Distributions

(a) Any payer that maintains an office or transacts business within this state and that makes a distribution or payment that is, or is treated as if it is, wages on which federal income tax shall be deducted and withheld from a plan to a—

(1) resident individual, shall file a Form CT-W3, with a duplicate of the "state copy" of the federal Form W-2, with the Department on or before the due date for filing the federal Form W-2.

(2) nonresident individual from whose wages Connecticut income tax has previously been withheld by the payer, shall file a Form CT-W3, with a duplicate of the "state copy" of the federal Form W-2, with the Department on or before the due date for filing the federal Form W-3.

(b) The term "distribution or payment from a plan" means a distribution or payment of deferred compensation, and includes, but is not limited to, a supplemental executive retirement ("top hat") plan distribution, income recognized under section 83 of the Internal Revenue Code, income characterized as compensation upon exercise of nonqualified stock options, and other benefit plans.

(c) The following examples illustrate the application of this section:

Example 1: On January 1, 1991, X Corporation sells to E, a nonresident employee working only in Connecticut during 1991, 100 shares of its stock for $15 per share. At that time, the fair market value of the stock is $20 per share. The stock is subject to a substantial risk of forfeiture: if E terminates her employment within two years, she shall return the stock to X Corporation at her original purchase price of $15 per share. On January 1, 1993, the fair market value of the stock is $30 per share and E's substantial risk of forfeiture has lapsed. At that time, E shall include in her Connecticut adjusted gross income for that taxable year, as compensation, $1,500 ($15 per share). (This is equal to the value of the stock at the time the restriction lapsed ($30 per share) less the amount E paid for the stock ($15 per share).) Because X Corporation had withheld Connecticut income tax from E's wages during 1991, X Corporation shall report the amount of the distribution on its Form CT-W3, and file that form, with a duplicate of the "state copy" of the federal Form W-2 (without being required to indicate how much of the payment is Connecticut wages) for E, with the Department, whether or not E is still working for X Corporation in Connecticut. (X Corporation may but is not required to indicate how much of the payment is Connecticut wages.) If E sells her stock three years later for $50 per share, she shall recognize a capital gain of $20 per share that is not derived from or connected with sources within this state.

Example 2: Assume the same facts, except that E elects under section 83(b) of the Internal Revenue Code to include the fair market value of the property in her federal gross income in the taxable year during which such property was transferred. At the time of the initial sale of the stock to E, E shall include in her Connecticut adjusted gross income for that taxable year, as compensation, $500 ($5 per share). (This is equal to the value of the stock at the time of the election ($20 per share) less the amount E paid for the stock ($15 per share).) X Corporation shall report such amount on its Form CT-W3, and file that form, with a duplicate of the "state copy" of the federal Form W-2 for E, with the Department. (X Corporation may but is not required to indicate how much of the payment is Connecticut wages.) If E sells her stock three years later for $50 per share, she shall recognize a capital gain of $30 per share that is not derived from or connected with sources within this state.

Example 3: On January 1, 1985, Y Corporation and F, a nonresident employee, enter into an employment contract, one of the provisions of which is that F, upon terminating his employment with Y Corporation, shall receive an additional $500,000, one-tenth of which shall be payable in 10 equal annual installments, the first such installment to be paid one year after F terminates his employment. F terminates his employment on June 30, 1994. As an employee, F performed services for Y Corporation partly within and partly without Connecticut. Y Corporation shall report such amount on its Form CT-W3, and file that form, with a duplicate of the "state copy" of the federal Form W-2 for F, with the Department. (Y Corporation may but is not required to indicate how much of each installment is Connecticut wages.) For those years in which installments are received, F shall include in his Connecticut adjusted gross income derived from or connected with Connecticut sources the percentage of F's deferred compensation that is determined under § 12-711(b)-19 of Part II.

(Effective November 18, 1994)

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