The NASPP Blog

The Senate passed its version of the Tax Cuts and Jobs Act late Friday night (well, technically, it was very early Saturday morning in DC).  Here’s a comparison of where the final Senate and House bills stand with respect to the provisions that directly or indirectly impact stock compensation:

Individual Tax Rates

• The House version of the bill has four individual tax rates: 12%, 25%, 35%, and 39.6%
• The Senate version of the bill has seven individual tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 38.5%. The rates sunset after 2025, at which time they revert back to the current rates.
• In both bills, the highest rate kicks in at $500,000 of income for single taxpayers ($1 million for joint filers)

Supplemental Withholding Rate

• For employees who have received supplemental payments of $1 million or less during the year: 35% under the House bill; 22% under the Senate bill.
• For employees who have received supplemental payments of more than $1 million during the year: 39.6% under the House bill, 38.5% under the Senate bill.

AMT (for Individuals)

• Repealed under the House bill.
• The Senate bill doesn’t repeal the AMT, but it does increase the exemption amounts and phaseout thresholds.

Corporate Tax Rate

• Both bills reduce the corporate tax rate to 20%. The reduction doesn’t take effect until 2019 in the Senate bill.

Estate Tax

• Both bills increase the estate tax threshold to about $11 million.
• The House bill repeals the estate tax altogether after 2024.
• The Senate bill sunsets the increased threshold after 2025.

Section 162(m)

• Both bills expand the employees subject to 162(m) to once again include the CFO and to include anyone serving as CEO during the year (rather than only the CEO at the end of the year).
• Under both bills, once individuals are covered employees, they remain covered employees for as long as they receive compensation from the company.
• Both bills also eliminate the exception for stock options and performance-based pay.
• The Senate bill includes a transitional provision that would exempt compensation paid via a written binding contract that was in effect as of November 2, 2017. This is broader than the transitional provision that was originally proposed, which would have only exempted arrangements vested as of December 31, 2016. There is no transitional provision in the House bill, so all prior awards would be subject to the new rules under that bill.

Qualified Equity Grants

• Both bills include a provision that would allow employees in privately held companies to elect to defer tax on stock options and RSUs until five years after the arrangements vest, provided certain conditions are met.

Stock Options and RSUs Taxed at Vest

• This provision has been removed from both bills, so there is no change to the tax treatment of stock options, SARs, or RSUs.

Determination of Cost Basis

• The Senate bill still includes the provision I blogged about last week that requires taxpayers to sell securities of the same type on a FIFO basis (when held in the same account). This provision is not in the House bill.

What’s Next?

As you can see, there are lots of areas where these two bills don’t agree (and this is just the tip of the iceberg—there is even more disagreement in areas of the bills the don’t relate to stock compensation). All of these differences have to be reconciled before the bill can become law, so the bill now goes to a conference committee comprised of members of both the Senate and House that will resolve the differences between the two bills.

– Barbara