Sick pay Accrual; plan providing payment in subsequent year Air traffic controllers; wages during training.

Transcription

1 462.1 Accrual; plan providing payment in subsequent year. An accrual-method employer may deduct its liability to employees for sick leave earned during a year under a calendar-year plan providing that sick leave earned during the year may be used only in the succeeding year and that a lump-sum payment for unused sick leave will be made to an employee for each year s unused sick leave either in January of the next succeeding year or upon termination of employment, whichever occurs earlier , (Secs. 162, 461; 86 Rev. Rul , C.B Air traffic controllers; wages during training. Payments received by a removed air traffic controller during a second career training period, after he was determined by the Department

2 of Transportation to be not medically qualified to return to active controller duties following a period of illness, are not excludable as sick pay (Sec. 105, 86 Rev. Rul , C.B Alcoholism. The term sickness encompasses alcoholism and amounts received by a member of the Armed Forces under a wage continuation plan during the period he was an inpatient at an Armed Forces alcoholic rehabilitation center qualify for the sick pay exclusion (Sec. 105, 86 Rev. Rul , C.B Armed Forces; combat zone injury. Members of the Armed Forces are entitled to the sick pay exclusion in addition to any combat pay exclusion to which they are entitled; further, a 7-day work week should be used in computing the daily exclusion, and, in the case of a returning prisoner of war, the 30-day waiting period begins upon release to U.S. custody. Rev. Rul superseded (Secs. 105, 112; 86 Rev. Rul , C.B Armed Forces; disability pension. A member of the Armed Forces on the retired list for reasons other than physical disability is not absent from work on account of personal injury or sickness and may not exclude any retirement pay from gross income even though he is sick or injured or hospitalized. However, disability retirement pay received by a member in excess of the amount excluded under section 104(a)(4) may be excluded to the extent provided in section 105(d) if received before the member reaches retirement age. Section 105(d) is not applicable to disability retirement pay received after the member reaches retirement age (Sec. 105, 86 Rev. Rul , C.B Armed Forces; disability pension; Naval Fleet Reserve. Retirement pay received by an individual from the U.S. Navy after a transfer from retainer pay status in the U.S. Naval Fleet Reserve to the retired list on account of a physical disability is not excludable as sick pay (Sec. 105, 86 Rev. Rul , C.B Armed Forces; disability pension; retiree gainfully employed. A member of the Armed Forces on the retired list for physical disability is no longer absent from work for purposes of the sick pay exclusion, when he performs services as an employee of the U.S., whether such services are performed in the same or in another department, agency or branch of the Government. Rev. Ruls and clarified (Sec. 105, 86 Rev. Rul , C.B Armed Forces; disability retirement; retirement age. The mandatory retirement age of a member of the Armed Forces, placed on disability retirement at a rank higher than the rank held immediately before retirement, is the age for the retirement rank stated on the retirement orders for purposes of the sick pay exclusion. (Sec. 105, 86 Rev. Rul , C.B Armed Forces; work while convalescing. Wages or payments in lieu of wages received by a member of the Armed Forces for a period during which he is confined as a patient in a hospital on account of personal injuries or sickness qualify for the sick pay exclusion, even though such member may be convalescing and doing light work in the hospital to which he is confined. (Sec. 105, 86 Rev. Rul , C.B Bonus; proration over period of absence. A bonus determined by the profits of a company for the entire year, which is paid to an employee who was absent from work on account of personal injuries or sickness during the year, may not be prorated to attribute a portion thereof to the period of absence on account of personal injuries or sickness for the purpose of the sick pay exclusion (Sec. 105, 86 Rev. Rul , C.B Civil service annuity; employee s voluntary deposits. An additional annuity received under the Civil Service Retirement Act prior to retirement age that is composed exclusively of the annuitant s voluntary deposits and interest thereon does not qualify for exclusion as sick pay , (Secs. 72, 105; 86 Rev. Rul , C.B Civil service employee; lump sum payment. A lump sum payment received by a taxpayer from the Civil Service Commission in 1965 as the total of disability payments to which he was entitled for the years 1955 through 1959, during which he was either hospitalized or otherwise unable to return to work because of personal injuries or sickness, qualifies for the sick pay exclusion. His contributions to the plan will be recovered taxfree with respect to retirement payments received after reaching normal retirement age (Sec. 105, 86 Rev. Rul , C.B Civil service law enforcement officers and firefighters; retirement age. The mandatory retirement age for purposes of the sick pay exclusion is set forth for law enforcement officers and firefighters whose retirement age is governed by 5 U.S.C.A. section 8336, in view of its amendment by Pub. L which was enacted on July 12, 1974, and is to become effective on January 1, Rev. Rul superseded (Sec. 105, 86 Rev. Rul , C.B Civil Service retiree; pre A Federal Civil Service employee retired before the mandatory retirement age on a regular annuity. After filing 1974 and 1975 income tax returns and excluding retirement payments as recovery of cost, the employee was certified as eligible for disability retirement. If the employee timely files Form 5401 (Agreement to Apply Sick Pay Exclusion to Retirement Annuity) electing to have the 1974 retirement payments treated in part as sick pay, the excess retirement payments over the sick pay exclusion will be a recovery of cost. The sick pay exclusion must also declaimed in an amended return for 1975 but the excess of the retirement payments for that year over the sick pay exclusion must be included in the employee s gross income , (Secs. 72, 105; 86 Rev. Rul , C.B Commissions received during period of illness. Commissions received by a salesman on transactions with his specified customers during his absence from work because of illness, in accordance with the wage continuation policy of his employer, constitute payments under a wage continuation plan excludable from his gross income. The exclusion does not apply to commissions earned for a period prior to the salesman s illness received during his absence from work (Sec. 105, 86 Rev. Rul , C.B Community property income. Community property income received pursuant to a wage continuation plan, attributable to a period during which the employed spouse was absent from work on account of personal injuries or sickness, is excludable from gross income. The amounts received in excess of the amount so excludable must be included in gross income, one half to each spouse. However, income attributable to a period in which the unemployed spouse was Sick pay incapacitated is not received under a wage continuation plan and is includable in the gross income of each (Secs. 104, 105; 86 Rev. Rul , C.B Daily exclusion rule. A taxpayer having a semimonthly pay period, who normally works eight days and is off six in each two-week period, and who received wage continuation plan benefits for a two-week period during which he was absent from work because of injury, should determine the excludable portion of such benefits in accordance with the daily exclusion rule (Sec. 105, 86 Rev. Rul , C.B Disability benefits; nonoccupational disability; Hawaii. Benefits received by an unemployed individual under the Temporary Disability Insurance Law of Hawaii, as a result of temporary disability due to nonoccupational sickness or accident, are in the nature of unemployment compensation and excludable from the recipient s gross income and benefits received by an employee under provisions of the Law are amounts paid pursuant to a wage continuation plan , (Secs. 104, 105; 86 Rev. Rul , C.B Disability income exclusion phaseout; subsequent year exclusion. The $15,000 adjusted gross income phaseout does not affect the eligibility for the disability income exclusion of a permanently and totally disabled taxpayer who retired in 1977, and did not make an irrevocable election not to claim the exclusion under section 105(d)(3). The amount of the taxpayer s adjusted gross income for 1977 reduced the disability income exclusion to zero for that year, but the phaseout will not preclude subsequent years exclusions. (Sec. 105, 86 Rev. Rul , C.B Disability payment; acute cancerous condition. A lump sum payment received by an employee, under an employer-employee contributory life and disability insurance policy, as a result of an acute cancerous condition resulting in total and permanent disability, is excludable under section 105(c) to the extent that such payment is attributable to employer contributions to the policy. The portion of the lump sum payment which is attributable to the employee s own contribution to the policy is excludable under section 104(a)(3). Distinguished by Rev. Rul , (Secs. 104, 105; 86 Rev. Rul , C.B Disability payment; lump sum in lieu of future payments. A lump sum payment received by a permanently and totally disabled 50-year old taxpayer in lieu of monthly payments to age 65 based upon his former salary under an accident and health insurance plan fully funded by his former employer is not excludable from gross income under section 105. Rev. Rul distinguished (Sec. 105, 86 Rev. Rul , C.B Disability pensions; firemen; New Orleans. Specific questions and answers thereto discuss the tax treatment of amounts received under various circumstances by disabled firemen from the Firemen s Pension and Relief Fund of the City of New Orleans , (Secs. 104, 105; 86 Rev. Rul , C.B District of Columbia Teachers Retirement Act. A teacher with 33 years credit was retired for physical disability and received retirement pay under the District of Columbia Teachers Retirement Act. Held, the pay is through health insurance for personal injury or sickness within the meaning of section 104(a)(3), and portions thereof not attributable to contribu-

