Section 415(c) Treasury regulations clarify that compensation can include post-severance compensation if it is paid within the later of 2½ months after separation from service or the end of the calendar year in which severance occurs. 26 C.F.R. 1.415(c)-2(e)(3). The governingTreasury regulation is published at

Post-severance compensation eligible for deferral

  • Regular compensation for services during the employee's regular working hours:

    • salary

  • Compensation for services outside the employee's regular working hours:

    • overtime

    • shift differential

    • commissions

    • bonuses

    • other similar payments for work outside regular working hours

  • Back pay for lost wages, such as grievance payments

  • Unused bona fide sick and vacation or other leave pay, if the employee
    would have been able to use the leave if employment had continued

Compensation not eligible for deferral

  • Early retirement incentives

  • Early retirement notification incentives

  • Grievance payments that are not back pay for lost wages or salary