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Friday, June 13, 2014

Pop Quiz

Could you be taxed on compensation that you'll never receive?
a) Yep.
b) Nope.
c) It depends.
Let's say you have a 401(k) plan. When you retire, you would pay FICA tax on the present value calculation of your retirement benefits. But, then you get the money, right? Not if your employer goes bankrupt before you get it.

That happened to this guy, a retired pilot for United. He retired in 2004, two years after United entered bankruptcy proceedings. In 2010, United made final payments required under its reorganization plan. In all, the pilot collected about 22% of the benefits due him before United stopped paying. But he paid 100% of the FICA tax when he retired in 2004.

He sued for a refund of the taxes on that portion of the benefits he would not be receiving.

He lost.

Class dismissed.

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