Tax Trap: Compensation Limits for Publicly Traded Companies
If you are a shareholder of a company who pays exorbitant compensation amounts, be aware that the company can’t fully deduct this compensation. This increases the corporate tax and reduces the company’s earnings.
Publicly traded companies faced a $1 million limit on how much compensation they could deduct for the CEO and certain other employees. Many companies were able to avoid this limit under the “qualified performance-based compensation” exception.
Tax Reform impacted this $1 million limit (the Section 162(m) limit) by:
· Eliminating the “qualified performance-based compensation” exception
· Explicitly including the CFO as a covered employee
· Expanded definition of publicly traded companies to include companies required to file reports under Section 15(d) of the Securities Exchange Act of 1934, including non-public companies that register debt or equity securities with the SEC.
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