But there are downsides to NQDC plans. For example, unlike 401(k) plans, you can’t take loans from NQDC plans, and you can’t roll the money over into an IRA or other retirement account when the compensation is paid to you (see the graphic below).

Are NQDC contributions tax deductible?

If a NQDC plan provides for contributions and “earnings” on the contributions, both the contributions and the earnings are eventually taxed as compensation. Under a NQDC plan, employers can only deduct the benefit as the employee includes the benefit in taxable income.

Is a deferred compensation plan tax deductible?

Deferred Compensation – Tax, Accounting, and Regulatory Considerations. Do not allow a tax deduction for the employer until the compensation is paid, and. Do not offer protection from creditors.

What is the difference between qualified and non qualified plans?

Qualified plans have tax-deferred contributions from the employee, and employers may deduct amounts they contribute to the plan. Nonqualified plans use after-tax dollars to fund them, and in most cases employers cannot claim their contributions as a tax deduction.

What is a Non-Qualified Deferred Compensation ( NQDC )?

What Is a Non-Qualified Deferred Compensation (NQDC)? A non-qualified deferred compensation is compensation that has been earned by an employee but not yet received from their employer.

Do you have to report income from NQDC plan?

TAX REPORTING FOR DISTRIBUTIONS FROM NQDC PLANS. Employee Tax Reporting (W-2) Wage Reporting Distributions to employees from nonqualified deferred compensation plans are considered wages subject to income tax upon distribution.

Which is an example of a NQDC plan?

Examples of NQDC Plans. Nonqualified deferred compensation plans refer to supplemental executive retirement plans (SERPs), voluntary deferral plans, wraparound 401(k) plans, excess benefit plans and equity arrangements, bonus plans and severance pay plans.

Where to report nonqualified deferred compensation plan distributions?

Independent contractors subject to Form 1099 reporting, such as agents or members of the company’s Board of Directors, may be eligible to participate in a nonqualified deferred compensation plan. Nonqualified plan distributions are reported in Box 7 on Form 1099-MISC and are subject to income tax and self-employment tax