What is “Deferred Compensation”?
In general, deferred compensation exists whenever compensation may be payable in a year after which a legal right to the payment arises, regardless of whether such compensation is actually paid in a subsequent year. Recognizing that there are many compensation arrangements that may cause compensation to be paid early in the year following the year in which the right was earned, the Internal Revenue Service has provided a limited “short-term deferral” exception for income which, according to the plan or agreement, is not payable later than two months and fifteen days following the later of the employer’s or employee’s taxable year in which the compensation is earned. Thus, income which is payable no later than March 15 of the year following the year in which it is earned, by a taxpayer with a calendar year tax year, is exempt from Section 409A. Penalties for Noncompliance. Failure of a plan or compensation arrangement to comply with Section 409A will result in the deferred compensation
