Section 409A: Deferred Compensation Tax Rules: Overview

Resource type: Practice Note: Overview

Status: Maintained

Jurisdiction: USA

This Note provides an overview of Section 409A of the Internal Revenue Code which regulates the taxation of nonqualified deferred compensation plans. In addition to setting out Section 409A's basic requirements, this Note addresses various exemptions from Section 409A, including the short-term deferral exception and the severance pay exception. Other topics include: cross-border application of Section 409A, application to equity compensation awards, employer reporting and withholding requirements, penalties for noncompliance and methods of correcting Section 409A violations.

Howard Pianko, Seyfarth Shaw LLP

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Resource ID: 6-501-2009
Products: PLC UK Share Schemes & Incentives, PLC US Corporate & Securities, PLC US Employee Benefits & Executive Compensation, PLC US Labor & Employment, PLC US Law Department, PLC US Tax
This resource is maintained, meaning that we monitor developments on a regular basis and update it as soon as possible.

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Topics

Corporate Governance and Continuous DisclosureCorporate Governance and Continuous Disclosure (http://us.practicallaw.com/7-386-0710)
Executive CompensationExecutive Compensation (http://us.practicallaw.com/6-503-9117)
Labor and EmploymentLabor and Employment (http://us.practicallaw.com/1-500-0075)
Private EquityPrivate Equity (http://us.practicallaw.com/6-380-7412)
RecruitmentRecruitment (http://us.practicallaw.com/8-200-0626)
TaxTax (http://us.practicallaw.com/1-500-3050)

Practice Notes

Applying Section 409A to Severance Benefits Applying Section 409A to Severance Benefits (http://uslf.practicallaw.com/topic6-501-2702)
Correcting Errors under Section 409A Correcting Errors under Section 409A (http://uslf.practicallaw.com/topic5-503-0749)
Determining Fair Market Value of Equity Awards under Section 409A Determining Fair Market Value of Equity Awards under Section 409A (http://uslf.practicallaw.com/topic1-502-0926)
Drafting an Equity Incentive Plan for a Private Company Drafting an Equity Incentive Plan for a Private Company (http://uslf.practicallaw.com/topic9-504-0685)
Executive Compensation for Tax-exempt Organizations Executive Compensation for Tax-exempt Organizations (http://uslf.practicallaw.com/topic6-521-1301)
Expatriate Deferred Compensation Arrangements and Section 409A Expatriate Deferred Compensation Arrangements and Section 409A (http://uslf.practicallaw.com/topic3-501-9465)
Overview of the Taxation of Equity Compensation Awards Overview of the Taxation of Equity Compensation Awards (http://uslf.practicallaw.com/topic7-505-9204)
Specified Employees under Section 409A Specified Employees under Section 409A (http://uslf.practicallaw.com/topic7-501-1330)
Stock Options and Other Equity Compensation Stock Options and Other Equity Compensation (http://uslf.practicallaw.com/topic0-501-9297)
Terminating a Senior Executive: Key Benefits Issues Terminating a Senior Executive: Key Benefits Issues (http://uslf.practicallaw.com/topic5-500-6650)
Treatment of Equity Compensation Awards in Mergers and Acquisitions Treatment of Equity Compensation Awards in Mergers and Acquisitions (http://uslf.practicallaw.com/topic0-517-3496)
What's Market: Negotiating Executive Employment Agreements: Compensation and Benefits What's Market: Negotiating Executive Employment Agreements: Compensation and Benefits (http://uslf.practicallaw.com/topic5-515-0954)

Standard Documents

Annual Cash Bonus Plan Annual Cash Bonus Plan (http://uslf.practicallaw.com/topic2-507-0586)
Election to Defer Compensation under a Nonqualified Deferred Compensation Plan Election to Defer Compensation under a Nonqualified Deferred Compensation Plan (http://uslf.practicallaw.com/topic2-517-7945)
Equity Incentive Plan Equity Incentive Plan (http://uslf.practicallaw.com/topic8-507-0913)
Executive Employment Agreement Executive Employment Agreement (http://uslf.practicallaw.com/topic0-504-2226)
Model Policy for Determining Specified Employees under Section 409A Model Policy for Determining Specified Employees under Section 409A (http://uslf.practicallaw.com/topic9-501-3823)
Non-qualified Stock Option Agreement (Employees) Non-qualified Stock Option Agreement (Employees) (http://uslf.practicallaw.com/topic7-507-5708)
Non-qualified Stock Option Agreement (Non-employee Directors) Non-qualified Stock Option Agreement (Non-employee Directors) (http://uslf.practicallaw.com/topic3-525-2406)
Nonqualified Deferred Compensation Plan Nonqualified Deferred Compensation Plan (http://uslf.practicallaw.com/topic3-517-0948)
Payments to Specified Employees under Section 409A: Explanatory Memorandum for Directors/Compensation Committee Payments to Specified Employees under Section 409A: Explanatory Memorandum for Directors/Compensation Committee (http://uslf.practicallaw.com/topic5-501-2364)
Performance Share Unit Agreement Performance Share Unit Agreement (http://uslf.practicallaw.com/topic4-518-9023)
Restricted Stock Unit Agreement (Cash-settled) (Employees) Restricted Stock Unit Agreement (Cash-settled) (Employees) (http://uslf.practicallaw.com/topic9-520-6874)
Restricted Stock Unit Agreement (Cash-settled) (Non-employee Directors) Restricted Stock Unit Agreement (Cash-settled) (Non-employee Directors) (http://uslf.practicallaw.com/topic5-528-5571)
Restricted Stock Unit Agreement (Stock-settled) (Employees) Restricted Stock Unit Agreement (Stock-settled) (Employees) (http://uslf.practicallaw.com/topic9-512-6368)
Restricted Stock Unit Agreement (Stock-settled) (Non-employee Directors) Restricted Stock Unit Agreement (Stock-settled) (Non-employee Directors) (http://uslf.practicallaw.com/topic1-527-6125)
Stock Appreciation Rights Agreement Stock Appreciation Rights Agreement (http://uslf.practicallaw.com/topic3-517-0137)
Stock Option Exercise Agreement (Non-employee Directors) Stock Option Exercise Agreement (Non-employee Directors) (http://uslf.practicallaw.com/topic6-525-5432)
Top Hat Plan Letter Top Hat Plan Letter (http://uslf.practicallaw.com/topic5-516-9878)

