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Are Non-Qualified Benefit Plan for HCE's Taxable in CO if Earned in TX?

Tommy_G_123

I am currently a resident of TX. I am retiring next month and moving to CO. I will become a CO resident. For 3 years each June beginning in 2027 I will receive my deferred compensation payments from the Non-Qualified Benefit Plan for HCE's that was funded by my employer while I was a TX resident. Since this was earned and funded while I worked and was a resident of TX, will CO consider these 3 installments taxable income each of the 3 years even though the payouts will occur when I am a CO resident?

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Tommy_G_123

Thank you

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Tommy_G_123

At the end of my post I meant to write, "…. will CO consider these 3 installments taxable income each of the 3 years because the payouts will occur when I am a CO resident regardless of where it was earned?"

KristineS

Hi Tommy_G_123,

Thanks for joining our Community and writing in with your question.

Deferred compensation is first taxed at the federal level regardless of where you live.

In general, however, it is taxed in the state where you worked and earned the money. Since Texas has no state income tax filing requirement this works out very well. However, once you move and become a Colorado resident this may not be the case.

Whether or not Colorado will tax the income as a Highly Compensated Employee (HCE) may depend more on the 10-year rule for deferred compensation payouts and/or Section 409A of the Internal Revenue Code.

Both of which are outside the scope of our services to determine.

According to the Colorado Individual Income Tax Guide:

"Colorado income tax is based generally on federal taxable income, although various modifications and adjustments are made in the calculation of Colorado income tax. Colorado law requires certain additions, and permits certain subtractions, in the calculation of Colorado taxable income."

Under Part 4, a long list of income types that are allowed to be excluded from Colorado state income tax does not include deferred compensation.

You may wish to consult with a licensed tax professional (outside of this community and FreeTaxUSA Pro Support) to better understand the nuances and possible income tax consequences of your particular situation.

Tommy_G_123

Thank you