IRS Gives Nonqualified Plan Withholding Advice

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.