The myStockOptions Blog

Tax Returns & Nonqualified Deferred Comp: Issues To Be Aware Of

Below is a quick take on things you need to be aware of in 2023 when your tax return involves nonqualified deferred compensation (NQDC) distributed to you in 2022. It's extracted from the comprehensive resources on nonqualified deferred comp at our sibling website myNQDC.com.

Did you also have income in 2022 from equity compensation or sell shares acquired from equity comp? See the Tax Center at myStockOptions for resources and guidance on tax returns involving equity comp and sales of company shares.

Changes In Reporting On IRS Form 1040

The IRS Form 1040 tax return has been revised for the 2023 tax season (reporting income received in 2022). Distributions from NQDC plans, as well as salary income, are now reported as part of income on Line 1a of Form 1040. (See also the article on tax-return changes at myStockOptions for more details on changes in Form 1040 reporting.)

W-2 Reporting Still Potentially Unclear

The IRS has still not finalized the Section 409A rules on W-2 reporting. Therefore, your company does not need to indicate deferred income from an NQDC plan on your Form W-2, though it may do so voluntarily in Box 14. (Once the IRS has finalized the 409A rules on W-2 reporting, income deferred during the year will have to be indicated with Code Y in Box 12.) Distributions from plans usually appear in the W-2 boxes used for wages and other compensation, along with Box 11 for nonqualified plans (see an FAQ on this topic at myNQDC).

What To Do If Your Company’s NQDC Plan Violates Section 409A

If your plan violates Section 409A and you need to pay a penalty and interest, you report that on Schedule 2 of your IRS Form 1040 tax return: Line 17h, “Income you received from a nonqualified deferred compensation plan that fails to meet the requirements of section 409A.”

The total on Schedule 2 is then entered on Line 23 (“Other taxes”) of Form 1040.

Depending on your employment status, the income that is subject to this additional tax will appear on Form W-2 or on the revised Form 1099-MISC and new Form 1099-NEC.

Alternative Minimum Tax

Consider the alternative minimum tax (AMT) income exemption amounts, the point where the AMT exemption phaseout starts, and the threshold for the higher AMT rate. Nonqualified deferred compensation itself is not an AMT preference item. However, income deferrals or distributions can serve to prevent you from triggering the AMT in a tax year or can cause to you trigger it, depending on your other income. While the 2018 tax changes reduced the likelihood of triggering the AMT by raising the exemption amounts and phaseout thresholds, you still need to calculate it (see an FAQ on this topic myStockOptions).

Need An Extension?

If you need to file an extension of your tax-return deadline because of nonqualified deferred compensation, see the FAQ at myNQDC on mistakes to avoid with extensions. Note that the IRS routinely postpones the filing due date for taxpayers in areas affected by natural disasters. You can find out whether you qualify for a postponement in the IRS website section Tax Relief In Disaster Situations. For most taxpayers in California, the due date for 2022 tax returns (April 18, 2023) has been extended to October 16.

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Like what you see at myNQDC? Full access to myNQDC is available through individual subscriptions to premium membership or through corporate licensing. Premium access includes the Learning Center, which offers up to 6 continuing education credits for CFPs, 6 PACE credit hours for CLU® and ChFC® professionals, and 12 CPE hours for ASPPA members.

To learn about our corporate services, see the About Us and Licensing sections of myNQDC. Please contact us (617-734-1979, info@mystockoptions.com) to obtain more information about licensing content for your website, print materials, and/or newsletters, and for premium memberships at special bulk rates for your staff.

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The popular myStockOptions tax-season webinar is available on demand: Preventing Tax-Return Mistakes With Stock Comp & Stock Sales. It features a panel of tax experts discussing how to prevent errors in tax returns that involve equity comp and company shares. Their presentations include real-world case studies showing how to use information in tax returns to create better financial plans.

• Stephanie Bucko, CPA, CFA®, Mana Financial Life Design
• Dan Hodgin, CPA, Silicon Valley Tax Group
• Daniel Zajac, CFP®, EA, Zajac Group
• moderator: Bruce Brumberg, JD, editor-in-chief of myStockOptions

The webinar recording offers 2.0 CE credits for CFP, CPWA/CIMA, and CEP/ECA. A detailed agenda is available at the webinar registration page.

Nonqualified Deferred Comp: IRS 2023 Qualified Plan Limits Affect Year-End Deferral Decisions

For many participants in nonqualified deferred compensation (NQDC) plans, November and December are the time to be like an autumn squirrel and decide how much of next year’s salary to defer and store for the future. This decision about nonqualified plans is heavily influenced by the IRS contribution limits for qualified retirement plans. The IRS just set the qualified plan limits for 2023.

Those yearly contribution limits for qualified retirement plans are a big reason why companies offer nonqualified plans: to let executives and other highly compensated employees put away extra amounts for retirement with an elective nonqualified plan or an excess 401(k) plan. NQDC allows you to put away amounts of money beyond the permissible contribution amounts of standard qualified retirement plans.

The deferred income is “nonqualified” because it does not fit the rules in the tax code that allow tax-qualified plans, such as 401(k) plans. For retirement planning, NQDC can therefore bridge the considerable gap that arises between the amount of income that you will actually need in retirement and the amount of income that can be provided via your 401(k) plans and Social Security.

The complex rules under Section 409A of the US tax code must be followed in the deferral and distribution elections. The amount that you defer can only be informally funded by your company and is at risk should the company enter bankruptcy proceedings. Our sibling website myNQDC.com is a comprehensive resource on NQDC plans, including the basics, the deferral/distribution process, the risks, and the related financial and tax planning.

How 2023 IRS Qualified Plan Limits Affect NQDC Deferrals

Generally, you defer income via nonqualified plans only when you know you will max out your yearly contributions to qualified plans, such as your 401(k). Therefore, the contribution limits set by the IRS on qualified plans, adjusted annually for inflation, are important for NQDC planning:

Contribution type/limit	2022	2023
Compensation allowed in qualified deferral and match calculation	$305,000	$330,000
Elective comp deferrals	$20,500	$22,500
Catchup contributions for people 50+	$6,500	$7,500
Total defined contribution limits (employee and employer contributions)	$61,000 + catchup contribution	$66,000 + catchup contribution
Defined benefit plan payout limits	$245,000	$265,000
Income threshold defining key employees for top-heavy plans and six-month delay on payout upon separation	$200,000	$215,000
Income threshold defining highly compensated employees for the purposes of nondiscrimination testing	$135,000	$150,000

Given the current inflation, the IRS changes in limits from 2022 to 2023 are much larger than they have been in recent years. However, if you’ve already maxed out your qualified plan contributions for 2022, you will still probably do the same in 2023, so you will need NQDC plans to defer any salary and bonus increases you expect in 2023. Also, if you believe tax increases are on the way and will affect you, you may feel a growing need to defer income.

