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IRS ISSUES GUIDANCE ON 2005, 2006 DEFERRED COMP W-2s

December 01, 2006

The IRS yesterday told taxpayers how to report deferred compensation on W-2s for 2005 and 2006. The guidance (Notice 2006-100) covers deferred compensation that is taxable to employees under the execrable Section 409A. Income taxable under this section, enacted in 2004, is subject to both regular income tax and a 20% penalty tax.

Last year the IRS didn't require employers to report amounts taxable under Section 409A on employee W-2s, but they warned that employers might someday be required to issue late W-2s with the 409A amounts included. This notice does so:

Employers and payers, including employers and payers who relied on Notice 2005-94 for calendar year 2005, which suspended employers' and payers' reporting requirements with respect to deferrals of compensation includible in gross income under § 409A, are required to file an original or a corrected information return and furnish an original or a corrected payee statement (Form W-2 or 1099- MISC) for calendar year 2005 reporting any previously unreported amounts includible in gross income under § 409A for calendar year 2005 as determined under guidance provided by this notice for calendar year 2006.

While Section 409A also has provisions requiring employers to include non-taxable deferrals under non-qualified plans as an information item on W-2 forms, Notice 2006-100 says this requirement will not apply for 2005 and 2006.

The Treasury is expected to finally issue permanent regulations under Section 409A around year-end. We can expect all of the awful provisions of this misbegotten code section to be in effect by the end of next year.

Links:

IRS press release on Notice 2006-100

Benefits Blog Section 409A links.

Prior Tax Update Coverage:

SECTION 409A DEFERRED COMPENSATION TRANSITION RELIEF EXTENDED THROUGH 2007

IRS DEFERS DEFERRED COMPENSATION W-2 REQUIREMENT

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