IRS Severance Pay Provisions in Employment Agreements

December 1, 2012

Many employment agreements provide severance pay upon a change in control or a termination without cause if the employee signs a release of claims. The Internal Revenue Service (IRS) has noted that these types of agreements may cause problems under Section 409A of the Internal Revenue Code. The IRS has given employers until December 31, 2012 to correct a problem frequently found in severance agreements and other similar arrangements.