Earlier this week, the IRS issued long-awaited proposed regulations under Section 162(m) of the Internal Revenue Code.  Our colleagues at Covington’s Tax Reporting & Withholding Blog published a comprehensive summary and analysis of the proposed regulations.  As you will see, the proposed regulations fell short of proposing workable solutions for public companies wrestling with the

This article originally appeared in Law360.

Companies have had a lot to digest since the passage of the Tax Cuts and Jobs Act (the “TJCA”) late last year.  But for executive compensation attorneys and professionals who work with or advise public companies, the elimination of the tax deduction for performance-based compensation under section 162(m) of the Internal Revenue Code was perhaps the most significant change brought about by tax reform.  Since then, the changes to section 162(m) have been top of mind for everyone involved with structuring executive compensation arrangements and strategies at public companies.

Among the many questions companies face following the changes to section 162(m) is whether to continue seeking periodic shareholder approval for the performance criteria under their incentive plans.  Before tax reform, companies were generally able to deduct performance-based compensation if, among other things, the performance criteria used in the arrangement were approved by shareholder vote at least once every five years.  The repeal of the performance-based compensation exception eliminated this requirement.  However, there may be other reasons why companies might opt to continue seeking shareholder approval, even if it will no longer allow the compensation to be deductible.

We researched what large public companies decided to do this year with regard to shareholder approval of their performance criteria by reviewing the most recent proxy statements filed by S&P 100 companies.  We discovered that most companies that under pre-TJCA law would have been scheduled to seek shareholder approval for their performance criteria (because they had previously done so five years ago) elected not to do so this year.  Although a limited data set, these findings may be instructive for other public companies who are considering how to approach this matter in future years.

Continue Reading Incentive Plans and Shareholder Approval After Tax Reform

Part of Our Series on the Tax Cuts and Jobs Act of 2017

Employers generally may deduct reasonable salaries and other compensation paid to their employees. However, section 162(m) of the Internal Revenue Code imposes a $1 million annual limit on the amount of compensation that a publicly held corporation can deduct with respect to each of its “covered employees.”

The Tax Cuts and Jobs Act of 2017 substantially revises section 162(m) in ways that will significantly limit the amount of compensation that many public companies will be able to deduct.

Continue Reading Significant Reductions to Deductible Pay at Public Companies

If widespread news reports are any indication, many people—employers and employees alike—are thinking about increased taxes in 2013 and what can be done to minimize their impact.

Some tax increases in 2013 are a sure thing.  For example, the employee share of Medicare taxes will increase to 2.35% for wages in excess of $250,000 (for married individuals filing jointly), $125,000 (for married individuals filing separately), and $200,000 (in any other case).

But, even as the end of the year looms, it is unclear whether other potential tax increases will take effect.  If the so-called Bush tax cuts expire, income tax rates will increase.  If the “payroll tax holiday” is not extended, the employee share of Social Security taxes will increase to 6.2% from its current 4.2%.

Due to the uncertain tax landscape for 2013, employers may wish to consider accelerating certain payments and awards into 2012 when taxes will generally be lower.  However, in so doing, employers should be careful to avoid certain potential pitfalls. 
Continue Reading Accelerating Compensation into 2012 to Avoid 2013 Tax Increases