In this week's mailbag, we look at two recent inquiries: 1) what is the treatment of nonqualified deferred compensation for the purposes of the new 0.9% Medicare earned income tax starting in 2013; and 2) should you have separate Twitter accounts for your advisory firm and yourself personally, or just do everything personal and business from one account?
Thursday, January 3. 2013
MailBag: 0.9% Medicare Tax Withholding From Nonqualified Deferred Compensation And Separating Twitter Accounts For Personal And Business Use
Question/Comment: I have a client who is a retired executive scheduled to start receiving payments from a non-qualified deferred compensation plan.
This client would definitely be a “high income” individual.
I assume that the deferred comp would be subject to the 0.9% surtax. How would the 3.8% apply?
Indeed, you are correct that (if earned income is high enough) the new 0.9% Medicare surtax will apply to payments from nonqualified “retirement” plans. The latest guidance from the IRS (see Q35) indicates that the new Medicare tax will apply (and the income will be included to determine if the individual reaches the threshold) whenever it is that the wages would otherwise be subject to existing FICA taxes. This generally means the later of when services are performed, or when there is no substantial risk of forfeiture (i.e., when the nonqualified compensation vests). Notably, this means FICA taxes may well be due before the amounts are actually paid.
However, nonqualified deferred compensation is not taken into account for the purposes of the 3.8% Medicare tax on net investment income, as it does not meet any of the definitions under IRC Section 1411(c)(1) for determining what constitutes “net investment income”. In general, the rules for the 3.8% tax are written to ensure that any employment income subject to the 0.9% tax will not also be subject to the net investment income tax; the intent of the law is to tax income as either earned (0.9% tax) or unearned (3.8% tax), but not both. Of course, once payments are made out of the nonqualified deferred compensation plan, the assets are now simply assets of the individual, and any subsequent investment earnings on those assets will become subject to the 3.8% tax, as they are no longer sheltered under the plan.
Notably, this creates an interesting trade-off for deferred compensation. The upshot is that growth inside the plan avoids the 3.8% tax. The bad news is that the entire amount (growth AND principal) may become subject to the 0.9% tax, with the risk that having too much vest at once actually helps push an individual over the income threshold and subject more of the earnings to the tax.
Question/Comment: For better or worse, I am the "thought leader" and face of our firm. In building our Twitter presence, should I continue personally engaging under our firm's Twitter account, or should I have a separate account under my name and use the "firm" account for just "firm" communication?
At times it is difficult to engage in conversation under the firm's Twitter account and build connections with people and speak freely. On the other hand, if I created my own Twitter account, the firm's account may lose any value it has as a voice.
Your thoughts would be appreciated.
My answer about whether you should have a personal Twitter account, or ensure the firm's Twitter account retains its "voice" would really be “both”, but let me explain and clarify that.
If you’re trying to build a brand for your firm, then you should tweet under your firm’s name and not a personal account. But that doesn’t mean your firm’s Twitter account should be nothing but business. There’s still room to comment, connect, and engage; just remember that you’re doing it as a representative of your firm, so engage accordingly.
As a result, it may be helpful to have a separate, personal account as well. That’s where you share and engage in ways that are meaningful for you, personally, separate what you want to engage with on behalf of your firm.
The key difference is the audience you’re trying to target with each. The target audience for your firm’s Twitter account is (presumably) prospective and current clients, and perhaps some centers of influence you’re trying to reach with your brand. The target audience for your personal account is whoever you, personally, want to reach out to and connect with.
Here’s an example of why it matters. I know that your firm’s account often shares and retweets some of the content I produce on Nerd's Eye View, yet the reality is that much of the content I write is actually written for advisors, not clients. Consequently, it may feel relevant and interesting for you, personally (I hope!), but frankly it’s not really the kind of content you want/need to share from your firm’s account to your firm’s clients and prospects. Your clients don’t need to hear about the latest news from about the CFP certification's progress towards the fiduciary standard, or why I think financial planners should have a Google+ page. Your clients needs to hear about what your firm has to share that’s relevant to THEM, not what’s relevant to YOU (at least, unless your target clientele really are people just like you!). That’s where having both a firm and a personal account matters; your firm can share and engage with what’s relevant to your target audience, and your personal account can share and engage with what’s relevant to you, personally.
Of course, if you’re a sole proprietor and your business IS you, these often collapse down to a single personal/business combined account; even in those scenarios, though, I’d make the case that if the account is intended for business, the content, sharing, and engagement should be done with the business’ target audience in mind. It’s important, because with personal accounts we tend to forget and share what’s relevant to US, not what’s relevant to the people we do business with (which should be the purpose of a business Twitter account!), and this is equally true whether you're in a multi-advisor business or a advisory firm that is just you. That’s why most major firms and publications that are engaged in social media have a firm/company/business account, AND also many of their key writers/personnel/leaders have personal accounts as well. Because the personal account shares what’s relevant from the person, while the firm/company/business account shares what’s specifically intended to be relevant and useful to the business’ target clientele.
So the bottom line is that you should continue to use and engage with the firm’s Twitter account on behalf of the firm, and not share in ways that are about you personally. But that doesn’t mean the firm's Twitter presence becomes a staid one-way broadcasting channel that loses engagement and a unique voice. It just means that the firm’s account should have the voice and engagement of the firm, and provide content and insights relevant to the FIRM’s target audience. If you have some thoughts that you want to share personally – whether it’s news and commentary from Nerd's Eye View, or connecting with friends, family, professional colleagues, and more – that’s what the personal account is for. Fortunately, there are now many Twitter tools that are built for multiple accounts (such as Hootsuite) that make it pretty easy to manage, track, and post from multiple accounts.
cause us to take our eyes off of the true meaning. Fire.
So, oft in theologic wars The disputants, I ween, Rail on in utter
ignorance Of what each other mean; And prate about an Elephant
Not one of them has seen.