Deferred Compensation

Tax Glossary Definition

Deferred Compensation

Deferred Compensation – Deferred compensation refers to earnings that an employee accrues during their service but receives at a later date, typically after retirement or upon fulfillment of certain conditions. It functions as both a retention tool and a tax-deferral mechanism, postponing income recognition and taxation until the payment is made.

Example: A company may defer a portion of an executive’s annual bonus to be paid five years later as part of a deferred compensation agreement.

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