Deferred Compensation Plan Tax Treatment In Chicago
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Multi-State
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Chicago
Control #:
US-00418BG
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Deferred compensation is an arrangement in which a portion of an employee's income is paid out at a date after which the income is actually earned. A Deferred Compensation Agreement is a contractual agreement in which an employee (or independent contractor) agrees to be paid in a future year for services rendered. Deferred compensation payments generally commence upon termination of employment (e.g., retirement) or death or disability before retirement. These agreements are often geared toward anticipated retirement in order to provide cash payments to the retiree and to defer taxation to a year when the recipient is in a lower bracket. Although the employer's contractual obligation to pay the deferred compensation is typically unsecured, the obligation still constitutes a contractual promise.
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Once distributions begin, the distributed monies are fully taxable as ordinary income for federal tax purposes. 1.12. "Deferred Compensation" means as to a Participant the amount of Deferral Contributions, Rollover.Income from the Deferred Compensation Plan is not subject to State of Illinois tax when taken as a qualified distribution. If you would like to adjust your state taxes, please completed and attach a state tax withholding form. Your contributions and any investment earnings are not taxed until you take a distribution from the 457(b) Deferred Compensation Plan. Income from the SURS Deferred Compensation Plan is not subject to State of Illinois tax when taken as a qualified distribution.