During christmases past, many executives merrily deferred receipt of their big year-end bonuses. It was an easy call. The funds could grow tax-deferred until an executive retired or left the company. And if he wanted them sooner for any reason at all, he could tap them simply by paying regular taxes and a company-set penally (or "haircut") of as little as 2%. Now Congress has played Grinch. Executives who cash in future deferrals early (except for a few specified reasons) will owe a hefty 20% tax penalty—twice that paid by folks taking early distributions from Individual Retirement Accounts or 401(k)s. The penalty is part of a new section of the tax code clamp-ing down on salary and bonus deferrals, executive retirement and benefit plans, severance packages, discounted stock options and even stock appreciation rights. The section also puts executives' deferred money at greater risk if a company tanks and forces employees to decide earlier whether to defer future pay.
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