Final word on separation pay under Tax Code Section 409A

Separation pay is ubiquitous. It's paid as a posttermination benefit under employment agreements and written severance plans as well as unwritten programs, practices, and other arrangements. Until Section 409A was added to the Internal Revenue Code, few thought of it as "deferred compensation." But under Section 409A, if a legally binding right to separation pay is created in one year and may be paid in another year, it amounts to nonqualified deferred compensation. Under the final Treasury regulations issued on April 10, 2007, companies have only until December 31 to bring their employment agreements, plans, programs, and practices into full written compliance. Read More...