Post Severance Compensation of Dr. account receivable

[Lou81]

 

A doctor is retiring but will be receiving payments based on A/R receipts for the next 6 months.

401(k) Plan defines compensation as 3401(a) comp and A/R payments are included in the income.

Would these A/R payments be considered Post Severance Compensation (of course to 2.5 months/last day of plan year) or No?

Thank you!

[Peter Gulia]

Is the retiring physician a self-employed individual rather than an employee?

If so, might one count the physician’s compensation according to the plan’s provisions for a self-employed individual’s earned income as adjusted for the plan’s measures of compensation?

Might a partner’s distribution allocable to his profits interests or income interests count in those measures?

If a participant was a self-employed individual, the date of an end of deemed employment might be determined differently than for an employee’s severance-from-employment.

I.R.C. (26 U.S.C.) § 401(c)(1)(B)(ii) (“The term ‘self-employed individual’ means, with respect to any taxable year, an individual who has earned income (as defined in paragraph (2)) for such taxable year. To the extent provided in regulations prescribed by the Secretary, such term also includes, for any taxable year— . . . (ii)  an individual who has been a self-employed individual within the meaning of the preceding sentence for any prior taxable year.”).

26 C.F.R. § 1.401-10(b)(1) (“For purposes of section 401, a self-employed individual who receives earned income from an employer during a taxable year of such employer beginning after December 31, 1962, shall be considered an employee of such employer for such taxable year.”).

26 C.F.R. § 1.415(c)-2(b)(2) (“For purposes of applying the limitations of section 415, except as otherwise provided in this section, the term compensation means remuneration for services of the following types—In the case of [a self-employed individual] who is a[] [deemed] employee within the meaning of section 401(c)(1) and regulations promulgated under section 401(c)(1), the [self-employed individual’s] earned income (as described in section 401(c)(2) and regulations promulgated under section 401(c)(2))[.]”

A retired partner might be a deemed employee (and perhaps not yet severed from deemed employment) for each year in which she has earned income.

This is not advice to anyone.

[Lou81]

He is not a self-employed employee and is paid on a W2.

[Peter Gulia]

That the worker gets payments based on accounts receivable had me ask whether the physician is a self-employed individual rather than an employee.

Is the date of the employee’s severance-from-employment determined?

You’re already mindful of 26 C.F.R. § 1.415(c)-2(e)(3) (Compensation paid after severance from employment), https://www.ecfr.gov/current/title-26/part-1/section-1.415(c)-2#p-1.415(c)-2(e)(3).

Even if the plan provides that the after-severance compensation counts for § 415 compensation, check whether it counts in benefit-accrual compensation—RTFD.