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Alex Daisy

Participant Distribution - Reported on W-2 or 1099 Misc?

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A Terminated Participant took a distribution from a Non Qualified Deferred Compensation Plan in 2008.

The participant was not working for the company in 2008.

Should this distribution be reported on a W-2 or 1099 Miscellaneous?

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If he was an employee when he DID work, there, then it's a W-2. Just because he's no longer an employee does not change this. It's W-2 compensation that was deferred from some prior year and paid in 2008.

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Check the instructions to the forms. Hint: Start with W-2

The 1099 R instructions read: Non Qualified Plans, for non employees, these payments are reportable on form 1099-Mic.

Now what is a "non employee"? Is a person who used to work for the company considered a NON EMPLOYEE?

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No. That instruction refers to directors who are not also employees, for example. You also consider the status of the person at the time the deferred compensation is earned. It is possible for someone to earn as an employee, then join the board or become a consultant to the employer after employment and earn as a non-employee.

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I've been through umpteen IRS employment tax audits, and this issue always comes up. The test of whether someone is an employee or non-employee (a/k/a independent contractor) is done at the time the services are performed. Earn as an employee today but paid 10 years from now = report on W-2. In my experience, you will get some push back from the payroll provider, since the person "does not have a record on the system". This does not change things. Create a record. To pay on a 1099-MISC will cause a failure to pay FICA tax on the employer's part (unless it's an account balance arrangement and you already paid FICA). You don't want to go there.

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Guest erisaauditor
I've been through umpteen IRS employment tax audits, and this issue always comes up. The test of whether someone is an employee or non-employee (a/k/a independent contractor) is done at the time the services are performed. Earn as an employee today but paid 10 years from now = report on W-2. In my experience, you will get some push back from the payroll provider, since the person "does not have a record on the system". This does not change things. Create a record. To pay on a 1099-MISC will cause a failure to pay FICA tax on the employer's part (unless it's an account balance arrangement and you already paid FICA). You don't want to go there.

So ---> What's the answer? An employe who was terminated in 2008 is now receiving a distribution in 2010. Doesn't this make his reporting on a 1099-MISC? Where can I find the authoritative reading on this?

Thanks

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Check the W-2 instructions, Box 1:

Box 1—Wages, tips, other compensation. Show the total taxable wages, tips, and other compensation (before any payroll deductions) that you paid to your employee during the year. However, do not include elective deferrals (such as employee contributions to a section 401(k) or 403(b) plan) except section 501©(18) contributions. Include the following:

...

14. Distributions to an employee or former employee from an NQDC plan (including a rabbi trust) or a nongovernmental section 457(b) plan

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So ---> What's the answer? An employe who was terminated in 2008 is now receiving a distribution in 2010. Doesn't this make his reporting on a 1099-MISC? Where can I find the authoritative reading on this?

Thanks

Earned while employee = paid on W-2 no matter when paid. No, just because the person is no longer an employee does not mean that you can put it on a 1099-MISC. It's still employee compensation, not non-employee compensation, since it is compensation for services provided by an employee. See other response here regarding the instructions to the form. Agree that this is not as clear as you would like in the forms, but I'm telling you how the IRS applies this. You can do whatever you like. I'm putting it on a W-2.

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Is the reporting the same if the payment is made to a beneficary of the ex-employee? The amounts to be received are the same that the participant would have received had he or she remained alive (ie it is not a "death benefit"). If so, is there income tax withholding and at what rate?

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Is the reporting the same if the payment is made to a beneficary of the ex-employee? The amounts to be received are the same that the participant would have received had he or she remained alive (ie it is not a "death benefit"). If so, is there income tax withholding and at what rate?

Reporting is not the same.

From the 2009 1009 General Instructions

Distributions from a nonqualified deferred compensation (NQDC) plan to an estate or beneficiary of a deceased plan participant are no longer reported on Form 1099-R. They should be reported on Form 1099-MISC.

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Guest smitek
Is the reporting the same if the payment is made to a beneficary of the ex-employee? The amounts to be received are the same that the participant would have received had he or she remained alive (ie it is not a "death benefit"). If so, is there income tax withholding and at what rate?

Reporting is not the same.

From the 2009 1009 General Instructions

Distributions from a nonqualified deferred compensation (NQDC) plan to an estate or beneficiary of a deceased plan participant are no longer reported on Form 1099-R. They should be reported on Form 1099-MISC.

Where would you report the Fica and medicare taxes then?

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Is the reporting the same if the payment is made to a beneficary of the ex-employee? The amounts to be received are the same that the participant would have received had he or she remained alive (ie it is not a "death benefit"). If so, is there income tax withholding and at what rate?

Reporting is not the same.

From the 2009 1099 General Instructions

Distributions from a nonqualified deferred compensation (NQDC) plan to an estate or beneficiary of a deceased plan participant are no longer reported on Form 1099-R. They should be reported on Form 1099-MISC.

Where would you report the Fica and medicare taxes then?

Since FICA is assessed upon earning, not distribution, there's usually nothing to report. Certainly in some non-account balance plans, excess earnings, or accelerated vesting cases you could have FICA due. In the year of the employee's death, if there is any deferred comp that is subject to FICA, it would also be reported on the employee's final W-2 in addition to reporting on a 1099-MISC (according to the W-2 instructions and revenue ruling 86-109). Payments after the year of death aren't subject to FICA, just 1099-MISC reporting.

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