New Tax Increases Make Deferral of Compensation a (More) Valuable Benefit for Many Employees

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This article describes how the new additional Medicare tax, tax on net investment income, higher marginal tax rates, and phase-out and reductions of personal exemptions and itemized deductions make the use of compensation deferral techniques a potentially significant benefit to employees.

The combination of the new additional Medicare taxes on wages, additional taxes on certain investment income of higher income taxpayers, and the new higher marginal income tax rates on both ordinary income and capital gains make income deferral opportunities a potentially valuable benefit for many employees. Because many taxpayers are likely to be subject to these additional taxes or higher tax rates during some or all of their remaining working lives, yet not subject to some or all of these increased taxes in other years or following their retirement, managing the date of recognition of taxable income by use of available deferral techniques can produce actual tax savings. Consequently, many employees are now positioned to use tax deferral techniques to obtain actual reductions in taxes and not just deferral of taxes.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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