What This Bill Does
This bill changes tax rules for certain employers that pay executives high compensation. Employers would not be allowed to deduct executive pay from their taxes unless they share company profits with their regular employees during the same year.
Who It Affects
Employers that meet a specific size threshold based on gross receipts (total money coming in before expenses). Highly compensated employees (workers earning above certain income levels). Regular employees at those companies, including part-time workers.
Key Provisions
• Employers cannot deduct executive compensation from their taxes unless they make profit-sharing cash distributions to employees that same year. (Sec. 2(a), specifically subsection (s)(1))
• Profit-sharing distributions must go to employees who have worked at least one year and must be based on the company's receipts, profit, revenues, or earnings. (Sec. 2(a), specifically subsection (s)(2)(A))
• The total profit-sharing money distributed must equal at least 5 percent of the employer's net income for that year, calculated using the company's accounting records. (Sec. 2(a), specifically subsection (s)(2)(B))
• Employers can skip profit-sharing distributions if they prove clearly that doing so would damage the company's ability to stay in business. (Sec. 2(a), specifically subsection (s)(2)(D))
• The profit-sharing plan must not discriminate unfairly among employees. (Sec. 2(a), specifically subsection (s)(2)(C))
What Changes
Companies that meet the size requirement will lose their ability to deduct executive pay from taxes in years when they do not distribute at least 5 percent of net income to employees through a profit-sharing plan.
Important Definitions
"Highly compensated individual" means what is defined elsewhere in tax law for that term. "Applicable employee remuneration" means executive compensation as defined in other tax rules. "Specified employer" means employers meeting a particular gross receipts test under existing tax law.
Effective Date
The law applies to tax years beginning after the bill is signed into law.
I
118TH CONGRESS
1ST SESSION H. R. 2628
To amend the Internal Revenue Code of 1986 to deny the deduction for
executive compensation unless the employer maintains profit-sharing dis-
tributions for employees.
IN THE HOUSE OF REPRESENTATIVES
APRIL 13, 2023
Mrs. WATSON COLEMAN (for herself, Mr. CARSON, Mr. GREEN of Texas, and
Ms. OMAR) introduced the following bill; which was referred to the Com-
mittee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to deny the
deduction for executive compensation unless the employer
maintains profit-sharing distributions for employees.
Be it enacted by the Senate and House of Representa-
1
tives of the United States of America in Congress assembled,
2
SECTION 1. SHORT TITLE.
3
This Act may be cited as the ‘‘Employee Profit-Shar-
4
ing Encouragement Act of 2023’’.
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•HR 2628 IH
SEC. 2. DENIAL OF DEDUCTION FOR EXECUTIVE COM-
1
PENSATION UNLESS EMPLOYER MAINTAINS
2
PROFIT-SHARING DISTRIBUTIONS.
3
(a) IN GENERAL.—Section 162 of the Internal Rev-
4
enue Code of 1986 is amended by redesignating subsection
5
(s) as subsection (t) and by inserting after subsection (r)
6
the following new subsection:
7
‘‘(s) EXECUTIVE COMPENSATION PAID BY EMPLOY-
8
ERS WHO DO NOT MAINTAIN PROFIT-SHARING DIS-
9
TRIBUTIONS.—
10
‘‘(1) IN GENERAL.—In the case of a specified
11
employer, no deduction shall be allowed under this
12
chapter for applicable employee remuneration with
13
respect to any highly compensated individual (within
14
the meaning of section 105(h)) for any taxable year
15
unless qualified profit-sharing distributions are made
16
during such taxable year.
17
‘‘(2) QUALIFIED
PROFIT-SHARING
DISTRIBU-
18
TIONS.—For purposes of this subsection—
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‘‘(A) IN
GENERAL.—The term ‘qualified
20
profit-sharing distributions’ means a cash dis-
21
tribution made pursuant to a written plan of
22
the employer under which—
23
‘‘(i) employees (including part-time
24
employees) who have been employed for at
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•HR 2628 IH
least 1 year as of the date of the distribu-
1
tion have a right to such distribution, and
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‘‘(ii) the amount of such distributions
3
are defined under such plan on the basis of
4
a measure of the receipts, profit, revenues,
5
or earnings of such employer.
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‘‘(B) MINIMUM
DISTRIBUTION
REQUIRE-
7
MENTS.—Such term shall not include any dis-
8
tributions made pursuant to such plan during
9
the taxable year if the aggregate distributions
10
made pursuant to such plan during such tax-
11
able year are less than 5 percent of the employ-
12
er’s net income for the taxable year as deter-
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mined pursuant to the employer’s books and
14
records prepared in accordance with the em-
15
ployer’s accounting procedures.
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‘‘(C)
NONDISCRIMINATION.—Such
term
17
shall not include any distributions made pursu-
18
ant to such plan during the taxable year unless
19
such plan satisfies requirements similar to the
20
requirements of section 401(k)(3)(A)(ii) applied
21
by treating the distributions made pursuant to
22
the plan as though such distributions were con-
23
tributions paid over to the trust referred to in
24
such section.
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•HR 2628 IH
‘‘(D)
EXCEPTION
IF
DISTRIBUTIONS
1
WOULD JEOPARDIZE THE BUSINESS.—An em-
2
ployer shall not fail to be treated as making
3
qualified profit-sharing distributions during the
4
taxable year to the extent that such employer
5
establishes to the satisfaction of the Secretary
6
by clear and convincing evidence that making
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such distributions would jeopardize the ability
8
of the employer to continue as a going concern.
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‘‘(3) SPECIFIED EMPLOYER.—For purposes of
10
this subsection—
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‘‘(A) IN
GENERAL.—The term ‘specified
12
employer’ means, with respect to any taxable
13
year, any employer which meets the gross re-
14
ceipts test of section 448(c) (determined with-
15
out regard to paragraph (4) thereof) for such
16
taxable year.
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‘‘(B) APPLICATION
OF
GROSS
RECEIPTS
18
TEST TO INDIVIDUALS, ETC.—For purposes of
19
subparagraph (A), in the case of any employer
20
which is not a corporation or a partnership, the
21
gross receipts test referred to in such subpara-
22
graph shall be applied in the same manner as
23
if each trade or business of such employer were
24
a corporation or partnership.
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•HR 2628 IH
‘‘(4)
APPLICABLE
EMPLOYEE
REMUNERA-
1
TION.—For purposes of this subsection, the term
2
‘applicable employee remuneration’ has the meaning
3
given such term by subsection (m)(4), determined
4
without regard to subparagraph (B) thereof.
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‘‘(5) CONTROLLED GROUPS.—For purposes of
6
this subsection, all persons treated as a single em-
7
ployer under subsection (b), (c), (m), or (o) of sec-
8
tion 414 shall be treated as one employer.
9
‘‘(6) COORDINATION.—Rules similar to the
10
rules of subparagraphs (D) and (E) of subsection
11
(m)(4) shall apply for purposes of this subsection.
12
‘‘(7) AUTHORITY
TO
ADDRESS
ABUSE.—The
13
Secretary shall have the authority to address any
14
abuses by employers under this subsection, includ-
15
ing, but not limited to, a reduction in employee com-
16
pensation or benefits in conjunction with the pay-
17
ment of qualified profit-sharing distributions.’’.
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(b) EFFECTIVE DATE.—The amendments made by
19
this section shall apply to taxable years beginning after
20
the date of the enactment of this Act.
21
Æ
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