Rev. Rul. 57-92

Advice has been requested relative to the treatment for purposes of the Federal Insurance Contributions Act and the Federal Unemployment Tax Act (subtitle C, chapters 21 and 23, respectively, Internal Revenue Code of 1954) of certain bonus payments made by a company under its bonus plan to former employees subsequent to the termination of their employment relationship. Advice also has been requested whether any different treatment will be accorded these bonus payments if the recipient has attained the age of 65.

The company inaugurated a bonus plan for the purpose of providing greater incentive for employees by rewarding them with additional cash compensation. Pursuant to the plan, bonuses in the form of cash, common stock of the company, or cash to be invested in such stock, are awarded to those employees who have contributed in an unusual degree to the success of the company by their inventions, ability, industry, and loyalty. A bonus fund is maintained by the company for this purpose.

Bonus awards are payable to the recipients thereof in installments. The first payment, representing one-fourth of any such award, is payable at the time the award is made, wile the balance thereof generally is payable in equal annual installments. The company's bonus custodian is required under the plan to open an account for each beneficiary to whom a bonus is awarded, crediting him immediately with one-fourth of the bonus award, either in shares of stock or cash, as the case may be. The remaining three-fourths is credited to the account of such beneficiary at a specified percentage each month.

If the beneficiary leaves the service of the company or is dismissed, he receives any undelivered portion of his award which was credited to his account. The part of the award which was not credited to his account is forfeited; however, the employee may continue as a beneficiary and participate in the award to such extent and under such conditions as the company's bonus and salary committee or the executive committee may determine. Beneficiaries retired on pensions do not forfeit any rights with respect to the bonus awards. Thus, a pensioner receives his undelivered bonus at the same time and under the same conditions as he would have received it had he remained in the service of the company.

Forfeiture of the bonus award is also usually waived in the case of employees who leave because of disability and are not eligible for a pension, or those who are dismissed through no fault of their own due to lack of work, such as where a plant may be discontinued.

Section 3121(a) of the Federal Insurance Contributions Act provides, in part, as follows:

WAGES.-For purposes of this chapter the term `wages' means all remuneration for employment, including the cash value of all remuneration paid in any medium other than cash; except that such term shall not include-

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(9) Any payment (other than vacation or sick pay) made to an employee after the month in which he attains the age of 65, if he did not work for the employer in the period for which such payment is made; * * *

Section 3306(b)(8) of the Federal Unemployment Tax Act contains provisions identical to those quoted above.

In the instant case, it is concluded that the bonus plan maintained by the company contemplates payment of the bonus awards to former employees in consideration of past services. Accordingly, it is held that the bonus awards paid under the plan to former employees subsequent to the termination of their employment relationship, constitute renumeration for services performed in `employment,' and, therefore, are `wages' at the time of payment for purposes of the Federal Insurance Contributions Act and the Federal Unemployment Tax Act.

Section 31.3121(a)(9)-1 and 31.3306(b)(8)-1 of the Employment Tax Regulations, applicable to the Federal Insurance Contributions Act and the Federal Unemployment Tax Act, respectively, provide that the term `wages' does not include any payment (other than vacation or sick pay) made by an employer to an employee after the calendar month in which the employee attains age 65, if: (1) such employee does no work (other than being subject to call for the performance of work) for such employer in the period for which such payment is made; and (2) the employer-employee relationship exists between the employer and employee throughout the period for which such payment is made. Since the bonus awards are made in the instant case in consideration of the past services rendered by the recipients, it cannot be said that they did not work for the employer in the period, or periods, for which such payments are made. Accordingly, it is held further that the bonus awards received by those former employees who have attained the age of 65 are not excluded from `wages' by virtue of the provisions of sections 3121(a)(9) and 3306(b)(8) of the Federal Insurance Constributions Act and the Federal Unemployment Tax Act, respectively.