A&M Tax Advisor Weekly

The Special Timing Rule: Withholding FICA Taxes on Nonqualified Deferred Compensation

Jeff Swerdlow, Senior Director

jswerdlow@alvarezandmarsal.com

Hannah Nelson, Senior Associate

hnelson@alvarezandmarsal.com

September 4, 2019 / North America

When an employee earns wages, both the employer and the employee are liable for a portion of Social Security taxes and Medicare taxes (collectively referred to as “FICA” taxes) on the compensation. Employees owe 6.2 percent for Social Security taxes on wages up to the Social Security wage base ($132,900 for 2019) and 1.45 percent for Medicare taxes on all wages (plus an Additional Medicare Tax of 0.9 percent on wages in excess of $200,000), while employers owe 6.2 percent for Social Security taxes on wages up to the Social Security wage base ($132,900 for 2019) and 1.45 percent for Medicare taxes on all wages (but no Additional Medicare Tax).

Employers are liable for withholding and remitting both the employer and employee portions of FICA. Typically, the FICA taxes are withheld and remitted by the employer at the time the compensation is distributed to the employee (i.e., the “General Timing Rule”). However, there is a “Special Timing Rule” that applies when the compensation is part of a nonqualified deferred compensation (“NQDC”) plan.

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North America