10.02.01: TDP Agreement is Binding and Irrevocable
The Internal Revenue Service approved the TDP agreement, addendum, and supplemental agreement as “salary reduction agreements.” They are contracts between your reporting unit and the employee. They authorize the reduction of the participating employee’s taxable income by the amount of the payroll deduction. The terms of these agreements must be complied with to ensure that your employees do not lose the tax deferral. If that were to happen, the employee, your reporting unit, and ORS could be subject to taxes, penalties, or both. After these forms are signed and submitted to ORS, your reporting unit may begin withholding the requested deduction. Scheduled payment deductions must continue every pay period until the agreement is paid in full or a qualifying termination event occurs.
The only valid reasons for terminating and closing a TDP agreement, addendum, or supplemental agreement are:
- Death of an employee
- Termination of employment
- Payment in full
If the employee terminates employment with your reporting unit, the agreement and the addendum are terminated. However, the employee does have the option to transfer the agreement and/or addendum to a new reporting unit. The employee and the new reporting unit must sign the TDP agreement/addendum within 90 days of terminating employment with the previous reporting unit.
Even though these deductions are tax-deferred, they could be subject to various contribution limits under the Internal Revenue Code. Employees should consult an attorney, CPA, or another qualified expert to determine how this program could affect other tax-deferred investments. Penalties for violating these limits include causing the employee to lose some of the tax deferral benefits and losing the IRS private letter ruling allowing the tax-deferred payment program.
Last updated: 04/13/2012