The director of a non-profit is retiring at the end of the year and negotiated to receive 10% of their highest earning year wages to be paid out for annually for the next 10 years. They are no longer technically an employee of the business; how does this get paid out? W2, 1099-Misc? There is nothing in the organization's minutes that address this issue, only that it's to be paid out.
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Is there any provision in the negotiated agreement that specifies how the director is to be paid?
While not being officially employed, will the person still be performing any services as an outside contractor? Will he/she qualify for any employee benefits such as health insurance?Uncle Sam, CPA, EA. ARA, NTPI Fellow -
There is nothing referencing this except for a blurb that states "xxxx will be paid out 10% of her highest annual salary each year for the next ten years". The person will not be performing any services unless something comes up at a later date. At that point, they are going to pay her as an independent contractor for her consulting. No health insurance benefits.
They were given the advice to put it through as a non-taxable reimbursement. I feel that this is completely incorrect. The employer wants to use a 1099 and the employee is leaning towards W2, obviously the FICA taxes are the main issue here.Last edited by ccristman; 11-01-2023, 09:09 AM.Comment
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Sounds like you may have a deferred compensation plan here. I would see how close this is to the provisions in IRC 409A. I would think the payment would go on a W-2.Comment
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There is no formal agreement on this though. These funds have never been separated from the business operating/payroll funds. It's not as though funds have been allocated over the course of the employee's tenure to be paid out at a later date. There was no reduction in employee pay while they were workingLast edited by ccristman; 11-01-2023, 02:20 PM.Comment
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Ccris - not sure what the bullet point 1 is trying to illustrate. Deferred comp is not a defined contribution plan.
If you have no formal agreement, you might actually have a constructive receipt issue here. Hard to tell when all details are not available.Comment
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