New US Tax Laws May Impact Deferred Compensation Arrangements


Multinational companies with service providers (i.e., employees or independent contractors) who are US citizens or residents (working in the US or abroad) should be aware of new US tax laws that may have a significant impact on their deferred compensation arrangements. Under new Section 457A of the US Internal Revenue Code, compensation for services performed after 31 December 2008 which is deferred under a nonqualified deferred compensation arrangement of a ‘nonqualified entity’ is taxable to the service provider in the year it vests, whether or not received. If the deferred compensation is not included in income and taxed when vested, the service provider is subject to excise taxes and interest penalties.

Section 457A applies if: (i) the company is a ‘nonqualified entity’; (ii) the company is the ‘sponsor’ of a deferred compensation arrangement; and (iii) a US taxpayer participates in the deferred compensation arrangement.

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From Financier Worldwide, September 2009,

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