Under the rule of constructive receipt, when are wages taxable in relation to when they are earned?

The concept of constructive receipt establishes that wages are taxable in the year they are paid, regardless of when they are earned. This principle maintains that if an employee has the option to receive payment, it is considered as income for tax purposes at that moment. Therefore, wages are taxable when they are paid, not when they are earned.

This distinction is important for tax reporting and compliance. For example, if an employee earns wages in December but does not receive payment until January, under the rule of constructive receipt, those wages would still be taxable in January when actually paid. Understanding this timing helps ensure accurate income reporting and tax liability calculations.