The Internal Revenue Service announced new guidelines for taxpayers to follow in order to substantiate donations to charities that were made via payroll deduction.

And separately, the IRS issued guidance to employers and payers on reporting and wage withholding requirements for the 2005 and 2006 calendar years with respect to compensation deferrals and amounts includible in gross income.

The new recordkeeping requirements are outlined in Notice 2006-110. Taxpayers should retain a pay stub, Form W-2, or other document furnished by the employer that shows the total amount withheld for payment to charity, along with the pledge card that shows the name of the charity. The changes were part of the recently enacted Pension Protection Act of 2006.

For calendar year taxpayers, the new rules apply to contributions made beginning in 2007.

The withholding changes provide relief to employers and other payers, who now don’t need to report annual deferrals of compensation that are not includible in income under Section 409A on Form W-2 or Form 1009-MISC for 2005 or 2006. In addition, the notice provides guidance on how to meet  income tax withholding requirements for amounts includible in income under the section for 2006.  The notice, available at, also provides guidance to service providers on their income tax reporting and tax payment requirements for amounts includible in gross income.

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