[Code of Federal Regulations]
[Title 26, Volume 15]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR31.3306(b)(10)-1]

[Page 165-166]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 31_EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE--Table of Contents
 
  Subpart D_Federal Unemployment Tax Act (Chapter 23, Internal Revenue 
                              Code of 1954)
 
Sec. 31.3306(b)(10)-1  Payments under certain employers' plans after 
retirement, disability, or death.

    (a) In general. The term ``wages'' does not include the amount of 
any payment or series of payments made after January 2, 1968, by an 
employer to, or on behalf of, an employee or any of his dependents under 
a plan established by the employer which makes provisions for his 
employees generally (or for his employees generally and their 
dependents) or for a class or classes of his employees (or for a class 
or classes of his employees and their dependents), which is paid or 
commences to be paid upon or within a reasonable time after the 
termination of an employee's employment relationship because of the 
employee's--
    (1) Death,
    (2) Retirement for disability, or
    (3) Retirement after attaining an age specified in the plan 
established by the employer or in a pension plan of the employer as the 
age at which a person in the employee's circumstances is eligible for 
retirement.

A payment or series of payments made under the circumstances described 
in the preceding sentence is excluded from ``wages'' even if made 
pursuant to an incentive compensation plan which also provides for the 
making of other types of payments. However, any payment or series of 
payments which would have been paid if the employee's relationship had 
not been terminated is not excluded from ``wages'' under this section 
and section 3306(b)(10). For example, lump-sum payments for unused 
vacation time or a final paycheck received after retirement are payments 
which the employee would have received whether or not he retired and 
therefore are not excluded from ``wages.'' Further, if any payment is 
made upon or after termination of employment for any reason other than 
those set out in paragraphs (a)(1), (2), and (3) of this section such 
payment is not excludable from ``wages'' by this section. For example, 
if a pension plan provides for retirement upon disability, completion of 
30 years of service, or attainment of age 65, and if an employee who is 
not disabled retires at age 61 after 30 years of service, none of the 
retirement payments made to the employee under the pension plan 
(including any made after he is 65) is excludable from ``wages'' under 
this section. However, if the pension plan had conditioned retirement 
after 30 years of service upon attainment of age 60, all of the 
retirement payments would have been excludable.
    (b) Plan. The plan or system established by an employer need not 
provide for payments because of termination of employment for all the 
reasons set out in paragraphs (a)(1), (2), and (3) of this section, but 
such plan or system may provide for payments because of termination for 
any one or more of such reasons. Payments because of termination

[[Page 166]]

of employment for any one or more of such reasons under a plan or system 
established by an employer solely for the dependents of his employees 
are not within this exclusion from wages.
    (c) Dependents. Dependents of an employee include the employee's 
husband or wife, children, and any other members of the employee's 
immediate family.
    (d) Benefit payments. It is immaterial for purposes of this 
exclusion whether the amount or possibility of such benefit payments is 
paid on account of services rendered or taken into consideration in 
fixing the amount of an employee's remuneration or whether such payments 
are required expressly or impliedly, by the contract of service.
    (e) Example. The application of this section may be illustrated by 
the following example:

    Example. A, an employee, receives a salary of $1,500 a month, 
payable on the 5th day of the month following the month for which the 
salary is earned. A's employer has established an incentive compensation 
plan for a class of his employees, including A, providing for the 
payment of deferred compensation on termination of employment, including 
termination upon an employee's death, retirement at age 65 (the 
retirement age specified in the plan), or retirement for disability. On 
March 1, 1973, A attains the age of 65 and retires. On March 5, 1973, A 
receives $5,500 from his employer of which $1,500 represents A's salary 
for services he performed in February 1973, and $4,000 represents 
incentive compensation paid under the employer's plan. The amount of 
$4,000 is excluded from ``wages'' under this section. The amount of 
$1,500 is not excluded from ``wages'' under this section.

[T.D. 7374, 40 FR 30951, July 24, 1975]