December 13, 06

NEWS / IRS has issued withholding and reporting rules for 2005 and 2006 under Code Section 409A.

IRS Notice 2006-100 provides (i) guidance to employers and other payers of deferred compensation on their reporting and wage withholding requirements for calendar years 2005 and 2006 for deferrals of compensation and amounts includible in gross income under Code Section 409A and (ii) relief from reporting deferrals that are not includible in income during those years. Notice 2005-94 is superseded.

Under Notice 2006-100, employers and other payers need not report annual deferrals of compensation that are not includible in income under Code Section 409A on Form W-2 or Form 1099-MISC for 2005 or 2006.

However, amounts includible in income under Code Section 409A for 2005 and 2006 must be reported on From W-2 or Form 1099-MISC, as appropriate. Employers and other payers were advised last year in Notice 2005-94 that they might have to file amended information returns to report amounts includible in income for 2005.

Notice 2006-100 clarifies that amounts includible in gross income due to a failure to meet Code Section 409A requirements are only deferred amounts that are subject to Code Section 409A. Thus, amounts grandfathered under pre-Code Section 409A law are not subject to these rules.

Notice 2006-100 also provides interim rules for 2005 and 2006 on calculating amounts includible in gross income under Code Section 409A. These rules apply to employers or other payers who must report and withhold on the amount to be included in income under Code Section 409A.

Notice 2006-100 provides guidance to service providers on their income tax reporting and tax payment requirements for amounts includible in gross income under Code Section 409A for 2005 and 2006. Employees are required to report income and pay taxes due on amounts includible in gross income under Section 409A for calendar year 2006. For any amounts that may be due for 2005 that were not reported and paid, employees should calculate includible amounts in accordance with Notice 2006-100, file amended returns, and pay any amounts due. To avoid penalties, an amended 2005 return and payment must be made by the due date for the employee??™s 2006 return, including extensions.

Notice 2006-100 is available at: http://www.irs.gov/pub/irs-drop/n-06-100.pdf
Article by Harvey Kurtz

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