[Federal Register Volume 59, Number 246 (Friday, December 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31426]
[[Page Unknown]]
[Federal Register: December 23, 1994]
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DEPARTMENT OF THE TREASURY
26 CFR Part 31
[TD 8582]
RIN 1545-AR08
Update of Railroad Retirement Tax Act Regulations
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations relating to the
Railroad Retirement Tax Act (RRTA). These regulations update the
existing RRTA regulations by removing obsolete provisions and adding
new provisions to reflect the statutory changes that have occurred
since the publication in 1964 of the existing RRTA regulations. In
addition, because Tier 1 of the RRTA mirrors the Federal Insurance
Contributions Act (FICA), these regulations generally cross-reference
the definition of compensation under the RRTA to the definition of
wages under the FICA. The regulations provide both railroad employers
and IRS personnel with the guidance necessary to comply with the law.
DATES: These regulations are effective December 23, 1994. These
regulations apply for calendar years beginning after December 31, 1992.
FOR FURTHER INFORMATION CONTACT: Jean Whalen Casey at (202) 622-6040.
SUPPLEMENTARY INFORMATION:
Background
On May 13, 1993, the IRS published in the Federal Register (58 FR
28366) proposed amendments to the Employment Tax Regulations (26 CFR
part 31) under sections 3201 through 3231 of the Internal Revenue Code
(Code).
Written comments were received from the public on the proposed
regulations, and a public hearing was held on August 30, 1993. After
consideration of all of the written comments received and the
statements made at the public hearing, the proposed regulations are
adopted as revised by this Treasury decision.
Explanation of Revisions and Summary of Comments
The comments received focused on the definition of ``employer'' in
Sec. 31.3231(a)-1 and the definition of compensation in
Sec. 31.3231(e)-1.
Proposed Regulation Sec. 31.3231(a)-1(c) describes the term
``casual'' as used in the phrase ``casual service and the casual
operation of equipment or facilities.'' Under the proposed regulations,
the term ``casual'' applies, in part, whenever such service or
operation is insubstantial. One commentator suggested the IRS adopt a
bright line test in defining insubstantial. Specifically, the
commentator suggested that service or operation of equipment or
facilities in connection with the transportation of passengers or
property by railroad be presumed to be insubstantial whenever less than
10% of any company's revenues, work force, or payroll are derived from,
devoted to, or provided to the carrier or carriers affiliated with the
company. Situations can arise where one of the factors is less than 10%
while the remaining factors are greater than 10%. It is not clear that
the service or operation of equipment or facilities would be
insubstantial in those situations. Therefore, this suggestion was not
adopted.
The proposed regulations define ``compensation'' under the RRTA by
referencing the definition of ``wages'' under the FICA. One commentator
suggested that this reference be deleted because the statutory language
of the two statutes differs. This suggestion was not adopted. The
definition of wages under the FICA refers to ``all remuneration for
employment'' while the definition of compensation under the RRTA refers
to ``any money remuneration paid to an individual.'' The commentator
stated that Congress had the opportunity to conform the language of the
two definitions and has not done so. While there are historical
differences between the two statutes, there are significant
similarities between the RRTA and the FICA. Legislation enacted since
the adoption of the existing regulations has made the RRTA Tier 1 tax
identical to the FICA tax as well as conforming the Tier 1 wage ceiling
to the FICA wage ceiling. Along with conforming the structure of the
RRTA to parallel that of the FICA, the exclusions from the definition
of compensation under the RRTA, with few exceptions, mirror the
exclusions from the definition of wages under the FICA. These
exclusions from compensation include non-monetary benefits such as
fringe benefits, meals and lodging excludable under section 119 of the
Internal Revenue Code, and employer-paid life insurance premiums for
group-term life insurance under $50,000. In amending RRTA, Congress
often indicated the purpose was to provide conformity to FICA. Congress
has added references to FICA provisions in the RRTA definition of
successor employer (section 3231(e)(2)(C)) and the rules for
nonqualified deferred compensation (section 3231(e)(8)). In addition,
Tier 1 benefits are designed to be equivalent to social security
benefits and are subject to federal income taxation in the same manner
as social security benefits. Because the two statutes are not
completely identical, the language of the regulation indicates that the
term compensation has the same meaning as the term wages, except as
specifically limited by the Railroad Retirement Tax Act.
