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Regulation and Compliance > Federal Regulation > IRS

IRS Gives Nonqualified Plan Withholding Advice

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The Internal Revenue Service has released another batch of guidance aimed at taxpayers, employers and others interested in nonqualified deferred compensation plans.

The guidance, given in IRS Notice 2008-115, “provides interim guidance to employers and payers on their reporting and wage withholding requirements with respect to amounts includible in gross income under Section 409A of the Internal Revenue Code,” IRS officials write in the notice.

The section was created by the American Jobs Creation Act of 2004. The section sets the rules for determining when taxpayers can and cannot exclude nonqualified plan contributions from taxable income.

The IRS put out a notice in 2007, IRS Notice 2007-89, that described nonqualified plan reporting and withholding procedures for 2007.

The new notice describes procedures for reporting and withholding for 2008.

For now, until regulators provide more guidance, employers do not have to include nonqualified plan contributions in Box 12 of the Form W-2 using Code Y, officials write.

A payer also is not required to report deferred amounts in Box 15a of Form 1099-MISC, officials write.

An employer does have to report any includible amounts on Line 2 of Form 941, the Employer’s Quarterly Federal Tax Return, and in Box 1 of Form W-2. An employer also must report such amounts as Section 409A income in Box 12 of Form W-2 using Code Z.

“Amounts includible in gross income under Section 409A are supplemental wages for purposes of determining the amount of income tax required to be deducted and withheld under Section 3402(a), regardless of whether the employer has paid the employee any regular wages during the calendar year of the payment,” officials write.

“To the extent future guidance requires additional withholding, that guidance will only be prospective,” officials write. “Employees should thus be aware that estimated tax payments may be required to avoid penalties.”

Officials describe reporting procedures for nonemployees.

Other sections of the notice cover topics such as calculations of amounts includible in income, wage payment dates of includible amounts, and rules for handling different types of plans.

The authors of the notice ask for comments on the interim guidance to be submitted by March 29, 2009.


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