NQDC Interest Determined Under Section 409A(a)(1)(B)(ii)

If a taxpayer receives income from a nonqualified deferred compensation plan (NQDC) that doesn't meet the requirements of 26 USC § 409A, that income will be shown in Form W-2 Box 12 with Code Z or Form 1099-MISC Box 15b. Additional tax is imposed on this income consisting of two parts:

1. 20% of the amount required to be included in income;
2. Interest calculated on the hypothetical underpayment that would have occurred had the deferred compensation been included in gross income in the later of
   • the tax year in which it was first deferred, or
   • the first tax year in which the deferred compensation is not subject to a substantial risk of forfeiture.
   Interest is computed at the underpayment rate of the year the compensation was originally deferred, plus 1%.

The additional tax entered in this menu carries to Schedule 2 Line 8c (in 2018, Schedule 4 Line 62c).

Note: This is a brief guide on NQDC. It is not intended as tax advice.

Additional Information:

IRB 2007-19: Final regulations set forth guidance on the application of section 409A to nonqualified deferred compensation plans