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Compliance December 10, 2004
PA Issues Tax Ruling on Employer Matching Contributions
December 10, 2004 (PLANSPONSOR.com) - The
Pennsylvania Department of Revenue has ruled that an
employer's matching contributions to an employee's savings
plan are exempt from the state's income tax in the year of
contribution.
Reported by Kip McDaniel
>According to an October 26 Letter Ruling (No. PIT-04-024), a contribution by an employer to a retirement plan is exempt from income tax under the Pennsylvania Consolidated Statutes Section 7301 (d)(ix) as an employer payment into a retirement program, as long as an employee does not have the discretion to take the contributions as cash salary or employer stock in that year.
>The Letter Ruling also stated that employer matching contributions in the form of cash to a 401(k) account are exempt from the state’s income tax in the contribution year.
>Pennsylvania Governor Edward Rendell recently made headlines by vetoing a bill that would have altered the tax status of nonqualified plan contributions (See Rendell Vetoes PA Non-Qual DC Tax Bill ). The bill would have taxed compensation from a nonqualified deferred compensation plan when it was received – not when it was deferred.
>Text of the October 26 Letter Ruling is available here .