In IRS Chief Counsel Advice (CCA) 201414018, the IRS concluded that dividend equivalents payable in cash that were granted as part of an award of restricted stock units ("RSUs") were subject to FICA taxes at the time of actual payment and were not nonqualified deferred compensation subject to FICA taxes at the time the related RSUs vested and company shares were issued in settlement of the vested RSUs.
In reaching these conclusions, the IRS determined that the dividend equivalents were a benefit that was separate and distinct from the RSUs on the basis that the dividend equivalents only were payable if the granting company actually declared and paid dividends on its common stock (i.e., award recipients did not have a legally binding right to dividend equivalent payments, which is one of the requirements for treatment as nonqualified deferred compensation for FICA tax purposes). The IRS also noted that the dividend equivalents were payable at different times as compared to the RSUs -- dividend equivalents were payable in cash at the time regular dividends were paid, whereas the RSUs were settled in company shares at the time of vesting. For these reasons, the IRS also concluded that the dividend equivalents were not FICA tax-exempt earnings on the RSUs.
The IRS' guidance under the CCA should not impact the ability to defer FICA taxes on dividend equivalents that accrue over the vesting period of RSUs and are payable at the time of RSU settlement, but please contact your GES attorney for additional information about the FICA tax treatment of different dividend equivalent structures that your company may be considering.