Set by the Social Security Administration, the Social Security wage cap will rise in 2023 to $160,200, up from $147,000 in 2022. With the 6.2% rate of Social Security tax, the maximum possible Social Security withholding is $9,114 in 2022 and will rise to $9,932.40 in 2023. Social Security tax (up to the yearly limit) and Medicare tax (uncapped) are withheld at the time of deferral.

For a table comparing the features of 401(k) plans and NQDC plans, and their relative advantages and disadvantages, see an FAQ at myNQDC.com. See also the website’s FAQ on the top NQDC-related issues in year-end planning.

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NQDC Alert: New 2022 IRS Limits For Qualified Plans Affect Deferral Planning

For participants in nonqualified deferred compensation (NQDC) plans, it's time again to make like an autumn squirrel and decide how much to store for the future.

In November and December, many executives and key employees who participate in NQDC plans must decide how much of next year's salary to defer. Factors in this decision about nonqualified plans include the IRS limits that apply to qualified retirement plans (and this year also the outlook for future tax rates under legislation in Congress). The IRS just set the qualified plan limits for 2022.

As explained at our sibling website myNQDC.com, the contribution limits of qualified plans are the major reason for the existence of nonqualified plans: to allow executives and key employees to squirrel away additional amounts for retirement with an elective nonqualified plan or an excess 401(k) plan.

The IRS changes in limits from 2021 to 2022 are relatively small. If you've already maxed out your qualified plan contributions for 2021, you will probably do the same in 2022, so you will need NQDC plans to defer any salary and bonus increases you expect in 2022. Also, depending on tax legislation in Congress, there may be higher tax rates in 2022 and/or beyond, increasing the need to defer income.

Contribution type/limit	2021	2022
Compensation allowed in qualified deferral and match calculation	$290,000	$305,000
Elective compensation deferrals	$19,500	$20,500
Catchup contributions for people aged 50 or older	$6,500	$6,500
Total defined contribution limits (employee and employer contributions)	$58,000 + catchup contribution	$61,000 + catchup contribution
Defined benefit plan payout limits	$230,000	$245,000
Income threshold defining key employees for the purposes of top-heavy plans and the six-month delay on payout upon separation	$185,000	$200,000
Income threshold defining highly compensated employees for the purposes of nondiscrimination testing; this also applies to the income point where companies can exclude employees from a tax-qualified ESPP	$130,000	$135,000

Set by the Social Security Administration, the Social Security wage cap will rise in 2022 to $147,000, a slight increase from $142,800 in 2021. With the 6.2% rate of Social Security tax, the maximum possible Social Security withholding is $8,853.60 in 2021 and will rise to $9,114 in 2022. Social Security tax (up to the yearly limit) and Medicare tax (uncapped) are withheld at the time of deferral, as shown by an FAQ at myNQDC with an annotated diagram of Form W-2 showing where these amounts are included.

For a table comparing the features of 401(k) plans and NQDC plans, and their relative advantages and disadvantages, see an FAQ at myNQDC. See also our FAQ on the top NQDC-related year-end-planning issues.

Tax Returns Involving Nonqualified Deferred Comp: What You Need To Know In 2021

Tax season is a busy time at myStockOptions. It's also a busy time at our sibling website myNQDC, all about nonqualified deferred compensation (NQDC) plans. These plans let you defer more income in addition to what you can defer via qualified retirement plans, such as a 401(k).

Based on the tax resources at myNQDC, below is a quick take on things to be aware of when your tax return involves nonqualified deferred comp. (These items are separate from the 2018 tax changes, which still affect rates and brackets that apply for your tax return.)

Changes In Reporting On IRS Form 1040

The IRS Form 1040 tax return has been revised again for the 2021 tax season. Distributions from NQDC plans, as well as salary income, are now reported as part of income on Line 1 of Form 1040.

See also the related FAQ at myStockOptions for details on changes in Form 1040 reporting (estimated taxes, capital gains, alternative minimum tax) and on the new Form 1099-NEC for reporting nonemployee compensation.

W-2 Reporting Still Potentially Unclear

The IRS has still not finalized the Section 409A rules on W-2 reporting. Therefore, your company does not need to indicate deferred income on your Form W-2, though it may do so voluntarily in Box 14. (Once the IRS has finalized the 409A rules on W-2 reporting, income deferred during the year will have to be indicated with Code Y in Box 12.) Distributions from plans usually appear in the W-2 boxes used for wages and other compensation, along with Box 11 for nonqualified plans (see an FAQ at myNQDC).

What To Do If Your Company’s NQDC Plan Violates Section 409A

If your plan violates Section 409A and you need to pay a penalty and interest:

• Report this on Line 8 of IRS Schedule 2 (no longer directly reported on Form 1040).
• Check Box c.
• Enter the amount with the code NQDC.

This total on Schedule 2 is then entered on Line 23 ("Other taxes") of Form 1040. This is a change (it was different in prior years).

Depending on your employment status, the income that is subject to this additional tax will appear on Form W-2 or on the revised Form 1099-MISC and new Form 1099-NEC.

Alternative Minimum Tax

Consider the alternative minimum tax (AMT) income exemption amounts, the point where the AMT exemption phaseout starts, and the threshold for the higher AMT rate. Nonqualified deferred compensation itself is not an AMT preference item. However, deferrals of income can serve to prevent you from triggering the AMT in a tax year; conversely, income you receive in a distribution can trigger the AMT. While the 2018 tax changes reduced the likelihood of triggering the AMT by raising the exemption amounts and phaseout thresholds, you still need to calculate it (see a related FAQ at myStockOptions).

Need An Extension?

For 2020 tax returns, the usual April 15 filing deadline has been postponed to May 17, 2021. If you still need to file an extension of your tax-return deadline because of nonqualified deferred compensation, see the myNQDC FAQ on mistakes to avoid with extensions. Also, even with the delayed filing deadline, your first-quarter 2021 estimated taxes remain due by April 15.

Did you also have income from equity compensation or sell shares acquired from equity compensation? See the popular resources in the Tax Center at our sibling website myStockOptions.

