For taxable years starting after December 31, 2017 and before January 1, 2020, the Tax Cuts and Jobs Act of 2017 adds a new Section 45S to the Internal Revenue Code that provides a tax credit for businesses offering paid family and medical leave (“F&M Leave”). The IRS recently issued FAQs that begin to answer questions about F&M Leave and how the tax credit will work, but many open questions remain.
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83(i) Elections: New Deferral Provision Aims to Ease Tax Burden on Employees Receiving Equity in Private Companies
Part of Our Series on the Tax Cuts and Jobs Act of 2017
When an employee exercises a stock option or receives shares of stock from the settlement of a restricted stock unit (or “RSU”), generally the employee has income based on the value of the stock received. Income tax and Social Security and Medicare (“FICA”) taxes are due, and the employer must withhold and report these taxes.
Employees of publicly traded companies usually can sell shares in the public market to cover the cost of their taxes. However, there is typically no market for shares of privately held companies, such as start-ups. As a result, employees receiving shares of a private company through a stock option exercise or RSU settlement usually must come up with the cash to pay the IRS.
The Tax Cuts and Jobs Act of 2017 (the “Act”) adds a new section 83(i) to the Code that allows certain employees of private corporations that broadly grant stock options or RSUs to elect to defer income tax for up to five years. This is referred to as an “83(i) election”.
Section 83(i) was billed as a way to make it easier for employees of start-ups and other private companies to share in their employers’ success. However, as we explore in this post, the benefits of an 83(i) election may be limited. As discussed in more detail below, private employers face a number of questions about how they can — and whether they will want to — offer an equity program that is eligible under section 83(i).
Marriage Equality Decision Is Big News (But May Have Little Impact on Private Sector Employee Benefit Plans)
The Supreme Court’s decision last week in Obergefell v. Hodges is big news: it held that the 14th Amendment requires states to license same-sex marriages and to recognize lawful out-of-state same-sex marriages, and thus legalized same-sex marriage throughout the country. In a final section that begins with a philosopher’s take — “No union is more profound than marriage…” — and ends with a jurist’s — “It is so ordered.” — the Court captured the attention of SCOTUS junkies and the rest of the country alike, leading to an outpouring of celebrations, headlines, social commentary and musing about the future.
Obergefell clearly is of cultural importance and has personal significance for many people, but what does it mean for private sector employers and their employee benefit plans? Surprisingly little. Private sector employee benefits are governed primarily by federal law, which had its watershed moment on this issue in 2013 when the Supreme Court required the federal government to recognize same-sex marriage in United States v. Windsor.
Foreign Compensation and the Long Reach of Code Section 409A
As business becomes increasingly globalized, multinational corporations are sending more executives on international assignments and hiring more expatriates to fill local positions overseas. Compensation connected to these employment patterns can create a series of legal and regulatory challenges. For example, unless an exception applies, U.S. citizens and U.S. residents are subject to U.S. federal income tax on their worldwide income, regardless of where they perform services or earn their compensation. Significantly, this extraterritorial reach of U.S. federal income tax extends to the complex and confounding deferred compensation rules of section 409A of the Internal Revenue Code.
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Vodafone Announces Progressive Global Maternity Policy, Touching on Two Hot Topics in Employee Benefits
By Helena Milner-Smith, Kamakshi Venkataramanan and Jenna Wallace
Vodafone announced recently a new progressive and generous mandatory minimum global maternity policy. According to the company, under the new policy, to be in effect by the end of this year, female employees of Vodafone in 30 countries will be offered two maternity benefits: (1) at least 16 weeks of maternity leave at full pay, and (2) the opportunity to work a 30-hour week at full pay for the first 6 months after they return to work from leave.
Reduced Risk for International Companies Operating In France: Potential Removal Of Severe Sanctions For Failure to Consult with Works Councils
We are writing with another update on French labor law that could impact international corporate transactions. French President Francois Hollande has proposed a change to French legislation that could remove the threat of imprisonment for directors and senior employees who are found to have breached obligations to consult with works councils and other employee representatives. The implications of this change would be important for businesses in France, and also for international companies involved in mergers, acquisitions and divestitures in France.
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2012: A Year in Review
As we wrap up the inaugural year of InsideCompensation, we look back on 2012’s most significant developments in employee benefits and executive compensation, both in the U.S. and internationally.
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Investment Funds Not Liable for Pension Plans of Portfolio Companies, Court Rules
Private equity and other investment fund managers can exhale (at least a little bit) following a recent court ruling that investment funds are not liable for the ERISA obligations of their portfolio companies. The ruling expressly rejects a 2007 Pension Benefit Guaranty Corporation (“PBGC”) letter ruling and contradicts an earlier court decision that supported the PBGC’s position that a private equity fund could be liable for the pension liabilities of one of its portfolio companies. While the new ruling by no means settles the issue, investment fund managers should welcome this development.
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Employer’s Declaratory Judgment Action Dismissed in Favor of Later Suit by Union
When an employee benefit plan is amended in a way an employer anticipates could be controversial, an employer might seek a declaratory judgment that the amendment complies with ERISA. Generally, a declaratory judgment action will preclude later challenges by plan participants. However, a recent decision by the Third Circuit demonstrates that the presumption in favor