View From McDermott: Conduct Regular Reviews to Ensure Compliance with FICA Tax Withholding Rules

By and on April 28, 2016

Sponsors of nonqualified deferred compensation plans should pay close attention to the special tax withholding rules under the Federal Insurance Contributions Act (FICA) to avoid paying interest and penalties, and potentially being sued by plan participants. FICA tax on nonqualified deferred compensation must be withheld when compensation vests, not later when actually paid out. Failure to withhold FICA tax at the time of vesting will cause the compensation plus any earnings to be subject to FICA tax later as it is distributed to the participant, potentially resulting in higher overall FICA taxes for both the employer and the participant. As shown by the case of Davidson v. Henkel, employees may even successfully sue the employer for causing them to receive lower benefits due to the higher tax burden created by a failure to follow the correct withholding rules.

This article explores the common FICA and Additional Medicare Tax withholding errors and the potential remedies that may be available to employers who fail to timely withhold FICA and/or Additional Medicare Tax on nonqualified deferred compensation.

Read the full article.

Joseph K. Urwitz
Joseph (Joe) K. Urwitz focuses his practice on employee benefits, executive compensation and Employee Retirement Income Security Act (ERISA) fiduciary matters. He advises clients on a wide range of issues, including fiduciary duties and prohibited transactions, employee benefit matters arising in mergers and acquisitions, benefits issues unique to nonprofit entities, deferred compensation arrangements, equity award and bonus plan design, employment and severance arrangements, and qualified plan work. Read Joe Urwitz's full bio.


Ruth Wimer



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