Business and Personal Finance Dictionary

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• PROFIT SHARING
  
  A profit-sharing plan is a type of defined contribution retirement plan that employers can establish for their workers. The employer may add up to $22,500 or 15% of salary, whichever is less, to each employee's profit-sharing account in any year the company has a profit to share. Employees owe no income tax on the contributions or on any of the earnings in their accounts until they withdraw money. In some cases, employees in the plan may also be able to borrow from the account to pay for expenses such as buying a home or paying for college. Profit-sharing plans offer employers certain flexibility. For example, in a year without profits, they don't have to contribute at all. And they can vary the amount of each year's contribution to reflect the company's profitability for that year. However, each employee in the plan must be treated equally. This means that if an employer contributes 10% of one employee's salary to the plan, the employer must also contribute 10% of the salaries of all other employees in the plan.
  
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