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Employer Reporting Basics

Deferred Compensation Plans

Deferred compensation plans are employer sponsored plans that allow employees to voluntarily reduce their taxable wages by investing a percentage of their gross pay in the plan through payroll deductions. An employee’s taxable federal, state and local wages are reduced, but retirement benefits are calculated using gross pay. Therefore, you must report the total gross wages on your monthly report.

For example, an employee earning $1,000 bi-weekly opts to deposit 5 percent in a deferred compensation plan. The plan receives $50 and the taxable income is reduced to $950, but you must include $1,000 for the period on the monthly report to the Retirement System.

If you are interested in establishing a deferred compensation plan or have questions about these plans, please contact the Internal Revenue Service (IRS). The IRS administers deferred compensation plans and decides whether a plan meets the criteria.