COBRA Subsidy; Withholding Notice; Differential Wage Payment Withholding; 403(b) Opinion Letter Program

April 24, 2009

COBRA Subsidy Information Returns Not Required
Despite earlier suggestions by the IRS that employers might be required to file separate reports or information returns on COBRA subsidy amounts for individuals, an IRS official has now confirmed that such reports or returns will not be required. Employers must nevertheless maintain records of subsidy payments to support payroll tax credits claimed on Form 941, Employer's Quarterly Tax Return.
 
IRS Provides Model Notice Regarding New Withholding Tables
The IRS has created a model notice to assist employers in notifying employees of the recently- changed income tax withholding tables that implement the "Making Work Pay" refundable tax credit, part of the American Recovery and Reinvestment Act of 2009. This notice can be made available to employees by any reasonable means, including posting or electronic communication.
 
Differential Wage Payments Subject to Income Tax Withholding, But Not FICA or FUTA
In Revenue Ruling 2009-11, the IRS has indicated that differential wage payments that civilian employers make to employees on active military duty are subject to income tax withholding. These payments are not, however, subject to Federal Insurance Contributions Act (FICA) or Federal Unemployment Tax Act (FUTA) taxes.
 
IRS Developing § 403(b) Prototype Plan Opinion Letter Program
The IRS has circulated drafts of a Revenue Procedure for a proposed program for issuing opinion letters on § 403(b) prototype plans, as well as sample plan language. The § 403(b) prototype plan program will allow eligible employers to adopt pre-approved prototype plans and comply with final § 403(b) regulations. The IRS intends to establish a determination letter program for § 403(b) plans at a later date that would allow eligible employers to obtain determination letters for individually-designed plans.

If you would like more information on the content of this alert, please contact Christine Burke Worthen, a shareholder and Chair of Eaton Peabody's Tax Practice Group, or Rodney A. Lake. 
 
This alert is provided as general information, and is not a substitute for legal or other professional advice.

To ensure compliance with requirements imposed by the U.S. Treasury Department and the Internal Revenue Service, we also inform you that any federal tax advice contained in this communication (including attachments) is
not intended or written to be used, and cannot be used, for the purpose.