How do deferrals into a Nonqualified Deferral Plan (NQDP) affect the withholdings from my paycheck?
Withholding for federal income tax will be reduced since deferrals and earnings are excluded from your W-2 earnings. Many states also exclude deferred compensation from current year income. FICA taxes (a combination of social security and Medicare tax), however, are withheld from deferred compensation in the year of deferral. A portion of the interest (or earnings) credited to your deferrals may also be subject to FICA taxes if the IRS determines that the crediting rate is “excessive” according to certain benchmark rates that they set on a semiannual basis. If this affects your earnings, then FICA will be withheld only from the excess amount in the year that it is earned.
Related Questions
- What if I have limited dental benefits available through my Federal Employee Health Benefit (FEHB) Plan? How does this affect my MetLife dental claims?
- What effect will a Nonqualified Deferral Plan (NQDP) have on corporate reporting and financial projections?
- How do my voluntary contributions to the 457(b) or 401(k) Plan affect my paycheck?
