(a) In general. The term “wages” does not include the amount of any payment or series of payments made after January 2, 1968, by an employer to, or on behalf of, an employee or any of his dependents under a plan established by the employer which makes provisions for his employees generally (or for his employees generally and their dependents) or for a class or classes of his employees (or for a class or classes of his employees and their dependents), which is paid or commences to be paid upon or within a reasonable time after the termination of an employee's employment relationship because of the employee's—
(1) Death,
(2) Retirement for disability, or
(3) Retirement after attaining an age specified in the plan established by the employer or in a pension plan of the employer at the age at which a person in the employee's circumstances is eligible for retirement.
(b) Plan. The plan or system established by an employer need not provide for payments because of termination of employment for all the reasons set out in paragraphs (a)(1), (2), and (3) of this section, but such plan or system may provide for payments because of termination for any one or more of such reasons. Payments because of termination of employment for any one or more of such reasons under a plan or system established by an employer solely for the dependents of his employees are not within this exclusion from wages.
(c) Dependents. Dependents of an employee include the employee's husband or wife, children, and any other members of the employee's immediate family.
(d) Benefit payment. It is immaterial for purposes of this exclusion whether the amount or possibility of benefit payments is paid on account of services rendered or taken into consideration in fixing the amount of an employee's remuneration or whether such payments are required, expressly or impliedly, by the contract of service.
(e) Example. The application of this section may be illustrated by the following example:
A, an employee, receives a salary of $1,500 a month, payable on the 5th day of the month following the month for which the salary is earned. A's employer has established an incentive compensation plan for a class of his employees, including A, providing for the payment of deferred compensation on termination of employment, including termination upon an employee's death, retirement at age 65 (the retirement age specified in the plan), or retirement for disability. On March 1, 1973, A attains the age of 65 and retires. On March 5, 1973, A receives $5,500 from his employer of which $1,500 represents A's salary for services he performed in February 1973, and $4,000 represents incentive compensation paid under the employer's plan. The amount of $4,000 is excluded from “wages” under this section. The amount of $1,500 is not excluded from “wages” under this section.
The preliminary Code is a preliminary release of the Internal Revenue Code of 1986 (the "Code") by the Office of the Law Revision Counsel and is subject to further revision before it is released again as a final version. The source of the preliminary Code used in TouchTax is available here: https://uscode.house.gov/download/download.shtml. The Code is a consolidation and codification by subject matter of the general and permanent laws of the U.S. prepared by the Office of the Law Revision Counsel of the U.S. House of Representatives. The Treasury Regulations are a codification of the general and permanent rules published in the Federal Register by the departments and agencies of the federal government. The version of the Treasury Regulations available within TouchTax is part of the Electronic Code of Federal Regulations which is not an official legal edition of the Code of Federal Regulations but is an editorial compilation of CFR material and Federal Register amendments produced by the National Archives and Records Administration's Office of the Federal Register (OFR) and the Government Publishing Office. The source of the CFR used in TouchTax is available here: https://www.govinfo.gov/bulkdata/ECFR/title-26. Those using TouchTax for legal research should verify their results against the printed versions of the Code and Treasury Regulations. TouchTax is copyright 2024 by Com-Lab (Mobile). Learn more at http://touchtax.edrich.de.