Working with the FICA regs/Practical Issues

[Guest gaham]

I have a client that maintains a nonqualified nonaccount balance plan that supplements their qualified defined benefit plan (SERP). The amount deferred under the SERP is not reasonably ascertainable until the employee terminates employment. Generally, under the FICA rules it will be taken into account as FICA wages at that time. How do you handle the collection of the employee's share of the FICA tax? If you determine the "amount deferred" early in the year before the termination date can you withhold from his other wages prior to his retirement date? If you can't determine the amount deferred before the termination date and there are no other wages left to be paid from which you can take the required witholding, what do you do? Require the employee to submit payment of his share of the FICA tax? Would appreciate any and all ideas concerning these issues.

[Guest Harry O]

Why can't you withhold the tax from his first (or subsequent) SERP payment?

You can always opt for an "early inclusion" right before retirement while he is still working and then do a true-up at retirement. This minimizes the problem. (It also may avoid a approx. $4,000 OASDI hit if you do the early inclusion in the year before retirement (assuming you know when he will retire) when the employee has other FICA wages to soak up the OASDI portion of the tax).

There is also nothing wrong with *trying* to get employees to remit a check. Perhaps the plan document can be interpreted to make benefits contingent on satisifaction of all employment tax obligations. If so, this might be the "stick" you need to encourage a timely remittance!

[Guest gaham]

Good idea, although depending on benefit commencement date the employer may be required to remit the taxes before it is able to deduct. I'd thought about the early inclusion idea and I think that is something that definitely should be done if the retirement is early in the calendar year for the reason you suggest. Seems to me it's important for the employee to give as much advance warning as possible of his impending retirement so that this can be done. Seems to me the "stick" that you refer to is that you explain to the employee that if the appropriate FICA taxes are not paid at retirement they must be collected and paid from his benefit payments pursuant to the nonduplication rule costing him considerably more in taxes. Anyway, thank you for your thoughts.