Rev. Rul. 75-461

Advice has been requested whether, under the circumstances described below, payments made pursuant to a preretirement leave benefit plan are wages for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages (chapters 21, 23, and 24, respectively, subtitle C, Internal Revenue Code of 1954).

Pursuant to collective bargaining a company set up a preretirement leave benefit plan. The purpose of the plan is to accustom and introduce eligible employees to permanent retirement status on a gradual basis. An eligible employee is one who has 30 years of credited service under the company's pension plan. An eligible employee is entitled to preretirement leave each year from one to four weeks in accordance with the employee's age. Such leave is in addition to normal leave. Any unused portion of the preretirement leave may not be accrued. While on preretirement leave the employee may not be recalled to active employment by the company and at the end of the leave period the individual may choose whether to return to active status or retire permanently. While on preretirement leave an eligible employee will receive weekly payments under the plan in an amount equal to the amount of weekly disability benefit to which the employee would be entitled under the company's group insurance plan. This amount is approximately two-thirds of the employee's regular weekly wages.

Section 3121(a) of the Federal Insurance Contributions Act and section 3306(b) of the Federal Unemployment Tax Act provide, with certain exceptions, that the term "wages" means "all remuneration for employment." Section 3401(a) of the Code, relating to income tax withholding, contains a similar definition. Sections 3121(a)(2) and 3306(b)(2) except from "wages" the amount of any payment made to an employee, under a plan, on account of (a) retirement, or (b) sickness or accident disability. There is no similar provision for purposes of income tax withholding.

In the instant case, the payments made to the employees by the company are not made on account of either retirement or sickness or accident disability. Accordingly, the payments made by the company to the employees pursuant to the preretirement leave benefit plan are "wages" for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages.