Title 20—Employees' Benefits--Volume 1
PART 404—FEDERAL OLD-AGE, SURVIVORS AND DISABILITY INSURANCE (1950-  )
§ 404.1020   Work for States and their political subdivisions and instrumentalities.
(a) General. If you work as an employee of a State, a political subdivision of a State, or any wholly owned instrumentality of one or more of these, your work is excluded from employment unless—
(1) The work is covered under an agreement under section 218 of the Act (see subpart M of this part); or
(2) The work is covered transportation service as defined in section 210(k) of the Act (see paragraph (c) of this section).
(3) You perform services after July 1, 1991, as an employee of a State (other than the District of Columbia, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa), a political subdivision of a State, or any wholly owned instrumentality of one or more of the foregoing and you are not a member of a retirement system of such State, political subdivision, or instrumentality. Retirement system has the meaning given that term in section 218(b)(4) of the Act, except as provided in regulations prescribed by the Secretary of the Treasury. This paragraph does not apply to services performed—
(i) As an employee employed to relieve you from unemployment;
(ii) In a hospital, home, or other institution where you are a patient or inmate thereof;
(iii) As an employee serving on a temporary basis in case of fire, storm, snow, earthquake, flood, or other similar emergency;
(iv) As an election official or election worker if the remuneration paid in a calendar year for such service prior to 1995 is less than $100, or less than $1000 for service performed in any calendar year after 1994 and before 2000, or, for service performed in any calendar year after 1999, less than the $1000 base amount, as adjusted pursuant to section 218(c)(8)(B) of the Social Security Act to reflect changes in wages in the economy. We will publish this adjustment of the $1000 base amount in the Federal Register on or before November 1 preceding the year for which the adjustment is made.
(v) As an employee in a position compensated solely on a fee basis which is treated, pursuant to section 211(c)(2)(E) of the Act, as a trade or business for purposes of inclusion of the fees in net earnings from self-employment; or
(4) The work is covered under § 404.1021 or § 404.1022.
(b) Medicare qualified government employment. Notwithstanding the provisions of paragraph (a) of this section, your work may be covered as Medicare qualified government employment (see § 404.1018b(c) of this subpart).
(c) Covered transportation service —(1) Work for a public transportation system. If you work for a public transportation system of a State or political subdivision of a State, your work may be covered transportation service if all or part of the system was acquired from private ownership. You must work as an employee of the State or political subdivision in connection with its operation of a public transportation system for your work to be covered transportation service. This paragraph sets out additional conditions that must be met for your work to be covered transportation service. If you work for a public transportation system but your work is not covered transportation service, your work may be covered for social security purposes under an agreement under section 218 of the Act (see subpart M of this part).
(2) Transportation system acquired in whole or in part after 1936 and before 1951. All work after 1950 for a public transportation system is covered transportation service if—
(i) Any part of the transportation system was acquired from private ownership after 1936 and before 1951; and
(ii) No general retirement system covering substantially all work in connection with the operation of the transportation system and guaranteed by the State constitution was in effect on December 31, 1950.
(3) Transportation system operated on December 31, 1950, no part of which was acquired after 1936 and before 1951. If no part of a transportation system operated by a State or political subdivision on December 31, 1950, was acquired from private ownership after 1936 and before 1951, work for that public transportation system is not covered transportation service unless performed under conditions described in paragraph (b)(4) of this section.
(4) Addition after 1950 to existing transportation system. Work for a public transportation system part of which was acquired from private ownership after 1950 as an addition to an existing transportation system is covered transportation service beginning with the first day of the third calendar quarter following the calendar quarter in which the addition was acquired if—
(i) The work is performed by an employee who—
(A) Worked in employment in connection with the operation of the addition before the addition was acquired by the State or political subdivision; and
(B) Became an employee of the State or political subdivision in connection with and at the time of its acquisition of the addition;
(ii) On that first day, work performed by that employee is—
(A) Not covered by a general retirement system; or
(B) Covered by a general retirement system which contains special provisions that apply only to employees described in paragraph (c)(4)(i)(B) of this section;
(iii) The existing transportation system was operated by the State or political subdivision on December 31, 1950; and
(iv) Work for the existing transportation system was not covered transportation service because—
(A) No part of the system was acquired from private ownership after 1936 and before 1951; or
(B) The general retirement system described in paragraph (c)(2)(ii) of this section was in effect on December 31, 1950.
(5) Transportation system acquired after 1950. All work for a public transportation system is covered transportation service if—
(i) The transportation system was not operated by the State or political subdivision before 1951;
(ii) All or part of the transportation system was first acquired from private ownership after 1950; and
(iii) At the time the State or political subdivision first acquired any part of its transportation system from private ownership, it did not have a general retirement system covering substantially all work performed in connection with the operation of the transportation system.
(6) Definitions. (i) The term general retirement system means any pension, annuity, retirement, or similar fund or system established by a State or by a political subdivision of a State for employees of the State, the political subdivision, or both. The term does not include a fund or system which covers only work performed in positions connected with the operation of the public transportation system.
(ii) A transportation system (or part of a system) is considered to have been acquired from private ownership by a State or political subdivision if—
(A) Before the acquisition, work performed by employees in connection with the operation of the system (or an acquired part) constituted employment under the Act; and
(B) Some of these employees became employees of the State or political subdivision in connection with and at the time of the acquisition.
(iii) The term political subdivision includes an instrumentality of a State, of one or more political subdivisions of a State, or of a State and one or more of its political subdivisions.
§ 404.1021   Work for the District of Columbia.
If you work as an employee of the District of Columbia or a wholly owned instrumentality of the District of Columbia, your work is covered as employment unless—
(a) Your work is covered by a retirement system established by a law of the United States; or
(b) You are—
(1) A patient or inmate of a hospital or penal institution and your work is for that hospital or institution;
(2) A student employee (a student nurse, dietitian, or physical or occupational therapist, but not a medical or dental intern or resident in training) of a District of Columbia hospital, clinic, or medical or dental laboratory;
(3) An employee serving temporarily in case of fire, storm, snow, earthquake, flood, or other similar emergency; or
(4) A member of a board, committee, or council of the District of Columbia paid on a per diem, meeting, or other fee basis.
(c) Medicare qualified government employment. If your work is not covered under Social Security, it may be covered as Medicare qualified government employment (see § 404.1018b(c) of this subpart).
§ 404.1022   American Samoa, Guam, or the Commonwealth of the Northern Mariana Islands.
(a) Work in American Samoa, Guam, or the Commonwealth of the Northern Mariana Islands. Work in American Samoa, Guam, or the Commonwealth of the Northern Mariana Islands for a private employer is covered as employment the same as in the 50 States. Work done by a resident of the Republic of the Philippines working in Guam on a temporary basis as a nonimmigrant alien admitted to Guam under section 101(a)(15)(H)(ii) of the Immigration and Nationality Act is excluded from coverage regardless of the employer.
(b) Work for American Samoa or a political subdivision or wholly owned instrumentality of American Samoa. Work as an officer or employee (including a member of the legislature) of the government of American Samoa, its political subdivisions, or any wholly owned instrumentality of any one or more of these, is covered as employment (unless the work is covered by a retirement system established by a law of the United States). The officer or employee is not considered as an employee of the United States, an agency of the United States, or an instrumentality of the United States, for purposes of title II of the Act. We consider any pay for this work to have been paid by the government of American Samoa, or the political subdivision or the wholly owned instrumentality of American Samoa.
(c) Work for Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or a political subdivision or wholly owned instrumentality of Guam or the CNMI. Work as an officer or employee (including a member of the legislature) of the government of the CNMI, its political subdivisions, or any wholly owned instrumentality of any one or more of these, is covered as employment beginning October 1, 2012. Work as an officer or employee (including a member of the legislature) of the government of Guam, its political subdivisions, or any wholly owned instrumentality of any one or more of these, is excluded from coverage as employment. However, the exclusion does not apply to employees classified as temporary or intermittent unless the work is—
(1) Covered by a retirement system established by a law of Guam or the CNMI;
(2) Done by an elected official;
(3) Done by a member of the legislature; or
(4) Done in a hospital or penal institution by a patient or inmate of the hospital or penal institution.
(d) Medicare qualified government employment. If your work is not covered under Social Security, it may be covered as Medicare qualified government employment (see § 404.1018b(c) of this subpart).
§ 404.1023   Ministers of churches and members of religious orders.
(a) General. If you are a duly ordained, commissioned, or licensed minister of a church, the work you do in the exercise of your ministry is excluded from employment. However, it is treated as self-employment for social security purposes. If you are a member of a religious order who has not taken a vow of poverty, the same rule applies to the work you do in the exercise of your duties required by that order. If you are a member of a religious order who has taken a vow of poverty, the work you do in the exercise of duties required by the order (the work may be done for the order or for another employer) is covered as employment only if the order or autonomous subdivision of the order to which you belong has filed an effective election of coverage. The election is made under section 3121(r) of the Code. For the rules on self-employment coverage of ministers and members of religious orders who have not taken vows of poverty, see § 404.1071.
(b) What is an ordained, commissioned, or licensed minister. The terms ordained, commissioned, or licensed describe the procedures followed by recognized churches or church denominations to vest ministerial status upon qualified individuals. If a church or church denomination has an ordination procedure, the commissioning or licensing of a person as a minister may not make him or her a commissioned or licensed minister for purposes of this subpart. Where there is an ordination procedure, the commissioning or licensing must be recognized as having the same effect as ordination and the person must be fully qualified to exercise all of the ecclesiastical duties of the church or church denomination.
(c) When is work by a minister in the exercise of the ministry. (1) A minister is working in the exercise of the ministry when he or she is—
(i) Ministering sacerdotal functions or conducting religious worship (other than as described in paragraph (d)(2) of this section); or
(ii) Working in the control, conduct, and maintenance of a religious organization (including an integral agency of a religious organization) under the authority of a religious body constituting a church or church denomination.
(2) The following rules are used to decide whether a minister's work is in the exercise of the ministry:
(i) Whether the work is the conduct of religious worship or the ministration of sacerdotal functions depends on the tenets and practices of the religious body which is his or her church or church denomination.
(ii) Work in the control, conduct, and maintenance relates to directing, managing, or promoting the activities of the religious organization. Any religious organization is considered to be under the authority of a religious body constituting a church or church denomination if it is organized and dedicated to carrying out the tenets and principles of a faith according to either the requirements or sanctions governing the creation of institutions of the faith.
(iii) If a minister is working in the conduct of religious worship or the ministration of sacerdotal functions, the work is in the exercise of the ministry whether or not it is performed for a religious organization. (See paragraph (d)(2) of this section for an exception to this rule.)
(iv) If a minister is working for an organization which is operated as an integral agency of a religious organization under the authority of a religious body constituting a church or church denomination, all work by the minister in the conduct of religious worship, in the ministration of sacerdotal functions, or in the control, conduct, and maintenance of the organization is in the exercise of the ministry.
(v) If a minister, under an assignment or designation by a religious body constituting a church, works for an organization which is neither a religious organization nor operated as an integral agency of a religious organization, all service performed by him or her, even though the service may not involve the conduct of religious worship or the ministration of sacerdotal functions, is in the exercise of the ministry.
(vi) If a minister is working for an organization which is neither a religious organization nor operated as an integral agency of a religious organization and the work is not performed under an assignment or designation by ecclesiastical superiors, then only the work done by the minister in the conduct of religious worship or the ministration of sacerdotal functions is in the exercise of the ministry. (See paragraph (d)(2) of this section for an exception to this rule.)
(d) When is work by a minister not in the exercise of the ministry. (1) Work performed by a duly ordained, commissioned, or licensed minister of a church which is not in the exercise of the ministry is not excluded from employment.
(2) Work performed by a duly ordained, commissioned, or licensed minister of a church as an employee of the United States, or a State, territory, or possession of the United States, or the District of Columbia, or a foreign government, or a political subdivision of any of these, is not in the exercise of the ministry, even though the work may involve the ministration of sacerdotal functions or the conduct of religious worship. For example, we consider service performed as a chaplain in the Armed Forces of the United States to be work performed by a commissioned officer and not by a minister in the exercise of the ministry. Also, service performed by an employee of a State as a chaplain in a State prison is considered to be performed by a civil servant of the State and not by a minister in the exercise of the ministry.
(e) Work in the exercise of duties required by a religious order. Work performed by a member of a religious order in the exercise of duties required by the order includes all duties required of the member of the order. The nature or extent of the work is immaterial so long as it is service which the member is directed or required to perform by the member's ecclesiastical superiors.
§ 404.1024   Election of coverage by religious orders.
A religious order whose members are required to take a vow of poverty, or any autonomous subdivision of that religious order, may elect to have social security coverage extended to the work performed by its members in the exercise of duties required by that order or subdivision. The rules on the election of coverage by these religious orders are described in 26 CFR 31.3121(r). The rules on determining the wages of members of religious orders for which an election of coverage has been made are described in § 404.1046.
§ 404.1025   Work for religious, charitable, educational, or certain other organizations exempt from income tax.
(a) After 1983. Work done after 1983 by an employee in the employ of a religious, charitable, educational, or other organization described in section 501(c)(3) of the Code which is exempt from income tax under section 501(a) of the Code is covered as employment unless the work is for a church or church-controlled organization that has elected to have services performed by its employees excluded (see § 404.1026). (See § 404.1059(b) for special wage rule.)
(b) Before 1984. Work described in paragraph (a) of this section which was done before 1984 is excluded from employment. However, the exclusion does not apply to work done during the period for which a form SS-15, Certificate Waiving Exemption From Taxes Under the Federal Insurance Contributions Act, was filed (or was deemed to have been filed) with the Internal Revenue Service.
§ 404.1026   Work for a church or qualified church-controlled organization.
(a) General. If you work for a church or qualified church-controlled organization, as described in this section, your employer may elect to have your services excluded from employment. You would then be considered to be self-employed and special conditions would apply to you. See § 404.1068(f) for those special conditions. The employer's election of the exclusion must be made with the Internal Revenue Service in accordance with Internal Revenue Service procedures and must state that the church or church-controlled organization is opposed for religious reasons to the payment of Social Security employment taxes. The exclusion applies to current and future employees. If you work in an unrelated trade or business (within the meaning of section 513(a) of the Code) of the church or church-controlled organization, the exclusion does not apply to your services.
(b) What is a church. For purposes of this section the term church means a church, a convention or association of churches, or an elementary or secondary school which is controlled, operated, or principally supported by a church or by a convention or association of churches.
(c) What is a qualified church-controlled organization. For purposes of this section the term qualified church-controlled organization means any church-controlled organization exempt from income tax under section 501(c)(3) of the Code but does not include an organization which:
(1) Offers goods, services, or facilities for sale to the general public, other than on an incidental basis, or for other than a nominal charge which is substantially less than the cost of providing such goods, services, or facilities; and
(2) Normally receives more than 25 percent of its support from either governmental sources or receipts from admissions, sales of merchandise, performance of services or furnishing of facilities other than in an unrelated trade or business, or both.
§ 404.1027   Railroad work.
We exclude from employment any work you do as an employee or employee representative as described in the Railroad Retirement Tax Act. However, railroad compensation can be counted for social security purposes under the conditions described in subpart O of this part.
§ 404.1028   Student working for a school, college, or university.
(a) For purposes of this section, a school, college, or university has its usual accepted meaning. It does not, however, include any school, college, or university that is an instrumentality or integral part of a State or a political subdivision of a State for which work can only be covered by an agreement under section 218 of the Act. (See subpart M of this part.)
(b) If you are a student, any work you do as an employee of a school, college or university is excluded from employment, if you are enrolled in and regularly attending classes at that school, college, or university. The exclusion also applies to work you do for a private nonprofit auxiliary organization of the school, college, or university if it is organized and operated exclusively for the benefit of, to perform functions of, or to carry out the purposes of the school, college, or university. The organization must be operated, supervised, or controlled by, or in connection with, the school, college, or university.
(c) Whether you are a student for purposes of this section depends on your relationship with your employer. If your main purpose is pursuing a course of study rather than earning a livelihood, we consider you to be a student and your work is not considered employment.
§ 404.1029   Student nurses.
If you are a student nurse, your work for a hospital or nurses training school is excluded from employment if you are enrolled and regularly attending classes in a nurses training school which is chartered or approved under State law.
§ 404.1030   Delivery and distribution or sale of newspapers, shopping news, and magazines.
(a) If you are under age 18. Work you do before you reach age 18 delivering or distributing newspapers or shopping news is excluded from employment. This does not include delivery or distribution to some point for further delivery or distribution by someone else. If you make house-to-house delivery or sale of newspapers or shopping news (including handbills and similar kinds of advertising material), your work is not covered while you are under age 18. Related work such as assembling newspapers is also excluded.
(b) If you are any age. No matter how old you are, work you do in connection with and at the time of the sale of newspapers or magazines to consumers is excluded from employment if there is an arrangement under which—
(1) You are to sell the newspapers or magazines at a fixed price; and
(2) Your pay is the difference between the fixed selling price and the amount you are charged for the newspapers or magazines (whether or not you are guaranteed a minimum amount of compensation or receive credit for unsold newspapers or magazines).
(c) If you are age 18 or older. If you have attained age 18, you are self-employed if you work under the arrangement described in paragraph (b) of this section. See § 404.1068(b).
§ 404.1031   Fishing.
(a) If you work on a boat engaged in catching fish or other forms of aquatic animal life, your work is not employment if you have an arrangement with the owner or operator of the boat which provides for all of the following:
(1) You do not receive any cash pay (other than as provided in paragraph (a)(2) of this section).
(2) You receive a share of the catch or a share of the proceeds from the sale of the catch.
(3) The amount of your share depends on the size of the catch.
(4) The operating crew of the boat (or each boat from which you receive a share if the fishing operation involves more than one boat) is normally made up of fewer than 10 individuals.
(b) Work excluded from employment under this section is considered to be self-employment (§ 404.1068(e)).
§ 404.1032   Work for a foreign government.
If you work as an employee of a foreign government in any capacity, your work is excluded from employment. If you are a citizen of the United States and work in the United States as an employee of a foreign government, you are considered to be self-employed (§ 404.1068(d)).
§ 404.1033   Work for a wholly owned instrumentality of a foreign government.
