TN 8 (11-93)

A. INTRODUCTION

The social security coverage and tax treatment of deferred compensation depends upon whether the plan is qualified or nonqualified. Payments under a qualified deferred compensation plan are excluded from wages after 1983.

Only the IRS determines whether a plan is a qualified or nonqualified deferred compensation plan.

NOTE: IRS has not issued final regulations interpreting these provisions. It is possible the final IRS regulations may differ from SSA's interpretation. If IRS regulations differ from SSA's interpretation, IRS regulations will be controlling.

B. POLICY

P.L. 98-21 and P.L. 98-369 provide transitional rules for nonqualified deferred compensation payments made after 1983 for services performed before 1984.

1. P.L. 98-21

If an agreement was in effect on or before March 24, 1983, between a nonqualified deferred compensation plan and an individual which provided for payments to be made after 1983 based on services performed before 1984, the employer may report such payments as wages:

• for the year when actually paid, as under preamendment law; or

• when the services were performed or substantial risk of forfeiture lapsed, provided that both of these events occured before 1984.

2. P.L. 98-369

Payments previously excluded from wages under section 209 of the Act continue to be excluded from wages after 1983 provided the rules in RS 01401.080B.1. apply.

EXAMPLE: Employee works 20 years for Company A and retires on December 31, 1983. Under Company A's nonqualified deferred compensation plan, the employee is entitled to receive $2,000 per month beginning January 1, 1984, when the employee attains age 65.

The transitional rules apply because an agreement was in effect on March 24, 1983; the payments are based on services performed before 1984; and the payments would have been excluded from wages before the 1983 amendments as payments on account of retirement. Therefore, none of the payments beginning January 1984 are wages.