[Federal Register Volume 70, Number 165 (Friday, August 26, 2005)]
[Proposed Rules]
[Pages 50228-50233]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-16944]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 31

[REG-104143-05]
RIN 1545-BE32


Application of the Federal Insurance Contributions Act to 
Payments Made for Certain Services

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed amendments to regulations 
relating to payments made for service not in the course of the 
employer's trade or business, for domestic service in a private home of 
the employer, for agricultural labor, and for service performed as a 
home worker within the meaning of section 3121(d)(3)(C) of the Internal 
Revenue Code (Code). These proposed amendments would provide guidance 
concerning the application of the Federal Insurance Contributions Act 
(FICA) to these payments. These proposed amendments would affect 
employers that make these payments and employees that receive these 
payments. These proposed amendments would provide guidance to assist 
these taxpayers in complying with the law.

DATES: Written or electronic comments and requests for a public hearing 
must be received by November 25, 2005.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-104143-05), room 
5203, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-
104143-05), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC, or sent electronically, via the IRS 
Internet site at http://www.irs.gov/regs or via the Federal eRulemaking 
Portal at
http://www.regulations.gov/ (IRS REG-104143-05).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
please contact Paul Carlino of the Office of Division Counsel/Associate 
Chief Counsel (Tax Exempt and Government Entities), (202) 622-0047; 
concerning submissions of comments or to request a public hearing, 
please contact LaNita Van Dyke, (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed amendments to the Employment Tax 
Regulations (26 CFR part 31) under sections 3102, 3121(a), 3121(a)(7), 
3121(a)(8), 3121(a)(10), and 3121(i) of the Code. The Federal Insurance 
Contributions Act (FICA) generally imposes tax on each employer and 
employee. Under section 3111, FICA tax is imposed on the employer in an 
amount equal to a percentage of the wages paid by that employer. Under 
section 3101, FICA tax is also imposed on the employee in an amount 
equal to a percentage of the wages received by the employee with 
respect to employment. Section 3102 requires the employer to collect 
the tax imposed under section 3101 by deducting and withholding the 
amount of the tax from the wages as and when paid. Section 3121(a) 
defines wages for FICA tax purposes as all remuneration for employment 
unless otherwise excepted. Sections 3121(a)(7) (relating to domestic 
service in a private home of the employer and to service not in the 
course of the employer's trade or business), 3121(a)(8) (relating to 
agricultural labor) and 3121(a)(10) (relating to service performed as a 
home worker within the meaning of section 3121(d)(3)(C)) provide 
exceptions to the definition of wages for FICA tax purposes. Section 
3121(i)(1) provides that in the case of domestic service described in 
section 3121(a)(7)(B), any payment of cash remuneration for such 
service which is more or less than a whole-dollar amount, to the extent 
prescribed by regulations, may be computed to the nearest dollar.
    Section 3102(a) provides that an employer may deduct an amount 
equivalent to the FICA tax imposed by section 3101 from any payment of 
cash remuneration to which sections 3121(a)(7)(B), 3121(a)(7)(C), 
3121(a)(8)(B) and 3121(a)(10) apply, even though at the time of payment 
the total amount of such remuneration paid to the employee by the 
employer in the calendar year is less than the dollar threshold amount 
used to determine whether the remuneration is wages for FICA tax 
purposes. An employer that chooses to withhold FICA taxes imposed by 
section 3101 prior to reaching the dollar threshold amount used to 
determine whether the remuneration is wages for FICA tax purposes must 
repay the employee the withheld amount if the dollar threshold is not 
met in the calendar year. If the withheld amount has been deposited, 
the employer must repay or reimburse the employee the withheld amount 
in accordance with the rules under Sec.  31.6413(a)-1 of the 
regulations.
    Changes to sections 3102(a) and 3121(a)(7)(B) were made by section 
2(a)(1) of the Social Security Domestic Employment Reform Act of 1994, 
(SSDERA), Public Law 103-387 (108 Stat. 4071). The SSDERA also added 
section 3121(x). Changes to section 3102(a) were made by section 424(b) 
of the Social Security Protection Act of 2004 (SSPA), Public Law 108-
203 (118 Stat. 493, 536). Changes to section 3121(a)(8)(B) were made by 
section 8017(b) of the Technical and Miscellaneous Revenue Act of 1988 
(the 1988 Act), Public Law 100-647 (102 Stat. 3342, 3793) and section 
9002(b) of the Omnibus Budget Reconciliation Act of 1987 (the 1987 
Act), Public Law 100-203 (101 Stat. 1330, 1330-287). Changes to 
sections 3102(a), 3121(a)(7)(C) and 3121(a)(10) were made by sections 
355(a) and 356(a) of the Social Security Amendments of 1977 (the 1977 
Act), Public Law 95-216 (91 Stat. 1509, 1555). These statutory changes 
are not reflected in the existing regulations of Sec. Sec.  31.3102-1, 
31.3121(a)-2, 31.3121(a)(7)-1, 31.3121(a)(8)-1, 31.3121(a)(10)-1, and 
31.3121(i)-1. These proposed regulations would amend these existing 
regulations to reflect the statutory changes.

