United States: President Trump Signs Tax Reform Bill Into Law

On December 15, 2017, the House and Senate conference committee agreed on the terms of the final tax reform bill, previously referred to as the “Tax Cuts and Jobs Act” (the “Act”), which was subsequently approved by both houses along party lines. The bill was signed into law by President Trump on December 22, 2017. Below is a summary of the material executive compensation and employee benefits-related provisions of the Act.

Compensation Deduction Limit for Public Companies

The Act repeals the exceptions to the $1 million deduction limitation for commissions and qualified performance-based compensation under Section 162(m).1 Therefore, effective January 1, 2018, compensation paid to a “covered employee” in a taxable year that exceeds $1 million would not be deductible even if the compensation were a commission or qualified performance-based compensation. The Act also revises the definition of “covered employee” to include the previously excluded Chief Financial Officer (in addition to the Chief Executive Officer and the other three highest paid employees) and extends the applicability of Section 162(m) to corporations that are required to file reports under the Securities Exchange Act of 1934, as amended, even if their stock is not publicly traded (e.g., because they have public debt or are foreign companies that are publicly traded through ADRs). Finally, if an individual is a covered employee with respect to a corporation for a taxable year beginning after December 31, 2016, the individual remains a covered employee for all future years, including after termination of employment. The new rule does not apply to compensation that is provided pursuant to a written binding contract that was in effect on November 2, 2017, and that was not modified in any material respect on or after that date.

Qualified Equity Grants

The Act adds a new subsection under Section 83 that permits eligible employees to elect to defer recognition of income for up to five years after a stock option is exercised and/or a restricted stock unit is settled. This limited relief applies to only equity arrangements of nonpublic corporations that have broad employee participation (generally 80 percent non-de-minimis participation). In addition, this limited relief does not apply to the Chief Executive Officer, the Chief Financial Officer or certain other highly compensated employees. This new provision may be useful for private companies who wish to avoid having employees hold actual shares prior to a liquidity event. However, due to certain limitations in the rules, its utility may be limited.

Excess Compensation Paid by Tax-Exempt Organizations

Effective as of January 1, 2018, the Act imposes a 21 percent excise tax (the new corporate tax rate) on compensation of more than $1 million paid by a tax-exempt organization to any of its five highest paid employees (including former employees). The excise tax also applies to excess parachute payments made by a tax-exempt organization to covered employees whose employment is terminated during the year. An excess parachute payment generally includes payments with an aggregate present value of three (or more) times the covered employee’s base compensation that is contingent on the employee’s separation from employment.

Retirement Plans

With respect to traditional IRAs that are converted into Roth IRAs, individuals are no longer permitted to recharacterize (i.e., unwind) a Roth IRA conversion. Other types of re-characterizations continue to be permitted. This provision is effective as of January 1, 2018.

Under the Act, employees whose defined contribution retirement plan terminates or who separate from employment while they have plan loans outstanding will have until the due date (including extensions) for filing their federal income tax return for that year to roll over the loan balance to another retirement plan or an IRA in order to avoid the loan being taxed as a distribution.

This provision is effective as of January 1, 2018.

Qualified Moving Expense Reimbursements

For taxable years 2018 through 2025, the Act suspends the exclusion from an employee’s income for employer-provided qualified moving expenses, except in the case of members of the U.S. Armed Forces on active duty who move pursuant to a military order. The suspension of the exclusion sunsets after 2025.

Qualified Transportation Fringe Benefits

The Act repeals the employer’s deduction for qualified transportation fringe benefits, including qualified parking, transit passes and vanpool benefits, except for expenses that are “necessary for ensuring the safety of the employee” between the employee’s residence and workplace. The Act does not specify what expenses qualify as necessary to ensure an employee’s safety. This provision applies to amounts paid or incurred after December 31, 2017.

Qualified Bicycle Commuting Reimbursements

For taxable years 2018 through 2025, the Act suspends the exclusion from an employee’s income of reimbursements for qualified bicycle commuting expenses. The suspension of the exclusion sunsets after 2025. Employers will be able to deduct qualified bicycle commuting reimbursements until January 1, 2026.

Employee Achievement Awards

The Act clarifies that, in order to be excludible from an employee’s income, an employee achievement award must be in the form of “tangible personal property,” which generally does not include cash, cash equivalents, gift cards, gift coupons or gift certificates (with certain exceptions), or vacations, meals, lodging and other similar items. The provision applies to amounts paid or incurred after December 31, 2017.

Deduction for Entertainment Expenses

For amounts paid or incurred after December 31, 2017, the Act repeals the deduction with respect to (1) entertainment, amusement and recreational activities; (2) membership dues relating to any club organized for business, pleasure, recreation or other social purposes; or (3) a facility or portion thereof used in connection with any of the above items.

Taxpayers may still generally deduct 50 percent of the food and beverage expenses associated with operating their trade or business (e.g., meals consumed by employees on work travel). For amounts incurred and paid after December 31, 2017, and until December 31, 2025, the Act expands this 50 percent limitation to expenses of the employer associated with providing food and beverages to employees through an eating facility that meets the requirements for de minimis fringe benefits and for the convenience of the employer. Any such amounts that are incurred and paid after December 31, 2025, are not deductible (i.e., the provision sunsets).

Inflation Adjustments

The Act replaces the use of the CPI-U (the Consumer Price Index for All Urban Consumers) with the C-CPI-U (the Chained Consumer Price Index for All Urban Consumers) for purposes of indexing for inflation certain dollar thresholds (e.g., IRAs, flexible spending accounts and health savings accounts). Increases in dollar thresholds should increase at a slower rate, since the C-CPI-U tends to rise slower than the CPI-U.

Affordable Care Act Individual Mandate

The Act reduces the penalty (imposed on individuals) for not purchasing minimum health coverage to zero beginning January 1, 2019.

Footnotes

1  “Section” references are to the Internal Revenue Code of 1986, as amended.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Seyfarth Shaw LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Seyfarth Shaw LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions