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Special Pay Plans
Save Thousands On Your Early-Retirement Incentive Pay
Note: Not available in all states.
Are you required to disburse accumulated sick leave, unused vacation pay, payments based on years of service or other retirement incentives? If so, you may be unnecessarily paying FICA (Social Security and Medicare) 1 taxes. Additionally, if these payments are made to the retiree over a period of more than one year, you may also have an IRS constructive receipt issue 2.
How It Works:
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NIS provides a plan document for your review and signature |
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The next time you are required to distribute the incentive pay, deposit the total amount for all retirees – in one single check - into one of our plan options instead of disbursing individual paychecks. |
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You save 7.65% FICA tax. |
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Your employee saves 7.65% FICA tax (and income tax if an HRA is used). |
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There’s no cost to you. |
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403(b) Option
Note: Employer must be eligible to participate in an employer-sponsored 403(b) plan
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No FICA Tax. The district and employee each permanently save 7.65%. |
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Tax-Deferred. The retiree can defer state and federal income taxes. |
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Interest. Account balances accrue interest tax deferred |
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No Penalties. Funds can be accessed at any time without penalty at age 59 1/2 or older. Funds can be accessed immediately if the employee is age 55 or older when s/he retires. |
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No Cost. We do not charge the district or employee to implement or administer the plan |
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HRA (Health Reimbursement Arrangement) Option
Note: The HRA option works exactly like the 403(b) option above, except that this plan is tax-free, rather than tax-deferred.
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No FICA Tax. The district and employee each permanently save 7.65%. |
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Tax-Deferred. As long as the HRA is used to pay for eligible medical expenses, the funds are not subject to income tax. |
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Interest. Account balances accrue interest. |
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No Penalties. Funds can be accessed at any time without penalty as long as they are used for eligible medical expenses. |
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No Cost. We do not charge the district or employee to implement or administer the plan. |
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1 This tax represents most states that NIS services. However, the Social Security portion of the FICA tax is state specific.
2 Constructive Receipt: In some cases, the IRS requires taxes to be paid when the employee becomes eligible for funds, regardless of the payout schedule for those funds. See your tax advisor for details.
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