Employee Benefits & Compensation Terms

An 83(b) election is a choice to be taxed on restricted property, usually founder or early-employee shares, at the moment it is transferred rather than as it vests. It is filed within 30 days of the transfer, it cannot be undone, and if the shares are later forfeited the tax paid is not recoverable.

A 401(k) is an employer-sponsored retirement account funded straight from your paycheck, often with matching money from your employer. You can contribute up to $24,500, plus catch-up contributions starting at age 50, and choose between pre-tax (traditional) and after-tax (Roth) treatment.

A 403(b) is an employer-sponsored retirement plan for employees of public schools, tax-exempt nonprofits, and certain ministers. It works much like a 401(k) — payroll-deducted contributions, a deferral limit of $24,500, and traditional or Roth treatment, but with its own investment menu and quirks.

A 457(b) is a tax-advantaged deferred compensation plan offered by state and local governments and some nonprofit employers. It shares the deferral limit of $24,500 with 401(k)s and 403(b)s, but governmental and non-governmental versions work very differently once you look past the contribution limit.

Accidental death and dismemberment coverage pays a lump sum if the insured dies in an accident, and a stated fraction of that sum for the loss of a hand, a foot, sight, hearing or speech. It pays nothing when the cause is illness, which is why it is not a substitute for life insurance.

The alternative minimum tax is a parallel federal tax calculation that disallows certain deductions and counts certain income the regular calculation ignores. A taxpayer computes both and pays the higher one, and for most households that ever owe it, the trigger is a large incentive stock option exercise.

Automatic enrollment is a retirement plan design that starts deferring a percentage of an employee's pay unless the employee opts out. For most 401(k) and 403(b) plans created after 2022 it is no longer optional: Internal Revenue Code section 414A requires it, along with an annual escalation of the default rate and a default investment.

The bargain element is the difference between what employer stock is worth and what the employee paid for it. It is not an IRS term, and the same two words name four legally different amounts, measured on four different dates, with four different tax results.

Base salary is the fixed cash pay an employee receives for their work, before any bonus, commission, overtime, or equity. It is a smaller figure than total pay, but it is the one many benefits are quietly calculated from, which makes it matter more than its size suggests.

A blackout period is a stretch of time in which someone is temporarily barred from acting on holdings they own. Three different windows go by the name, in two separate bodies of federal law and one set of company policies, and they do not mean the same thing.

Bonus tax withholding is how an employer holds back tax from a bonus, most often at a flat 22% rate. That withholding is a prepayment, not the final tax, so a bonus is not actually taxed at a higher rate than the rest of your pay.

A cafeteria plan is a written employer plan that lets employees choose between cash wages and a menu of tax-favored benefits without being taxed on the choice itself. It is the legal machinery behind almost every pre-tax payroll deduction on an American pay stub.

COBRA continuation coverage is the federal right to keep the employer group health plan you were already on, at your own expense, after an event that would otherwise end it. The coverage is identical to what you had; what changes is that you now pay the whole cost, including the share your employer used to pay, plus an administrative charge.

Commission income is variable pay a worker earns as a percentage of the sales or business they generate. As an employee's earnings it is taxable wages with its own withholding quirks; it is a different thing from a commission a customer pays a salesperson for buying a product.

Commuter benefits are the pre-tax transit, vanpool and parking benefits an employer may provide under Internal Revenue Code section 132(f), which the Code itself calls a qualified transportation fringe. Transit and parking carry separate monthly limits and an employee may use both in the same month.

A concentrated stock position is a single stock that makes up an outsized share of a household's wealth, most often accumulated employer stock. Unwinding one is complicated by taxes on the built-in gain, and sometimes by trading restrictions, which is why several specialized tools exist for it.

A defined benefit plan is a retirement plan that promises a specific payout, usually a monthly amount for life, calculated from a formula based on salary and years of service. The employer funds it, invests it, and bears the risk of being able to pay what it promised. Almost everyone calls it a pension.

