Teachers performing services during a school year running from September of one year through June of the next year are often given the choice of receiving their pay on an annualized basis over 12 months instead of only during the school year.

Such arrangements are considered nonqualified deferred compensation and are subject to the requirements of the regulations under IRC Section 409A which were issued in April, 2007. The IRS had received inquiries from teachers who expressed concern that they had to make certain decisions about their pay this month or risk severe penalties.

On August 7, 2007, the IRS issued an Announcement which provides that schools that choose to offer such an election need not make any changes prior to 2008 and their employees will not be subject to additional taxes:
http://www.irs.gov/newsroom/article/0,,id=172884,00.html

Generally, the regulations require the following:

· The teacher must give a written election to the employer that notifies the employer that the teacher wants to spread out the compensation.

· The election must be made before the beginning of the work period (for example, before the first day of the school year).

· The election must be irrevocable.

· The election must state how the compensation is going to be paid if the election is made.

· No particular form is necessary for the election.

The FAQs related to the Announcement state that any changes required for 2008 are likely to be minor:

http://www.irs.gov/newsroom/article/0,,id=172883,00.html

If you have any question about this IRS Announcement or related matters, please call a Schubert Bellwoar attorney.

© 2010 Schubert, Bellwoar, Cahill & Quinn. All rights reserved. Review Disclaimer. Design and marketing by Legal Internet Solutions Incorporated.