More Tax Resources At myNQDC

The tax section of myNQDC has a full range of resources on tax returns that involve NQDC. For new Premium Memberships and renewals, please contact us (617-734-1979, editors@mystockoptions.com). We can process your membership directly by phone or email you an invoice.

Want to license readable, high-quality educational content on NQDC plans for participants, clients, or prospects? Find out about our corporate services in the About Us and Licensing sections of myNQDC. Please contact us (617-734-1979, info@mystockoptions.com) to obtain more information about licensing content for your website, print materials, and/or newsletters, and for premium memberships at special bulk rates for your staff.

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Alert: NQDC Participants Affected By 2021 Limits For Qualified Retirement Plans

We now bring you important news for squirreling away retirement savings from our sibling website, myNQDC.com.

In November and December, many executives and key employees eligible to participate in nonqualified deferred compensation (NQDC) plans must decide how much of next year's salary to defer. Factors in this decision about nonqualified plans include the IRS limits that apply to qualified retirement plans (and this year also the outlook for future tax rates after the 2020 election). The IRS just set the qualified plan limits for 2021.

The contribution limits of qualified plans are the major reason for the existence of nonqualified plans: to allow executives and key employees to save additional amounts for retirement with an elective nonqualified plan or an excess 401(k) plan.

The changes in limits from 2020 to 2021 are slight. If you've already maxed out your qualified plan contributions for 2020, you will probably do the same in 2021, so you will need NQDC plans to defer any salary and bonus increases you expect in 2021. Also, depending on the election results, there may be higher tax rates next year, increasing the need to defer income.

Contribution type/limit	2020	2021
Compensation allowed in qualified deferral and match calculation	$285,000	$290,000
Elective compensation deferrals	$19,500	$19,500
Catchup contributions for people aged 50 or older	$6,500	$6,500
Total defined contribution limits (employee and employer contributions)	$57,000 + catchup contribution	$58,000 + catchup contribution
Defined benefit plan payout limits	$230,000	$230,000
Income threshold defining key employees for the purposes of top-heavy plans and the six-month delay on payout upon separation	$185,000	$185,000
Income threshold defining highly compensated employees for the purposes of nondiscrimination testing; this also applies to the income point where companies can exclude employees from a tax-qualified ESPP	$130,000	$130,000

Set by the Social Security Administration, the Social Security wage cap will rise in 2021 to $142,800, a slight increase from $137,700 in 2020. With the 6.2% rate of Social Security tax, the maximum possible Social Security withholding is $8,537.40 in 2020 and will rise to $8,853.60 in 2021. Social Security tax (up to the yearly limit) and Medicare tax (uncapped) are withheld at the time of deferral, as shown by an FAQ at myNQDC with an annotated diagram of Form W-2 showing where these amounts are included.

For a table comparing the features of 401(k) plans and NQDC plans, and their relative advantages and disadvantages, see an FAQ at myNQDC. See also our FAQ on the top NQDC-related year-end-planning issues.

Full access to myNQDC is available through individual subscriptions to premium membership or through corporate licensing. To start or renew your Premium Membership at myNQDC, please contact us (617-734-1979, editors@mystockoptions.com). Our online payment system is undergoing technical modifications. We can process your membership directly by phone or email you an invoice.

Alert: Newly Issued 2020 IRS Qualified Retirement Plan Limits Affect NQDC Participants

Over at our sibling website myNQDC.com, all about nonqualified deferred compensation (NQDC) plans, an important annual development has just dropped for NQDC participants who are starting to think about how much of next year's salary to defer into their plan's piggy bank.

In November and December, many executives and key employees eligible to participate in NQDC plans must decide how much, if any, of next year's salary to defer. Factors in this decision about nonqualified plans include the IRS limits that apply to qualified retirement plans. The IRS just set these limits for 2020.

The contribution limits of qualified plans are the major reason for the existence of nonqualified plans: to allow executives and key employees to save additional amounts for retirement with an elective nonqualified plan or an excess 401(k) plan. The changes in limits from 2019 to 2020 are slight. If you've already maxed out your qualified plan contributions for 2019, you will probably do the same in 2020, so you will need NQDC plans to defer any salary and bonus increases you expect in 2020.

Contribution type/limit	2019	2020
Compensation allowed in qualified deferral and match calculation	$280,000	$285,000
Elective compensation deferrals	$19,000	$19,500
Catchup contributions for people aged 50 or older	$6,000	$6,500
Total defined contribution limits (employee and employer contributions)	$56,000 + catchup contribution	$57,000 + catchup contribution
Defined benefit plan payout limits	$225,000	$230,000
Income threshold defining key employees for the purposes of top-heavy plans and the six-month delay on payout upon separation	$180,000	$185,000
Income threshold defining highly compensated employees for the purposes of nondiscrimination testing; this also applies to the income point where companies can exclude employees from a tax-qualified ESPP	$125,000	$130,000

Set by the Social Security Administration, the Social Security wage cap will rise in 2020 to $137,700, a slight increase from $132,900 in 2019. With the 6.2% rate of Social Security tax, the maximum possible Social Security withholding is $8,239.80 in 2019 and will rise to $8,537.40 in 2020. Social Security tax (up to the yearly limit) and Medicare tax (uncapped) are withheld at the time of deferral, as shown by an FAQ at myNQDC with an annotated diagram of Form W-2 showing where these amounts are included.

For a table comparing the features of 401(k) plans and NQDC plans, and their relative advantages and disadvantages, see an FAQ at myNQDC. See also our FAQ on the top NQDC-related year-end-planning issues.

Premium Memberships And Corporate Licensing

myNQDC is available through individual subscriptions to premium membership or through corporate licensing. To start or renew your Premium Membership at myNQDC, please contact us (617-734-1979, editors@mystockoptions.com). Our online payment system is undergoing technical modifications. We can process your membership directly by phone or email you an invoice.

To learn about our corporate services, see the About Us and Licensing sections of myNQDC. Please contact us (617-734-1979, info@mystockoptions.com) to obtain more information about licensing content for your website, print materials, and/or newsletters, and for premium memberships at special bulk rates for your staff.

Need CE credits before year-end? Premium members have access to all of myNQDC, including the Learning Center, which offers up to 6 continuing education credits for CFPs, 6 PACE credit hours for CLU® and ChFC® professionals, and 12 CPE hours for ASPPA members.

