409A Deferred Compensation Penalty Estimator

Estimate the cash you must remit when Section 409A rules are violated. Enter the deferred balance, how many months the distribution was late, and your combined marginal tax rate to surface the immediate income inclusion, the automatic 20% penalty, accumulated IRS interest, and an even monthly reserve to rebuild liquidity.

Total nonqualified deferred compensation tied to the violation.
Count months between the scheduled and actual payment dates.
Blend federal, state, and payroll taxes owed when the income is accelerated.
Defaults to 4.50% when blank, mirroring the typical IRS underpayment rate plus one point.

For planning only. Work with your tax advisor to confirm penalty exposure, filing requirements, and available corrections under IRS guidance.

Examples

  • $250,000 deferred amount, 9 months late, 37% marginal rate, 4.5% interest ⇒ Immediate tax inclusion: $92,500.00 USD • 20% excise penalty: $50,000.00 USD • Interest for 9 months at 4.50%: $8,437.50 USD • Total cash due now: $150,937.50 USD • Set aside $16,770.83 USD per month over 9 months to replenish cash reserves
  • $120,000 deferred amount, 0 months late, 32% marginal rate, interest blank (defaults to 4.5%) ⇒ Immediate tax inclusion: $38,400.00 USD • 20% excise penalty: $24,000.00 USD • Interest for 0 months at 4.50%: $0.00 USD • Total cash due now: $62,400.00 USD • Set aside $5,200.00 USD per month over 12 months to replenish cash reserves

FAQ

Does the calculator include state 409A penalties?

Some states add their own excise tax. Layer those charges on top of the federal total shown here if your jurisdiction imposes an additional penalty.

How do I handle multiple deferrals with the same issue?

Sum the includible amounts for all affected plans and enter the aggregate figure so the penalty reflects the combined exposure.

What if the company covers part of the penalty?

Subtract any employer gross-up or reimbursement from the total cash due to see the net amount you must personally remit.

Should I use calendar months or exact days?

IRS interest accrues daily, but using whole months keeps the estimate readable. If you need a precise figure, convert days late to a fractional month and enter that value.

Additional Information

  • Penalty math follows IRS Section 409A rules: 20% excise tax on the includible amount plus interest at the underpayment rate plus one percentage point back to the vesting year.
  • Interest defaults to 4.50% when left blank to approximate current IRS guidance; update the rate to reflect the quarter the violation is assessed.
  • Monthly reserve guidance simply spreads the total liability over the delay window (or 12 months if discovered immediately) to pace cash planning.

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