Compensation planning under the new tax law

HRS Insight

The American Taxpayer Relief Act of 2012 (the Act), while keeping federal income tax rates the same for almost all Americans, significantly increased ordinary income and capital gains tax rates for executives and other high earners. By raising the threshold at which the top rates apply, the Act makes deferring compensation attractive, because there is more likelihood that the compensation may be subject to tax at lower marginal rates when it is received. This Insight summarizes the tax rate provisions of the Act and then addresses available planning opportunities, including various means of compensation deferral.

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