[Code of Federal Regulations]
[Title 26, Volume 15]
[Revised as of January 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR31.3121(a)(2)-1]

[Page 27-28]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 31_EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE--Table 
 
  Subpart B_Federal Insurance Contributions Act (Chapter 21, Internal 
                          Revenue Code of 1954)
 
Sec.  31.3121(a)(2)-1  Payments on account of sickness or accident

disability, medical or hospitalization expenses, or death.

    (a) The term ``wages'' does not include the amount of any payment 
(including any amount paid by an employer for insurance or annuities, or 
into a fund, to provide for any such payment) made to, or on behalf of, 
an employee or any of his dependents under a plan or system established 
by an employer which makes provision 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), on account of--
    (1) Sickness or accident disability of an employee or any of his 
dependents, only if payment is received under a workers' compensation 
law;
    (2) Medical or hospitalization expenses in connection with sickness 
or accident disability of an employee or any of his dependents, or
    (3) Death of an employee or any of his dependents.
    (b) The plan or system established by an employer need not provide 
for payments on account of all of the specified items, but such plan or 
system may provide for any one or more of such items. Payments for any 
one or more of such items 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 of an employee include the employee's husband or 
wife, children, and any other members of the employee's immediate 
family.
    (d) Workers' compensation law. (1) For purposes of paragraph (a)(1) 
of this section, a payment made under a workers' compensation law 
includes a payment made pursuant to a statute in the nature of a 
workers' compensation act.
    (2) For purposes of paragraph (a)(1) of this section, a payment made 
under a workers' compensation law does not include a payment made 
pursuant to a State temporary disability insurance law.
    (3) If an employee receives a payment on account of sickness or 
accident disability that is not made under a workers' compensation law 
or a statute in the nature of a workers' compensation act, the payment 
is not excluded from wages as defined by section 3121(a)(2)(A) even if 
the payment must be repaid if the employee receives a workers' 
compensation award or an award under a statute in the nature of a 
workers' compensation act with respect to the same period of absence 
from work.
    (4) If an employee receives a payment on account of non-occupational 
injury sickness or accident disability such payment is not excluded from 
wages, as defined by section 3121(a)(2)(A).
    (e) Examples. The following examples illustrate the principles of 
paragraph (d) of this section:
    Example 1. A local government employee is injured while performing 
work-related activities. The employee is not covered by the State 
workers' compensation law, but is covered by a local government 
ordinance that requires the local government to pay the employee's full 
salary when the employee is out of work as a result of an injury 
incurred while performing services for the local government. The 
ordinance does not limit or otherwise affect the local government's 
liability to the employee for the work-related injury. The local 
ordinance is not a workers' compensation law, but it is in the nature of 
a workers' compensation act. Therefore, the salary the employee receives 
while out of work as a result of the work-related injury is excluded 
from wages under section 3121(a)(2)(A).
    Example 2. The facts are the same as in Example 1 except that the 
local ordinance requires the employer to continue to pay the employee's 
full salary while the employee is unable to work due to an injury 
whether or not the injury is work-related. Thus, the local ordinance 
does not limit benefits to instances of work-related disability. A 
benefit paid under an ordinance that does not limit benefits to 
instances of work-related injuries is not a statute in the nature of a 
workers' compensation act. Therefore, the salary the injured employee 
receives from the employer while out of work is wages subject to FICA 
even though the employee's injury is work-related.
    Example 3. The facts are the same as in Example 1 except that the 
local ordinance includes a rebuttable presumption that certain injuries, 
including any heart attack incurred by a firefighter or other law 
enforcement personnel is work-related. The presumption in the ordinance 
does not eliminate the requirement that the injury be work-related in 
order to entitle the injured worker to full salary. Therefore, the 
ordinance is a statute in the nature of a workers' compensation

[[Page 28]]

act, and the salary the injured employee receives pursuant to the 
ordinance is excluded from wages under section 3121(a)(2)(A).
    (f) It is immaterial for purposes of this exclusion whether the 
amount or possibility of such benefit payments is 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.

[ T.D. 6516, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960, as 
amended by T.D. 9233, 70 FR 74199, Dec. 15, 2005]