Section 409A is a recent addition to the Internal Revenue Code. It applies to compensation that an employee earns in one year but that is not paid until a future year. Unless this deferred compensation meets certain requirements, the income is subject to additional taxes. This includes a twenty percent additional income tax. A knowledgeable executive contract lawyer can help you navigate this recent addition as it pertains to executive employment agreements.
Various exceptions exclude certain compensation that would otherwise be subject to 409A. For example, funds received through short-term deferrals and funds paid upon an employee’s involuntary termination from work may be excluded if certain conditions are met.
Executives asked to enter into executive employment agreements or separation agreements must ensure that the agreement complies with 409A or must be willing to pay the additional taxes. Because these agreements are typically drafted by the employer’s attorney, an executive should consult with employment counsel or tax counsel regarding the implications of any compensation scheme before signing an agreement. An experienced executive contract attorney can assist with this.
Do you need to speak to an employment lawyer regarding employment contracts or separation agreements as they pertain to 409a? Or, do you need to ask an executive compensation attorney to review a proposed employment agreement or separation agreement? Contact the employment lawyers at Rogge Dunn Group at email@example.com.
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