Nonqualified Deferred Compensation: Impact Of Tax-Rate Changes On Deferral Decisions

It's one of the most frequent questions we get from hard-working executives and key employees who are eligible to participate in nonqualified deferred compensation plans, along with their financial advisors. Do the current lower tax rates make salary and bonus deferral less appealing? 

In short, the general guidance from the expert contributors to myNQDC.com, a sibling website of myStockOptions.com, is that you need to consider whether your tax rate at the time of distribution is likely to be lower or higher than it is at the time of deferral. If you think your rate will be lower and you feel secure about your company’s financial situation, then pre-tax deferrals make sense. Deferrals can also keep your income below the current triggers for higher taxes.

The 2020 presidential election, already constantly in the news, may be worrying you with the prospect of higher tax rates should the White House and Senate change parties. The following content from our financial planning and taxes sections has useful insights. (For full access to myNQDC.com, please email us at editors@mystockoptions.com to inquire about individual premium memberships.)

Tax Reform: Good Or Bad For Pretax Compensation Deferral?
David Hauptman
Tax reform has complicated the decision of whether to participate in your company’s NQDC plan. This article provides a perspective on how to decide whether or not to defer pretax compensation.

Tax Reform And The Impact On Nonqualified Deferred Compensation Plans
Michael Nolan
Tax changes have spurred an unprecedented level of curiosity about NQDC plans. The timing for these plans could not be better for high earners and their employers. This article presents some key deferred compensation trends to watch.

Advantages To Pre-Tax Deferral Of Income After Tax Reform
Steve Broadbent and Chris Nyland
Employees who once routinely deferred compensation are now rethinking those habits after tax reform under the Tax Cuts and Jobs Act. One concern is whether it may be better to take income today because of uncertainty about tax increases in the future. This article shows how you should consider tax changes and investment returns when analyzing whether to participate in your company's NQDC plan.

Future Higher Tax Rates Would Not Reduce The Current Appeal Of Nonqualified Plans
William L. MacDonald
NQDC arrangements remain a valuable planning tool for people with high incomes. This article discusses the reasons why current tax rates have made NQDC plans attractive. It also examines how certain features of plan design can cause you tax problems.

Tax Changes That Affect Your Planning For Nonqualified Deferred Compensation
Bruce Brumberg
The enhanced capacity for tax planning is one of the main attractions of nonqualified plans. When your tax rates increase, the advantages of NQDC plans grow. This article explains the impact of tax changes on your NQDC.

At year-end, when I am deciding on salary deferrals into my nonqualified plan for the year ahead, what should be the top issues in my decision-making?
In NQDC plans, the fourth quarter is the most common period for electing salary deferrals in the year ahead. One ongoing issue for deferral planning is the need to consider the tax changes of recent years, including the additional Medicare taxes for high earners.

Licensing And Bulk Premium Memberships

Want to license readable, high-quality content on NQDC to distribute to plan participants, clients, and prospects? Find out about our corporate services in the About Us and Licensing sections of myNQDC. Please contact us (617-734-1979, info@mystockoptions.com) to obtain more information about licensing content for your website, print materials, and/or newsletters, and for premium memberships at special bulk rates for your staff.

Nonqualified Deferred Compensation: Planning Affected By 2018 Contribution Limits For Qualified Retirement Plans

Today we bring some news from our sibling website, myNQDC.com. November and December are the months when many participants in nonqualified deferred compensation (NQDC) plans must choose how much of next year's salary to defer. Influencing this decision about nonqualified plans are the contribution and benefit limits that apply to qualified retirement plans. Importantly, the contribution limits of qualified plans form the major reason for the existence of nonqualified plans: to allow executives and key employees to save additional amounts for retirement with an elective nonqualified plan or an excess 401(k) plan. (See also the FAQ at myNQDC.com on the top NQDC-related year-end-planning issues, which may change in upcoming years with tax reform.)

The contribution limits for qualified plans are provided under Section 415 of the Internal Revenue Code, and every autumn the IRS announces figures for the following year. The limits are adjusted annually for inflation. While there are slight increases in some limits for 2018, in others the 2017 figures continue.

What this means: The changes in limits from 2017 to 2018 are slight. If you have already maxed out your qualified plan contributions for 2017, you will probably do the same in 2018, so you will need to rely on NQDC plans to defer any salary and bonus increases you expect in 2018.

The table below presents the qualified plan limits for 2017 and for 2018 (increases marked in red). See also the IRS release announcing the 2018 figures.

Qualified Plan Contributions: Annual Limits That Affect NQDC Plans

Contribution type/limit	2017	2018
Compensation allowed in qualified deferral and match calculation	$270,000	$275,000
Elective compensation deferrals	$18,000	$18,500
Catchup contributions for people aged 50 or older	$6,000	$6,000
Total defined contribution limits (employee and employer contributions)	$54,000 + catchup contribution	$55,000 + catchup contribution
Defined benefit plan payout limits	$215,000	$220,000
Income threshold defining key employees for the purposes of top-heavy plans and the six-month delay on payout upon separation	$175,000	$175,000
Income threshold defining highly compensated employees for the purposes of nondiscrimination testing	$120,000	$120,000

Set by the Social Security Administration, the Social Security wage cap will rise in 2018 to $128,700, a slight increase from $127,200 in 2017. With the 6.2% rate of Social Security tax, the maximum possible Social Security withholding in 2018 is $7,979.40.

For a table comparing the features of 401(k) plans and NQDC plans, and their relative advantages and disadvantages, see an FAQ at myNQDC.com.

myNQDC.com Is Available By Individual Membership Or Corporate Licensing

myNQDC.com is available through individual premium memberships or through corporate licensing. Premium members have access to all of myNQDC.com, including the Learning Center, which offers up to 6 continuing education credits for CFPs, 6 PACE credit hours for CLU® and ChFC® professionals, and 12 CPE hours for ASPPA members. To learn about the corporate services offered by myNQDC.com, please see the website's About Us and Licensing sections.

Three New Articles Explore The Rules, Risks, And Rewards Of NQDC Plans

Meanwhile, over at our sibling website myNQDC, some new content is afoot. Weighing the strategic tradeoffs of risks and rewards, while following the complicated rules, is a crucial part of planning for income deferrals through a nonqualified deferred compensation (NQDC) plan. Three new articles at myNQDC discuss some of the key issues to consider.

The Proposed GOP/Trump Tax Cuts: Good Or Bad For Pretax Compensation Deferral?

