W-2 Box 12 Code K may result in a penalty for which type of payment?

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The identification of Box 12 Code K on a W-2 relates specifically to "excess golden parachute payments." These payments are typically provided to executives or key employees when a company undergoes a change in control, such as a merger or acquisition. The tax rules stipulate that certain severance payments can be considered excessive if they exceed a specific threshold, leading to potential additional tax consequences.

When an employer reports these payments with Code K, it serves as an indication that the amount could be subject to a penalty if it surpasses the allowed limits. The Internal Revenue Service (IRS) has regulations to ensure that these golden parachute payments do not provide excessive economic benefits to executives without appropriate tax treatment. In particular, additional taxes may be imposed on the recipient if the payments fall into the excessive category.

The other options outlined do not correspond with the implications of Code K. Excessive pension contributions involve different types of reporting and compliance issues, while unreported income and underestimated tax payments focus on other aspects of compliance and do not relate directly to the specific reporting indicated by Code K.

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