New IRS rule could impose 20-percent penalty on some educators

McALLEN — Area public and private school employees are grappling with a new law that will impose a stiff tax penalty on some educators next year.

A new 20-percent income tax is set to go into effect in January on public, private and not-for-profit workers who are paid throughout the year for work done in less time. Teachers, paraprofessionals, administrators and support staff fall into this group.

While pay earned in the school year just starting this month will not be affected, earnings beginning in the 2008-09 school year will.

Education leaders have been learning how they can work around the new law and explain it to their teachers and other employees since earlier this month, when the Internal Revenue Service announced the measure.

“People were calling us before they came on the job, before their work calendar actually started,” said Steve Ellis, the McAllen district’s executive director for human resources.

“We were determining whether they needed to sign a document allowing them to get paid.”

The stipulation is only for education entities that offer employees on condensed work schedules a choice on how often they are paid.

Many area districts and non-public campuses only offer 12-month pay periods and will not be affected — like the Brownsville, Los Fresnos, McAllen and South Texas Independent School Districts, along with Covenant Christian Academy and South Texas Christian Academy, both in McAllen, and Oratory School System of St. Philip Neri in Pharr.

A complete count of all districts affected was not immediately available, but all local school boards and administrators are responsible for interpreting and explaining the law to their employees — leaving many to scramble through it now.

Congress first passed the tax as part of the American Jobs Creation Act of 2004, geared more toward the corporate world, in which executives make millions each year, according to Lorenzo Sanchez, the Brownsville school district’s chief financial officer.

Educators merely fell into the law’s loophole.

IRS spokesman Clay Sanford said the new tax law does not mean districts and private campuses would have to offer employees payment choices, which initially confused some district financial and human resources workers.

The IRS is exploring options to ensure educators are not affected, perhaps issuing a blanket exemption for them or increasing the income brackets that would be subject to the additional 20-percent tax.

Ruth Skow, president of the McAllen Federation of Teachers, said she talked about the paperwork during a home visit she made to a member’s home.

She said even if teachers had the option, it was not wise to go to a less than 12-month paycheck schedule.

“You might be tempted to purchase something and come up short over a two-month period and that would be devastating,” Skow said.