As some of you know, Section 409A of the Code contains a very helpful exception for “short-term deferrals.”  More specifically, Section 409A provides that a payment will not be considered “nonqualified deferred compensation” if the employer makes payment to the employee no later than the 15th day of the third month following the end of the employer’s (or, if later, the employee’s) taxable year in which the employee’s right to the payment vests.

Most employer’s annual incentive programs are structured (or could be structured) to qualify for the short-term deferral exception to Section 409A.  If an employer’s fiscal year is the calendar year, this means that 2013 annual incentive payments that are intended to qualify for the short-term deferral exception must be paid by March 15, 2014.