# Getting Paid After You Move: Ohtani, Bonuses and RCAs

> 4 U.S.C. § 114 and Ohtani's $680m: how a deferred payout escapes state tax, where § 409A and § 457A bite, and what the Tavares dispute with the CRA turns on.

Author: Maria Plotnikova — Lawyer, Family Office (https://wiki.private.law/en/authors/plotnikova)
Last modified: 2026-09-06T07:31:00.000Z
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Cite as: Getting Paid After You Move: Ohtani, Bonuses and RCAs. wiki.private.law. https://wiki.private.law/en/deferred-comp-relocation. Version 9217402eb90163675c21830360b5ae67a4aec957096fd7f7ddf76400d5bb156c.
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---

## The premise: the work happens here, the money arrives there

Deferred compensation is not a scheme, it is a calendar. The work is done in one jurisdiction; the money lands ten years later, when the person lives somewhere else. From there three questions diverge, and they are routinely collapsed into one: does the country where the services were performed tax the payment; does the country of the new residence tax it; and does the sub-federal layer — state, province, autonomous community — tax it. Shohei Ohtani's contract with the Los Angeles Dodgers became the teaching example precisely because it hits exactly one of those three axes, the state one, and leaves the other two untouched.

The key parameters of the regime, to which the rest of the analysis keeps returning.

- Core provision · 4 U.S.C. § 114 (Pub. L. 104–95 of 10 January 1996, as amended in 2006)
- Who qualifies · A person who is neither resident nor domiciliary of the US state, receiving "retirement income"
- Condition · Substantially equal periodic payments, at least annually, over no less than 10 years, or an excess benefit plan
- State effect · 0% instead of California's top rate of 13.3%
- Federal layer · Up to 37%; 30% withholding at source for a non-resident under § 1441
- Constraints · § 409A — election before the year of service, 20% penalty plus interest; § 457A — inclusion when the risk of forfeiture lapses
- Other jurisdictions · Canada — 15% under Art. XVI(4) only for an inducement, RCAs carrying 50% refundable tax; UK — by the period earned for
- Status at date · 4 U.S.C. § 114 stands in its 2006 form; no amendment as of 12 August 2026

## 4 U.S.C. § 114: the federal bar on states taxing a non-resident's pension income

The provision was enacted by [Pub. L. 104–95 of 10 January 1996](https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title4-section114&num=0&edition=prelim) and amended by Pub. L. 109–264 of 3 August 2006. Subsection (a) is as short as it gets: "No State may impose an income tax on any retirement income of an individual who is not a resident or domiciliary of such State." The state simply stops being a source — even though the services were performed on its territory.

The whole weight sits in the definition of "retirement income" in subsection (b)(1). Subparagraphs (A)–(H) run through the qualified vehicles: a § 401(a) trust, SEPs, § 403(a) and § 403(b) annuities, IRAs, § 457 plans, governmental plans. Private capital cares about subparagraph (I) — the non-qualified arrangements described in § 3121(v)(2)(C) of the Code, which are protected not automatically but on one of two conditions:

- the payment forms part of a "series of substantially equal periodic payments (not less frequently than annually)" made for the recipient's life or life expectancy, or **over a period of not less than 10 years** (clause (i));
- the payment is a post-termination payment under a plan maintained solely to provide retirement benefits in excess of the limits of § 401(a)(17), § 401(k), § 401(m), § 402(g), § 403(b), § 408(k) or § 415 (clause (ii), the excess benefit plan).
The proviso closing subsection (b)(1) permits indexation: cost-of-living adjustments and formula-based ceilings on the aggregate amount do not break the "substantially equal periodic payments" test.

California implemented the bar through § 17952.5 of the Revenue and Taxation Code and spelled out the mechanics in [Legal Ruling 2011-02](https://www.ftb.ca.gov/tax-pros/law/legal-rulings/2011-02.pdf): a non-resident is protected only if the payment schedule fits the federal test. A lump sum, or instalments running shorter than ten years, remain California-source income subject to withholding.

