Understanding Tax-Deferred Compensation

You set up a tax-deferred compensation deduction to deduct an amount from an employee's pay for compensation programs that defer taxes until the funds are distributed or until the funds are removed from the plan. A Registered Retirement Savings Plan (RRSP) is an example of a tax-deferred compensation deduction. A tax-deferred compensation deduction is generally based on a percentage of employee gross pay. For example, an employee might contribute 10 percent of gross pay to an RRSP.

Important: Do not change the taxable status for any DBA in the middle of the year. Previously calculated taxable amounts and taxes do not automatically change as the taxable status changes. You must enter an end date to the current DBA and create a new DBA with the new taxable status. If necessary, add the new DBA to the group plan and employee level DBAs with an appropriate start date.