Internal Revenue Code §162(m) imposes limitations on the deductibility of executive pay by public corporations. The new tax law, Public Law No. 115-97 (the “Tax Cuts and Jobs Act” (TCJA)), makes a number of changes in Code §162(m). These changes generally take effect for taxable years commencing after Dec. 31, 2017 (exceptions noted below). Today’s column discusses these changes, how the changes might impact on different forms of executive pay and some of the steps public corporations need to take in light of these changes.
Part I. Code §162(m) Before and After TCJA
A. Pay Subject to the Deduction Limitation
Prior to TCJA. Since its enactment in 1993, Code §162(m) has imposed a limit of $1 million per taxable year on the deductibility by a “publicly held corporation” of remuneration paid for such year to each “covered employee.” (“Covered health insurance providers” have been, and continue to be, subject to special provisions under Code §162(m) that are not covered in the following discussion.)
† Joseph E. Bachelder III is special counsel to McCarter & English, LLP. Andy Tsang, a senior financial analyst with the firm, assisted in the preparation of this column.