A non-qualified, deferred compensation plan established by state and local governments and tax-exempt governments and tax-exempt employers. Eligible employees are allowed to make salary deferral contributions to the 457 plan. Earnings grow on a tax-deferred basis and contributions are not taxed until the assets are distributed from the plan. Employees are allowed to defer up to 100% of compensation not exceeding the applicable dollar limit for the year. If the plan does not meet statutory requirements, the assets may be subject to different rules.
Any income or losses that cannot be classified as passive. Nonpassive income includes any type of active income, such as wages, business income or investment income. Nonpassive losses include losses incurred in the active management of a business. Nonpassive income and losses are usually declarable and deductible in the year incurred. Nonpassive income and losses cannot be offset with passive losses or income. For example, wages or self-employment income cannot be offset by losses from partnerships or other passive activities. Conversely, nonpassive losses cannot be offset by passive income from partnerships or other sources of income in which the taxpayer is not a material participant.
An individual who mainly resides in one region or jurisdiction but has interests in another region. In the region where he or she does not mainly reside, he or she will be classified by government authorities as a non-resident. The classification itself will be determined in each region based on set circumstances such as the amount of time spent within the region during the calendar year. This classification is focused on where the person resides and does not focus on citizenship. For example, many individuals live in one state but have business in another region and derive income from sources within that region. If a non-resident generates taxable income within another region, he or she will have to file a separate tax return within the region compared to residents of that region. In other cases, a non-resident may have to pay more to go to college in a state where he or she does not primarily reside.
A type of employer-sponsored employee welfare benefit plan. 419(e) welfare benefit plans qualify under paragraph (e) of Section 419 of the Internal Revenue Code. They provide a range of benefits to employees, such as life, health, disability, long-term care and post-retirement medical. These plans can be either target contribution or target benefit in design, and are intended to provide additional financial stability for employees during their retirement years. The same company pays for all of the benefits of the plan, and does not pool benefits among employees of other companies. Irrevocable cash contributions are made on behalf of the employees on a periodic basis. The assets in these plans are usually held by an independent trustee, and are exempt from seizure by any creditors the company may have. The Internal Revenue Service (IRS) issued revised guidance in October 2007 that excluded some benefits for plans that were funded with permanent insurance. This plan can also keep contributions made for key employees separate from those of rank-and-file employees.
A state tax levied against performers whose legal residence is outside of the state where the performance is given. The tax requires that a certain percentage of any gross earnings from the performance be withheld for the state. A non-resident entertainer is an individual, partnership or corporation that entertains people for compensation by performing before a live audience in an area outside their legal residence. The non-resident entertainers' tax is different for each state that uses the tax. Missouri, for example, enforces the tax as 2% of gross earnings for a performance. California, on the other hand, required 7% of gross earnings as of 2010. Each participating state also has special requirements, such as the minimum contract amount above which the tax will apply.
A tax credit that can't reduce the amount of tax owed to less than zero. If the credit were able to reduce the amount of tax owed to less than zero, the taxpayer would be entitled to a payment from the government.Also referred to as a "wastable tax credit." Watch: Tax Deduction Vs. Tax Credit A tax credit is applied to the amount of tax owed by the taxpayer after all deductions are made from his or her taxable income. For example, before credits, if the tax owed to the IRS is $500 and the taxpayer has a tax credit of $200, the total amount owed is $300. If the taxpayer has total non-refundable credits of $600, his or her tax bill will be $0 ($500 tax bill - $600 in non-refundable tax credits). An example of a non-refundable tax credit is the saver's tax credit, which is available to taxpayers who make contributions to retirement savings plans.
A defined-benefit pension plan designed for small business owners in the United States. This is a tax-qualified benefit plan, so any amount that the owner contributes to the plan becomes available immediately as a tax deduction to the company. The plan must be funded solely by guaranteed annuities, or a combination of annuities and life insurance. These plans have been developed for small business owners who find it difficult to invest in their company, while also trying to save for retirement. This plan is unique in that it provides fully guaranteed retirement benefits, it must be funded by an insurance company and it provides the largest tax-deduction possible.Due to the large premiums that must be paid each year, this plan may not be ideal for all small business owners. This plan would tend to benefit small businesses that are established and quite profitable.
1) A distribution from a Roth IRA that occurs before the Roth IRA owner meets certain requirements (see definition for qualified distributions). 2) A distribution from an education savings account that exceeds the amount used for qualified education expenses. Typically, when a distribution is non-qualified, the amount attributable to earnings will be subject to income tax and an early-distribution penalty of 10%.
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