IRS Suspends Section 409A Reporting and Withholding Requirements for
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The American Jobs Creation Act of 2004 (the “Jobs Act”), pursuant to
which Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”) was enacted, imposed new reporting and withholding requirements
for amounts actually deferred after December 31, 2004 pursuant to non-qualified
deferred compensation arrangements.
|“…the Internal Revenue Service
issued Notice 2005-94, which suspends the foregoing new reporting
and withholding requirements for the calendar year 2005.”
Under these new rules, a plan sponsor is required to separately report
all deferrals of compensation on a Form W-2 (for employees) or Form 1099-MISC
(for non-employees), regardless of whether the compensation is taxable for
that year under Section 409A. Notice 2005-1 issued by the Internal Revenue
Service as interpretive guidance under Section 409A, states that the total
amount of deferrals should be reported in Box 12 of Form W-2 using Code
Y, in the case of deferrals by an employee, and in Box 15a of Form 1099-MISC
in the case of deferrals by a non-employee.
The Jobs Act also amended Section 3401(a) of the Code to provide that
“wages” subject to income tax withholding include any amounts includable
in the gross income of an employee under Section 409A. Notice 2005-1 indicates
that the amounts so includable in the income of an employee must be included
as wages in Box 1 of Form W-2, as part of the total wages, tips and other
compensation paid to the employee during the year and in Box 12 of Form
W-2 using Code Z. In the case of non-employees, those taxable amounts are
to be reported in Box 7 of Form 199-MISC and in Box 15(b) of Form 1099-MISC.
On December 9, 2005, the Internal Revenue Service issued Notice 2005-94,
which suspends the foregoing new reporting and withholding requirements
for the calendar year 2005. Notice 2005-94 cautions, however, that the relief
it provides does not affect an employer’s obligations under pre-existing
law with regard to the withholding of income and employment taxes on deferred
compensation of employees. Thus, for example, an employer must still treat
deferred compensation as wages for employment taxes as of the later of (i)
when the services are performed or (ii) when the rights to such compensation
is no longer subject to a substantial risk of forfeiture.
This Alert was written by the firm’s Executive Compensation and Employee
Benefits Group. Please contact any of the below group members or your Greenberg
Traurig liaison if you have any questions regarding this Alert.
© 2006 Greenberg Traurig
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Benefits Group description, or feel free to contact one of our attorneys.
This GT ALERT is issued for informational purposes only and is not intended
to be construed or used as general legal advice. Greenberg Traurig attorneys provide
practical, result-oriented strategies and solutions tailored to meet our clients’
individual legal needs.