REG, Regulation
Sources for Federal Business Law: Employment Taxes, Bankruptcy, and the FCPA
Last reviewed
The standards and authorities behind PocketCPA's REG lessons on Federal Business Law: Employment Taxes, Bankruptcy, and the FCPA. The topic rests on IRC Subtitle C, IRC Chapter 2, ACA (Sec. 4980H), Bankruptcy Code (Title 11), FCPA (15 U.S.C. 78dd-1), FLSA, ERISA, NLRA, Title VII, ADA, ADEA.
About this topic
The rest of the Topic sits beside that question rather than inside it. The wage, benefit and labor statutes each open on a definition that settles coverage before any substantive rule is reached, and the Foreign Corrupt Practices Act turns on two definitions of its own. Bankruptcy enters as a ranking problem and a survival problem: which unsecured claims are paid first, and which debts outlive the case.
What the examiner grades is arithmetic performed on the right input. Most distractors are a number lifted from the rule next door. The 7,000 dollar figure caps one employee's unemployment wages and says nothing about whether the business is an employer at all. The 30-employee reduction never enters the size test that decides whether the health-coverage rules apply, and full-time equivalents never enter a payment. State unemployment contributions paid after the return was due cut the credit to ninety percent of what it would have been, which nearly doubles a tax that no change in wages and no change in classification touched. The most expensive habit of all is carrying one classification conclusion across every tax in sight, because the statutory-employee categories exist to break that link and the unemployment tax then breaks it again somewhere else.
Key points
- FICA consists of Social Security (6.2% up to the wage base) and Medicare (1.45% plus 0.9% additional above the threshold).
- FUTA is an employer-only tax at 6.0% on the first $7,000 of wages, reduced by the state credit.
- Bankruptcy priority: secured claims, then administrative expenses, then priority unsecured (taxes, wages), then general unsecured.
- The FCPA prohibits payments to foreign government officials to obtain or retain business.
What the lessons cover
- FICA and FUTA payroll taxes
- Employee or independent contractor
- Health coverage and the ACA
- Bankruptcy and the FCPA
- Self-employment tax
- Worker misclassification: Section 530, Sec. 3509, and the trust fund penalty
- Wage and hour law: the Fair Labor Standards Act
- ERISA: vesting, fiduciary duty, and prohibited transactions
- Labor relations, discrimination, and workers' compensation
Authoritative references
Where these rules sit in the primary law. Each entry names the provision, then breaks out the subsections that carry separate rules.
- Sec. 3101 carries the employee FICA rates.
- (a) imposes 6.2 percent of wages on the income of every individual, for old-age, survivors and disability insurance.
- (b)(1) imposes 1.45 percent for hospital insurance.
- (b)(2) imposes the additional 0.9 percent on wages above 250,000 dollars on a joint return, one-half of that amount for a married taxpayer filing separately, and 200,000 dollars in any other case.
- Sec. 3102, collection, which puts the duty on the employer.
- (a) the employer collects the Sec. 3101 tax by deducting it from wages as and when paid.
- (b) the employer is liable for the payment and is indemnified against the employee's claims.
- (f)(1) Additional Medicare Tax withholding is limited to wages the employer pays above 200,000 dollars, and the employer may disregard the spouse's wages.
- (f)(2) the employee pays what was not collected.
- (f)(3) the employer is relieved of the tax, but not of penalties, where the employee pays it.
- Sec. 3111 carries the employer FICA excise taxes, 6.2 percent in subsection (a) and 1.45 percent in subsection (b), imposed on the employer with respect to having individuals in its employ. There is no counterpart to Sec. 3101(b)(2).
- Sec. 3121 carries the FICA definitions.
- (a)(1) excludes remuneration above the contribution and benefit base determined under section 230 of the Social Security Act, but only for the taxes imposed by Sec. 3101(a) and Sec. 3111(a), and carries the successor-employer rule for that base.
- (b)(3)(A) excludes the service of a child under 18 in the employ of a parent.
