Sec. 501(c)(3) of the IRC exempts certain nonprofit, charitable, religious, etc. organizations from taxation. When these organizations, as well as similarily exempt state and local educational institutions purchase tax-sheltered annuities for their employees, those annuity payments are exempt from Federal income tax under sec. 403(b) of the IRC until the employee receives the annuity.

Annuity payments were not wages for Social Security purposes if made from the employer's own funds and were paid “on account of retirement”.

Annuity payments are not wages when made under a plan which meets the requirements of sec. 403(b) of the IRC for income tax deferral, provided the payments are not made pursuant to a salary reduction agreement (RS 01402.010)