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count for the social security earnings test. Nonstatutory

Report in box 11 of Form W-2 the amount of deferrals,

(nonqualified) options exercised as special wage pay-

including any accumulated interest, that became taxable

ments by retired employees or employees who continue

for social security and Medicare taxes during the year (but

to work while receiving social security benefits should be

were for prior year services) because the deferred

reported by employers using the above reporting meth-

amounts were no longer subject to a substantial risk of for-

ods.

feiture. If the employee continues working, future deferrals

are social security and Medicare wages when they are

Nonqualified Deferred Compensation

earned.

and Section 457 Plans

Do not include in box 11 deferrals that are inclu-

ded in boxes 3 and/or 5 and that are for current

year services.

A nonqualified deferred compensation plan is a plan or ar-

CAUTION

rangement established and maintained by an employer for

one or more of its employees that provides for the deferral

Risk of forfeiture lapses at retirement. When an em-

ployee's right to a payment is contingent upon working un-

of compensation, but does not meet the requirements for

a tax-qualified deferred compensation plan. For social se-

til retirement, report all past contributions to the plan (or

the value of the plan), including accumulated earned inter-

curity and Medicare purposes, deferred compensation

plans for employees of state and local governments (sec-

est, as social security and/or Medicare wages in the year

of retirement. Add the amount to other wages paid in that

tion 457 plans) are treated the same as nonqualified

plans. Nonqualified and section 457 plans are reported

year, and enter in box 3 (up to the wage base maximum)

differently than other special wage payments. See

Report-

and/or box 5 of Form W-2.

Report in box 11 of Form W-2 the amount of deferrals,

ing Amounts Deferred to Nonqualified and Section 457

Plans

below for specific instructions.

including any accumulated interest, that became taxable

for social security and Medicare taxes during the year (but

Reporting Amounts Deferred to

were for prior year services) because the deferred

amounts were no longer subject to a substantial risk of for-

Nonqualified and Section 457 Plans

feiture.

Generally, when the related services are performed, non-

Do not include in box 11 deferrals that are inclu-

qualified deferred compensation is subject to social secur-

ded in boxes 3 and/or 5 and that are for current

ity and Medicare tax when deferred. However, if nonquali-

year services.

fied and section 457 plans contain provisions that delay

CAUTION

the employee's right to receive payments from the plan, a

Example—risk of forfeiture. At the end of the

period of substantial risk of forfeiture exists. The plans' de-

risk-of-forfeiture period for Company Y's nonqualified de-

ferrals, or contributions, are not subject to social security

ferred compensation plan, Employee B's accumulated de-

and Medicare taxes until the period of substantial risk of

ferrals, plus interest earned by the plan, are $120,000, not

forfeiture ends.

including B's $20,000 deferral for this year. B's wages, in-

cluding this year's deferred amount, are $80,000.

No risk of forfeiture. If there is no risk of forfeiture, re-

port wage amounts deferred to a nonqualified deferred

Form W-2 Completion

Amount

compensation or section 457 plan in box 3 (up to the

Box 1

$60,000

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

wage base maximum) and/or box 5 of Form W-2.

Box 3*

110,100

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Box 5

200,000

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Example. Company X's nonqualified deferred com-

Box 11

120,000

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

pensation plan allows the deferral of up to $20,000 of em-

*Wage base maximum for tax year 2012

ployee salaries each year. The plan has no risk of forfei-

ture. In 2012, Employee A defers $20,000 to the plan from

Reporting Payments From Nonqualified and

a total salary of $200,000.

Nongovernmental Section 457 Plans

Form W-2 Completion

Amount

Box 1

$200,000

When an employee or former employee retires and begins

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Box 3*

110,100

receiving payments (distributions) from a nonqualified or

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Box 5

200,000

nongovernmental section 457 plan, report the payments in

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

*Wage base maximum for tax year 2012

boxes 1 and 11 of Form W-2. Report payments (distribu-

tions) from a governmental section 457 plan on Form

Risk of forfeiture lapses before retirement. If the sub-

1099-R, Distributions from Pensions, Annuities, Retire-

stantial risk of forfeiture lapses before the employee re-

ment or Profit-Sharing Plans, IRAs, Insurance Contracts,

tires, report all past contributions to the plan (or the value

etc.

of the plan), including accumulated earned interest, in

box 3 (up to the wage base maximum) and/or box 5 of

Example. Employee D retired from the XYZ company

Form W-2. The accumulated deferrals are reported along

and began receiving social security benefits. XYZ paid D

with any other social security and Medicare wages earned

a $12,000 bonus upon retirement for sales made in a prior

during the year.

year, and D received $25,000 in payments from XYZ's

Page 8

Publication 957 (January 2013)

Publication 957 - Reporting Back Pay And Special Wage Payments To The Social Security Administration - Internal Revenue Service Page 9

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