TN 8 (11-93)
RS 01401.070 Deferred Compensation Plans Prior to 1984
Payments from a deferred compensation plan in effect before 1984 are wages at the time provided for in the agreement, i.e., time of actual receipt, unless it is established that the amount was constructively received at an earlier time, or the employee derived an economic benefit earlier than the time of actual receipt (see RS 01401.030).
NOTE: Any amount withheld at the employee's request is wages at the time of deferral rather than when actually received by the employee.
1. Constructive Receipt
There is no constructive receipt if a substantial limitation was imposed upon the time or manner of payment of compensation.
Normally, deferred compensation agreements are in effect before the year in which the compensation is earned. This avoids the possibility that the compensation was earned and constructively received by the employee prior to the deferred compensation agreement.
2. Receipt of Economic Benefit
There is no economic benefit if the deferred compensation plan was unfunded, i.e., the employer merely promised to pay future benefits and established no trust to pay amounts promised to employees.
Develop payments from a deferred compensation plan only if it is alleged the payments should be considered paid at the time of deferral rather than when actually paid.
1. IRS Ruling Issued
Ask the employer if there is an IRS ruling on the plan's tax status.
If IRS ruled the payments are taxable for income tax purposes when actually paid to the employee, the payments are not wages at the time of deferral.
2. No IRS Ruling Issued
If there is no IRS ruling:
determine if payments were actually or constructively paid, or if an economic benefit was derived;
obtain a copy of the deferred compensation plan;
ask how the employer reported the deferred amount for social security purposes and basis for such reporting; and
make a determination based on the facts obtained.