A defined contribution plan is a retirement plan in which contributions, not the eventual benefit, are set by a formula. 401(k)s, 403(b)s, TSPs, and profit-sharing plans are all defined contribution plans: the account balance depends on what goes in and how it's invested, not on a promised payout.

Dental insurance is coverage for dental care, usually sold separately from medical coverage. Federal law treats limited-scope dental as an excepted benefit, which puts it outside the rules that govern major medical plans and is why a dental plan can cap what it pays in a year.

A dependent care FSA lets an employee set aside pay before tax to reimburse the cost of care that lets them work. The statutory ceiling is only the first of four limits, and the ones that actually cut an election down are the earned income test, the related-person rule and nondiscrimination testing.

Direct deposit is an electronic credit that a payer, usually an employer or a government agency, pushes into your account on a schedule. Because the payer initiates it rather than you, the rules that govern it are about notice, crediting, and who is allowed to require it.

Disability insurance replaces part of your income if illness or injury keeps you from working. It protects the asset most working people never think to insure: their ability to earn a paycheck for the next few decades.

A disqualifying disposition is a sale of incentive stock option or employee stock purchase plan shares that fails one of the required holding periods, so part of the gain becomes ordinary income in the year of the sale. No tax is withheld on it, which is the trap.

Double-trigger vesting means an equity award pays out only when two separate conditions are met, not one. The phrase names two entirely different pairs of conditions, and which pair applies decides whether a corporate sale is good news for the holder.

An elective deferral is the part of your pay you choose to have your employer put into a workplace retirement plan instead of handing you as cash. It is the formal name in the tax code for what most people call a 401(k) contribution, and it covers both pre-tax and Roth versions.

An employee assistance program is an employer-sponsored service offering short-term confidential counseling and referrals for personal problems that affect work, usually at no cost to the employee. Federal law gives it a four-part legal test, and whether it passes decides how it is regulated and whether it can block your health savings account contributions.

ERISA is the 1974 federal law that sets minimum standards for private-sector retirement and health plans. It does not require an employer to offer a plan; it governs the plans employers choose to offer, and it is the reason you are entitled to plan documents, vesting protection, a claims appeal, and a federal right to sue.

An employee stock ownership plan is a qualified retirement plan designed to invest primarily in the employer's own stock, which the employer contributes. It is the one retirement plan ERISA expressly excuses from the duty to diversify, and that exception is the whole of what makes it different.

An employee stock purchase plan (ESPP) lets employees buy company stock through payroll deductions at a discount, often 15% off the lower of two prices, making a well-run ESPP one of the few near-guaranteed returns in personal finance.

Employer adoption assistance is an employer-provided benefit that reimburses or pays an employee's qualified adoption expenses, excluded from taxable income under Internal Revenue Code section 137. It is a separate benefit from the adoption tax credit, and a family can use both for the same adoption.

An employer donation match is a workplace-giving benefit in which a company donates to the same charity an employee gave to, usually matching the employee's gift dollar for dollar up to an annual cap, effectively doubling the gift to the charity.

An employer match is money your employer contributes to your workplace retirement plan, like a 401(k), based on how much you contribute yourself, typically up to a stated percentage of your pay.

Equity compensation for startups is the stock, options, or restricted stock units a private, early-stage company grants employees in place of, or on top of, cash pay. What sets it apart from public-company equity is that the shares have no market to sell into, their value is set by appraisal rather than a stock price, and the outcome is highly uncertain.

The ESPP discount is the reduction from market price at which an employee stock purchase plan lets you buy company stock, up to 15% under a qualified plan. A lookback feature applies that discount to the lower of two prices, which is where the real return comes from.

An exempt employee is one the Fair Labor Standards Act removes from both its minimum wage and its overtime requirements, because the employee's salary and duties fit one of the categories Congress carved out. It is a single legal status decided by a test, not a job title an employer can assign.

