Deferred Pay and IRS code 457(f)
As a University of Memphis 9-month faculty member, your academic year salary is paid in equal installments over 12 months, September through August. At the end of each tax year, 6/12 of the academic salary has been earned, however payment has been made for only 4/12. At this point, a salary deferral equating to the difference between the amount earned and the amount actually paid exists.
The Internal Revenue Service issued a notice providing guidance for Code Section 457(f) regulations governing certain deferred compensation plans, including the deferral of pay for faculty on academic year contracts. Under the 457(f) code, any salary deferral between tax years exceeding $22,500 must be reported to the IRS as taxable income in the year earned, regardless of pay date. Please note that the 457(f) limit is not affected by the amount you may be contributing to the 401(k), 403(b), or 457 deferred compensation programs.
You are receiving this notice because your salary deferral will exceed the $22,500 IRS 457(f) limit in 2023. To comply with this IRS regulation, the University will increase your December paycheck by the amount of your salary deferral exceeding $22,500 (maximum deferral allowed by the IRS) and will decrease each January thru August paycheck by 1/8th of the additional December payment. This will ensure that the actual salary deferment does not exceed the IRS limit.
To see a representation of your personal scenario under these guidelines for the 2023-2024 academic year, please login with your University username and password.