[[Page 50229]]

Domestic Service in a Private Home of the Employer

    Section 3121(a)(7)(B) provides an exclusion from wages for FICA tax 
purposes of certain cash remuneration paid by an employer to an 
employee for domestic service in a private home of the employer. The 
SSDERA amended the dollar threshold amount and time period used to 
determine the exclusion under section 3121(a)(7)(B). The SSDERA also 
added section 3121(x).
    Prior to SSDERA, section 3121(a)(7)(B) provided that cash 
remuneration paid by an employer in any calendar quarter to an employee 
for domestic service in a private home of the employer was excluded 
from wages for FICA tax purposes if the cash remuneration paid in such 
quarter by the employer to the employee for such service was less than 
$50. The SSDERA amended section 3121(a)(7)(B) to provide that cash 
remuneration paid by an employer in any calendar year to an employee 
for domestic service in a private home of the employer is excluded from 
wages for FICA tax purposes if the cash remuneration paid in such year 
by the employer to the employee for such service is less than the 
applicable dollar threshold (as defined in section 3121(x)) for such 
year. SSDERA is effective for cash remuneration paid after December 31, 
1993.
    The applicable dollar threshold (as defined in section 3121(x)) is 
$1,000 for calendar year 1995. The applicable dollar threshold is 
adjusted annually under the formula described in section 
215(a)(1)(B)(ii) of the Social Security Act, Public Law 74-271 (49 
Stat. 620). Under section 3121(x), if any amount as adjusted under 
section 215(a)(1)(B)(ii) is not a multiple of $100, such amount is 
rounded to the next lowest multiple of $100. For calendar year 2005, 
the applicable dollar threshold is $1,400.
    Section 3121(i)(1) provides that in the case of domestic service 
described in section 3121(a)(7)(B), any payment of cash remuneration 
for such service which is more or less than a whole-dollar amount, to 
the extent prescribed by regulations, may be computed to the nearest 
dollar. The amendment to section 3121(a)(7)(B) made by the SSDERA 
requires changes to the regulations under Sec.  31.3121(i)-1.

Agricultural Labor

    Section 3121(a)(8)(B) provides an exclusion from wages for FICA tax 
purposes of certain cash remuneration paid by an employer in any 
calendar year to an employee for agricultural labor. The 1987 Act and 
1988 Act amended section 3121(a)(8)(B) to change the test for 
determining whether cash remuneration paid by an employer to an 
employee for such service is wages for FICA tax purposes.
    Prior to the 1987 Act, section 3121(a)(8)(B) provided that cash 
remuneration paid by an employer in any calendar year to an employee 
for agricultural labor was excluded from wages for FICA tax purposes 
unless the cash remuneration was $150 or more, or the employee 
performed agricultural labor for the employer on 20 or more days during 
such year for cash remuneration computed on a time basis. The 1987 Act 
amended section 3121(a)(8)(B) to provide that cash remuneration paid by 
an employer in any calendar year to an employee for agricultural labor 
is excluded from wages for FICA tax purposes unless the cash 
remuneration paid in such year by the employer to the employee for such 
labor is $150 or more, or the employer's expenditures for agricultural 
labor in such year equals or exceeds $2,500.
    The 1988 Act added language to 3121(a)(8)(B) to provide that the 
test of whether the employer's expenditures for agricultural labor in 
any calendar year equal or exceed $2,500 has no effect in determining 
whether remuneration paid to an employee in such year constitutes wages 
under this section if such employee (1) is employed in agriculture as a 
hand-harvest laborer and is paid on a piece rate basis in an operation 
which has been, and is customarily and generally recognized as having 
been, paid on a piece rate basis in the region of employment, (2) 
commutes daily from his permanent residence to the farm on which he is 
employed, and (3) has been employed in agriculture less than 13 weeks 
during the preceding calendar year. Nonetheless, amounts paid to these 
seasonal workers count towards the $2,500 test when applying section 
3121(a)(8)(B) to other agricultural workers. The 1987 and 1988 Acts are 
effective for cash remuneration paid after December 31, 1987.

