Final answer:
Tax Deferred means that taxes on wages are delayed until a future date, often seen with retirement savings. Tax Exempt means the wages are never subject to taxes. An example of Tax Deferred is 401(k) contributions, while an example of Tax Exempt is employer-provided health insurance.
Step-by-step explanation:
The terms "Tax Deferred" and "Tax Exempt" refer to two different forms of wage treatments in terms of taxation. Tax Deferred wages mean that taxes on these wages are not paid immediately but are postponed to be paid at a future date, typically when the funds are withdrawn. This can often be seen in retirement savings plans, where the taxes are paid upon withdrawal during retirement. On the other hand, Tax Exempt wages are earnings that are not subject to taxation at all; these wages will never incur taxes. The concept of tax-exempt status usually applies to certain types of income or to organizations that meet specific criteria set by the government.
For example, if you contribute to a traditional 401(k) plan, your contributions are tax-deferred. You won't pay income taxes on the money you contribute until you withdraw it, typically after retirement. However, if your employer provides certain fringe benefits, like health insurance, these can often be tax-exempt, and you won't have to pay taxes on the value of these benefits at all.
Therefore, the correct statement defining "Tax Deferred" and "Tax Exempt" wages is: "Tax Deferred" means that taxes will be due at some later period in time. "Tax Exempt" means that taxes will never be due.