Faculty at the University of Pittsburgh with contracts for 8-, 9-, or 10-month appointments may elect to have their contract salary evenly distributed over a 12-month period provided they fall within Section 409A of the Internal Revenue Code.
Section 409A applies to compensation earned in one year but deferred until a future year. Section 409A of the Internal Revenue Code does not permit deferral pay year types for faculty with annual salaries that exceed $345,000. Therefore, the annual salary limit in 2024 for faculty with less than annual contracts is $345,000 for all deferral pay year types.
How do I know if I am eligible under Section 409A to elect the 12 month distribution of my pay?
If your contract is 8-months (September – April) and you elect to receive your pay over 12 months, your contract salary cannot exceed $345,000.
- $345,000/8 = $43,125 $345,000/12 = $28,750
- For the months of September through April, you will have earned $345,000 ($43,125 x 8) but have been paid $230,000 ($28,750 x 8). Therefore, you will have deferred $115,000 to be paid during the months of May through August.
If your contract is 9-months (September – May) and you elect to receive your pay over 12 months, your contract salary cannot exceed $345,000.
- $345,000/9 = $38,333.33 $345,000/12 = $28,750
- For the months of September through May, you will have earned $345,000 ($38,333.33 x 9) but have been paid $258,750 ($28,750 x 9). Therefore, you will have deferred $86,250 to be paid during the months of June through August.
If your contract is 10-months (September – June) and you elect to receive your pay over 12 months, your contract salary cannot exceed $345,000.
- $345,000/10 = $34,500 $345,000/12 = $28,750
- For the months of September through June, you will have earned $345,000 ($34,500 x 10) but have been paid $287,500 ($28,750 x 10). Therefore, you will have deferred $57,500 to be paid during the months of July and August.
What does section 409A require if I am eligible and want to make this election?
- The faculty member must make a written election to the department to annualize the contract salary. For example, a faculty member with an 8-month contract would elect to spread the 8 months over 12 months, also known as 8/12 pay year type.
- The election must be made before the start of the academic year.
- The election is irrevocable and cannot be changed after the academic year begins.
- The annual salary must not exceed the federally established maximum. For 2024, the limit is $345,000.
- No form is necessary for the election and it does not have to be filed with the IRS.
In the event the federally established limit is exceeded at the onset or in anticipation that the limit will be exceeded, the faculty member must elect to be paid as worked, such as 8/8, 9/9, or 10/10.