Capping Tax-Free NQDC

As the GOP searches for ways to offset the costs of extending the 2017 tax cuts, many different proposals have been floated to limit the value of tax-preferred employee benefits. One such proposal would put a cap on the value of funds that can be accumulated tax-free via an employer-sponsored deferred compensation arrangement. This type of benefit generally allows a taxpayer to defer a portion of their otherwise available compensation and simultaneously defer taxation on those funds until the employee actually receives the income. Often, deferred compensation plans allow the employee to defer taxation on the compensation until they have reached retirement.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about proposals to put a cap on the amount of tax-free nonqualified deferred compensation a taxpayer can accumulate.

Below is a summary of the debate that ensued between the two professors.