Section 409A

Section 409A is a part of the U.S. tax code that regulates non-qualified deferred compensation plans. It sets rules about how and when certain types of compensation can be paid in the future, such as bonuses or stock options. The purpose is to prevent employees from manipulating their pay schedules to avoid taxes. If companies don’t comply with these rules, employees can face hefty tax penalties. Essentially, Section 409A aims to ensure that deferred compensation is treated fairly and transparently, protecting both the employer and the employee financially.