Deferred Compensation

Chapter 5 of Part 10 of Division 2 of the Revenue and Taxation Code deals with deferred compensation under the California Personal Income Tax Law.

Section 17501 provides that Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to deferred compensation, applies. Part I of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to pension, profitsharing, stock bonus plans, etc., and Part III of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to rules relating to minimum funding standards and benefit limitations, apply.

Section 17501.5 states that the amendments made by Section 641 of the Economic Growth and Tax Relief Reconciliation Act of 2001 to specified provisions of the Internal Revenue Code apply for state law, with specified exceptions.

Section 17501.7 states that the amendments made by Section 647 of the Economic Growth and Tax Relief Reconciliation Act of 2001 apply for purposes of specified sections of this Code.

Section 17501.8 states that specified amendments made by the Consolidated Appropriations Act, 2023 apply for purposes of this Code.

Section 17502 provides that, in addition to the application of Part II (commencing with Section 421) of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to certain stock options, Section 421(a) of the Internal Revenue Code also applies to any California qualified stock option that is granted to an individual whose earned income from the corporation granting the California qualified stock option for the taxable year in which that option is exercised does not exceed $40,000. In the event that the option does not meet the necessary qualifications, the option is treated as a nonqualified stock option. The term “California qualified stock option” is defined.

Section 17504 states that the provisions of Section 402 of the Internal Revenue Code, relating to taxability of beneficiaries of employees’ trusts, are modified as specified.

Section 17506 states that the provisions of Section 403 of the Internal Revenue Code, relating to taxation of employee annuities, are modified as specified.

Section 17507 states that the provisions of Section 408 of the Internal Revenue Code, relating to individual retirement accounts, are modified.

Section 17508 states that the provisions of Section 408(o) of the Internal Revenue Code, relating to definitions and rules relating to nondeductible contributions to individual retirement plans, are applicable.

Section 17508.2 states that Section 409A of the Internal Revenue Code is modified as specified.

Section 17509 states that Sections 413(b)(6) and 413(c)(5) of the Internal Revenue Code, relating to liability for funding tax, do not apply.

Section 17510 states that Section 7701(j) of the Internal Revenue Code, relating to Federal Thrift Savings Funds, applies.