What is a 409A specified employee?

The term “Specified Employee” is defined in Section 409A and generally refers to the fifty (or, if fewer, the greater of three and 10% of the Company’s employees) most highly compensated officers of the Company.

How do you determine the specified employee?

To determine whether an employee is a specified employee on separation, start with the date the employee separates from service. Identify the effective date that falls on, or immediately precedes, the separation from service. Next, determine the identification date that immediately precedes the effective date.

Who is covered by 409A?

Section 409A applies to anyone subject to U.S. federal income taxation who receives nonqualified deferred compensation, including (1) U.S. tax residents and (2) nonresidents of the United States who earn U.S.-source compensation.

What payments are subject to 409A?

Section 409A can apply to nonqualified retirement plans, elective deferrals of compensation, severance and separation programs, post-employment payments provided for in an employment agreement, stock options, other equity incentive programs, reimbursement arrangements and a variety of other items.

Who are called specified employees?

Specified employees are generally employees that satisfy any of the following conditions: They own more than 5% of their employer’s stock. They own more than 1% of their employer’s stock and receive annual compensation greater than $150,000.

Who is called a specified employee in income tax?

The following person shall be considered as specified employees: – An employee who is a director of company. An employee being a person who has substantial interest in the company i.e. who is the beneficial owner of equity shares carrying 20% or more of the voting rights in the company.

Who is a specified employee?

The term “specified employee” includes: ∎ Any employee who owned more than 5% of the stock of the company at any time during the year. ∎ Any employee who owned more than 1% of the stock of the company at any time during the year and received annual compensation greater than $150,000.

Who is a specified employee explain?

Who pays 409A penalty?

409A. The employer will need to identify the amount, using box 12, Code Z, of Form W-2 (or box 15b of Form 1099), and the affected employee will be responsible for paying any penalties to the IRS.

Is there a 409A retirement plan?

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.

What triggers 409A?

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. At a time originally specified under the nonqualified deferred compensation plan.

Is a specified employee?

SPECIFIED EMPLOYEE Any employee who owned more than 5% of the stock of the company at any time during the year. Any employee who owned more than 1% of the stock of the company at any time during the year and received annual compensation greater than $150,000.

What is the specified employee policy in Section 409A?

This Section 409A Specified Employee Policy (the “Policy”) has been adopted to establish the method by which the Company will comply with the specified employee provisions of Section 409A for purposes of administering its Section 409A Plans.

When is the default identification date under Sec 409A?

Under Regs. Sec. 1.409A-1 (i) (4), the default effective date is the first day of the fourth month following the identification date. Thus, for an employer who chooses to use the default identification date of December 31, the default effective date is the following April 1.

When do you receive deferred compensation under Sec 409A?

Due to the new nonqualified deferred compensation (NQDC) rules under Sec. 409A, corporate executives may be surprised if they expect to receive distributions from their NQDC plans immediately after they terminate employment.

How many specified employees can a company have?

However, for companies with fewer than 30 employees, the maximum number of officers that can be included is three, and for companies with more than 500 employees the maximum is 50. The six-month delay rule applies only if an employee is a specified em ployee on the date he or she separates from service.