PART 3 - Taxability of Wages
Unemployment Insurance Handbook for Employers (UCB-201-P)
Section 2 - Tax
A. Definition of Wages
"Wages" means every form of payment directly or
indirectly payable by an employing unit to an individual for personal services. This
includes salaries, commissions, vacation pay, dismissal pay, bonuses, tips, certain fringe
benefits, and payments in kind and any other similar advantage received from the employing
unit, whether paid directly or indirectly. It may also include rent, housing and meals.
Tips are only taxable to the extent declared in writing (accounted for) by the employee to
Wisconsin adopted the federal definition of wages for UI tax
purposes as of January 1, 1993 with two exceptions:
To determine initial coverage of an agricultural entity, only cash
wages are considered. However, once covered, the employer must include all cash and
non-cash payments for agricultural labor as wages.
The value of employee achievement awards (that is compensation for
services) is included as wages.
Report wages in the calendar quarter in which they are paid or
constructively paid. Constructive payment occurs when your employee has the option of
receiving payment but instead chooses to defer payment.
Casual labor is a common term used in the employer community to describe workers performing a variety of services, usually on a temporary or part-time basis.
Workers hired for an hour, a day, a week, or for part-time services are typically employees. There is no provision in the law that excludes a worker from employment solely because he or she works less than full-time. The following types of workers have been referred to as casual laborers and are reportable for unemployment insurance purposes.
- Part-time worker
- Short-term worker
- Day laborer
- Student (unless working for an educational institution
in which they are enrolled, work study program employment,
and non-resident aliens working for any employer under specific visa types)
- Nonresident Alien (unless working under specific visa types)
- A worker on probation
- A worker in training
- A retiree collecting social security benefits
- A worker without a social security number
- Workers paid in cash
B. Fringe Benefits
1. Deferred Compensation
401(k) Salary Reduction Agreement amount.
Discretionary Contribution. When your employee has an option to
take a portion of the employer-paid contribution in cash, that portion, whether taken in
cash or left in the fund, is considered to be constructively received.
Compensation deferred under Nonqualified Plans
Payments from non-qualified plans are taxable as of the later of
the date the services are performed, or the date there is no substantial risk of
forfeiture of the rights to such amount. Generally the amount deferred will be taxable
when paid, unless it can be shown that there is no longer a substantial risk of forfeiture
(i.e., the employer has set the deferred amount aside in a separate account or fund
established in the workers name).
Discretionary Contribution. This is an employer contribution to
your employee's account out of company profits, when the amount is not available to your
employee until separation.
Payments made to a 401(a) qualified trust, except for payments
made to or from a 401(a) trust which is administering the 401(k) plan.
2. Section 125(b) (Cafeteria Plans)
Acceptance of cash payment (cash option) in
lieu of participation in 125(b) plan is taxable.
Unexpended amounts paid to employees at year-end are taxable.
401(k) Salary Reduction Agreement amount.
Premium Only Plan. Your employee pays for particular benefits with
pre-tax dollars through a salary reduction agreement. There is an option not to join the
plan (cash option).
Premium and Flexible Spending Account. You deduct pre-tax dollars
through a salary reduction agreement to pay for employee selected benefits, based on your
employee's estimate of charges. Any unexpended monies revert to you, the employer. There
is an option not to join the plan (cash option).
Cafeteria Plan. You provide your employee with a fixed amount to
purchase benefits. Money expended for these benefits is treated as pre-tax. There is an
option not to join (cash option).
3. Sickness or Disability Pay
Sickness or accident disability payments may be made under a plan
or system you established which makes provisions for your employees and their dependents
generally or, perhaps less commonly, they may be made more informally or only to certain
Sickness or accident disability payments which are made to your
employee or any of his/her dependents (directly or through a third-party payer) during the
first six months starting after the last calendar month the employee worked for you, are
reportable/taxable as wages for UI contribution purposes.
Workers Compensation payments made to your employee or any
of his/her dependents are not taxable for UI contribution purposes.
Sickness or accident disability payments provided by a third party
insurer, but financed by employer and employee premiums, are taxable only for the portion
financed by employer-paid premiums. (Employer payments on behalf of employees using
employee pre-tax dollars are considered employer payments.)
4. Employee Portion of FICA Taxes
If the employer pays the employee portion of FICA taxes, it is
taxable unless its for domestic service in a private home or agricultural labor.
5. Payment in Kind
Compensation paid in any form is taxable wages (unless
specifically excluded, such as expense reimbursements or employee moving expenses).
Some common types of payment in kind are; housing, meals, merchandise discounts,
transportation, employee contest prizes, personal use of a company car and club
memberships. This list is not all-inclusive.
The tax status of the following types of payment in kind changed effective January 1, 1993.
Meals and lodging may be nontaxable, but the following criteria must be met:
It is furnished on behalf of the employer.
It is for the convenience of the employer.
It is on the employer's premises.
Your employee is required to accept it as a condition of
employment (lodging only).
Despite this general rule, all in-kind payments for agricultural labor remain taxable.
6. Value of Room and Meals
DWD 101 states for purposes of
s.108.02(26) (wages), the employer shall value lodging and meals at the actual value or, if the
actual value is not available, the employer shall make a reasonable estimate of the value.
If the actual value or reasonable estimate is not available, the department shall value lodging and meals as follows:
If actual value or reasonable estimate is not available:
||$105.00 per week
||or $15.00 per day;
||$86.00 per week,
||$12.30 per day or
||$4.10 per meal.
Updated: September 27, 2018