There is a variety of types of income that Social Security determines as wages for tax purposes, but others it does not. Social Security has developed rules that identify which types of income are wages and which type of income are not.
Do payments from a plan or system for sickness, retirement, etc. count as wages?
Payments you receive from a plan or system established by your employer for insurance or annuities are not wages. The plan must generally provide for all employees and/or their dependents or for a class(es) of employees and their dependents. The terms and conditions of the plan must be communicated to all employees or the class(es) affected. In addition, the plan must provide payment eligibility standards that include:
- Length of service, salary, classification, or occupation;
- The minimum period payments are made; and
- A formula for computing the minimum benefit for each eligible employee.
Does sick pay count as wages?
Payments you receive for sickness and accident disability count as wages for the first six calendar months after the last month you worked. (For payments made by an employer to a disabled former employee).
Do payments to a profit-sharing or stock bonus plan count as wages?
Effective January 1, 1984, payments your employer makes to a profit-sharing or stock bonus plan are wages if:
- You have the choice of receiving cash instead;
- The payments and the amounts are not included in your gross income;
- One of the following conditions exists:
- The payments are made under a qualified cash or deferred arrangement; or
- The payments are made under section 401(k)(2) of the IRC.
The payments are counted as wages at the time the distributions are paid to the trust.
Do payments from or to a tax-exempt trust fund count as wages?
Payments made from or to a tax-exempt trust fund on behalf of you or your beneficiary are not wages, if the payments made are “from or to a trust” that does not pay income tax under sections 401 and 501(a) of the Internal Revenue Code (IRC).
Do payments from or to a tax-exempt annuity plan count as wages?
Payments made from or to an annuity or bond purchase plan on behalf of you or your beneficiary do not count as wages if at the time of payment the:
- Annuity plan is qualified under section 403(a) of the Internal Revenue Code (IRC); or
- Bond purchase plan is qualified under section 405(a) of the IRC.
Do amounts deferred under a nonqualified deferred compensation plan count as wages?
Effective January 1, 1984, delayed payments under your Nonqualified Deferred Compensation Plan are wages:
- When you perform services; or
- When you meet the conditions required for payment.
Note: If an agreement was in existence on March 24, 1983, between you and a nonqualified deferred compensation plan for services you performed before 1984, the payments are excluded from wages if the payment would have been excluded from wages under Social Security before 1983.
