409A

As business becomes increasingly globalized, multinational corporations are sending more executives on international assignments and hiring more expatriates to fill local positions overseas.  Compensation connected to these employment patterns can create a series of legal and regulatory challenges.  For example, unless an exception applies, U.S. citizens and U.S. residents are subject to U.S. federal income tax on their worldwide income, regardless of where they perform services or earn their compensation.  Significantly, this extraterritorial reach of U.S. federal income tax extends to the complex and confounding deferred compensation rules of section 409A of the Internal Revenue Code.
Continue Reading Foreign Compensation and the Long Reach of Code Section 409A

Finding a 409A violation generally prompts a sometimes frantic search for a means of correction under various IRS pronouncements.  One previously helpful — but now slightly limited — such item was included in the proposed income inclusion regulations, which were issued in December 2008.  Those regulations, which have not been finalized but which may be relied upon, state that a 409A violation results in income inclusion under section 409A (including the additional 20% tax) if the violation occurs in a year in which the deferred compensation is vested.  The result:  If a violation is corrected before the deferred compensation vests, no adverse tax consequences occur under section 409A.  A recently released chief counsel advice memorandum clarifies this mechanism for correction.  The memorandum indicates that this means of correction is effective only if completed before the taxable year in which the compensation vests, and not merely before the date on which the compensation vests.
Continue Reading 409A Correction for Unvested Amounts Clarified

If widespread news reports are any indication, many people—employers and employees alike—are thinking about increased taxes in 2013 and what can be done to minimize their impact.

Some tax increases in 2013 are a sure thing.  For example, the employee share of Medicare taxes will increase to 2.35% for wages in excess of $250,000 (for married individuals filing jointly), $125,000 (for married individuals filing separately), and $200,000 (in any other case).

But, even as the end of the year looms, it is unclear whether other potential tax increases will take effect.  If the so-called Bush tax cuts expire, income tax rates will increase.  If the “payroll tax holiday” is not extended, the employee share of Social Security taxes will increase to 6.2% from its current 4.2%.

Due to the uncertain tax landscape for 2013, employers may wish to consider accelerating certain payments and awards into 2012 when taxes will generally be lower.  However, in so doing, employers should be careful to avoid certain potential pitfalls. 
Continue Reading Accelerating Compensation into 2012 to Avoid 2013 Tax Increases