Masonry Magazine May 1974 Page. 30
Taxes
(Continued from page 24)
In an updated Revenue ruling, the IRS explained that when an employer pays an employee's FICA tax, the employee must include that amount in his gross income. In other words, the employee's tax liability paid by the employer was also "wages" for purposes of income tax withholding. However, in such a case, the employee need not pay any additional FICA tax and the employer can deduct as a business expense the total amount paid by him. Using the figures above, the employee's gross income and the employer's total tax deduction would be for $5,260. The employee's FICA tax would still be $260 for the year.
Where there has been no agreement between an employer and an employee to pay the employee's FICA tax and where the employer inadvertently pays the FICA tax, the employee's gross income would not include the amount of the employee's tax if upon discovery of the mistake the employee reimbursed the employer or the employer deducted such employee tax from subsequent remuneration paid to the employee. In addition, for purposes of the special refund of any excess tax under section 6413 (c) (1) of the Code, the situation would be treated as though the employer had properly deducted the employee tax from the employee's remuneration. (Rev. Rul. 74-75.)
GROSS INCOME
What are the tax consequences if a taxpayer sells a piece of property and stipulates that a portion of the gain from the proceeds of the sale be paid to a third party? What happens if a taxpayer stipulates that a portion of his compensation be paid to a third party?
The answer, in effect, is that you just cannot manipulate tax laws. In the first instance, the contract has the same effect as would have resulted if the portion of the proceeds of the sale had been given by him to the third party. The entire gain from the sale is includible in the taxpayer's gross income. In the second situation, the payment of the compensation is includible in the taxpayer's gross income at the time it is received by the third party. (Rev.Rul 74-32.)
EMPLOYEE PLAN
A tax-option corporation which represented electrical manufacturers was made up of seven shareholders. Six of the shareholders were also employees of the corporation and had entered into a profit-sharting employment contract with the corporation. According to the terms of the employment contract, each of the six was to receive payments called "compensation" of a fixed annual salary plus a percentage of the "undistributed net profits" of the company for the year. It was the part of the "compensation" that was derived from the percentage of the undistributed net profits that was to cause trouble to the corporation.
A profit-sharing plan was established by the corporation which provided that each participant of the plan was entitled to one unit for cach $100 of annual compensation in excess of $4,800. Allocations for the shareholder-employees were based on their total "compensation" as expressed in the employment contract and allocations for the non-
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masonry
May, 1974