By: Coleman Jackson, CPA, Attorney & Counselor
May 20, 2015
The definition of the term “Employment” in U.S. tax law means any service, of whatever nature, performed-
A. by any employee for the person employing him, irrespective of the citizenship or residence of either;
- within the United States, or
- on or in connection with an American vessel or American aircraft under a contract of service which is entered into within the United States or during the performance of which and while the employee is employed on the vessel or aircraft it touches at a port in the United States, if the employee is employed on and in connection with such vessel or aircraft when outside the United States, or
B. outside the United States by a citizen or resident of the United States as an employee for any American employer, regardless of where or by whom the services are performed; so-long-as, the services are designated as employment or recognized as equivalent to employment under an agreement entered into under section 233 of the Social Security Act.
Wages and other compensation paid to employees are subject to federal employment taxes. Employment taxes generally apply to all pay given by an employer to an employee for services performed during a particular pay period. Federal tax laws apply to such payments whether they are paid by direct deposit into the employee’s bank accounts, by cash in hand, or paid in any other form. Federal employment tax laws apply to payments made in the form of signing bonuses, performance bonuses or employment severance payments, and so forth. It matters not whether the wages are paid directly or indirectly to the employee, for example, employee wages that are paid to some third party, are still wages to the employee who performed the services. Medicare, FUTA taxes, and income tax withholding rules apply to all wages paid to compensate employees for services performed. Also compensation paid to former employees for services performed while still in the employer’s employ is subject to Medicare, FUTA and income tax withholding rules.
Are there any services excepted from the term “employment” under U.S. federal tax law? Yes, some services that are exceptions to the federal tax definition of employment are as follows.
1. Services Performed by Foreign Agricultural Workers
Services performed by foreign agricultural workers lawfully admitted to the United States from the Bahamas, Jamaica, and the other British West Indies, or from any other foreign country or possession on a temporary basis are not considered employment under U.S. tax law.
2. Domestic Services Performed in a Local College
Domestic services performed in a local college club, or local chapter of a college fraternity or sorority, by students who are enrolled at the college and regularly attend classes at the school, college or university is an exception to the term employment under U.S. tax law.
Domestic services are typically thought of as housekeeping services, cooking, cleaning, laundry and similar domestic services.
This domestic services exception at local university does not apply to services performed at alumni centers or commercial buildings or classrooms on or around the local college campus.
3. Children Working in Familial Situations
Services performed by a child under the age of 18 while in the employ of their parents are an exception to the term employment.
4. Services Performed by a Nonresident Alien Individual
Services which are performed by a nonresident alien individual for the period he is temporarily present in the United States as a nonresident under the Immigration and Nationality Act (8 U.S.C. §1101(a)(15)(H)(ii) subparagraphs (F), (J), (M), or (Q) of section 101(a)(15) and which are performed to carry out the specified purpose in subparagraph (F), (J), (M), or (Q), as the case may be, are exceptions to the term employment under U.S. tax law.
The above list is not an exhaustive list of service exceptions to the federal tax law term “employment”. And as with all most anything that deals with taxation; complex issues have been presented here in summary fashion. We have purposely left out any state tax law ramifications; but for sure there may also be state tax employment laws that could apply. You should consult appropriate tax advisors in your jurisdictional area for any specific matter pertaining to you or your family or business.
This Overview is supplied for educational purposes and do not create an attorney-client relationship with the Immigration & Tax Law Firm of:
COLEMAN JACKSON, PC
6060 North Central Expressway
Dallas, Texas 75206
Phone: (214) 599-0431 English
Phone: (214) 599-0432 Spanish