The American Jobs Creation Act of 2004 enacted strong changes in the area of deferred compensation. If you participate in employer sponsored plans that defer some portion of your earnings, you could be subject to these new rules. The penalties imposed by these new provisions are directed at individuals participating in such plans even though such plans are sponsored by their employers. Nonqualified plans which frequently include equity incentive plans that provide for grants of deferred stock units, restricted stock units, stock appreciation rights (SARs) and/or discounted stock options. Other executive employment and consulting agreements may come under the jurisdiction of the new rules. However, routine types of compensation arrangements such as direct salary and wages, contributions to qualified retirement plans, and most sick and vacation pay plans are less likely to have adverse tax consequences under these new rules. You should always inform your CPA of all such deferred compensation arrangements that you participate in and whether or not such plans are subject to the new rules under IRC Section 409A. These rules could cause immediate income recognition for amounts that were deferred under nonqualified plans and cause increased personal income tax, interest, and penalties. Your employer should provide you with the information regarding your plans. |
