Policy
The twelve-month optional payment plan is available to tenured, probationary tenure-track, non-tenure track, faculty associates, and exempt administrative/professional (A/P) employees when they have a nine (9) through less than twelve (12) month appointment. Academic Personnel Regular Pay or Academic Personnel Administrative Increment will be included in the distributions of the twelve- month optional payment plan. Summer school appointments, irregular payments, faculty overload appointments and faculty extra pay are excluded from the calculation of twelve-month optional payment plan and paid according to the time period of the assignment.
Employees electing the twelve-month optional payment plan must file a signed payment election authorization form with the Payroll Office prior to the start date of an eligible appointment. Elections filed after the start date of an eligible appointment will be effective on the first date of the next eligible appointment. An election will remain in effect indefinitely unless revoked. Revocation elections can be made at any time by completing a signed revocation of payment election on the payroll authorization form with the Payroll Office, but the revocation will not become effective until the first date of the employee's next eligible appointment.
If the twelve-month optional payment plan is elected and all criteria stated above are met, the employee's salary will be paid over twelve months. Each payroll advice notice will report the total funds earned but not paid. In the case of retirement or separation, settlement will be made with any separation payout.
Examples:
Without the twelve-month optional payment plan a 9-month appointment will be paid in 10 monthly payments. For example: An appointment beginning August 16 of an academic year and ending the following May 15 will be paid the last ½ of August, all of September through April and the first ½ of May.
With the twelve-month optional payment plan a 9 month appointment will be paid in 13 monthly payments. For example: An appointment beginning on 08/16/XX and ending 05/15/XX will be paid the last ½ of August, all of September through July, and first ½ of August.
Adverse Impact Notice:
The Internal Revenue Service has issued regulations and guidance advising that University employees on nine-month appointments who elect to receive pay over a twelve-month period are subject to tax rules regarding deferred compensation. The relevant IRS regulations (26 U.S.C. Section 409A) are referred to as nonqualified deferred compensation (NQDC) requirements and apply to compensation that employees earn in one year that is deferred and paid in the next year. Illinois State University's Optional Twelve-Month Payment Plan is considered to be a NQDC since the program allows compensation earned in one year to be paid in a later year. Under these regulations, an employee may defer an amount up to a "safe-harbor" amount without penalty if all the requirements for the deferral are met. For Calendar Year 2013, the safe-harbor limit is $17,500. However, if the amount deferred by an employee exceeds the safe harbor limit (currently $17,500), that income must be reported on the employee's Form W-2 and the employee will be subject to withholding and be required to pay an additional penalty of 20% income tax on the entire amount deferred. It is the employee's responsibility to monitor these limits and make any necessary changes to their election prior to the start of any eligible appointment period.
For example, an employee who works for nine months from August 16, 2013 to May 15, 2014, but is paid over 12 months, will exceed the $17,500 deferral cap if he/she earns more than $139,000 in annual salary during the period of time. For example, the employee earns $70,020.00 from August 16th to December 31st but is only paid $52,515.00, defers $17,505.00 to Calendar Year 2014. The entire amount deferred in this example, $17, 505.00 would be subject to the 20% income tax penalty and included in your 2013 taxable income.