performance-based compensation Archives

Tax Reform Changes to Employee Compensation and Benefit Deductions

Partner Diane Morgenthaler presented at this year’s first Tax in the City® meeting on March 15, 2018. Below is a recap of the key takeaways from the event.

Employee Benefits impacts of federal tax reform:

Alter procedures to ensure no 2018 employer deduction is taken for qualified transportation fringe benefits, except for bicycle transportation subsidies.
Alter procedures to ensure no 2018 employer deduction is taken for “entertainment” and its related travel and meal expenses, including sporting events, theatre, golf, and other activities.
Analyze 2018 financial effect to your employer of any proposed gross ups for loss of moving expense deduction for employer and employee.
If your employer is a US publicly traded company, a foreign issuer with US publicly traded American Depository Receipts (ADRs), or a private company with US publicly traded debt, then careful legal and financial planning is recommended to try to utilize the grandfather exception to the $1M compensation deduction limit under Code section 162(m).

View full presentation.

Section 162(m) Final Regulations Clarify Requirements for Exemptions to $1 Million Deduction Limitation

On March 31, 2015, IRS issued final regulations clarifying that stock options and SARs will only qualify as performance-based compensation if granted under a stockholder-approved plan that includes an individual limit on the number of such awards that may be granted during a specified period. In addition, only certain types of stock-based compensation are eligible to be treated as “paid” when granted for purposes of qualifying for an exemption under the IPO transition rule.

Read the full article.

For more information about structuring individual limits for equity grants, please see this article in The Corporate Executive.