The Internal Revenue Service (IRS) recently released Revenue Ruling 2009-32, Paid Time Off Contributions at Termination of Employment. This Revenue Ruling addressed two issues:
- Do the amendments described [in the ruling] to an existing qualified profit sharing plan requiring or permitting certain contributions to the plan of the dollar equivalent of unused paid time off at a participant’s termination of employment cause the plan to fail to meet the requirements of §401(a) and, if applicable, §401(k) of the Internal Revenue Code of 1986 (IRC)?
- When is a participant required to recognize gross income with respect to the contributions to the qualified profit-sharing plan and payments to the participant as described [in the ruling]?
In situation 1, the IRS concludes as follows:
Under the facts presented, the amendments requiring or permitting certain contributions of the dollar equivalent of unused paid time off to a qualified profit-sharing plan do not cause the plan to fail to meet the qualification requirements of IRC §401(a), provided that the contributions satisfy the applicable requirements of IRC §401(a)(4) and IRC §415(c) and, where applicable, IRC §401(k) and IRC §401(a)(30).
In situation 2, the IRS concludes as follows:
Under the facts presented, assuming the applicable qualification requirements are satisfied, a participant does not include in gross income contributions of the dollar equivalent of unused paid time off to the profit sharing plan in accordance with IRC §402(a) until distributions are made to the participant from the plan and does not include in gross income an amount paid for the dollar equivalent of unused paid time off that is not contributed to the profit-sharing plan until the taxable year in which the amount is paid to the participant.
Contact Vision Payroll if you have any further questions on annual paid time off contributions.