Republican Tax Plan Would Have Significant Impact on Executive Compensation | Practical Law

Republican Tax Plan Would Have Significant Impact on Executive Compensation | Practical Law

House Republicans introduced a new tax plan on November 2, 2017 that would make sweeping changes to the Internal Revenue Code. Many of the proposed changes would significantly impact the tax treatment and design of executive compensation programs.

Republican Tax Plan Would Have Significant Impact on Executive Compensation

Practical Law Legal Update w-011-3191 (Approx. 3 pages)

Republican Tax Plan Would Have Significant Impact on Executive Compensation

by Practical Law Employee Benefits & Executive Compensation
Published on 03 Nov 2017 • USA (National/Federal)
House Republicans introduced a new tax plan on November 2, 2017 that would make sweeping changes to the Internal Revenue Code. Many of the proposed changes would significantly impact the tax treatment and design of executive compensation programs.
On November 2, 2017, Republicans in the US House of Representatives released their proposed tax plan, The Tax Cuts and Jobs Act, which would make sweeping changes to the executive compensation landscape. The Act overhauls the rules related to executive compensation by, among other things:
  • Repealing Sections 409A and 457A of the Internal Revenue Code (Code) (26 U.S.C. §§ 409A and 457A).
  • Modifying the tax treatment of nonqualified deferred compensation by making it includible in income when no longer subject to a substantial risk of forfeiture (SRF).
  • Providing that only service-based vesting conditions will support an SRF.
  • Modifying the definition of nonqualified deferred compensation to include stock options, stock appreciation rights, and other equity unit awards, therefore making these awards, in addition to other kinds of deferred compensation, taxable at vesting.
  • Eliminating Code Section 162(m)'s (26 U.S.C. § 162(m)) popular exceptions for performance-based compensation and commissions.
  • Modifying Code Section 162(m)'s definition of covered employee to include chief financial officers.
  • Imposing a 20% excise tax on compensation in excess of $1 million paid by certain tax-exempt organizations to their current or former highest paid employees.
The Act proposes to repeal tax deductions or reduce limits for many benefits provided by employers to executives and employees, including:
  • Tax preparation expenses.
  • Housing.
  • Moving expenses.
  • Business meals and entertainment.

Effective Date

The proposed tax plan would generally apply to taxable years beginning after December 31, 2017.

Bill Status

The proposed tax plan is scheduled to be marked up by the House Committee on Ways and Means on November 6, 2017. A legislative and lobbying fight over the bill is expected over the coming weeks, with a goal of passing a final bill in both the House and the Senate in time to send the bill to President Trump for signature before December 25, 2017. Practical Law will follow the bill's progress and report on new developments.