Summary
The Supreme Court considered whether employer reimbursements for lunches consumed by employees during authorized nonovernight business travel constituted "wages" subject to federal income-tax withholding under 26 U.S.C. § 3401(a). The Court held that the reimbursements were not wages subject to withholding and reversed the Seventh Circuit. The Court distinguished the concepts of taxable income and wages for withholding purposes and emphasized the lack of applicable notice or regulation requiring withholding in 1963.
Topics
Practice areas
Questions Presented
- Whether lunch reimbursements paid to employees for meals consumed during authorized, nonovernight business travel constituted wages subject to federal income-tax withholding under 26 U.S.C. §§ 3401(a) and 3402(a).
- Whether the fact that the reimbursements might constitute taxable income to the employees made them wages subject to employer withholding.
- Whether the employer could be assessed withholding liability for 1963 when the governing statute and regulations did not clearly require withholding on the travel reimbursements.
Holdings
- The lunch reimbursements paid by Central Illinois Public Service Company in 1963 were not wages subject to federal income-tax withholding under 26 U.S.C. § 3401(a).
- The fact that a payment may constitute taxable income to an employee does not establish that the payment is wages subject to employer withholding.
Key quotations
“Required withholding, therefore, is rightly much narrower than subjectability to income taxation.” (435 U.S. at 29)
“This was a standard that was intentionally narrow and precise.” (435 U.S. at 31)
“And we cannot justify the Government's attempt to do so by judicial determination.” (435 U.S. at 33)
Factual background
Central Illinois Public Service Company reimbursed employees for reasonable business-travel expenses. In 1963 it paid up to $1.40 for lunches consumed during authorized, nonovernight business trips, with other employees reimbursed for actual reasonable expenses. The company did not withhold federal income tax from these payments. Following an IRS audit in 1971, the Service determined that the reimbursements were wages subject to withholding and assessed a deficiency, which the company paid before seeking a refund.
Procedural history
After an IRS audit assessed $25,188.50 in withholding taxes on 1963 lunch reimbursements, the company paid the deficiency and interest, filed a refund claim, and brought suit in the Southern District of Illinois. The district court ruled for the company. The Seventh Circuit reversed, and the Supreme Court granted certiorari because the decision appeared to conflict with the Fourth Circuit's decision in Royster Co. v. United States.