Teachers and other school employees returning from summer vacations are dealing with the prospect of an IRS rule change on deferred compensation that could see their taxes increase by 20 percent if they aren't careful. The rule involves deferred compensation and applies to school districts that offer employees who work for 10 months but are paid over a 12-month period the option of having their payments spread out throughout the year, as many school districts do.
However, the IRS has proposed newer rules that it hopes will alleviate some of the worries. The IRS has released Notice 2008-62, which provides that no deferral income will occur if both of the following conditions apply.
| * The arrangement does not defer payment of any of the recurring part-year compensation beyond the last day of the 13th month following the beginning of the service period. For example, if the service period begins in August 2008, all compensation must be received by Sept. 30, 2009. * The total amount deferred is less than a dollar amount provided under Section 402(g)(1)(B) of the Tax Code for that year. For 2008, this amount is $15,500. |
The Treasury Department and the IRS anticipate that these rules should exclude from coverage most arrangements for public school teachers and other school-year employees under which they are permitted to annualize school-year compensation, whether or not they are given individual elections. - complete article
