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Section 409A

Your federal tax resource to navigate Nonqualified Compensation Plans

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Nonqualified Deferred Compensation Plans (NQDC)

Section 409A covers most nonqualified deferred compensation arrangements, unless a specific exception applies, and imposes specific timing, election and distribution requirements on covered arrangements that essentially prevent taxpayers from being able to manipulate the timing of tax recognition in their favor.  If a nonqualified deferred compensation (NQDC) plan fails to comply with the requirements of section 409A, deferrals are includible in income at vesting and subject to a 20% additional tax.  In some circumstances, an underpayment interest penalty will also apply.  A nonqualified deferred compensation arrangement subject to Section 409A is defined as any plan, including any agreement or arrangement, “that provides for the deferral of compensation other than a qualified employer plan and any bona fide vacation leave, sick leave, compensatory time, disability pay, or death benefit plan.”  A plan providing for deferred compensation is one under which, taking into account the facts and circumstances of the arrangement, the service provider has a legally binding right in one year to compensation that is or may be payable in a later taxable year.  Exempted from the definition are short-term deferrals, certain separation pay plans, certain foreign plans, and many welfare benefit plans.

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Tax Practice Series: Deferral of Compensation

The Tax Practice Series is a collection of time-saving practical, analytical research, compliance and productivity tools designed to help you practice more successfully, expand your practice and increase the value you bring your clients. Deferral of Compensation covers specific types of arrangements such as short-term deferrals, foreign arrangements, definitions of plans, application of rules, calculations, and so much more.

Tax Practice Series: Plans Affected

Written by leading federal tax authorities, the Tax Practice Series contains over 275 chapters that cover virtually every taxation topic under gross income, deductions, credit, computations and AMT, tax accounting, tax practice and procedure, partnerships, S corporations, C corporations, compensation planning, estates and trusts, exempt organizations, and foreign taxation.

Client Letter: Tax Consequences for Recipients of Deferred Compensation Arrangements

More than 400 easy-to-understand practitioner-written letters to help you keep your clients up-to-date.

Elections & Compliance Statements: Nonqualified Compensation Plan: Initial Election (§409(a)(4)(B))

Benefit from 700 Elections & Compliance Statements to more effectively and efficiently provide tax guidance and compliance services to your company and clients. These insightful procedures and statement templates provide cross-references to the detailed analysis found in the Tax Management Portfolios and the Tax Practice Series and can be used by business entities, individuals, estates, trusts, and exempt organizations when considering optional reporting methods.

Section 409A Handbook

Section 409A Handbook addresses the proposed regulations issued in June 2016, which made several important changes to the 409A regulations and proposed 409A income inclusion rules. The Handbook is the key to successfully navigating Section 409A’s broad scope, extensive and complicated regulations, and myriad corollary rules and unresolved issues.

Featured Portfolio

Portfolio 385: Deferred Compensation Agreements

Tax Management Portfolio 385: Deferred Compensation Arrangements analyzes the federal income and employment tax treatment of nonqualified deferred compensation arrangements. Both funded and unfunded plans for taxable employers are addressed as well as eligible and ineligible deferred compensation plans of tax-exempt organizations and state and local governments. The Portfolio describes employment contracts, agreements, plans, and other arrangements under which the payment of a portion of the compensation for services currently performed by one or more employees is deferred until a later date. The tax consequences to both the employee and the employer of unfunded promises to pay deferred compensation are discussed along with the tax consequences of providing an employee with a vested right in a trust or annuity contract. Nonvested beneficial interests in trusts and annuity contracts are also addressed. The Portfolio additionally compares the results of nonqualified deferred compensation arrangements with those applicable to qualified plans, statutory stock options, nonqualified stock options, and restricted stock plans. Portfolio abstract

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