As requested by the payroll community, the IRS in Notice 2005-94 has suspended the reporting and withholding requirements recently passed into law under the American Jobs Creation Act of 2004 (which were scheduled to go into effect beginning with the 2005 calendar year).
The requirements for employers included reporting on Form W-2 the amounts deferred by an employee under the employer’s nonqualified deferred compensation plan, and also reporting on Forms 941 and W-2 the amounts to be included in gross income as wages due to a failure of the plan to meet the requirements of Section 409A of the Internal Revenue Code.  Box 12 of the W-2 included two new codes for this purpose: code Y for reporting deferrals and code Z for reporting income.  Based on the IRS’ most recent guidance, an employer can exclude nonqualified plan deferral amounts from Form W-2, and exclude 409A income amounts from Forms 941 and W-2 (provided the employee has not “actually nor constructively” received the income during the 2005 calendar year).  Payers of non-employee compensation have been given a similar reprieve from the reporting requirements under Form 1099-MISC for calendar year 2005.
Be aware that the IRS may, in future issued guidance, ask employers and payers to file corrected information returns and payee statements for calendar year 2005 to report any amounts includible in gross income which were previously unreported due to the suspended filing requirements.  Also, payees who have underpayments of tax due to the non-inclusion of amounts that should have been included in income for calendar year 2005 will have to pay interest on these amounts.  Penalties will not be assessed, however, provided the reporting and tax payments when made are compliant with the future IRS guidance.
This suspension will be welcome relief for employers as the IRS has not advised how reporting of deferrals and amounts to be included in income is to be calculated.  The IRS anticipates the next guidance to be issued in the first half of 2006.  Therefore, employers should refrain from reporting 409A deferral or income amounts until further guidance is received from the IRS.

Should you have any questions about the reporting and withholding requirements applicable to nonqualified deferred compensation plans or about the plans’ compliance with Code Section 409A, contact the Ogletree Deakins attorney with whom you normally work or the Client Services Department via e-mail at or by phone at 866-287-2576.

Note: This article was published in the December 13, 2005 issue of the National eAuthority.

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