This is the second issue in a planned series of alerts for employers on selected topics on tax reform. The series of Tax Reform Management Alerts is designed to provide an in-depth analysis of executive compensation and employee benefits aspects of the tax reform proposals and how they will impact your business.
After much last minute wrangling, Senator Mitch McConnell finally had the votes needed to pass tax reform in the Senate. Using a heavily hand-marked version, in the early hours of December 2, 2017, the Senate passed its Tax Cuts and Jobs Act (the "Senate Bill") by the narrowest of margins with a vote of 51 to 49.
There were very few changes from the Senate Finance Committee proposal, as modified (the "Senate Proposal"), which were reported on in our last Alert. As a result, the Senate Bill, as passed, still retains several significant provisions that make important changes affecting executive compensation and employee benefits generally.
What Happens Next?
Now that both the House and Senate have passed their respective bills, both bills head to Conference to reconcile the differences. Congressional leaders have promised a reconciled bill to be on the President's desk for signature by Christmas.
The following table updates the prior summary by providing the highlights of the Senate Bill, as passed, as compared to the current version of the House Bill.
1. Generally, an excluded employee is (1) the CEO, CFO (or individual acting in either capacity), (2) family member of CEO or CFO, (3) an employee who has been one of the four highest compensated officers for the corporation for any of the 10 preceding taxable years, or (4) a 1% owner of the corporation at any time during the 10 preceding taxable years.
2. If deferred, the deferred income is taxed upon the earliest of (1) the first date the qualified stock becomes transferable, including to the employer, (2) the date the employee first becomes an excluded employee, (3) the date the stock becomes readily tradeable on an established securities market, (4) the date five years after the first date the employee's right to the stock becomes transferable or is not subject to a substantial risk of forfeiture, whichever is earlier (the Senate version simply provides the date that is five years after the first date the right to the stock becomes substantially vested), or (5) the date the employee revokes the deferral election.
Seyfarth Shaw will continue to monitor Congressional and regulatory efforts and will alert clients as new developments occur.
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.