New IRS regulations under section 409A of the Internal Revenue Code could have significant tax implications for school employees that work less than 12 months but chose to be paid over a 12-month period. However, these employees may submit a written election form to the school district to avoid any additional tax on the deferred compensation.

The employee's written election must be received before he/she begins working for the school year. Though the new regulations do not technically become applicable until 2009, MSBA suggests collecting written election forms before the beginning of the 2008-2009 school year. This election may be for a single school year or for all subsequent school years until changed.

The written election form must describe how the payments will be paid out. It must also describe how any additional payments earned during the school year that would be owed to the employee upon separation from service will be paid.

Nine or ten month employees that are required to be paid over 12 months are not required to file a written election form with the district. However, the IRS has issued guidance that requires employers to set forth in writing a description of how nine and ten month employees are to be paid. There is no formal document required as long as the written description states the dates or schedule on which the employees are to be paid and the total amount of the payments. This information is generally included in an employee's contract or letter of intent.

The National School Boards' Association, in conjunction with the National Education Association, has issued a more thorough guidance and sample forms. While the forms and notices are a good start, MSBA strongly recommends districts consult their private attorney before presenting these forms to your employees. You can find the NSBA/NEA guidance here, and the sample forms here.