FY2010-19:Healthcare Contribution Deferral of Sick and Vacation Payouts (Issed 01/27/2010)

January 27, 2010

Comptroller Memo FY#2010-19

This memorandum provides instructions for the payout, over three tax years, of deferred accumulated sick and vacation time authorized under/as directed by the Healthcare Contribution Incentive Program (Section 29 of Chapter 65 of the Acts of 2009, as amended). Under IRS rules, the full amount of deferred compensation in a non-qualified plan, including sick and vacation payouts, is taxable in the first year the employee receives payment.

.The Healthcare Contribution Program provides that an employee who filed an application for retirement between August 10, 2009, and on or before October 1, 2009, for a retirement date not later than January 31, 2010 sign a waiver that was included with their superannuation retirement application authorizing their sick and vacation payments to be split into four installments. These payments must be disbursed per the instructions below to assure proper tax treatment in this tax year, 2010.

Instructions:

• The Sick and Vacation Payout over 4 periods (3 tax years) needs to be fully taxed in 2010.
• Only the January payout, if within 2.5 months of separation (retirement after November 15, 2009), is eligible for deferred compensation (457 or 403B) deductions.
• There are 2 scheduled quarterly payments in 2010 - January 31st payable on February 19th and July, 1 2010 payable on July 9th.
• Enter the first payment in Pay Period Ending (PPE) February 13, 2010.
• In Payment # 1, Use VLA and/or SBB for ¼ of the total, use NQP (imputed income - nonqualified plan) for ¾ of the total.
o If applicable, enter deferred compensation deduction code for 100% of federal taxable gross.
• In Payments # 2, #3 and #4, (July, 2010, July 2011, and July 2012) enter payments on PPEs July 3, 2010, July 2, 2011 and July 14, 2012.
o Use earnings code SVP - Non-tax payment (AA Object Class).
o No deferred compensation deductions are allowed.
• All taxes will be taken and reported in 2010.

The specific information required for additional tax withholding is included in the attached job aid. Please see job aid for details.

Healthcare Contribution Non-Qualified Deferred Compensation Payout Job Aid