3 tions by the employer are excluded from income. (Sec. 104, 86 Adam S. H. Trappey, 34 T.C. 407, Acq., C.B Elected state official. An elected state official whose salary is fixed by law and continued while he is absent because of sickness may exclude wages or payment in lieu of wages received during this period (Sec. 105, 86 Rev. Rul , C.B Employee plans; annuity distributed on disability retirement. An annuity contract distributed to an employee upon termination of employment because of disability and purchased with the employee s share of a qualified contributory saving and profit-sharing plan that made no provision for disability retirement is not part of an accident or health plan within the meaning of reg The periodic payments received under the annuity contract are not excludable from gross income under section 105(d) and are taxable under the rules provided in section , (Secs. 72, 105; 86 Rev. Rul , C.B Employees plans; distributions for medical expenses. Distributions made from a qualified profit-sharing trust to pay the medicalcare expenses of the employee-participant are not excludable accident and health benefits but are taxable as previously earned deferred compensation , , 1.402(a)-1. (Secs. 72, 105, 402; 86 Rev. Rul , C.B Employer-funded health and accident plan; payments received by laid-off worker. A laid-off worker is an employee during the period of layoff for purposes of an accident or health plan described in sections 105 and 106. Employer contributions to the plan are excludable from the worker s gross income. Benefits received are includible in the worker s gross income and are subject to withholding , (Secs. 105, 106, 3401; 86 Rev. Rul , C.B Employer-funded health and accident plan; survivor benefit payments. The taxation of health benefit payments made by an insurance company to the surviving spouse and dependents of a deceased employee-participant in an employer-funded health and accident plan is determined under section , , 1.691(a)-1. (Secs. 105, 106, 691; 86 Rev. Rul , C.B Exclusion; retired employees. A substantive difference between the amounts actually received by a retiree under the regular retirement provisions of the employer s plan and the amount that would have been received had the person retired under the employer s wage continuation plan is a difference of more than 15 percent of the latter amount (Sec , S.P.R.; Sec. 105, 86 Rev. Proc , C.B Exclusion; retired employees. The tax treatment of disability payments is discussed in a situation in which the retired employee is entitled to benefits that comprise the larger of an amount based on years of service or an amount determined without regard to either years of service or age. The effect of the employee s election to decrease the retirement allowance in order to increase the survivor s benefit is also discussed , (Sec. 104, 105; 86 Rev. Rul , C.B Exclusion; retired employees; certification of eligibility. A labor union, which maintains and administers a pension fund pursuant to a collective bargaining agreement providing for normal retirement benefits and a union wage continuation plan providing accident and health benefits, may provide the certification required by reg (a)(2) to an employee who is eligible for wage continuation benefits but elects to receive normal retirement benefits before Januarv 27, (Sec. 105, 86 Rev. Rul , C.B Federal employees. Wages received by a civilian U.S. Government employee during a period he is absent from work due to personal injury or sickness are excludable from his gross income. The manner in which the absence is reflected in the records of the employing agency will not be determinative of the right of the employee to the benefit of the exclusion. Distinguished by Rev. Rul (Sec. 105, 86 Rev. Rul , C.B Federal employees; absence in preceding year. A cash method calendar-year Government employee who, in the year following his retirement on disability before reaching retirement age, received retroactively the disability annuity payments that he was entitled to but did not receive in the previous year may claim for the year of receipt any sick pay exclusion attributable to his absence from work in the previous year in addition to his allowable sick pay exclusion for the year following his retirement even though the combined exclusion exceeds the maximum sick pay exclusion allowable for a single year of sickness or disability (Sec. 105, 86 Rev. Rul , C.B Federal employees; absence in preceding year. The wages of a Federal employee attributable to a period of absence from work on account of personal injuries or sickness are excludable from his gross income in the year such wages are received if the employee reports his income under the cash method even though the absence due to sickness occurred