"Why millions of older workers will pay a big financial price—forever

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Code Section 409A

General Rule

Section 409A of the Internal Revenue Code sets forth strict rules that should be consulted anytime compensation could be taxed in a year after it first becomes vested.  409A involves particularly complex and counter-intuitive rules with respect to severance and stock options. 

409A Checklist for Employment Agreements and Releases

Violations

Although employers typically draft benefit plans and employment agreements, the consequences for 409A violations fall on executives (and other service providers).  A 20% tax, in addition to ordinary income, applies to amounts paid in violation of 409A. Employers have a statutory duty to report 409A violations on Forms W-2 and 1099.

409A Rules and Developments

More about 409A

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