One commentator suggested that the presumption in Sec. 31.3231(e)-
1(a)(2) that payments made to an individual through the employer's
payroll are compensation should be deleted. This is based on the
removal of this language from the Internal Revenue Code in 1983. The
commentator also suggested that Sec. 31.3231(e)-1(a)(4) providing that
compensation includes payments for time lost should be deleted. These
provisions are included in the existing regulations. The Railroad
Retirement Solvency Act of 1983 significantly amended the definition of
compensation, changing the inclusion of items to a ``paid basis'' from
an ``earned basis'' and providing the present two tiered structure.
Prior to the 1983 Act, statutory language specifically provided for the
presumption and the inclusion of payments for time lost. In amending
the definition of compensation, the 1983 Act did not reenact the
statutory language. The legislative history does not indicate that
Congress intended to exclude payments for time lost from compensation
or negate the presumption that payments made through an employer's
payroll are compensation. Therefore, these suggestions were not
adopted.
A suggestion was also made to delete the reference to ``earned'' in
proposed Sec. 31.3231(e)-1(a)(3). Because section 3231 was amended to
shift the focus from when compensation was earned to when compensation
was paid, this suggestion has been adopted.
Finally, one commentator suggested adding a reference that
compensation does not include supplemental unemployment compensation
benefits (SUB-pay). There is no specific statutory exception from
compensation for SUB-pay. Rather, a series of revenue rulings provides
a limited exception from the definition of wages for purposes of FICA
and FUTA for certain payments made upon an employee's involuntary
separation from the employer's service, but only if the payments are
designed to supplement the receipt of unemployment compensation. Rev.
Rul. 56-249, 1956-1 C.B. 488, the first of many rulings in this area,
summarized eight features of a SUB-pay plan whose payments qualified
for exclusion from wage treatment. Rev. Rul. 90-72, 1990-2 C.B. 211,
specifically provides that because the definition of compensation for
RRTA purposes is similar to the definition of wages for FICA purposes,
the same conclusions with respect to SUB-pay plans applies to RRTA.
Rev. Rul. 90-72 revoked in part an earlier revenue ruling which held
that SUB-pay does not have to be tied to state unemployment benefits in
order to be excluded from treatment as wages. Because payments from a
SUB-pay plan are not automatically excluded from the definition of
compensation this suggestion was not adopted.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
the notice of proposed rulemaking preceding these regulations was
submitted to the Small Business Administration for comment on its
impact on small business.
Drafting Information
The principal author of these regulations is Jean Whalen Casey of
the Office of the Associate Chief Counsel (Employee Benefits and Exempt
Organizations), IRS. However, other personnel from the IRS and Treasury
Department participated in their development.
List of Subjects in 26 CFR Part 31
Employment taxes, Income taxes, Penalties, Pensions, Railroad
retirement, Reporting and recordkeeping requirements, Social security,
Unemployment compensation.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 31 is amended as follows:
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE
Paragraph 1. The authority citation for part 31 continues to read
in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 31.3121(a)-1 is amended as follows:
1. Paragraph (a) is redesignated as (a)(1).
2. Paragraph (a)(2) is added to read as follows:
Sec. 31.3121(a)-1 Wages.
(a) * * *
(2) The term compensation as used in section 3231(e) of the
Internal Revenue Code has the same meaning as the term wages as used in
this section, determined without regard to section 3121(b)(9), except
as specifically limited by the Railroad Retirement Tax Act (chapter 22
of the Internal Revenue Code) or regulation. The Commissioner may
provide any additional guidance that may be necessary or appropriate in
applying the definitions of sections 3121(a) and 3231(e).
