July 10, 1979

You request a ruling on behalf of [A] Inc. regarding the Massachusetts income tax consequences of [its] wage and benefit plan.

Under the proposed plan [A] would pay both portions of the tax due under the Federal Insurance Contributions Act (F.I.C.A.): the amount which the employer is required to withhold from the employee's wages, and the matching amount, which the employer must contribute.

The federal definition of wages for withholding purposes, which is adopted by Massachusetts General Laws, Chapter 62B, Section (1), states that " `wages' means all remuneration... for services performed by an employee for his employer, including the cash value of all remuneration paid in any medium other than cash..." Internal Revenue Code, Section 3401(a). Treasury Regulation 31.3401(a)-1(b)(6), which interprets Section 3401, indicates that "wages" includes that amount paid be an employer on behalf of an employee... on account of any tax imposed upon the employee by any taxing authority.

As applied to [A's] proposed wage and benefit plan, the employee's wages would be composed of his salary plus the employee's F.I.C.A. tax, which under this plan would be paid by the employer. For example, if an employee's salary is $25,803, his wages would be calculated in the following manner:

$25,803 = employee's salary
x.0613 = F.I.C.A. rate for 1980
$1582.00 = employee's F.I.C.A. contribution withheld, rounded off as provided in I.R.C., Section 3402(b)(5)

The employee's taxable wages would be $27,385.

Where an employee's salary is greater than the taxable ceiling established by F.I.C.A. for that year, he would be taxed for F.I.C.A. purposes on the amount of his wage up to the ceiling.

Massachusetts General Laws, Chapter 62, Section 3(B)(a)(3) provides in part that:

"In determining the Part B taxable income, the Part B adjusted gross income shall be reduced by the following deductions and exemptions:

(a) Three shall be deducted from the Part B adjusted gross income in determining the Part B taxable income. . . .

(b) Taxes paid the United States under the provisions of the Federal Insurance Contributions Act or the Federal Railroad Retirement Act."

Based upon the foregoing facts and the cited section of the law, it is ruled that an employee's F.I.C.A. taxes which are paid by the employer to F.I.C.A. and are added to the wages of the employee in determining his taxable wages are deductible from Massachusetts Part B income pursuant to Massachusetts General Laws, Chapter 62, Section 3(B)(a)(3).

Very truly yours,

/s/L. Joyce Hampers

L. Joyce Hampers
Commissioner of Revenue

LJH/RF/jmp

LR 79-18