Rev. Rul. 55-202

Advice has been requested with respect to the liability of the employer for the deduction of the employees' share of the tax based on the increase in the amount of taxable compensation of those workers who were employed subsequent to June 30, 1954, but who left the service of the employer prior to August 31, 1954, the date on which the Act of August 31, 1954, Public Law 746, 83d Cong., 68 Stat. 1038, C.B. 1954-2, 602, was approved. Public Law 746, which amended the Railroad Retirement Tax Act (subch. B, ch. 9, Internal Revenue Code of 1939), increased the amount of compensation per calendar month which is subject to employer tax and employee tax. The amendment applies to compensation earned in July 1954 and subsequent months, regardless of when such compensation is paid. $For each month prior to July 1954, the taxes apply to the compensation, not in excess of $300, earned in any such month by an employee. For July 1954 and each month thereafter, the taxes apply to compensation, not in excess of $350, earned in any such month.

The increase in the taxes based on the increase in the amount of taxable compensation imposed by Public Law 746 is retroactive to July 1, 1954. Section 1501 of the Railroad Retirement Tax Act, as amended by section 202 of Public Law 746, requires the employer to deduct the employee tax, based on the increased taxable compensation, from compensation as and when paid and makes the employer liable for payment of the tax. It cannot have been intended to impose a liability on an employer for the deduction or payment of the tax, based on the increased taxable compensation, with respect to compensation paid to his employees prior to the approval of Public Law 746, that is, during the period July 1, 1954, to August 30, 1954, unless the employer had in his control subsequent to August 30, 1954, amounts of the employees' compensation from which the increased deduction could be made.

Accordingly, it is held that with respect to the increased taxable compensation earned by an employee for the period from July 1, 1954, to August 30, 1954, inclusive, the employer shall be liable for the employee tax only to the extent that the employer had under his control at any time subsequent to August 30, 1954, amounts of compensation earned at any time by the employee