Alerts

Recent Treasury Guidance on the Structuring of Faculty Salary and Similar Arrangements

September 29, 2008

In the typical independent school’s faculty payroll arrangement, faculty work for 10 months but may be paid ratably over a 12-month period—in effect deferring a small portion of salary earned during one calendar year into the following calendar year. Although this arrangement may currently constitute nonqualified deferred compensation subject to Section 409A of the Internal Revenue Code because income that is earned in one taxable year is not paid until the next taxable year, it will generally comply with the requirements under Section 409A so long as the election to be paid over 12 months is made before the service period begins.