The NASPP Blog

The conference committee charged with aligning the Senate and House versions of the Tax Cuts and Jobs Act announced late last week that they have come to an agreement. The final bill is expected to be approved in both the House and Senate this week and then signed into law by the president.

Here’s where the bill ended up with respect to the provisions that impact stock compensation.

Individual Tax Rates: The final version of the bill released by the conference committee largely matches what was in the Senate version, except that the maximum individual tax rate is reduced to 37%. So we end up with seven individual tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The highest rate kicks in at $500,000 of income for single taxpayers but at only $600,000 for joint filers (instead of the $1 million threshold that was originally proposed). The individual tax rates sunset after 2025 and will revert back to the current rates at that time.

Supplemental Withholding Rate: For employees who have received supplemental payments of $1 million or less during the year, the supplemental rate is tied to the third lowest individual tax rate, which will be 22% under the aligned bill. For employees who have received supplemental payments of more than $1 million during the year, the rate is tied to the maximum individual tax rate, which will be 37%.

AMT (for Individuals): This is probably the closest we’ve come to a repeal of the AMT (at least in my memory) but still no cigar. The bill does increase the exemption amounts and phaseout thresholds, so fewer taxpayers will be subject to the AMT. These changes sunset after 2025.

Corporate Tax Rate: Reduced to 21% with no sunset.

Estate Tax: Increases the estate tax threshold to about $11 million; no repeal and no sunset.

Section 162(m):

• The CFO is once again subject to 162(m).
• Anyone serving as CEO or CFO during the year is also subject to 162(m) (instead of just the individuals serving in those roles at the end of the year).
• Once a covered employee for a company, always a covered employee for that company.
• Stock options and performance awards will no longer be exempt from the deduction limitation.
• Includes an exemption for compensation paid pursuant to a written, binding contract (such as a stock option or award agreement) in effect as of November 2, 2017, if not modified after that date.

Qualified Equity Grants: The final bill includes 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: No change to the current tax treatment of stock options, SARs, or RSUs. The provision that would have taxed these arrangements at vest was removed from both versions of the bill before it was passed by House and Senate.

Determination of Cost Basis: No change from current law.  The Senate version of the bill would have required identification of securities sold to be on a FIFO basis but this is not included in the final bill.

– Barbara