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IF YOUR EMPLOYER DOESN'T WITHHOLD YOUR TAXES, IT'S YOUR PROBLEM

January 04, 2006

Tom Ackerman, from Teaneck, New Jersey, had a non-qualified deferred compensation plan at work. It was triggered in 2000 when his company was sold and he was laid off. The plan was supposed to pay out the deferred balance "net of applicable taxes, including wage withholding taxes.

The plan paid out $211,296 when he was let go; he also got a $120,000 termination bonus. The total federal withholding on the two payments: $500.

Mr. Ackerman is nothing if not optimistic. He told the Tax Court that since the agreement said he was supposed to get paid "net of applicable taxes," the $500 was all the government was entitled to.

In real life, of course, he had to pay taxes on the entire amount paid, including the $211,296. The withholding came up $68,494 short, and the Tax Court today told Mr. Ackerman that he will have to dig into his own pockets for the difference.

Cite: Thomas and Sara G. Ackerman, T.C. Memo 2006-3

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