162(m) Is Gone, But What About Similar State Laws?
Yes, way back in 2017 the Tax Act eliminated Internal Revenue Code Section 162(m) – the “qualified performance-based compensation” exception for deductible compensation – but not only are companies still wading through the fall-out and disclosure implications, there are also state tax laws that were modeled on the old tax provision that still exist. So, as a FW Cook blog points out, there was potentially a state income tax benefit to continuing to comply with Section 162(m)’s parameters. Now, though, there’s one less state where that’s possible – because California has conformed its tax code to the Section 162(m) changes under the tax act. Here’s an excerpt from the blog:
To the extent a company paying California taxes had been complying with the design and administrative rules of old Section 162(m) in order to reduce California taxes, it should reassess the company’s executive compensation program in light of the new law, including reviewing in-process performance-based awards to determine whether these arrangements qualify for the new grandfathering exception. It may also be possible for such a company to simplify compensation arrangements going forward, to the extent there were mechanics in place primarily intended to satisfy the requirements for performance-based compensation (for example, an umbrella goal under an annual cash incentive plan).
-Liz Dunshee, CompensationStandards.com August 1, 2019
Want to keep reading?
Great. Enter your email address and gain instant access to this article