- Employee Salary/Bonus Deferrals: FICA taxes are reported and due in the year in which the employee defers the compensation.
- Employer Contributions: FICA taxes are reported and due in the year in which the contribution amount (and any earnings) vests. Note: When a NQDC Plan applies a vesting schedule for employer contributions (e.g., 25% vests each year for four years or a 3-year cliff vesting), administration and record keeping for FICA tax purposes can be complex.
- Once the amounts are included as wages for FICA taxes, those amounts (and any related earnings) cannot be subject to FICA taxes again. This means that any future earnings on those previously included amounts are not subject to FICA taxes at any point.
- Typically NQDC plan amounts will vest (or be reasonably ascertainable for formula-based NQDC plans) while the employee is currently employed or immediately upon termination and, as a result, has other regular wages in the year to satisfy the Social Security wage base limit. This means that many of these deferred compensation amounts (and their earnings) will escape Social Security taxation altogether and only be subject to the Medicare tax.
