What general tax consequence does an employer face under a nonqualified deferred compensation plan?

The employer's general tax consequence in relation to a nonqualified deferred compensation plan is that they receive a deduction when the employee recognizes income. This occurs because the employer can only deduct the amount contributed to the employee’s nonqualified deferred compensation plan when the employee reports that income on their tax return.

In a nonqualified deferred compensation plan, there is typically no immediate tax impact for the employer upon contribution. The employer must wait to take the tax deduction until the employee has actually received the funds and recognized them as income. This timing aligns the employer's tax benefit with the employee's recognition of income, therefore providing a strategic advantage in managing cash flows and tax implications.

Regarding other aspects, the employer is not taxed on contributions to the nonqualified plan at the time those contributions are made, nor are additional payroll taxes typically applied to deferred amounts. The employer also does not face immediate tax consequences, as the primary tax impact arises only when the employee recognizes income from those contributions and not at the point of deferral.