Close
Close

IRS refocuses on FICA rules for 457(b) contributions

RFP
Tax Hot Topics newsletter The IRS recently released an “issue snapshot” indicating that it is refocusing on the Social Security and Medicare (FICA) tax rules applicable to eligible deferred compensation plans under Section 457(b). Eligible deferred compensation plans are plans that meet the requirements of Section 457(b) and are established and maintained by a state or political subdivision thereof, or by any agency or instrumentality of any of the foregoing, and any other organization (other than a governmental unit) exempt from federal income taxes.

The IRS explains that, in some cases, employers are not withholding, paying, or reporting FICA taxes on contributions to Section 457(b) eligible plans. The IRS also noted that under Section 3121(v)(2), and in accordance with Notice 2003-20, an employer must take amounts deferred under a nonqualified deferred compensation plan, including a Section 457(b) eligible plan, into account for FICA tax purposes as of the later of when the employee performs the services or when there is no substantial risk of forfeiture of the rights to such amounts.

The snapshot also includes “issue indicators” and audit tips for IRS examiners to focus on when looking for this issue.

Contact:
Jeffrey Martin
Partner
Washington National Tax Office
T +1 202 521 1526

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.