Home Workers

    Section 3121(a)(10) provides an exclusion from wages for FICA tax 
purposes of certain cash remuneration paid by an employer to an 
employee for service described in section 3121(d)(3)(C) (relating to 
home workers). The 1977 Act amended the dollar threshold amount and 
time period used to determine the exclusion under section 3121(a)(10).
    Prior to the 1977 Act, section 3121(a)(10) provided that cash 
remuneration paid by an employer in any calendar quarter to an employee 
for service described in 3121(d)(3)(C) (relating to home workers) was 
excluded from wages for FICA tax purposes if the cash remuneration paid 
in such quarter by the employer to the employee for such service was 
less than $50. The 1977 Act amended section 3121(a)(10) to provide that 
remuneration paid by an employer in any calendar year to an employee 
for service described in section 3121(d)(3)(C) (relating to home 
workers) is excluded from wages for FICA tax purposes if the cash 
remuneration paid in such year by the employer to the employee for such 
service is less than $100. The 1977 Act is effective for cash 
remuneration paid after December 31, 1977.

Service Not in the Course of the Employer's Trade or Business

    Section 3121(a)(7)(C) provides an exclusion from wages for FICA tax 
purposes of certain cash remuneration paid by an employer to an 
employee for service not in the course of the employer's trade or 
business. The 1977 Act amended the dollar threshold amount and time 
period used to determine the exclusion under section 3121(a)(7)(C).
    Prior to the 1977 Act, section 3121(a)(7)(C) provided that cash 
remuneration paid by an employer in any calendar quarter to an employee 
for service not in the course of the employer's trade or business was 
excluded from wages for FICA tax purposes if the cash remuneration paid 
in such quarter by the employer to the employee for such service was 
less than $50. The 1977 Act amended section 3121(a)(7)(C) to provide 
that cash remuneration paid by an employer in any calendar year to an 
employee for service not in the course of the employer's trade or 
business is excluded from wages for FICA tax purposes if the cash 
remuneration paid in such year by the employer to the employee for such 
service is less than $100. The 1977 Act is effective for cash 
remuneration paid after December 31, 1977.

Explanation of Provisions

    These proposed regulations would amend the existing regulations to 
reflect current law.
    The proposed regulations relating to domestic service in a private 
home of the employer would amend existing regulations Sec. Sec.  
31.3102-1, 31.3121(a)-2(c), and 31.3121(a)(7)-1 to reflect changes 
implemented by the SSDERA and to be applicable as of that date. For 
cash remuneration paid prior to January 1, 1994 (the effective date of 
the SSDERA), taxpayers should rely on the

[[Page 50230]]

regulations applicable at the time such cash remuneration was paid.
    The proposed regulations relating to agricultural labor would amend 
existing regulations Sec. Sec.  31.3102-1, 31.3121(a)-2(c) and 
31.3121(a)(8)-1 to reflect changes implemented by the SSPA, the 1987 
Act and the 1988 Act and to be applicable as of that date. For cash 
remuneration paid prior to January 1, 1988 (the effective date of the 
1987 Act and the 1988 Act), taxpayers should rely on the regulations 
applicable at the time such cash remuneration was paid.
    The proposed regulations relating to home workers and/or to service 
not in the course of the employer's trade or business would amend 
existing regulations Sec. Sec.  31.3102-1, 31.3121(a)-2(c), 
31.3121(a)(7)-1 and 31.3121(a)(10)-1 to reflect changes implemented by 
the 1977 Act and to be applicable as of that date. For cash 
remuneration paid prior to January 1, 1978 (the effective date of the 
1977 Act), taxpayers should rely on the regulations applicable at the 
time such cash remuneration was paid.
    The proposed regulations relating to computation to the nearest 
dollar of cash remuneration for domestic service would amend the 
existing regulations under Sec.  31.3121(i)-1 to reflect changes 
implemented by the SSDERA and to be applicable as of that date. For 
cash remuneration paid prior to January 1, 1994 (the effective date of 
the SSDERA), taxpayers should rely on the regulations applicable at the 
time such cash remuneration was paid.

