This provision would be effective for remuneration received on or after January 1, Present Law. Explanation of Provision.

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1 EXPAND EMPLOYER SHARE OF FICA TAX TO INCLUDE ALL CASH TIPS The FICA taxes imposed on the employee and the employer generally are equal. The employer is responsible for withholding the employee's share of the tax from the employee's wages and remitting the tax, together with the employer's share of the tax, to the Internal Revenue Service. Special rules apply to tips, however. For purposes of the employee FICA tax, all tips received by employees are considered remuneration for services and are subject to the tax. The tips are generally deemed to be received at the time the employee files a written statement with the employer reporting the receipt of the tips. The full amount of tips received by an employee is not, however, usually subject to the FICA tax imposed on the employer. The employee is deemed to receive wages for purposes of the employer's share of FICA taxes only to the extent of the excess of the Federal minimum wage rate over the actual wage rate paid by the employer. Any tips received in excess of the difference between the minimum wage rate and the wages paid are not subject to the employer's portion of the tax. All cash tips would be included within the definition of wages for purposes of the employer's share of FICA taxes. Thus, employers would be required to pay FICA taxes on the total amount of cash tips up to the social security wage base. This provision would be effective for remuneration received on or after January 1, 1988.

2 Extend FICA tax to inactive duty earnings, family members ( agricultural workers^ and group-term life insurance included in income Under present law, certain forms of earnings paid to employees are exempt from FICA taxes. These earnings include: (1) inactive duty earnings of Armed Forces reservists, (2) cash remuneration paid to an employee in any taxable year for agricultural labor unless the employee receives more than $150 during the year for such labor or the employee works for the employer more than 20 days during the year, (3) earnings for services performed by individuals under age 21, who are employed by their parents, even if employed in the parent's trade or business, and (4) earnings for services performed by an individual in the employ of the individual's spouse. In addition, under present law, the cost of group-term life insurance provided by an employer to an employee is excluded from the definition of wages for purposes of the FICA tax. For income tax purposes, the cost of employer-provided group-term life insurance is includible in an employee's gross income to the extent that the coverage exceeds $50,000 or the coverage is provided on a discriminatory basis. Possible Proposals The proposal would extend coverage under social security to (1) services performed by reservists in "inactive duty training", (2) services performed by individuals age working for their parents in a trade or business, and (3) to services performed by an individual in the employ of his or her spouse's trade or business. The proposal would require that, with respect to agricultural labor, (1) any remuneration for agricultural labor paid by an employer to an employee constitutes wages if the employer pays more than $2,500 to all employees for such labor during the taxable year, (2) the $150 annual cash pay test is applied if the $2,500 annual payroll test is not met, and (2) the 20-day test is repealed. The proposal would include the cost of employer-provided group-term life insurance in wages for FICA tax purposes if such insurance is includible in income for income tax purposes. The proposals would be effective January 1, 1988.

3 Deny child care credit for overnight camp expenses Present Lav An income tax credit is available for up to 30 percent of a limited dollar amount of employment-related child and dependent care expenses for a child or other dependent who is under the age of 15, or a physically or mentally incapacitated dependent or spouse. Expenses eligible for the credit include costs incurred by the taxpayer for day care, nursery school, home care, and summer camps, including overnight camps. Possible Proposal Expenses of overnight camps could be made ineligible for the child and dependent care credit. The proposal would be effective for expenses paid in taxable years beginning after December 31, 1987.

4 Repeal cash Method of accounting for farms with gross receipts over $25 million. Entities engaged in the trade or business of farming may generally use the cash method of accounting for such trade or business. A corporation or a partnership with a C corporation as a partner that has gross receipts in excess of $1 million for any taxable year beginning after 1975 must use the accrual method of accounting, unless it is a "family corporation." In general, a "family corporation" is a corporation 50 percent or more of whose stock is owned by members of the same family. Certain closely held corporations substantially owned by two or three families on October 4, 1976, and at all times thereafter, also qualify as a "family corporation." The use of the cash method of accounting would be denied to any "family corporation" with gross receipts in excess of $100 million for any taxable year beginning after The provision would be effective for taxable years beginning after December 31, The amount of any adjustment required by the provision would be included in income over a period not to exceed 10 taxable years.

5 Treatment of Past Service Pension Costs Under the present-law uniform capitalization rules, contributions to a pension, profit-sharing, or stock bonus plan and other employee benefits expenses incurred by an employer are considered indirect costs that must be capitalized to the same extent as other indirect costs. However, expenses relating to past services are expressly excepted from the capitalization requirement, and (subject to other limitations in the Code) may be deducted currently. All pension costs, including expenses relating to both past and present services, would be required to be capitalized under the uniform capitalization rules. The provision would apply to taxable years beginning after December 31, 1987.