House, Senate Finance Committee Pass Tax Reform With HR Policy-Opposed Compensation Provisions Removed

November 17, 2017

This week, the House of Representatives passed its comprehensive tax reform bill on a 227 to 205 vote, while the Senate Finance Committee removed HR Policy-opposed executive compensation provisions before approving its tax reform bill on a 14 to 12 party-line vote, sending the bill to the full Senate to be considered after the Thanksgiving break.  Unsurprisingly, the House vote was largely along party lines, with 13 Republicans joining all Democrats in voting against the bill.  Meanwhile, earlier this week, Senate Finance Committee Chairman Orrin Hatch (R-UT) released a modification to the Committee's tax reform bill that removed the sections repealing nonqualified deferred compensation and subjecting stock options and stock appreciation rights to taxation upon vesting.  As passed by the Committee, the bill contained no changes to nonqualified deferred compensation.  The Association's Center On Executive Compensation submitted a letter late last week urging the provision’s removal and several other business groups had also weighed in against the measure.  The removal was based on an amendment by Sen. Rob Portman (R-OH), who explained that his language "protects these stock option holders from income tax that would have been on phantom income they may never had received, which I believe would have been unfair" and explaining that "these types of savings vehicles are critical."  The Committee-passed Senate bill retains the repeal of the performance-based and commission-based pay exceptions to the $1 million deduction limit under Section 162(m) of the code, with a slight transition modification.  The changes in the bill, including the nonqualified deferred compensation provisions, were offset by repealing the individual mandate to the Affordable Care Act, effective in 2019, which would raise $338 billion over 10 years.  Other provisions of interest in the Senate bill include:

  • A business tax credit for eligible employers to claim a general business credit equal to 12.5 percent of the amount of wages paid to qualifying employees during any period in which such employees are on leave under the Family and Medical Leave Act (FMLA) if the rate of payment under the program is 50 percent of the wages normally paid to an employee;

  • Retention of the section 127 exemption that allows employers to provide up to $5,250 annually in education assistance to employees tax-free that was eliminated in the House tax bill; and 

  • Like the House's bill, it makes moving expense reimbursements taxable and eliminates an employer's ability to deduct expenses for a number of fringe benefits, including transit benefits.