Category: Compensation & Employee Benefits Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com Per your request, Rev. Proc. 92-64 follows this memo. Deferred compensation is definitely subject to wage withholding (income tax, FICA, and FUTA). The issue is when. 1. For income tax withholding purposes, the answer is straightforward: deferred compensation is subject to withholding in the year paid or constructively received. Revenue Ruling 82-176, 1982-2 CB 223. 2. Deferred compensation is subject to FICA and FUTA in the year the services were performed, or if later the year in which any substantial risks of forfeiture lapse. Sections 3121(v) and 3306(r)(2). Notice 94-96 provides that regulations are being formulated to deal with the various issues surrounding FICA and FUTA withholding on deferred compensation arrangements. Such regulations will not be effective prior to January 1, 1995. (No regulations have been issued to date.) Meanwhile, Notice 94-96 provides that an employer's good faith determinations with respect to these matters will not be challenged. The Notice also provides that deferred compensation cannot be deemed wages for FICA and FUTA purposes in a year preceding establishment of the plan of deferred compensation. I advocate treating the whole deferred compensation amount as wages for FICA and FUTA in the year the plan is established. It seems to me such treatment would be perfectly consistent with the law as well as favorable to all the parties. |
