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February 19, 2009

Compensation

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Definition

Income used for purposes of determining amount of contributions made to an employer sponsored plan or IRA.

For common-law employees, compensation is usually salary, wages bonuses and tips.

For purposes of making an IRA contribution, compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services are compensation.

For unincorporated business owners, compensation is usually net-earnings from self-employment.

Referring Cite

IRC §415(c)(3)(D)(2), IRC §3401(a), Form W-2, Governing Plan document, Publication 590

Additional Helpful Information

  • Compensation may be defined differently for certain purposes, such as non-discrimination testing.
  • Qualified plan documents should be consulted to determine the various definitions of compensation, and when they apply
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