CR 88-120 Resolution Supporting Taxation Employee Benefits
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June IS, 1988
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Report: 88.120
RESOLUTION SUPPORTING LEGISLATION PROHIBITING
THE TAXATION OF CERTAIN EMPLOYEE BENEFITS
Proposed Action..
Staff recommends adoption of the following moti.on: Move that the Honkins City
gQ1,lOcil adopt Resolution #88-55 supporting lefZislation to nrohibit t~
taxlpE certain employee oenefits~
This action will put the Hopkins City Council on record as supporting legislation
which will prohibit the Internal Revenue Service from taxing r.ertain employee
benefits, such as annual and sick leave.
This resolution will be sent to members of'Minnesota's congressional delegation.
. Overview.
The IRS has proposed regulations which would require employees to pay tax on variou$
benefits as they are accrued instead of when they are used. For example, as,
' employees earn vacation or sick leave the City would be required to determine the
cash value of this leave and deduct taxes from the employees paycheck. This would
.be true even if there is the possibility that the employee may not ever receive the
benefit, such as in sick leave.
Other benefits that the IRS is con~emplating taxing include severance pay.
dllJabil i ty plans, and compensatory time" These :regulations, if passed, weuld not
only be unfair to the individual employee, but would impose an additional burden on
the City in the form of record :tceeping aXld payroll calculations.
The National League of Cities, other national organizations and individual cities
are lobbying the U.S, Congress to preven~ the IRS from taxing these benefits.
r~lmary Iss~es to Consider.
o Should the City of "Hopkins take a position on this issue?
Staff feels that It is proper for the City to take an official position on
this issue since it: impacts both its employees and the organization
itself.
o Will this action be effective?
There are already bills before Congress. This resulution wiil encourage
our Congressional delegation to support these bills.
Sun~ortini Information.
o Resolution #88-55
o H.R. 4221
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City Clerk
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CITY OF HOPKINS
Hennepin County, Minnesota
RESOLUTION NO. 88-55
A RESOLUTION IN SUPPORT OF CORRECTING THE REQUIREMENT OF TAXATION
OF STATE AND LOCAL GOVERNMENT EMPLOYEE BENEFITS
WHEREAS, the U.s. Department of Treasury continues in its
quest to tax certain public employee fringe benefits: and
WHEREAS, public workers will be forced to pay annual income
taxe~ on the value of accumulated annual and sick leave, death
and disability benefits, and severancE'. and compensatory pay for
tax year 1988 and beyond: and
WHEREAS, this tax will be paid on benefits which employees
have not yet received and may never receive; the taxation of
these benefits at accrual instead of when the benefit is actually
used by the employee will create additional financial and record
keepinq burdens on pOlitical Subdivisions and their employees;
and
WHEREAS, U.S. Representative Robert Matsui (D-CA) has
introduced H.R. 4221 to correct this situation: and
WHEREAS, it is the desire of the City Council of the City of
Hopkins to hold down costs to tne public sector, its employees,
and taxpayers whenever possible.
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NOW, THERFORE, BE IT RESOLVED by the City Council of the
City of Hopkins, Minnesota, that Members of the u.s. Congress are
urged to eliminate the requirement of taxation of state and local
government employee benefits by supporting H.R. 4221 or any other
similar legislation.
Adopted by the City Council of the City of Hopkins this 21st day
of June, 1988.
By
Donald J. Hilbert, Mayor
ATTEST:
c.ity Clerk
of. A...
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lOOTH CONGRESS H R 4221
20 SESSION
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To amend the Internal Revenue Code of 1986 to clarify that section 457 does not
apply to nonelectil'{> deferred compensation or basic employeE' benefits.
IN THE HOUSE OF REPRESENTATIVES
MARCH 22, 1988
Mr. MATSUI (for himself and Mr. VANDER JAGT) introduced the following bill;
which was l'eferred to the Committee on W tys and Means
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A BILL
To amend the Internal Revenue Code of 1986 to clarify that
section 457 does not apply to nonelective deferred compen-
sation or basic employee benefits.
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1 Be it enacted by the Senate and HO'U$e of Representa.
2 ti-ves of the Urtited States of America in Congress a3sembled,
3 SECTION 1. SHORT TITLE; AMENDMENT OF 19!16 CODE.
4 (a) SHOR']' TITLE.-This Act may be cited a.s the "Sec-
5 tion 457 Olarification Act of 1988".
6 (b) AMENDMENT OF 1986 CODE.-Except as otherwise
7 expressly provided, whenever in this Act an amendment or
8 repeal is expre ssed in terms of an amendment to! or repeal of,
9 a section or other provision, the reference shall be considered
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1 to be made to a section or other provision of the Internal
2 Revenue Code of 1986.
3 SEC. 2. CLARIFICATION THAT SECTION 457 DOES NOT APPLY
4 TO NONELECTIVE DEFERRED COMPENSATION
5 OR BASIC EMPLOYEE BENEFITS.
6 (a) IN GENERAL.-Section 457 is amended by adding
7 the following subsection at the end thereof:
8 "(g) Section 457 Not to Apply to Nonelective Deferred
9 Compensation or Basic Employee Benefits.
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"(1) NONELECTIVE DEFERRED COMPENSA-
11 TloN.-For purposes of this section-
12 l/(A) IN GENERAL.-This section shall not
13 apply to nonelective deferred compensation.
14 II(B) The Secretary is directed to promulgate
15 regulations defining nonelective deferred compen-
16 sation.
17 11(2) BASIC EMPLOYEE BENEFITS.-
18 "(A) IN GENERAL.-This section shall not
19 apply to basic employee benefits.
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"(B) BASIC EMPLOYEE BENEFITS DE-
FINED.-For purposes of this section, basic em-
ployee benefits shall include compensation under
bona fide vacation plans, sick leave plans, com-
pensatory time plans, severance pla,nB. plans of
employer inducement for termination of employ-
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ment, force reduction programs, peyments in lieu
of tenure, disability plans, death benefit plans,
sabbatical leave, or other similar benefits. In the
case of benefits provided by it governmental unit,
such benefits provided pursuant tu State or local
law I rule I regulation, or procedure are compensa-
tion under bona fide plans. In addition, benefits
provided under a collective bargaining agreement
are compensation under bona fide plans."
10 SEC. 3. EFFECTIVE DATE.
11 The amendments made by this Act shall apply to all
12 taxable years beginning after December 31, 1987.
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