Section 409A of the Internal Revenue Code

Section 409A of the Internal Revenue Code governs nonqualified deferred compensation plans, which are agreements to pay employees or service providers at a future date. It sets rules on how and when these payments can be made to ensure they are reported as taxable income appropriately, thus preventing tax avoidance. Key requirements include restrictions on when the money can be accessed and conditions under which the payment can be deferred. Violating 409A can result in immediate tax penalties for the recipient, making compliance crucial for employers and plan participants.