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Qualified plans meet requirements of the Internal
Revenue Code and receive special tax treatment under
the Code; non-qualified plans do not. In qualified
plans, the employer may take current tax deductions
for contributions to the plans and employees are not
subject to income taxes on contributions until they
withdraw the funds at a later date. Non-qualified plans
do not meet Code requirements, typically because they
are offered to a discriminatory group of employees.
Under non-qualified plans, the general tax rules apply
under which employer deductions are deferred until
the tax year in which employees must pay income taxes
on their benefits. Therefore, the employer tax deduction
is deferred on the employee’s income until a
future date when the employee’s income is recognized.
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