Request By:
J. Phil Smith, President
The First National Bank
Jackson, Kentucky 41339
Opinion
Opinion By: Steven L. Beshear, Attorney General; By Alex W. Rose, Assistant Attorney General
In your letter to the Attorney General you ask whether the bank may pay the occupational tax for its employees levied by the City of Jackson.
We can find nothing that would prohibit this. Consequently, it is our opinion that the bank may pay the tax for its employees.
The income tax consequences (both federal and state) to the employees should also be considered. In
Old Colony Trust Company v. Commissioner of Internal Revenue, 279 U.S. 716 (1929) the U.S. Supreme Court held that payment by an employer of an employee's income tax constitutes taxable income to the employee. See, also,
Levey v. Helvering, 68 F.2d 401 (D.C. 1933). I.R.S. Regulation 31.3401(a)-1(b)(6) states:
"The term 'wages' includes the amount paid by an employer on behalf of an employee . . . on account of any tax imposed upon the employee by any taxing authority . . . ."
Therefore, it is our opinion that payment of the employee's tax by the bank is proper, but would result in taxable income to the employee.