- (d) defines "employee" as a corporate officer under (d)(1), a common-law employee under (d)(2), four statutory-employee occupations under (d)(3) subject to the personal-service, no-substantial-investment and continuing-relationship conditions, and section 218 agreement participants under (d)(4).
- Sec. 3301 and Sec. 3302 carry FUTA rate and credits.
- Sec. 3301 imposes 6 percent of total FUTA wages on the employer.
- Sec. 3302(a)(1) allows a credit for contributions paid into a certified state fund, with (a)(3) limiting late payments to 90 percent of the allowable credit.
- Sec. 3302(b) allows the additional credit up to 5.4 percent, and Sec. 3302(c)(1) caps total credits at 90 percent of the tax.
- Sec. 3302(d)(1) computes the tax at 6 percent for that purpose, and Sec. 3302(e) gives a successor employer the predecessor's credits.
- Sec. 3306 carries the FUTA definitions, which are not the FICA ones.
- (a)(1) defines "employer" through two alternative tests, the 1,500 dollar quarterly wage test and the 20-day, 20-week employment test.
- (a)(2) substitutes 20,000 dollars and 10 individuals for agricultural labor.
- (a)(3) uses 1,000 dollars of cash wages for domestic service.
- (b)(1) caps FUTA wages at 7,000 dollars per employee per calendar year and carries the successor-employer rule.
- (c)(5) excludes service by a child under 21 in the employ of a parent and service for a son, daughter or spouse.
- (i) adopts the Sec. 3121(d) definition of "employee" except paragraph (4) and subparagraphs (B) and (C) of paragraph (3).
- Sec. 3401 and Sec. 3403 carry income tax withholding.
- Sec. 3401(a) defines wages for chapter 24, and Sec. 3401(c) makes "employee" include public officials and employees and an officer of a corporation.
- Sec. 3403 makes the employer liable for the tax required to be deducted and withheld and not liable to any person for the payment.
- Sec. 3509 carries the reduced rates on misclassification.
- (a)(1) determines withholding as if 1.5 percent of Sec. 3401 wages were required, and (a)(2) determines subchapter A of chapter 21 taxes as if they were 20 percent of the amount otherwise imposed.
- (b)(1) substitutes 3 percent and 40 percent for information-return failures absent reasonable cause, and (c) switches the section off for intentional disregard.
- (d)(1)(B) bars recovery from the employee.
- (d)(2) excludes the employer that withheld income tax but not FICA, and (d)(3) excludes the FICA tax on a Sec. 3121(d)(3) statutory employee.
- Section 530 of the Revenue Act of 1978 (Pub. L. 95-600), carried in the statutory notes to Sec. 3401, terminates employment tax liability on the conditions in subsection (a), and then limits its own reach.
- (a)(1)(A) the taxpayer did not treat the individual as an employee.
- (a)(1)(B) all federal returns including information returns for periods after December 31, 1978 were filed consistently.
- (a)(3) no substantially similar position was treated as employment after December 31, 1977.
- (a)(2) the taxpayer had a reasonable basis, which this paragraph permits to rest on judicial precedent, published rulings, technical advice or a letter ruling, a prior audit, or long-standing recognized industry practice.
- (b) bars regulations and rulings on employment status, and (d) excludes three-party arrangements supplying engineers, designers, drafters, computer programmers, systems analysts and similarly skilled workers.
- (e)(2)(A) restricts reliance on audits commenced after December 31, 1996, (e)(2)(B) caps significant segment at 25 percent, and (e)(2)(C) caps long-standing at 10 years.
- (e)(4) shifts the burden of proof to the Secretary on a prima facie showing with full cooperation.
- Sec. 6672 carries the trust fund recovery penalty, which reaches a person rather than the employing entity.
- (a) imposes on any person required to collect, truthfully account for and pay over any tax, who willfully fails to do so, a penalty equal to the total amount evaded, not collected, or not accounted for and paid over.
