Paying FICA on Deferred Compensation

If you have a nonqualified deferred compensation plan, under a special timing rule you can opt to withhold/pay FICA when the comp is earned rather than when it’s paid out. This usually saves taxes for the employee and the company. The IRS will no longer let employers correct their failure to pay FICA up front through a closing agreement. Employers who don’t withhold FICA upfront may face litigation from employees (see Davidson v. Henkel).