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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

For taxable years starting after December 31, 2017 and before January 1, 2020, the Tax Cuts and Jobs Act of 2017 adds a new Section 45S to the Internal Revenue Code that provides a tax credit for businesses offering paid family and medical leave (“F&M Leave”).  The IRS recently issued FAQs that begin to answer questions about F&M Leave and how the tax credit will work, but many open questions remain.
Continue Reading New Paid Family & Medical Leave Tax Credit for Businesses

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

When an employee exercises a stock option or receives shares of stock from the settlement of a restricted stock unit (or “RSU”), generally the employee has income based on the value of the stock received. Income tax and Social Security and Medicare (“FICA”) taxes are due, and the employer must withhold and report these taxes.

Employees of publicly traded companies usually can sell shares in the public market to cover the cost of their taxes. However, there is typically no market for shares of privately held companies, such as start-ups. As a result, employees receiving shares of a private company through a stock option exercise or RSU settlement usually must come up with the cash to pay the IRS.

The Tax Cuts and Jobs Act of 2017 (the “Act”) adds a new section 83(i) to the Code that allows certain employees of private corporations that broadly grant stock options or RSUs to elect to defer income tax for up to five years. This is referred to as an “83(i) election”.

Section 83(i) was billed as a way to make it easier for employees of start-ups and other private companies to share in their employers’ success.  However, as we explore in this post, the benefits of an 83(i) election may be limited.  As discussed in more detail below, private employers face a number of questions about how they can — and whether they will want to — offer an equity program that is eligible under section 83(i).Continue Reading 83(i) Elections: New Deferral Provision Aims to Ease Tax Burden on Employees Receiving Equity in Private Companies

Changes to cost of living adjustments for health savings accounts (“HSAs”) by the Tax Cuts & Jobs Act of 2017 (the “Act”) caused a $50 decrease in the contribution limit for family coverage to HSAs for 2018.  The limit was reduced from $6,900 to $6,850 (original limit here; revised limit here).

This affects only 2018 contributions for employees with family coverage who have exceeded or made elections that will exceed the original HSA contribution limit for 2018.Continue Reading HSA Family Contribution Limit Reduced for 2018

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

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

The Tax Cuts & Jobs Act of 2017 adds a new provision to the Code, section 162(q), that eliminates deductions for settlement payments related to sexual harassment or sexual abuse “if such settlement or payment is subject…
Continue Reading No Tax Deductions for Sexual Harassment Settlements with Non-Disclosure Agreements

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

Starting January 1, 2019, the Tax Cuts and Jobs Act of 2017 (the “Act”) permanently repeals the Affordable Care Act’s tax penalty on individuals who fail to purchase minimum essential health coverage. Accordingly, any individual who is…
Continue Reading Repeal of the ACA’s Individual Mandate: Potential Impact on Employers

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

At the end of 2017, many businesses scrambled to find expenses before year-end that could be deducted on their 2017 federal income tax return against the higher income tax rates in effect for last year. For most…
Continue Reading Hidden Opportunity: Deducting 2018 Pension Contributions Against 2017 Income