Salary Reduction Arrangement A SEP may include a salary reduction arrangement. Under this typeof arrangement, you can elect to have your employer contribute part ofyour pay to your SEP-IRA. Only the remaining portion of your pay iscurrently taxable. The tax on the contribution is deferred. Thischoice is called an elective deferral. Caution: Only SEPs that allowed employees to choose elective deferrals as ofDecember 31, 1996, can include salary reduction arrangements. Restrictions on election.Travel To NetherlandsYou can choose elective deferrals only if all three of thefollowing conditions exist. At least 50% of employees eligible to participate chooseelective deferrals. There were no more than 25 eligible employees at any timeduring the preceding year. The amount deferred each year by each eligible highlycompensated employee as a percentage of pay is no more than 125% ofthe average deferral percentage of all other eligible employees (ADPtest). Generally, compensation that is more than $160,000 cannot beconsidered in figuring an employee's deferral percentage. ERROR MSGAn elective deferral arrangement is not available for a SEPmaintained by a state or local government, any of their politicalsubdivisions, agencies, or instrumentalities, or a tax-exemptorganization. Szeged hotel roomsLimits on deferrals.In general, the total income you can defer under a salary reductionarrangement included in your SEP and certain other elective deferralarrangements, for 1999, is limited to $10,000. This limit applies onlyto the amounts that represent a reduction from your salary, not to anycontributions from employer funds. Elective deferrals, not exceeding the ADP test (seeERROR MSGRestrictions on election, earlier), are excluded from yourincome in the year of deferral, but are included in wages for socialsecurity, Medicare, and unemployment (FUTA) tax purposes. Mailand hotelsOverall limits on SEP contributions.Contributions, including elective deferrals (salary reductions),made by your employer to the SEP-IRA are subject to the overall limitof 15% of your compensation (generally up to $160,000 for 1999) or$30,000, whichever is less.