Taxation of Executive Compensation .
Explain the different tax principles applied to deferred and current compensation plans?
1 In deferred tax compensation plan tax liability does not arises when the compensation is actually earned whereas in current compensation plan tax liability arises when the compensation is earned.
2. Deferred compensation plan is taxable on the receipt of income whereas current compensation plan is taxable as and when it is earned.
3. In case of deferred compensation plan witholding is applicable in the year of actual payment of compensation.
4. Also tax is applicable on the earnings you get on deferrel of compensation.
5 . In case of deferrel compensation plan if income is received prior to the trigerring event then tax will be applicable immediately on entire compensation even if only a portion of compensation is received.
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