Top US Earners Could Enjoy Better Tax Benefits

by Mike Godfrey, Tax-News.com, New York

30 November 2001

According to employee benefit research firm, Hewitt Associates, highly compensated employees will receive more tax advantages next year as a result of expected new rules and regulations.

CBS Market Watch has reported that under the new rules the definition of a highly compensated employee would be revised to include individuals earning $90,000; the Internal Revenue Service will release the official figure by the end of this year.

Presently, anyone who earns $85,000 or more is viewed as highly compensated and is eligible for more complex employee benefit packages. The higher threshold is the first in a range of revisions that give more to people with higher incomes.

Timothy McDonald, an attorney who specializes in employee benefits at von Briesen, Purtell & Roper, told CBS Market Watch that the new deferred compensation opportunities for key executives and highly compensated employees will begin 1 January, 2002.

Mr McDonald confirmed that the new regulations willl allow more employees to benefit from the traditional benefit plans instead of receiving compensation through a "top hat" plan which an employer uses to compensate top executives who are prevented from participating in a traditional employee benefit plan because they earn too much.

The top hat plan falls outside the Employee Retirement Income Security Act (ERISA) ruling which disallows discrimination by income of benefits among employees. 'An employer may want to give more to highly compensated employees without jeopardizing their plan's status,' said Mr McDonald, 'a top hat plan allows them to do that.'

Recommended