All three situations appear to have the same economic interests between the parties and the final payment is based on the value of the sale of the business, without management`s ability to gain an advantage over creditors or other shareholders appears to be able to gain an advantage. However, section 409A penalizes the structure of phantom actions, but does not affect a SAR option or structure. A. With respect to the Federal Insurance Premiums Act (FICA), deferred compensation is excluded in the later (1) year in which related services are provided or (2) in the year in which deferred compensation is paid. The provision for provision and forfeiture provisions ends with respect to the question of whether the rights are transferred to the executive. If Phantom share units are defused, the value of phantom share units as wages subject to FICA and Medicare taxes is excluded. This is the case, even if the sums are only subject to income tax when they are actually paid to the employee. If the employee`s base salary (before the phantomstock) exceeds the FICA compensation base, no additional FICA tax would be taken on Phantom Stock payments. However, the company and the worker would be subject to Medicare payroll tax, since the Medicare tax is levied on total wages, with no salary cap. Oddly enough, in the example, although it looks and works like the SAR program, the Phantom Action Plan is treated differently for Section 409A purposes.
The Phantom action plan contains a formula for the value of the benefit. Although the formula provides the same value to the value of the stock, it is not considered SAR because its advantage rests on the agreement on the phantom shares and not on the value of the stock. Under Regs. Paragraph 1.409A-1 (b) (1) provides for deferred compensation to the extent that the worker is legally entitled to the rights conferred by the plan. The regulation also stresses that the operation of the plan, including the evaluation of formulas, may limit rights, does not involve a significant risk of forfeiture of the rights of the plan and is therefore not excluded from paragraph 409A. As a result, Phantom Stock plans are subject to Section 409A, although SARs are not. As such, the executive, for example, would create an excise duty of $18,000 upon conversion. Converting an interest rate on phantom shares into real ownership is one of the many pitfalls in Section 409A that involve private companies. To illustrate the problem, take the example: the value of the business that was assigned to the management program at the beginning of the program is $10,000, its value at the time of conversion to real ownership is $100,000 and the value of the stake at the time of sale is $200,000.
The executive is fully equipped and is paid only in case of a change of control of the company. If one compares the conversion of a phantom interest with that of an equity option or a SAR, it should be considered that no choice was made under section 83 (b). Ghost values are calculated on the basis of a plan formula close to the actual value of the share price. Has. As a general rule, the actual payment of benefits is deferred until a predetermined date or until the termination of the employment relationship due to retirement, death or disability. The Phantom Stock plan should indicate when Phantom Stock payments should begin, to what extent the evaluation of units is usually triggered as described above. In addition, the plan should determine whether the payment of the specified value should be made in a single lump sum or in increments over a one-year period. With respect to staggered payments, the plan should also indicate whether interest is being collected on unpaid payments. When making these provisions, the entity should take into account any phantom stock valuations and the company`s cash flow.
Even if payments are made after the termination of the recipient`s service, the method of payment is still, as a general rule, compensation for those who were employed prior to termination. As part of a