The Family and Medical Leave Act (FMLA) is the federal law giving eligible employees up to 12 weeks of unpaid, job-protected leave a year for specified family and medical reasons, with group health coverage continued during the leave.

A flexible spending account is an employer-sponsored arrangement under section 125 of the Internal Revenue Code that lets an employee set aside part of their salary before tax to reimburse medical expenses. The election is made before the year starts, is generally locked for the whole year, and money left unspent at the end is forfeited unless the employer offers one of two limited relief options.

Form W-2 is the annual statement an employer must give each employee, and file with the Social Security Administration, reporting the wages paid and the taxes withheld. Its official title is "Wage and Tax Statement," and the figure in Box 1 is deliberately not the same as gross pay.

Form W-4 is the IRS form an employee gives their employer to set how much federal income tax is withheld from each paycheck. Its official title is "Employee's Withholding Certificate," and since the 2020 redesign it works in dollar amounts rather than the withholding allowances it used to count.

A fringe benefit is anything of value an employer provides beyond wages. The default rule is that it is taxable income, and it escapes tax only where a specific statute says so, which is why some benefits are invisible on a pay stub and others show up as wages.

Garden leave is an arrangement under which an employer pays someone to stay away from work. In the United States the phrase names two different things: a notice period served away from the office while still employed, and a Massachusetts statutory clause requiring pay during the restricted period of a noncompetition agreement after employment has ended.

Golden handcuffs are compensation arrangements that make leaving a job expensive, usually unvested equity or a bonus you forfeit by resigning. The phrase describes the pull, not a specific instrument, and the pull is usually worth less than it feels.

Group disability insurance is income-replacement coverage an employer buys for its workforce under a single master policy, with each covered employee holding a certificate rather than a policy. The contract structure is not a technicality: it decides who the insurer answers to, what document governs, and which body of law reviews a denied claim.

A group legal plan is a voluntary employee benefit under which a fixed monthly premium buys access to network attorneys for a listed set of personal legal matters. There is no longer any tax exclusion for it, so the premium is paid with after-tax money and an employer-paid premium is taxable income.

Group life insurance is life insurance an employer buys for its workforce under a single policy, usually term coverage set as a multiple of salary. The first $50,000 of employer-provided group-term coverage is excluded from your income; anything above it produces taxable imputed income calculated from an IRS table rather than from what your employer paid.

A health reimbursement arrangement is an employer-funded account that reimburses employees for medical expenses tax-free. The employer alone puts money in, the employee never gets it as cash, and unused amounts can carry forward rather than being forfeited at year end.

A highly compensated employee is, for retirement plan testing under IRC §414(q), anyone who owns more than 5% of the business in the current or prior year, or whose prior-year compensation exceeded an indexed threshold ($160,000 for 2026). The label identifies whose numbers get compared; it does not cap anything.

Imputed income is the value of a non-cash benefit that an employer must add to an employee's taxable wages, even though no money changed hands. It appears on a pay stub and a W-2 as compensation the employee never received, and the amount is usually set by a formula in the tax law rather than by what the benefit actually cost the employer.

An in-service withdrawal is money taken or moved out of a workplace retirement plan while you are still working for that employer. Some routes are taxable distributions; one, an in-service rollover, moves money without any tax at all. All of them exist only if the plan document allows them.

An incentive stock option is a stock option that meets the statutory conditions in section 422 and therefore produces no ordinary income when it is exercised. The price of that treatment is an alternative minimum tax adjustment in the year of exercise and two holding periods that have to be met before the favorable rate applies.

Job hopping is a pattern of changing employers frequently. Financially it is a trade: moving is where most workers' largest pay increases come from, and each move resets the service clocks that several employee benefits are gated on.

A limited-purpose health FSA is a flexible spending account restricted to categories of care that do not disqualify the holder from contributing to a health savings account. In practice that usually means dental and vision, but the legal envelope is wider than that.