Proposed Effective Date

    These proposed regulations would be applicable on the date of 
publication of the Treasury Decision adopting these regulations as 
final regulations in the Federal Register. The regulations relating to 
domestic service in a private home of the employer would apply to cash 
remuneration paid on or after January 1, 1994. The regulations relating 
to agricultural labor would apply to cash remuneration paid on or after 
January 1, 1988. The regulations relating to home workers and/or 
service not in the course of the employer's trade or business would 
apply to cash remuneration paid on or after January 1, 1978. The 
regulations relating to computation to the nearest dollar of cash 
remuneration for domestic service would apply to cash remuneration paid 
on or after January 1, 1994.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It also has 
been determined that section 553(b) of the Administrative Procedure Act 
(5 U.S.C. chapter 5) and the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) do not apply to these regulations, and therefore, a 
Regulatory Flexibility Analysis is not required. Pursuant to section 
7805(f) of the Code, this notice of proposed rulemaking will be 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Comments and Requests for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (a signed original and eight 
(8) copies) or electronic comments that are submitted timely to the 
IRS. The IRS and Treasury Department specifically request comments on 
the clarity of proposed regulations and how they can be made easier to 
understand. All comments will be available for public inspection and 
copying. A public hearing may be scheduled if requested by any person 
who timely submits comments. If a public hearing is scheduled, notice 
of the date, time and place for the hearing will be published in the 
Federal Register.

Drafting Information

    The principal authors of these proposed regulations are Paul J. 
Carlino and Michael A. Swim, Office of the Division Counsel/Associate 
Chief Counsel (Tax Exempt and Government Entities). However, other 
personnel from the IRS and Treasury Department participated in their 
development.

List of Subjects in 26 CFR Part 31

    Employment taxes, Income taxes, Penalties, Pensions, Railroad 
retirement, Reporting and recordkeeping requirements, Social security, 
Unemployment compensation.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 31 is proposed to be amended as follows:

PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE

    Paragraph 1. The authority citation for part 31 continues to read, 
in part, as follows:

    Authority: 26 U.S.C. 7805 * * *

    Par. 2. Section 31.3102-1 is amended by:
    1. Revising paragraph (b).
    2. Redesignating paragraph (c) as paragraph (d).
    3. Adding new paragraph (c).
    4. Adding paragraph (e).
    The additions and revision read as follows:


Sec.  31.3102-1  Collection of, and liability for, employee tax; in 
general.

* * * * *
    (b) The employer is permitted, but not required, to deduct amounts 
equivalent to employee tax from payments to an employee of cash 
remuneration to which the sections referred to in this paragraph (b) 
are applicable prior to the time that the sum of such payments equals--
    (1) $100 in the calendar year, for service not in the course of the 
employer's trade or business, to which Sec.  31.3121(a)(7)-1 is 
applicable;
    (2) The applicable dollar threshold (as defined in section 3121(x)) 
in the calendar year, for domestic service in a private home of the 
employer, to which Sec.  31.3121(a)(7)-1 is applicable;
    (3) $150 in the calendar year, for agricultural labor, to which 
Sec.  31.3121(a)(8)-1(c)(1)(i) is applicable; or
    (4) $100 in the calendar year, for service performed as a home 
worker, to which Sec.  31.3121(a)(10)-1 is applicable.
    (c) At such time as the sum of the cash payments in the calendar 
year for a type of service referred to in paragraph (b)(1), (b)(2), 
(b)(3) or (b)(4) of this section equals or exceeds the amount 
specified, the employer is required to collect from the employee any 
amount of employee tax not previously deducted. If an employer pays 
cash remuneration to an employee for two or more of the types of 
service referred to in paragraph (b)(1), (b)(2), (b)(3) or (b)(4) of 
this section, the provisions of paragraph (b) of this section and this 
paragraph (c) are to be applied separately to the amount of 
remuneration attributable to each type of service. For provisions 
relating to the repayment to an employee, or other disposition, of 
amounts deducted from an employee's remuneration in excess of the 
correct amount of employee tax, see Sec.  31.6413(a)-1.
* * * * *
    (e)(1) The provisions of paragraphs (a) and (d) of this section 
apply to any payment made on or after January 1, 1955.
    (2) The provisions of paragraphs (b) and (c) of this section that 
apply to any payment made for service not in the course of the 
employer's trade or business or for service performed as a home worker 
within the meaning of section 3121(d)(3)(C) apply to any such payment 
made on or after January 1,

[[Page 50231]]