in the preceding year , (Sec. 105, 451; 86 Rev. Rul , C.B Federal employees; buy back of sick leave. An explanation is presented of the treatment of amounts received by a federal employee for sick leave that were later repaid so that the recipient could be placed in leave without pay status and receive benefits under the Federal Employees Compensation Act for that period , , , , , (Secs. 61, 104, 165, 451, 461, 1341; 86 Rev. Rul , C.B Federal employees; continuation of pay. Amounts received as continuation of pay pursuant to section 11 of the Federal Employees Compensation Act by a federal employee who has filed a claim for a period of wage loss due to a traumatic injury are not compensation for personal injuries or sickness and are not excludable from gross income under sections 104(a)(1) or 105(d) , (Secs. 104, 105; 86 Rev. Rul , C.B Federal employees; injury sustained while improperly discharged. Where a Federal employee, improperly discharged from his position, sustains a personal injury while awaiting judicial action in reinstatement proceedings, the sick pay exclusion applies to the amount he receives as compensation attributable to the period of time during which he was incapacitated because of such injury (Sec. 105, 86 Rev. Rul , C.B Federal employees; lump sum payment; accrued leave. Lump sum payments received by a Federal Government employee for accumulated and current accrued annual or vacation leave upon separation from government service, irrespective of whether such individual resigns or retires and receives a disability annuity are not payments for personal injuries or sickness under a wage continuation plan excludable from gross income. Rev. Rul distinguished. (Sec. 105, 86 Rev. Rul , C.B Federal employees; retiree gainfully employed by Postal Service. For periods prior to 1976, a Federal employee who retired on disability (including members of the Armed Forces on the retired list for physical disability) was not absent from work for purposes of the sick pay exclusion when that individual performed services as an employee of the U.S. Postal Service (Sec. 105, 86 Rev. Rul , C.B Health and accident insurance benefits. Payments received by an employee under an individual sickness and disability insurance policy where the employer pays the premiums are excludable under section 22(b)(5) of the 1939 Code and under the 1954 Code to the extent provided in section 105(d). Where a sole proprietor paid the premiums for his own benefit, such payments are excludable under section 22(b)(5) of the 1939 Code and may be excluded under section 104(a)(3) of the 1954 Code , , (Sec. 22(b), 39 Code; Secs. 61, 104, 106, 86 Rev. Rul , C.B Health insurance; employer-insured plan. An employee may exclude from his gross income as health insurance sickness disability benefits received during 1949 under his employer s plan even though the plan did not contain features present in normal commercial insurance. The payment of premiums in a fixed amount at regular intervals is not a necessary element of insurance, nor is there any necessity for a definite fund to be set aside to meet the insurer s obligation. (Sec. 22(b), 39 Code; Sec. 104, 86 Haynes, 353 U.S. 81, Ct. D. 1805, C.B Health insurance; employer-insured plan. Consistent with Revenue Procedure and the Gordon P. Haynes, decision, relating to exclusion of sick and disability benefits under employer-insured plans, the following action has been taken with respect to prior published rulings: I.Ts. 3428, 3760, 4061, 4107, and Rev. Ruls. 103, 209, 269, 54-1 revoked; I.Ts. 4000, 4015, 4060 reinstated (b)(5) 1, (Sec. 22(b), 39 Code; Secs. 104, 105, 86 Rev. Rul , C.B. 681; J. Wesley Sibole, 28 T.C. 40, Acq., C.B Health insurance; employer plan; aircraft used for medical transportation. Although a taxpayer s employer had no written plan authorizing medical transportation for employees, the employees bad knowledge of the availability of a company aircraft for that purpose. Held, a policy or custom existed that had the effect of a plan within the meaning of reg (a), and the taxpayer was allowed to exclude the value of medical transportation furnished to his spouse. (Sec. 105, 86 John L. Greer, 70 T.C. 294, Acq., C.B Health insurance; employer plan; employee absent when plan effected. Reimbursements to employees for medical expenses incurred after the inception of an employer s qualified accident and health plan are excludable from gross income even though such employees were unable to work because of personal injury or sick-