* * * * *
Par. 3. Sections 31.3201-1 and 31.3201-2 are revised to read as
follows:
Sec. 31.3201-1 Measure of employee tax.
The employee tax is measured by the amount of compensation received
for services rendered as an employee. For provisions relating to
compensation, see Sec. 31.3231(e)-1. For provisions relating to the
circumstances under which certain compensation is to be disregarded for
the purpose of determining the employee tax, see paragraphs (b)(1) and
(2) of Sec. 31.3231(e)-1.
Sec. 31.3201-2 Rates and computation of employee tax.
(a) Rates--(1)(i) Tier 1 tax. The Tier 1 employee tax rate equals
the sum of the tax rates in effect under section 3101(a) relating to
old-age, survivors, and disability insurance, and section 3101(b),
relating to hospital insurance. The Tier 1 employee tax rate is applied
to compensation up to the contribution base described in section
3231(e)(2)(B)(i). The contribution base is determined under section 230
of the Social Security Act and is identical to the old-age, survivors,
and disability insurance wage base and the hospital insurance wage
base, respectively, under the Federal Insurance Contributions Act.
(ii) Example. The rule in paragraph (a)(1)(i) of this section is
illustrated by the following example.
Example. A received compensation of $60,000 in 1992. The section
3101(a) rate of 6.2 percent would be applied to A's compensation up
to $55,500, the applicable contribution base for 1992. The section
3101(b) rate of 1.45 percent would be applied to the entire $60,000
of A's compensation because the applicable contribution base for
1992 is $130,200.
(2)(i) Tier 2 tax. The Tier 2 employee tax rate equals the
percentage set forth in section 3201(b) of the Code. This rate is
applied to compensation up to the contribution base described in
section 3231(e)(2)(B)(ii).
(ii) Example. The rule in paragraph (a)(2)(i) of this section is
illustrated by the following example.
Example. A received compensation of $60,000 in 1992. The section
3201(b) rate of 4.90 percent would be applied to A's compensation up
to $41,400, the applicable contribution base for 1992.
(b)(1) Computation. The employee tax is computed by multiplying the
amount of the employee's compensation with respect to which the
employee tax is imposed by the rate applicable to such compensation, as
determined under paragraph (a) of this section. The applicable rate is
the rate in effect when the compensation is received by the employee.
For rules relating to the time of receipt, see Sec. 31.3121(a)-2 (a)
and (b).
(2) Example. The rule in paragraph (b)(1) of this section is
illustrated by the following example.
Example. In 1990, employee A received compensation of $1,000 as
remuneration for services performed for employer R in 1989. The
employee tax is payable at the rate of 12.55 percent (7.65 percent
plus 4.90 percent) in effect for 1990 (the year the compensation was
received), and not the 12.41 percent rate (7.51 percent plus 4.90
percent) in effect for 1989 (the year the services were performed).
Par. 4. Section 31.3202-1 is amended by revising paragraphs (b) and
(f) to read as follows:
Sec. 31.3202-1 Collection of, and liability for, employee tax.
* * * * *
(b) Collection; payments by two or more employers in excess of
annual compensation limitation. For rules relating to payments by two
or more employers in excess of the annual compensation limitation see
Sec. 31.3121(a)(1)-1.
* * * * *
(f) Concurrent employment. If two or more related corporations who
are rail employers concurrently employ the same individual and
compensate that individual through a common paymaster, which is one of
the related corporations employing the individual, see Sec. 31.3121(s)-
1.
Par. 5. Sections 31.3211-1 and 31.3211-2 are revised to read as
follows:
Sec. 31.3211-1 Measure of employee representative tax.
The employee representative tax is measured by the amount of
compensation received for services rendered as an employee
representative. For provisions relating to compensation, see
Sec. 31.3231(e)-1.
Sec. 31.3211-2 Rates and computation of employee representative tax.