The Trump presidency and the current Republican-controlled Congress continue to express interest in lowering federal tax rates, but delays and political obstacles have clouded the legislative prospects of tax reform. Does this uncertainty mean you should stop deferring compensation into your company’s NQDC plan or increase your deferrals? Of course, planning NQDC deferrals depends on many factors, not just your tax outlook. Interestingly, however, the proposed tax decreases, with just three tax brackets, may make deferral more appealing. In an insightful new article, executive-benefits consultant David Hauptman (Pinnacle Financial Group) explores the issues you should be thinking about when considering income deferral now.

To Defer Or Not To Defer? Same-Year Deferral Decisions

While most NQDC plans permit deferral elections only at the end of the year, and only for income earned in the following year, in certain circumstances you may be eligible to defer current income in mid-year under the rules of IRC Section 409A. That may be the case if you become newly eligible to participate in your company's NQDC plan, your company creates a new NQDC plan, or you can defer performance-based compensation. A new article by attorney David Zelikoff, a partner at Morgan Lewis & Bockius, explains the ins and outs of same-year deferrals.

Risks Of Nonqualified Deferred Compensation: Real-Life Examples From Court Cases

Two of the greatest non-tax-related risks associated with NQDC are (1) the inability of the employer to pay benefits, e.g. because of corporate bankruptcy, and (2) a refusal to pay promised benefits. When presented theoretically, these risks are often misunderstood or underappreciated by plan participants. For that reason, it is helpful to look at actual situations involving NQDC where litigation was necessary. A new article by Richard Friedman, an executive benefits and compensation expert at The Ayco Company, presents a few examples from court cases that show the necessity of careful thought and planning to minimize risks in nonqualified deferred compensation.

Licensing, Premium Memberships, And CE Credits

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See also our Learning Center, which has courses of study and exams offering up to 6 continuing education credits for CFPs, 6 PACE credit hours for CLU® and ChFC® professionals, and 12 CPE hours for ASPPA members.

Decision Time For Nonqualified Deferred Compensation (NQDC): Top Issues In Choosing Salary Deferrals For 2017

November and December are high-traffic times for our sibling website myNQDC.com, a comprehensive resource on nonqualified deferred compensation (NQDC). The last quarter of the year is the most common period during which salary deferrals are elected through NQDC plans for the year ahead. Participants in NQDC plans choosing how much of next year's salary to defer can find plenty of financial-planning guidance at myNQDC.com. See also our FAQ on year-end planning issues, which may shift in upcoming years with a new president and the possibility of tax reform.

As expected, this presidential election year brought no tax changes of significance. Therefore, known tax-rate increases or decreases are not big factors in decisions at year-end 2016. However, after the new president has been elected, the likelihood of major tax reforms in the next few years may affect your long-term decision-making.

Year-End Issues To Consider

In the analysis for choosing deferrals to make in 2017, one ongoing issue stems from the tax increases that took effect in 2013, including the additional Medicare taxes for high earners. Other points to consider include the following.

1. Maximizing the amount you can contribute to your 401(k) plans.You should participate in the NQDC plan only if you can also afford the maximum annual contributions to your qualified deferral plans, as those are fully funded and protected by ERISA.

2. Cash needs for the year ahead and multi-year projections for your income. At a minimum, these considerations will tell you whether you have extra cash to defer. Your cash-flow projections should factor in all sources of income, including equity compensation, against spending needs in the near future to help you decide how much to defer.

3. The financial security of your company, and your job security.If you have concerns about your company's solvency, you may want to avoid contributions to nonqualified plans because of the risks presented by corporate bankruptcy. Any potential for job loss may also make NQDC deferrals unwise. If you lose your job during the deferral period, the income in the plan will be distributed to you immediately, triggering taxes you may not want to pay at that time.

4. Company match. Though company matches are not as common in NQDC plans as they are in 401(k) plans, if a company match requires you to contribute a certain amount to your NQDC plan, you will need to consider deferring at least that minimum.

5. The thresholds for higher taxes and rates. Higher tax rates make deferring income appealing. Consider whether the tax rate at the time of distribution is likely to be lower or higher than it is at the time of deferral. If you think the rate will be lower, then pre-tax deferrals can make sense. Deferrals can keep your income below the current triggers for higher taxes.

To make projections for current and future tax rates, and to compare returns both through deferrals and through not deferring income, try the calculator at myNQDC.com.

Alert: Because of the NQDC election rules, participants should carefully consider elections. The rules of IRC Section 409A severely restrict the ability to make changes in NQDC deferrals.

Consider Limits On Contributions To Qualified Plans

Influencing year-end decisions about nonqualified plans are the contribution and benefit limits that apply to qualified retirement plans. These limits are provided under Section 415 of the Internal Revenue Code, and every autumn the IRS announces inflation-adjusted figures for the following year. Importantly, the contribution limits of qualified plans form the major reason for the existence of nonqualified plans: to allow executives and key employees to save additional amounts for retirement with an elective nonqualified plan or an excess 401(k) plan.

What this means: The changes in limits from 2016 to 2017 are slight. If you have already maxed out your qualified plan contributions for 2016, you will probably do the same in 2017, so you will need to rely on NQDC plans to defer any salary and bonus increases you expect in 2017.

The contribution limits for qualified plans are provided under Section 415 of the Internal Revenue Code, and every autumn the IRS announces figures for the following year. The limits are adjusted annually for inflation. While there are slight increases in some limits for 2017, in others the 2016 limits continue. (See the IRS release announcing the figures for 2017.)

Contribution type/limit	2016	2017
Compensation allowed in qualified deferral and match calculation	$265,000	$270,000
Elective compensation deferrals	$18,000	$18,000
Catchup contributions for people aged 50 or older	$6,000	$6,000
Total defined contribution limits (employee and employer contributions)	$53,000 + catchup contribution	$54,000 + catchup contribution
Defined benefit plan payout limits	$210,000	$215,000
Income threshold defining key employees for the purposes of top-heavy plans and the six-month delay on payout upon separation	$170,000	$175,000
Income threshold defining highly compensated employees for the purposes of nondiscrimination testing	$120,000	$120,000

Set by the Social Security Administration, the Social Security wage cap will rise in 2017 to $127,200, a significant increase from $118,500 in 2016. With the 6.2% rate of Social Security tax, the maximum possible Social Security withholding in 2017 is $7,886.40.

For a table comparing the features of 401(k) plans and NQDC plans, and their relative advantages and disadvantages, see an FAQ at myNQDC.com.

