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APA Celebrates Victory With Nonqualified Deferred Compensation Plans
By Scott Mezistrano, CPP
Payroll professionals will not have to scramble to report nonqualified deferred compensation details on forms W-2 or 1099-MISC for tax year 2007, thanks to APA's lobbying efforts.
APA has convinced the IRS to waive for tax year 2007 the requirement to report on Form W-2 (Box 12, Code Y) or Form 1099-MISC (Box 15a) current-year deferrals and earnings on deferrals under nonqualified deferred compensation (NQDC) plans. APA wrote to IRS Chief Counsel and to the U.S. Treasury, explaining that no clear guidance had been issued and that even if they issued it soon, it was too late in the year for employers to implement it. IRS Notice 2007-89 says this reporting will never be required for amounts deferred in calendar year 2007.
It's been nearly three years since the American Jobs Creation Act was signed into law, creating Section 409A of the Internal Revenue Code, which set standards for NQDC plans and required W-2 reporting of amounts deferred and amounts earned in these plans. However, there is still no guidance from the IRS on how to calculate these amounts.
In APA's letter to IRS Chief Counsel and the U.S. Treasury Acting Deputy Assistant Secretary for Tax Policy, APA said, "Even if guidance were issued in the very near future, it is extremely late in the year to begin programming the systems needed for such reporting. Generally, for anything to be accurately and comprehensively reported on Forms W-2 and 1099, systems and software need to be programmed accordingly before the beginning of the tax year to which the reporting requirement applies. Naturally, there also needs to be a reasonable amount of time for employers, software developers, and payroll service providers to learn about the requirements and then develop, test, implement, produce, and distribute system updates."
Information reported this year would be of little use to the IRS. APA's letter pointed out that, "Any amounts a company reports for this purpose for this tax year would be based on the company's own application of the good faith compliance standard, which could result in as many reporting methodologies as there are reporting companies. Moreover, the information subject to Code Y/Box 15a reporting has no bearing on the amount of tax that companies are required to withhold or how much tax any individual pays. This purpose cannot be advanced in any meaningful way until there are uniform standards for computing the amount to be reported, issued with sufficient advance notice before the reporting deadline. Accordingly, APA and its members believe that requiring companies to comply with this requirement this year would create unnecessary burdens and expense with no positive effects on tax administration."
Read IRS Notice 2007-89 (See page 4), waiving the W-2 reporting of current-year deferrals and earnings.
Read APA's letter to IRS Chief Counsel.
IRS Wants You to Remind Employees to Review Their W-4 Status
Pass Along These Online Tools to Help Employees Decide on Proper Withholding for 2007 and 2008
By Scott Mezistrano, CPP
IRS regulations say employers should remind their employees every year by December 1 to review their W-4 status and to file a new W-4 if their filing status or number of withholding allowances will change in the coming year.
Performing this reminder also provides a great opportunity to ask employees to review their name, address, social security number, state of taxation, and anything else that will have an impact on preparing correct Forms W-2, successful mailing of W-2s to their homes, and/or correct calculation of eventual benefits from the Social Security Administration.
You can comply with the reminder requirement by simply including a message on the paystub if your system allows. Or, you may want to provide your employees with additional information to be verified via e-mail, on your company's intranet, or through a written memo. But note that if you put the information on your intranet, you should still send some sort of direct notification to employees about reviewing their W-4 status.
Remember that many employers no longer print the social security number on the paystub. But employers may still provide the information to be verified to employees through other means, such as an employee self-service intranet portal.
Help Employees Determine Optimal W-4 Withholding
Steer your employees toward these useful Web sites:
1. The W-4 Assistant on www.nationalpayrollweek.com: (send your employees to www.nationalpayrollweek.com/edu_w4.cfm) This handy calculator asks a series of simple questions, then helps employees fill out a federal Form W-4. It will even let them print a completed Form W-4 that they can turn in to your department.
