Year-End Employee Tax Issues
Overpayment and Underpayment of FICA. The IRS recently released Revenue Ruling 2009-39, which explains in great detail what an employer should do if the employer discovers that a mistake was made on employee payroll tax (FICA) withholding. The revenue ruling discusses how to use the interest free-adjustment and refund claim processes established by the Internal Revenue Code and applicable regulations. There are deadlines for making interest-free adjustments, so it would be a good idea to check the accuracy of withholding before the tax return date.
Bonuses paid in 2010 for Work Performed in 2009. Section 409A of the Internal Revenue Code covers most deferred compensation, such as employee bonuses and stock options. Unless an employer wants to go through the steps necessary to comply with Code Sec. 409 (which has substantial penalties for noncompliance), any bonuses for 2009 performance should be paid by mid-February 2010 for calendar year taxpayers. Section 409A was added to the Internal Revenue Code as part of the American Jobs Creation Act of 2004, Pub. Law No. 108-357, 118 Stat. 1418. It generally provides that all amounts deferred under a nonqualified deferred compensation plan for all taxable years are currently includible in gross income to the extent not subject to a substantial risk of forfeiture and not previously included in gross income, unless certain requirements are met. However, employee bonuses or other compensation that is paid within 2-1/2 months after the end of the service provider’s or service recipient’s tax year are not treated as deferred compensation under Code Sec. 409A. The IRS recently issued new guidance for TARP recipients. For more details, contact a tax attorney or accountant who has experience in this area.
This posting is not legal advice, nor is it tax advice, and it should not be relied on for any purpose. It is a summary of a complex area of the law, which may have changed since this posting was written on December 30, 2009.
Tags: Bonuses, Deferred Compensation, FICA, IRC 409A, Rev. Rul. 2009-39, Withholding
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