(a) If you work as an employee of an instrumentality of a foreign government, your work is excluded from employment if—
(1) The instrumentality is wholly owned by the foreign government;
(2) Your work is similar to work performed in foreign countries by employees of the United States Government or its instrumentalities; and
(3) The Secretary of State certifies to the Secretary of the Treasury that the foreign government grants an equivalent exemption for services performed in the foreign country by employees of the United States Government or its instrumentalities.
(b) Your work will not be excluded under this section if any of the conditions in paragraph (a) of this section are not met.
(c) If you are a citizen of the United States and work in the United States as an employee of an instrumentality of a foreign government and the conditions in paragraph (a) of this section are met, you are considered to be self-employed (§ 404.1068(d)).
§ 404.1034   Work for an international organization.
(a) If you work as an employee of an international organization entitled to enjoy privileges, exemptions, and immunities as an international organization under the International Organizations Immunities Act (59 Stat. 669), your work is excluded from employment except as described in paragraphs (b) and (c) of this section. The organization must meet the following conditions:
(1) It must be a public international organization in which the United States participates under a treaty or authority of an act of Congress authorizing, or making an appropriation for, participation.
(2) It must be designated by executive order to be entitled to enjoy the privileges, exemptions, and immunities provided in the International Organizations Immunities Act.
(3) The designation must be in effect, and all conditions and limitations in the designation must be met.
(b) Your work will not be excluded under this section if any of the conditions in paragraph (a) of this section are not met.
(c) Your work performed after December 31, 1994 will not be excluded under this section if you perform service in the employ of an international organization pursuant to a transfer from a Federal agency under section 3582 of title 5 of the United States Code and
(1) Immediately before such transfer you performed service with a Federal agency which was covered as employment; and
(2) You would be entitled, upon separation from the international organization and proper application, to reemployment with the Federal agency under section 3582.
(d) If you are a citizen of the United States and work in the United States as an employee of an international organization that meets the conditions in paragraph (a) of this section and you are not subject to coverage based on paragraph (c) of this section, you are considered to be self-employed (§ 404.1068(d)).
§ 404.1035   Work for a communist organization.
If you work as an employee of an organization which is registered, or which is required by a final order of the Subversive Activities Control Board to register under the Internal Security Act of 1950 as a communist action, communist-front, or communist-infiltrated organization, your work is excluded from employment. The exclusion is effective with the calendar year in which the organization is registered or the final order is in effect.
§ 404.1036   Certain nonresident aliens.
(a) Foreign students. (1) Foreign students (nonimmigrant aliens) may be temporarily in the United States under subparagraph (F) of section 101(a)(15) of the Immigration and Nationality Act to attend a school or other recognized place of study approved by the Attorney General. On-campus work or work under permission granted by the Immigration and Naturalization Service which is done by these students is excluded from employment. Other work done by these foreign students is not excluded from employment under this section.
(2) Foreign students (nonimmigrant aliens) may be temporarily in the United States under subparagraph (M) of section 101(a)(15) of the Immigration and Nationality Act to pursue a vocational or nonacademic technical education approved by the Attorney General. Work done by these students to carry out the purpose for which they were admitted is excluded from employment. Other work done by these foreign students is not excluded from employment under this section.
(b) Exchange visitors. (1) Exchange visitors (nonimmigrant aliens) may be temporarily in the United States under subparagraph (J) of section 101(a)(15) of the Immigration and Nationality Act to participate in exchange visitor programs designated by the Director of the United States Information Agency. Work done by these exchange visitors to carry out the purpose for which they were admitted and for which permission has been granted by the sponsor, is excluded from employment. Other work done by these exchange visitors is not excluded from employment under this section.
(2) Exchange visitors (nonimmigrant aliens) may be temporarily in the United States under subparagraph (Q) of section 101(a)(15) of the Immigration and Nationality Act to participate in an international cultural exchange program approved by the Attorney General. Effective October 1, 1994, work done by these exchange visitors to carry out the purpose for which they were admitted is excluded from employment. Other work done by these exchange visitors is not excluded from employment under this section.
(c) Spouse and children. Work done by a foreign student's or exchange visitor's alien spouse or minor child who is also temporarily in the United States under subparagraph (F), (J), (M), or (Q) of section 101(a)(15) of the Immigration and Nationality Act is not excluded from employment under this section unless that spouse or child and the work that is done meets the conditions of paragraph (a) or (b) of this section.
§ 404.1037   Work on or in connection with a non-American vessel or aircraft.
If you work as an employee within the United States on or in connection with (as explained in § 404.1004(b)(8)) a vessel or aircraft that is not an American vessel (as defined in § 404.1004(b)(3)) or American aircraft (as defined in § 404.1004(b)(2)), your work is excluded from employment if—
(a) You are not a citizen of the United States or your employer is not an American employer (as defined in § 404.1004(b)(1)); and
(b) You are employed on and in connection with (as explained in § 404.1004(b)(7)) the vessel or aircraft when outside the United States.
§ 404.1038   Domestic employees under age 18.
Domestic services you perform in a private home of your employer are excluded from employment, regardless of the amount earned, in any year in which you are under age 18 if domestic service is not your principal occupation. The exclusion applies to the entire year if you are under age 18 in any part of the year. See § 404.1057.
§ 404.1039   Employers (including partnerships) and employees who are both members of certain religious groups opposed to insurance.
(a) You and your employer (or, if the employer is a partnership, each of its partners) may file applications with the Internal Revenue Service for exemption from your respective shares of the Federal Insurance Contributions Act taxes on your wages paid by that employer if you and your employer (or, if the employer is a partnership, each of its partners)—
(1) Are members of a recognized religious sect or division of the sect; and
(2) Adhere to the tenets or teachings of the sect or division of the sect and for that reason are conscientiously opposed to receiving benefits from any private or public insurance that—
(i) Makes payment in the event of death, disability, old-age, or retirement; or
(ii) Makes payment for the cost of, or provides services for, medical care including the benefits of any insurance system established by the Act.
(b) Both your application and your employer's application (or, if your employer is a partnership, each partner's application) must be filed with and approved by the Internal Revenue Service pursuant to section 3127 of the Internal Revenue Code. An application must contain or be accompanied by the applicant's waiver of all benefits and payments under title II and part A of title XVIII of the Act. See § 404.305 for the effect of the filing of the waiver and the granting of the exemption.
(c) Regardless of whether the applicant meets all these conditions, the application will not be approved unless we find that—
(1) The sect or division of the sect has established tenets or teachings which cause the applicant to be conscientiously opposed to the types of insurance benefits described in paragraph (a)(2) of this section; and
(2) For a substantial period of time it has been the practice for members of the sect or division of the sect to make provision for their dependent members that is reasonable in view of their general level of living; and
(3) The sect or division of the sect has been in existence continuously since December 31, 1950.
(d) An application for exemption will be approved by the Internal Revenue Service only if no benefit or payment under title II or part A of title XVIII of the Act became payable (or, but for section 203 or section 222(b) of the Act, would have become payable) to the applicant at or before the time of the filing of the application for exemption.
(e) The tax exemption ceases to be effective with respect to wages paid beginning with the calendar quarter in which either the employer (or if the employer is a partnership, any of its partners) or the employee involved does not meet the requirements of paragraph (a) of this section or the religious sect or division of the sect is found by us to no longer meet the requirements of paragraph (c) of this section. If the tax exemption ceases to be effective, the waiver of the right to receive Social Security and Medicare Part A benefits will also no longer be effective. Benefits may be payable based upon the wages of the individual, whose exempt status was terminated, for and after the calendar year following the calendar year in which the event occurred upon which the cessation of the exemption is based. Benefits may be payable based upon the self-employment income of the individual whose exempt status was terminated for and after the taxable year in which the event occurred upon which the cessation of the exemption is based.
§ 404.1041   Wages.
(a) The term wages means remuneration paid to you as an employee for employment unless specifically excluded. Wages are counted in determining your entitlement to retirement, survivors', and disability insurance benefits.
(b) If you are paid wages, it is not important what they are called. Salaries, fees, bonuses and commissions on sales or on insurance premiums are wages if they are remuneration paid for employment.
(c) The way in which you are paid is unimportant. Wages may be paid on the basis of piecework or a percentage of the profits. Wages may be paid on an hourly, daily, weekly, monthly, or yearly basis. (See § 404.1056 for special rules for agricultural labor.)
(d) Your wages can be in any form. You can be paid in cash or something other than cash, for example, in goods or clothing. (See paragraphs (e) and (f) of this section for kinds of employment where cash payments alone are considered wages and § 404.1043(b) concerning the value of meals and lodging as wages.) If your employer pays you cash for your meals and lodging on a regular basis as part of your employment, these payments may be considered wages. Payments other than cash may be counted as wages on the basis of the fair value of the items when paid.
(e) In certain kinds of employment, cash payments alone count as wages. These types of employment are agricultural labor, domestic services, and services not in the course of the employer's trade or business.
(f) To count as wages, payments for services performed by home workers who are employees as described in § 404.1008(d) must be in cash and must amount to $100 or more in a calendar year. Once this cash pay test is met, all remuneration paid, whether in cash or kind, is also wages.
§ 404.1042   Wages when paid and received.
(a) In general. Wages are received by an employee at the time they are paid by the employer to the employee. Wages are paid by an employer at the time that they are actually or constructively paid unless they are deemed to be paid later (as described in paragraph (c)(3) of this section).
(b) Constructive payment. Wages are constructively paid when they are credited to the account of, or set aside for, an employee so that they may be drawn upon by the employee at any time although not then actually received. To be a payment—
(1) The wages must be credited to or set aside for the employee and must be made available without restriction so that they may be drawn upon at any time; or
(2) The employer must intend to pay or to set aside or credit, and have the ability to pay wages when due to the employee, and failure of the employer to credit or set aside the wages is due to clerical error or mistake in the mechanics of payment, and because of the clerical error or mistake the wages are not actually available at that time.
(c) Deemed payment. (1) The first $100 of cash paid, either actually or constructively, by an employer to an employee in a calendar year is considered paid at the time that the amount of the cash payment totals $100 for the year in the case of pay for—
(i) Work not in the course of the employer's trade or business (non-business work);
(ii) Work by certain home workers; and
(iii) Work for an organization exempt from income tax under section 501 of the Code.
(2) We also apply this rule to domestic work in a private home of the employer, except see § 404.1057(a)(1) for the applicable dollar amount.
(3) Cash of less than $150 that an employer pays to an employee in a calendar year, either actually or constructively, for agricultural labor is considered paid at the earliest of—
(i) The time in the calendar year that the employee's pay totals $150; or
(ii) The 20th day of the calendar year on which the employee works for cash pay computed on a time basis.
(4) If an employer pays cash to an employee for two or more of the kinds of work referred to in paragraph (c)(1) of this section, we apply the provisions of this paragraph to the pay for each kind of work.
(d) Employee tax deductions. We consider employee tax deductions under section 3101 of the Code to be part of the employee's wages and consider them to be paid at the time of the deduction. We consider other deductions from wages to be wages paid at the time of the deduction. It is immaterial that the deductions are required or permitted by an act of Congress or the law of any State.
(e) Tips. (1) Tips received by an employee in the course of employment, that are considered to be wages, are deemed to be paid at the time the employee reports the tips to the employer in a written statement as provided under section 6053(a) of the Code. Tips that are not reported are deemed to be paid to the employee at the time they are received by the employee.
(2) We consider tips to be received in the course of employment whether they are received by the employee from the employer or from another person. Only tips employees receive and keep for themselves are considered to be the employees' pay. If employees split tips, each employee who receives part of the tip receives tips in the course of employment.
(f) Payments under nonqualified deferred compensation plans. Amounts that an employee is entitled to receive under nonqualified deferred compensation plans (plans that do not qualify for special tax treatment under the Code) are creditable as wages for Social Security purposes at the later of the following times:
(1) When the services are performed; or
(2) When there is no longer a substantial risk of forfeiture (as defined in section 83 of the Code) of the employee's rights to the deferred compensation.
§ 404.1043   Facilities or privileges—meals and lodging.
(a) Excluding the value of employer provided facilities or privileges from employee gross income prior to January 1, 1985. (1) Generally, the facilities or privileges that an employer furnished an employee prior to January 1, 1985 are not wages if the facilities or privileges—
(i) Were of relatively small value; and
(ii) Were offered or furnished by the employer merely as a means of promoting the health, good will, contentment, or efficiency of the employees.
(2) The term facilities or privileges for the period prior to January 1, 1985 is intended to include such items as entertainment, medical services, and so-called courtesy discounts on purchases.
(b) Meals and lodging. The value of the meals and lodging furnished to an employee by an employer for reasons of the employer's convenience is not wages if—
(1) The meals are provided at the employer's place of business; and
(2) The employee, in the case of lodging, is required to accept lodging on the employer's business premises as a condition of employment.
§ 404.1044   Vacation pay.
We consider your salary while on vacation, or a vacation allowance paid by your employer, to be wages.
§ 404.1045   Employee expenses.
Amounts that your employer pays you specifically—either as advances or reimbursements—for traveling or for other ordinary and necessary expenses incurred, or reasonably expected to be incurred, in your employer's business are not wages. The employer must identify these travel and other expenses either by making a separate payment or by specifically stating the separate amounts if both wages and expense allowances are combined in a single payment.
§ 404.1046   Pay for work by certain members of religious orders.
(a) If you are a member of a religious order who has taken a vow of poverty (§ 404.1023), and the order has elected Social Security coverage under section 3121(r) of the Code, your wages are figured in a special way. Your wages, for Social Security purposes, are the fair market value of any board, lodging, clothing, and other items of value furnished to you by the order, or furnished to the order on your behalf by another organization or person under an agreement with the order. See paragraph (b) of this section if you perform services for a third party. The order must report at least $100 a month for each active member. If the fair market value of items furnished to all members of a religious order does not vary significantly, the order may consider all members to have a uniform wage.
(b) If you perform services for a third party, the following rules apply:
(1) If you perform services for another agency of the supervising church or an associated institution, any amounts paid based on such services, whether paid directly to you or to the order, do not count on wages. Only wages figured under (a) above, are counted.
(2) If you perform services in a secular setting as an employee of a third party not affiliated or associated with the supervising church or an associated institution, any amounts paid based on such services, whether paid directly to you or to the order, count as wages paid to you by the third party. These wages are in addition to any wages counted under paragraph (a) of this section.
§ 404.1047   Annual wage limitation.
Payments made by an employer to you as an employee in a calendar year that are more than the annual wage limitation are not wages. The annual wage limitation is:
§ 404.1048   Contribution and benefit base after 1992.
(a) General. The contribution and benefit base after 1992 is figured under the formula described in paragraph (b) of this section in any calendar year in which there is an automatic cost-of-living increase in old-age, survivors, and disability insurance benefits. For purposes of this section, the calendar year in which the contribution and benefit base is figured is called the determination year. The base figured in the determination year applies to wages paid after (and taxable years beginning after) the determination year.
(b) Formula for figuring the contribution and benefit base. For wages paid after (and taxable years beginning after) the determination year, the contribution and benefit base is the larger of—
(1) The contribution and benefit base in effect for the determination year; or
(2) The amount determined by—
(i) Multiplying the contribution and benefit base in effect for the determination year by the ratio of—
(A) The average of the total wages (as described in paragraph (c) of this section) reported to the Secretary of the Treasury for the calendar year before the determination year to
(B) The average of the total wages reported to the Secretary of the Treasury for the calendar year before the most recent calendar year in which an increase in the contribution and benefit base was enacted or a determination under this section resulting in an increase of the base was made; and
(ii) Rounding the result of the multiplication, if not a multiple of $300, to—
(A) The nearest multiple of $300; or
(B) The next higher multiple of $300 if the result is a multiple of $150.
(c) Average of the total wages. The average of the total wages means the amount equal to all remuneration reported as wages on Form W-2 to the Internal Revenue Service for all employees for income tax purposes plus contributions to certain deferred compensation plans described in section 209(k) of the Social Security Act (also reported on Form W-2), divided by the number of wage earners. If both distributions from and contributions to any such deferred compensation plan are reported on Form W-2, we will include only the contributions in the calculation of the average of the total wages. The reported remuneration and deferred compensation contributions include earnings from work not covered under social security and earnings from work covered under social security that are more than the annual wage limitation described in § 404.1047.
§ 404.1049   Payments under an employer plan or system.
(a) Payments to, or on behalf of, you or any of your dependents under your employer's plan or system are excluded from wages if made because of your or your dependents'—
(1) Medical or hospitalization expenses connected with sickness or accident disability; or
(2) Death, except that the exclusion does not apply to payments for group-term life insurance to the extent that the payments are includible in the gross income of the employee under the Internal Revenue Code of 1986, effective with respect to group-term life insurance coverage in effect after 1987 for employees whose employment, for the employer (or successor of that employer) providing the insurance coverage, does not end prior to 1989. Such payments are wages, however, if they are for coverage for an employee who was separated from employment prior to January 1, 1989, if the payments are for any period for which the employee is reemployed by the employer (or successor of that employer) after the date of separation.
(b) Payments to you or your dependents under your employer's plan at or after the termination of your employment relationship because of your death or retirement for disability are excluded from wages.
(c) Payments made after 1983 to you or your dependents under your employer's plan at or after the termination of your employment relationship because of retirement after reaching an age specified in the plan or in a pension plan of the employer are not excluded from wages unless—
(1) The payments are to or from a trust or annuity plan of your employer as described in § 404.1052; or
(2) An agreement to retire was in effect on March 24, 1983, between you and your employer and the payments made after 1983 under a nonqualified deferred compensation plan (see § 404.1042(f)) are based on services performed for your employer before 1984.
(d) The plan or system established by the employer must provide for the employees generally or for a class or classes of employees. The plan or system may also provide for these employees' dependents. Payments under a plan or system established only for your dependents are not excluded from wages. The plan or system established by the employer can provide for payments on account of one or more of the items in paragraphs (a) and (b) of this section.
(e) For purposes of this section, your dependents include your husband or wife, children, and any other members of your immediate family.
(f) It does not make any difference that the benefit payments are considered in arriving at the amount of your pay or are required by the employment agreement.
§ 404.1050   Retirement payments.
