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The IRS has issued Notice 2005-94 which suspends employers’ and payers’ reporting and wage withholding requirements for calendar year 2005 with respect to deferrals of compensation within the meaning of § 409A. In lieu thereof the following reporting and wage withholding provisions apply for calendar year 2005 until superseded by future published guidance.
A. Amounts reportable on Form 941 and Form W-2
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For calendar year 2005, an employer is not required to report deferrals for the year under a nonqualified deferred compensation plan as § 409A deferrals in box 12 of Form W-2 using code Y.
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For calendar year 2005, an employer is not required to include in the total amount of wages as defined in § 3401(a) amounts includible in the gross income of an employee under § 409A that the employee has neither actually nor constructively received during the calendar year. Thus, an employer may exclude such amounts from wages for income tax withholding purposes and is not required to report such amounts as wages paid to the employee in box 2 of Form 941 or in box 1 of Form W-2. Additionally, an employer is not required to report such amounts as § 409A income in box 12 of Form W-2 using code Z. However, employers may potentially be obligated to file a corrected information return and to furnish a corrected payee statement.
B. Amounts reportable on Form 1099
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For calendar year 2005, a payer is not required to report deferrals for the year under a nonqualified deferred compensation plan as § 409A deferrals in box 15a of Form 1099-MISC.
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For calendar year 2005, a payer is not required to report amounts includible in the gross income of a non-employee under § 409A that the non-employee has neither actually nor constructively received during the calendar year. Thus, a payer is not required to report such amounts as non-employee compensation in box 7 of Form 1099-MISC or as § 409A income in box 15b of Form 1099-MISC. However, employers may potentially be obligated to file a corrected information return and to furnish a corrected payee statement.
A service provider must still file a return and pay any taxes due relating to amounts includible in gross income under § 409A for calendar year 2005. However, because the IRS recognizes that service providers will find it difficult to determine the correct amount and timing of inclusions under § 409A without an employer/payer report, the IRS will not assert penalties in 2005, but will issue future guidance that will provide time to report and pay taxes with respect to § 409A income without incurring penalties (although interest at the underpayment rate will apply).
This client alert is a publication of Loeb & Loeb and is intended to provide information on recent legal developments. This client alert does not create or continue an attorney client relationship nor should it be construed as legal advice or an opinion on specific situations. For more information on §409A, please see our October 2005 alert "Proposed Nonqualified Deferred Compensation Regulations Extend Deadline for Bringing Plans Into Compliance to December 31, 2006 " or our April 2005 alert "Tips For Restructuring Executive Deferred Compensation Plans Under New Legislation."
Circular 230 Disclosure: To assure compliance with Treasury Department rules governing tax practice, we inform you that any advice (including in any attachment) (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty that may be imposed on the taxpayer, and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.