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Income Tax Withholding on NQDC lump sum distribution

Guest RMM

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Can any payroll administrator please tell me how withholding is done on a lump sum cashout from a NQDC plan? I thought it was withheld at the supplemental rate (20%?) like a bonus, but I can't find definitive guidance in the IRS publications (or that it is treated just like any other W-2 comp?). However, it also seems that the 10% withholding rule applicable to nonperiodic distributions from a qualified plan might also apply to a NQDC. Thank you.

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The 20% withholding is for payments that could be rolled over to an IRA or another qualified plan but are not, so that does not apply in this situation.

The 10% withholding that you refer to is voluntary. In many states if the federal voluntary withholding is requested, state withholding is required.

Mary Kay Foss CPA

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