P.L. 115-97, popularly known as the Tax Cuts and Jobs Act (“TCJA”), significantly changes an employer’s ability to deduct compensation paid to its top executive employees. Background Section 162(m), added to the Internal Revenue Code (“Code”) in 1993, provides that a publicly traded corporation may not deduct more than $1 million in compensation paid to its CEO and next three most highly compensated employees. Section 162(m) included an important exception to the $1 million limitation for commissions and performance-based compensation. The exception for performance-based compensation covered not only many cash bonus plans but also most stock options and stock appreciation rights plans. Changes TCJA makes the following changes to Section 162(m): Eliminates the exception for commissions and performance-based compensation. Changes the definition of “covered employee” to include (a) an employee who is the principal executive officer (PEO) or principal financial officer (PFO) at any time during the taxable year; (b) the next three most highly compensated employees (other than the PEO and PFO); and (c) any employee who was a covered employee for any taxable year beginning after December 31, 2016. Expands the definition of an employer who is subject to Section 162(m) to include not only corporations whose stock is publicly traded and registered pursuant to Section 12 of the Securities Exchange Act of 1934 (the “1934 Act”) but also any entity required to file reports under Section...Read More
Author: Cyndi Moore
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