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calendar month in which he attains age 62; or

(11) In the case of a woman, after the calendar month in which she attains age 62, or for payments made before November 1956, after the calendar month in which she attains age 65; or

(iii) In the case of a disabled employee regarding payments made after DecemDer 1972, the employee is at the time of payment entitled to disability insurance benefits under the Social Security Act, entitlement to which began prior to the calendar year in which such payment is made.

(2) Vacation or sick pay is not within this exclusion from wages. (The term "sick pay" as used in this paragraph, includes "sick leave" payments made after Aug. 27, 1958, by a State, a political subdivision thereof, or an interstate instrumentality, to an employee for a period during which he was absent from work because of illness.) If the employee does any work for the employer in the period for which the payment is made, no remuneration paid by such employer to such employee with respect to such period is within this exclusion from wages.

Example. Mrs. A, an employee of X, attained the age of 62 on September 15, 1956. and discontinued the performance of regular work for X on September 30, 1956 Their employment relationship continued for several years until Mrs. A's death, and X paid Mrs. A $50 per month as consideration for Mrs. A's agreement to work when asked by X. The payment for each month was made on the first day of each succeeding month. After September 30, 1956, the only work performed by Mrs. A for X was performed on one day in October 1956. The payment made by X to Mrs. A on November 1 (for October 1956) is not excluded from wages under this exception, but the payments made thereafter are excluded from wages. The payment on November 1 was not excluded because Mrs. A worked for X on 1 day in October 1956. (Inasmuch as Mrs. A had attained age 62 in September 1956, the November 1 payment would have been excluded if Mrs. A had not performed any work for X in October 1956.)

(0) Payments to certain home workers. (1) The term "wages" does not include remuneration paid by an employer in any calendar quarter to an employee for services performed as a home worker who is an employee by application of the provisions in § 404.1003 (d) (1) (11) unless the cash remuneration paid in such quarter by the employer to the employee for such services is $50 or more

(2) The test relating to cash remuneration of $50 or more is based on remuneration for employment paid in a calendar quarter rather than on remuneration earned during a calendar quarter. If $50 or more of cash remuneration for employment is paid in a particular calendar quarter, it is immaterial whether the $50 is in payment for services performed during the quarter of payment or during any other quarter.

Example 1. A, a home worker, performs services for X, a manufacturer, in 1954 and 1955. In the performance of the homework A is an employee both in 1954 and in 1955. In March 1955, A returns to X articles made by A at home from materials received by A from X in 1954. X pays A cash remuneration of $50 for such work when the finished articles are delivered. The 850 includes $10 which represents remuneration for homework performed by A in 1954. The entire $50 is wages.

Example 2. Assume that the same transactions occur, but that A is not subject in 1954 to licensing requirements under the laws of the State in which the homework is performed. A, therefore, does not perform homework in 1954 as an employee of X by reason of section 210(k) (3) (C) of the Act in effect prior to 1955, and the $10 paid in 1955 for such work is not remuneration for employment. The remaining 840 for the homework performed in 1955 is remuneration for employment, but is excluded from wages by application of the 850 cash remuneration test.

(3) In the event an employee receives remuneration in any one calendar quarter from more than one employer for services performed as a home worker of the character described in subparagraph (1) of this paragraph, the regulations in this paragraph are to be applied with respect to the remuneration received by the employee from each employer in such calendar quarter for such services.

(4) This exclusion from wages has no application to remuneration paid for service performed as a home worker who is an employee under section 210(j) (2) of the Act (see § 404.1003 (c)), relating to common-law employees.

(5) If the cash remuneration paid in any calendar quarter by an employer to an employee for services performed as a home worker of the character described in subparagraph (1) of this paragraph is $50 or more, then no remuneration, whether in cash or in any medium other than cash, paid by the employer to the employee in such calendar quarter for such services is excluded from wages un

der this exception. For meaning of the term "cash remuneration," see paragraph (1) of this section.

(6) For provisions relating to whether a home worker is an employee under section 210(k) (3) (C) of the Act in effect prior to 1955, see § 404.1003(d) (1) (iii).

