Are stock options considered deferred compensation
RetireMentors features retirement are from financial professionals, not staff journalists. Dan Moisand, a Principal at Moisand Fitzgerald Tamayo, LLC in Melbourne and Orlando, Fla. A frequent presenter at such events considered the U. Using a deferred-compensation plan can be an excellent tax strategy but not all deferred compensation plans are the same. This week, I try to explain why one reader's tax bill was higher than expected. I'm now retired and of course have to pay taxes on my deferred compensation as received. Here is my question, I realized I would have to pay federal and state taxes on my deferred comp. However I never realized that I would have to pay self-employment taxes for I always earned over the Social Security thresholds deferred never saved any SE taxes on my deferred comp. My CPA said this is due to the misc form that is reported to the IRS each year. Just wanted to know if this is correct, or any suggestions. There are many options of deferred compensation but based on your description and your CPA's endorsement, it is probably correct. Deferred compensation means exactly that. You put off receiving earned income until a later date. Deferring income can be a good move if the party paying the compensation is healthy enough to be around to make the payment and you get a tax deferred. The tax break comes if the tax rate that applies later when you receive the funds is lower than the rate are would have paid at the time the compensation is earned. Certain deferred compensations plans have rules for payroll taxes that can result in these taxes being due when the compensation is paid. You mentioned the income came as considered and was subject to self-employment taxes. Forin addition to regular income taxes, net self-employment income is subject up to If income is high enough, an additional 0. No limit applies to the amount of net self- employment income subject to Medicare taxes. You also mentioned that while working, you always earned more than the Social Security wage base, so had you not deferred, this income would have been subject to less self-employment taxes but probably more in income taxes. Your case serves as an example of why readers considering deferring compensation should factor in the timing of payroll taxes. I am retired and have a deferred comp acct. Thank you — C. This would be determined when you file your tax return. Employees that receive wages reported on a W-2 pay 7. Self-employed people are considered both employer and employee, hence the You aren't self-employed so only the employee portion of the payroll taxes would be due. Your employer pays the other half. So, only up to 7. If a person is drawing Social Security early, retirement from a job two years ago and in the current year exercises their non-qualified stock options that are reported on a W-2, will that cause them to have to pay back Social Security. I have read articles including those on the ssa. One wouldn't have to "pay back" Social Security. I turned 66 in Sept and collected my full Soc. I worked until Soc. I was told I now have to pay back some of the Soc. I thought that once I was past my full retirement age of 66 I would not have an income penalty. I know I need to pay taxes but this is the first I have herd of the give deferred Thanks in advance for your stock. If you started your benefits in September, no reductions due to earnings are applicable because you reached your FRA. If you had nothing withheld for taxes from your Social Security are, you may need to pay some taxes when you file. Hi Dan, I will turn 66 this summer, and plan to file for my SS benefits. I will be working part time at best, but my wife is still working full-time. Will compensation income negate my SS benefits, and make it necessary for me to pay taxes on my benefits? There are two separate issues here; the effect of working on Social Security payments and the taxation considered Social Security payments. The work related reductions are per individual. Your wife's income has no bearing on whether your benefits are subject to compensation reduction. You will be past your FRA, so you can work as much as you like with no effect on your benefits. Wages for either one of you are a factor in how much income tax you pay on your benefits. The higher your combined income, the more Social Security payments are taxable. The numbers vary based on your filing status. Dan Moisand answers reader questions on all things retirement every Friday. If you have a question for Dan, please email him at RetireQA marketwatch. Dan Moisand's comments are for informational purposes only and aren't a substitute for personalized advice. Consult your adviser about what is best for you. How do IRA distributions affect Social Security? 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