Long-term disability is insurance that replaces part of your income for years, or through to retirement age, if illness or injury stops you working. It is the disability coverage that decides a household's financial outcome, and the single most consequential term in the contract is how it defines disability.

A non-compete agreement is a contract term restricting where and for whom someone may work after an employment relationship ends. As of September 2026 there is no federal rule banning them: the Federal Trade Commission's 2024 rule was set aside by a court and removed from the Code of Federal Regulations in February 2026, so state law governs.

A non-qualified stock option is the ordinary kind of employee stock option, meaning any option that does not meet the statutory conditions for an incentive stock option or an employee stock purchase plan. Exercising one creates ordinary compensation income equal to the spread, taxed and withheld like wages, and only the movement in the share price after exercise is capital gain.

Nonqualified deferred compensation is an agreement to pay an employee or other service provider in a later year, outside the qualified retirement plan rules. It has no contribution limit, and no trust protection: the promise is an unsecured claim against the employer, and IRC §409A governs the timing elections rigidly.

Open enrollment is a defined period in which you can sign up for or change coverage without needing a qualifying reason. At least five legally distinct windows go by the name, in the individual market, in employer benefits and in three separate places inside Medicare, and they run at different times with different consequences for missing them.

Overtime pay is the higher rate a covered employee must receive for hours worked beyond 40 in a workweek: at least one and one-half times their regular rate of pay under the federal Fair Labor Standards Act.

Paid family and medical leave (PFML) refers to state programs that replace part of a worker's wages during time off for a new child, a serious family or personal health condition, or other covered reasons.

Paid time off is leave an employer pays you for, granted by agreement rather than by federal law. What your balance is actually worth is decided by four design choices in the policy, not by the number of days in it.

Parental leave is time away from work to bond with a new child after birth, adoption, or foster placement. In the United States it may be paid or unpaid depending on the employer, the state, and the worker's eligibility.

A pay stub is the itemized statement that comes with a paycheck, showing how gross pay became net pay through taxes and deductions. No federal law requires an employer to hand one out; whether you get one is set by your state.

Pay transparency is the body of state and local law that requires an employer to disclose what a job pays, most often as a pay range in the job posting. A salary-history ban is a different duty that frequently sits in the same statute, and the two are worth keeping apart.

Payroll taxes are the taxes charged on wages and collected through the payroll system. The IRS calls them employment taxes, and the category is broader than most people assume: some are split between worker and employer, some are paid by the employer alone, and one of them never appears on a paystub.

A performance bonus is variable cash pay awarded for results over a stated period, usually a year. Whether it is legally discretionary or promised is not decided by what the plan is called, and that distinction changes what a non-exempt worker is owed.

Performance shares are an equity award that pays out only if the company hits stated targets over a set period, and pays more or less depending on how far it beats or misses them. Time still has to pass, but time alone is not enough.

Phantom stock is a promise to pay an employee an amount equal to the value of a stated number of employer shares, without issuing any shares. It tracks the stock on paper and pays in cash, and it is deferred compensation rather than equity.

Phased retirement is an employer-sanctioned arrangement in which an employee reduces hours on the way to full retirement instead of stopping on a single day, sometimes while drawing part of a pension. Federal employees have a statutory version; in the private sector it is usually informal.

The plan administrator is the person or entity legally responsible for running a retirement plan: filings, disclosures, claims, and interpreting the plan's terms. In most small and mid-sized plans it is the employer itself, by operation of law rather than by choice, and it is a fiduciary role.

The qualified overtime compensation deduction lets a worker deduct the premium part of federally required overtime pay, up to $12,500 a year, or $25,000 on a joint return, for 2025 through 2028. Only the amount above the regular rate counts, so on time-and-a-half it is the extra half rather than the whole overtime paycheck.

The qualified tips deduction lets a worker in a customarily tipped occupation deduct up to $25,000 of tips a year for 2025 through 2028. It reduces taxable income rather than removing the tips from tax altogether, so the tips still count for Social Security and Medicare tax, and the deduction phases out at higher incomes.

