IRS Reporting Relief For Compliant Deferrals, Guidance For 409A Failures

Employee Benefits Alert

Notice 2007-89 89, released on October 23, 2007, relieves employers of the obligation to report deferrals that comply with Section 409A and also provides additional guidance with respect to the reporting and withholding obligations triggered in the event an arrangement fails the requirements of Section 409A.

In effect, the Notice extends for another year the reporting relief that was announced last year in Notice 2006-100. Thus, for 2007, an employer (or payor) is not required to report amounts deferred during 2007 on Form W-2, Box 12, Code Y (or Form 1099-MISC., Box 15a) with respect to deferrals that meet the requirements of Code section 409A.

In the event deferrals are includible under Section 409A, because the arrangement fails to meet Section 409A’s requirements, the employer (or payor) is required to report such amounts as wages paid on Form 941, line 2 and on Form W-2, Box 1 and Box 12, Code Z (or Form 1099-MISC, Boxes 7 and 15b).

Amounts includible in gross income under Section 409A are considered supplemental wages for purposes of determining the withholding percentage, but the amount withheld should not be increased to reflect the additional 20% income tax. Amounts includible in gross income under Section 409A in 2007, but neither actually nor constructively received by the employee during 2007, are treated as a payment of wages on December 31, 2007 for purposes of withholding, depositing, and reporting the income tax at source on wages under Section 3401(a).

The Notice also provides additional details regarding the calculation of amounts includible in income under Section 409A.

For further information, please contact any of the following lawyers:

Marianna Dyson,, 202-626-5867

Fred Oliphant,, 202-626-5834

Gary Quintiere,, 202-626-1491

Anthony Provenzano,, 202-626-1463

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