1978. The provisions of paragraphs (b) and (c) of this section that 
apply to any payment made for domestic service in a private home of the 
employer apply to any such payment made on or after January 1, 1994. 
The provisions of paragraphs (b) and (c) of this section that apply to 
any payment made for agricultural labor apply to any such payment made 
on or after January 1, 1988. For rules applicable to any payment for 
these services made prior to the dates set forth in this paragraph 
(e)(2), see Sec.  31.3102-1 in effect at such time (see 26 CFR part 31 
revised as of April 1, 2005).
    Par. 3. Section 31.3121(a)-2 is amended by:
    1. Revising paragraph (c)(1).
    2. Redesignating paragraphs (c)(2) and (c)(3) as paragraphs (c)(3) 
and (c)(4), respectively.
    3. Adding new paragraph (c)(2).
    4. Revising newly designated paragraph (c)(3).
    5. Adding paragraph (d).
    The additions and revisions read as follows:


Sec.  31.3121(a)-2  Wages; when paid and received.

* * * * *
    (c)(1) The first $100 of cash remuneration paid, either actually or 
constructively, by an employer in any calendar year to an employee 
for--
    (i) Service not in the course of the employer's trade or business, 
to which Sec.  31.3121(a)(7)-1 is applicable, shall be deemed to be 
paid by the employer to the employee at the first moment of time in 
such calendar year that the sum of such cash payments made within such 
year is at least $100; or
    (ii) Service performed as a home worker within the meaning of 
section 3121(d)(3)(C), to which Sec.  31.3121(a)(10)-1 is applicable, 
shall be deemed to be paid by the employer to the employee at the first 
moment of time in such calendar year that the sum of such cash payments 
made within such year is at least $100.
    (2) Cash remuneration paid, either actually or constructively, by 
an employer in any calendar year to an employee for domestic service in 
a private home of the employer to which Sec.  31.3121(a)(7)-1 is 
applicable, and before the sum of the payments of such cash 
remuneration equals or exceeds the applicable dollar threshold (as 
defined in section 3121(x)) for such year, shall be deemed to be paid 
by the employer to the employee at the first moment of time in such 
calendar year that the sum of such cash payments made within such year 
equals or exceeds the applicable dollar threshold (as defined in 
section 3121(x)) for such year.
    (3) Cash remuneration paid, either actually or constructively, by 
an employer in any calendar year to an employee for agricultural labor 
to which Sec.  31.3121(a)(8)-1 is applicable, and before either of the 
events described in paragraphs (c)(3)(i) and (c)(3)(ii) of this section 
has occurred, shall be deemed to be paid by the employer to the 
employee at the first moment of time in such calendar year that--
    (i) The sum of the payments of such remuneration is $150 or more; 
or
    (ii) The employer's expenditures for agricultural labor in such 
calendar year equals or exceeds $2,500, except that this paragraph 
(c)(3)(ii) shall not apply in determining when such remuneration is 
deemed to be paid under this paragraph if such employee--
    (A) Is employed as a hand-harvest laborer and is paid on a piece 
rate basis in an operation which has been, and is customarily and 
generally recognized as having been, paid on a piece rate basis in the 
region of employment;
    (B) Commutes daily from his permanent residence to the farm on 
which he is so employed; and
    (C) Has been employed in agriculture less than 13 weeks during the 
preceding calendar year.
* * * * *
    (d)(1) The provisions of paragraphs (a) and (b) of this section 
apply to any payment of wages made on or after January 1, 1955.
    (2) The provisions of paragraph (c) of this section that apply to 
any payment of wages made for service not in the course of the 
employer's trade or business or for service performed as a home worker 
within the meaning of section 3121(d)(3)(C) apply to any such payment 
made on or after January 1, 1978. The provisions of paragraph (c) of 
this section that apply to any payment of wages made for domestic 
service in a private home of the employer apply to any such payment 
made on or after January 1, 1994. The provisions of paragraph (c) of 
this section that apply to any payment of wages made for agricultural 
labor apply to any such payment made on or after January 1, 1988. For 
rules applicable to any payment of wages for these services made prior 
to the dates set forth in this paragraph (d)(2), see Sec.  31.3102-1 in 
effect at such time (see 26 CFR part 31 revised as of April 1, 2005).
    Par. 4. Section 31.3121(a)(7)-1 is amended by:
    1. Revising paragraphs (c)(1) and (c)(2).
    2. Adding paragraphs (c)(3), (d) and (e).
    The additions and revisions read as follows:


Sec.  31.3121(a)(7)-1  Payments for services not in the course of 
employer's trade or business or for domestic service.

