsection (a)) shall apply to disputes involving
periods after December 31, 1996.
[``(B) No inference.--Nothing in the amendments made by this
section shall be construed to infer the proper treatment of the
burden of proof with respect to disputes involving periods before
January 1, 1997.'']
[Section 1706(b) of Pub. L. 99-514 provided that: ``The amendment
made by this section [amending section 530 of Pub. L. 95-600, set out
above] shall apply to remuneration paid and services rendered after
December 31, 1986.'']
Plan Amendments Not Required Until January 1, 1998
For provisions directing that if any amendments made by subtitle D
[Secs. 1401-1465] of title I of Pub. L. 104-188 require an amendment to
any plan or annuity contract, such amendment shall not be required to be
made before the first day of the first plan year beginning on or after
Jan. 1, 1998, see section 1465 of Pub. L. 104-188, set out as a note
under section 401 of this title.
Section Referred to in Other Sections
This section is referred to in sections 41, 275, 3402, 3507, 3509,
4999, 6014, 6051, 6053, 6103, 6331 of this title; title 42 section 653a.
