The Internal Revenue Service has granted employers welcome relief in their reporting and withholding requirements under section 409A of the Internal Revenue Code for calendar year 2005. Section 409A requires employers to report deferred compensation when it is deferred andno longer subject to a substantial risk of forfeiture) and also to report any deferred compensation when it is to be included in income under section 409A. Earlier this year, the Internal Revenue Service issued a revised Form W-2 and Instructions for Form W-2, but provided little guidance on how to calculate the deferred compensation amounts to be reported. In response to requests for relief, the Internal Revenue Service has issued draft Notice 2005-94, which suspends the section 409A reporting requirements for the 2005 tax year. The draft Notice, however, indicates that future guidance may require an employer to file a corrected return for the 2005 tax year.
It is important to note that the draft Notice does not suspend other reporting requirements for deferred compensation. Deferrals under deferred compensation plans must be reported for FICA/Medicare tax purposes when both vested and capable of being valued - this requirement is found in section 3121(v)(2) and is more than a decade old. In addition, deferred compensation payments must be reported.
A copy of the draft Notice is attached here.
The Benefits and Compensation group assists employers with deferred compensation and compliance with section 409A. Please contact the attorney you work with for assistance.