New IRS Guidance on § 409A and Deferred Compensation

The IRS has again issued new guidance impacting on education in particular.  In response to teacher concerns about recent changes to deferred compensation rules, the IRS issued a press release and a “frequently asked questions” guidance regarding deferred compensation under § 409A. 

This part of the Tax Code affects teachers and others whose compensation payments are not based a typical calendar year.  Teachers, for example, might be paid an annual salary over 10 months, a typical school term.  But a school system may also allow teachers to elect to be paid over 12 months, although the months in that case coincide with a typical school year rather than a calendar year.  If a person elects a 12 month schedule, the compensation spans two taxable years and so the election must meet the procedures of § 409A.  These procedures are further addressed in the FAQs.  

According to the press release, the new rules will not be applied to elections for school years beginning before January 1, 2008, giving school districts and teachers time to make needed changes.

Remember, this is just information, not tax advice.  As noted in the entries for § 403(b) tax rules, you should consult tax experts for appropriate advice for your particular situation. For more information, contact one of the Fox Education Law Group attorneys, or for general tax matters, a member of Fox’s Tax Department.  Just mention that you saw it on the Blog!

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Comments (1) Read through and enter the discussion with the form at the end
Kristine - November 6, 2007 4:24 PM

Hello - Are you interpreting this regulation to mean that if a teacher complies with the election provisions, no additional tax is due? We are getting conflicting opinions. Thank you..

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