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:
- 20% of the amount required to be included in income;
- 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.
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.
IRB 2007-19: Final regulations set forth guidance on the application of section 409A to nonqualified deferred compensation plans