4 ness when the plan went into effect (Sec. 105, 86 Rev. Rul , C.B Health insurance; employer plan; family members. Amounts reimbursed under an accident and health plan covering all employees, including the owner s wife, and their families are not includable in the employee s gross income and are deductible by the owner as business expenses , (Secs. 105, 162; 86 Rev. Rul , C.B Health insurance; employer plan; nonoccupational disability; New York. Employer contributions to a fund to provide for nonoccupational disability benefits for employees pursuant to Article 9 of the New York Workmen s Compensation Law are contributions to an accident or health plan excludable from the employees gross income and are not wages subject to income tax withholding; however, they are deductible by the employer as business expenses. Employees must include any nonoccupational disability benefits in their gross income unless the payments qualify for exclusion as amounts received under a wage continuation plan. Amplified by Rev. Rul Distinguished by Rev. Rul I.T.s 4010, 4060, and 4075, and Rev. Ruls. 130, 257 superseded , , , , (Secs. 61, 104, 105, 106, 162, 3402; 86 Rev. Rul , C.B Nonresident aliens; medical expense deduction. A nonresident alien who works in the U.S. may exclude from gross income amounts received for sickness or injury; he is not entitled to the medical expense deduction. (Secs. 872, 873; 86 Rev. Rul , C.B Nonworking days. Payments received by a sick or injured employee for nonworking days under a plan which provides payments for each calendar day of his sickness or disability are not excludable from gross income. Further, a nonworking holiday that occurs on a day which is not a regular working day should be considered a nonworking day (Sec. 105, 86 Rev. Rul , C.B Nonworking days; legal holiday. The sick pay exclusion is not applicable to wages or payments in lieu of wages for a legal holiday which is neither a normal working day for an employee nor a day on which he is available for a call to work. The seven-day waiting period does not begin on a legal holiday on which an employee is not supposed to work; however, where a paid holiday occurs after a period of absence from work on account of sickness has begun and while the employee is still sick, a paid holiday counts as one day of the waiting period. Modified by Rev. Rul (Sec. 105, 86 Rev. Rul , C.B Nonworking days; legal holiday. If an employee is in fact absent from work on account of personal injuries or sickness on the normal working day immediately preceding a nonworking legal holiday and continues to be so absent on the normal working day following the legal holiday, the employee will be allowed to exclude from his gross income the wages or payments in lieu of wages received for the legal holiday. Rev. Rul modified; Modified by Rev. Rul (Sec. 105, 86 Rev. Rul , C.B Part-time absence for injury. Where it is established that an employee received wages for stated periods of absence from work under an accident or health insurance plan of his employer and can substantiate that such absences, including absences for a part of a day at various intervals were, in fact, directly due to a personal injury sustained by him, he may exclude such wages from gross income to the extent that they do not exceed a weekly rate of $ (Sec. 105, 86 Rev. Rul , C.B Partner. Amounts paid by a partnership to a member who is absent from work because of accident or sickness do not constitute wages or payments in lieu of wages and may not be excluded from a partner s gross income (Sec. 105, 86 Rev. Rul , C.B Pregnancy. The term sickness does not include the condition of pregnancy. However, an employee absent from work on account of sickness during a period of pregnancy may exclude from gross income amounts received for the period of absence, even though the sickness is caused by her pregnancy. Amplified to provide that sickness exists (1) from commencement of labor to the termination of the period of physical incapacity as a result of childbirth or miscarriage, and (2) the period for which there is evidence that an employee should remain home because of substantial danger of miscarriage. (Sec. 105, 86 Rev. Rul , C.B. 16; Rev. Rul , C.B Quarantine or illness in family. The sick pay exclusion does not apply to wages received during a period of absence required because of quarantine or illness of a member of the family, even though the absence is charged to sick leave. (Sec. 105, 86 Rev. Rul , C.B Retained portion of earnings paid to sick co-worker under union plan. Sick benefits received by a union member from his employer that has no sick pay plan for employees but pays such benefits, in accordance with union rules, from a percentage of earnings withheld from his fellow workers is excludable from his gross income as amounts received under an employees accident and health plan. However, the amounts withheld from contributing employees are not excludable from their gross income and are not deductible as medical insurance under section , , , (Secs. 61, 104, 105, 213; 86 Rev. Rul , C.B Retirement age; employment continued. The sick pay exclusion may be allowable to an individual employee even though he has passed normal retirement age, provided he is regularly employed and would be at work if it were not for a personal injury or sickness (Sec. 105, 86 Rev. Rul , C.B Retirement income. Pensions and annuities which are excludable from gross income do not reduce retirement income. Wages or payments in lieu of wages (except amounts received as a pension or annuity) that are received for a period during which an employee is absent from work due to