> ⚠️ Three standard mistakes, each of which wipes out the § 114 shield. A nine-year schedule: the test demands "not less than 10 years". A lump sum instead of a series: a single payment is not "periodic payments". And the most expensive one — keeping the domicile. Section 114 protects a person who is neither a resident nor a domiciliary of the state **under that state's own law**, and California and New York define domicile through factual connections, not through the date on the moving van. More in [residence tests and treaty tiebreakers](https://wiki.private.law/en/tax-residency-tiebreaker).

## The Ohtani contract: $2 million a year now, $68 million a year from 2034

The architecture of the ten-year, $700 million agreement signed in December 2023 splits into two periods.

| Period | Per year | Period total |
| --- | --- | --- |
| 2024–2033 seasons | $2 million | $20 million |
| 2034–2043 | $68 million | $680 million |
| Whole contract | — | $700 million |

That is precisely the schedule described in 4 U.S.C. § 114(b)(1)(I)(i)(II). On the published descriptions of the deal the deferred amounts carry no interest — Sportico worked through the economics of that concession separately.

The state arithmetic is simple. California's top marginal rate is 13.3%, and if the $680 million is received in non-resident status the state collects nothing. State Controller Malia Cohen and the California Center for Jobs and the Economy put the forgone revenue at up to $98 million, roughly $9.8 million a year; Forbes estimated about $90 million. Both numbers describe state tax, not federal.

The political response never got past a request. [Senate Joint Resolution 14](https://sd13.senate.ca.gov/news/press-release/april-15-2024/senate-passes-resolution-calling-congress-to-close-the-shohei), authored by Senator Josh Becker, passed the California Senate on 15 April 2024 and calls on Congress to set a "reasonable cap" on deferred compensation for high earners; the resolution names no figure and carries no binding force. As of August 2026 4 U.S.C. § 114 stands in its 2006 form, unamended — the official text of [4 U.S.C. § 114](https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title4-section114&num=0&edition=prelim) is marked as reflecting laws in effect as of 12 August 2026.

> ⚙️ A procedural checklist for reading the contract. 1) Find the schedule: how many payments, at what frequency, over what period — the period must be no shorter than ten years and the amounts substantially equal (indexation is fine). 2) Check for acceleration clauses or any right to demand early payment: they break both the § 114 test and § 409A(a)(3). 3) Document the termination of domicile in the source state before the first payment year: driving licence, voter registration, principal home, doctors, children's schools. 4) Price the federal layer separately.

## What § 114 does not cover: § 864(c)(6) and withholding on the way out of the US

The federal layer survives intact: a top rate of 37%, and § 114 has nothing to say about it.

Leaving the United States altogether, rather than merely leaving California, is the harder problem. Compensation for services performed in the US remains US-source income under § 861(a)(3), allocated on a time basis under [Treas. Reg. § 1.861-4(b)(2)(ii)](https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFRa834962dae07957/section-1.861-4) — normally by the ratio of US to non-US working days over the period in which the pay was earned, not over the year of payment.

And § 864(c)(6) expressly allows the deferred income to be taxed in the year of receipt even though the recipient no longer carries on a US trade or business. The mechanics are assembled in the IRS [International Practice Unit on deferred compensation of non-resident aliens](https://www.irs.gov/pub/fatca/int_practice_units/deferred-compensation-nra.pdf): 30% withholding under § 1441 on FDAP and pension payments, graduated withholding under § 3402 for effectively connected income, reporting on Forms 1042 and 1042-S, treaty relief claimed through a W-8BEN or Form 8233, and allocation of defined benefit plan payments under Rev. Proc. 2004-37.

The upshot for a Japanese national going home in 2034: the US keeps the right to tax the American share, the treaty allocates taxing rights rather than removing tax, and everything turns on whether the pension article or the employment article of the treaty applies. Adjacent reading: [exit taxes](https://wiki.private.law/en/exit-taxes-overview) and [expatriating from the US tax system](https://wiki.private.law/en/us-expatriation-exit-tax).