(a) Rates--(1)(i) Tier 1 tax. The Tier 1 employee representative
tax rate equals the sum of the tax rates in effect under sections
3101(a) and 3111(a), relating to the employee and the employer tax for
old-age, survivors, and disability insurance, and sections 3101(b) and
3111(b), relating to the employee and the employer tax for hospital
insurance. The Tier 1 employee representative tax rate is applied to
compensation up to the contribution base described in section
3231(e)(2)(B)(i). The contribution base is determined under section 230
of the Social Security Act, and is identical to the old-age, survivors,
and disability insurance wage base and the hospital insurance wage
base, respectively, under the Federal Insurance Contributions Act.
(ii) Example. The rule in paragraph (a)(1)(i) of this section is
illustrated by the following example.
Example. B, an employee representative received compensation of
$60,000 in 1992. The sections 3101(a) and 3111(a) rates of 12.4
percent (6.2 percent plus 6.2 percent) would be applied to B's
compensation up to $55,500, the applicable contribution base for
1992. The sections 3101(b) and 3111(b) rates of 2.9 percent (1.45
percent plus 1.45 percent) would be applied to the entire $60,000 of
B's compensation because the applicable contribution base for 1992
is $130,200.
(2) (i) Tier 2 tax. The Tier 2 employee representative tax rate
equals the percentage set forth in section 3211(a)(2) of the Code. This
rate is applied up to the contribution base described in section
3231(e)(2)(B)(ii).
(ii) Example. The rule in paragraph (a)(2)(i) of this section is
illustrated by the following example.
Example. B received compensation of $60,000 in 1992. The section
3211(a)(2) rate of 14.75 percent would be applied to B's
compensation up to $41,400, the applicable contribution base for
1992.
(3) Supplemental Annuity Tax. The supplemental annuity tax for each
work-hour for which compensation is paid to an employee representative
for services rendered as an employee representative is imposed at the
same rate as the excise tax imposed on every employer under section
3221(c). See also Sec. 31.3211-3.
(b) (1) Computation. The employee representative tax is computed by
multiplying the amount of the employee representative's compensation
with respect to which the employee representative tax is imposed by the
rate applicable to such compensation, as determined under paragraph (a)
of this section. The applicable rate is the rate in effect when the
compensation is received by the employee representative. For rules
relating to the time of receipt, see Sec. 31.3121(a)-2 (a) and (b).
(2) Example. The rule in paragraph (b)(1) of this section is
illustrated by the following example.
Example. In 1990, employee representative B received $1,000 as
remuneration for services performed for employer R in 1989. The
employee representative tax is payable at the rate of 30.05 percent
(15.30 percent plus 14.75 percent) in effect for 1990 (the year the
compensation was received), and not the 29.77 percent rate (15.02
percent plus 14.75 percent) in effect for 1989 (the year the
services were performed).
(c) (1) Rule where compensation is received both as an employee
representative and employee. The following rule applies to an
individual who renders service both as an employee representative and
as an employee. The employee representative tax is imposed on
compensation received as an employee representative under the rules
described in Sec. 31.3211-2. The employee tax is imposed on
compensation received as an employee under the rules described in
Sec. 31.3201-2. However, if the total compensation received is greater
than the applicable contribution base, the employee representative tax
is imposed on the amount equal to the contribution base less the amount
received for services rendered as an employee.
(2) Example. The rule in paragraph (c)(1) of this section is
illustrated by the following example.
Example. C performed services both as an employee and an
employee representative in 1992. C received compensation of $40,000
as an employee and $20,000 as an employee representative. C's entire
compensation of $40,000 is subject to tax under the rules described
in Sec. 31.3201-2. The amount of employee representative
compensation subject to the section 3101(a) and the section 3111(a)
rate is $15,500 ($55,500-$40,000). The entire $20,000 is subject to
the sections 3101(b) and 3111(b) rates since the combined
compensation is less than $130,200, the applicable contribution base
for 1992. The amount of the employee representative compensation
subject to the section 3211(a)(2) rate is $1,400 ($41,400-$40,000).