Section 409A Regulations: IRS Changes Affect Nonqualified Deferred Comp And Stock Plans

From myNQDC.com, our other website, comes news affecting nonqualified deferred compensation (NQDC) plans. On June 21, 2016, the IRS issued proposed regulations that modify and clarify various parts of the final regulations on IRC Section 409A and the previous proposed income-inclusion regulations. Although these changes and elucidations may be welcome, they do not alter the cumbersome and complex 409A regulatory framework for NQDC or reduce the onerous taxes and penalties that a participant must pay when the company's NQDC plan is not in compliance, and they concern only very specific situations. The main impact of the proposed regulations is on NQDC plans, but the changes also affect certain situations involving stock options, restricted stock units, and stock appreciation rights.

In the view of experts, these proposals formalize previously informal guidance that the IRS has been providing, offer new flexibility in some areas, and set forth a few new requirements. The IRS is allowing reliance on this guidance now and will not assert any position that runs counter to it.

The proposed regulations present a lengthy list of items. They seek to do the following:

(1) Clarify that the rules under Section 409A apply to nonqualified deferred compensation plans separately and in addition to the rules under Section 457A.

(2) Modify the short-term deferral rule to permit a delay in payments to avoid violating federal securities laws or other applicable laws.

(3) Clarify that a stock right that does not otherwise provide for a deferral of compensation will not be treated as providing for a deferral of compensation solely because the amount payable under the stock right upon an involuntary separation from service for cause, or the occurrence of a condition within the service provider's control, is based on a measure that is less than fair market value.

(4) Modify the definition of the term "eligible issuer of service recipient stock" to provide that it includes a corporation (or other entity) for which a person is reasonably expected to begin, and actually begins, providing services within 12 months after the grant date of a stock right.

(5) Clarify that certain separation pay plans that do not provide for a deferral of compensation may apply to a service provider who had no compensation from the service recipient during the year preceding the year in which a separation from service occurs.

(6) Provide that a plan under which a service provider has a right to payment or reimbursement of reasonable attorneys' fees and other expenses incurred to pursue a bona fide legal claim against the service recipient with respect to the service relationship does not provide for a deferral of compensation.

(7) Modify the rules regarding recurring part-year compensation.

(8) Clarify that a stock purchase treated as a deemed asset sale under Section 338 is not a sale or other disposition of assets for purposes of determining whether a service provider has a separation from service.

(9) Clarify that a service provider who ceases providing services as an employee and begins providing services as an independent contractor is treated as having a separation from service if, at the time of the change in employment status, the level of services reasonably anticipated to be provided after the change would result in a separation from service under the rules applicable to employees.

(10) Provide a rule that is generally applicable to determine when a "payment" has been made for purposes of Section 409A.

(11) Modify the rules applicable to amounts payable following death.

(12) Clarify that the rules for transaction-based compensation apply to stock rights that do not provide for a deferral of compensation and statutory stock options.

(13) Provide that the addition of the death, disability, or unforeseeable emergency of a beneficiary who has become entitled to a payment due to a service provider's death as a potentially earlier or intervening payment event will not violate the prohibition on the acceleration of payments.

(14) Modify the conflict of interest exception to the prohibition on the acceleration of payments to permit the payment of all types of deferred compensation (and not only certain types of foreign earned income) to comply with bona fide foreign ethics or conflicts of interest laws.

(15) Clarify the provision permitting payments upon the termination and liquidation of a plan in connection with bankruptcy.

(16) Clarify other rules permitting payments in connection with the termination and liquidation of a plan.

(17) Provide that a plan may accelerate the time of payment to comply with federal debt collection laws.

(18) Clarify and modify Section 1.409A-4(a)(1)(ii)(B) of the proposed income inclusion regulations regarding the treatment of deferred amounts subject to a substantial risk of forfeiture for purposes of calculating the amount includible in income under Section 409A(a)(1).

(19) Clarify various provisions of the final regulations to recognize that a service provider can be an entity as well as an individual.

Provisions Specific To Stock Plans

Some of the proposals in the regulations listed above directly affect stock plans in a few narrow situations. They include the following.

Stock repurchase rights. The proposed rules clarify that after an involuntary separation for cause (e.g. for a violation of a noncompete) where the company has the right to repurchase underlying shares received from a stock option or SAR exercise or RSU vesting, for less than the fair market value, doing so will not make the stock rights subject to Section 409A.

Pre-employment inducement grants. For stock rights to be exempt, the employee must be working for the company or providing direct services to the company on the date of grant. The proposed rules exempt grants made to someone who is reasonably expected to start work within 12 months and actually does so. This allows grants to employees before actual employment begins. However, the rules for incentive stock options already do not allow those types of options to be granted before employment starts.

Restricted stock for deferred compensation. The proposed regulations clarify that unvested property, such as restricted stock, cannot be used to meet a distribution obligation under a deferred compensation plan. (Previously, it was believed by experts that an employee could elect to receive payment of deferred compensation subject to 409A in either cash or restricted stock without having to meet the subsequent deferral election rules.)

Additional Reading

So far, the most helpful commentaries on the proposed regs that we have seen have come from the following sources:

• Wilson Sonsini Goodrich & Rosati
• Skadden Arps Slate Meagher & Flom
• Groom Law Group
• Ropes & Gray
• Practical Law Company
• McGuireWoods
• Latham & Watkins
• Miller & Chevalier
• PricewaterhouseCoopers

For background information on IRC Section 409A, how it affects NQDC plans and participants, and the 409A penalties for noncompliance, see the articles and FAQs on 409A at myNQDC.com, which we are in the process of updating for the changes. Meanwhile, at myStockOptions.com, detailed FAQs cover the general impact of 409A on equity compensation and the particular impact on discounted stock options and on restricted stock units that feature deferral of share delivery.

It's Decision Time For Nonqualified Deferred Compensation: The Top Issues In Choosing Salary Deferrals For The Year Ahead

This is a high-traffic time of year for our sibling website myNQDC.com, a comprehensive resource on nonqualified deferred compensation (NQDC). The fourth quarter of the year, and especially November and December, is the most common period during which salary deferrals are elected through NQDC plans for the year ahead. Participants in NQDC plans choosing how much of next year's salary to defer can find plenty of financial-planning guidance at myNQDC.com, including an FAQ with year-end issues to consider.