Standard Clauses

Board Resolutions: Adopting a Nonqualified Deferred Compensation Plan Board Resolutions: Adopting a Nonqualified Deferred Compensation Plan (http://uslf.practicallaw.com/topic6-524-0718)
Board Resolutions: Terminating a Nonqualified Deferred Compensation Plan and All Similar Arrangements Board Resolutions: Terminating a Nonqualified Deferred Compensation Plan and All Similar Arrangements (http://uslf.practicallaw.com/topic0-518-8638)
Board Resolutions: Terminating a Nonqualified Deferred Compensation Plan in Connection with a Change in Control Board Resolutions: Terminating a Nonqualified Deferred Compensation Plan in Connection with a Change in Control (http://uslf.practicallaw.com/topic6-518-1771)
Model Section 409A Employment Agreement Provisions Model Section 409A Employment Agreement Provisions (http://uslf.practicallaw.com/topic7-503-0263)

Checklists

Compensation Used to Determine Specified Employees Checklist Compensation Used to Determine Specified Employees Checklist (http://uslf.practicallaw.com/topic7-501-1325)
Deferral Election Deadlines under Section 409A Chart Deferral Election Deadlines under Section 409A Chart (http://uslf.practicallaw.com/topic1-502-9253)
Determining Specified Employees under Section 409A Checklist Determining Specified Employees under Section 409A Checklist (http://uslf.practicallaw.com/topic3-501-1332)
Equity Pitfalls under Section 409A Checklist Equity Pitfalls under Section 409A Checklist (http://uslf.practicallaw.com/topic3-502-9252)
Requirements for a Change in Control Event under Section 409A Checklist Requirements for a Change in Control Event under Section 409A Checklist (http://uslf.practicallaw.com/topic3-517-0651)
Section 409A Six-month Delay, Short-term Deferral and Separation Pay Plan Analysis Flowcharts Section 409A Six-month Delay, Short-term Deferral and Separation Pay Plan Analysis Flowcharts (http://uslf.practicallaw.com/topic3-501-9168)
Terminating a Nonqualified Deferred Compensation Plan under Section 409A Checklist Terminating a Nonqualified Deferred Compensation Plan under Section 409A Checklist (http://uslf.practicallaw.com/topic3-518-4417)

Articles

Applying new US tax rules on deferred compensation to cross-border arrangements Applying new US tax rules on deferred compensation to cross-border arrangements (http://uslf.practicallaw.com/topic3-376-3495)
IRS Issues Proposed Regulations on Section 409A Income Inclusion IRS Issues Proposed Regulations on Section 409A Income Inclusion (http://uslf.practicallaw.com/topic1-501-1856)
Limited Alternatives for Reducing 2011 Individual Tax Burden Limited Alternatives for Reducing 2011 Individual Tax Burden (http://uslf.practicallaw.com/topic9-503-0648)
Section 409A: Top Ten Compliance Pitfalls Section 409A: Top Ten Compliance Pitfalls (http://uslf.practicallaw.com/topic7-519-7644)
Webinar: Section 409A: Expert Advice on Avoiding Common Pitfalls Webinar: Section 409A: Expert Advice on Avoiding Common Pitfalls (http://uslf.practicallaw.com/topic5-519-9012)

Legal Update: archive

Controlled Group Rules for Employee Benefit Plans Controlled Group Rules for Employee Benefit Plans (http://uslf.practicallaw.com/topic6-523-5241)
New content: PLC Cross-border, Article, Applying new US tax rules on deferred compensation to cross-border arrangements New content: PLC Cross-border, Article, Applying new US tax rules on deferred compensation to cross-border arrangements (http://uslf.practicallaw.com/topic5-376-5304)

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