## Two federal constraints: § 409A and § 457A

### § 409A: the schedule cannot be replayed around a moving date

The commonest misconception is that a deferral can be "retuned" once the decision to move has been taken. [26 U.S.C. § 409A](https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-section409A&num=0&edition=prelim) shuts that door with three rules.

Initial election timing, § 409A(a)(4)(B): the decision to defer compensation for services in a taxable year must be made **no later than the close of the preceding taxable year**; for a first year of plan eligibility, within 30 days of becoming eligible and only as to services performed after the election; for performance-based compensation over a period of at least 12 months, no later than six months before the end of that period.

Subsequent deferral, § 409A(a)(4)(C): a new election takes effect no earlier than 12 months after it is made, and the payment must be pushed back **by at least five years** from the original date. Add § 409A(a)(3): the plan must not permit acceleration. The price of failure is set by § 409A(a)(1)(B): the entire deferred amount is included in income, and the tax is increased by interest at the underpayment rate plus one percentage point running from the year of first deferral, plus **20% of the amount included**.

> 💡 The practical point: deferred compensation is the one relocation-planning instrument that is built **before the year in which the services are performed**, not before the move. If a move is expected in three to five years, the deferral election is made now, not when the ticket is booked. Asset sale timing, dividend distributions and option exercises are flexible; a § 409A schedule is not.

### § 457A: the trap in contracts from no-tax jurisdictions

[26 U.S.C. § 457A](https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-section457A&num=0&edition=prelim), introduced by Pub. L. 110–343 of 3 October 2008, targets deferrals payable by a "nonqualified entity" — exactly the structure that appears when the counterparty is a club or a platform in a country with no income tax.

Rule (a): compensation deferred under a non-qualified plan of a nonqualified entity is included in income **when the substantial risk of forfeiture lapses** — meaning the deferral of tax does not work at all. Under (d)(1)(A) a risk of forfeiture exists only where entitlement is conditioned on the future performance of substantial services; a payment schedule is not a risk. A nonqualified entity under (b)(1) is any foreign corporation, unless substantially all of its income is either effectively connected with a US trade or business or subject to a "comprehensive foreign income tax"; the latter is defined in (d)(2) as either eligibility for benefits under a comprehensive income tax treaty with the US, or a demonstration to the Secretary that the payer's country imposes a comprehensive income tax.

The exception in (d)(3)(B) is the short deferral: compensation is not treated as deferred if it is paid within 12 months after the end of the payer's taxable year in which the risk of forfeiture lapsed. Where the amount is not determinable, (c) applies: inclusion in the year it becomes determinable, plus interest at the § 6621 rate plus one percentage point and **20% of the amount**.

### Saudi Arabia and the UAE: zero going in, a question going out

The Kingdom does not tax employment remuneration — the PwC summary is blunt: there is no individual income tax where the earnings come only from employment in Saudi Arabia. For a player or a coach that is a zero on the way in. But for a US taxpayer negotiating with a Saudi club to take part of the package "later", § 457A is live: there is no comprehensive income tax treaty between the US and Saudi Arabia, test (d)(2)(A) fails, and what remains is proving a comprehensive income tax under (d)(2)(B) — in a kingdom that does levy corporate income tax and zakat. There is no published IRS guidance on Saudi clubs; the practice is still forming. The outline of the regimes sits in the [Saudi Arabia](https://wiki.private.law/en/saudi-arabia) overview.

The Emirates likewise have no personal income tax, a 9% corporate tax has applied since June 2023, and the treaty network is wider — for a US person that does not remove the § 457A analysis, but it changes the inputs. Residence mechanics are in [UAE tax residence](https://wiki.private.law/en/uae-tax-residency).

## Canada, Tavares and what counts as a genuine inducement

The Canadian storyline runs through Article XVI(4) of the [Canada–United States tax convention](https://www.treaty-accord.gc.ca/text-texte.aspx?id=102365): an amount paid by a resident of one state to a resident of the other "as an inducement to sign an agreement relating to the performance of the services of an athlete" may be taxed in the first state, but the tax "shall not exceed 15 per cent of the gross amount".

