Ezel / IRS Rulings / 1025056
Chief Counsel Advice 1025056 Released June 25, 2010 Advice

IRS explained the FICA consequences of deferred compensation paid on distribution

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This page covers one taxpayer's ruling from 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 resolved one taxpayer's situation on its specific facts, 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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