- (b)(1) and (b)(2) require written or in-person preliminary notice at least 60 days before notice and demand, with (b)(4) excepting jeopardy.
- (d) gives a right of contribution in a separate proceeding.
- (e) exempts honorary, non-participating, unknowing volunteer board members of tax-exempt organizations unless no person would then be liable.
- Sec. 6157 and Sec. 6413 carry FUTA payment and employment tax adjustments.
- Sec. 6157(a) requires quarterly computation for the first three calendar quarters, (b) computes the tax at 0.6 percent of Sec. 3306(b) wages, and (c) excuses payment where the accumulated amount does not exceed 100 dollars.
- Sec. 6413(a)(1) provides for interest-free adjustment of over-collected Sec. 3101, Sec. 3111 and Sec. 3402 taxes.
- Sec. 6413(c)(1) gives the employee a special refund of Sec. 3101(a) tax where wages from more than one employer exceed the contribution and benefit base.
- Sec. 6413(d) treats an unused Sec. 3302 credit as an overpayment without interest, and Sec. 31(b)(1) credits the Sec. 6413(c) special refund as an amount withheld under Sec. 3402.
- Sec. 1401 and Sec. 1402 carry self-employment tax, Sec. 1401 setting the rates and Sec. 1402 defining the base they are applied to.
- Sec. 1401(a) imposes 12.4 percent and (b)(1) imposes 2.9 percent.
- (b)(2)(A) imposes 0.9 percent above 250,000 joint, one-half of that for a separate return, and 200,000 otherwise, with (b)(2)(B) reducing those thresholds by wages taken into account.
- Sec. 1402(a)(12) deducts, in lieu of Sec. 164(f), net earnings times one-half of the sum of the Sec. 1401(a) and Sec. 1401(b)(1) rates, producing the 92.35 percent base.
- (a)(13) excludes a limited partner's distributive share other than section 707(c) guaranteed payments for services.
- (b)(1) caps self-employment income for the Sec. 1401(a) tax at the contribution and benefit base minus wages, and (b)(2) excludes net earnings of less than 400 dollars.
- Sec. 164(f) carries the deduction for one-half of self-employment taxes.
- Paragraph (1) allows one-half of the taxes imposed by Sec. 1401 other than those imposed by Sec. 1401(b)(2).
- Paragraph (2) treats the deduction as attributable to a trade or business that does not consist of the performance of services by the taxpayer as an employee.
- Sec. 4980H carries employer shared responsibility, where the size test and the payment computation are separate questions answered by different paragraphs.
- (a) imposes a payment where no minimum essential coverage was offered and at least one full-time employee was certified for a premium tax credit, measured by the applicable payment amount times all full-time employees for the month.
- (b)(1) imposes a payment where coverage was offered and one or more full-time employees were certified, at one-twelfth of 3,000 dollars each, and (b)(2) caps the (b) payment at the (a) amount.
- (c)(1) sets the applicable payment amount at one-twelfth of 2,000 dollars.
- (c)(2)(A) defines an applicable large employer by an average of at least 50 full-time employees during the preceding calendar year, and (c)(2)(B) exempts short seasonal spikes of 120 days or fewer.
- (c)(2)(C)(i) aggregates section 414(b), (c), (m) and (o) groups, and (c)(2)(C)(ii) measures a first-year employer by reasonable expectation.
- (c)(2)(D)(i) reduces the count by 30 solely for the (a) payment and the (b)(2) limitation, allocated ratably across an aggregated group under (D)(ii).
- (c)(2)(E) adds full-time equivalents by dividing non-full-time hours of service by 120, solely for the size test, and (c)(2)(F) excludes individuals with TRICARE or Department of Veterans Affairs coverage from that test.
- (c)(4)(A) defines a full-time employee as one averaging at least 30 hours of service per week.
- (c)(5) indexes the dollar amounts with rounding to the next lowest multiple of 10 dollars, and (c)(7) denies a deduction by reference to section 275(a)(6).