John Tavares signed a seven-year agreement with the Toronto Maple Leafs in 2018 — these are its money terms and the amount in dispute.

- Term · Seven years, from 2018
- Signing bonus · roughly US$70.89 million
- Salary · about US$5.23 million
- First tranche · US$15.25 million on 1 July 2018, subject to 15% withholding and escrow
- CRA reassessment · November 2022, taxable income for 2018 increased by some C$17.77 million
- Tax at stake · between C$6.8 million and C$8 million

The CRA's position: this is salary under Article XV, not an inducement, taxable at an Ontario rate above 50%. The player's position: the bonus was not contingent on playing and was payable even if he was injured.

As of August 2026 the dispute has **not been heard on the merits**. The appeal was filed in January 2024, and on 27 March 2026 Justice Edward Cook dismissed the Crown's motion to examine a representative of Maple Leaf Sports and Entertainment, holding that the Crown had not exhausted its opportunity to question Tavares himself at the November 2024 discovery, and awarded costs to the player. No hearing date has been set.

How the CRA reads Article XVI(4) is visible from its internal interpretation 2020-0869441I7 of 14 July 2022: the agency refused the 15% rate because, on the terms of the contract, the bonus was payable in proportion to services actually rendered — and a link to performance turns the payment into remuneration for work. The same instinct, look at the substance rather than the label, traces back to the Khabibulin case.

> ⚠️ The caption on a contract line decides nothing. To claim the 15% rate under Article XVI(4) the payment must be unconditional precisely as an inducement to sign: not pro-rated against services rendered, not repayable on an early departure, not dependent on appearances. Any hook into performance, and the CRA recharacterises the amount as salary at the full provincial rate. How this fits the general rules is set out in [Article 17 of tax treaties](https://wiki.private.law/en/article-17-sportspersons) and [UK practice on sportspeople](https://wiki.private.law/en/uk-sportsperson-tax).

## RCAs: the Canadian structure and the lesson of Martin

A retirement compensation arrangement is Canada's answer to the non-qualified pension plan: the employer pays contributions to a custodian, they are deductible for the employer and excluded from the employee's income under paragraph 6(1)(a)(ii) of the Income Tax Act, and tax falls on distribution. The price is the refundable tax under [subsection 207.5(1) ITA](https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-207.5.html): **50% of all contributions** plus 50% of the trust's income and gains, reduced by 50% of distributions made. Under subsection 207.7(1) the custodian remits that difference annually and under 207.7(2) recovers it as distributions are paid — half the money sits in Ottawa, interest-free, until it is paid out.

The point for a player in a North American league is to shift receipt into the years after the career, when he is no longer a Canadian resident. The controlling authority is Martin v. The King, 2024 TCC 153, decided in December 2024: Russell Martin and Josh Donaldson of the Toronto Blue Jays each performed about 40% of their duties in Canada and took part of their package as RCA contributions. The fight was over the arithmetic — in what order to apply the Canadian share and the deduction for the contribution.

| Step | CRA version | Court version |
| --- | --- | --- |
| First | US$20 million less the $2.5 million contribution | 40% of $20 million — $8.0 million |
| Second | 40% of $17.5 million | less the $2.5 million contribution |
| Canadian income | $7.0 million | $5.5 million |

Justice Gagnon sided with the taxpayers: the exclusion in paragraph 6(1)(a)(ii) is a computational rule applying only to a non-resident's Canadian-source income, so the share is taken on the whole package first and the contribution deducted afterwards.

Two caveats in the same judgment matter more than the arithmetic. RCA contributions cannot be applied against foreign-source income. And an arrangement that reduces Canadian income to nil does not meet the RCA requirements at all and looks instead like a salary deferral arrangement with immediate inclusion; Martin and Donaldson supported the size of their contributions with an actuarial opinion. No appeal from the decision had been publicly reported as of August 2026. Distributions to a non-resident are taxed under Part XIII (25% by default), and a treaty may reduce the rate — see [withholding tax](https://wiki.private.law/en/withholding-tax) and [pensions and relocation](https://wiki.private.law/en/pensions-relocation).

