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Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2343
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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I am trying to find information about salary and ...

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I am trying to find information about salary and social security wages. I''m working on a homework assigment that talks about how someone earns $100,000 a year for annual salary, but wants to manipulate the system by paying out 2 years worth of salary in one in order to get out of paying social security taxes on that 2nd years worth of $100,000. I''m trying to find research material that proves that doesn''t work. i.e. - something that states annual income is taxed annually regardless of when it was paid out. Is there such a thing?


Thank you for using justanswer. Yes, there is such a thing, and its called "Constructive Receipt " of income.For federal income tax purposes, the doctrine of constructive receipt is used to determine when a cash-basis taxpayer has received gross income. A taxpayer is subject to tax in the current year if he or she has unfettered control in determining when items of income will or should be paid. Unlike actual receipt, constructive receipt does not require physical possession of the item of income in question.

Tax Courts have long upheld that taxpayers who choose not to take possession, such as a taxpayer who makes a decision to be unavailable to take delivery of a check, will not satisfy the substantial limitations requirement and they will be deemed to have had constructive receipt at the time of attempted delivery.

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