Severance package is tied to deferred comp

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in Firing,Human Resources

Q I understand new rules for deferred compensation are in effect. Does this apply to the severance payment I’m receiving from a job? T.P., Wilkes-Barre, Pa.

A Yes. As part of the American Jobs Creation Act of 2004, Congress codified new tax rules for deferred compensation under Section 409A of the tax code. If the requirements for Section 409A aren’t met, deferred compensation is taxable in the year it’s earned, rather than the year it’s paid. For this purpose, severance pay (referred to as “separation pay” in the ensuing regulations) is treated as deferred compensation.

Tip: The IRS recently issued more guidance on the new deferred-comp rules in Notice 2006-100.

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