Client left his employment last year and received a payment of over $200,000 in deferred compensation. It is not reflected on the W-2 or any 1099. I had the client inquire about this, and he received a response that "These accounts were set up as a non-prototype trust account, meaning tax reporting was not done from a 1099 standpoint. 1099s will not be generated. I can provide historical statements as needed. Let me know what your accountant will need."
Although I haven't seen anything to confirm it, the client tells me this was a nongovernmental 457b held in trust by the charitable employer, and he requested a lump-sum distribution upon separation of service. Any suggestions on how to report this significant income item on the tax return?
What makes it even more complicated is that his home state, Pennsylvania, does not tax retirement income, but I don't know how this would be categorized without seeing any tax reporting. Thanks in advance.
I'd start with the plan document and other communication/statements your client should have received from or be made available by the employer.
Still an AllStar
"as a non-prototype trust account,"
Also called "Top Hat" plans with "rabbi trust." That description from the client isn't quite right.
There would be reporting on W2. Not 1099-R.
"In the plan documents, look for the distribution options. The default distribution option for a nongovernmental 457 plan is a lump sum distribution within 60-90 days of severance from the employer. Also known as separation from service, this means you get ALL of your deferred salary reported in a W-2 in a lump sum in one tax year."
"The issue with Medicare and FICA taxes is different than qualified plans. Since this is considered deferred salary, you must pay Medicare and FICA taxes if owed. In addition, when you get distributions, you are issued a W-2 by your employer rather than a 1099 as from a qualified plan. Usually the salary you defer is above the wage limit for social security, so you just pay the 1.9% FICA tax upon deferral."
I was reading this just last week: https://www.fiphysician.com/non-governmental-457b/
"Level Up" is a gaming function, not a real life function.