IRS Delays Deferred Compensation Reporting for 2005

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December 13, 2005

In expected but welcome action, the IRS has delayed all information reporting under the new deferred compensation rules of Code Section 409A. Employers will not have to include any special reporting on Forms W-2 or Forms 1099 to be issued in January for the 2005 tax year. However, it is very likely that reporting for 2005 will be required later in 2006.

Notice 2005-95 issued December 8 covers the following items for 2005 calendar year forms:

  • No reporting of deferrals for the year in box 12 of Form W-2 using code Y.

  • No inclusion in wages of amounts taxable to an employee under Section 409A unless the employee actually or constructively received the amount during 2005. This includes not reporting such amounts as wages paid to the employee in box 2 of Form 941, in box 1 of Form W-2, or in box 12 of Form W-2 using code Z.

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  • No reporting of deferrals for the year in box 15a of Form 1099-MISC.

  • No reporting of amounts taxable to a nonemployee under Section 409A unless the nonemployee actually or constructively received the amount during 2005. This includes not reporting such amounts as nonemployee compensation in box 7 of Form 1099-MISC or as Section 409A income in box 15b of Form 1099-MISC.

CAUTION: The IRS notes that future guidance may require filing an amended Form W-2 or Form 1099 to reflect 2005 activities. Employers should continue to closely monitor this issue next year.

This Notice does not relieve an employee/service provider of the obligation to pay taxes on amounts includible in income under Section 409A. However, the IRS will not impose penalties for late payment if payment is made within a time to be set under future guidance. It is likely that payment will be required following the issuance of an amended Form W-2 or Form 1099. Interest will be assessed on any late payments.

For More Information
Contact
Steven D. Kittrell
202.857.1701
[email protected]

Jeffrey R. Capwell
704.353.6256
[email protected]

Larry R. Goldstein
312.849.8216
[email protected]

G. William Tysse
202.857.1730
[email protected]

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