Starting in 2025, there will likely be new limits on the quantity of compensation that may be deferred beneath nonqualified deferred compensation (“NQDC”) plans. These limits are designed to stop using NQDC plans as a approach to keep away from taxes on compensation. Employers could need to make adjustments to their NQDC plans earlier than the tip of 2024 to keep away from these new limits.
Below present legislation, there isn’t a restrict on the quantity of compensation that may be deferred beneath an NQDC plan. Nonetheless, 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 likely be primarily based on the worker’s W-2 wages, and they’ll fluctuate relying on the kind of plan. Below 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.
