The Internal Revenue Code

The Internal Revenue Code (IRC) governs taxation in the U.S., including income, sales, and property taxes for individuals and employers. The IRS enforces the IRC and can penalize noncompliance by individuals or companies. Tax incentives have encouraged employers to offer retirement benefits since 1916, allowing contributions to be excluded from taxable income. Larger employer contributions to retirement plans can significantly reduce company tax liabilities. The IRC includes rules for both required (like Social Security and unemployment insurance) and discretionary benefits. Federal laws like FICA and FUTA impose taxes on employers and employees to fund Social Security and unemployment insurance programs. Employers and employees may deduct benefit costs from taxable income, but must meet IRS and ERISA rules for those deductions to be valid. Nondiscrimination rules require equitable treatment of employees to qualify for tax breaks—preferential treatment for key or highly compensated employees is prohibited. A "key employee" is generally a high-earning officer with significant responsibility and authority, as defined by the IRS. A "highly compensated employee" includes officers, major shareholders, certain highly paid individuals, and their spouses or dependents.