Payments made after 1983 to you (including any amount paid by an employer for insurance or annuities) on account of your retirement for age are not excluded from wages unless—
(a) The payments are to or from a trust or annuity plan of your employer as described in § 404.1052; or
(b) The payments satisfy the requirements described in § 404.1049(c)(2).
§ 404.1051   Payments on account of sickness or accident disability, or related medical or hospitalization expenses.
(a) We do not include as wages any payment that an employer makes to you, or on your behalf, on account of your sickness or accident disability, or related medical or hospitalization expenses, if the payment is made more than 6 consecutive calendar months following the last calendar month in which you worked for that employer. Payments made during the 6 consecutive months are included as wages.
(b) The exclusion in paragraph (a) of this section also applies to any such payment made by a third party (such as an insurance company). However, if you contributed to your employer's sick pay plan, that portion of the third party payments attributable to your contribution is not wages.
(c) Payments of medical or hospitalization expenses connected with sickness or accident disability are excluded from wages beginning with the first payment only if made under a plan or system of your employer as explained in § 404.1049(a)(1).
(d) Payments under a worker's compensation law are not wages.
§ 404.1052   Payments from or to certain tax-exempt trusts or payments under or into certain annuity plans.
(a) We do not include as wages any payment made—
(1) Into a tax-exempt trust or annuity plan by your employer on behalf of you or your beneficiary; or
(2) From a tax-exempt trust or under an annuity plan to, or on behalf of, you or your beneficiary.
(b) The trust must be exempt from tax under sections 401 and 501(a) of the Code, and the annuity plan must be a plan described in section 403(a) of the Code when payment is made.
(c) The exclusion does not apply to payments to an employee of the trust for work done as an employee of the trust.
§ 404.1053   “Qualified benefits” under a cafeteria plan.
We do not include as wages any qualified benefits under a cafeteria plan as described in section 125 of the Code if such payment would not be treated as wages without regard to such plan and it is reasonable to believe that (if section 125 applied for purposes of this section) section 125 would not treat any wages as constructively received. This includes any qualified benefit made to you, or on your behalf, pursuant to a salary reduction agreement between you and your employer. The Internal Revenue Service decides whether any plan is a cafeteria plan under section 125 of the Code and whether any benefit under the plan is a qualified benefit.
§ 404.1054   Payments by an employer of employee's tax or employee's contribution under State law.
(a) We exclude as wages any payment by an employer (described in paragraph (b) of this section) that is not deducted from the employee's salary (or for which reimbursement is not made by the employee) of either—
(1) The tax imposed by section 3101 of the Code (employee's share of Social Security tax ); or
(2) Any payment required from an employee under a State unemployment compensation law.
(b) The payments described in paragraph (a) of this section are not included as wages only if they are made by an employer on behalf of an employee employed in—
(1) Domestic service in the private home of the employer; or
(2) Agricultural labor.
§ 404.1055   Payments for agricultural labor.
(a) When cash payments are not wages. We do not include as wages your cash payments in a calendar year after 1987 from an employer for agricultural labor (see § 404.1056) if your employer's total expenditures for agricultural labor are less than $2500 in that year and your employer paid you less than $150 cash remuneration in that year for your agricultural labor.
(b) Exclusions for noncash payments and payments for seasonal agricultural labor. (1) Noncash payments for agricultural labor are not wages.
(2) Your cash payments in a calendar year from an employer for agricultural labor are not wages, irrespective of your employer's total annual expenditures for agricultural labor, if you are a hand harvest laborer ( i.e. , seasonal agricultural labor), and—
(i) Your employer paid you less than $150 in that year;
(ii) You are paid on a piece rate basis in an operation which has been, and is customarily and generally recognized in the region of employment as paying on a piece rate basis;
(iii) You commute daily from your permanent residence to the farm on which you are so employed; and,
(iv) You were employed in agriculture less than 13 weeks during the previous calendar year.
(c) When cash-pay is creditable as wages. (1) If you receive cash pay from an employer for services which are agricultural labor and for services which are not agricultural labor, we count only the amounts paid for agricultural labor in determining whether cash payments equal or exceed $150. If the amounts paid are less than $150, we count only those amounts paid for agricultural labor in determining if the $2500 expenditure test is met.
(2) The amount of cash pay for agricultural labor that is creditable to an individual is based on cash paid in a calendar year rather than on amounts earned during a calendar year.
(3) If you receive cash pay for agricultural labor in any one calendar year from more than one employer, we apply the $150 cash-pay test and $2,500 total expenditures test to each employer.
(d) Application of the $150 cash-pay and 20-day tests prior to 1988. (1) For the time period prior to 1988, we apply either the $150 a year cash-pay test or the 20-day test. Cash payments are wages if you receive $150 or more from an employer for agricultural labor or under the 20-day test if you perform agricultural labor for which cash pay is computed on a time basis on 20 or more days during a calendar year. For purposes of the 20-day test, the amount of the cash pay is immaterial, and it is immaterial whether you also receive payments other than cash or payments that are not computed on a time basis. If cash paid to you for agricultural labor is computed on a time basis, the payments are not wages unless they are paid in a calendar year in which either the 20-day test or the $150 cash-pay test is met.
(2) [Reserved]
§ 404.1056   Explanation of agricultural labor.
(a) What is agricultural labor. (1) If you work on a farm as an employee of any person, you are doing agricultural labor if your work has to do with—
(i) Cultivating the soil;
(ii) Raising, shearing, feeding, caring for, training or managing livestock, bees, poultry, fur-bearing animals or wildlife; or
(iii) Raising or harvesting any other agricultural or horticultural commodity.
(2) If you work on a farm as an employee of any person in connection with the production or harvesting of maple sap, the raising or harvesting of mushrooms, or the hatching of poultry, you are doing agricultural labor. If you work in the processing of maple sap into maple syrup or maple sugar you are not doing agricultural labor even though you work on a farm. Work in a mushroom cave or poultry hatchery is agricultural labor only if the cave or hatchery is operated as part of a farm.
(3) If you work as an employee of the owner, tenant, or other operator of a farm, you are doing agricultural labor if most of your work is done on a farm and is involved with—
(i) The operation, management, conservation, improvement, or maintenance of the farm or its tools or equipment (this may include work by carpenters, painters, mechanics, farm supervisors, irrigation engineers, bookkeepers, and other skilled or semiskilled workers); or
(ii) Salvaging timber or clearing the land of brush and other debris left by a hurricane.
(4) You are doing agricultural labor no matter for whom or where you work, if your work involves—
(i) Cotton ginning;
(ii) Operating or maintaining ditches, canals, reservoirs, or waterways, if they are used only for supplying and storing water for farm purposes and are not owned or operated for profit; or
(iii) Producing or harvesting crude gum (oleoresin) from living trees or processing the crude gum into gum spirits of turpentine and gum resin (if the processing is done by the original producer).
(5) Your work as an employee in the handling, planting, drying, packing, packaging, processing, freezing, grading, storing, or delivering to storage, to a market or to a carrier for transportation to market, of any agricultural or horticultural commodity is agricultural labor if—
(i) You work for a farm operator or a group of farm operators (other than a cooperative organization);
(ii) Your work involves the commodity in its raw or unmanufactured state; and
(iii) The operator produced most of the commodity you work with during the period for which you are paid, or if you work for a group of operators, all of the commodity you work with during the pay period is produced by that group.
(6) If you do nonbusiness work, it is agricultural labor if you do the work on a farm operated for a profit. A farm is not operated for profit if the employer primarily uses it as a residence or for personal or family recreation or pleasure. (See § 404.1058(a) for an explanation of nonbusiness work.)
(7) The term farm operator means an owner, tenant, or other person, in possession of and operating a farm.
(8) Work is not agricultural labor if it is done in the employ of a cooperative organization, which includes corporations, joint-stock companies, and associations treated as corporations under the Code. Any unincorporated group of operators is considered to be a cooperative organization if more than 20 operators are in the group at any time during the calendar year in which the work is done.
(9) Processing work which changes the commodity from its raw or natural state is not agricultural labor. An example of this is the extraction of juices from fruits or vegetables. However, work in the cutting and drying of fruits or vegetables does not change the commodity from its raw or natural state and can be agricultural labor.
(10) The term commodity means a single agricultural or horticultural product. For example, all apples are a commodity, while apples and oranges are two commodities.
(11) Work connected with the commercial canning or freezing of a commodity is not agricultural labor nor is work done after the delivery of the commodity to a terminal market for distribution for consumption.
(b) What is a farm. For purposes of social security coverage, farm includes a stock, dairy, poultry, fruit, fur-bearing animal, or truck farm, plantation, ranch, nursery, range or orchard. A farm also includes a greenhouse or other similar structure used mostly for raising agricultural or horticultural products. A greenhouse or other similar structure used mostly for other purposes such as display, storage, making wreaths and bouquets is not a farm.
§ 404.1057   Domestic service in the employer's home.
(a) Payments for domestic service —(1) The applicable dollar threshold. We do not include as wages cash payments that an employer makes to you in any calendar year for domestic service in the employer's private home if the cash pay in that calendar year is less than the applicable dollar threshold. The threshold per employer is $1000 in calendar year 1995. In calendar years after 1995, this amount will be subject to adjustment in $100 increments based on the formula in section 215(a)(1)(B)(i) of the Act to reflect changes in wages in the economy. Non-cash payments for domestic service are not counted as wages.
(2) How evaluation is made. We apply the applicable dollar threshold described in paragraph (a)(1) of this section based on when the payments are made to you rather than when the pay is earned. To count toward the applicable dollar threshold, payment must be made to you in cash (including checks or other forms of money). We apply the applicable dollar threshold only to services performed as a domestic employee. If an employer pays you for performing other work, the cash pay for the nondomestic work does not count toward the applicable dollar threshold domestic service pay required for the remuneration to count as wages.
(3) More than one domestic employer. The applicable dollar threshold as explained in paragraph (a)(1) of this section applies to each employer when you perform domestic services for more than one employer in a calendar year. The wages paid by more than one employer for domestic services may not be combined to decide whether you have been paid the applicable dollar threshold or more in a calendar year. The standard applies to each employee when an employer has two or more domestic employees during a calendar year.
(4) Rounding dollar amounts for reporting. For social security purposes, an employer has an option in the way he or she reports cash wages paid for domestic service in his or her private home. The employer may report the actual wages paid or may round the wages to the nearest dollar. For purposes of rounding to the nearest dollar the cents are disregarded unless it amounts to one-half dollar or more, in which case it will be raised to $1. If an employer uses this method to report a cash payment to you for domestic services in his or her private home in a calendar year, he or she must use the same method to report payments to other employees in that year for similar services.
(b) What is domestic service. Domestic service is work of a household nature done by you in or about a private home of the employer. A private home is a fixed place of residence of a person or family. A separate dwelling unit maintained by a person in an apartment house, hotel, or other similar establishment may be a private home. If a house is used primarily for supplying board or lodging to the public as a business enterprise, it is not a private home. In general, services of a household nature in or about a private home include services performed by cooks, waiters, butlers, housekeepers, governesses, maids, valets, baby sitters, janitors, laundresses, furnacemen, caretakers, handymen, gardeners, footmen, grooms, and chauffeurs of automobiles for family use. Pay for these services does not come under this provision unless the services are performed in or about a private home of the employer. Pay for services not of a household nature, such as services performed as a private secretary, tutor, or librarian, even though performed in the employer's home, does not come under this provision.
§ 404.1058   Special situations.
(a) Payments for service not in course of employer's trade or business (nonbusiness work) and payments to certain home workers —(1) The $100 standard. We do not include as wages cash pay of less than $100 paid to you in a calendar year by an employer for services not in the course of the employer's trade or business (nonbusiness work) and for services as a home worker as described in § 404.1008(d).
(2) How evaluation is made. (i) We apply the $100 standard for a calendar year based on when the payments are made to you rather than when the pay is earned. To count toward the $100 amount, payment must be in cash (including checks or other forms of money). The $100 standard applies to each employer when you perform services not in the course of the employer's trade or business or as a homeworker for two or more employers.
(ii) If the employer has two or more employees, the standard applies to each employee. In applying the $100 standard, we disregard cash payments for any other type of services you perform for the employer.
(iii) The noncash payments an employer pays you for services not in the course of the employer's trade or business are not wages even if the employer has paid you cash wages of $100 or more in the calendar year for services of that type.
(iv) Amounts paid to you as a home worker as described in § 404.1008(d) are not wages unless you are paid $100 or more in cash in a calendar year. If you meet this test, any noncash payments you receive for your services also count as wages.
(v) Amounts paid to you as a home worker in a common-law employment relationship (see § 404.1007) count as wages regardless of amount or whether paid in cash or kind.
(3) Definitions. The term services not in the course of the employer's trade or business (also called nonbusiness work) means services that do not promote or advance the trade or business of the employer. Services performed for a corporation do not come within this definition. A homeworker is described in § 404.1008(c).
(b) Nonprofit, income-tax exempt organizations —(1) The $100 standard. We do not include as wages payments of less than $100 in a calendar year made by an employer that is an organization exempt from income tax under section 501 of the Code.
(2) How evaluation is made. We apply the $100 standard for a calendar year based on when the payments are made to you rather than when the pay is earned. To figure the $100 amount, both cash and noncash payments are counted. The $100 standard applies to each employer where you render services for two or more nonprofit, income-tax exempt organizations during a calendar year. The $100 standard also applies to each of you where a nonprofit, income-tax exempt organization has two or more employees. In applying the standard, the tax-exempt status of the employer and not the nature or place of your services is controlling.
(c) Payments to members of the uniformed services —(1) The standard. We include as the wages of a member of the uniformed services—
(i) Basic pay, as explained in paragraph (c)(3) of this section, for performing the services described in paragraph (a)(1) of § 404.1019 of this subpart; or
(ii) Compensation, as explained in paragraph (c)(4) of this section, for performing the services described in paragraph (a)(2) of § 404.1019 of this subpart.
(2) Wages deemed paid. These following provisions apply to members of the uniformed services who perform services as described in paragraph (a)(1) of § 404.1019 of this subpart.
(i) After 1977, a member of the uniformed services is considered to have been paid additional wages of $100 for each $300 of basic pay paid to the individual in a calendar year. The amount of additional wages deemed paid cannot be more than $1,200 for any calendar year. No wages may be deemed paid for units of basic pay which are less than $300.
(ii) Before 1978, a member of the uniformed services is considered to have been paid additional wages of $300 for each calendar quarter after 1956 in which the individual is paid any amount of basic pay.
(3) Basic pay. Basic pay means the monthly pay prescribed by 37 U.S.C. 203 (Pay and Allowances for the Uniformed Services) for a member of the uniformed services on active duty or on active duty for training.
(4) Compensation. “Compensation” refers to the remuneration received for services as a member of a uniformed service, based on regulations issued by the Secretary concerned (as defined in 37 U.S.C. 101(5) under 37 U.S.C. 206(a), where such member is not entitled to the basic pay (as defined by paragraph (3) of this section).
(d) Payments to volunteers and volunteer leaders in the Peace Corps. If you are a volunteer or volunteer leader under the provisions of the Peace Corps Act (22 U.S.C. 2501ff), payments for your services are wages with the exception of amounts in excess of the amounts certified as payable under section 5( c ) or 6( 1 ) of the Peace Corps Act. Amounts certified under those sections are considered to have been paid to the individual at the time the service is performed. See § 404.1018( e ) on coverage of these services.
(e) Moving expenses. We do not include as wages amounts paid to, or on behalf of, an employee for moving expenses if it is reasonable to believe that a similar deduction is allowable under section 217 of the Code.
(f) Payments by employer to survivor or estate of former employee. We do not include as wages any payment by an employer to a survivor or the estate of a former employee after the calendar year in which the employee died.
(g) Payments to an employee who is entitled to disability insurance benefits. We do not include as wages any payments made by an employer to an employee if at the time such payment is made—
(1) The employee is entitled to disability insurance benefits under the Act;
(2) The employee's entitlement to such benefits began before the calendar year in which the employer's payment is made; and
(3) The employee performed no work for the employer in the period in which the payments were paid by such employer (regardless of whether the employee worked in the period the payments were earned).
(h) Tips. (1) We include as wages tips received by an employee if—
(i) The tips are paid in cash; and
(ii) The tips amount to $20 or more and are received in the course of employment by an employee in a calendar month.
(2) Cash tips include checks and other forms of money. Tips received in a form other than cash, such as passes, tickets, or other goods are not wages. If an employee works for more than one employer in a calendar month, we apply the $20 tip test to work done for each employer.
(i) Payments by employer under group legal services plan. We do not include as wages any contribution, payment, or service, provided by an employer under a qualified group legal services plan which is excludable from the gross income of an employee, or the employee's spouse or dependents, under section 120 of the Code.
§ 404.1059   Deemed wages for certain individuals interned during World War II.
(a) In general. Persons who were interned during any period of time from December 7, 1941, through December 31, 1946, by the United States Government at a place operated by the Government within the United States for the internment of United States citizens of Japanese ancestry are deemed to have been paid wages (in addition to wages actually paid) as provided in paragraph (c) of this section during any period after attaining age 18 while interned. 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 December 1972, and for establishing a period of disability.
(b) Information needed to process deemed wages. Unless we have already made a determination on deemed wages for a period of internment of an individual, any person applying for a monthly benefit, a recalculation of benefits by reason of this section, or a lump-sum death payment, must submit certain information before the benefit or payment may be computed on the basis of deemed wages. This information is—
(1) The place where the individual worked before internment;
(2) The highest hourly wage before internment;
(3) The place and date of internment;
(4) Date of birth (if not previously furnished);
(5) Whether or not another Federal benefit is being received based wholly or in part upon the period of internment; and
(6) In the case of a woman, her maiden name.
(c) Amount of deemed wages. The amount of wages which may be deemed is determined as follows:
(1) Employed prior to internment. If the individual was employed before being interned, the deemed wages are the greater of—
(i) The highest actual hourly rate of pay received for any employment before internment, multiplied by 40 for each full week during the period of internment; or
(ii) The Federal minimum hourly rate in effect for the period of internment, multiplied by 40 for each full week during that period.
