Assuming that there is a 409A violation and that the additional 20% income tax is imposed, would this additional income tax be witheld by payroll, or would it need to be paid/resolved by the employee when they file their tax return? I was unable to locate any guidance that addresses this issue. Thanks.

Amount includible as gross income under 409A in a taxable year is subject to wage withholding rules. - IRC 3401(a) last sentance. See notice 2005-1 Q31-33. The 20% tax will be due when the 1040 is filed so employee should pay estimated taxes to avoid the underwithholding penalty or increase withholding on wages.

So the employer does not have to withhold the 20% additional income tax...it continues to withhold under the employee's current withholding elections. Thank you.