Quick Definition

Deferred compensation refers to a portion of an employee's income that is set aside to be paid at a later date, typically to benefit from tax advantages.

Examples

• 1A company executive opts to receive part of their salary in the future to reduce current taxable income.
• 2An employee participates in a 401(k) plan, deferring a portion of their salary into the plan, which is taxed upon withdrawal after retirement.
• 3A top-level manager receives stock options as part of their compensation package, which vests over several years and can be exercised at a future date.
• 4A small business owner defers receiving part of their income to align their earnings with future business expenses, potentially reducing their tax bracket.

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