Deferred compensation, also known as deferred pay, refers to a form of compensation that is earned by an employee in one year but paid out in a later year. This can be a useful tool for both employees and employers, as it allows for greater flexibility in structuring compensation packages. However, there are certain exceptions to the rules governing deferred compensation, one of which is the #Shorts exception.

The #Shorts exception, also known as the short-term deferral exception, allows for certain types of deferred compensation to be excluded from the rules governing deferred compensation if the compensation is paid out within a short period of time. Specifically, under this exception, deferred compensation can be exempt from the rules if it is paid out within 2 1/2 months following the end of the employee’s taxable year in which the compensation was earned.

This exception can be particularly beneficial for employees and employers who want to structure compensation packages that include short-term deferrals, such as bonuses or commissions. By utilizing the #Shorts exception, employees can receive their compensation in a timely manner, while employers can still take advantage of the benefits of deferred compensation.

It’s important to note that the #Shorts exception is subject to certain limitations and conditions. For example, the compensation must be paid out by the end of the 2 1/2 month period following the end of the employee’s taxable year in which the compensation was earned. Additionally, the compensation must be paid out in cash or other property that is readily tradable on an established securities market.

In conclusion, the #Shorts exception can be a valuable tool for both employees and employers looking to utilize deferred compensation in their compensation packages. By understanding the rules and limitations of this exception, businesses can structure their compensation packages in a way that meets the needs of both parties.

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