Deferred Compensation

Ten Reasons Your Company Should Consider a Deferred Compensation Plan for Your Executives

  • The income tax rate for earners in excess of $450,000 ($400,000 for single filers) has been increased to 39.6%.
  • There is a new 3.8% (2013) investment tax for joint filers with over $250,000 of income.
  • These combined taxes will make the total marginal rate approximately 52%, depending on the state of residence.
  • Capital gains and dividend income rates will increase to 20% for incomes over $450,000 ($400,000 for single filers)
  • A deferred compensation plan permits the deferral of base and incentive compensation on a pre-tax basis.
  • Bonus compensation earned in the current year to be paid in the following year can be deferred if elected by June 30.
  • All deferred funds accumulate tax deferred until paid to the executive.
  • Securities traded inside a deferred compensation plan by a plan participant do not create a taxable event until funds are paid from the plan.
  • A federal tax statute permits deferred compensation payments of 10 years or greater to be taxed in the state of residence at the time they are paid.  Residents in a state with no income tax (i.e. Florida) would avoid a state tax on deferred compensation payments.

This material is intended for informational purposes only and is not intended to replace the advice of a qualified tax advisor.

This information has been taken from sources which we believe to be reliable, but there is no guarantee as to its accuracy