Friday, August 03, 2007

New IRS Regulations with Unintended Consequences

The IRS has adopted regulations that were intended to impact deferred compensation arrangements for certain corporate employees. However, they may impact other types of employees who have compensation deferred, including many school teachers. Many teachers agree to be paid over a 12 month period, though they only work when school is in session. Technically, this means that some income earned during 2007 will be deferred to 2008

According to the Texas Classroom Teacher's Association, teachers who do not sign contracts or election forms prior to beginning in service for the coming school year specifying the agreement to defer compensation may be subject to additional tax. The Oracle understands that local districts are scrambling to make sure that teacher's are aware of the need to complete the form.

UPDATE: In response to numerous inquiries from school teachers, the IRS is now (August 7)stating that they will not enforce this rule for the 2007-2008 school year. The announcement has to be read carefully: they begin by saying that they are "clearing up confusion," but ultimately merely say that the requirement will not be applied until next year.

That's not clearing up confusion: it's delaying implementation of an inane rule.

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