2. The IRS Withholding Calculator: (send your employees to www.irs.gov/individuals/article/0,,id=96196,00.html) This interactive calculator asks you questions about the wages you expect to receive by the end of the year, how much has been withheld so far, and what deductions you'll be claiming on your personal income tax return. In return, it tells you what you should indicate on the Form W-4 to be used between now and the end of the tax year.
3. Paycheck Calculator on the APA Web site: (send your employees to www.paycheckcity.com/coapa/netpaycalculator.asp) This handy calculator will let your employees determine what their net check will be if they change their withholding, and it will save you from having to predict it for them!
Why Should Employees Consider Their Filing Status and Allowances?
The Form W-4 that an employee gives an employer determines the amount of taxes that will be withheld from his or her pay. If too much is being withheld, the employee is making an interest-free loan to the U.S. government and is losing out on the interest that could have been earned. For tax year 2006 (according to IRS processing statistics through September 28, 2007), 77% of taxpayers received a refund on their personal income tax return, and the average amount of the refund was $2,259. (IRS 2007 Filing Statistics, Table 12)
On the other hand, if not enough is being withheld, the employee may face a penalty when filing his or her personal income tax return. Generally, a penalty will apply if a taxpayer's withholding and estimated tax payments total less than 90% of that year's tax liability, as calculated on the income tax return, and less than 100% of the previous year's tax liability. During IRS's fiscal year 2006, 6.6 million taxpayers were assessed an average penalty of $227 for failing to pay enough tax during the year. That's in addition to the amount of tax owing. Even if not subject to a penalty, the amount owed with the return could be more than the employee can comfortably pay.
Why Would the Number of Withholding Allowances Change From Year to Year?
There are many lifestyle, work, and family related reasons that could change the number of an employee's withholding allowances from one year to the next. Here are some (but not all) of the possibilities:
* Marriage
* Divorce
* Birth or adoption of a child
* A child who may no longer be claimed as a dependent
* Purchase, sale, or refinancing of a home**
* Retirement
* Taking a second job
* Having a spouse go back to work
* Receiving income not subject to withholding such as rent, dividends, interest, or capital gains
** For more information on tax implications of home ownership, see Deducting Costs of Refinancing Your Home, http://www.irs.gov/newsroom/article/0,,id=106982,00.html which also contains links to publications for those who are buying or selling a home.
Resources for Your Spanish-Speaking Employees
IRS has a Spanish version of Form W-4. It is called Forma W-4(SP), Certificado de Exención de la Retención del(la) Empleado(a), and it can be used in place of Form W-4.
Actually, an entire section of the IRS Web site is in Spanish, with many of the same offerings found on the rest of the site, including the Withholding Calculator, information on the Earned Income Credit, news bulletins for taxpayers, links to Spanish forms and publications, links to forms specifically for residents of Puerto Rico, information on choosing a tax preparer, and a Spanish-English glossary of commonly used IRS words and phrases.
Phishing Scams Promise IRS Refunds
By William Dunn, CPP
The IRS has warned, for the fourth time this year, that scam artists are using the IRS's good name to prey on the unsuspecting. The latest warning, issued September 19, describes a message that urges recipients to go to a Web page titled "Get Your Tax Refund," which looks like the IRS's legitimate "Where's My Refund?" page. Taxpayers are being asked to fill in their social security numbers and filing status, as well as credit card information.
The IRS says it does not initiate contact with taxpayers by e-mail, for any reason. Further, it says it "never asks people for the PIN numbers, passwords, or similar secret access information for their credit card, bank, or other financial accounts."
Since 2006 the IRS has received more than 17,000 complaints regarding phishing scams, and has detected scams originating in more than 27 countries, including the United States. Taxpayers are urged to forward any questionable e-mail claiming to come from the IRS to phishing@irs.gov.
(Read the IRS instructions.)
Read the IRS announcement.
In August, the IRS warned of a phishing scam promising $80 for completing a survey, while in March and June they warned of messages designed to fool both business and individual taxpayers into believing they were under investigation by the IRS's Criminal Investigations division. Rest assured that, if you are under investigation, you will not learn of it by e-mail.
