Short-week benefits remain wages when not tied to unemployment payments

Plain-English summary

A multiple-employer supplemental unemployment trust paid short-week benefits to employees who worked fewer than a redacted number of hours in the prior month. Although the plan description said employees had to qualify for state unemployment benefits, employers generally did not know whether workers had applied for those benefits. Chief Counsel advised that the payments did not qualify for the administrative exclusion for supplemental unemployment benefits because they were not actually tied to receipt of state unemployment compensation. The payments therefore remained wages for FICA tax purposes.

Ruling snapshot

• Question: Were short-week benefits excluded from FICA wages as supplemental unemployment benefits?
• Outcome: Advice that the payments were wages because they were not tied to state unemployment benefits.
• Key authorities: IRC § 3121(a); Treas. Reg. § 31.3121(a)-1(b); Rev. Ruls. 56-249, 90-72.

Full text (IRS public release)

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ID:      CCA_2016081617523734
UILC:    3121.01-11

Number: 201639015
Release Date: 9/23/2016
From:
Sent: Tuesday, August 16, 2016 5:52:37 PM
To:
Cc:
Bcc:
Subject: SUB pay question re "short-week benefits"


Question: You asked whether “short-week benefits” paid by a multiple-employer “SUB
Trust” to workers who work less than ---------------in the prior month are excluded from
wages for purposes of FICA tax as supplemental unemployment benefits described in
Revenue Ruling 90-72.

Facts: You stated that while the Trust summary plan description states that employees
must qualify for state unemployment benefits in order to receive payments from the
Trust, in fact, the employers submit to the third-party administrator a request listing all
employees who worked fewer than ---------------in the prior month. Most employers do
not know whether the employees applied for state unemployment benefits.

Law: Section 3121(a) and Treasury Regulation section 31.3121(a)-1(b) provide that, for
purposes of the FICA tax, all remuneration for employment is wages, unless a specific
exception applies. The IRS created an administrative exception for certain payments
that are designed to supplement state unemployment compensation and that are
actually tied to the receipt of state unemployment benefits. This limited exception is
explained in Revenue Ruling 56-249; Revenue Ruling 90-72 adds clarification regarding
lump sum payments.

Conclusion: We agree with your conclusion that these ”short-week benefits” are not
excluded from wages for purposes of FICA tax because they do not satisfy the
requirements set forth in Rev. Rul. 56-249 and Rev. Rul. 90-72. Your conclusion is also
consistent with PLRs 200322012 and 9734035, which stated that Automatic Short Week
Benefits are wages for FICA and FUTA purposes, unless the benefits are made to
individuals who otherwise qualify for excludable Regular Benefits (i.e., if the Automatic
Short Week Benefits immediately precede or follow a week in which an employee
receives Regular Benefits).
                                         2


Internal Revenue Service
Office of Associate Chief Counsel TEGE
                      Employment Tax 1
CC:TEGE:EOEG:ET1