- (d)(4) allows at least 90 days to respond to a proposed assessment.
- 11 U.S.C. 507(a) carries priorities in ten paragraphs. The dollar figures are adjusted triennially under 11 U.S.C. 104, and the (a)(4) and (a)(5)(B)(i) amount became 17,150 effective April 1, 2025.
- First, domestic support obligations.
- Second, administrative expenses allowed under section 503(b).
- Third, section 502(f) gap claims.
- Fourth, wages, salaries and commissions including vacation, severance and sick leave earned within 180 days before the petition or cessation of business, capped per individual.
- Fifth, employee benefit plan contributions for the same period, capped at covered employees times the same figure less amounts paid under paragraph (4) and to other plans.
- Sixth, grain producers and United States fishermen.
- Seventh, consumer deposits.
- Eighth, governmental tax claims, including income taxes whose return was last due within three years under (a)(8)(A)(i), property taxes under (a)(8)(B), and taxes required to be collected or withheld under (a)(8)(C).
- Ninth, federal depository capital commitments.
- Tenth, intoxicated-operation death or injury claims.
- 11 U.S.C. 523 carries exceptions to discharge. Subsection (c)(1) discharges debts of a kind specified in (a)(2), (a)(4) and (a)(6) unless the creditor requests a determination and the court, after notice and a hearing, excepts them.
- (a)(1) taxes of the kind specified in 507(a)(3) or 507(a)(8), unfiled or recently late returns, and fraudulent or evaded taxes.
- (a)(2) fraud and materially false written financial statements.
- (a)(4) fiduciary defalcation, embezzlement and larceny.
- (a)(5) domestic support obligations.
- (a)(6) willful and malicious injury.
- (a)(7) government fines and penalties that are not compensation for pecuniary loss.
- (a)(8) student loans absent undue hardship.
- (a)(9) intoxicated-operation injuries.
- (a)(13) title 18 restitution.
- (a)(15) non-support divorce obligations.
- (a)(19) securities law violations and securities fraud.
- 15 U.S.C. 78dd-1 carries the FCPA anti-bribery prohibition for issuers. The FCPA's books-and-records and internal-controls requirements are not in this section.
- (a) reaches an issuer, or its officer, director, employee, agent or acting stockholder. None of them may use the mails or an instrumentality of interstate commerce corruptly in furtherance of giving anything of value to one of three recipients, in order to obtain or retain business.
- (a)(1) names a foreign official.
- (a)(2) names a foreign party, official or candidate.
- (a)(3) names any person while knowing of onward transmission.
- The required purpose is to influence an official act, induce a breach of duty or secure an improper advantage.
- (b) excepts facilitating payments for routine governmental action.
- (c)(1) and (c)(2) supply affirmative defenses for payments lawful under written foreign law and reasonable bona fide promotional expenditures.
- (f)(1)(A) defines foreign official to include officials of public international organizations, and (f)(2)(B) establishes knowledge from awareness of a high probability.
- (f)(3)(A) lists routine governmental actions, and (f)(3)(B) excludes any decision whether or on what terms to award or continue business.
- (g) reaches corrupt acts committed abroad by domestic issuers and United States persons without any interstate-commerce nexus.
- 29 U.S.C. 1053 carries ERISA minimum vesting standards, and the schedule a plan may use turns on whether it is a defined benefit plan or an individual account plan.
- (a)(1) makes rights derived from the employee's own contributions nonforfeitable.
- (a)(2)(A)(ii) and (iii) give defined benefit plans a 5-year cliff or a 3-to-7-year graded table of 20, 40, 60, 80 and 100 percent.
- (a)(2)(B)(ii) and (iii) give individual account plans a 3-year cliff or a 2-to-6-year graded table of 20, 40, 60, 80 and 100 percent.
- (b)(2)(A) defines a year of service as a designated 12-consecutive-month period with 1,000 hours of service, and (b)(3)(A) defines a 1-year break in service as such a period with not more than 500 hours.
