Starting in 2025, there can be new limits on the quantity of compensation that may be deferred below nonqualified deferred compensation (“NQDC”) plans. These limits are designed to stop using NQDC plans as a solution 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.
Underneath present legislation, there is no such thing as a restrict on the quantity of compensation that may be deferred below 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 can be primarily based on the worker’s W-2 wages, and they’ll fluctuate relying on the kind of plan. Underneath 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.
