Nonqualified deferred compensation plans are generally designed to reward certain employees who become too valuable to lose. Constructive Receipt Income is constructively received when it is made available or becomes subject to the control of the taxpayer. The taxpayer does not actually have to take possession of or withdraw the amount. Assets become transferable. Substantial vesting occurs.
Economic benefit occurs.
When there is no substantial risk of right to the amount. Final regulations issued in early 1999 explain the rules for timing of FICA tax withholding and deposits on deferred compensation. Stock option plans, severance pay arrangements, early retirement windows, and excess golden parachute payments are not subject to the special timing rules. FICA and income tax are withheld when benefits are paid. Typically, deferred compensation deferrals are taken into account each pay period as amounts are credited to the plan.