(2) Self-employed or not employed prior to internment. If the individual was self-employed or was not employed before the period of internment, the deemed wages are the Federal minimum hourly rate in effect for that period, multiplied by 40 for each full week during the period.
(d) When wages are not deemed. Wages are not deemed under this section—
(1) For any period before the quarter in which the individual attained age 18; or
(2) If a larger benefit is payable without the deemed wages; or
(3) If a benefit based in whole or in part upon internment is determined by any agency of the United States to be payable under any other law of the United States or under a system set up by that agency. However, this exception does not apply in cases where the failure to receive deemed wages reduces the primary insurance amount by 50 cents or less.
(e) Certification of internment. The certification concerning the internment is made by the Archivist of the United States or his or her representative. After the internment has been verified, wages are deemed to have been paid to the internee.
§ 404.1060   [Reserved]
§ 404.1065   Self-employment coverage.
For an individual to have self-employment coverage under social security, the individual must be engaged in a trade or business and have net earnings from self-employment that can be counted as self-employment income for social security purposes. The rules explaining whether you are engaged in a trade or business are in §§ 404.1066 through 404.1077. What are net earnings from self-employment is discussed in §§ 404.1080 through 404.1095. Section 404.1096 describes the net earnings from self-employment that are counted as self-employment income for social security purposes. See § 404.1913 for the effect of a totalization agreement on self-employment coverage. An agreement may exempt an activity from coverage as well as extend coverage to an activity.
§ 404.1066   Trade or business in general.
For you to be covered as a self-employed person for social security purposes, you must be engaged in a trade or business. You can carry on a trade or business as an individual or as a member of a partnership. With some exceptions, the term trade or business has the same meaning as it does when used in section 162 of the Code.
§ 404.1068   Employees who are considered self-employed.
(a) General. Although we generally exclude services performed by employees from the definition of trade or business, certain types of services are considered a trade or business even though performed by employees. If you perform any of the services described in paragraphs (b) through (f) of this section, you are self-employed for social security purposes. Certain other services described in § 404.1071 (relating to ministers and members of religious orders) and § 404.1073 (relating to certain public officers) may be considered a trade or business even though performed by employees.
(b) Newspaper vendors. If you have attained age 18 and perform services as a newspaper vendor that are described in § 404.1030(b), you are engaged in a trade or business.
(c) Sharefarmers. If you perform services as a sharefarmer that are described in § 404.1017, you are engaged in a trade or business.
(d) Employees of a foreign government, an instrumentality wholly owned by a foreign government, or an international organization. If you are a United States citizen and perform the services that are described in § 404.1032, § 404.1033(a), or § 404.1034(a), you are engaged in a trade or business if the services are performed in the United States and are not covered as employment based upon § 404.1034(c).
(e) Certain fishermen. If you perform services as a fisherman that are described in § 404.1031, you are engaged in a trade or business.
(f) Employees of a church or church-controlled organization that has elected to exclude employees from coverage as employment. If you perform services that are excluded from employment as described in § 404.1026, you are engaged in a trade or business. Special rules apply to your earnings from those services which are known as church employee income. If you are paid $100 or more in a taxable year by an employer who has elected to have its employees excluded, those earnings are self-employment income (see § 404.1096(c)(1)). In figuring your church employee income you may not reduce that income by any deductions attributable to your work. Your church employee income and deductions may not be taken into account in determining the amount of other net earnings from self-employment. Effective for taxable years beginning on or after January 1, 1990, your church employee income is exempt from self-employment tax under the conditions set forth for members of certain religious groups (see § 404.1075).
§ 404.1069   Real estate agents and direct sellers.
(a) Trade or business. If you perform services after 1982 as a qualified real estate agent or as a direct seller, as defined in section 3508 of the Code, you are considered to be engaging in a trade or business.
(b) Who is a qualified real estate agent. You are a qualified real estate agent as defined in section 3508 of the Code if you are a salesperson and—
(1) You are a licensed real estate agent;
(2) Substantially all of the earnings (whether or not paid in cash) for the services you perform as a real estate agent are directly related to sales or other output (including the performance of services) rather than to the number of hours worked; and
(3) Your services are performed under a written contract between yourself and the person for whom the services are performed which provides you will not be treated as an employee with respect to these services for Federal tax purposes.
(c) Who is a direct seller. You are a direct seller as defined in section 3508 of the Code if—
(1) You are engaged in the trade or business of selling (or soliciting the sale of) consumer products—
(i) To any buyer on a buy-sell basis, a deposit-commission basis, or any similar basis which the Secretary of the Treasury prescribes by regulations, for resale (by the buyer or any other person) in the home or in other than a permanent retail establishment; or
(ii) In the home or in other than a permanent retail establishment; and
(2) Substantially all of your earnings (whether or not paid in cash) for the performance of these services are directly related to sales or other output (including the performance of services) rather than to the number of hours worked; and
(3) Your services are performed under a written contract between yourself and the person for whom the services are performed which provides you will not be treated as an employee with respect to these services for Federal tax purposes.
§ 404.1070   Christian Science practitioners.
If you are a Christian Science practitioner, the services you perform in the exercise of your profession are a trade or business unless you were granted an exemption from coverage under section 1402(e) of the Code, and you did not revoke such exemption in accordance with section 1704(b) of the Tax Reform Act of 1986. An exemption cannot be granted if you filed a valid waiver certificate under the provisions that apply to taxable years ending before 1968.
§ 404.1071   Ministers and members of religious orders.
(a) If you are a duly ordained, commissioned, or licensed minister of a church, or a member of a religious order who has not taken a vow of poverty, the services you perform in the exercise of your ministry or in the exercise of duties required by the order (§ 404.1023(c) and (e)) are a trade or business unless you filed for and were granted an exemption from coverage under section 1402(e) of the Code, and you did not revoke such exemption in accordance with the Social Security Amendments of 1977, section 1704(b) of the Tax Reform Act of 1986, or section 403 of the Ticket to Work and Work Incentives Improvement Act of 1999. An exemption cannot be granted if you filed a valid waiver certificate under the provisions of section 1402(e) that apply to taxable years ending before 1968.
(b) If you are a member of a religious order and have taken a vow of poverty, the services you perform in the exercise of your duties required by the order may be covered as employment. (See § 404.1023 (a) and (e)).
§ 404.1073   Public office.
(a) General. The performance of the functions of a public office is not a trade or business except under the circumstances explained in paragraph (b) of this section. If you are an officer of a State or political subdivision, you are considered as employee of the State or political subdivision.
(b) State and local governmental employees paid by fees —(1) Voluntary coverage under section 218 of the Act. The services of employees of States and political subdivisions, including those in positions paid solely on a fee-basis, may be covered as employment by a Federal-State agreement under section 218 of the Act (see subpart M of this part). States, when entering into these agreements, have the option of excluding under the agreement coverage of services in positions paid solely by fees. If you occupy a position paid solely on a fee-basis and the State has not covered your services under section 218 of the Act, you are considered to be engaged in a trade or business.
(2) Mandatory old-age, survivors, disability, and hospital insurance coverage. Beginning with services performed after July 1, 1991, Social Security coverage (old-age, survivors, disability, and hospital insurance) is mandatory, with certain exceptions, for services performed by employees of a State, a political subdivision of a State, or of a wholly owned instrumentality of one or more of the foregoing, if the employees are not members of a retirement system of the State, political subdivision, or instrumentality. Among the exclusions from such mandatory coverage is service performed by an employee in a position compensated solely on a fee-basis which is treated pursuant to section 211(c)(2)(E) of the Act as a trade or business for purposes of inclusion of such fees in the net earnings from self-employment.
(3) If you are a notary public, you are not a public officer even though you perform a public function. Your services as a notary public are not covered for social security purposes.
§ 404.1074   Farm crew leader who is self-employed.
If you are a farm crew leader and are deemed the employer of the workers as described in § 404.1010, we consider you to be engaged in a trade or business. This includes services performed in furnishing workers to perform agricultural labor for others, as well as services performed as a member of the crew.
§ 404.1075   Members of certain religious groups opposed to insurance.
(a) You may file an application with the Internal Revenue Service for exemption from social security self-employment tax if—
(1) You are a member of a recognized religious sect or division of the sect; and
(2) You adhere to the tenets or teachings of the sect or division of the sect and for this reason are conscientiously opposed to receiving benefits from any private or public insurance that—
(i) Makes payments in the event of death, disability, old age, or retirement; or
(ii) Makes payments toward the cost of, or provides services for, medical care (including the benefits of any insurance system established by the Act).
(b) Your application must be filed under the rules described in 26 CFR 1.1402(h). An application must contain or be accompanied by the applicant's waiver of all benefits and payments under title II and part A of title XVIII of the Act. See § 404.305 for the effect of the filing of the waiver and the granting of the exemption.
(c) Regardless of whether you meet all these conditions, your application for exemption will not be approved unless we find that—
(1) The sect or division of the sect has established tenets or teachings which cause you to be conscientiously opposed to the types of insurance benefits described in paragraph (a)(2) of this section;
(2) For a substantial period of time it has been the practice for members of the sect or division of the sect to make provision for their dependent members which is reasonable in view of their general level of living; and
(3) The sect or division of the sect has been in existence continuously since December 31, 1950.
(d) Your application for exemption will be approved by the Internal Revenue Service only if no benefit or other payment under title II or part A of title XVIII of the Act became payable or, but for section 203 or section 222(b) of the Act, would have become payable, to you or on your behalf at or before the time of the filing of your application for exemption.
(e) The tax exemption ceases to be effective for any taxable year ending after the time you do not meet the requirements of paragraph (a) of this section or after the time we find the religious sect or division of the sect of which you are a member no longer meets the requirements of paragraph (c) of this section. If your tax exemption ceases to be effective, your waiver of the right to receive Social Security and Medicare part A benefits will also no longer be effective. Benefits may be payable based upon your wages for and after the calendar year following the calendar year in which the event occurred upon which the cessation of the exemption is based. Benefits may be payable based upon your self-employment income for and after the taxable year in which the event occurred upon which the cessation of the exemption is based.
§ 404.1077   Individuals under railroad retirement system.
If you are an employee or employee representative as defined in section 3231 (b) and (c) of the Code, your work is not a trade or business. Your services are covered under the railroad retirement system.
§ 404.1080   Net earnings from self-employment.
(a) Definition of net earnings from self-employment. If you are self-employed, you must first determine the amount of your net earnings from self-employment before figuring the amount of your earnings that count for social security purposes. Some of your earnings may not be included as net earnings from self-employment even though they are taxable for income tax purposes. If you are an employee but we consider you to be self-employed for social security purposes, you must figure your earnings as though you were actually self-employed unless you work for a church or church-controlled organization that has exempted its employees (see § 404.1068(f)). Subject to the special rules in §§ 404.1081 through 404.1095, the term net earnings from self-employment means—
(1) Your gross income, as figured under subtitle A of the Code, from any trade or business you carried on, less deductions attributed to your trade or business that are allowed by that subtitle; plus
(2) Your distributive share of income (or loss) from a trade or business carried on by a partnership of which you are a member, as described in paragraph (b) of this section.
(b) Income or loss from a partnership. (1) Your distributive share (whether or not actually distributed) of the income or loss from any trade or business carried on by a partnership of which you are a member, other than as a limited partner, is determined under section 704 of the Code.
(2) If you are a limited partner, your distributive share is included in your net earnings from self-employment if—
(i) The amount is payable to you for services you render to or on behalf of the partnerships; and
(ii) It is a guaranteed payment described in section 707(c) of the Code.
(3) You are a limited partner if your financial liability for the obligations of the partnership is limited to the amount of your financial investment in the partnership. Generally, you will not have to perform services in the operation of, or participate in the control of, the business carried on by the partnership for the taxable year involved.
(c) Reporting methods. Your gross income from a trade or business includes the gross income you received (under the cash method) or that accrued to you (under the accrual method) from the trade or business in the taxable year. It is immaterial that the income may be attributable in whole or in part to services you rendered or other acts you performed in a prior taxable year.
(d) What is a taxable year. (1) The term taxable year means—
(i) Your annual accounting period on which you regularly figure your income in keeping your books; or
(ii) A short period resulting from your death before the end of your annual accounting period or from a change of your annual accounting period.
(2) The term annual accounting period means—
(i) A calendar year, consisting of 12 months ending on December 31; or
(ii) A fiscal year, consisting of—
(A) 12 months ending on the last day of any month other than December; or
(B) A period, if elected under section 441 of the Code, that varies from 52 to 53 weeks and always ends on the same day of the week that occurs last in a calendar month or nearest to the last day of the calendar month.
(3) Your taxable year for figuring self-employment income is the same as your taxable year for the purposes of subtitle A of the Code. Your taxable year is a calendar year if—
(i) You keep no books;
(ii) You have no annual accounting period; or
(iii) You have an annual accounting period that differs from the definition of fiscal year as described in paragraph (d)(2)(ii) of this section.
§ 404.1081   General rules for figuring net earnings from self-employment.
(a) Determining net earnings. (1) In determining your gross income and the deductions attributable to your trade or business for the purpose of determining your net earnings from self-employment, the provisions that apply to the taxes imposed by sections 1 and 3 of the Code are used.
(2) If you use the accrual method of accounting to figure your taxable income from a trade or business, you must use the same method in determining your net earnings from self-employment.
(3) If you are engaged in a trade or business of selling property on the installment plan and elect, under the provisions of section 453 of the Code, to use the installment method of accounting in figuring your income, you must use the installment method in determining your net earnings from self-employment.
(4) Any income which can be excluded from gross income under any provision of subtitle A of the Code cannot be counted in determining your net earnings from self-employment, unless—
(i) You are a resident of Puerto Rico (see § 404.1089);
(ii) You are a minister or member of a religious order (see § 404.1091);
(iii) You are a United States citizen or resident engaged in a trade or business outside the United States (see § 404.1092); or
(iv) You are a citizen of, or have income from sources within, certain possessions of the United States (see § 404.1093).
(b) Trade or business carried on. You must carry on the trade or business either personally or through agents or employees. Income 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 the estate or trust.
(c) Aggregate net earnings. If you are engaged in more than one trade or business, your net earnings from self-employment consist of the total of the net income and losses of all the trades or businesses you carry on. A loss in one trade or business you carry on offsets the income from another trade or business.
(d) Partnerships. When you have net earnings from self-employment from a partnership as described in § 404.1080 (a) and (b), those net earnings are combined with your other net earnings from self-employment in determining your total net earnings from self-employment for the taxable year.
(e) Different taxable years. If you are a partner and your taxable year is different from that of the partnership, you must include, in figuring your net earnings from self-employment, your distributive share of the income or loss of the partnership for its taxable year ending with or within your taxable year. For the special rule in case of the termination of a partner's taxable year as a result of death, see § 404.1087.
(f) Meaning of partnerships. A partnership for social security purposes is one that is recognized as a partnership for income tax purposes. For income tax purposes, the term partnership includes not only a partnership as known under common law, but also a syndicate, group, pool, joint venture, or other unincorporated organization that carries on any trade or business, financial operation, or venture, and which is not a trust, estate, or a corporation.
(g) Proprietorship taxed as domestic corporation. If you are a proprietor of an unincorporated business enterprise and have elected to be taxed as a domestic corporation, you must figure your net earnings from self-employment without regard to the election you have made.
§ 404.1082   Rentals from real estate; material participation.
(a) In general. Your rentals from real estate and from personal property leased with the real estate (including rentals paid in crop shares) and the deductions attributable to the rentals are excluded in figuring your net earnings from self-employment, unless you receive the rentals in the course of a trade or business as a real estate dealer. If you are an owner or lessee of land, rentals paid in crop shares include income you get under an agreement with another person if the arrangement provides for the following:
(1) The other person will produce agricultural or horticultural commodities on the land.
(2) The commodities produced, or the income from their sale, will be divided between you and the other person.
(3) The amount of your share depends on the amount of the commodities produced.
(b) Real estate dealers. (1) You are a real estate dealer if you are engaged in the business of selling real estate to customers for profit.
(2) If you merely hold real estate for investment or speculation and receive rental income from it, you are not considered a real estate dealer.
(3) If you are a real estate dealer, but also hold real estate for investment or speculation in addition to real estate you hold for sale to customers, only the rental income from the real estate held for sale to customers and the deductions attributable to it are included in determining your net earnings from self-employment. The rental income from real estate you hold for investment or speculation and the deductions attributable to it are not counted in figuring your net earnings from self-employment.
(c) Special rule for farm rental income —(1) In general. If you own or lease land, any income you derive from it is included in figuring your net earnings from self-employment if—
(i) The income results from an arrangement between you and another person which provides for the other person to produce agricultural or horticultural commodities on the land that you own or lease and for you to materially participate in the production or the management of the production of the agricultural or horticultural commodities; and
(ii) You actually do materially participate.
(2) Nature of arrangement. (i) The arrangement between you and the other person may be either oral or written. It must provide that the other person will produce one or more agricultural or horticultural commodities and that you will materially participate in the production or the management of the production of the commodities.
(ii) The term production, refers to the physical work performed and the expenses incurred in producing a commodity. It includes activities like the actual work of planting, cultivating, and harvesting crops, and the furnishing of machinery, implements, seed, and livestock.
(iii) The term management of the production, refers to services performed in making managerial decisions about the production of the crop, such as when to plant, cultivate, dust, spray, or harvest, and includes advising and consulting, making inspections, and making decisions on matters, such as rotation of crops, the type of crops to be grown, the type of livestock to be raised, and the type of machinery and implements to be furnished.
(3) Material participation. (i) If you show that you periodically advise or consult with the other person, who under the rental arrangement produces the agricultural or horticultural commodities, and also show that you periodically inspect the production activities on the land, you will have presented strong evidence that you are materially participating.
(ii) If you also show that you furnish a large portion of the machinery, tools, and livestock used in the production of the commodities, or that you furnish or advance monies, or assume financial responsibility, for a substantial part of the expense involved in the production of the commodities, you will have established that you are materially participating.
(4) Employees or agents. We consider any farm rental arrangement entered into by your employee or agent and another person to be an arrangement entered into by you. However, we do not consider the services of an employee or agent as your services in determining the extent to which you have participated in the production or management of production of a commodity.
(5) Examples.
