Accountants Support Prohibition on Taxing Non-Resident Retirement Income

A new law signed by President Bush on August 3, 2006, and supported by the American Institute of Certified Public Accountants (AICPA), as well as others in the accounting profession, prohibits states from taxing the retirement income of partners who are not residents of that state.

The law amends Title 4 of the Untied States Code to clarify the treatment of self-employment for purposes of the limitation of State taxation of retirement income. Specifically, the law clarifies that U.S.C. Section 114(a) covers nonresident retired partners.

“The new law ensures that states’ tax rules for retirees are uniform, whether the retiree was an employee or partner,” Tom Ochsenschlager, AICPA Vice President – Taxation, said in a prepared statement. “It guarantees equity.”

The passage and enactment into law of H.R. 4019 clarifies the original intent of a 1996 law that prohibits states from taxing nonresident employees’ retirement income. The new law applies to amounts received after December 31, 1995. Under the law, "States could not impose an income tax on nonresident retirement income received under certain nonqualified deferred compensation plans, including written plans, in effect at the time of retirement, providing for payments to a retired partner in recognition of prior service," according to CCH, a Wolters Kluwer company. Further, the law clarifies the definition of "substantially equal periodic payments" to permit plan caps on retiree payments and cost of living adjustments.

Ochsenschlager said enactment of the bill is important to many CPAs who are, or were, partners of accounting and consulting firms. “On behalf of our members, we thank the Congress and President for moving expeditiously to correct this unintended consequence of the tax law when it was exposed,” he said.

You may like these other stories...

Treasury prepares options to address tax inversionsDamian Paletta of the Wall Street Journal reported on Monday that US Treasury Department officials are assembling a list of administrative options for Treasury Secretary...
Deloitte CEO Joe Echevarria to retire to pursue public serviceMichael Rapoport of the Wall Street Journal reported that Deloitte LLP CEO Joe Echevarria plans to retire later this month to pursue his interest in public...
If your clients include retailers, pending federal legislation allowing states to tax Internet sales could mean big changes in the way they process and account for their sales and use taxes.In July, the Marketplace and...

Already a member? log in here.

Upcoming CPE Webinars

Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.
Aug 26
This webcast will include discussions of recently issued, commonly-applicable Accounting Standards Updates for non-public, non-governmental entities.
Aug 28
Excel spreadsheets are often akin to the American Wild West, where users can input anything they want into any worksheet cell. Excel's Data Validation feature allows you to restrict user inputs to selected choices, but there are many nuances to the feature that often trip users up.
Sep 9
In this session we'll discuss the types of technologies and their uses in a small accounting firm office.