Executive Comp Changes Cut From House Tax Bill

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Kristen Ricaurte Knebel

House Ways and Means Chairman Kevin Brady (R-Texas) struck provisions in the GOP tax bill that would have made sweeping changes to executive compensation plans before the bill was approved by the committee.

The change comes as Brady released a second chairman’s mark Nov. 9 that also made other changes to the tax plan that has been undergoing a weeklong markup. The committee approved the legislation by a margin of 24-16. It now moves on for floor consideration.

The initial version of the Tax Cuts and Jobs Act ( H.R. 1) would have severely curtailed the use of nonqualified deferred compensation plans by lumping that compensation into an employee’s taxable wages. The bill also would have expanded these packages to include stock options and stock appreciation rights, making them all subject to wage taxes.

Under the amendment to the House bill, nonqualified deferred compensation packages—including future commission payments and stock options—will continue to follow current law in tax code Section 409A and will be subject to tax only when compensation is cashed out.

As originally proposed, the bill would have “pretty much killed huge chunks of different types of compensation and ended all nonqualified deferred comp as we know it,” Brigen L. Winters, a principal at Groom Law Group in Washington, told Bloomberg Law Nov. 9. Winters is part of Groom’s executive compensation practice group. “It would have been a huge sea change,” he said.

The amendment didn’t strike a provision that proposes to expand the definition of compensation that’s subject to the $1 million deduction limit for public companies by eliminating the performance-based compensation and commission exceptions. Businesses can generally deduct employee compensation expenses from their taxable income. The tax code limits the deduction allowed for compensation paid to certain corporate executives.

—With assistance from Victoria Graham

To contact the reporter on this story: Kristen Ricaurte Knebel in Washington at kknebel@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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