(d) Rental income from living quarters —(1) No services provided for occupants. Payments you receive for renting living quarters in a private residence, duplex, or multiple-housing unit are generally rental income from real estate. Except in the case of real estate dealers, these payments are excluded in determining net earnings from self-employment, even if the payments are in part attributable to personal property furnished under the lease.
(2) Services provided for occupants. (i) Payments you receive for renting living quarters where services are also provided to the occupant, as in hotels, boarding houses, or apartment houses furnishing hotel services, or in tourist camps or tourist homes, are included in determining your net earnings from self-employment. Any payments you receive for the use of space in parking lots, warehouses, or storage garages are also included in determining your net earnings from self-employment.
(ii) Generally, we consider services to be provided to the occupant if they are primarily for the occupant's convenience and are other than those usually provided in connection with the rental of rooms or other space for occupancy only. We consider the supplying of maid service to be a service provided to the occupant. However, we do not consider the furnishing of heat and light, the cleaning of public entrances, exits, stairways, and lobbies and the collection of trash, as services provided to the occupant.
(e) Treatment of business income which includes rentals from real estate. If an individual or a partnership is engaged in a trade or business other than real estate, and part of the income is rentals from real estate, only that part of the income which is not rentals and the expenses attributable to that portion are included in determining net earnings from self-employment.
§ 404.1083   Dividends and interest.
(a) The dividends you receive on shares of stock are excluded in determining your net earnings from self-employment, unless you are a dealer in stocks and securities and receive the dividends in the course of your trade or business.
(b) The interest you receive on a bond, debenture, note, certificate, or other evidence of indebtedness issued with interest coupons or in registered form by any corporation (including one issued by a government or political subdivision) is excluded in determining your net earnings from self-employment, unless you are a dealer in stocks and securities and receive the interest in the course of your trade or business.
(c) If you hold stocks or securities for investment or speculation purposes, any dividends and interest you receive that are excludable under paragraphs (a) and (b) of this section are excluded in determining your net earnings from self-employment, whether or not you are a dealer in stocks and securities.
(d) A dealer in stocks or securities is a merchant with an established place of business who is regularly engaged in the business of purchasing stocks or securities and reselling them to customers. The dealer, as a merchant, buys stocks or securities and sells them to customers with a view to making a profit. Persons who buy and sell or hold stocks or securities for investment or speculation, regardless of whether the buying or selling constitutes a trade or business, are not dealers in stocks or securities.
§ 404.1084   Gain or loss from disposition of property; capital assets; timber, coal, and iron ore; involuntary conversion.
(a) If you are engaged in a trade or business, you must, in determining your net earnings from self-employment, exclude any gain or loss—
(1) That is considered a gain or loss from the sale or exchange of a capital asset;
(2) From the cutting of timber or from the disposal of timber or coal, even if held primarily for sale to customers, if section 631 of the Code applies to the gain or loss;
(3) From the disposal of iron ore mined in the United States, even if held primarily for sale to customers, if section 631 of the Code applies to the gain or loss; and
(4) From the sale, exchange, involuntary conversion, or other disposition of property that is not—
(i) Stock in trade or other property of a kind which would properly be included in inventory if on hand at the close of the taxable year; or
(ii) Property held primarily for sale to customers in the ordinary course of a trade or business;
(b) For purposes of paragraph (a)(4) of this section, it is immaterial whether a gain or loss is treated as a capital gain or as an ordinary gain or loss for purposes other than determining earnings from self-employment.
(c) For purposes of paragraph (a)(4) of this section—
(1) The term involuntary conversion means a compulsory or unintended change of property into other property or money as a result of such things as destruction, theft or seizure; and
(2) The term other disposition includes destruction or loss by fire, theft, storm, shipwreck, or other casualty, even though there is no change of the property into other property or money.
§ 404.1085   Net operating loss deduction.
When determining your net earnings from self-employment, you disregard the deduction provided by section 172 of the Code that relates to net operating losses sustained in years other than the taxable year.
§ 404.1086   Community income.
If community property laws apply to income that an individual derives from a trade or business (other than a trade or business carried on by a partnership), the gross income and deductions attributable to such trade or business shall be treated as the gross income and deductions of the spouse carrying on such trade or business or, if such trade or business is jointly operated, treated as the gross income and deductions of each spouse on the basis of his or her respective distributive share of the gross income and deductions.
§ 404.1087   Figuring partner's net earnings from self-employment for taxable year which ends as a result of death.
(a) General. In the case of a deceased partner whose taxable year ends because of death, the deceased partner's net earnings from self-employment includes the amount of his or her distributive share of partnership ordinary income or loss for the partnership's taxable year that is attributable to an interest in the partnership through the month of death.
(b) Computation. (1) The deceased partner's distributive share of partnership ordinary income or loss for the partnership taxable year in which death occurred is determined by applying the rules contained in paragraphs (d) and (f) of § 404.1081.
(2) The portion of the distributive share to be included in the deceased partner's net earnings from self-employment for his or her last taxable year is determined by treating the ordinary income or loss constituting the distributive share as having been realized or sustained ratably over the partnership taxable year during which the deceased partner had an interest in the partnership and during which the deceased partner's estate, or any other person succeeding by reason of the death to rights to his partnership interest, held an interest in the partnership.
(c) Deceased partner's distributive share. A deceased partner's distributive share includes the distributive share of the estate or of any other person succeeding to the interest of a deceased partner. It does not include any share attributable to a partnership interest that was not held by the deceased partner at the time of death. If a deceased partner's estate should acquire an interest in a partnership in addition to the interest to which it succeeded upon the death of the deceased partner, the amount of the distributive share attributable to the additional interest acquired by the estate is not included in computing the deceased partner's distributive share of the partnership's ordinary income or loss for the partnership taxable year.
(d) Options available to farmers. In determining the applicability of the optional method of figuring net earnings from self-employment to a member of a farm partnership it is necessary to determine the partner's distributive share of partnership gross income or distributive share of income described in section 702(a)(8) of the Code.
§ 404.1088   Retirement payment to retired partners.
(a) In general. If you are a retired partner, in figuring your net earnings from self-employment you must exclude payments made to you on a periodic basis by a partnership on account of your retirement and which are to continue until your death. This exclusion applies only if the payments are made under a written plan which meets the requirements set out in 26 CFR 1.1402(a)-(17) and the conditions in paragraph (b) of this section are met. The necessary requirements and conditions must be met throughout the entire partnership's taxable year for the payments to be excluded so that either all or none of the payments are excluded.
(b) Other conditions. You must have been paid your full share of the partnership's capital before the close of the partnership's taxable year in which retirement payments are made. Also, no member of the partnership can have any financial obligations to you (in his or her capacity as a partner) except to make the retirement payments. Lastly, you cannot perform any services for the partnership in the partnership's taxable year which falls wholly or partially in your taxable year in which you receive the retirement payments.
§ 404.1089   Figuring net earnings for residents and nonresidents of Puerto Rico.
(a) Residents. If you are a resident of Puerto Rico, whether or not you are an alien, a citizen of the United States, or a citizen of Puerto Rico, you must figure your net earnings from self-employment in the same manner as would a citizen of the United States residing in the United States. In figuring your net earnings from self-employment you must include your income from sources in Puerto Rico even though you are a resident of Puerto Rico during the entire taxable year.
(b) Nonresidents. A citizen of Puerto Rico, who is also a citizen of the United States and who is not a resident of Puerto Rico must figure net earnings from self-employment in the same manner as other citizens of the United States.
§ 404.1090   Personal exemption deduction.
The deduction provided by section 151 of the Code, relating to personal exemptions, is excluded in determining net earnings from self-employment.
§ 404.1091   Figuring net earnings for ministers and members of religious orders.
(a) General. If you are a duly ordained, commissioned, or licensed minister of a church or a member of a religious order who has not taken a vow of poverty, we consider you to be engaged in a trade or business under the conditions described in § 404.1071 with regard to services described in § 404.1023 (c) and (e). In figuring your net earnings from self-employment from performing these services, you must include certain income (described in paragraphs (b) and (c) of this section) that may be excluded from your gross income for income tax purposes.
(b) Housing and meals. You must include in figuring your net earnings from self-employment the rental value of a home furnished to you and any rental allowance paid to you as payment for services performed in the exercise of your ministry or in the exercise of duties required by your order even though the rental value or rental allowance may be excluded from gross income by section 107 of the Code. Also, the value of any meals or lodging furnished to you in connection with the performance of these services is included in figuring your net earnings from self-employment even though their value is excluded from gross income by section 119 of the Code.
(c) Housing allowance when included in retirement pay. You must exclude any parsonage or housing allowance included in your retirement pay or any other retirement benefit received after retirement pursuant to a church plan as defined in section 414(e) of the Internal Revenue Code when computing your net earnings from self-employment. For example, if a minister retires from Church A and the rental value of a parsonage or any other allowance is included in his/her retirement pay, the parsonage allowance must be excluded when determining net earnings from self-employment. However, if this same retired minister goes to work for Church B and is paid a parsonage allowance by Church B, this new income must be included when computing net earnings from self-employment.
(d) Services outside the United States. If you are a citizen or resident of the United States performing services outside the United States which are in the exercise of your ministry or in the exercise of duties required by your order, your net earnings from self-employment from the performance of these services are figured as described in paragraph (b) of this section. However, they are figured without regard to the exclusions from gross income provided in sections 911 and 931 of the Code relating to earned income from services performed outside the United States and from sources within possessions of the United States.
§ 404.1092   Figuring net earnings for U.S. citizens or residents living outside the United States.
(a) Taxable years beginning after December 31, 1983. If you are a citizen or resident of the United States and are engaged in a trade or business outside the United States, your net earnings from self-employment are figured without regard to the exclusion from gross income provided by section 911 (a)(1) of the Code.
(b) Taxable years beginning after December 31, 1981, and before January 1, 1984. If you are a citizen of the United States and were engaged in a trade or business outside the United States, your net earnings from self-employment are figured without regard to the exclusion from gross income provided by section 911(a)(1) of the Code unless you are a resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year.
§ 404.1093   Possession of the United States.
In using the exclusions from gross income provided under section 931 of the Code (relating to income from sources within possessions of the United States) and section 932 of the Code (relating to citizens of possessions of the United States) for purposes of figuring your net earnings from self-employment, the term possession of the United States shall be deemed not to include the Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa.
§ 404.1094   Options available for figuring net earnings from self-employment.
(a) General. If you have income from a trade or business in certain situations, you have options for figuring your net earnings from self-employment. The options available to you depend on whether you have income from an agricultural trade or business or a non-agricultural trade or business. For a definition of agricultural trade or business see § 404.1095.
(b) Agricultural trade or business. The net earnings from self-employment you derive from an agricultural trade or business may, at your option, be figured as follows:
(1) Gross income of $2,400 or less. If your gross income is $2,400 or less you may, at your option, report 66 2/3 percent of the gross income as net earnings from self-employment instead of your actual net earnings from your business.
(2) Gross income of more than $2,400. If your gross income is more than $2,400 and your actual net earnings from your business are less than $1,600 you may, at your option, report $1,600 as net earnings from self-employment instead of your actual net earnings. If your actual net earnings are $1,600 or more you cannot use the optional method.
(3) Two or more agricultural trades or businesses. If you carry on more than one agricultural trade or business as a sole proprietor or as a partner, you must combine your gross income and net income from each trade or business to find out whether you may use the optional method of figuring net earnings.
(c) Non-agricultural trade or business. (1) The net earnings from self-employment you derive from a non-agricultural trade or business may be reported under an optional method if you are self-employed on a regular basis (as defined in paragraph (c)(4) of this section). You cannot use the optional method of reporting for more than 5 taxable years, and you cannot report less than your actual net earnings from self-employment.
(2) Computation. If your actual net earnings from self-employment are less than $1,600 and less than 66 2/3 percent of your gross income, you may, at your option, report 66 2/3 percent of your gross income (but not more than $1,600) as your net earnings from self-employment.
(i) None. (Actual net earnings from self-employment are less than $400); or
(ii) $1,600. (Non-agricultural option, 66 2/3 percent of $2,800, but not to exceed the $1,600 maximum.)
For the year 1979, A may report as annual net earnings from self-employment either—
(i) $400. (Actual net earnings from self-employment); or
(ii) $800. (Non-agricultural option, 66 2/3 percent of $1,200.)
For the year 1980, A must report $800, the actual net earnings from self-employment. The non-agricultural option is not available because A's actual net earnings are not less than 66 2/3 percent of the gross income.
(3) Figuring net earnings from both non-agricultural and agricultural self-employment. If you are self-employed on a regular basis, you may use the non-agricultural optional method of reporting when you have both non-agricultural and agricultural trades or businesses. However, in order to use this method, your actual net earnings from non-agricultural self-employment combined with your actual net earnings from agricultural self-employment, or your optional net earnings from agricultural self-employment, must be less than $1,600, and the net non-agricultural earnings must be less than 66 2/3 percent of your gross non-agricultural income. If you qualify for using both the non-agricultural and agricultural option, you may report less than your actual total net earnings, but not less than your actual net earnings from non-agricultural self-employment alone. If you elect to use both options in a given taxable year, the combined maximum reportable net earnings from self-employment may not exceed $1,600.
(4) Self-employed on a regular basis. For any taxable year beginning after 1972, we consider you to be self-employed on a regular basis, or to be a member of a partnership on a regular basis, if, in at least 2 of the 3 taxable years immediately before that taxable year, you had actual net earnings from self-employment of not less than $400 from agricultural and non-agricultural trades or businesses (including your distributive share of the net income or loss from any partnership of which you are a member).
(d) Members of partnerships. If you are a member of a partnership you may use the optional method of reporting. Your gross income is your distributive share of the partnership's gross income (after all guaranteed payments to which section 707(c) of the Code applies have been deducted), plus your own guaranteed payment.
(e) Computing gross income. For purposes of this section gross income means—
(1) Under the cash method of computing, the gross receipts from the trade or business reduced by the cost or other basis of property that was purchased and sold, minus any income that is excluded in computing net earnings from self-employment; or
(2) Under the accrual method of computing, the gross income minus any income that is excluded in figuring net earnings from self-employment.
(f) Exercise of option. For each taxable year for which you are eligible to use the optional method and elect to use that method, you must figure your net earnings from self-employment in that manner on your tax return for that year. If you wish to change your method of reporting after your tax return is filed, you may change it by filing an amended tax return with the Internal Revenue Service or by filing with us Form 2190, Change in Method of Computing Net Earnings from Self-Employment.
§ 404.1095   Agricultural trade or business.
(a) An agricultural trade or business is one in which, if the trade or business were carried on entirely by employees, the major portion of the services would be agricultural labor (§ 404.1057).
(b)(1) If the services are partly agricultural and partly non-agricultural, the time devoted to the performance of each type of service is the test used to determine whether the major portion of the services is agricultural labor.
(2) If more than half of the time spent in performing all the services is spent in performing services that are agricultural labor, the trade or business is agricultural.
(3) If half or less of the time spent in performing all the services is spent in performing services that are agricultural labor, the trade or business is not agricultural. The time spent in performing the services is figured by adding the time spent in the trade or business during the taxable year by every individual (including the individual carrying on the trade or business and the members of that individual's family).
(c) We do not apply the rules in this section if the non-agricultural services are performed in connection with a trade or business separate and distinct from the agricultural trade or business. A roadside automobile service station on a farm is a trade or business separate and distinct from the agricultural trade or business, and the gross income from the service station, less the deductions attributable to it, is to be considered in determining net earnings from self-employment.
(d) We consider a sharefarmer (see § 404.1068(c)) or a materially participating owner or tenant (see § 404.1082(c)) to be engaged in an agricultural trade or business. We use the rules in this section to determine whether a farm crew leader who is self-employed (see § 404.1074) is engaged in an agricultural trade or business.
§ 404.1096   Self-employment income.
(a) General. Self-employment income is the amount of your net earnings from self-employment that is subject to social security tax and counted for social security benefit purposes. The term self-employment income means the net earnings from self-employment you derive in a taxable year, except as described in paragraphs (b), (c) and (d) of this section.
(b) Maximum self-employment income. (1) The term self-employment income does not include that part of your net earnings from self-employment that exceeds (or that part of your net earnings from self-employment which, when added to the wages you received in that taxable year, exceeds)—
(2) For the purpose of this paragraph the term wages includes remuneration paid to an employee for services covered by an agreement entered into under section 218 of the Act, or an agreement entered into under section 3121(l) of the Code, which would be wages under section 209 of Act if the services were considered employment under section 210(a) of the Act.
(c) Minimum net earnings from self employment. (1) Self-employment income does not include your net earnings from self-employment when the amount of those earnings for the taxable year is less than $400. If you have only $300 of net earnings from self-employment for the taxable year you would not have any self-employment income. (Special rules apply if you are paid $100 or more and work for a church or church-controlled organization that has exempted its employees (see § 404.1068(f)).)
(2) If you have net earnings from self-employment of $400 or more for the taxable year you may have less than $400 of creditable self-employment income. This occurs where your net earnings from self-employment is $400 or more for a taxable year and the amount of your net earnings from self-employment plus the amount of the wages paid to you during that taxable year exceed the maximum creditable earnings for a year. For example, if you had net earnings from self-employment of $1,000 for 1978, and were also paid wages of $17,500 during 1978, your creditable self-employment income for 1978 would be $200.
(d) Nonresident aliens. A nonresident alien has self-employment income only if coverage is provided under a totalization agreement [see § 404.1913]. We do not consider an individual who is a resident of the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa to be a nonresident alien.
§ 404.1200   General.
(a) Coverage under section 218 of the Act. Under section 218 of the Social Security Act (the Act) a State may ask the Commissioner of Social Security to enter into an agreement to extend Federal old-age, survivors, disability and hospital insurance coverage to groups of employees of the State and its political subdivisions. The Commissioner shall enter into such an agreement. State and local government employees, after being covered under an agreement, have the same benefit rights and responsibilities as other employees who are mandatorily covered under the programs. For payments due on wages paid before 1987, the State assumes full financial and reporting responsibility for all groups covered under its agreement. The agreement may not be terminated in its entirety or with respect to any coverage group under that agreement. For payments due on wages paid in the year 1987 and years later, section 9002 of Pub. L. 99-509 amends section 218 of the Act by transferring responsibility for collecting contributions due and receiving wage reports from the Social Security Administration (SSA) to the Internal Revenue Service (IRS). Sections of the regulations wholly or partly affected by this amendment to the Act are appended with the phrase “—for wages paid prior to 1987.”
