Real estate tax abatements under state senior citizen program were wages subject to FICA.

• Author: Fiore, Nicholas J.

In Date 1, state S began work-off program P, under which cities and towns in S are permitted to establish property tax write-off programs in which participating taxpayers (who must be over a certain age) "volunteer" services to municipalities in exchange for a reduction in their property tax obligations. S law permits seniors to earn up to a specified maximum dollar amount in property tax reductions per fiscal year; S's minimum-wage law caps the maximum amount of credit per hour that the taxpayers are entitled to receive for their services.

The property tax reductions are abatements. The abatements under P are in addition to any other property tax exemptions that may be available under S law. Under S law, the property tax abatements that seniors earned for services under P are not income for purposes of state taxation--withholding, unemployment insurance or workers' compensation. However, persons providing service under P are public employees for purposes of municipal tort liability.

Analysis

Income tax. Sec. 61 (a) defines gross income as all income from whatever source derived, including compensation for services. Under Regs. Sec. 1.61-1(a), gross income includes income realized in any form--whether in money, property or services. Taxpayers may realize income, therefore, in the form of services, meals, accommodations, stock or other property, as well as in cash.

Employer payments of the income taxes assessable against an employee are additional income for employee tax purposes. An employer's payment of an employee's FICA tax liability under Sec. 3101, without deducting the payment from the employee's pay or otherwise receiving reimbursement from the employee, is additional employee income for Federal income tax purposes.

Under Regs. Sec. 31.3401(a)-1(b) (6), the term "wages," for purposes of income tax withholding, includes any amount an employer pays to satisfy an employee's FICA tax liability under Sec. 3101, without deduction from the remuneration of, or other reimbursement from, the employee.

Employment tax. Taxes under FICA comprise an old-age, survivors' and disability insurance portion and a hospital insurance (Medicare) portion. An employer computes FICA taxes as a percentage of "wages" it pays to the employee with respect to "employment." In general, employers' remuneration payments paid to an employee for services performed are subject to FICA taxes, unless the payments are specifically excepted from the term "wages" or the...