State Law Penalties

[Guest mbw]

California has adopted its own tax penalty for violating a state law similar to Section 409A. Are there any other states with similar state laws?

[Mark Whitelaw]

mbw - Don't know about other states, but what is the code section in CA? I'd like to see what they are doing. Thanks.

[Guest mbw]

mbw - Don't know about other states, but what is the code section in CA? I'd like to see what they are doing. Thanks.

I believe it's by virtue of Section 17501(a) of the California Revenue and Taxation Code. This section provides, "Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to deferred compensation, shall apply, except as otherwise provided."

In other words, California law is exactly the same as Code Section 409A.

[Guest mjb]

Some one has to pay for the governator's health insurance plan for 6 million CA uninsured. The 9.3% state income tax isnt going to bring in enough revenue.

[Steelerfan]

Make sure to see if the penalties also apply. PA incorporated 409A into its personal income tax code but not with respect to the 20% penalty and interest.

[Guest mjb]

Why would PA need to add 409A w/out the penalties since deferred comp is subject to PA income tax when made available. Are you saying that NQDC will be taxed by PA in the year the plan violates 409A before the date of distribution? How does this apply to non-PA residents who do not work or have a presence in PA for state tax purposes?

[Steelerfan]

Why would PA need to add 409A w/out the penalties since deferred comp is subject to PA income tax when made available. Are you saying that NQDC will be taxed by PA in the year the plan violates 409A before the date of distribution? How does this apply to non-PA residents who do not work or have a presence in PA for state tax purposes?

PA Changed the law in 2005 to conform with federal constructive receipt principles and 409A-otherwise there'd be no need to incorporate 409A.

The timing of income taxation to the participant is not determinative of whether PA can tax the income as sourced in PA. Nonqualified deferred compensation is still taxable under the PA source rule if it is earned in PA even if you receive a distribution as a non resident (unless the plan complies with the federal law). The same is true for stock options and any other compensation that is earned in PA. No different really from the other 40 states that have source rules.

401(k)'s are still taxed at the time of deferral.