A new code has been added to the 2005 Form W-2 and the Instructions for Forms W-2 and W-3. Code Z is now used to indicate income under section 409A on a nonqualified deferred compensation plan and is used in box 12 on the 2005 Form W-2.

This code and other reporting will be used to identify income recognized due to participation in a nonqualified deferred compensation plan that fails to meet the requirements of Internal Revenue Code section 409A that was added by section 885 of the American Jobs Creation Act of 2004. This income is subject to an additional tax and interest imposed on the individual.

Employers must use code Z in box 12 of Form W-2 to report the income shown in box 1 that relates to the recognition of income due to participation in a nonqualified deferred compensation plan that fails to meet the requirements of section 409A.

Income recognized under section 409A for non-employees is reported both in box 7 and in box 15b of Form 1099-MISC.

Social security and Medicare wage reporting was not changed by section 409A. Nonqualified deferred compensation for employees is generally subject to social security and Medicare taxes when the related services are performed. However, application of social security and Medicare wages is delayed during the period when an employee's right to receive payment of the wages is subject to a substantial risk of forfeiture. Employers should continue to report social security and Medicare wages from nonqualified deferred compensation plans in boxes 3, 5, and 11 of Form W-2, as appropriate.

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...back to 30 December 2004

Further information:
www.irs.gov/formspubs/article/0,,id=109875,00.html