Taxes relating to 457 plans can be confusing for tax exempt entities. Here are some key points to know:
- 457b and 457f plans are deferred compensation retirement plans that are offered to a select group of higher compensated or key management employees in a tax exempt entity.
- Both employees and employers can make contributions to the 457b plan up to a certain IRS limit each year on a tax deferred basis. Only the employer can make contributions to a 457f.
- With a 457b plan, contributions are not subject to income tax withholding until a distribution is made from the plan. But amounts are subject to FICA tax generally when the employee becomes vested.
- With a 457f plan, amounts are subject to both income tax withholding and FICA tax upon vesting.
- Employee and employer annual deferrals to a 457b plan are reported in Box 12g on the Form W-2. The amounts are reported as wages on Form W-2 with a 457f plan.
- Schedule J of the Form 990 asks if any of the individuals listed on Schedule J participated in or received payment from a supplemental nonqualified retirement plan (Part I, #4b). If any of the listed employees either participated in or received a distribution from a 457f plan, you must mark “yes” and then describe the arrangement in Part III, including the amounts. You would not mark “yes” for this question if you only had a 457b
- Taxable distributions from a 457 plan are not reported in Part VII of the Form 990.
- Deferrals to a 457f plan (because they are taxable) are reported as bonus/incentive compensation on the Form 990.
- Deferrals to a 457b plan (because they are not taxable) are reported as retirement and other deferred compensation of the Form 990.
For some more current information, check out this article on 2020’s cost of living adjustments on retirement plans.
If you still have any questions on the above, or about 457 plans in general, please don’t hesitate to contact a Henry+Horne tax professional. For more information on how Henry+Horne can help with your taxes, head over to our Accounting Services page.
Colette Kamps, CPA, Partner