We know we are not supposed to get too excited about a proposed tax bill, but The Tax Cuts and Jobs Act, the amended version of which was released by the House on November 3, 2017, is no ordinary tax bill. Not only does it propose sweeping changes to the taxation of executive compensation and employee benefits, it aims to be effective as of January 1, 2018 – which means limited time to mobilize against unpopular provisions. Added to that, the long-promised tax cuts need to be offset somewhere, and we see a real risk that the Senate will agree with the House that executive compensation and employee benefits are legitimate targets.
As of now, the key proposed changes of the amended version of the bill are outlined in our November 3, 2017 alert. However, given that we have already seen one amended version of the bill come out in its first 24 hours, be aware that the proposals are in a state of flux. We will try to keep up with the changes, but please feel free to reach out to us to confirm any specific points.
The highlights include:
- New Code Section 409B eliminates deferred taxation by taxing non-qualified deferred compensation, which includes stock options and stock appreciation rights, at the time of vesting
- Employer deductions for multiple compensation-related expenses are disallowed
- Exception from Code Section 162(m) deduction disallowance for performance-based compensation and commissions is repealed, and the definition of “covered employees” who are subject to Code Section 162(m) limitation is expanded
- Tax exemptions for various employer-provided fringe benefits are eliminated
- Certain health and retirement plan rules are liberalized
- Various tax credits are repealed
For more information on the broader implications of the proposed tax regulations for your company, please see the Tax News and Developments alert Ways and Means Committee Releases “Tax Cuts and Jobs Act,” issued by Baker McKenzie’s tax practice (November 3, 2017).