Hypothetical tax queston

The answer to your hypothetical question is, it depends.

More specifically, but not specifically enough to be very useful, it depends upon facts you did not provide (or create) for your hypothetical scenario.

In order to avoid having to include the whole amount in income under the economic benefit theory doctrine, the employer would have to set up a "rabbi trust". This is a form of a nonqualified deferred comp plan that is funded (most nonqualified deferred comp plans are unfunded in order to avoid immediate taxation) but the plan must specify that the assets in the plan are available to the employer's creditors.

There is a lot of information available on the internet about this. Use any search engine to look for "rabbi trust".

"AndyS" wrote

If you own and control the annuity and can pick the time and amount of the disbursements, then it's all income in year 1.

If they own and control the annuity, and can cease payment at any time, then it's income to you as you receive it.

Andy comments: Thanks, Alan. That was exactly the info I needed to understand this item.... There's lots of info on google about "rabbi trust", but this is the first time I have ever seen the term, and didn't know to look for it...

Andy in Eureka, Texas

My understanding is that if there is a contract entered into before the money is earned, calling for distributions over a period of years, and the recipient has no right to accelerate the payments, they are taxed when received, even if the agreement could have called for all the payments to be received within one tax year.