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Section 162(m) Guidance on Executive Compensation After TCJA

08/22/2018

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The IRS released Notice 2018-68, on August 21, 2018, which has provided guidance with respect to executive compensation changes made by the Tax Cuts and Jobs Act (TCJA).

Prior to 2018, two notable exceptions to the deduction limit included the exception for performance-based pay (including stock options) and the exception for commission-based pay. However, the signing of the TCJA repealed these exceptions and placed a limit on the amount a company can deduct for executive compensation at $1 million dollars for a company’s CEO, CFO, and other highly paid executives.

For tax years beginning after December 31, 2017, the tax code limits the deduction for remuneration paid to certain executives by publicly held corporations. Notice 2018-68 specifically discusses the amended definition of covered employees and the operation of a grandfather rule. The deduction by a publicly held corporation for covered employee remuneration is disallowed to the extent it exceeds $1 million dollars in a tax year. 

Understanding tax reform and how the changes will affect your business, as well as you as an individual, can be challenging. Be sure you consult with a tax advisor who has deep expertise in the multifaceted law and all its nuances so you don’t leave opportunities on the table.

LBMC would welcome the opportunity to help you minimize your 2018 tax liability.

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LBMC tax tips are provided as an informational and educational service for clients and friends of the firm. The communication is high-level and should not be considered as legal or tax advice to take any specific action. Individuals should consult with their personal tax or legal advisors before making any tax or legal-related decisions. In addition, the information and data presented are based on sources believed to be reliable, but we do not guarantee their accuracy or completeness. The information is current as of the date indicated and is subject to change without notice.