Tax protection plans result in an unexpected windfall of money for the assignee when local taxes are lower than were originally projected.

• A. Local taxes are higher than projected
• B. They apply only after retirement
• C. Local taxes are lower than originally projected
• D. They are always neutral

Answer: (C)

Tax protection plans work by using a projected local tax amount as a baseline and ensuring the assignee doesn’t bear more tax than that projection. When actual local taxes turn out to be lower than what was projected, the assignee ends up with more take-home pay than originally anticipated, creating an unexpected windfall. This is the scenario described: local taxes are lower than originally projected.

If local taxes were higher than projected, the protection would kick in to cover the excess rather than produce a windfall. The idea of applicability after retirement or being always neutral doesn’t fit the mechanism of how tax protection compares actual versus projected taxes.