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Section 409A of the United States Internal Revenue Code regulates nonqualified deferred compensation paid by a "service recipient" to a "service provider" by generally imposing a 20% excise tax when certain design or operational rules contained in the section are violated. Service recipients are generally employers, but those who hire ...
While technically "deferred compensation" is any arrangement where an employee receives wages after they have earned them, the more common use of the phrase refers to "non-qualified" deferred compensation and a specific part of the tax code that provides a special benefit to corporate executives and other highly compensated corporate employees.
These general deferral of current income conditions of section 83 (as explained in revenue ruling 60-31) would give the 457(f) plan the deferral of tax desired. In 2004, Congress passed a tax act that added Section 409A to the tax code and applies to deferred nonqualified compensation, which also covers some 457(f) plans.
Deferred compensation is a way for employees to reduce their tax burden while ensuring their economic security in their golden years. Deferred compensation plans with a long vesting period are ...
Tax-deferred accounts have two main advantages over typical taxable accounts: First, they lower your annual taxable income when you contribute to them. When you add money to a tax-deferred account ...
An example of a rabbi trust applying where an employee receives compensation the taxation of which is deferrable is a nonqualified deferred compensation plan.. A rabbi trust may be applicable when one business purchases another business but wants to set aside part of the purchase price and defer payment as well as taxability to the payee upon the satisfaction of conditions to which both ...
A non-qualified deferred compensation plan or agreement simply defers the payment of a portion of the employee's compensation to a future date. The amounts are held back (deferred) while the employee is working for the company, and are paid out to the employee when he or she separates from service, becomes disabled, dies, etc.
However, the IRS treats option expense differently, and only allows their tax deductibility at the time the options are exercised/expire and the true cost is known. This means that cash taxes in the period the options are expensed are higher than GAAP taxes. The delta goes into a deferred income tax asset on the balance sheet.