Employment and Training Administration
Washington, D. C. 20213






September 2, 1981




August 31, 1982











Administration and Management




Decision of U.S. Supreme Court in Rowan Cos., v. United States, on June 8, 1981--Wages Under FICA and FUTA--Exclusion of Meals and Lodging Furnished for Employer's Convenience


  1. Purpose. To inform SESAs of the Court's decision on exclusion of the value of meals and lodging from "wages."

  2. References. Definition. of "wages" in section 3306(b), FUTA, and in section 2(q) (1) in Manual of State Employment Security Legislation.

  3. Background. Under FUTA and FICA, "wages" is defined as "all remuneration for employment, including the cash value of all remuneration paid in any medium other than cash." For income-tax withholding, "wages" is defined as "all remuneration . . . for services performed by an employee for his employer, including the cash value of all remuneration paid in any medium other than cash." Related to the latter definition of "wages" is an exclusion from income to an employee, for income-tax purposes, under section 119 of the Internal Revenue Code of 1954, of meals and lodging furnished to an employee and the employee's spouse and dependents by the employer for the convenience of the employer on the business premises of the employer.

    The Internal Revenue Service (IRS) interpreted the word "wages" in regulations for purposes of income-tax withholding by employers and of excise tax obligations under FUTA and FICA. The IRS did not require employers to include in amounts for income-tax withholding the value of meals and lodging furnished for the convenience of the employer. It did require, in contrast, that the cash value of meals and lodging, even when furnished for the convenience of the employer, ordinarily be include in the "wages" subject to the FUTA and FICA taxes.

    In the Rowan case, the employer owned and operated rigs for drilling oil and gas wells, both on land and offshore. Some of the employer's offshore rigs were located as many as 60 miles from land. It was less costly and more convenient for the employer to provide meals and lodging to employees on those rigs than to transport them back and forth daily. The employees worked on the rigs for 10-day tours of duty with five days off. The employer did not include the cash value of the meals and lodging in its computation of "wages" for purposes of income-tax withholding or paying FUTA and FICA taxes. Upon audit, the IRS included the fair value of the meals and lodging in the wages paid by the employer for FUTA and FICA purposes, but not for income-tax withholding, which was consistent with its regulations. The employer paid the additional assessment and then sued for refund.

    Both the U.S. District Court for the Southern District of Texas and the U.S. Court of Appeals for the Fifth Circuit upheld the IRS position. The U.S. Supreme Court reversed.

  4. Court's Decision. The Court held that "Congress intended its definition [of wages] to be interpreted in the same manner for FICA and FUTA as for income-tax withholding." The base for measuring employers' obligations under FUTA, FICA, and income-tax withholding is "wages." Even if certain payments in money or kind are "income" to employees, and reportable by the employees as "income," those payments are not necessarily "wages." Wages are usually income, but not all income is wages. Wages is a narrower concept.

    The Court analyzed the history of the word "wages" in FUTA and FICA, and in income-tax withholding, and found that "Congress intended . . . to coordinate the income-tax withholding System with FICA and FUTA" in the interest of simplicity and ease of administration. The value of meals and lodging is, nevertheless, correctly included in "wages" for FUTA and FICA, unless they are provided for-the employer's convenience.

  5. Applicability to State Laws. The Court interpreted the meaning of "wages" under the specified Federal statutes. Its interpretation is not necessarily applicable to the definition of "wages" in State unemployment compensation laws. If contribution provisions of State laws are interpreted, when appropriate, consistently with the Internal Revenue Code of 1954, they may, of course, be so interpreted in accordance with the Rowan decision.

    The problem that arose in the Rowan case probably would not arise under a State law. The Internal Revenue Code contains a variety of tax provisions, including those on income taxes, FUTA, and FICA. The IRS administers all the tax provisions of the Code. SESAs, in contrast, usually administer only the State's unemployment compensation program. There is no provision comparable to section 119 of the Code with respect to "income" in State unemployment compensation laws.

  6. Action Required. State Administrators are requested to:

  7. Inquiries. Questions should be directed to the appropriate regional office.