Internal Revenue Code Section 409a

Executive employment and severance pay under section 409a of the internal revenue code 05 22 07 effective generally january 1 2005 congress set off a sea change in the tax treatment of nonqualified deferred compensation arrangements with the adoption of new section 409a of the internal revenue code.

Internal revenue code section 409a. Not later than 90 days after the date of the enactment of this act oct. Read this complete 26 u s c. 409a affects nonqualified retirement plans and other deferred compensation arrangements.

Section 409a was added to the internal revenue code code by section 885 of the american jobs creation act of 2004 public law 108 357 118 stat 1418. Section 409a of the united states internal revenue code regulates nonqualified deferred compensation paid by a service recipient to a service provider by generally imposing a 20 excise tax when certain design or operational rules contained in the section are violated. It created a new section 409a of the internal revenue code 409a and the code respectively.

Code unannotated title 26. Findlaw codes are provided courtesy of thomson reuters westlaw the industry leading online legal research system. Section 409a of the internal revenue code is a complex and often counterintuitive set of tax rules applicable to deferred compensation.

Deferred compensation exists when an employee consultant or board member has a contractual right to compensation that may be paid in later taxable years and includes many arrangements not typically thought of as deferred compensation e g severance benefits options and other equity awards. 409a u s. The term covered employee means an individual described in section 162 m 3 or an individual subject to the requirements of section 16 a of the securities exchange act of 1934.

Service recipients are generally employers but those who hire independent contractors are also service recipients. 22 2004 the secretary of the treasury shall issue guidance on what constitutes a change in ownership or effective control for purposes of section 409a of the internal revenue code of 1986 as added by this section. An internal revenue code section 409a primer by tony ling and galen mason1 the american jobs creation act of 2004 was signed into law on october 22 2004.

Internal revenue code 409a. 409a b 4 income inclusion for offshore trusts and employer s financial health. Deferred income and taxation one of the greatest mistakes made by lawmakers in 2004 was to leave many of the details of irc 409a to the irs which has since made various adaptations to the code.