NQDC and FICA and other payroll taxes

• Author: Marla J. Aspinwall - Michael G. Goldstein
• Pages: 149-170

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CHAPTER IV

NQDC AND FICA AND OTHER PAYROLL TAXES

TABLE OF CONTENTS

Page

I. INTRODUCTION ...........................................................................................................111

II. FICA TAXES IN GENERAL: TWO COMPONENTS .................................................112

A. OASDI Tax ..........................................................................................................112

B. Medicare Tax .......................................................................................................113

III. THE HISTORY OF FICA TAX TIMING RULES FOR NQDC BENEFITS ................113

A. The “Retirement” Exception................................................................................113

B. Enactment of the Special Timing Rule in 1983 ...................................................114

IV. THE IMPACT OF THE SPECIAL TIMING RULE IN GENERAL..............................115

A. Taxable Employers and Their Employees...........................................................115

1. OASDI Tax Advantage............................................................................115

2. Potential Medicare Tax Disadvantage .....................................................116

3. The Impact of a Substantial Risk of Forfeiture........................................116

V. COMPLEXITIES OF THE SPECIAL TIMING RULE..................................................117

A. Definition of NQDC ............................................................................................117

1. The “Establishment” and Writing Requirements.....................................117

2. The Employer-Employee Requirement ...................................................118

3. The Deferred Compensation Requirement ..............................................119

B. Benefits and Plans Excluded from the Definition of NQDC...............................119

1. Stock Options and Stock Appreciation Rights.........................................119

2. Certain Welfare Benefits..........................................................................119

3. Impending Termination ...........................................................................120

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TABLE OF CONTENTS CONTINUED

Page

4. Window Benefits .....................................................................................121

5. Other Benefits that Will Not Qualify for the Special Timing

Rule..........................................................................................................121

C. Measuring the Amount Subject to FICA Taxes Each Year.................................122

1. Account Balance Plans ............................................................................122

2. Nonaccount Balance Plans.......................................................................122

D. The “Nonduplication” Rule .................................................................................124

E. Excess FICA Tax Paid Under the Special Timing Rule on Amounts

that Are Never Received......................................................................................126

F. NQDC and Employee Withholding Rules...........................................................127

1. The Rule of Administrative Convenience................................................127

2. Early Inclusion Option.............................................................................127

3. Estimated Method and Lag Method.........................................................127

G. Effective Date of Final Regulations.....................................................................128

1. Plans Not Subject to the Special Timing Rule.........................................128

2. Plans Subject to the Special Timing Rule................................................129

VI. FUTA TAX......................................................................................................................129

VII. INCOME TAX WITHHOLDING...................................................................................129