House Tax Bill Would Significantly Alter Executive Compensation
The recently released Tax Cuts and Jobs Act (the “Bill”) could fundamentally change the landscape of executive compensation. If enacted into law in its current state, the Bill would:
- effectively eliminate the tax-deferral benefits of deferred compensation, including arrangements not typically considered deferred compensation, such as severance pay installments, stock options and delayed-delivery RSUs;
- significantly expand the scope of the $1 million deductibility limit under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), by removing commonly-used exceptions for “performance-based” compensation and increasing the list of executives subject to the law; and
- adding a 20% excise tax on tax-exempt organizations for annual compensation in excess of $1 million and certain severance amounts payable to a tax-exempt organization’s senior executives.