The Jenner & Block Tax Practice recently issued its own Client Alert discussing the current state of tax reform and the House and Senate bills in more general terms. This Client Alert is focused on executive compensation and employee benefit provisions in the proposed bills.
On December 2, 2017, the US Senate passed its version of the Tax Cuts and Jobs Act (the Senate Bill). Now that both the House and Senate tax bills have passed, changes to the taxation of executive compensation and employee benefits may be in the offing.
The current Senate Bill proposes major changes to the tax code by removing numerous deductions and exclusions and reforming certain aspects of taxable compensation. In line with the House Bill, which passed on November 16, regulations affecting executive compensation deductions and the taxation of tax-exempt executive compensation are especially impacted. However, the previously proposed overhaul of nonqualified deferred compensation has been removed, and existing Code Section 409A rules will remain in effect. This is the same as the bill that passed in the House. The current Senate Bill also eliminates the previously proposed easing of restrictions on hardship and in-service distributions from qualified retirement plans.
Even though the House and Senate proposals have numerous similarities with respect to executive compensation, major differences regarding substantial issues, such as individual tax rates and brackets, the Alternative Minimum Tax, and taxation of pass-through entities, will need to be reconciled. Assuming that the House does not vote to outright accept the Senate Bill, a Conference Committee will negotiate the drafting of a joint bill, which will then go up for a vote in both Congressional chambers.
The following is a brief summary of the proposed changes to the taxation of executive compensation and other features of the Senate Bill affecting qualified retirement plans and employee fringe benefits. We will continue to monitor these and other employer-related items. Please contact any team member listed below or your usual Jenner & Block contact.
Noteworthy Provisions (not directly related to executive compensation or employee benefits)
As indicated above, significant aspects of the Senate Bill will likely change during Conference Committee negotiations.