What is Nondiscrimination testing?

Nondiscrimination testing is an annual compliance procedure required for qualified employee benefit programs, including educational assistance plans under IRC Section 127, to verify benefits are provided fairly across all eligible employees without favoring highly compensated workers or owners. Testing examines benefit distributions, eligibility requirements, and plan participation to ensure that no more than 5% of benefits flow to shareholders who own over 5% of the company. Failed testing results in taxable income recognition for favored employees and potential plan disqualification. The Qualified education assistance program (QEAP) requires annual nondiscrimination testing to maintain tax-advantaged status and ensure equitable distribution of benefits across the workforce.

Related Terms

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What is a Qualified Education Assistance Program?

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Tax loss harvesting

Transform investment losses into strategic tax advantages and optimize your portfolio's performance with AI-driven precision.

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Child traditional IRA

Open a Traditional IRA for children with earned income. Contribute up to $7,000 annually with full deduction, giving them decades to grow tax-free.

Employee achievement awards

Award your team for service milestones and safety achievements while maximizing allowable deductions up to $1,600 per employee.

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Work opportunity tax credit

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Home office

Deduct qualified expenses for using your home for business purposes.

Meal expenses

Business can typically deduct 50% of meals associated with doing business with some cases allowing up to 100% deduction.

Travel expenses

Businesses can deduct necessary travel expenses, like airfare and lodging, directly related to operations for tax savings.

Vehicle expenses

Vehicle tax deduction allows deduction of business vehicle expenses, using a per-mile rate or actual costs, from taxable income.

Late S election

A Late S Election lets a corporation request IRS S corp status post-deadline.

Late C election

A Late C Election is a request to the IRS for C corporation status after the deadline.

Depreciation

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R&D tax credit

Fuel your venture's growth and innovation with the R&D tax credit. Not just for tech firms or big corporations.

Clean vehicle

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Residential clean energy

Taxpayers who invest in renewable energy improvements for their home or second home may qualify for a credit to lower their income tax.

Augusta rule

The Augusta Rule lets homeowners rent their property tax-free for up to 14 days a year without reporting the income.

Roth 401k

Roth 401(k) lets employees and individuals make after-tax retirement contributions, offering tax-free growth and withdrawals.

Traditional 401k

Traditional 401(k) plans offer pre-tax retirement savings for employees, with companies reducing taxable income via contributions.