What This Bill Does
This bill changes tax rules for corporations to limit how much they can deduct (reduce their taxable income by) when paying high salaries and bonuses to certain workers. The bill expands which workers count as "covered individuals" whose pay the corporation cannot deduct for tax purposes. The bill applies to taxable years (the time period used for calculating taxes) starting after December 31, 2022.
Who It Affects
Publicly held corporations (companies that sell stock to the public and must file reports with the government). Certain high-paid workers at those corporations, including any individual who performs services for the company, former principal executive officers (top leader), former principal financial officers (top financial leader), and officers whose compensation must be reported to shareholders.
Key Provisions
- Corporations cannot deduct pay for "covered individuals" who perform services for the company starting after December 31, 2020, or who held top executive or financial positions between January 1, 2017 and December 31, 2020 (Sec. 2(a)(2)(A) and (B)(i))
- The rule applies to workers whose total compensation was required to be reported to shareholders under federal securities laws (laws governing public company reporting) as being among the three highest-paid officers (Sec. 2(a)(2)(B)(ii))
- Publicly held corporations are defined as those required to file reports with the government at any time during the three-year period ending with that taxable year (Sec. 2(b))
- The Secretary of the Treasury may create rules to prevent companies from avoiding these restrictions by paying workers through other entities or structures (Sec. 2(c)(1)(B))
What Changes
If this becomes law, corporations will no longer be able to deduct salaries and bonuses paid to more types of workers than they can currently. The definition of which workers are covered expands significantly. Companies will face stricter limits on tax deductions for executive and officer compensation.
Important Definitions
"Covered individual" means any individual who performs services for the company after December 31, 2020, or any worker who was a principal executive officer, principal financial officer, or among the three highest-paid officers during 2017-2020.
"Applicable remuneration" means compensation paid to a covered individual that the bill text does not further define beyond this term.
Effective Date
The amendments apply to taxable years beginning after December 31, 2022.
I
118TH CONGRESS
1ST SESSION
H. R. 324
To amend the Internal Revenue Code of 1986 to expand the denial of
deduction for certain excessive employee remuneration, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 12, 2023
Mr. DOGGETT (for himself, Mr. BLUMENAUER, Ms. CHU, Mr. CICILLINE, Mr.
COHEN, Ms. DELAURO, Mr. DESAULNIER, Mr. ESPAILLAT, Mr.
GARAMENDI, Mr. GRIJALVA, Ms. MOORE of Wisconsin, Mr. POCAN, Ms.
SCHAKOWSKY, and Mrs. WATSON COLEMAN) introduced the following bill;
which was referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to expand
the denial of deduction for certain excessive employee
remuneration, and for other purposes.
Be it enacted by the Senate and House of Representa-
1
tives of the United States of America in Congress assembled,
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SECTION 1. SHORT TITLE.
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This Act may be cited as the ‘‘Stop Subsidizing Mul-
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timillion Dollar Corporate Bonuses Act’’.
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•HR 324 IH
SEC. 2. EXPANSION OF DENIAL OF DEDUCTION FOR CER-
1
TAIN
EXCESSIVE
EMPLOYEE
REMUNERA-
2
TION.
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(a) IN GENERAL.—
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(1) EXPANSION.—Section 162(m) of the Inter-
5
nal Revenue Code of 1986 is amended—
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(A) by striking ‘‘applicable employee remu-
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neration’’ each place it appears in paragraphs
8
(1), (4), and (5)(E) and inserting ‘‘applicable
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remuneration’’,
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(B) by striking ‘‘covered employee’’ each
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place it appears in paragraphs (1) and (4) and
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inserting ‘‘covered individual’’, and
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(C) by striking ‘‘employee’’ each place it
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appears in paragraph (1) and subparagraphs
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(A), (C)(ii), and (E) of paragraph (4) and in-
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serting ‘‘individual’’.
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(2) COVERED INDIVIDUAL.—Paragraph (3) of
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section 162(m) of such Code is amended to read as
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follows:
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‘‘(3) COVERED INDIVIDUAL.—For purposes of
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this subsection, the term ‘covered individual’
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means—
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‘‘(A) any individual who performs services
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(directly or indirectly) for the taxpayer (or any
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•HR 324 IH
predecessor) for any taxable year beginning
1
after December 31, 2020, or
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‘‘(B) any employee—
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‘‘(i) who was the principal executive
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officer or principal financial officer of the
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taxpayer (or any predecessor) at any time
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during any preceding taxable year begin-
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ning after December 31, 2016, and before
8
January 1, 2021, or who was an individual
9
acting in such a capacity, or
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‘‘(ii) the total compensation of whom
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for any taxable year described in clause (i)
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was required to be reported to shareholders
13
under the Securities Exchange Act of 1934
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by reason of such individual being among
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the 3 highest compensated officers for the
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taxable year (other than any individual de-
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scribed in clause (i)).
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Such term shall include any employee who would be
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described in subparagraph (B)(ii) if the reporting
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described in such subparagraph were required as so
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described.’’.
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(3) CONFORMING AMENDMENTS.—
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•HR 324 IH
(A) The heading for section 162(m) of the
1
Internal Revenue Code of 1986 is amended by
2
striking ‘‘EMPLOYEE’’.
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(B) The heading for section 162(m)(4) is
4
amended by striking ‘‘EMPLOYEE’’.
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(b) MODIFICATION
OF DEFINITION
OF PUBLICLY
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HELD CORPORATION.—Section 162(m)(2) of the Internal
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Revenue Code of 1986 is amended—
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(1) by inserting ‘‘, with respect to any taxable
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year,’’ after ‘‘means’’, and
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(2) by striking subparagraph (B) and inserting
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the following:
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‘‘(B) that was required to file reports
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under section 15(d) of such Act (15 U.S.C.
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78o(d)) at any time during the 3-taxable year
15
period ending with such taxable year.’’.
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(c) REGULATORY AUTHORITY.—
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(1) IN GENERAL.—Section 162(m) of the Inter-
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nal Revenue Code of 1986 is amended by adding at
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the end the following new paragraph:
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‘‘(7) REGULATIONS.—The Secretary may pre-
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scribe such guidance, rules, or regulations as are
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necessary to carry out the purposes of this sub-
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section, including regulations—
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‘‘(A) with respect to reporting, and
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•HR 324 IH
‘‘(B) to prevent avoidance of the purposes
1
of this section by providing compensation
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through a pass-through or other entity.’’.
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(2) CONFORMING AMENDMENT.—Paragraph (6)
4
of section 162(m) of such Code is amended by strik-
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ing subparagraph (H).
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(d) EFFECTIVE DATE.—The amendments made by
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this section shall apply to taxable years beginning after
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December 31, 2022.
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Æ
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