Nine-month, full-time faculty with salaries of $90,750 and above who have chosen to be paid over 12 months for the 2009-10 academic year will be affected by changes to the federal tax law. But the University will help employees minimize the impact on their finances.
Federal tax law changes that were enacted in 2004 and became applicable to schools (including colleges and universities) beginning Jan. 1, 2008, have made it necessary for educational institutions to review the tax law and its implications for faculty. Under regulations issued in 2007, educational institutions at all levels that provide a choice of pay schedules are required to adhere to Internal Revenue Code (IRC) Section 409A to avoid potential, serious tax consequences for the institution and its employees.
This 409A regulation applies to compensation that employees earn in one year but are not paid until the following year. The earnings received in the subsequent year are considered by the IRS to be nonqualified deferred compensation. Section 409A considers this taxable income that the individual will be taxed on in the current calendar year. If the IRS audits an individual employee who is impacted by this provision and determines that individual is not in compliance with Section 409A, the deferred compensation for that employee may be subject to an additional 20 percent penalty, in addition to the income tax.
After much study and consultation with other universities, BGSU is taking the following approach: Faculty making more than $90,750 for academic year 2009-10 will be over the maximum deferral amount allowed by 409A. Therefore, these faculty members will not be eligible to select the 12-payment option. They will be paid over nine months, starting in September. Any faculty whose compensation is at $90,750 or above will be moved to the nine-month pay option.
In order to help those impacted by this change, representatives in Payroll are available to assist in establishing a secondary, direct-deposit bank account in order to set aside salary to cover summer months.
This year, the maximum deferred compensation threshold as found in IRC 403(g) is $16,500. Therefore, faculty members whose compensation falls at or below $90,750 for academic year 2009-10 will not earn a deferral amount of more than the $16,500 and will not be affected by this IRS code. It is important to note, however, that the deferred compensation threshold can change from year to year. Summer salaries are not impacted by this code because summer compensation is paid in the same calendar year it is earned.
Affected faculty who have questions about this change are encouraged to contact Larry Smith in the Payroll Office at 2-2201 or firstname.lastname@example.org, or Sharon Swartz in the Controller’s Office at 2-9843 or email@example.com. Faculty who are directly impacted can expect to be contacted by a University representative to assist with his or her individual case.
Several informational sessions are scheduled during the week of Aug. 31. Details will be posted on listprocs and in Campus Update.