Starting in 2025, there will probably be new limits on the quantity of compensation that may be deferred underneath nonqualified deferred compensation (“NQDC”) plans. These limits are designed to forestall using NQDC plans as a approach to keep away from taxes on compensation. Employers might wish to make adjustments to their NQDC plans earlier than the top of 2024 to keep away from these new limits.
Beneath present regulation, there isn’t any restrict on the quantity of compensation that may be deferred underneath an NQDC plan. Nevertheless, the Tax Cuts and Jobs Act of 2017 included a provision that can impose new limits on NQDC plans starting in 2025. These limits will probably be primarily based on the worker’s W-2 wages, and they’re going to differ relying on the kind of plan. Beneath a “specified” NQDC Plan, the restrict on deferrals for 2025 would be the lesser of $30,000 (plus relevant cost-of-living changes) or 15% of the worker’s W-2 wages.