(p) Tips. The term "wages" does not include remuneration received by an emloyee after December 1965 in the form of tips if:

(1) The tips are paid in any medium other than cash; or

(2) The cash tips received by an enployee in any calendar month in the course of his employment by an employer are less than $20. If the cash tips received by an employee in a calendar month after December 1965 in the course of his employment by an employer amount to $20 or more, none of the cash tips received by the employee in such calendar month are excluded from the term "wages" under this section. The cash tips to which this section applies include checks and other monetary media of exchange. Tips received by an employee in any medium other than cash, such as passes, tickets, or other goods or commodities do not constitute wages. If an employee in any calendar month performs services for two or more employers and receives tips in the course of his employment by each employer, the $20 test is to be applied separately with respect to the cash tips received by the employee in respect of his services for each employer and not to the total cash tips received by the employee during the month. As to the time tips are deemed paid, see § 404.1026(d). For provisions relating to the treatment of tips received by an employee prior to 19€6. see § 404.1027(t) (3).

(q) Payments to members of the uniformed services. (1) Except as provided in subparagraph (2) of this paragraph, the term "wages" as applied to remuneration for services by a member of the uniformed services of the United States does not include any remuneration for such services other than his basic pay as described in section 102(10) of the Servicemen's and Veterans' Survivor Benefits Act Public Law 881, 84th Cong., 38 U.S.C. 401(1), 403; 72 Stat. 1126).

(2) An individual is deemed to have been paid in each calendar quarter occurring after 1956 in which he was paid wages for service as a member of a uni

formed service, wages of $300 in addition to the wages actually paid to him for such service.

(r) Payments to "volunteers and volunteer leaders" in the Peace Corps. The term "wages" as applied to remuneration for services as a "volunteer" or "volunteer leader" enrolled under the provisions of the Peace Corps Act (P.L. 87-293, 75 Stat. 612), does not include any amount paid for such service in excess of or in addition to the amounts certified as payable pursuant to section 5(c) or 6(1) of the Peace Corps Act. Amounts certified pursuant to such sections are deemed to have been paid to such indiIvidual at the time the service, with respect to which it is paid, is performed. See § 404.1013(h) relating to coverage of such services.

(s) Moving expenses. The term "wages" does not include amounts paid to or on behalf of an employee if (and to the extent that) at the time of the payment it is reasonable to believe that a corresponding deduction is allowable under section 217 of the Internal Revenue Code of 1954 (dealing with allowances or reimbursement for moving expenses paid or incurred by the employee).

(t) Miscellaneous. In addition to the exclusions specified in paragraphs (a) through (s) of this section, the following types of payments are excluded from wages:

(1) Remuneration for services which do not constitute employment under section 210(a) of the Act;

(2) Remuneration for services which are deemed not to be employment under section 210(b) of the Act;

(3) Tips or gratuities paid, prior to January 1, 1966, directly to an employee by a customer of an employer, and not accounted for by the employee to the employer. For provisions relating to the treatment of tips received by an employee after December 31, 1965, as wages, see § 404.1026(d) and 404.1027(p).

(u) Payments by employer to survivor or estate of former employee. The term "wages" does not include any payment made after December 31, 1972, by an employer to a survivor or the estate of a former employee after the calendar year in which such employee died.

[32 FR 11077, July 29, 1967, as amended at 34 FR 19971, Dec. 20, 1969; 39 FR 21049, June 18, 1974]

§ 404.1028 Deemed wages for certain indivduals interned during World War II.

(a) In general. Except as provided in paragraph (d) of this section, an individual who was interned during any period of time from December 7, 1941, through December 31, 1946, at a place within the United States operated by the Govern.nent of the United States for the internment of the United States citizens of Japanese ancestry, is deemed to have been paid wages (in addition to the wages actually paid) as provided in paragraph (c) of this section during any period after he attained age 18 in which he was an internee. This provision is effective for determining entitlement to and the amount of any monthly benefit for months after December 1972, for determining entitlement to and the amount of any lump-sum death payment in the case of a death after such month, and for purposes of section 216(i) (3) of the Act, as amended.

(b) Information needed to process deemed wages. Unless the Secretary has previously made a determination concerning deemed wages for a period of internment of an individual, any person, including such individual, applying for a monthly benefit, a recalculation of such benefits by reason of this section, or a lump-sum death payment, must submit the following information before such benefit or payment may be computed on the basis of deemed wages under paragraph (a) of this section: The place where the individual worked prior to internment, his highest hourly wage prior to internment, the place and date of his internment, his date of birth 'if not previously furnished), whether or not he is receiving another Federal benefit based wholly or in part upon his period of internment, and, in the case of a woman, her maiden name.