(b) Mandatory old-age, survivors, disability, and hospital insurance coverage. Under section 210(a)(7)(F) of the Act, mandatory old-age, survivors, disability, and hospital insurance coverage is extended to certain services performed after July 1, 1991, by individuals who are employees of a State (other than the District of Columbia, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa), a political subdivision of the State, or any wholly owned instrumentality of one or more of the foregoing, and who are not members of the employer's retirement system. Certain services are excluded from such mandatory coverage (see § 404.1020(a)(3).
§ 404.1201   Scope of this subpart regarding coverage and wage reports and adjustments.
This subpart contains the rules of SSA about:
(a) Coverage under section 218 of the Act—
(1) How a State enters into and modifies an agreement; and
(2) What groups of employees a State can cover by agreement.
(b) Contributions, wage reports, and adjustments—for wages paid prior to 1987—
(1) How a State must identify covered employees and what records it must keep on those employees;
(2) Periodic reviews of the source records kept on covered employees;
(3) How and when a State must report wages and pay contributions;
(4) What the State's liability for contributions is and how SSA figures the amount of those contributions;
(5) What happens if a State fails to pay its contributions timely;
(6) How errors in reports and contribution payments are corrected;
(7) How overpayments of contributions are credited or refunded;
(8) How assessments are made if contributions are underpaid; and
(9) How a State can obtain administrative or judicial review of a decision on a credit, refund, or assessment.
§ 404.1202   Definitions.
(a) Terms which have special meaning in this subpart are described in this section. Where necessary, further explanation is included in the section where the term is used.
(b) Coverage terms:
Agreement— The agreement between the Commissioner of Social Security and the State containing the conditions under which retirement, survivors, disability and hospital insurance coverage is provided for State and local government employees.
Coverage— The extension of Social Security protection (retirement, survivors, disability, and hospital insurance) by agreement between the Commissioner of Social Security and a State to employees of the State and its political subdivisions or by agreement between the Commissioner of Social Security and an interstate instrumentality to employees of the interstate instrumentality.
Coverage group— The grouping by which employees are covered under an agreement.
Employee— An employee as defined in section 210(j) of the Act. Usually, the common-law control test is used in determining whether an employer-employee relationship exists. The term also includes an officer of a State or political subdivision.
Governmental function— The traditional functions of government: legislative, executive, and judicial.
Interstate instrumentality— An independent legal entity organized by two or more States to carry out one or more functions. For Social Security coverage purposes under section 218 of the Act, an interstate instrumentality is treated, to the extent practicable, as a “State.”
Modification— A change to the agreement between the Commissioner of Social Security and a State which provides coverage of the services of employees not previously covered or which alters the agreement in some other respect.
Political subdivision— A separate legal entity of a State which usually has specific governmental functions. The term ordinarily includes a county, city, town, village, or school district, and in many States, a sanitation, utility, reclamation, drainage, flood control, or similar district. A political subdivision includes an instrumentality of a State, one or more political subdivisions of a State, or a State and one or more of its political subdivisions.
Proprietary function— A business engaged in by a State or political subdivision such as a public amusement park or public parking lot.
Retirement system— A pension, annuity, retirement, or similar fund or system established by a State or political subdivision.
SSA— The Social Security Administration.
State— Includes the fifty States, Puerto Rico, and the Virgin Islands. It does not include the District of Columbia, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa. “State” also refers to an interstate instrumentality where applicable.
We— The Social Security Administration.
(c) Contributions, wage reporting, and adjustment terms—for wages paid prior to 1987:
Allowance of a credit or refund— The written notice to a State of the determination by SSA of the amount owed to the State by SSA, the period involved, and the basis for the determination.
Assessment— The written notice to a State of the determination by SSA of the amount (contributions or accrued interest) owed to SSA by the State, the period involved, and the basis for the determination.
Contributions— Payments made under an agreement which the State deposits in a Federal Reserve bank. The amounts are based on the wages paid to employees whose services are covered under an agreement. These amounts are equal to the taxes imposed under the Internal Revenue Code on emp1oyers and employees in private employment.
Contribution return— Form used to identify and account for all contributions actions.
Disallowance of a State's claim for credit or refund— The written notice to a State of the determination by SSA that the State's claim for credit or refund is denied, the period involved, and the basis for the determination.
Overpayment— A payment of more than the correct amount of contributions or interest.
Underpayment— A payment of less than the correct amount of contributions or interest.
Wage reports— Forms used to identify employees who were paid wages for covered employment and the amounts of those wages paid. This includes corrective reports.
§ 404.1203   Evidence—for wages paid prior to 1987.
(a) State's responsibility for submitting evidence. The State, under the provisions of the agreement, is responsible for accurately reporting the wages paid employees for services covered by the agreement and for paying the correct amount of contributions due on those wages. This responsibility includes submitting evidence to verify the accuracy of the reports and payments.
(b) Failure to submit requested evidence. The State is required to submit information timely to SSA. If we request additional evidence to verify the accuracy of reports and payments, we specify when that evidence must be submitted. If we do not receive the evidence timely, and the State provides no satisfactory explanation for its failure to submit the evidence timely, we may proceed, if appropriate, on the basis of the information we have. Proceeding on the basis of the information we have permits us to credit the wage records of employees properly, where possible, while continuing to work with the State to resolve remaining discrepancies.
§ 404.1204   Designating officials to act on behalf of the State.
(a) Each State which enters into an agreement shall designate the official or officials authorized to act on the State's behalf in administering the agreement. Each State shall inform SSA of the name, title, and address of the designated official(s) and the extent of each official's authority. For example, a State may indicate that the State official is authorized:
(1) To enter into an agreement and execute modifications to the agreement; and
(2) To carry out the ministerial duties necessary to administer the agreement.
For wages paid prior to 1987:
(3) To enter into agreements to extend or re-extend the time limit for assessment or credit;
(4) To make arrangements in connection with onsite reviews; and
(5) To request administrative review of an assessment, an allowance of a credit or refund, or a disallowance of a credit or refund.
(b) Each State shall inform SSA timely of changes in designated officials or changes in their authority.
§ 404.1205   Absolute coverage groups.
(a) General. An absolute coverage group is a permanent grouping of employees, e.g., all the employees of a city or town. It is a coverage group for coverage and reporting purposes. When used for coverage purposes, the term refers to groups of employees whose positions are not under a retirement system. An absolute coverage group may include positions which were formerly under a retirement system and, at the State's option, employees who are in positions under a retirement system but who are ineligible (see § 404.1208) to become members of that system.
(b) What an absolute coverage group consists of. An absolute coverage group consists of one of the following employee groups:
(1) State employees performing services in connection with the State's governmental functions;
(2) State employees performing services in connection with a single proprietary function of the State;
(3) Employees of a State's political subdivision performing services in connection with that subdivision's governmental functions;
(4) Employees of a State's political subdivision performing services in connection with a single proprietary function of the subdivision;
(5) Civilian employees of a State's National Guard units; and
(6) Individuals employed under an agreement between a State and the U.S. Department of Agriculture as agricultural products inspectors.
(c) Designated coverage groups. A State may provide coverage for designated ( i.e. , selected) absolute coverage groups of the State or a political subdivision. When coverage is extended to these designated groups, the State must specifically identify each group as a designated absolute coverage group and furnish the effective date of coverage and any optional exclusion(s) for each group. Where a State has provided coverage to designated absolute coverage groups, the State may, by modifying its agreement, extend that coverage to any absolute coverage group in the State.
§ 404.1206   Retirement system coverage groups.
(a) General. Section 218(d) of the Act authorizes coverage of services of employees in positions under a retirement system. For purposes of obtaining coverage, a system may be considered a separate retirement system authorized by sections 218(d)(6) (A) or (B) or 218(l) of the Act. Under these sections of the Act a State may designate the positions of any one of the following groupings of employees as a separate retirement system:
(1) The entire system;
(2) The employees of the State under the system;
(3) The employees of each political subdivision in the State under the system;
(4) The employees of the State and the employees of any one or more of the State's political subdivisions;
(5) The employees of any combination of the State's political subdivisions;
(6) The employees of each institution of higher learning, including junior colleges and teachers colleges;
(7) The employees of a hospital which is an integral part of a political subdivision; or
(8) The employees in police officers' positions or firefighters' positions, or both.
(b) Retirement system coverage groups. A retirement system coverage group is a grouping of employees in positions under a retirement system. Employees in positions under the system have voted for coverage for the system by referendum and a State has provided coverage by agreement or modification of its agreement. It is not a permanent grouping. It exists only for referendum and coverage purposes and is not a separate group for reporting purposes. Once coverage has been obtained, the retirement system coverage group becomes part of one of the absolute coverage groups described in § 404.1205(b).
(c) What a retirement system coverage group consists of. A retirement system coverage group consists of:
(1) Current employees—all employees whose services are not already covered by the agreement, who are in positions covered by the same retirement system on the date an agreement or modification of the agreement is made applicable to the system;
(2) Future employees—all employees in positions brought under the system after an agreement or modification of the agreement is signed; and
(3) Other employees—all employees in positions which had been under the retirement system but which were not under the retirement system when the group was covered (including ineligibles who had been optionally excluded from coverage under section 218(c)(3)(B) of the Act).
(d) Referendum procedures. Prior to signing the agreement or modification, the governor or an official of the State named by the governor (for an interstate instrumentality, its chief executive officer) must certify to the Commissioner that:
(1) All eligible employees were given at least 90 days' notice of the referendum;
(2) All eligible employees were given an opportunity to vote in the referendum;
(3) Only eligible employees were permitted to vote in the referendum;
(4) Voting was by secret written ballot on the question of whether service in positions covered by the retirement system should be included under an agreement;
(5) The referendum was conducted under the supervision of the governor or agency or individual named by him; and
(6) A majority of the retirement system's eligible employees voted for coverage under an agreement.
(e) Who is covered. If a majority of the eligible employees in a retirement system vote for coverage, all employees in positions in that retirement system become covered.
(f) Coverage of employees in positions under more than one retirement system. (1) If an employee occupies two or more positions each of which is under a different retirement system, the employee's coverage in each position depends upon the coverage extended to each position under each system.
(2) If an employee is in a single position which is under more than one retirement system (because the employee's occupancy of that position permits her or him to become a member of more than one retirement system), the employee is covered when the retirement system coverage group including her or his position is covered under an agreement unless (A) he or she is not a member of the retirement system being covered and (B) he or she is a member of a retirement system which has not been covered. This rule also applies to the coverage of services in police officers' and firefighters' positions in States and interstate instrumentalities as discussed in § 404.1212(c).
§ 404.1207   Divided retirement system coverage groups.
(a) General. Under section 218(d)(6)(C) of the Act certain States and under section 218(g)(2) of the Act all interstate instrumentalities may divide a retirement system based on whether the employees in positions under that system want coverage. The States having this authority are Alaska, California, Connecticut, Florida, Georgia, Hawaii, Illinois, Kentucky, Louisiana, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, North Dakota, Pennsylvania, Rhode Island, Tennessee, Texas, Vermont, Washington, and Wisconsin.
(b) Divided retirement system coverage group. A divided retirement system coverage group is a grouping under a retirement system of positions of members of the system who voted for coverage and positions of individuals who become members of the system (the “yes” group), and positions of members of the system who did not elect coverage (the “no” group) and ineligible employees (see § 404.1208). For purposes of this section for groups covered after 1959, the term “member” also includes individuals who have an option to become members of the retirement system but have not done so. The position of a member in the “no” group can be covered if, within two years after the agreement or modification extending coverage to the “yes” group is executed, the State provides an opportunity to transfer the position to the covered “yes” group and the individual occupying the position makes a written request for the transfer. The members of the “no” group can also be covered if, by referendum, a majority of them vote for coverage. If the majority votes for coverage, all positions of the members of the “no” group become covered. There is no further subdivision of the “no” group into those who voted for and those who voted against coverage. If the State requests, the ineligibles in the “no” group may become part of the “yes” group and have their services covered.
(c) Referendum procedures. To divide a retirement system, the State must conduct a referendum among the system's employees. If the system is to be divided, the governor or an individual named by him must certify to the Secretary that:
(1) The referendum was held by written ballot on the question of whether members of a retirement system wish coverage under an agreement;
(2) All members of the retirement system at the time the vote was held had the opportunity to vote;
(3) All members of the system on the date the notice of the referendum was issued were given at least 90 days' notice regarding the referendum;
(4) The referendum was conducted under the supervision of the governor or agency or person designated by him; and
(5) The retirement system was divided into two parts, one composed of positions of members of the system who voted for coverage and the other composed of the remaining positions under the retirement system.
§ 404.1208   Ineligible employees.
(a) Definition. An ineligible is an employee who, on first occupying a position under a retirement system, is not eligible for membership in that system because of a personal disqualification like age, physical condition, or length of service.
(b) Coverage of ineligible employees. A State may, in its agreement or any modification to the agreement, provide coverage for the services of ineligible employees in one of three ways:
(1) As part of or as an addition to an absolute coverage group;
(2) As part of a retirement system coverage group covering all positions under the retirement system; or
(3) As part of or as an addition to a retirement system coverage group composed of those members in positions in a retirement system who chose coverage.
§ 404.1209   Mandatorily excluded services.
Some services are mandatorily excluded from coverage under a State's agreement. They are:
(a) Services of employees who are hired to relieve them from unemployment;
(b) Services performed in an institution by a patient or inmate of the institution;
(c) Transportation service subject to the Federal Insurance Contributions Act;
(d) Certain emergency services in case of fire, storm, snow, volcano, earthquake, flood or other similar emergency; and
(e) Services other than agricultural labor or student services which would be excluded from coverage if performed for a private employer.
(f) Services covered under section 210(a)(7)(F) of the Act. (See § 404.1200(b).)
§ 404.1210   Optionally excluded services.
Certain services and positions may, if the State requests it, be excluded from coverage. These exclusions may be applied on a statewide basis or selectively by coverage groups. They are:
(a) Services in any class or classes of elective positions;
(b) Services in any class or classes of part-time positions;
(c) Services in any class or classes of positions where the pay is on a fee basis;
(d) Any agricultural labor or student services which would also be excluded if performed for a private employer; and
(e) For modifications executed after 1994, services performed by election officials or election workers if the payments for those services in a calendar year are less than $1000 for calendar years after 1994 and before 2000, or, for calendar years after 1999, are less than the $1000 base amount as adjusted pursuant to section 218(c)(8)(B) of the Act to reflect changes in wages in the economy. We will publish this adjustment of the $1000 base amount in the Federal Register on or before November 1 preceding the year for which the adjustment is made.
§ 404.1211   Interstate instrumentalities.
For Social Security coverage purposes under section 218 of the Act, interstate instrumentalities are treated, to the extent practicable, as States, that is:
(a) They must be legally authorized to enter into an agreement with the Commissioner;
(b) They are subject to the same rules that are applied to the States;
(c) They may divide retirement systems and cover only the positions of members who want coverage; and
(d) They may provide coverage for firefighters and police officers in positions under a retirement system.
§ 404.1212   Police officers and firefighters.
(a) General. For Social Security coverage purposes under section 218 of the Act, a police officer's or firefighter's position is any position so classified under State statutes or court decisions. Generally, these positions are in the organized police and fire departments of incorporated cities, towns, and villages. In most States, a police officer is a member of the “police” which is an organized civil force for maintaining order, preventing and detecting crimes, and enforcing laws. The terms “police officer” and “firefighter” do not include services in positions which, although connected with police and firefighting functions, are not police officer or firefighter positions.
(b) Providing coverage. A State may provide coverage of:
(1) Police officers' and firefighters' positions not under a retirement system as part of an absolute coverage group; or
(2) Police officers' or firefighters' positions, or both, as part of a retirement system coverage group.
(c) Police officers and firefighters in positions under a retirement system. All States and interstate instrumentalities may provide coverage for employees in police officers' or firefighters' positions, or both, which are under a retirement system by following the majority vote referendum procedures in § 404.1206(d). In addition, all interstate instrumentalities and the States listed in § 404.1207 may use the desire for coverage procedures described in § 404.1207.
§ 404.1214   Agreement for coverage.
(a) General. A State may enter into a written agreement with the Commissioner to provide for Social Security coverage for its employees or the employees of one or more of its political subdivisions. An interstate instrumentality may enter into a similar agreement for its employees. These agreements cover employees in groups of positions or by types of services rather than the individual employees.
(b) Procedures. A State or interstate instrumentality may request coverage by submitting to SSA a proposed written agreement for the desired coverage.
(c) Authority to enter into an agreement for coverage —(1) Federal law. Section 218(a) of the Act requires the Commissioner to enter into an agreement, at the request of the State, to extend Social Security coverage to the State's employees or those of its political subdivisions. Section 218(g) authorizes the Commissioner to enter into an agreement, at the request of an interstate instrumentality, to extend Social Security coverage to the employees of the interstate instrumentality.
(2) State law. State law must authorize a State or an interstate instrumentality to enter into an agreement with the Commissioner for Social Security coverage.
(d) Provisions of the agreement. The agreement must include:
(1) A description of the specific services to be covered and excluded;
(2) The State's promise to pay, to the Secretary of the Treasury, contributions equal to the sum of the taxes which would be required under the Federal Insurance Contributions Act from employers and employees if the employment were in the private sector;
(3) The State's promise to comply with the regulations the Commissioner prescribes for carrying out the provisions of section 218 of the Act; and
(4) Identification of the political subdivisions, coverage groups, or services being covered and the services that are excluded.
(e) Effective date. The agreement must specify an effective date of coverage. However, the effective date cannot be earlier than the last day of the sixth calendar year preceding the year in which the agreement is mailed or delivered by other means to the Commissioner. The agreement is effective after the effective date.
(f) Applicability of agreement. The agreement establishes the continuing relationship between the Commissioner and the State or interstate instrumentality except as it is modified (see §§ 404.1215-404.1217).
§ 404.1215   Modification of agreement.
