Ezel / IRS Rulings / 201025056

IRS explained the FICA consequences of deferred compensation paid on distribution

Number
201025056
Outcome
Advice
Document type
Chief Counsel Advice
IRS subject
Nonqualified Deferred Compensation Plans
Topics
Employment taxes
Code sections
§ 3121
Ruling dated
May 24, 2010
Publicly released
June 25, 2010
Source
View Official PDF

Apply this to your situation

This page covers legal advice the IRS Office of Chief Counsel wrote for IRS staff, issued in 2010, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Currency note: this determination was released in 2010
Statutory amendments, regulation changes, court decisions, or later IRS guidance may have changed the analysis since then. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, threshold, or position mentioned here.
Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It is advice from the IRS Office of Chief Counsel to IRS personnel on the facts they presented, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.
About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.
View official IRS release (PDF)

Plain-English summary

The IRS advised that the nonduplication rule can impose an additional FICA cost when a taxpayer fails to comply with IRC § 3121(v)(2). If FICA is paid when compensation is deferred, the employee pays FICA on the deferred amounts at that time. If FICA is instead paid on distribution, the IRS stated that FICA applies to the deferred amounts and all income attributable to them. It also noted that retired employees may owe both OASDI and Medicare because they may no longer have other wages reaching the wage base.

Ruling snapshot

  • Question: What FICA consequences follow when deferred compensation is taxed on distribution after noncompliance with IRC § 3121(v)(2)?
  • Outcome: Advice given
  • Key authorities: IRC § 3121(v)(2).

Full text (IRS public release)

ID: CCA_2010052410283132 Number: 201025056
Release Date: 6/25/2010
Office: -----------------------------
UILC: 3121.16-02

From: --------------------
Sent: Monday, May 24, 2010 10:28:35 AM
To: ------------------
Cc: ---------------------
Subject: RE: Voluntary Disclosure ---------

No, we actually get more. The nonduplication rule acts as a penalty for the taxpayer's failure to comply with section 3121(v)(2). If they had complied and paid FICA as they should have upon deferral, then they only pay FICA on the amounts deferred, and they pay it prior to retirement at a time when the employees have other wages to get them over the FICA wage base so that they would probably only be paying Medicare. If they pay FICA on distribution, then they pay FICA not only on the amounts deferred, but on all income attributable to the amounts deferred. Also, they will probably pay full FICA (OASDI and Medicare) because the employees will be retired and won't have other wages to get them over the FICA wage base.

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