(c) Amount of deemed wages. The amount of wages which may be deemed under paragraph (a) of this section, in addition to wages actually paid, is determined as follows:

(1) Where employed prior to internment. If the individual was employed prior to the beginning of the period of internment, his deemed wages are the greater of:

(i) The highest actual hourly rate of pay received by him for any employment prior to internment multiplied by 40 for each full week during such period; or

(ii) The Federal minimum hourly rate in effect for such period multiplied by 40 for each full week during such period.

(2) Where self-employed or not employed prior to internment. If the individual was self-employed or was not employed prior to the beginning of the period of internment, his deerned wages are the Federal minimum hourly rate in effect for such period multiplied by 40 for each full week during such period.

(d) When wages are not deemed. Wages are not deemed under paragraph (a) of this section:

(1) For any period prior to the quarter in which the individual attained age 18; or

(2) Where a larger benefit or payment is payable without the deemed wage credits; or

(3) Where a benefit (other than a benefit payable in a lump sum unless it is a commutation of, or a substitute for, periodic payments), based in whole or in part upon internment as specified in paragraph (a) of thi: section is determined by any agency or wholly-owned instrumentality of the United States to be payable by it under any other law of the United States or under a system established by such agency or instrumentality. However, the foregoing exception to paragraph (a) of this section does not apply for purposes of section 216(1)(3) of the Act and in cases where the failure to receive deemed wages due to such exception would reduce by 50 cents or less the primary insurance amount of the individual on whose wages and self-employment income the benefit or payment is based.

(e) Certification of internment. The certification concerning any period of time for which an individual is to receive credit under paragraph (a) of this section is made by the Secretary of Defense or his designee. Following verification of the individual's period of internment by means of such certification, wages, as provided by this section, will be deemed to have been paid to such individual.

[39 FR 34651, Sept. 27, 1974] § 404.1049

Contribution and benefit base after 1974.

(a) Method of determining contribution and benefit base (maximum creditable remuneration) after 1974. The contribution and benefit base as determined after 1974 pursuant to section 230 of the Act with respect to remuneration

paid after (and taxable years beginning after) any calendar year after 1974 for which an automatic cost-of-living increase in old-age, survivors, and disability insurance benefits is effective, is the larger of:

(1) The contribution and benent base in effect for the calendar year in which the determination of the contribution and benefit base is being made; or

(2) The amount determined by: (i) multiplying the contribution and benefit base which is in effect for the calendar year in which the determination of contribution and benefit base is being made by the ratio of:

(A) The average amount, per enployee, of the taxable wages of all emnployees as reported to the Secretary for the first calendar quarter of such calendar year, to

(B) The average amount, per employee, of the taxable wages of all employees as reported to the Secretary for the first calendar quarter of the most recent calendar year in which an increase in the contribution and benefit base was enacted or a determination resulting in such an increase was made, and (ii) rounding the result of such multiplication: (A) to the next higher multiple of $300 where such result is a multiple of $150 but not of $300, or (B) to the nearest multiple of $300 in any other case.

(b) Meaning of term “reported for the first calendar quarter". For purposes of paragraph (a) (2) of this section, "reported for the first calendar quarter" means reported for such first calendar quarter and posted to earnings records by the Secretary on or before the last day of the Social Security Administration's quarterly updating operations in September of that same year. Earnings items received or posted thereafter are not counted even though they pertain to the first quarter.

140 FR 42864, Sept. 17, 1975] SELF-EMPLOYMENT

§ 404.1050 Definition of net earnings from self-employment.

(a) Subject to the special rules set forth in §§ 404.1052 to 404.1065 inclusive, and to the exclusions set forth in § 404.1070, the term "net earnings from selfemployment" means:

(1) The gross income, as computed under subtitle A of the Internal Revenue Code of 1954, derived by an individual from any trade or business carried on by

such individual, less the deductions allowed by such subtitle which are attributable to such trade or business, plus

(2) His distributive share (whether or not distributed), as determined under section 704 of the Internal Revenue Code of 1954, of the income (or loss), described in section 702(a) (9) of such code and as computed under section 703 of such code, from any trade or business carried on by any partnership of which he is a member.

(b) With respect to taxable years to which the provisions of the Internal Revenue Code of 1954 apply, gross income derived by an individual from a trade or business includes payments received by him from a partnership of which he is a member for services rendered to the partnership or for the use of capital by the partnership, to the extent the payments are determined without regard to the income of the partnership. However, such payments received from a partnership not engaged in a trade or business within the meaning of section 211(c) of the Act and § 404.1070 do not constitute gross income derived by an individual from a trade or business. See section 707 (c) of the Internal Revenue Code of 1954, and the regulations thereunder, relating to guaranteed payments to a member of a partnership for services or the use of capital, and section 706(a) of such code, and the regulations thereunder, relating to the taxable year of the partner in which such guaranteed payments are to be included in comuting taxable income.

