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Deferred Comp and year-end

December 17, 2008

The Section 409A rules may be the worst single piece of tax legislation passed in the Bush era. A response to the WorldCom and Enron scandals, it imposes extremely complex rules with ridiculously high penalties on every employer. Even the NFL:

NFL agents were sent an urgent memo this week from the NFLPA, requiring immediate attention to § 409A. This provision, originally aimed at bloated executive compensation packages, potentially calls for a full tax burden on signing bonuses and future guaranteed money in the year the package is negotiated, even if the money is deferred over several years. This would have dramatic ramifications. ... 409A becomes a major concern if enforced, meaning the full value of these deferred payments could be brought to taxation in the year negotiated, not earned, potentially affecting tens, even hundreds of thousands of dollars depending on the size of the contracts.

Transition rules for 409A expire at the end of the year. The rules take full force next year, including written plan requirements and full compliance with regulations. If you haven't done so, you should make sure you are ready for the new rules.

Tags: afr.