Understanding Tax-Deferred Compensation Limits

You set up a tax-deferred compensation deduction when you are deducting an amount from the employee's pay for a compensation program that defers taxes until the funds are distributed or until the funds are removed from the plan. In many cases, the government imposes limits on contributions to tax-deferred compensation plans. Your organization might also impose a limit on contributions to these plans. To simplify the process of administering a tax-deferred compensation plan, you can set up the deduction for the plan so that the system stops taking the deduction as soon as a limit is reached.