Remind me again, what’s Section 162(m)?
In general, Section 162(m) of the Internal Revenue Code provides that a publicly held corporation shall not be allowed a deduction for any “applicable employee remuneration” to any “covered employee” that exceeds $1,000,000. Applicable employee remuneration generally means compensation for services performed. Though the definition has changed over time, “covered employee” originally captured a company’s CEO as of the last day of the taxable year, as well as the next three most highly compensated officers.
Insert the TCJA
The Tax Cuts and Jobs Act of 2017 (the “TCJA”) took the first stab at widening the net used to determine who is a “covered employee.” Specifically, the definition was expanded to include any person who served as CEO or CFO during the taxable year, in addition to the next three most highly compensated officers. Additionally, the definition was expanded to include any individual who was a “covered employee” for any taxable year beginning after December 31, 2016. The TCJA also made other notable changes to Section 162(m), including the elimination of an exception for qualified “performance-based compensation” approved by stockholders. The practical effect of this was to eliminate the need for stockholder votes to approve plans providing for “performance-based” compensation, because the compensation in question would be non-deductible whether or not it was performance-based.
Continue Reading Run for “Covered!” The American Rescue Plan Act casts a wider net on Section 162(m) “Covered Employees”