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IRS issues new guidance on deferred comp arrangements

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in Compensation and Benefits,Employment Law,Human Resources

The IRS has delivered a holiday “present” to employers and tax professionals: new guidance on reporting and withholding requirements for deferred compensation plans. (IRS Notice 2006-100)

Alert: The new guidance — which the feds had been holding until confusion abated over the revised deferred-comp rules in Sec. 490A, enacted as part of the American Jobs Creation Act of 2004 — lifts the suspension on reporting 2005 amounts imposed by Notice 2005-94, issued last year. It also sets reporting and withholding requirements for deferred-compensation amounts taxable in 2006.

On the plus side, deferred-comp payments that comply with Section 409A are exempt from the new reporting requirements.

Notice 2006-100 relieves employers from having to report annual deferrals of compensation that are not taxable on Form W-2 for employees or Form 1099-MISC for independent contractors for either the 2005 or 2006 tax years.

But they must report taxable amounts for both 2005 and 2006 on Form 941 (Employer’s Quarterly Federal Tax return) by the deadline for the 2006 tax year: Jan. 31, 2007.

Employers don’t have to report amounts that that they’d previously included in taxable income for 2005.

Tip: The new notice also provides guidance for calculating amounts included in gross income under Sec. 409A. For the complete notice, visit

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