Proposed Regs Address Compensation Deduction for 2027 and Beyond

Starting in 2027, the compensation deduction for covered employees will be further limited under the ARPA.  The definition of "covered employee" will include the five-highest compensated employees other than the principal executive officer, principal financial officer or the three highest-compensated executive offers for the tax year.  The IRS proposed regulations clarify that the definition of "employee" for this purpose is the Section 3401(c) definition, including common law employees and officers of the corporation.  "Compensation" for this purpose includes any compensation that would be deductible as a business expense absent Section 162(m).  The regulations are proposed to apply to compensation that is otherwise deductible for tax years beginning after the later of (1) December 31, 2026, or (2) the date final regulations are published in the Federal Register.  For more information on the limits that apply to deductible executive compensation, visit Tax Facts Online. Read More: Link to Q3520.  Note: Q is updated.