* * * * *
    (c) Cash payments. (1) The term wages does not include cash 
remuneration paid by an employer in any calendar year to an employee 
for--
    (i) Domestic service in a private home of the employer, unless the 
cash remuneration paid in such year by the employer to the employee for 
such service equals or exceeds the applicable dollar threshold (as 
defined in section 3121(x)) for such year; or
    (ii) Service not in the course of the employer's trade or business, 
unless the cash remuneration paid in such year by the employer to the 
employee for such service equals or exceeds $100.
    (2) The tests relating to cash remuneration are based on the 
remuneration paid in a calendar year rather than on the remuneration 
earned during a calendar year. The following example illustrates this 
provision:

    Example. On March 31, 2004, employer X pays employee A cash 
remuneration of $100 for service not in the course of X's trade or 
business. Such remuneration constitutes wages subject to the taxes 
even though $10 thereof represents payment for such service 
performed by A for X in December 2003.

    (3) In determining whether wages have been paid either for domestic 
service in a private home of the employer or for service not in the 
course of the employer's trade or business, only cash remuneration for 
such service shall be taken into account. Cash remuneration includes 
checks and other monetary media of exchange. Remuneration paid in any 
other medium, such as lodging, food, clothing, car tokens, 
transportation passes or tickets, or other goods or commodities, is 
disregarded in determining whether the cash-remuneration test is met. 
If an employee receives cash remuneration from an employer in a 
calendar year for both types of services the pertinent cash-
remuneration test is to be applied separately to each type of service. 
If an employee receives cash remuneration from more than one employer 
in a calendar year for domestic service in a private home of the 
employer or for service not in the course of the employer's trade or 
business, the pertinent cash-remuneration test is to be applied 
separately to the remuneration received from each employer.
    (d) Cross references. (1) For provisions relating to deduction of 
employee tax or amounts equivalent to

[[Page 50232]]

the tax from cash payments for the services described in this section, 
see Sec.  31.3102-1;
    (2) For provisions relating to time of payment of wages for such 
services, see Sec.  31.3121(a)-2;
    (3) For provisions relating to computations to the nearest dollar 
of any payment of cash remuneration for domestic service in a private 
home of the employer, see Sec.  31.3121(i)-1.
    (e) Effective dates. (1) The provisions of this section apply to 
any cash payment for service not in the course of the employer's trade 
or business made on or after January 1, 1978 and for domestic service 
in a private home of the employer made on or after January 1, 1994.
    (2) For rules applicable to any cash payment made prior to the 
dates set forth in paragraph (e)(1), see Sec.  31.3121(a)(7)-1 in 
effect at such time (see 26 CFR part 31 revised as of April 1, 2005).
    Par. 5. Section 31.3121(a)(8)-1 is amended by:
    1. Revising paragraphs (c), (d), and (e).
    2. Adding paragraph (h).
    The addition and revisions read as follows:


Sec.  31.3121(a)(8)-1  Payments for agricultural labor.

* * * * *
    (c) Cash payments. (1) The term wages does not include cash 
remuneration paid by an employer in any calendar year to an employee 
for agricultural labor unless--
    (i) The cash remuneration paid in such year by the employer to the 
employee for such labor is $150 or more; or
    (ii) The employer's expenditures for agricultural labor in such 
year equal or exceed $2,500, except that this paragraph (c)(1)(ii) 
shall not apply in determining whether remuneration paid to an employee 
constitutes wages for agricultural labor if such employee--
    (A) Is employed as a hand-harvest laborer and is paid on a piece 
rate basis in an operation which has been, and is customarily and 
generally recognized as having been, paid on a piece rate basis in the 
region of employment;
    (B) Commutes daily from his permanent residence to the farm on 
which he is so employed; and
    (C) Has been employed in agriculture less than 13 weeks during the 
preceding calendar year.
    (2) The application of the provisions of paragraph (c)(1) of this 
section may be illustrated by the following example:

    Example. Employer X pays A $140 in cash for agricultural labor 
in calendar year 2004. X makes no other payments to A during the 
year and makes no other payment for agricultural labor to any other 
employee. Employee A is not employed as a hand-harvest laborer. 
Neither the $150-cash-remuneration test nor the $2,500-employer's-
expenditures-for-agricultural-labor test is met. Accordingly, the 
remuneration paid by X to A is not subject to the taxes. If in 2004 
X had paid A $140 in cash for agricultural labor and had made 
expenditures of $2,360 or more to other employees for agricultural 
labor, the $140 paid by X to A would have been subject to tax 
because the $2,500-employer's-expenditures-for-agricultural-labor 
test would have been met. Or, if X had paid A $150 in cash in 2004 
and made no other payments to any other employee for agricultural 
labor, the $150 paid by X to A would have been subject to tax 
because the $150-cash-remuneration test would have been met.

