Author: Nancy Ashley
Financial and tax planning considerations, including increases in tax rates, are creating a renewed interest in the use of nonqualified deferred compensation plans.
A properly structured nonqualified deferred compensation plan allows a participant to postpone the payment of income tax on the amount deferred until the plan payment occurs, which typically happens at a participant’s separation of service or retirement. However, the exception to tax deferral is the Federal Insurance Contributions Act tax, commonly known as FICA tax. As nonqualified deferred compensation plans grow in popularity, it is important that employers understand FICA taxes and how they might impact these plans.