Tax Consequences Under Section 409A Clause Samples
The "Tax Consequences Under Section 409A" clause defines how compensation arrangements are structured to comply with Section 409A of the Internal Revenue Code, which governs the taxation of nonqualified deferred compensation. This clause typically outlines the employer’s and employee’s responsibilities to ensure that deferred payments, such as bonuses or severance, are not subject to additional taxes or penalties due to noncompliance. Its core function is to allocate the risk of adverse tax consequences and clarify that the employee is responsible for any taxes or penalties resulting from a violation of Section 409A, thereby encouraging both parties to structure compensation in a compliant manner.
Tax Consequences Under Section 409A. (i) In the event that any amount arising from this Agreement is includable in Executive’s gross income for a taxable year of the Executive under Section 409A of the Internal Revenue Code as the result of the terms of this Agreement and/or the administration of those terms (“the Included Amount”) and a 20% additional tax is owed under Section 409A, then the Company shall pay to the Executive an amount equal to the 20% additional tax imposed under Section 409A on the Included Amount, together with any underpayment penalties and interest (the “Additional Tax”) resulting from the inclusion of the additional amount. The Company also will pay the Executive an additional amount necessary to “gross up” the Executive for additional income taxes on the Additional Tax payment.
(ii) The payments required by this Section 6(b) will be made on the earlier of (a) the thirtieth day following the date on which it is finally determined by a court or administrative agency that the Included Amount was includible in Executive’s income as the result of the application of Section 409A(a)(1)(B) to the Included Amount; or (b) the last day of the Executive’s taxable year next following the taxable year in which the Executive remitted the taxes due as the result of the application of Section 409A(a)(1)(B) to the Included Amount.
(iii) It shall be a condition precedent to the Company’s obligations under this Section 6(b) that the Executive (a) has given the Company written notice of any determination by the Executive, or any claim by any taxing authority, that he owes Additional Tax as the result of the inclusion of the Included Amount; (b) that such notice was given as soon as practicable but no later than ten (10) business days after the Executive makes such determination or is informed of such claim; (c) that such notice shall, to the extent Executive has or may reasonably obtain such information, apprise the Company of the amount of such Additional Tax and the date on which it is required to be paid. If the Company gives the Executive written notice at least thirty (30) days prior to the due date for payment of such Additional Tax, or within ten (10) business days of having received the foregoing notice from the Executive (whichever is later), that it disagrees with or wishes to contest the inclusion of the Included Amount and/or the amount of the Additional Tax, the Company and the Executive shall consult with each other and their respective tax advisors regarding the amount and ...