    (d) Application of cash-remuneration test. (1) If an employee 
receives cash remuneration from an employer both for services which 
constitute agricultural labor and for services which do not constitute 
agricultural labor, only the amount of such remuneration which is 
attributable to agricultural labor shall be included in determining 
whether cash remuneration of $150 or more has been paid in the calendar 
year by the employer to the employee for agricultural labor. The 
following example illustrates this paragraph (d)(1):

    Example. Employer X operates a store and also is engaged in 
farming operations. Employee A, who regularly performs services for 
X in connection with the operation of the store, works on X's farm 
when additional help is required for the farm activities. In the 
calendar year 2004, X pays A $140 in cash for services performed in 
agricultural labor, and $4,000 for services performed in connection 
with the operation of the store. X has no additional expenditures 
for agricultural labor in 2004. Since the cash remuneration paid by 
X to A in the calendar year 2004 for agricultural labor is less than 
$150, the $150-cash-remuneration test is not met. The $140 paid by X 
to A in 2004 for agricultural labor does not constitute wages and is 
not subject to the taxes.

    (2) The test relating to cash remuneration of $150 or more is based 
on the cash remuneration paid in a calendar year rather than on the 
remuneration earned during a calendar year. It is immaterial if such 
cash remuneration is paid in a calendar year other than the year in 
which the agricultural labor is performed. The following example 
illustrates this paragraph (d)(2):

    Example. Employer X pays cash remuneration of $150 in the 
calendar year 2004 to employee A for agricultural labor. Such 
remuneration constitutes wages even though $10 of such amount 
represents payment for agricultural labor performed by A for X in 
December 2003.

    (3) In determining whether $150 or more has been paid to an 
employee for agricultural labor, only cash remuneration for such labor 
shall be taken into account. If an employee receives cash remuneration 
in any one calendar year from more than one employer for agricultural 
labor, the cash-remuneration test is to be applied with respect to the 
remuneration received by the employee from each employer in such 
calendar year for such labor.
    (e) Application of employer's-expenditures-for-agricultural-labor 
test. (1) If an employer has expenditures in a calendar year for 
agricultural labor and for non-agricultural labor, only the amount of 
such expenditures for agricultural labor shall be included in 
determining whether the employer's expenditures for agricultural labor 
in such year equal or exceed $2,500. The following example illustrates 
this paragraph (e)(1):

    Example. Employer X operates a store and also is engaged in 
farming operations. Employee A, who regularly performs services for 
X in connection with the operation of the store, works on X's farm 
when additional help is required for the farm activities. In 
calendar year 2004, X pays A $140 in cash for services performed in 
agricultural labor, and $4,000 for services performed in connection 
with the operation of the store. X has no additional expenditures 
for agricultural labor in 2004. Since X's expenditures for 
agricultural labor in 2004 are less than $2,500, the employer's-
expenditures-for-agricultural-labor test is not met. The $140 paid 
by X to A in 2004 for agricultural labor does not constitute wages 
and is not subject to the taxes.

    (2) The test relating to an employer's expenditures of $2,500 or 
more for agricultural labor is based on the expenditures paid by the 
employer in a calendar year rather than on the expenses incurred by the 
employer during a calendar year. It is immaterial if the expenditures 
are paid in a calendar year other than the year in which the 
agricultural labor is performed. The following example illustrates this 
paragraph (e)(2):

    Example. Employer X employs A to construct fences on a farm 
owned by X. The work constitutes agricultural labor and is performed 
over the course of November and December 2003. A is not employed by 
X at any other time, however X does have other employees to whom X 
pays remuneration of $2,000 for agricultural labor in 2003. X pays A 
$140 in cash in November 2003 and $140 in cash in January 2004, in 
full payment for the work. The $140 payment to A made in November is 
not wages for calendar year 2003 because the $150-cash-remuneration 
test is not met and X's total expenditures for agricultural labor 
for such year are not equal to or in excess of $2,500. The $140 
payment

[[Page 50233]]

to A made in January is not wages for 2004 because the $150 cash-
remuneration test is not met. However, if X pays additional 
remuneration to employees for agricultural labor in 2004 that equals 
or exceeds $2,360, the employer's-expenditures-for-agricultural-
labor test will be met and the $140 paid by X to A in 2004 will be 
considered wages. It is immaterial that the work was performed in 
2003.
* * * * *
    (h) Effective dates. The provisions of this section apply to any 
payment for agricultural labor made on or after January 1, 1988. For 
rules applicable to any payment for agricultural labor made prior to 
January 1, 1988, see Sec.  31.3121(a)(8)-1 in effect at such time (see 
26 CFR part 31 revised as of April 1, 2005).
    Par. 6. Section 31.3121(a)(10)-1 is revised to read as follows:


Sec.  31.3121(a)(10)-1  Payments to certain home workers.

