Expert: Shirley McAllister, CPP, PHR - 12/28/2008

Question
We have a client who is going to be paid a deferred comp plan of $100,000 per year for the next 10 yrs (starts 2009).  We want to include the amount on this year’s 941 (to avoid future social security tax).   My question is what do we do with the W-2?  Does he get one showing just the medicare part that is taxable?

For example let’s say he was paid$75,000 in normal salary and had this deferred comp of 1,000,000;  I would think he would have federal taxable of $75,000, social security taxable of the maximum and MCC taxable of $1,075,000 .

Answer
If he is paid over 10 years than it should be taxed over 10 years. You cannot take out all the taxes in one year to save on social security tax. The money cannot be taxed until it is paid and received by the employee.

You can pay a certain amount per year and tax it once a year, if that is how it is paid.

If he is retiring and you set him up in a retirement plan and pay the money each year into that retirement plan than depending on the type of retirement plan it may be tax deductible.

Shirley

Shirley