Deferred Comp & Alternative Minimum Tax impact

[TCWalker]

Anyone suggest a link, article considering the AMT implications when an executive elects to defer a significant percentage of current compensation? Thanks!

[mbozek]

An election to defer comp reduces current taxation of wages. But wages are not a preference item that can generate AMT tax like state taxes or the bargain element of ISOs. The only possible AMT implication is that deferral of a significant amount of comp will reduce the execs regular income tax so that if there are too many AMT preference items ( state taxes, med expenses, exemptions, ISOs) the AMT will kick in to reduce some of the tax benefit of deferral. The AMT tax rate for income up to 175,000 is 26%.

[TCWalker]

Well, exactly. I suspect executives aggressively participating in a DCP also are likely to represent the wage-earners with significant annual deductions "AMT preference items", thus the deferral itself will, generally, aggravate their AMT situation. I guess the bottom line is the AMT calculated liability is very unlikely to result in a sum income tax owed that negates the benefit of making the pre-tax deferral.