- (c)(1)(B) lets any participant with not less than 3 years of service elect the pre-amendment schedule.
- (e)(1) conditions distribution of a nonforfeitable benefit above 7,000 dollars on participant consent, and (f)(2) requires 3-year vesting for an applicable defined benefit plan.
- 29 U.S.C. 207 carries FLSA maximum hours, with 207(a) requiring one and one-half times the regular rate over 40 hours in a workweek.
- 207(e) includes all remuneration in the regular rate except listed categories, with 207(e)(3)(a) excluding only truly discretionary bonuses.
- 207(o) permits compensatory time at not less than 1.5 hours per overtime hour for public agencies only, subject to prior-agreement conditions in (o)(2) and 240-hour and 480-hour caps in (o)(3).
- 29 U.S.C. 213(a)(1) exempts bona fide executive, administrative and professional employees and outside salesmen as defined and delimited by the Secretary, through both a compensation test and a duties test.
- 29 U.S.C. 1104(a)(1) imposes the exclusive-purpose, prudent-person, diversification and plan-document duties, with 1104(a)(2) excusing diversification only for qualifying employer securities or real property in an eligible individual account plan.
- 29 U.S.C. 1106(a)(1)(A) prohibits per se a sale, exchange or lease of property between a plan and a party in interest, curable only by a section 1108 exemption.
- 1106(b) separately bars self-dealing, adverse representation and receiving consideration from a party dealing with the plan.
- 29 U.S.C. 157 grants the right to concerted activity, 158(a)(1) makes interference an unfair labor practice, and 158(a)(2) prohibits domination or support of a labor organization.
- 152(5) defines labor organization broadly, and 152(11) and 152(3) define supervisor and exclude supervisors from "employee."
- 42 U.S.C. 2000e(b) requires 15 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year, and 2000e-2(a)(1) prohibits discrimination in terms, conditions or privileges of employment.
- 2000e-2(e)(1) limits the bona fide occupational qualification defense to religion, sex and national origin, and 2000e-2(m) supplies the motivating-factor standard.
- 42 U.S.C. 12111(8) defines a qualified individual by essential functions with or without reasonable accommodation, and 12111(9)(B) lists job restructuring and modified schedules.
- 12111(10) defines undue hardship as significant difficulty or expense with the listed weighing factors, and 12111(3) supplies the direct-threat defense.
- 29 U.S.C. 626(f)(1) lists the minimum conditions for a knowing and voluntary ADEA waiver.
- (F)(i) allows 21 days for an individual waiver, and (F)(ii) requires at least 45 days for a group exit incentive or termination program.
- 626(f)(1)(H) requires written disclosure of the covered group, eligibility factors, time limits and the job titles and ages of those selected and not selected.
- 626(f)(3) places the burden of proving validity on the party asserting it.
- The no-fault benefit. Majority-rule state workers' compensation acts provide no-fault benefits for injury arising out of and in the course of employment.
- The abolished common-law defenses. Contributory negligence, assumption of risk and the fellow-servant rule.
- The defenses preserved. Narrow ones remain, for intoxication, willful misconduct or horseplay, and intentional self-injury.
- The employer's half of the bargain. The scheduled benefits are the employee's exclusive remedy.
- Treas. Reg. Sec. 31.3401(c)-1(a), (b) and (e) supply the control test for withholding and make a contrary designation of no consequence.
- Treas. Reg. Sec. 31.3121(b)(3)-1(d) puts services for a corporation outside the family-employment exclusion.
- Treas. Reg. Sec. 31.6011(a)-3(a) and Sec. 31.6071(a)-1(c) prescribe the annual Form 940 and its last-day-of-the-following-month due date with a 10-day deposit extension.
- Treas. Reg. Sec. 31.6071(a)-1(a)(1) prescribes the quarterly Form 941 on a parallel rule.
How PocketCPA uses these sources
Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.