Withholding and paying FICA tax on nonqualified deferred compensation can be a tricky business. Because special timing rules apply to FICA tax, employers can’t simply withhold and pay FICA tax when they pay deferred compensation to the employee. Instead, FICA tax is due when the deferred compensation vests (or, in some cases, when the amount of the deferred compensation can be determined).
It is not always easy to tell when these triggering events occur. In fact, it is sometimes hard to tell whether compensation is “deferred compensation” that is subject to the special timing rules. Employers faced with these complications often discover long after the fact that they have failed to withhold and pay FICA tax on deferred compensation when the tax was due. The additional 0.9% Medicare tax introduced in 2013 makes these errors much more difficult to correct.
Continue Reading New Medicare Tax Makes FICA Errors Harder to Correct