We predict that year-end financial and tax planning will be more peaceful and certain in 2015 than it may be during the next few years. The likelihood of tax changes in 2016, a presidential election year, is very low, so tax-rate increases or decreases are not big factors in decisions at year-end 2015. However, before year-end 2016, a new president will have been elected on a platform probably including major tax reforms. Anticipated tax changes (and uncertainty around them) may then affect your decision-making.

Year-End Issues To Consider

In the analysis for deferrals to make in 2016, one ongoing issue stems from the tax increases that took effect in 2013, including the additional Medicare taxes for high earners. Other points to consider include the following.

1. Maximizing the amount you can contribute to your 401(k) plans.You should participate in the NQDC plan only if you can also afford the maximum annual contributions to your qualified deferral plans, as those are fully funded and protected by ERISA.

2. Cash needs for the year ahead and multi-year projections for your income. At a minimum, these considerations will tell you whether you have extra cash to defer. Your cash-flow projections should factor in all sources of income, including equity compensation, against spending needs in the near future to help you decide how much to defer.

3. The financial security of your company, and your job security.If you have concerns about your company's solvency, you may want to avoid contributions to nonqualified plans because of the risks presented by corporate bankruptcy. Any potential for job loss may also make NQDC deferrals unwise. If you lose your job during the deferral period, the income in the plan will be distributed to you immediately, triggering taxes you may not want to pay at that time.

4. Company match. Though company matches are not as common in NQDC plans as they are in 401(k) plans, if a company match requires you to contribute a certain amount to your NQDC plan, you will need to consider deferring at least that minimum.

5. The thresholds for higher taxes and rates. Higher tax rates make deferring income appealing. Consider whether the tax rate at the time of distribution is likely to be lower or higher than it is at the time of deferral. If you think the rate will be lower, then pre-tax deferrals can make sense. Deferrals can keep your income below the current triggers for higher taxes.

To make projections for current and future tax rates, and to compare returns both through deferrals and through not deferring income, try the calculator at myNQDC.com.

Alert: Because of the NQDC election rules, participants should carefully consider elections. The rules of IRC Section 409A severely restrict the ability to make changes in NQDC deferrals.

Consider Limits On Contributions To Qualified Plans

Influencing year-end decisions about nonqualified plans are the contribution and benefit limits that apply to qualified retirement plans. These limits are provided under Section 415 of the Internal Revenue Code, and every autumn the IRS announces inflation-adjusted figures for the following year. Importantly, the contribution limits of qualified plans form the major reason for the existence of nonqualified plans: to allow executives and key employees to save additional amounts for retirement with an elective nonqualified plan or an excess 401(k) plan. If you have already maxed out your qualified-plan contributions, you will need to rely on NQDC plans to defer any salary increases you expect in 2016.

The contribution limits for qualified plans are provided under Section 415 of the Internal Revenue Code, and every autumn the IRS announces figures for the following year. The limits are typically adjusted annually for inflation. However, no cost-of-living increase has been detected by the US government during the past year. Consequently, in 2016 the limits for contributions to qualified plans are the same as in 2015. (See the IRS release announcing the figures for 2016.)

Contribution type/limit	2015	2016
Compensation allowed in qualified deferral and match calculation	$265,000	$265,000
Elective compensation deferrals	$18,000	$18,000
Catchup contributions for people aged 50 or older	$6,000	$6,000
Total defined contribution limits (employee and employer contributions)	$53,000 + catchup contribution	$53,000 + catchup contribution
Defined benefit plan payout limits	$210,000	$210,000
Income threshold defining key employees for the purposes of top-heavy plans and the six-month delay on payout upon separation	$170,000	$170,000
Income threshold defining highly compensated employees for the purposes of nondiscrimination testing	$120,000	$120,000

Set by the Social Security Administration, the Social Security wage cap also has not been increased for 2016 and remains at $118,500. With the 6.2% rate of Social Security tax, the maximum possible Social Security withholding in 2016 is $7,347.

For a table comparing the features of 401(k) plans and NQDC plans, and their relative advantages and disadvantages, see an FAQ at myNQDC.com.

Decision Time For Nonqualified Deferred Compensation: Top Issues For Plan Participants Choosing Salary Deferrals For The Year Ahead

This is a high-traffic time of year for our sibling website myNQDC.com, a comprehensive resource on nonqualified deferred compensation (NQDC). The fourth quarter of the year, and especially November and December, is the most common period during which salary deferrals are elected through NQDC plans for the year ahead. Participants in NQDC plans choosing how much of next year's salary to defer can find plenty of guidance at myNQDC.com on issues to consider.

In the analysis for deferrals to make in 2015, one ongoing issue stems from the tax increases that took effect in 2013, including the additional Medicare taxes for high earners. Other points to consider include the following.

1. Maximizing the amount you can contribute to your 401(k) plans. You should participate in the NQDC plan only if you can also afford the maximum annual contributions to your qualified deferral plans, as those are fully funded and protected by ERISA.

2. Cash needs for the year ahead and multi-year projections for your income. At a minimum, these considerations will tell you whether you have extra cash to defer. Your cash-flow projections should factor in all sources of income, including equity compensation, against spending needs in the near future to help you decide how much to defer.

3. The financial security of your company, and your job security. If you have concerns about your company's solvency, you may want to avoid contributions to nonqualified plans because of the risks presented by corporate bankruptcy. Any potential for job loss may also make NQDC deferrals unwise. If you lose your job during the deferral period, the income in the plan will be distributed to you immediately, triggering taxes you may not want to pay at that time.

4. Company match. Though company matches are not as common in NQDC plans as they are in 401(k) plans, if a company match requires you to contribute a certain amount to your NQDC plan, you will need to consider deferring at least that minimum.

5. The thresholds for higher taxes and rates. Higher tax rates make deferring income appealing. Consider whether the tax rate at the time of distribution is likely to be lower or higher than it is at the time of deferral. If you think the rate will be lower, then pre-tax deferrals can make sense. Deferrals can keep your income below the current triggers for higher taxes.

To make projections for current and future tax rates, and to compare returns both through deferrals and through not deferring income, try the calculator at myNQDC.com.

Alert: Because of the NQDC election rules, participants should carefully consider elections. The rules of IRC Section 409A severely restrict the ability to make changes in NQDC deferrals.