(a) General. A State or interstate instrumentality may modify in writing its agreement, for example, to:
(1) Exclude, in limited situations, employee services or positions previously covered;
(2) Include additional coverage groups; or
(3) Include as covered services:
(i) Services of covered employees for additional retroactive periods of time; and
(ii) Services previously excluded from coverage.
(b) Controlling date for retroactive coverage. A State may specify in the modification a date to make all individuals in the coverage group who were in an employment relationship on that date eligible for retroactive coverage. This date is known as the controlling date for retroactive coverage. It can be no earlier than the date the modification is mailed or otherwise delivered to the Commissioner nor can it be later than the date the modification is signed by the Commissioner. If the State does not designate a controlling date, the date the modification is signed by the Commissioner is the controlling date.
(c) Conditions for modification. The provisions of section 218 of the Act which apply to the original agreement also apply to a modification to the agreement.
(d) Effective date. Generally, a modification must specify an effective date of coverage. However, the effective date cannot be earlier than the last day of the sixth calendar year preceding the year in which the modification is mailed or delivered by other means to the Commissioner. The modification is effective after the effective date.
§ 404.1216   Modification of agreement to correct an error.
(a) General. If an agreement or modification contains an error, the State may correct the error by a subsequent modification to the agreement. For example, the agreement or modification incorrectly lists a covered service as an optionally excluded service or shows an improper effective date of coverage. In correcting this type of error, which affects the extent of coverage, the State must submit a modification along with evidence to establish that the error occurred. However, a modification is not needed to correct minor typographical or clerical errors. For example, an agreement or modification incorrectly lists School District No. 12 as School District No. 13. This type of error can be corrected based on a written request from the appropriate official of the State or interstate instrumentality.
(b) Correction of errors involving erroneous reporting to the IRS—for wages paid prior to 1987. Where a State or political subdivision makes reports and payments to the Internal Revenue Service under the provisions of the Federal Insurance Contributions Act which apply to employees in private employment in the mistaken belief that this action would provide coverage for its employees, the State may provide the desired coverage for those same periods of time by a subsequent modification to its agreement. If State law permits, the State may make that coverage effective with the first day of the first period for which the erroneous reports and payments were made. (In this instance, the limitation on retroactive coverage described in § 404.1215(d) is not applicable.) Where the State does not want to provide such retroactive coverage or is not permitted to do so by State law, the State may provide the coverage for the affected coverage group as of a specified date (§ 404.1215(b)). The coverage would then apply to the services performed by individuals as members of the coverage group
(1) Who were employees on that date, and
(2) Whose wages were erroneously reported to IRS, and
(3) For whom a refund of FICA taxes has not been obtained at the time the Commissioner.
§ 404.1217   Continuation of coverage.
The coverage of State and local government employees continues as follows:
(a) Absolute coverage group. Generally, the services of an employee covered as a part of an absolute coverage group (see § 404.1205) continue to be covered indefinitely. A position covered as a part of an absolute coverage group continues to be covered even if the position later comes under a retirement system. This includes policemen's and firemen's positions which are covered with an absolute coverage group.
(b) Retirement system coverage group. Generally, the services of employees in positions covered as a part of a retirement system coverage group continue to be covered indefinitely. For a retirement system coverage group made up of members who chose coverage, a position continues to be covered until it is removed from the retirement system and is no longer occupied by a member who chose coverage or by a new member of the system. Coverage is not terminated because the positions are later covered under additional retirement systems or removed from coverage under a retirement system, or because the retirement system is abolished with respect to the positions. However, if the retirement system has been abolished, newly created or reclassified positions or positions in a newly created political subdivision cannot be covered as a part of the retirement system coverage group. If the retirement system is not abolished, a newly created or reclassified position is a part of the coverage group if the position would have been a part of the group had it existed earlier. If the retirement system coverage group is made up of members who chose coverage, the newly created or reclassified position is a part of the coverage group if it is occupied by a member who chose coverage or by a new member.
§ 404.1218   Resumption of coverage.
Before April 20, 1983, an agreement could be terminated in its entirety or with respect to one or more coverage groups designated by the State. Coverage of any coverage group which has been previously terminated may be resumed by a modification to the agreement.
§ 404.1219   Dissolution of political subdivision.
If a political subdivision whose employees are covered under the agreement is legally dissolved, the State shall give us satisfactory evidence of its dissolution or nonexistence. The evidence must establish that the entity is not merely inactive or dormant, but that it no longer legally exists. We will notify the State whether the evidence is satisfactory.
§ 404.1220   Identification numbers.
(a) State and local governments. When a State submits a modification to its agreement under section 218 of the Act, which extends coverage to periods prior to 1987, SSA will assign a special identification number to each political subdivision included in that modification. SSA will send the State a Form SSA-214-CD, “Notice of Identifying Number,” to inform the State of the special identification number(s). The special number will be used for reporting the pre-1987 wages to SSA. The special number will also be assigned to an interstate instrumentality if pre-1987 coverage is obtained and SSA will send a Form SSA-214-CD to the interstate instrumentality to notify it of the number assigned.
(b) Coverage group number for coverage groups. If a State's agreement provides coverage for a State or a political subdivision based on designated proprietary or governmental functions, the State shall furnish a list of those groups. The list shall identify each designated function and the title and business address of the official responsible for filing each designated group's wage report. SSA assigns a coverage group number to each designated group based on the information furnished in the list.
(c) Unit numbers for payroll record units. SSA assigns, at a State's request, unit numbers to payroll record units within a State or political subdivision. When a State requests separate payroll record unit numbers, it must furnish the following:
(1) The name of each payroll record unit for the coverage group; and
(2) The title and business address of the official responsible for each payroll unit.
(d) Unit numbers where contribution amounts are limited—for wages paid prior to 1987. An agreement, or modification of an agreement, may provide for the computation of contributions as prescribed in § 404.1256 for some employees of a political subdivision. In this situation, SSA assigns special unit numbers to the political subdivision to identify those employees. SSA does not assign a special unit number to a political subdivision in which the contributions for all employees are computed as prescribed in § 404.1256.
(e) Use. For wages paid prior to 1987, the employer shall show the appropriate SSA-issued identifying number, including any coverage group or payroll record unit number, on records, reports, returns, and claims to report wages, adjustments, and contributions.
§ 404.1225   Records—for wages paid prior to 1987.
(a) Who keeps the records. Every State which enters into an agreement shall keep, or require the political subdivisions whose employees are included under its agreement to keep, accurate records of all remuneration (whether in cash or in a medium other than cash) paid to employees performing services covered by that agreement. These records shall show for each employee:
(1) The employee's name, address, and Social Security number;
(2) The total amount of remuneration (including any amount withheld as contributions or for any other reason) and the date the remuneration was paid and the period of services covered by the payment;
(3) The amount of remuneration which constitutes wages (see § 404.1041 for wages and §§ 404.1047-404.1059 for exclusions from wages); and
(4) The amount of the employee's contribution, if any, withheld or collected, and if collected at a time other than the time such payment was made, the date collected. If the total remuneration (paragraph (a)(2) of this section) and the amount which is subject to contribution (paragraph (a)(3) of this section) are not equal, the reason shall be stated.
(b) Place and period of time for keeping records. All records required by this section shall:
(1) Be kept at one or more convenient and safe locations accessible to reviewing personnel (see § 404.1232(a));
(2) Be available for inspection by reviewing personnel at any time; and
(3) Be maintained for at least four years from the date of the event recorded. (This four-year requirement applies regardless of whether, in the meantime, the employing entity has been legally dissolved or, before April 20, 1983, the agreement was terminated in its entirety or in part.)
§ 404.1230   Onsite review program.
To ensure that the services of employees covered by a State's agreement are reported and that those employees receive Social Security credit for their covered earnings, we periodically review the source records upon which a State's contribution returns and wage reports are based. These reviews are designed:
(a) To measure the effectiveness of the State's systems for ensuring that all wages for those employees covered by its agreement are reported and Social Security contributions on those wages are paid;
(b) To detect any misunderstanding of coverage or reporting errors and to advise the State of the corrective action it must take; and
(c) To find ways to improve a State's recordkeeping and reporting operations for the mutual benefit of the State and SSA.
§ 404.1231   Scope of review.
The onsite review focuses on four areas:
(a) State's controls and recordkeeping—to assess a State's systems for assuring timely receipt, correctness, and completeness of wage reports and contribution returns;
(b) Instruction, education, and guidance a State provides local reporting officials—to assess a State's systems for assuring on a continuing basis that all reporting officials and their staffs have the necessary instructions, guidelines, and training to meet the State's coverage, reporting and recordkeeping requirements;
(c) Compliance by reporting officials—to assess a State's systems for assuring that the reporting officials in the State have adequate recordkeeping procedures, are properly applying the appropriate provisions of the State's agreement, and are complying with reporting requirements; and
(d) Quality control with prompt corrective action—to assess a State's systems for assuring that its reports and those of its political subdivisions are correct, for identifying the causes and extent of any deficiencies, and for promptly correcting these deficiencies.
§ 404.1232   Conduct of review.
(a) Generally, SSA staff personnel conduct the onsite review. Occasionally, members of the Office of the Inspector General may conduct or participate in the review.
(b) The review is done when considered necessary by SSA or, if practicable, in response to a State's specific request for a review.
(c) All pertinent source records prepared by the State or its political subdivisions are reviewed, on site, to verify the wage reports and contribution returns. We may review with the appropriate employees in a subdivision those source records and how the information is gathered, processed, and maintained. We notify the State's Social Security Administrator when we plan to make the review and request her or him to make the necessary arrangements.
(d) The review is a cooperative effort between SSA and the States to improve the methods for reporting and maintaining wage data to carry out the provisions of the agreement.
§ 404.1234   Reports of review's findings.
We provide the State Social Security Administrator with reports of the review's findings. These reports may contain coverage questions which need development and resolution and reporting errors or omissions for the State to correct promptly. These reports may also recommend actions the State can take to improve its information gathering, recordkeeping, and wage reporting systems, and those of its political subdivisions.
§ 404.1237   Wage reports and contribution returns—general—for wages paid prior to 1987.
(a) Wage reports. Each State shall report each year the wages paid each covered employee during that year. With the wage report the State shall also identify, as prescribed by SSA, each political subdivision by its assigned identification number and, where appropriate, any coverage group or payroll record unit number assigned.
(b) Wage reports of remuneration for agricultural labor. A State may exclude from its agreement any services of employees the remuneration for which is not wages under section 209(h)(2) of the Act. Section 209(h)(2) excludes as wages the cash remuneration an employer pays employees for agricultural labor which is less than $150 in a calendar year, or, if the employee performs the agricultural labor for the employer on less than 20 days during a calendar year, the cash remuneration computed on a time basis. If a State does exclude the services and the individual meets the cash-pay or 20-day test described in § 404.1056, the State shall identify on the wage report and on any adjustment report each individual performing agricultural labor and the amount paid to her or him.
(c) Contribution returns. The State shall forward the contribution return as set out in § 404.1249(b). It shall make contribution payments under § 404.1262.
§ 404.1239   Wage reports for employees performing services in more than one coverage group—for wages paid prior to 1987.
(a) Employee of State in more than one coverage group. If a State employee is in more than one coverage group, the State shall report the employee's total wages, up to the annual wage limitations in § 404.1047, as though the wages were paid by only one of the coverage groups.
(b) Employee of political subdivision in more than one coverage group. If an employee of a political subdivision is in more than one coverage group, the State shall report the employee's total wages, up to the annual wage limitations in § 404.1047, as though the wages were paid by only one of the coverage groups.
(c) Employee of State and one or more political subdivisions. If an individual performs covered services as an employee of the State and an employee of one or more political subdivisions and the State agreement does not provide for limiting contributions under section 218(e)(2) of the Act as it read prior to the enactment of Pub. L. 99-509, the State and each political subdivision shall report the amount of covered wages it paid the employee up to the annual wage limitations in § 404.1047.
(d) Employee of more than one political subdivision. If an individual performs covered services as an employee of more than one political subdivision and the State agreement does not provide for limiting contributions under section 218(e)(2) of the Act as it read prior to the enactment of Pub. L. 99-509, each political subdivision shall report the covered wages it paid the employee up to the annual wage limitations in § 404.1047.
(e) Employee performing covered services for more than one political entity where section 218(e)(2) of the Act is applicable. If an agreement provides for limiting contributions under section 218(e)(2) of the Act as it read prior to the enactment of Pub. L. 99-509, the reporting officials compute the total amount of wages paid the employee by two or more political subdivisions of a State, or a State and one or more of its political subdivisions, which were subject to section 218(e)(2) of the Act. The State reports the amount of wages paid up to the annual wage limitations in § 404.1047. The employee is treated as having only one employer. If the employee also had wages not subject to section 218(e)(2) of the Act, the State shall report those wages separately.
§ 404.1242   Back pay.
(a) Back pay defined. Back pay is pay received in one period of time which would have been paid in a prior period of time except for a wrongful or improper action taken by an employer. It includes pay made under Federal or State laws intended to create an employment relationship (including situations where there is unlawful refusal to hire) or to protect an employee's right to wages.
(b) Back pay under a statute. Back pay under a statute is a payment by an employer following an award, determination or agreement approved or sanctioned by a court or administrative agency responsible for enforcing a Federal or State statute protecting an employee's right to employment or wages. Examples of these statutes are:
(1) National Labor Relations Act or a State labor relations act;
(2) Federal or State laws providing reemployment rights to veterans;
(3) State minimum wage laws; and
(4) Civil Rights Act of 1964.
(c) Back pay not under a statute. Where the employer and the employee agree on the amount payable without any award, determination or agreement approved or sanctioned by a court or administrative agency, the payment is not made under a statute. This back pay cannot be allocated to prior periods of time but must be reported by the employer for the period in which it is paid.
§ 404.1243   Use of reporting forms—for wages paid prior to 1987.
(a) Submitting wage reports. In the form and manner required by SSA, a State shall submit an annual report of the covered wages the State and its political subdivisions paid their employees. Any supplemental, adjustment, or correctional wage report filed is considered a part of the State's wage report.
(b) Correction of errors. If a State fails to report or incorrectly reports an employee's wages on its wage report, the State shall submit a corrective report as required by SSA.
(c) Reporting on magnetic tape or other media. After approval by SSA, a State may substitute magnetic tape or other media for any form required for submitting a report or reporting information.
§ 404.1247   When to report wages—for wages paid prior to 1987.
A State shall report wages for the calendar year in which they were actually paid. If the wages were constructively paid in a prior calendar year, the wages shall be reported for the prior year (see § 404.1042(b) regarding constructive payment of wages).
§ 404.1249   When and where to make deposits of contributions and to file contribution returns and wage reports—for wages paid prior to 1987.
(a) Deposits of contributions. The State shall pay contributions in the manner required in § 404.1262. (For failure to make deposits when due see § 404.1265.) The contribution payment is considered made when received by the appropriate Federal Reserve bank or branch (see § 404.1262). Except as provided in paragraphs (b) (2) and (3) and paragraph (c) of this section, contributions are due and payable as follows:
(1) For wages paid before July 1, 1980. Contribution payments for wages paid in a calendar quarter are due on the 15th day of the second month following the end of the calendar quarter during which the wages were paid.
(2) For wages paid beginning July 1, 1980, and before January 1984. Contribution payments for wages paid in a calendar month are due within the thirty day period following the last day of that month.
(3) For wages paid after December 1983 and prior to 1987. Contribution payments for wages paid in the first half of a calendar month are due on the last day of that month. Contribution payments for wages paid in the second half of that calendar month are due on the fifteenth day of the next month. (For purposes of this section, the first half of a calendar month is the first 15 days of that month and the second half is the remainder of that month.)
(b) Contribution returns and wage reports —(1) Where to be filed. The State shall file the original copies of all contribution returns, wage reports, and adjustment reports with the SSA.
(2) When to be filed —(i) For years prior to execution of agreement or modification. If an agreement or modification provides for the coverage of employees for periods prior to 1987, the State shall pay contributions due and shall file wage reports with SSA for these periods within 90 days after the date of the notice that the Commissioner has signed the agreement or modification.
(ii) For year of execution of agreement or modification. If the agreement or modification provides for the coverage of employees for the year of execution of the agreement or modification, the State may, within 90 days after the date of the notice that the Commissioner has signed the agreement or modification, submit a single contribution return and pay all contributions due for the following periods:
(A) The month in which the agreement or modification was signed;
(B) Any prior months in that year; and
(C) Any subsequent months before January 1984 (half-months after December 1983) whose contribution return and payment due date is within this 90 day period. The State shall file wage reports for that year by February 28 of the year following the date of execution or within 90 days of the date of the notice, whichever is later.
(iii) For years after execution of agreement or modification. Except as described in paragraph (b)(2)(ii) of this section, when the State pays its contributions under paragraph (a) of this section, it shall also file a contribution return. The State shall file the wage report for any calendar year after the year of execution of the agreement or modification by February 28 of the following calendar year.
(iv) For good cause shown, and upon written request by a State, the Commissioner may allow additional time for filing the reports and paying the related contributions described in paragraphs (b)(2)(i) and (b)(2)(ii) of this section.
(3) Due date is on a weekend, legal holiday or Federal nonworkday. If the last day for filing the wage report falls on a weekend, legal holiday or Federal nonworkday, the State may file the wage report on the next Federal workday. If the due date for paying contributions for the wages paid in a period (as specified in paragraph (a) of this section) falls on a weekend, legal holiday or Federal nonworkday, the State shall pay the contributions and shall file the contribution return no later than—
(i) The preceding Federal workday for wages paid in July 1980 through December 1983;
(ii) The next Federal workday for wages paid before July 1980 or after December 1983.
(4) Submitting reports and payments. When submitting the contribution returns or wage reports the State shall release them in time to reach SSA by the due date. When submitting contribution payments as described in § 404.1262, the State shall release the payments in time to reach the appropriate Federal Reserve bank or branch by the due date. In determining when to release any returns, reports, or payments the State shall provide sufficient time for them to timely reach their destination under the method of submission used, e.g., mail or electronic transfer of funds.