## The United Kingdom: the year the money was earned "for"

The British system does not ask when a payment was received; it asks which period it was earned for. HMRC guidance [EIM40012](https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim40012) sets the presumption: absent evidence to the contrary, a performance bonus is "for" the period in which the performance occurred, not the year of payment, and where the period straddles tax years, section 16(4) ITEPA 2003 applies with a just and reasonable apportionment.

The treatment of post-departure payments was settled by the Upper Tribunal in [Saunders v HMRC](https://caselaw.nationalarchives.gov.uk/ukut/tcc/2025/374), \[2025\] UKUT 374 (TCC), of 31 October 2025. Michael Saunders worked for a UK company from April 2008 to July 2016, received stock appreciation rights in April 2013, ceased to be UK resident in August 2016, and in January 2017 received £1,236,956 following a change of control.

He argued that the tax charge arose on the grant of the rights and that the payment fell into the non-resident part of a split year. The tribunal dismissed the appeal on both grounds: what is taxed is the payment itself, not the value of the rights at grant, and it was "earned in, or otherwise in respect of" the period of UK employment regardless of status on the date of receipt.

Adjacent reading: [the UK statutory residence test](https://wiki.private.law/en/uk-tax-residence), [split year treatment](https://wiki.private.law/en/split-year-treatment) and [Overseas Workday Relief](https://wiki.private.law/en/uk-overseas-workday-relief).

## Where the tax lives, and in what order to work through it

| Level / jurisdiction | Fate of the payment after the move | Rate | Provision and condition |
| --- | --- | --- | --- |
| US state (California) | Not taxable in the hands of a non-resident if it is "retirement income" | 0% instead of up to 13.3% | 4 U.S.C. § 114; RTC § 17952.5 — substantially equal payments over ≥10 years or an excess benefit plan |
| US federal | Taxable as US-source income regardless of departure | up to 37%; 30% at source for a non-resident | § 861(a)(3), § 864(c)(6), § 1441; Treas. Reg. 1.861-4(b)(2)(ii) |
| Payer in a no-income-tax country | Included when the risk of forfeiture lapses — no deferral at all | ordinary rate; +20% and interest if not determinable | § 457A(a), (b)(1), (c), (d)(3)(B) |
| Canada, non-resident | The Canadian share is taxed by reference to where services were performed | above 50% in Ontario; 15% only for a genuine inducement | Art. XVI(4) Canada–US convention; CRA 2020-0869441I7 |
| Canada, RCA distribution | Taxed on distribution; 50% of contributions frozen until paid out | 25% Part XIII, treaty may reduce | ss. 207.5(1), 207.7 ITA; Martin, 2024 TCC 153 |
| United Kingdom | Taxable if earned for a period of UK employment | up to 45% | s. 16(4) ITEPA 2003; EIM40012; Saunders, 2025 UKUT 374 (TCC) |
| Saudi Arabia | Employment remuneration is outside the base | — | no income tax applies to earnings from employment |
| UAE | No personal income tax | — | 9% corporate tax since June 2023 |

The working order is the reverse of the intuitive one. First the schedule: it is fixed before the year in which the services are performed (§ 409A) and it has to clear the ten-year test (§ 114). Then the payer: one based in a country without a comprehensive income tax can void the whole structure through § 457A. Then the character of the payment: a signing bonus, salary, an excess benefit, an RCA distribution all travel under different treaty articles, and recharacterisation is the principal source of dispute, as Tavares and interpretation 2020-0869441I7 both show. And only at the end the date of the move and the severance of domicile: it works only once the earlier conditions are met.

What the country of departure withholds and what the country of arrival does with the payment when it lands is laid out for twelve jurisdictions in the [relocation matrix](https://wiki.private.law/en/relocation-matrix). Related structuring: [a holding company for a creator](https://wiki.private.law/en/creator-holdco) and [visa routes for athletes](https://wiki.private.law/en/athlete-visas).

