Deferred compensation, U.S. state and local governments | KPMG | GLOBAL

Section 457 deferred compensation plans, state and local governments

Deferred compensation, U.S. state and local governments

The Treasury Department and IRS today released for publication in the Federal Register a notice of proposed rulemaking (REG- 147196-07) under section 457 with respect to the tax rules for compensation that is deferred under plans established and maintained by state or local governments or other tax-exempt organizations.


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Today’s proposed regulations [PDF 300 KB] address when and what amounts deferred under a section 457 plan are includible in income. The types of plans not subject to these rules are also discussed. 

The proposed regulations will be published in the Federal Register on June 22, 2016. A public hearing on these regulations has been scheduled for October 18, 2016. Comments or requests for topics to be discussed at the hearing are due by a date that is 90 days after June 22, 2016.


As explained in the preamble, today’s proposed regulations:

  • Make certain changes to final regulations (2003) under sections 457(a), 457(b), and 457(g) to reflect statutory changes to section 457 that have been made since the publication of those regulations 
  • Provide guidance on issues under sections 457(e)(11) and 457(e)(12) that were not addressed in the final regulations and provide additional guidance under section 457(f)

The preamble states that while the rules under section 457 apply to plan participants and beneficiaries, without regard to whether the related services are provided by an employee or independent contractor, the proposed regulations often use the terms “employee” and “employer” to describe a service provider and a service recipient—without regard to whether the service provider is an independent contractor.

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