Profit Sharing

## Profit Sharing

Profit sharing distributes a portion of company profits to employees, typically as an annual bonus or a contribution to a qualified retirement plan.

### Types

- **Cash profit sharing**: Direct bonus payment, taxed as ordinary income.
- **Deferred profit sharing**: Contributed to a retirement account (e.g., 401(k) profit-sharing plan), taxed upon withdrawal.
- **Combination**: A portion in cash and a portion deferred.

### How It's Calculated

Employers typically set a formula based on a percentage of profits or a fixed formula based on employee compensation. The allocation to each employee may be proportional to salary, equal across participants, or a hybrid.

### Tax Benefits (US)

Employer contributions to a qualified profit-sharing plan are tax-deductible up to 25% of total eligible payroll. Employee taxation is deferred until withdrawal.

### Regional Variations

- **France**: Mandatory profit sharing (participation) for companies with 50+ employees.
- **Mexico**: Workers' Profit Sharing (PTU) of 10% of company profits is legally required.
- **Peru**: Profit sharing of 5–10% (depending on industry) is mandatory.