> 🍓 The short answer. Deferral saves **state** tax, not federal. 4 U.S.C. § 114 bars a state from taxing a non-resident's "retirement income" — but only for substantially equal payments over at least ten years, or an excess benefit plan. Ohtani takes $680 million in ten $68 million tranches across 2034–2043; California collects nothing. § 864(c)(6) taxes deferred income after departure. The schedule cannot be rewritten later (§ 409A), and § 457A can collapse it where the payer's country lacks a comprehensive income tax. Canada's 15% under Article XVI(4) reaches only a genuine inducement; the UK taxes by the period earned for.

## Q/A

### **Can a bonus be received after a move and taxed nowhere**

Almost never. The country where the services were performed normally keeps the right to tax its share: the US through § 861(a)(3) and § 864(c)(6), Canada through its source rules, the UK through the link to the period of employment. Relief is realistic at the sub-federal level (4 U.S.C. § 114 for US states) or where the country of new residence does not tax such income and the treaty allocates the taxing right to it.

### **Does the Ohtani structure work for an ordinary executive rather than an athlete**

4 U.S.C. § 114 has nothing to do with sport: it applies to any plan, programme or arrangement described in § 3121(v)(2)(C) of the Code, which covers standard corporate NQDC plans. The conditions are identical — substantially equal periodic payments no less frequently than annually over a period of at least ten years, or post-termination payments under a plan exceeding the qualified plan limits — and so is the critical element: an actual termination of residence and domicile in the source state.

### **Why is the CRA fighting Tavares when the 15% rate is written into the treaty**

Because the 15% in Article XVI(4) applies not to any bonus but to an amount paid "as an inducement to sign an agreement". The CRA treats the Tavares payment as remuneration for work under Article XV at the full Canadian rate; it set out its reading in interpretation 2020-0869441I7: if the bonus is proportionate to services rendered or contingent on appearances, it is salary. As of August 2026 the merits have not been heard — only a procedural ruling of 27 March 2026.

### **What does an RCA achieve and what does it cost**

An RCA takes part of the package out of the player's current taxation and lets him receive it after the career, potentially as a non-resident of Canada. The cost is the refundable tax under subsection 207.5(1) ITA: 50% of contributions and 50% of trust income go to Ottawa and come back only as distributions are made, so half the money is idle. The condition drawn from Martin, 2024 TCC 153 is that the size of the contributions be supported by an actuarial calculation; otherwise the arrangement risks recharacterisation as a salary deferral arrangement with immediate inclusion.

### **Is it risky to agree a deferral with a club in a country that has no income tax**

For a US taxpayer, yes, and it is rarely factored in. Section 457A includes compensation deferred by a nonqualified entity in income when the risk of forfeiture lapses, not when it is paid. A foreign corporation is a nonqualified entity where its income is neither effectively connected with a US trade or business nor subject to a "comprehensive foreign income tax"; that tax is demonstrated either by eligibility for benefits under a comprehensive treaty with the US or to the satisfaction of the Secretary. The rescue is the exception in (d)(3)(B) — payment within 12 months after the end of the payer's relevant year.

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## Factual claims

- The whole weight sits in the definition of "retirement income" in subsection (b)(1).
- The proviso closing subsection (b)(1) permits indexation: cost-of-living adjustments and formula-based ceilings on the aggregate amount do not break the "substantially equal periodic payments" test.
- California implemented the bar through § 17952.5 of the Revenue and Taxation Code and spelled out the mechanics in Legal Ruling 2011-02: a non-resident is protected only if the payment schedule fits the federal test.
- The architecture of the ten-year, $700 million agreement signed in December 2023 splits into two periods.
- That is precisely the schedule described in 4 U.S.C. § 114(b)(1)(I)(i)(II).
- The federal layer survives intact: a top rate of 37%, and § 114 has nothing to say about it.
- And § 864(c)(6) expressly allows the deferred income to be taxed in the year of receipt even though the recipient no longer carries on a US trade or business.
- The commonest misconception is that a deferral can be "retuned" once the decision to move has been taken. 26 U.S.C. § 409A shuts that door with three rules.

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