RULES AND REGULATIONS
DEPARTMENT OF REVENUE
[61 PA. CODE CH. 101]
Termination Pay, Severance Pay and Early Retirement Incentive Programs
[32 Pa.B. 253] The Department of Revenue (Department), under the authority contained in section 354 of the Tax Reform Code of 1971 (TRC) (72 P. S. § 7354), amends §§ 101.1 and 101.6 (relating to definitions; and compensation) to read as set forth in Annex A at 32 Pa.B. 252 (January 12, 2002).
Purpose of Regulation
The final-form regulations clarify the taxation of termination pay, severance pay, early retirement incentive programs and programs offered by employers to provide benefits to employees in addition to those in qualifying retirement plans upon separation from service.
The final-form regulations also interpret section 301(d) of the TRC (72 P. S. § 7301(d)) to mean that Federal insurance benefits paid under the Railroad Retirement Act and guaranteed payments to a partner of a partnership for services to the partnership are excluded from compensation.
Explanation of Regulatory Requirements
Section 101.1 is amended by adding the definitions of ''limited plan of termination,'' ''qualified annuity'' and ''severance pay'' for use in the regulation. Section 101.6(a) is amended by updating the list of examples of compensation. Section 101.6(c)(3) is amended to reflect the Department's interpretation of the Pennsylvania Income Tax Law with regard to Federal insurance benefits paid under the Railroad Retirement Act. Text from § 101.6(a) is deleted and moved to § 101.6(c)(13). Section 101.6(c)(13) reflects the Department's interpretation of the Pennsylvania Income Tax Law with regard to guaranteed payments to a partner of a partnership for services to the partnership. The numbering of this new paragraph was changed from the proposed rulemaking because of the Department's adoption of Regulation 15-402 at 30 Pa.B. 3938 (August 5, 2002), relating to payments for employee welfare benefit plans and cafeteria plans.
Finally, subsection (m) is added to § 101.6 to explain superannuation requirements and the voluntary discontinuance of a plan. The lettering of this new subsection was changed from the proposed rulemaking because of the Department's adoption of Regulation 15-402.
Affected Parties
The final-form amendments could affect employers with early-out incentive programs and employees receiving severance pay.
Comment and Response Summary
Notice of proposed rulemaking was published at 30 Pa.B. 2371 (May 13, 2000). The proposed rulemaking is being adopted with changes as set forth in Annex A.
No comments were received from the public during the public comment period. No comments were received from the House and Senate Finance Committees. The Department did receive comments from the Independent Regulatory Review Commission (IRRC).
Amendments to the proposed rulemaking in response to comments are as follows:
(1) IRRC indicated that the phrase ''in advance'' in subparagraph (ii) of the definition of ''limited plan of termination'' was unclear and requested that the Department be more specific. In response to IRRC's request, the Department has amended the provision by adding an explanatory phrase that modifies ''in advance'' and provides the necessary clarity.
(2) In its comments, IRRC was unsure what was meant by the phrase ''or subject in any manner to anticipation, assignment or pledge by'' as it was used in subparagraph (iii) of the definition of ''severance pay'' in § 101.1 and asked the Department to explain its necessity. To clarify its intent, the Department amended the subparagraph by deleting the phrase IRRC found unclear and adding language that more clearly explains the provision.
Amendments initiated during the Department's internal review of the regulation are as follows:
(1) For clarity, the definition of ''qualified annuity'' was amended by adding the phrase ''any of the following periods.''
(2) The definition of ''severance pay'' was amended by adding the word ''accruing'' to clarify that the provision is referring to compensation accruing during the year.
(3) As referenced in the proposed rulemaking preamble, certain proposed amendments to § 101.6 would need to be reclassified with the adoption of Regulation 15-402. Regulation 15-402 was adopted at 30 Pa.B. 3938; therefore, proposed § 101.6(c)(10) has been moved to paragraph (13) and proposed § 101.6(e) has been moved to subsection (m).
Fiscal Impact
The Department has determined that the amendments will have no fiscal impact on the Commonwealth.
Paperwork
The final-form regulations will not require additional paperwork for the public or the Commonwealth.
Effectiveness/Sunset Date
The final-form regulations will become effective upon publication in the Pennsylvania Bulletin. The final-form amendments are scheduled for review within 5 years of publication. No sunset date has been assigned.
Contact Person
The contact person for an explanation of the final-form amendments is Anita M. Doucette, Office of Chief Counsel, Department of Revenue, Dept. 281061, Harrisburg, PA 17128-1061.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on May 3, 2000, the Department submitted a copy of the notice of proposed rulemaking published at 30 Pa.B. 2371, to IRRC and to the Chairpersons of the House Committee on Finance and the Senate Committee on Finance for review and comment.
Under section 5(c) of the Regulatory Review Act, IRRC and the Committees were provided with copies of the comments received during the public comment period, as well as other documents when requested. In preparing this final-form rulemaking, the Department has considered the comments received from IRRC, the Committees and the public.
Under section 5.1(d) of the Regulatory Review Act (71 P. S. § 745.5a(d)), on November 20, 2001, this final-form rulemaking was deemed approved by the House and Senate Committees. Under section 5.1(e) of the Regulatory Review Act, IRRC met on December 6, 2001, and approved the final-form rulemaking.
Findings
The Department finds that:
(1) Public notice of intention to amend the regulations has been given under sections 201 and 202 of the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. §§ 1201 and 1202) and the regulations thereunder, 1 Pa. Code §§ 7.1 and 7.2.
(2) The amendments are necessary and appropriate for the administration and enforcement of the authorizing statute.
Order
The Department, acting under the authorizing statute, orders that:
(a) The regulations of the Department, 61 Pa. Code Chapter 101, are amended by amending §§ 101.1 and 101.6 to read as set forth in Annex A, with ellipses referring to the existing text of the regulations.
(b) The Secretary of the Department shall submit this order and Annex A to the Office of General Counsel and the Office of Attorney General for approval as to form and legality as required by law.
(c) The Secretary of the Department shall certify this order and Annex A and deposit them with the Legislative Reference Bureau as required by law.
(d) This order shall take effect upon publication in the Pennsylvania Bulletin.
LARRY P. WILLIAMS
Secretary(Editor's Note: For the text of the order of the Independent Regulatory Review Commission, relating to this document, see 31 Pa.B. 6998 (December 22, 2001).)
Fiscal Note: Fiscal Note 15-413 remains valid for the final adoption of the subject regulation.
(Editor's Note: For the text of the amended regulation, see 32 Pa.B. 252.)
[Pa.B. Doc. No. 02-40. Filed for public inspection January 11, 2002, 9:00 a.m.]
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