    (a) The term wages does not include remuneration paid by an 
employer in any calendar year to an employee for service performed as a 
home worker who is an employee by reason of the provisions of section 
3121(d)(3)(C) (see Sec.  31.3121(d)-1(d)), unless the cash remuneration 
paid in such calendar year by the employer to the employee for such 
services is $100 or more. The test relating to cash remuneration of 
$100 or more is based on remuneration paid in a calendar year rather 
than on remuneration earned during a calendar year. If cash 
remuneration of $100 or more is paid in a particular calendar year, it 
is immaterial whether such remuneration is in payment for services 
performed during the year of payment or during any other year.
    (b) The application of paragraph (a) of this section may be 
illustrated by the following example:

    Example. A, a home worker, performs services for X, a 
manufacturer, in 2003 and 2004. In the performance of the home work 
A is an employee by reason of section 3121(d)(3)(C). In March 2004, 
A returns to X articles made by A at home from materials received by 
A from X in 2003. X pays A cash remuneration of $100 for such work 
when the finished articles are delivered. The $100 includes $10 
which represents remuneration for home work performed by A in 2003. 
The entire $100 is subject to the taxes. Any additional cash 
remuneration paid by X to A in 2004 for such services is also 
subject to the taxes.

    (c) In the event an employee receives remuneration in any one 
calendar year from more than one employer for services performed as a 
home worker of the character described in paragraph (a) of this 
section, the regulations in this section are to be applied with respect 
to the remuneration received by the employee from each employer in such 
calendar year for such services. This exclusion from wages has no 
application to remuneration paid for services performed as a home 
worker who is an employee under section 3121(d)(2) (see Sec.  
31.3121(d)-1(c)) relating to common law employees.
    (d) Cash remuneration includes checks and other monetary media of 
exchange. Remuneration paid in any other medium, such as clothing, car 
tokens, transportation passes or tickets, or other goods or 
commodities, is disregarded in determining whether the $100 cash-
remuneration test is met. If the cash remuneration paid in any calendar 
year by an employer to an employee for services performed as a home 
worker of the character described in paragraph (a) of this section is 
$100 or more, then no remuneration, whether in cash or in any medium 
other than cash, paid by the employer to the employee in such calendar 
year for such services is excluded from wages under this exception.
    (e)(1) For provisions relating to deductions of employee tax or 
amounts equivalent to the tax from cash payments for services performed 
as a home worker within the meaning of section 3121(d)(3)(C), see Sec.  
31.3102-1.
    (2) For provisions relating to the time of payment of wages for 
services performed as a home worker within the meaning of section 
3121(d)(3)(C), see Sec.  31.3121(a)-2.
    (3) For provisions relating to records to be kept with respect to 
payment of wages for services performed as a home worker within the 
meaning of section 3121(d)(3)(C), see Sec.  31.6001-2.
    (f) The provisions of this section apply to any payment for 
services performed as a home worker within the meaning of section 
3121(d)(3)(C) made on or after January 1, 1978. For rules applicable to 
any payment for services performed as a home worker within the meaning 
of section 3121(d)(3)(C) made prior to January 1, 1978, see Sec.  
31.3121(a)(10)-1 in effect at such time (see 26 CFR part 31 revised as 
of April 1, 2005).
    Par. 7. Section 31.3121(i)-1 is amended as follows:
    1. Redesignating the undesignated text as paragraph (a).
    2. Remove the language ``quarter'' each place it appears and add 
``year'' in its place in newly designated paragraph (a).
    3. Adding new paragraph (b).
    The addition reads as follows:


Sec.  31.3121(i)-1  Computation to nearest dollar of cash remuneration 
for domestic service.

* * * * *
    (b) The provisions of this section apply to any cash payment for 
domestic service in a private home of the employer made on or after 
January 1, 1994. For rules applicable to any cash payment for domestic 
service in a private home of the employer made prior to January 1, 
1994, see Sec.  31.3121(i)-1 in effect at such time (see 26 CFR part 31 
revised as of April 1, 2005).

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 05-16944 Filed 8-25-05; 8:45 am]
BILLING CODE 4830-01-P