Par. 6. Section 31.3221-1 is amended as follows:
1. Paragraphs (a) and (b) are revised.
2. Paragraph (d) is removed.
3. The revisions read as follows:
Sec. 31.3221-1 Measure of employer tax.
(a) General Rule--The employer tax is measured by the amount of
compensation paid by an employer to its employees. For provisions
relating to compensation, see Sec. 31.3231(e)-1. For provisions
relating to the circumstances under which certain compensation is to be
disregarded for purposes of determining the employer tax, see
paragraphs (b) (1) and (2) of Sec. 31.3231(e)-1.
(b) Payments by two or more employers in excess of annual
compensation limitation. For rules relating to payments by two or more
employers in excess of the annual compensation limitation, see
Sec. 31.3121(a)(1)-1.
* * * * *
Par. 7. Section 31.3221-2 is revised to read as follows:
Sec. 31.3221-2 Rates and computation of employer tax.
(a) Rates--(1)(i) Tier 1 tax. The Tier 1 employer tax rate equals
the sum of the tax rates in effect under section 3111(a), relating to
old-age, survivors, and disability insurance, and section 3111(b)
relating to hospital insurance. The Tier 1 employer tax rate is applied
to compensation up to the contribution base described in section
3231(e)(2)(B)(i). The contribution base is determined under section 230
of the Social Security Act and is identical to the old-age, survivors,
and disability insurance wage base and the hospital insurance wage
base, respectively, under the Federal Insurance Contributions Act.
(ii) Example. The rule in paragraph (a)(1)(i) of this section is
illustrated by the following example.
Example. R's employee, A, received compensation of $60,000 in
1992. The section 3111(a) rate of 6.2 percent would be applied to
A's compensation up to $55,500, the applicable contribution base for
1992. The section 3111(b) rate of 1.45 percent would be applied to
the entire $60,000 of A's compensation because the applicable
contribution base for 1992 is $130,200.
(2)(i) Tier 2 tax. The Tier 2 employer tax rate equals the
percentage set forth in section 3221(b) of the Internal Revenue Code.
This rate is applied up to the contribution base described in section
3231(e)(2)(B)(ii).
(ii) Example. The rule in paragraph (a)(2)(i) of this section is
illustrated by the following example.
Example. R's employee, A, received compensation of $60,000 in
1992. The section 3221(b) rate of 16.10 percent would be applied to
A's compensation up to $41,400, the applicable contribution base for
1992.
(3) Supplemental Annuity Tax. The supplemental annuity tax for each
work-hour for which compensation is paid by an employer for services
rendered during any calendar quarter by employees is imposed at the tax
rate determined each calendar quarter by the Railroad Retirement Board.
See also Sec. 31.3221-3.
(b)(1) Computation. The employer tax is computed by multiplying the
amount of the compensation with respect to which the employer tax is
imposed by the rate applicable to such compensation, as determined
under paragraph (a) of this section. The applicable rate is the rate in
effect at the time the compensation is paid. For rules relating to the
time of payment, see Sec. 31.3121(a)-2(a) and (b).
(2) Example. The rule in paragraph (b)(1) of this section is
illustrated by the following example.
Example. In 1990, R's employee A received $1,000 as remuneration
for services performed for R in 1989. The employer tax is payable at
the rate of 23.75 percent (7.65 percent plus 16.10 percent) in
effect for 1990 (the year the compensation was received) and not the
23.61 percent rate (7.51 percent plus 16.10 percent) in effect for
1989 (the year the services were performed).
Par. 8. Section 31.3231(a)-1 is amended as follows:
1. Paragraph (a)(1) is revised.
2. Paragraphs (c) and (d) are redesignated as (d) and (e).
3. Paragraphs (c) and (f) are added.
4. The revisions and additions read as follows:
Sec. 31.3231(a)-1 Who are employers.