personal injuries or sickness constitute earned income and should be taken into consideration for the purpose of the limitation on retirement income , (Secs. 37, 105; 86 Rev. Rul , C.B Retirement plan; no disability provision. A retirement plan which contains no specific provision for early retirement because of disability is not an accident or health plan. Thus, amounts received for early retirement because of disability may not be excluded from gross income under section 105(d) (Sec. 105, 86 Rev. Rul , C.B. 34. Sick pay Returns; separate statement to support exclusion. Employees must submit a statement showing the computation of excludable sick pay on their individual income tax returns even though the amount is shown separately on Form W-2. Conditions are given under which an employer may show separately on Form W-2 excludable sick pay paid after Rev. Procs superseded and obsoleted (Sec , S.P.R.; Secs. 105, 3401, 86 Rev. Proc. 75 7, C.B Salary, maintenance and cure payments; disabled seamen. Regular salary payments made to seamen who become disabled by sickness or injury in the service of their ships constitute wage continuation payments excludable from gross income and constitute wages for employment tax purposes. Maintenance and cure payments, including cash subsistence payments while an out-patient, do not constitute compensation for services, are not taxable income, and do not constitute wages. I.T amplified , (Secs. 61, 105; 86 Rev. Rul , C.B State legislative employee. Payments made to a legislative employee of the New York State Legislature during periods of absence from work on account of personal injury or sickness qualify as payments under an accident or health plan. Therefore, such employee is entitled to sick pay exclusions for periods of absence from work on account of personal injury or sickness (Sec. 105, 86 Rev. Rul , C.B Teacher. Guides for determining the amount of sick pay excludable from gross income by (1) a teacher or officer of a school system whose salary is computed on a 30-day-per-month basis and paid in tenor 12 equal monthly installments or (2) teachers required to perform services during a nine month school term and paid an annual salary in 12 equal monthly installments. Such employees are not entitled to the exclusion for any holiday period during which they are not expected to perform services for their employers even though they receive a part of their salary during the period (Sec. 105, 86 Rev. Rul , C.B. 94; Rev. Rul , C.B Teacher on sabbatical leave for health. The provisions of a state statute, or of regulations of a board of education, authorizing payments in lieu of wages to a teacher on sabbatical leave for the restoration of health constitute a wage continuation plan, and payments under the plan are excludable from gross income for the periods the teacher is actually incapitated, providing such periods are not included within his normal vacation periods (Sec. 105, 86 Rev. Rul , C.B Vacation leave; supplement to sick pay. Wages or payments in lieu of wages received by an employee from an employer for a period of absence from work because of illness are, under certain circumstances, wage continuation plan benefits excludable under section 105(d), even though the absence during a portion of the period was reflected on the employer s record as vacation leave. Distinguished by Rev. Rul with respect to employment taxes (Sec. 105, 86 Rev. Rul , C.B Wage continuation; benefits paid beneficiary. That portion of the monthly salary paid for the period up to the decedent s death that represents sick pay is not income in respect of a decedent nor is it taxable income in the hands of the recipient. However, that portion that is not excludable sick pay is income in respect of a decedent, and taxable to the recipient. The portion of

5 the monthly salary paid for the period after the decedent s death qualified as a death benefit and, since it does not exceed $5,000, is excludable from the recipient s gross income. A beneficiary acquiring the right from a decedent to receive the vacation allowances is required to include the amount thereof in income for the period in which received , 1.691(a)-1. (Secs. 105, 691; 86 Rev. Rul , C.B Wage continuation; one day pay status during absence period. An employee is not considered to have returned to work during a period of absence because of illness merely because he is present at his work in a pay status for one day for an interview concerning his disability retirement (Sec. 105, 86 Rev. Rul , C.B Workmen s compensation turned over to employer. Workmen s compensation payments received by an employee are excludable from his gross income, even though he turns over such payments to his employer; salary payments made by the employer in excess of the workmen s compensation are includable in the employee s income unless made under a wage continuation plan. The workmen s compensation payments turned over are included in the employer s income and the salary payments made to the employee are deductible by the employer (Secs. 104, 105; 86 Rev. Rul , C.B. 79.