A qualifying disposition is a sale of shares from an incentive stock option or a qualified employee stock purchase plan that meets two holding periods, so the favorable statutory tax treatment applies. It is the outcome the holding rules are designed to reward.

A rabbi trust is a trust an employer uses to informally fund nonqualified deferred compensation. Once irrevocable it stops the employer from spending the money on anything else, but the assets must stay reachable by the employer's creditors, so it offers no protection in a bankruptcy.

Real wages are pay adjusted for prices, so that a change in the number means a change in what the pay can buy. The adjustment requires choosing a price index, and because different institutions choose different ones, two correct real-wage figures for the same period can differ.

In state income tax, a reciprocal agreement is an arrangement between two states under which a resident of one who works in the other pays income tax only to their home state on those wages. It is not automatic: the employee has to file a certificate of nonresidence with the employer.

A recordkeeper is the company hired to track a retirement plan's accounts: balances, contributions, investment elections, loans and distributions. It is the website and statements you see as a participant, it is generally not a fiduciary, and a federal disclosure rule exists specifically to reveal what it is paid.

A relocation package is the set of payments, reimbursements and services an employer provides to move an employee or new hire to a new work location. For a civilian employee it is taxable wages, because the exclusion for employer moving reimbursements and the deduction for moving expenses are both suspended with no expiry date.

Remote work taxes are the state income tax complications that arise when you live in one state and work for an employer in another, which can expose the same income to two states' tax rules.

A restricted stock award is a grant of employer shares that are issued to the employee immediately but can be taken back until they vest. Because the shares actually exist from day one, they are property under section 83, which is what makes a section 83(b) election possible.

Restricted stock units (RSUs) are a promise from an employer to deliver company shares on a vesting schedule; their full value is taxed as ordinary income the moment they vest, exactly like a cash bonus paid in stock.

A Roth 401(k) is the after-tax version of a 401(k): contributions get no upfront deduction, but qualified withdrawals in retirement are entirely tax-free. Unlike a Roth IRA, it has no income limit, and since 2024 it carries no lifetime required minimum distributions.

RSU tax withholding is the tax an employer takes out when restricted stock units vest, usually by keeping or selling a portion of the shares. The mechanism is reliable but the amount is often too low, because it is set at a flat rate that ignores the employee's real bracket.

A Rule 10b5-1 plan is a written trading arrangement adopted in advance, while the person holds no inside information, which then executes automatically. It is how an employee or executive with company stock sells on a schedule without each sale looking like a decision.

A sabbatical is an extended leave from a job, paid or unpaid, taken with the expectation of returning to the same employer. No federal law entitles a private-sector employee to one, so what it costs and what it preserves are set entirely by the employer's policy.

Salary negotiation is the process of discussing and agreeing on pay and related terms with an employer, most often when accepting a job offer or during a review, treating the whole compensation package rather than the base salary alone as the thing being negotiated.

A Section 409A valuation is an appraisal of the fair market value of a private company's common stock, obtained so the company can set option strike prices without triggering the penalties in Internal Revenue Code section 409A. The regulation does not require an appraisal, but it gives one a presumption of reasonableness that is hard to dislodge.

Sell-to-cover is a method of handling equity compensation in which just enough shares are sold, at vesting or exercise, to raise the cash for the taxes or the cost, and the rest of the shares are kept. It sits between selling everything and paying entirely out of pocket.

A severance package is what an employer offers an employee on termination, usually cash plus some combination of continued health coverage, equity terms and outplacement help, almost always in exchange for a release of legal claims. The release is what the money actually buys, and it is the part governed by law.

Short-term disability is income replacement for an illness or injury that keeps you off work for weeks to a few months. It is a market category rather than a legal one, it pays money rather than protecting your job, and it is not the disability coverage that decides a household's financial outcome.

A signing bonus is a one-time payment an employer makes to a new hire for accepting a job. It is taxed as supplemental wages, usually with a clawback clause requiring repayment if the employee leaves early, and that repayment can carry an awkward tax twist.

