Page 17 - Employers Supplemental Guide

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Form 1099-MISC, but this is not required. For more infor- reduction agreement. However, they aren't included in
mation, see the Instructions for Forms W-2 and W-3 and box 1 on Form W-2 in the year the deferrals are made and
the Instructions for Form 1099-MISC. These reporting aren't subject to federal income tax withholding. See Reg-
rules don't affect the application or reporting of social se- ulations section 31.3121(a)(5)-2 for the definition of a sal-
curity, Medicare, or FUTA taxes. ary reduction agreement.

The provisions don't prevent the inclusion of amounts Contributions to a Simplified
in income or wages under other provisions of the Internal
Revenue Code or common-law principles, such as when Employee Pension (SEP)
amounts are actually or constructively received or irrevo-
cably contributed to a separate fund. For more information An employer's SEP contributions to an employee's individ-
about nonqualified deferred compensation plans, see ual retirement arrangement (IRA) are excluded from the
Regulations sections 1.409A-1 through 1.409A-6. Notice employee's gross income. These excluded amounts aren't
2008-113 provides guidance on the correction of certain subject to social security, Medicare, or FUTA taxes, or
operation failures of an NQDC plan. Notice 2008-113, federal income tax withholding. However, any SEP contri-
2008-51 I.R.B. 1305, is available at IRS.gov/irb/ butions paid under a salary reduction agreement (SAR-
2008-51_IRB#NOT-2008-113. Also see Notice 2010-6, SEP) are included in wages for purposes of social secur-
2010-3 I.R.B. 275, available at IRS.gov/irb/ ity, Medicare, and FUTA taxes. See Pub. 560 for more
2010-03_IRB#NOT-2010-6 and Notice 2010-80, 2010-51 information about SEPs.
I.R.B. 853, available at IRS.gov/irb/ Salary reduction simplified employee pensions
2010-51_IRB#NOT-2010-80. (SARSEP) repealed. You may not establish a SARSEP

Social security, Medicare, and FUTA taxes. Employer after 1996. However, SARSEPs established before Janu-
ary 1, 1997, may continue to receive contributions.
contributions to nonqualified deferred compensation
(NQDC) plans, as defined in the applicable regulations,
are treated as wages subject to social security, Medicare, SIMPLE Retirement Plans
and FUTA taxes when the services are performed or the
employee no longer has a substantial risk of forfeiting the Employer and employee contributions to a savings incen-
right to the deferred compensation, whichever is later. tive match plan for employees (SIMPLE) retirement ac-
Amounts deferred are subject to social security, Medi- count (subject to limitations) are excludable from the em-
care, and FUTA taxes at that time unless the amount that ployee's income and are exempt from federal income tax
is deferred can't be reasonably ascertained; for example, withholding. An employer's nonelective (2%) or matching
if benefits are based on final pay. If the value of the future contributions are exempt from social security, Medicare,
benefit is based on any factors that aren't yet reasonably and FUTA taxes. However, an employee's salary reduc-
ascertainable, you may choose to estimate the value of tion contributions to a SIMPLE are subject to social secur-
the future benefit and withhold and pay social security, ity, Medicare, and FUTA taxes. For more information
Medicare, and FUTA taxes on that amount. You’ll have to about SIMPLE retirement plans, see Pub. 560.
determine later, when the amount is reasonably ascertain-
able, whether any additional taxes are required. If taxes
aren't paid before the amounts become reasonably ascer- 6. Sick Pay Reporting
tainable, when the amounts become reasonably ascer-
tainable they are subject to social security, Medicare, and Special rules apply to the reporting of sick pay payments
FUTA taxes on the amounts deferred plus the income at- to employees. How these payments are reported depends
tributable to those amounts deferred. For more informa- on whether the payments are made by the employer or a
tion, see Regulations sections 31.3121(v)(2)-1 and third party, such as an insurance company.
31.3306(r)(2)-1.
Sick pay is usually subject to social security, Medicare,
Section 83(i) election to defer income on equity and FUTA taxes. For exceptions, see Social Security,
grants (qualified stock). An arrangement under which Medicare, and FUTA Taxes on Sick Pay, later in this sec-
an employee may receive qualified stock (as defined in tion. Sick pay may also be subject to either mandatory or
section 83(i)(2)) isn’t treated as an NQDC plan with re- voluntary federal income tax withholding, depending on
spect to such employee solely because of such employ- who pays it.
ee’s election, or ability to make an election, to defer recog-
nition of income under section 83(i). Sick Pay

Tax-Sheltered Annuities Sick pay generally means any amount paid under a plan
because of an employee's temporary absence from work
Employer payments made by a public educational institu- due to injury, sickness, or disability. It may be paid by ei-
tion or a tax-exempt organization to purchase a tax-shel- ther the employer or a third party, such as an insurance
tered annuity for an employee (annual deferrals) are inclu- company. Sick pay includes both short- and long-term
ded in the employee's social security and Medicare benefits. It is often expressed as a percentage of the em-
wages, if the payments are made because of a salary ployee's regular wages.

Publication 15-A (2020) Page 15