KPMG Report: Proposed Regulations on Additional Five Highest Compensated Employees subject to Section 162(m)

Summary

Section 162(m) limits the compensation deduction for a tax year for a public corporation to $1,000,000 for each of its covered employees. Historically, this loss of deduction has applied to compensation for the CEO and three highest paid executive officers, who are referred to as covered employees. The Tax Cuts and Jobs Act (TCJA) expanded the covered employee definition to pull in the CFO and further extended the scope so that once an individual was a covered employee the individual would remain a covered employee for all future taxable years of the public corporation so that for a taxable year the public corporation could have more than five covered employees. For tax years beginning after December 31, 2026, the American Rescue Plan Act of 2021 (ARPA) again expanded the definition of covered employee for purposes of section 162(m) to apply to an additional group of five highest compensated employees who are not the CEO, CFO or one of the three highest paid executive officers of the ...