Legal Definitions - noncovered wages

Noncovered wages refers to compensation paid to an individual for services performed that is specifically *exempt* from certain federal, state, or local payroll taxes, insurance contributions, or labor regulations that typically apply to most employment income. This means that while the payment is indeed a form of remuneration, it does not trigger the usual obligations for employers or employees regarding specific taxes (like Social Security, Medicare, or unemployment insurance) or adherence to certain labor standards (like minimum wage or overtime rules).

The determination of what constitutes "noncovered wages" depends heavily on the specific law or regulation being considered, as well as the nature of the work, the employer, and the amount paid.

• Example 1: Student Work-Study Program

  A university student participates in a federal work-study program, earning money by working in the campus library. Under specific IRS rules, wages paid to students enrolled and regularly attending classes at the institution where they work are often exempt from Social Security and Medicare taxes (FICA taxes).

  Explanation: In this scenario, the student's earnings are considered noncovered wages with respect to FICA taxes. While the student is compensated for their work, neither the university nor the student is required to contribute to Social Security and Medicare from these specific earnings, unlike most other employment income.

• Example 2: Payments to Certain Agricultural Workers

  A small family farm hires a few temporary workers for a short harvest season. Due to the limited number of employees and the total amount of wages paid, the farm's payroll may fall below the thresholds established by the Federal Unemployment Tax Act (FUTA).

  Explanation: The wages paid to these temporary agricultural workers would be considered noncovered wages for FUTA purposes. This means the farm is not required to pay federal unemployment taxes on these earnings, as they do not meet the criteria for FUTA coverage, even though the workers are receiving compensation for their labor.

• Example 3: Stipends for Volunteers at a Non-Profit

  A community non-profit organization provides a small monthly stipend to its dedicated volunteers to help cover their transportation and meal expenses while performing their duties. These individuals are not considered employees and are not subject to the organization's control in the same way an employee would be.

  Explanation: The stipends provided to these volunteers are typically classified as noncovered wages because the individuals are not employees in the legal sense. Therefore, these payments are not subject to minimum wage laws, overtime regulations, or standard payroll tax withholdings that would apply to regular employee wages.