Get Applying Section 409a To Severance Benefits - Seyfarth Shaw Llp

Section 409A Compliance Requirements Section 409A triggering payment events are: The employee's disability, death, or separation from the business; A change in control of the business; The occurrence of an unforeseeable emergency; or.

Very generally, "deferred compensation" is broadly defined as any form of compensation which is payable in the year after the year in which the legal right to payment arises. Severance payments are considered a form of deferred compensation subject to Section 409A unless an exception or exemption applies.

A nonqualified deferred compensation plan is a type of retirement plan that lets select, highly compensated employees enjoy tax advantages by deferring a greater percentage of their compensation (and current income taxes) than is allowed by the IRS in a qualified retirement plan.

A 409A is used to determine the fair market value (FMV) of your company's common stock and is typically determined by a third-party valuation provider. 409As set the strike price for options issued to employees, contractors, advisors, and anyone else who gets common stock.

Section 409a of the internal revenue code establishes guidelines for the treatment of "nonqualified deferred compensation." Essentially, this refers to any money received in a future year for work you perform during the current year, such as bonuses, stock options, and supplemental retirement plans.

IRS Severance & Post-Severance Compensation Defined Under all three safe harbor definitions, severance pay disbursed after an employee's termination of employment is excluded from compensation eligible for 401(k) deferral purposes, but post-severance compensation may or may not be included, depending on certain rules.

Section 409A was added to the Internal Revenue Code in October 2004 to provide strict rules governing the deferral of nonqualified compensation. It applies to, and will have a significant impact on, private companies and their employees, directors, and consultants. ...

Code Section 409A rules. The IRS issued regulations under Section 409A of the Internal Revenue Code about deferred compensation plans that apply to employees and can apply to an independent contractor if the worker falls outside the specific definition of "independent contractor" outlined by the regulations.

Section 409A applies to compensation that workers earn in one year, but that is paid in a future year. This is referred to as nonqualified deferred compensation. This is different from deferred compensation in the form of elective deferrals to qualified plans (such as a 401(k) plan) or to a 403(b) or 457(b) plan.