A special enrollment period is a limited window in which you may enroll in or change coverage outside the normal annual opportunity. At least three different bodies of law use the phrase for windows of different lengths, and each of them sets the date coverage actually starts by a separate rule.

A stock appreciation right pays an employee the increase in the employer's share price between grant and exercise, without the employee ever buying the shares. It delivers what a stock option delivers, with no cash needed to exercise it.

Exercising a stock option is the act of paying the strike price to convert the option into actual shares. How you fund that payment, and whether you keep or sell the shares, are separate decisions that carry most of the tax and risk.

The strike price is the fixed price at which the holder of a stock option can buy the underlying shares. On employee stock options it is set at grant, and the rules that govern how it may be set are what separate a favorable option from a tax problem.

A student loan repayment benefit is an employer program that pays part of an employee's student loans, and up to a shared annual cap those payments are tax-free under the same tax rule that covers tuition assistance.

A summary plan description is the plain-language booklet an employer must give you describing how your retirement or health plan works. ERISA requires it within 90 days of becoming a participant, and it is the document to reach for before asking anyone at work how the plan works.

Supplemental life insurance is the extra coverage an employee buys and pays for through a workplace group plan, on top of whatever the employer provides. It is employee-paid, but that alone does not keep it out of the tax rule that applies to employer-provided coverage.

Supplemental wage withholding is the set of rules an employer uses to withhold federal income tax from pay that is not regular wages, including commissions, severance, back pay, taxable fringe benefits and equity compensation. Three methods exist, and which one an employer may use depends on facts the employee never sees.

The Thrift Savings Plan (TSP) is the retirement savings plan for federal civilian employees and uniformed servicemembers. It works much like a 401(k) — sharing the same deferral limit of $24,500, but with a small, low-cost menu of index-style funds and, for most participants, automatic agency contributions.

Tipped income is money a worker receives as tips, and it is taxable wages. Tips are always subject to Social Security and Medicare tax, and workers must report them to their employer, separate from the temporary "no tax on tips" income-tax deduction.

Total compensation is everything an employer provides in exchange for work — base pay plus bonus, retirement match, insurance, paid leave and equity — and it is the right unit for comparing two jobs, because salary alone can hide a difference worth tens of thousands a year. The phrase has no single official definition, so what any given figure contains has to be checked.

Tuition reimbursement is an employer benefit that pays for an employee's education, and up to a set annual amount it is tax-free under the Internal Revenue Code's educational assistance program rules.

Unlimited PTO is a paid leave policy with no stated annual allowance and no accrued balance, so time off is granted by approval rather than drawn down from a bank of days. Because nothing accrues, there is usually nothing for a state wage law to require the employer to pay out when you leave.

The use-it-or-lose-it rule is the requirement that money left in a flexible spending account at the end of the plan year is forfeited. It is not an employer policy: it follows from a statutory ban on using a cafeteria plan to defer compensation from one year into the next.

Vesting is the process by which promised benefits (employer 401(k) contributions, stock grants, options) become irrevocably yours over time, usually either all at once after a waiting period (cliff), or gradually (graded).

Vision insurance is a limited benefit plan that pays a set amount toward eye exams, glasses and contact lenses rather than a share of a medical bill. Pediatric vision is an essential health benefit that every Marketplace plan carries; adult vision is optional and bought separately.

Wage growth is the rate at which pay is rising. There is no single official series by that name; three widely used measures answer three different questions, and they routinely disagree because two of them can move when the mix of who is employed changes and one is built not to.

Workplace giving is charitable giving organized through an employer, most often as automatic payroll deductions to charities the employee chooses, frequently collected during an annual campaign.

A workplace wellness program is an employer program of health promotion or disease prevention, usually attached to the group health plan and usually paying a reward for participation or for hitting a health target. What the employer may lawfully condition that reward on depends on which of two regulatory categories the program falls into.