Beware of IRS Rulings
The Internal Revenue Service (IRS) recently announced a series of rulings that affect NDEA locals, members and school districts. NDEA would like to draw your attention to these issues, and encourage you to contact your UniServ Director if you have any questions.
School Employees Paid Over a 12-Month Period
The IRS recently issued rules related to the deferral of salary from one tax year to the next. According the IRS ruling, a school employee who chooses payment of 2008-09 salary over 12 months is deferring a portion of his/her salary to the 2009 tax year.
The IRS delayed this ruling until the start of the 2008-09 school year. Before the first day of the year, the employee must inform the district how they want their pay checks. The IRS refers to this notice as an “election.” The district can offer payments of 9, 10 or 12 months. They do not have to offer the 12 month option. Only the 12 month option creates the deferred compensation arrangement and if the written individual election forms are not filed, the compensation is subject to certain additional taxes…including a 20 percent additional income tax. Once an employee makes an election, it is irrevocable for that school year.
NDEA recommends two standards for the locals to request the school district to follow.
NDEA recommends that the election be separate from the individual contract so the district does not use the IRS rule to pressure teachers to sign individual contracts prior to the completion of the negotiations process. Further, the rule gives the employee until the start of the work year to reach a decision. Why should they be required to make this decision prior to start of the year?
- NDEA believes the negotiated agreement is the appropriate place to determine the payroll schedule and options.
We will be including more detailed information about this issue in the February North Dakota Education News and will be including information at the Bargaining Conference and in Regional Meetings this spring.
New 403(b) Rules
New rules are currently being developed for 403(b) tax deferred investments available to public school employees. NDEA is monitoring the developments and has access to sample forms through NDEA sponsored vendors---Horace Mann and NEA Valuebuilder. The forms and more details will be presented at the Bargaining Conference on February 9 and in upcoming issues of the North Dakota Education News.
990 Filing Requirements for Local Associations
The IRS is developing and mailing a postcard form for smaller tax exempt, not-for-profit associations…like most NDEA locals. If a local receives a notice from the IRS referencing the filing of a 990 form, they should contact their UniServ Director or NDEA Business Manager Gary Rath. Small locals, for IRS purposes, are locals with revenue of under $25,000 per year. Local revenue does not include NDEA or NEA dues collected by the local. Locals with revenue over $25,000 must file a 990EZ prior to Jan. 15, 2008 for the membership year ending on August 31, 2007.
Tax Exempt Status
NDEA recommends that local associations file for tax exempt status from the IRS as a 501(c) (5) organization. A 501(c) (5) is a labor union and is the most advantageous status for a local association. To obtain this designation, locals should complete IRS form 1024. The form is available at www.irs.gov. For assistance with this form, please contact your UniServ Director or NDEA Business Manager Gary Rath.
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