FICA and FUTA Tax

[Guest Powers]

I have recently been assigned a Non qualified deferred compensation plan and I wanted to seek some advice as this is my first NQDC plan.

I have been notified by my client that their payroll company does not understand how to calculate the FICA tax on contributions being made to the plan on the participants behalf. They have a handful of participants that became 100% vested for 2007 and as such the participant contributions made to the plan are subject to FICA and FUTA. It is my understanding that the payroll provider will need to calculate the tax which should be reported in the last month (or quarter) of the following plan year. So, the required tax for the 2007 plan year will need to be reported in December 2008. This pretty much wraps up the extent of kwowledge that I have on this and the partner at my firm is unavialble until Monday. I am to have a conference call with the client and the payroll provider this afternoon and I am not sure if there is more information that I will need to provide. Has anyone had this situaton where a payroll provider was unclear on how to calculate the tax? Do you know of some way I can better communicate what needs to be done for the client and the payroll provider? The worst thing is that I don't even know what I don't know!!!! Any help anyone could provide would be awesome!

[JanetM]

Why do you believe the FICA/MC/FUTA are reported in the year following the contributions?

It is simple. Around the time the contribution is made to participant account, income equal to the contribution is imputed to the. Example: Mary receives contribution of $10,000 in NQDC plan in May. In June the $10,000 is added to her regular pay for purpose of calculating the employment taxes. Mary has already passed the tiny FUTA threshold there is no tax due. Mary has also passed the SSWB for the year so no additional tax is due. Mary (and the employer) are required to pony up for the MC tax which has not income cap.

[QDROphile]

Substitute vesting for contribution in Janet M's post.

[JanetM]

Opps, that is what happens when you work with static group who has been vested and new new entrants in 5 yrs. Thanks for correcting my post.