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Section83
Reporting Amounts Deferred to Nonqualified and Section 457 Plans
Nonqualified deferred compensation is subject to social security and Medicare tax when deferred, i.e., generally, when the related services are performed. However, if nonqualified and section 457 plans contain provisions that delay the employee's right to receive payments from the plan, a period of substantial risk of forfeiture exists. The plan's deferrals, or contributions, are not subject to social security and Medicare taxes until the period of substantial risk of forfeiture ends.
No risk of forfeiture. If there is no risk of forfeiture, report wage amounts deferred to a nonqualified deferred compensation or section 457 plan in box 3 (up to the wage base maximum) and/or box 5 of Form W-2.
Example. Company X's nonqualified deferred compensation plan allows the deferral of up to $20,000 of employee salaries each year. The plan has no risk of forfeiture. Employee A defers $20,000 to the plan from a total salary of $200,000. Form W-2 Completion Box Amount
1 $180,000
3* 65,400
5 200,000
*Wage base maximum for tax year 1997
Risk of forfeiture lapses before retirement. If the substantial risk of forfeiture lapses before the employee retires, report all past contributions to the plan (or the value of the plan), including accumulated earned interest, in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. The accumulated deferrals are reported along with any other social security and Medicare wages earned during the year.
Report in box 11 of Form W-2 the amount of deferrals, including any accumulated interest, that became taxable for social security and Medicare taxes during the year (but were for prior year services) because the deferred amounts were no longer subject to a substantial risk of forfeiture. If the employee continues working, future deferrals are social security and Medicare wages when they are earned.
Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services.
Risk of forfeiture lapses at retirement. When an employee's right to a payment is conditioned upon working until retirement, report all past contributions to the plan (or the value of the plan), including accumulated earned interest, as social security and/or Medicare wages in the year of retirement. Add the amount to other wages paid in that year, and enter in box 3 (up to the wage base maximum) and/or box 5 of Form W-2.
Report in box 11 of Form W-2 the amount of deferrals, including any accumulated interest, that became taxable for social security and Medicare taxes during the year (but were for prior year services) because the deferred amounts were no longer subject to a substantial risk of forfeiture.
Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services.
Example--risk of forfeiture. At the end of the risk-of-forfeiture period for Company Y's nonqualified deferred compensation plan, employee B's accumulated deferrals, plus interest earned by the plan, are $120,000, not including B's $20,000 deferral for this year. B's wages, including this year's deferred amount, are $80,000. Form W-2 Completion Box Amount
1 $60,000
3* 65,400
5 200,000
11 120,000
*Wage base maximum for tax year 1997
Reporting Payments From Nonqualified and Section 457 Plans
When an employee or former employee retires and begins receiving payments or distributions from a nonqualified or section 457 plan, report the payments in boxes 1 and 11 of Form W-2. Separately identify section 457 plan distributions in box 11 by entering code G followed by a space, and then the dollar amount. However, if reporting a distribution from both a nonqualified plan and section 457 plan, report it as a single amount in box 11 and do not enter code G.
Example. Employee D retired from the XYZ company and began receiving social security benefits. XYZ paid D a $12,000 bonus upon retirement for sales made in a prior year, and D received $25,000 in payments from XYZ's nonqualified deferred compensation plan. In addition, D agreed to continue performing services for XYZ, but on a part-time basis for wages of $15,000 per year. D made no deferrals to the nonqualified plan this year. Form W-2 Completion Box
Amount
1 $52,000
3 27,000
5 27,000
11 25,000
Report the $12,000 bonus to the SSA using Form SSA-131, magnetic media or a paper listing. See the format shown later in Tables 2 through 6, and see the discussion above under Reporting Special Wage Payments.
Reporting Payments and Deferrals In the Same Year
Do not complete box 11 when payments are made from a nonqualified plan and deferrals are reported in boxes 3 and/or 5 of Form W-2 (including current year deferrals). Report to the SSA on Form SSA-131 the total amount the employee earned during the tax year. Normally, the amount earned is the amount reported in box 1 of Form W-2 less payments from a nonqualified (section 457) plan, but including any amounts deferred under the plan during the tax year. See Form SSA-131 and instructions in Tables 5 and 6. Form SSA-131 should be available from the SSA after October 1997.
Example. Employee K retired this year from Company XYZ and began receiving social security benefits. During the year he earned wages of $50,000 and deferred $35,000 of the wages into the company's nonqualified deferred compensation plan. K also received $75,000 in payments from the company's nonqualified plan. Form W-2 Completion Special Wage Payment $75,000
Wages 50,000
Minus: deferral 35,000
Total reported in Box 1 $90,000
Wages including deferral reported in Boxes 3 and 5 $50,000
Leave Box 11 blank File Form SSA-131 -0-
Form SSA-131 Completion Amount from box 1 of Form W-2 $90,000
Minus: payments from a nonqualified plan 75,000
Plus: amounts deferred into the plan during the year 35,000
Total wages earned for purposes of Form SSA-131 (item 6) $50,000
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Section83
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