Last week, the Treasury Department released the “Green Book,” formally known as the General Explanations of the Administration’s Revenue Proposals. Among its proposals, the Green Book addresses the treatment of on-demand pay arrangements. These arrangements, which have recently grown in popularity, permit employees to access a portion of their earned wages in advance of the employee’s normal pay date. For this reason, they are often referred to as “earned wage access programs.”
One of the potential tax concerns with these arrangements has been that, depending upon the program design, the employee could be considered to be in “constructive receipt” of their earned wages. This creates payroll withholding and depositing obligations for employers regardless of whether the employee actually receives a wage payment. In addition, the program can cause uncertainty regarding how to properly calculate the required FICA tax and income tax withholdings when the employee elects to receive a payment of earned wages. For this reason, some third-parties designing the programs (which are often app-based) have sought either to structure the programs as loans or to avoid the constructive receipt issue by requiring the payment of a small fee when the earned wages are paid.
Continue Reading Treasury Stakes Out a Position on “On-Demand Pay” Arrangements