(c) Gross income derived by an individual from a trade or business includes gross income received (in the case of an individual reporting income on the cash receipts and disbursements method) or accrued (in the case of an individual reporting income on the accrual method) in the taxable year from a trade or business even though such income may be attributable in whole or in part to services rendered or other acts performed in a prior taxable year as to which the individual was not subject to the tax on self-employment income.

(d) (1) Pursuant to section 211(e) of the Act the term "taxable year" means:

(i) An individual's annual accounting period on the basis of which he regularly computes his income in keeping his books; or

(ii) A short period resulting from death of the individual before the ter

mination of his annual accounting period or a change of his annual accounting period.

(2) The term "annual accounting period" means either:

(1) A calendar year, consisting of 12 months ending on December 31; or

(11) A fiscal year, consisting of 12 months ending on the last day of any nonth other than December, or a period if elected pursuant to section 441 of the Internal Revenue Code of 1954, varying from 52 to 53 weeks and always ending on the same day of the week last occurring in a calendar month or nearest the last day of such calendar month.

(3) An individual's taxable year for the purpose of computing self-employment income shall be the same as his taxable year for the purposes of subtitle A of the Internal Revenue Code of 1954 (relating to income taxes; and, pursuant to the provisions of section 441(g) of such subtitle, such taxable year shall be (except in the case of a short period as described in paragraph (d) (1) (ii) of this section) a calendar year if:

(i) The individual keeps no books; (ii) The individual has no annual accounting period; or

(iii) The individual has an annual accounting period which differs from the definition of fiscal year as set forth in paragraph (d) (2) (11) of this section. [34 F.R. 58, Jan. 3, 1969]

§ 404.1051 General rule for computation of net earnings from selfemployment.

(a) Determining net earnings. In general, the gross income and deductions of an individual attributable to a trade or business (including a trade or business conducted by an employee referred to in § 404.1070 (c) (2), (3), (4), and (e)) for the purpose of ascertaining his net earnings from self-employment, are to be determined by reference to the provisions of law and regulations applicable with respect to the taxes imposed by sections 1 and 3 of the Internal Revenue Code of 1954. Thus, if an individual uses the accrual method of accounting in computing taxable income from a trade or business for the purpose of the tax imposed by such sections, he must use the same method in determining net earnings from self-employment. Likewise, if a taxpayer engaged in a trade or business of selling property on the installment plan elects, under the provisions of section 453 of the Internal Revenue

Code of 1954, to use the installment method in computing income for purposes of the tax under section 1 or 3 of the Internal Revenue Code of 1954, he must use the same method in determining net earnings from self-employment. Income which is excludable from gross income under any provision of subtitle A of the Internal Revenue Code of 1954 18 not taken into account in determining net earnings from self-employment except as otherwise provided in § 404.1059. relating to certain residents of Puerto Rico, in 404.1061, relating to ministers or members of religious orders, and in § 404.1063, relating to the term "possession of the United States." Thus, in the case of a citizen of the United States conducting, in a foreign country, a trade or business in which both personal services and capital are material income-producing factors, any part of the income therefrom which is excluded from gross income as earned income under the provisions of section 911 of the Internal Revenue Code of 1954 and the regulations thereunder is not taken into account in determining net earnings from selfemployment.

(b) Trade or business carried on. The trade or business must be carried on by the individual, either personally or through agents or employees. Accordingly, income derived from a trade or business carried on by an estate or trust is not included in determining the net earnings from self-employment of the individual beneficiaries of such estate or trust.

(c) Aggregate net earnings. Where an individual is engaged in more than one trade or business within the meaning of section 211(c) of the Act and 8404.1070, his net earnings from selfemployment consist of the aggregate of the net income and losses (computed subject to the special rules provided in §§ 404.1050 to 404.1065, inclusive) of all such trades or businesses carried on by him. Thus, a loss sustained in one trade or business carried on by an individual will operate to offset the income derived by him from another trade or business.

(d) Partnerships. The net earnings from self-employment of an individual include, in addition to the earnings from a trade or business carried on by him, his distributive share of the income or loss, described in section 702 (a) (9) of the Internal Revenue Code of 1954, from any trade or business carried on by each partnership of which he is a member.

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