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Beginning as early as the 2008-2009 school year, Brunswick County Schools’ teachers may have to do some extra financial budgeting.
Freyja Cahill, executive financial officer, said the IRS has been restructuring deferred compensation plans since 2005, but is implementing new rules the school system must follow.
School employees that do no work during the summer months currently have the option of receiving paychecks for either 10 or 12 months.
Those who choose 10 months receive their complete earnings during the months they teach and do not receive paychecks during the summer. Those who choose 12 receive less take home pay each month but receive their deferred compensation during summer months.
Cahill said the IRS is making new policies so it can tax teacher salaries for the entire year and not tax the deferred compensation differently. If schools do not follow the new rules, individuals can be additionally taxed up to 20 percent.
The board of education has several options it can consider. The first—and Cahill’s recommendation—is to establish a payroll deduction plan that transfers money into the State Employees’ Credit Union Summer Cash Account.
The money would be automatically deposited from each paycheck during the 10-month school year and would be able to collect interest at a higher rate than normal savings accounts, Cahill said. While accountholders are unable to withdraw during the school year, there is no penalty for those closing accounts due to financial hardship.
“This is more flexible than [the deferred compensation] they have here currently with us,” Cahill said.
If the board chose this, employees would also be able to receive their entire pay in 10 months with no savings plan, or use their personal bank to set up a savings account of their choice.
The other option the board can choose is to offer a modified installment plan that must meet all new IRS regulations. Those who choose to enroll may not close their account during the year, and if there is one error or one person who revokes election, all participants will be subject to an additional 20 percent additional tax.
“That’s a detraction in my view,” Cahill said.
Cahill said choosing an outside source for summer savings plans is the best option not only for teachers, but also for the finance staff. Cahill said most all of the overtime in her office would no longer be necessary, and the amount of paperwork would be considerably less. Area school systems are also choosing this option, she said.
Cahill said the finance’s staff next step is to visit each school and hold information sessions for all teachers, explaining the possible options. The board will revisit the issue at its April 4 meeting.
Kathryn Jacewicz is a staff writer at the Beacon. Reach her at 754-6890 or at firstname.lastname@example.org