When are wages considered taxable under the principle of constructive receipt?

Wages are considered taxable under the principle of constructive receipt when they are made available to the employee. This principle dictates that income is taxable not only when it is received but also when it is credited to an individual's account or made available for their use, even if they have not yet physically received it.

For example, if an employer issues a paycheck and it is ready for pickup but the employee does not collect it, the wages are still considered taxable income because the employee has the option to take them. This timing of availability, rather than the physical or actual receipt of the funds, is critical for tax purposes. The intent of the constructive receipt principle is to prevent taxpayers from delaying their income recognition for deferral of tax liabilities.

This knowledge is essential for payroll professionals to ensure compliance with tax laws and accurate reporting of wages as taxable income.