Consider Limits On Contributions To Qualified Plans

Influencing year-end decisions about nonqualified plans are the contribution and benefit limits that apply to qualified retirement plans. These limits are provided under Section 415 of the Internal Revenue Code, and every autumn the IRS announces inflation-adjusted figures for the following year. Importantly, the contribution limits of qualified plans form the major reason for the existence of nonqualified plans: to allow executives and key employees to save additional amounts for retirement with an elective nonqualified plan or an excess 401(k) plan.

Contribution type/limit	2015	2014
Compensation allowed in qualified deferral and match calculation	$265,000	$260,000
Elective compensation deferrals	$18,000	$17,500
Catchup contributions for people aged 50 or older	$6,000	$5,500
Total defined contribution limits (employee and employer contributions)	$53,000 + catchup contribution	$52,000 + catchup contribution
Defined benefit plan payout limits	$210,000	$210,000
Income threshold defining key employees for the purposes of top-heavy plans and the six-month delay on payout upon separation	$170,000	$170,000
Income threshold defining highly compensated employees for the purposes of nondiscrimination testing	$120,000	$115,000

Increase In Social Security Wage Base

Additionally, the Social Security Administration (SSA) annually increases the wage base used for calculating the Social Security part of FICA taxes, which are owed at NQDC deferral or vesting. In 2015, the Social Security wage cap will be $118,500 (up from $117,000 in 2014). With the 6.2% rate of Social Security tax, the maximum possible Social Security withholding in 2015 is $7,347.

According to the SSA announcement that released these figures, among the estimated 168 million workers in the United States who pay Social Security tax, about 10 million will see an increase in Social Security tax in 2015 because of the increase in the wage base. We can assume that everybody with nonqualified deferred compensation will be among those 10 million people.

Decision Time For Nonqualified Deferred Compensation: Top Issues When Choosing Salary Deferrals For The Year Ahead

Many eligible participants in nonqualified deferred compensation (NQDC) plans are now making decisions about their salary deferrals for 2014. In fact, the fourth quarter of the year is the most common period during which salary deferrals are elected through NQDC plans for the year ahead. In the analysis for next year's deferrals, one new development is the need to consider the tax increases that took effect in 2013 (those tax hikes were still uncertain at the end of 2012). The tax changes of 2013 include the introduction of additional Medicare taxes for high earners. Issues to consider in your decision-making at enrollment include the following.

1. Maximizing the amount you can contribute to your 401(k) plans. You should participate in the NQDC plan only if you can also afford the maximum annual contributions to your qualified deferral plans, as those are fully funded and protected by ERISA.

2. Cash needs for the year ahead and multi-year projections for your income. At a minimum, these considerations will tell you whether you have extra cash to defer. Your cash-flow projections should factor in all sources of income, including equity compensation, against spending needs in the near future to help you decide how much to defer.

3. The financial security of your company, and your job security. If you have concerns about your company's solvency, you may want to avoid contributions to nonqualified plans because of the risks presented by corporate bankruptcy. Any potential for job loss may also make NQDC deferrals unwise. If you lose your job during the deferral period, the income in the plan will be distributed to you immediately, triggering taxes you may not want to pay at that time.

4. Company match. Though company matches are not as common in NQDC plans as they are in 401(k) plans, if a company match requires you to contribute a certain amount to your NQDC plan, you will need to consider deferring at least that minimum.

5. The thresholds for higher taxes and rates. Higher tax rates make deferring income appealing. Consider whether the tax rate at the time of distribution is likely to be lower or higher than it is at the time of deferral. If you think the rate will be lower, then pre-tax deferrals can make sense. Deferrals can keep your income below the current triggers for higher taxes. In the table below are the amounts for 2013 (assume slight inflation adjustments for the year ahead).

Tax rate	Yearly income threshold
Top ordinary income rate (39.6%)	Taxable income of $400,000 (single) or $450,000 (joint)
Top capital gains rate (20%)	Taxable income of $400,000 (single) or $450,000 (joint)
Medicare surtax on investment income (3.8%)	Modified adjusted gross income of $200,000 (single) or $250,000 (joint)
Additional Medicare tax on earned income (0.9%)	Earned income of $200,000 (single) or $250,000 (joint)
Phaseout of itemized deductions and personal exemptions	Adjusted gross income of $250,000 (single) or $300,000 (joint)

Alert: Because of the NQDC election rules, you should predict cash-flow needs and tax brackets for the year ahead. The rules of IRC Section 409A severely restrict your ability to make changes in NQDC deferrals.

See an FAQ at myNQDC.com for other factors that can make participation in your company's NQDC plan beneficial. To make projections for current and future tax rates, and to compare returns both through deferrals and through not deferring income, try the calculator at myNQDC.com.

Impact On NQDC Plan Participants From 2014 Adjustments To Qualified Retirement Plan Limits

Every fall, usually in October, the IRS announces limits under Section 415 of the Internal Revenue Code that will apply in the following year to contributions and benefits made under qualified retirement plans. The figures for 2014 (see the table below) were announced on October 31. These numbers are adjusted annually for changes in the cost-of-living index. The contribution limits of qualified plans form the major reason for the existence of nonqualified plans: to allow executives and key employees to save additional amounts for retirement with an elective nonqualified plan or an excess 401(k) plan.

Qualified Plan Contributions: Annual Limits That Affect NQDC Plans

Contribution type/limit	2014	2013
Compensation allowed in qualified deferral and match calculation	$260,000	$255,000
Elective compensation deferrals	$17,500	$17,500
Catchup contributions for people aged 50 or older	$5,500	$5,500
Total defined contribution limits (employee and employer contributions)	$52,000 + catchup contribution	$51,000 + catchup contribution
Defined benefit plan payout limits	$210,000	$205,000
Income threshold defining key employees for the purposes of top-heavy plans and the six-month delay on payout upon separation	$170,000	$165,000
Income threshold defining highly compensated employees for the purposes of nondiscrimination testing	$115,000	$115,000

For a table comparing the features of 401(k) plans and NQDC plans, and their relative advantages and disadvantages, see an FAQ on myNQDC.com.

Additionally, the Social Security Administration (SSA) has announced the amount of the annual increase in the wage base used for calculating the Social Security part of FICA taxes. In 2014, the Social Security wage cap will be $117,000 (up from $113,700 in 2013). With the 6.2% rate of Social Security tax, the maximum possible Social Security withholding in 2014 is $7,254.

According to the SSA announcement, among the estimated 165 million workers in the United States who pay Social Security tax, about 10 million will see an increase in Social Security tax in 2014 because of the increase in the wage base. We can assume that everybody with nonqualified deferred compensation will be among those 10 million people.