(a) * * *
(1) Any carrier, that is, any express carrier, sleeping car
carrier, or rail carrier providing transportation subject to subchapter
I of chapter 105 of title 49;
* * * * *
(c) As used in paragraph (a)(2) of this section, the term casual
applies when the service rendered or the operation of equipment or
facilities by a controlled company or person in connection with the
transportation of passengers or property by railroad is so irregular or
infrequent as to afford no substantial basis for an inference that such
service or operation will be repeated, or whenever such service or
operation is insubstantial.
* * * * *
(f) Any company that is described in paragraph (a)(2) of this
section is an employer under section 3231. In certain cases, based on
all the facts and circumstances, it may be appropriate to segregate
those businesses engaged in rail services and therefore subject to the
Railroad Retirement Tax Act from those businesses engaged exclusively
in nonrail services and therefore not subject to the Railroad
Retirement Tax Act. The factors considered are set forth in guidance
published by the Internal Revenue Service.
Par. 9. Section 31.3231(e)-1 is revised to read as follows:
Sec. 31.3231(e)-1 Compensation.
(a) Definition--(1) The term compensation has the same meaning as
the term wages in section 3121(a), determined without regard to section
3121(b)(9), except as specifically limited by the Railroad Retirement
Tax Act (chapter 22 of the Internal Revenue Code) or regulation. The
Commissioner may provide any additional guidance that may be necessary
or appropriate in applying the definitions of sections 3121(a) and
3231(e).
(2) A payment made by an employer to an individual through the
employer's payroll is presumed, in the absence of evidence to the
contrary, to be compensation for services rendered as an employee of
the employer. Likewise, a payment made by an employee organization to
an employee representative through the organization's payroll is
presumed, in the absence of evidence to the contrary, to be
compensation for services rendered by the employee representative as
such. For rules regarding the treatment of deductions by an employer
from remuneration of an employee, see Sec. 31.3123-1.
(3) The term compensation is not confined to amounts paid for
active service, but includes amounts paid for an identifiable period
during which the employee is absent from the active service of the
employer and, in the case of an employee representative, amounts paid
for an identifiable period during which the employee representative is
absent from the active service of the employee organization.
(4) Compensation includes amounts paid to an employee for loss of
earnings during an identifiable period as the result of the
displacement of the employee to a less remunerative position or
occupation as well as pay for time lost.
(5) For rules regarding the treatment of reimbursement and other
expense allowance amounts, see Sec. 31.3121(a)-3. For rules regarding
the inclusion of fringe benefits in compensation, see Sec. 31.3121(a)-
1T.
(b) Special Rules. (1) If the amount of compensation earned in any
calendar month by an individual as an employee in the service of a
local lodge or division of a railway-labor-organization employer is
less than $25, the amount is disregarded for purposes of determining
the employee tax under section 3201 and the employer tax under section
3221.
(2) Compensation for service as a delegate to a national or
international convention of a railway-labor-organization employer is
disregarded for purposes of determining the employee tax under section
3201 and the employer tax under section 3221 if the individual
rendering the service has not previously rendered service, other than
as a delegate, which may be included in the individual's years of
service for purposes of the Railroad Retirement Act.
(3) For special provisions relating to the compensation of certain
general chairs or assistant general chairs of a general committee of a
railway-labor-organization employer, see paragraph (c)(3) of
Sec. 31.3231(b)-1.
Par. 10. Section 31.3231(e)-2 is added to read as follows:
Sec. 31.3231(e)-2 Contribution base.
The term compensation does not include any remuneration paid during
any calendar year by an employer to an employee for services rendered
in excess of the applicable contribution base. For rules applying this
provision, see Sec. 31.3121(a)(1)-1.
Secs. 31.3231(e)-2T and 31.3231(e)-3 [Removed]
Par. 11. Sections 31.3231(e)-2T and 31.3231(e)-3 are [Removed].
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: November 28, 1994
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 94-31426 Filed 12-22-94; 8:45 am]
BILLING CODE 4830-01-U