Opinion ID: 475230
Heading Depth: 2
Heading Rank: 1

Heading: Validity under Statutory Exclusion

Text: 21 We think it is clear that the payments made by Canisius under its salary reduction plan fall within the plain language of the exclusion from FICA wages, in effect during the tax year in issue, of amounts paid by an employer for ... annuities ... under a plan ... on account of ... retirement. 26 U.S.C. Sec. 3121(a)(2) (emphasis added). The amounts were not paid out of employee salaries. To the contrary, the employees had agreed to be paid less salary in the future, and, as consideration for those agreements, the amounts contributed for the annuities were to be paid out of Canisius' funds. 22 This conclusion that salary reduction plan payments are within the FICA wage exclusion is supported by the legislative history of the provision. That history indicates that the exclusion covered all payments made by the employer to or on behalf of an employee for retirement. H.R.Rep. No. 728, 76th Cong., 1st Sess., reprinted in 1939-2 C.B. 538, 548 (emphasis added). It further indicates that: 23 These payments will be excluded even though the amount or possibility of such payments is taken into consideration in fixing the amount of remuneration and even though such payments are required, either expressly or impliedly, by the contract of employment. 24 Id. (emphasis added); see S.Rep. No. 734, 76th Cong., 1st Sess., reprinted in 1939-2 C.B. 565, 575-76. The reason for the exclusion was to 25 save employers time and money but what is more important is that it will eliminate any reluctance on the part of the employer to establish such plans due to the additional tax cost. 26 H.Rep. No. 728, 76th Cong., 1st Sess., reprinted in 1939-2 C.B. 538, 543. The Social Security Board recommended to the Congress 27 Exclusion from the definition of wages of all payments made by an employer to or on behalf of an employee under a plan or system providing for retirement benefits, dismissal wages, disability benefits, and medical and hospital expenses. The purpose of this proposal is to avoid discouraging plans of the nature described. 28 Social Security Board, Report Recommending Changes in the Social Security Act, H.R.Doc. No. 110, 76 Cong., 1st Sess. 12 (1939) (emphasis added). 29 Given the broad purpose manifested by this legislative history of encouraging employers to establish private retirement plans even at the expense of the FICA wage base, we think it follows that the wage exclusion was intended to cover payments made under salary reduction plans. 30 An additional factor impelling the conclusion that the FICA wage exclusion encompassed payments under section 403(b) salary reduction plans is that such payments are considered contributed by [the] employer for purposes of section 403(b), and so are excludable from employee gross income. See 26 U.S.C. Sec. 403(b); Treas.Reg. Sec. 1.403(b)-1(b)(3), T.D. 6783, 29 Fed.Reg. 18,360 (1964). Revenue Ruling 65-208 was therefore in conflict not only with the plain language of the exclusion from FICA wages for the amount paid by an employer but also with the interpretation accorded to the similar statutory language in section 403(b). 9