Final answer:
Wages become taxable and subject to employment tax when they are actually paid or made available to an employee without substantial limitations, a concept known as Constructive Payment (Receipt) according to IRS regulations.
Step-by-step explanation:
According to IRS regulations, wages are taxable and subject to employment tax when actually paid or made available to employees without substantial limitation. This is known as Constructive Payment (Receipt). This means that even if the employee does not physically receive a paycheck, wages that are available to them without any restrictions (for example, not being required to meet certain conditions before receiving the pay) are considered as received and thus taxable at the time they are made available.
Employers have to withhold income tax and other payroll taxes such as social security contributions from the employee’s wages. The amounts deducted are then sent to the Internal Revenue Service. Additionally, employers also pay taxes based on the employee’s wages to cover social security and other insurance programs. These payroll taxes are an essential part of employment regulation ensuring that employees and employers contribute to federal and state revenue.