(c) Payments by third party on account of sickness or accident disability. Where a third party makes a payment to an employee on account of sickness or accident disability which constitutes wages for services covered under a State agreement, the wages will be considered, for purposes of the deposits required under this section, to have been paid to the employee on the date on which the employer receives notice from the third party of the amount of the payment. No interest will be assessed for failure to make a timely deposit of contributions due on such wages for which a deposit was made after December 1981 and before July 1982, to the extent that the failure to make the deposit timely is due to reasonable cause and not willful neglect.
§ 404.1251   Final reports—for wages paid prior to 1987.
If a political subdivision is legally dissolved, the State shall file a final report on that entity. The report shall include each coverage group whose existence ceases with that of the entity. It shall:
(a) Be marked “final report”;
(b) Cover the period during which final payment of wages subject to the agreement is made; and
(c) Indicate the last date wages were paid.
§ 404.1255   State's liability for contributions—for wages paid prior to 1987.
A State's liability for contributions equals the sum of the taxes which would be imposed by sections 3101 and 3111 of the Internal Revenue Code of 1954, if the services of the employees covered by the State's agreement were employment as defined in section 3121 of the Code. The State's liability begins when those covered services are performed, for which wages are actually or constructively paid to those individuals, including wages paid in a form other than cash (see § 404.1041(d)). If an agreement is effective retroactively, the State's liability for contributions on wages paid during the retroactive period begins with the date of execution of the agreement or applicable modification. Where coverage of a coverage group has been terminated, the State is liable for contributions on wages paid for covered services even if the wages are paid after the effective date of termination of coverage.
§ 404.1256   Limitation on State's liability for contributions for multiple employment situations—for wages paid prior to 1987.
(a) Limitation due to multiple employment. Where an individual in any calendar year performs covered services as an employee of a State and as an employee of one or more political subdivisions of the State, or as an employee of more than one political subdivision; and the State provides all the funds for payment of the amounts which are equivalent to the taxes imposed on the employer under FICA on that individual's remuneration for those services; and no political subdivision reimburses the State for paying those amounts; the State's agreement or modification of an agreement may provide that the State's liability for the contributions on that individual's remuneration shall be computed as though the individual had performed services in employment for only one political subdivision. The State may then total the individual's covered wages from all these governmental employers and compute the contributions based on that total subject to the wage limitations in § 404.1047.
(b) Identification of employees in multiple employment. An agreement or modification of an agreement providing for the computation of contributions as described in paragraph (a) of this section shall identify the class or classes of employees to whose wages this method of computing contributions applies. For example, the State may provide that such computation shall apply to the wages paid to all individuals for services performed in positions covered by a particular retirement system, or to the wages paid to all individuals who are members of any two or more coverage groups designated in an agreement or modification. The State shall promptly notify SSA if the conditions in paragraph (a) of this section are no longer met by any class or classes of employees identified in an agreement or modification. In its notification, the State shall identify each class of employees and the date on which the conditions ceased to be met.
(c) Effective date. In the agreement or modification, the State shall provide that the computation of contributions shall apply to wages paid after the effective date stated in the agreement or modification. That date may be the last day of any calendar year; however, it may be no earlier than January 1 of the year in which the agreement or modification is submitted to SSA.
§ 404.1260   Amount of contributions—for wages paid prior to 1987.
The State's contributions are equal to the product of the applicable contribution rate (which is equivalent to both the tax rates imposed under sections 3101 and 3111 of the Internal Revenue Code) times the amount of wages actually or constructively paid for covered services each year (subject to the wage limitations in § 404.1047) to the employee.
§ 404.1262   Manner of payment of contributions by State—for wages paid prior to 1987.
When paying its contributions, the State shall deposit its payment at the specific Federal Reserve bank or branch designated by SSA.
§ 404.1263   When fractional part of a cent may be disregarded—for wages paid prior to 1987.
In paying contributions to a Federal Reserve bank or branch, a State may disregard a fractional part of a cent unless it amounts to one-half cent or more, in which case it shall be increased to one cent. Fractional parts of a cent shall be used in computing the total of contributions.
§ 404.1265   Addition of interest to contributions—for wages paid prior to 1987.
(a) Contributions not paid timely. If a State fails to pay its contributions to the appropriate Federal Reserve bank or branch (see § 404.1262), when due under § 404.1249(a), we add interest on the unpaid amount of the contributions beginning with the date the payment was due, except as described in paragraphs (b) and (c) of this section. Interest, if charged, begins with the due date even if it is a weekend, legal holiday or Federal nonwork day. Interest is added at the rate prescribed in section 218(j) of the Act as it read prior to the enactment of Pub. L. 99-509.
(b) Method of making adjustment. (1) If a State shall file a contribution return and shall accompany such return with payment of contributions due and payable as reported on such return in accordance with § 404.1249 but the amount of the contributions reported and paid is less than the correct amount of contributions due and payable and the underpayment of contributions is attributable to an error in computing the contributions (other than an error in applying the rate of contributions in effect at the time the wages were paid), the State shall adjust the underpayment by reporting the additional amount due by reason of such underpayment either as an adjustment of total contributions due with the first wage report filed after notification of the underpayment by the Social Security Administration, or as a single adjustment of total contributions due with any contribution return filed prior to the filing of such wage report.
(2) If an underpayment of contributions is due to an underreporting of or a failure to report one or more employees:
(i) Where the underreporting or failure to report has been ascertained by the State, the State may cause an adjustment by filing a report within 30 days after ascertainment of the error by the State;
(ii) Where the underreporting or failure to report has been ascertained by the Social Security Administration, a notification of underpayment shall be forwarded to the State, and the State may cause an adjustment of the underpayment by returning to the Social Security Administration, within 30 days from the date of the notification, a copy of the notification of underpayment and the State's corrected report. The report shall show the amount of wages, if any, erroneously reported for the reporting period and the correct amount of wages that should have been reported and the identification number of the State or the political subdivision for each employee who was omitted or erroneously reported. The filing to correct an underreporting of or a failure to report one or more employees' wages shall not constitute an adjustment under this section unless the wages were erroneously omitted or erroneously reported.
(c) Payment. The amount of each underpayment adjusted in accordance with this section shall be paid to the Federal Reserve Bank, or branch thereof, serving the district in which the State is located, without interest, at the time of reporting the adjustment; except that where any amounts due with respect to such an adjustment had been paid in error to IRS and a refund thereof timely requested from, or instituted by, IRS, the amount of underpayment adjusted in accordance with this section, plus any interest paid by IRS on the amount of such underpayment, shall be paid to the Federal Reserve Bank, or branch thereof, serving the district in which the State is located, at the time of reporting the adjustment or within 30 days after the date of issuance by IRS of the refund of the erroneous payments, whichever is later. Except as provided in the preceding sentence of this paragraph, if an adjustment is reported pursuant to paragraph (b) of this section, but the amount thereof is not paid when due, interest thereafter accrues.
(d) Verifying contributions paid against reported wages. We check the computation of contributions to verify that a State has paid the correct amount of contributions on the wages it reports for a calendar year (see § 404.1249(b)(2)). If we determine that a State paid less than the amount of contributions due for that year, we add interest to the amount of the underpayment. We would add interest beginning with the date the unpaid contributions were initially due to the date those contributions are paid. However, if the total amount of the underpayment is 5 percent or less than 5 percent of the contributions due for a calendar year based upon the State's wage report and the State deposits the underpaid amount within 30 days after the date of our notification to the State of the amount due, the State may request that the interest on the underpaid amount be waived for good cause. This request must be made within 30 days of our notification to the State of the amount due. Such requests will be evaluated on an individual basis. The evaluation will include, but not be limited to, consideration of such factors as the circumstances causing the late payment, the State's past record of late payments and the amount involved.
(2) We would waive interest if:
(i) Some of the political subdivisions made small arithmetical errors in preparing their reports of wages,
(ii) After verification of the contributions paid against reported wages, SSA discovers that minimal additional contributions are due,
(iii) Within 30 days of our notice to the State regarding this underpayment the State, which usually makes its deposits timely, pays the amount due, and
(iv) Within that same 30 day period the State requests that we waive the interest due.
(3) We would not waive interest where a State frequently has problems depositing its contributions timely. Reasons given for the delays are, e.g., the computer was down, the 5 p.m. mail pickup was missed, one of the school district reports was misplaced. If requested we would not waive interest on this State's late payment of contributions based upon its past record of late payments and because of the circumstances cited.
(e) Due date is on a weekend, legal holiday or Federal nonworkday. If the last day of the 30-day periods specified in paragraphs (b) and (d) of this section is on a weekend, legal holiday or Federal nonworkday, the State shall make the required deposit or request for waiver of payment of interest on the next Federal workday.
§ 404.1267   Failure to make timely payments—for wages paid prior to 1987.
If a State does not pay its contributions when due, the Commissioner has the authority under section 218(j) of the Act as it read prior to the enactment of Pub. L. 99-509 to deduct the amounts of the unpaid contributions plus interest at the rate prescribed from any amounts certified by her or him to the Secretary of the Treasury for payments to the State under any other provision of the Social Security Act. The Commissioner notifies the Secretary of the Treasury of the amounts deducted and requests that the amount be credited to the Trust Funds. Amounts deducted are considered paid to the State under the other provision of the Social Security Act.
§ 404.1270   Adjustments in general—for wages paid prior to 1987.
States have the opportunity to adjust errors in the payment of contributions. A State but not its political subdivisions is authorized to adjust errors in the underpayment of contributions. Similarly, the State shall file all claims for credits or refunds and SSA makes the credits and refunds only to the State. Generally, we do not refund contributions in cash to a State unless the State is not expected to have future liability for contributions under section 218 of the Act.
§ 404.1271   Adjustment of overpayment of contributions—for wages paid prior to 1987.
(a) General. If a State pays more than the correct amount of contributions, the State shall adjust the overpayment with the next contribution return filed on which the amount owed equals or exceeds the amount of the overpayment.
(b) Overpayment due to overreporting of wages —(1) Report to file. If the overpayment is due to the State's reporting more than the correct amount of wages paid to one or more employees during a reporting period and the overpayment is not adjusted under paragraph (a) of this section, the State shall file a report on the appropriate form showing:
(i) The corrected wage data as prescribed by SSA; and
(ii) The reason why the original reporting was incorrect.
(2) Refund or credit of overpayment where section 218(e)(2) of the Act not applicable. If:
(i) The State collected contributions from employees in excess of the amount of taxes that would have been required under section 3101 of the Internal Revenue Code; and
(ii) The State paid to the Secretary of the Treasury those contributions plus a matching amount in excess of the taxes which would have been required from an employer under section 3111 of the Code; and
(iii) The services of the employees in question would have constituted employment under section 3121(b) of the Code; and
(iv) Section 218(e)(2) of the Act as it read prior to the enactment of Pub. L. 99-509 does not apply (see § 404.1256(a)), then the State shall adjust the overpaid contributions under paragraph (b)(1) of this section. With its adjustment the State, where appropriate, shall include on the prescribed form a statement that the employees from whom the excess contributions were collected have not received nor expect to receive a refund of excess contributions under section 6413(c) of the Internal Revenue Code of 1954 (see § 404.1275(b)). Generally, if the State does not include this statement with its adjustment request, we only refund or credit the State for up to one-half of the overpaid amount.
(c) Refund or credit of overpayment where section 218(e)(2) of the Act applicable —(1) General. If—
(i) The overreporting of the amount of wages paid to one or more employees during a reporting period(s) is due to a computation of contributions under § 404.1256 for a year or years prior to the year in which the agreement or modification providing for the computation is entered into, or
(ii) The overreporting is due to a failure to compute § 404.1256,
(2) Amount of refund or credit. If the State collects excess contributions from employees, the State's claim for refund or credit is limited to the overpaid amounts. (See § 404.1275 relating to adjustment of employee contributions.) If—
(i) The State collected the correct amount of contributions from employees based on the amount of wages reported and the Forms W-2 issued to the employees show only the amount of contributions actually collected, but the amount of wages reported is being adjusted downward, or
(ii) The State collects excess contributions from employees but Forms W-2 have not been issued for an amount of wages which is being adjusted downward, the State may claim a refund or credit for the overpaid amounts. Where the State's claim for refund or credit is for the total overpaid amount, the adjustment report shall include a statement that excess contributions have not been collected from employees, or, where excess contributions have been collected, that Forms W-2 have not been issued and that, when issued, they will show the correct amount of employee contributions.
§ 404.1272   Refund or recomputation of overpayments which are not adjustable—for wages paid prior to 1987.
(a) General. If a State pays more than the correct amount of contributions or interest to the appropriate Federal Reserve bank or branch (see § 404.1262), and no adjustment in the amount of reported wages is necessary, that State may file a claim for refund or recomputation of the overpayment.
(b) Form of claim. No special form is required to make a claim for a refund or recomputation. If a credit is taken under § 404.1271, a claim is not required.
(c) Proof of representative capacity. If a report or return is made by an authorized official of the State who ceases to act in an official capacity and a claim for a refund is made by a successor official, the successor official must submit with the claim written evidence showing that he or she has the authority to make a claim for and receive a refund of any contributions paid by the former official. The written evidence is not necessary if the successor official has previously filed one or more reports or returns which contain her or his signature and official title.
§ 404.1275   Adjustment of employee contributions—for wages paid prior to 1987.
The amount of contributions a State deducts from an employee's remuneration for covered services, or any correction of that amount, is a matter between the employee and the State or political subdivision. The State shall show any correction of an employee's contribution on statements it furnishes the employee under § 404.1225 of this part. Where the State issues an employee a Form W-2 and then submits an overpayment adjustment but claims less than the total overpaid amount as a refund or credit, the State shall not correct the previously issued Form W-2 to reflect that adjustment.
§ 404.1276   Reports and payments erroneously made to Internal Revenue Service-transfer of funds—for wages paid prior to 1987.
(a) General. In some instances, State or local governmental entities not covered under an agreement make reports and pay contributions to IRS under the Federal Insurance Contributions Act (FICA) procedures applicable to private employers in the mistaken belief that this provides Social Security coverage under section 218 of the Act for their employees. In other instances, entities which are covered under an agreement erroneously report to IRS, or a State or local government employee reports other employees to IRS or reports to IRS as a self-employed individual. Where these reports and payments are erroneously made to IRS, the State may correct the error and obtain coverage under its agreement as described in paragraphs (b) through (f) of this section.
(b) Political subdivision not included in the State agreement. We notify the State that if it desires coverage, it may be provided by either a regular modification or an error modification, depending on the circumstances (§§ 404.1215 and 404.1216). In most cases, the State may obtain coverage by a regular modification. If a regular modification cannot be used (e.g., State law does not permit the retroactive effective date which would be desired), the State may use an error modification. The effective date of either modification depends on the facts of the situation being corrected.
(c) Political subdivision included in the agreement. If a political subdivision included in the agreement erroneously makes reports and payments under FICA procedures, the State must correct the reportings for periods not barred by the statute of limitations. If the covered entity reported both under the agreement and under FICA procedures, we notify IRS and make necessary corrections in the earnings records. We also advise the State that the entity which reported under FICA procedures should request a refund of payments erroneously made to IRS.
(d) State and local government employees erroneously reported as employees of individual or as self-employed —(1) Covered entity. If employees of a covered entity are erroneously reported as employees of an individual or as self-employed, we advise the State that the individual who made the reports should request a refund from IRS for periods not barred by the statute of limitations. We require the State to file correctional reports and returns for any periods open under the State and local statute of limitations.
(2) Noncovered entity. We advise the State that the individual who made the reports should request a refund from IRS for the periods not barred by the statute of limitations. If the State wishes to provide coverage, it must submit a modification as discussed in paragraph (b) of this section. If the State does not wish to provide coverage, we void the reports. Amounts reported for periods barred by the statute of limitations remain on the earnings records.
(e) Filing wage reports and paying contributions. Generally, the entity or individual that makes the erroneous reports and payments requests the refund from IRS for periods not barred by the statute of limitations. The State files the necessary reports with SSA and pays any contributions due. The reports shall conform to the coverage provided by the agreement to the extent permitted by the statute of limitations. The due date for these reports depends on whether original reports or adjustment reports are involved. Reports and contribution returns for the entire retroactive period of coverage provided by a regular or error modification are due 90 days after the date of execution of the modification. The time limitations for issuing assessments and credits or refunds extend from this due date. Thus, SSA may issue assessments or credits or refunds for periods barred to refund by IRS. The State may request that reports and payments for the IRS barred periods be considered made under the agreement as described in paragraph (f) of this section.
(f) Use of transfer procedure. In limited situations, the State may request that reports and payments the State or a political subdivision (but not an individual) erroneously made under FICA procedures and which have been posted to the employee's earnings record be considered made under the State's agreement. We use a transfer procedure to do this. The transfer procedure may be used only where
(1) The periods are open to assessment under the State and local statute of limitations;
(2) The erroneous reports to be transferred are posted to SSA's records;
(3) The periods are barred to refund under the IRS statute of limitations; and
(4) A refund is not obtained from IRS by the reporting entity.
§ 404.1280   Allowance of credits or refunds—for wages paid prior to 1987.
If a State pays more than the amount of contributions due under an agreement, SSA may allow the State, subject to the time limitations in § 404.1282 and the exceptions to the time limitations in § 404.1283, a credit or refund of the overpayment.
§ 404.1281   Credits or refunds for periods of time during which no liability exists—for wages paid prior to 1987.
If a State pays contributions for any period of time for which contributions are not due, but the State is liable for contributions for another period, we credit the amount paid against the amount of contributions for which the State is liable. We refund any balance to the State.
§ 404.1282   Time limitations on credits or refunds—for wages paid prior to 1987.
(a) General. To get a credit or refund, a State must file a claim for a credit or refund of the overpaid amount with the Commissioner before the applicable time limitation expires. The State's claim for credit or refund is considered filed with the Commissioner when it is delivered or mailed to the Commissioner. Where the time limitation ends on a weekend, legal holiday or Federal nonworkday, we consider a claim timely filed if it is filed on the next Federal workday.
(b) Time limitation. Subject to the exceptions in § 404.1283, a State must file a claim for credit or refund of an overpayment before the end of the latest of the following time periods:
(1) 3 years, 3 months, and 15 days after the year in which the wages in question were paid or alleged to have been paid; or
(2) 3 years after the due date of the payment which included the overpayment; or
(3) 2 years after the overpayment was made to the Secretary of the Treasury.