Tax Reform Passes The Next Hurdle -- The Senate

by Seyfarth Shaw LLP

This is the second issue in a planned series of alerts for employers on selected topics on tax reform. The series of Tax Reform Management Alerts is designed to provide an in-depth analysis of executive compensation and employee benefits aspects of the tax reform proposals and how they will impact your business.

After much last minute wrangling, Senator Mitch McConnell finally had the votes needed to pass tax reform in the Senate.  Using a heavily hand-marked version, in the early hours of December 2, 2017, the Senate passed its Tax Cuts and Jobs Act (the “Senate Bill”) by the narrowest of margins with a vote of 51 to 49.

There were very few changes from the Senate Finance Committee proposal, as modified (the “Senate Proposal”), which were reported on in our last Alert. As a result, the Senate Bill, as passed, still retains several significant provisions that make important changes affecting executive compensation and employee benefits generally.

What Happens Next?

Now that both the House and Senate have passed their respective bills, both bills head to Conference to reconcile the differences. Congressional leaders have promised a reconciled bill to be on the President’s desk for signature by Christmas.

The following table updates the prior summary by providing the highlights of the Senate Bill, as passed, as compared to the current version of the House Bill.

Executive Compensation




Right to Defer Stock (Private Companies)

Effective for stock attributable to options exercised or RSUs settled after 

December 31, 2017

  • Right to defer income on stock received in connection with an option exercise or RSU settlement if an employee, who is not an “excluded employee,”1 makes an election no later than 30 days after the first time the right to the stock is substantially vested or transferable (whichever is earlier);2 right is limited and will not apply to public corporations
  • Clarifies that Section 83 does not apply to restricted stock units


Section 162(m) 

$1 million Deductibility Limit

Effective tax years beginning after 2017 with no grandfather or transition period

  • Eliminates the performance based compensation and commission exceptions, further limiting compensation that can be deducted 
  • Includes principal financial officer as “covered employee,” realigning definition with the SEC disclosure rules
  • Once an employee becomes a covered employee after 2016, he or she stays one, including if amounts are paid to a beneficiary

Effective tax years beginning after 2017 with limited grandfather

  • Same
  • Same
  • Same
  • Same

New Tax on Excess Compensation Paid by Not-for-Profits

Beginning 2018, a new tax is imposed on excess compensation paid by a tax exempt employer:

  • Tax equals 20% of compensation paid to a covered employee over $1,000,000, plus excess parachute payments
  • The employer is liable for the tax
  • Covered employees are the 5 highest compensated employees; once an employee becomes a covered employee after 2016, he or she stays one
  • Excess parachute payments are payments contingent on termination of employment that exceed 3 times the employee’s average annualized base compensation (a change in control Is not required for this purpose)

Same, except compensation is treated as paid, and therefore subject to the excise tax, when no longer subject to a substantial risk of forfeiture


Repeal of Deduction for Common Executive Perks

Eliminate employer deduction for entertainment expenses, membership dues and other common perquisites, unless the individual pays tax on these benefits, effective for expenses incurred after 2017

More limited changes to current law

Employer-Provided Housing

Beginning in 2018, the exclusion for housing under IRC 119 will be limited to $50,000 ($25,000 for a married individual filing a joint return) and will phase out for highly compensated individuals

No change to current law

Moving Expenses

Eliminate employer deduction for moving expenses incurred after 2017 and the exclusion from income for qualifying moving expense reimbursements made after 2017

Same, except deduction and exclusion will remain for certain members of the armed forces on active duty (provision sunsets after 2025)

1. Generally, an excluded employee is (1) the CEO, CFO (or individual acting in either capacity), (2) family member of CEO or CFO, (3) an employee who has been one of the four highest compensated officers for the corporation for any of the 10 preceding taxable years, or (4) a 1% owner of the corporation at any time during the 10 preceding taxable years.

2. If deferred, the deferred income is taxed upon the earliest of (1) the first date the qualified stock becomes transferable, including to the employer, (2) the date the employee first becomes an excluded employee, (3) the date the stock becomes readily tradeable on an established securities market, (4) the date five years after the first date the employee’s right to the stock becomes transferable or is not subject to a substantial risk of forfeiture, whichever is earlier (the Senate version simply provides the date that is five years after the first date the right to the stock becomes substantially vested), or (5) the date the employee revokes the deferral election.





Individual Mandate

No change to current law

Reduces penalty for individual mandate to $0, beginning in 2019

Medical expense deduction (individuals may deduct unreimbursed medical expenses that exceed 10% of AGI)

Repeals deduction entirely

No change to current law

Archer Medicals Savings Accounts (MSAs)

Eliminates deduction for contributions to Archer MSAs but permits rollover to Health Savings Accounts (HSAs)

No change to current law

Qualified Transportation Fringe Benefit

Eliminates deductions for transportation fringe benefit

Eliminates deductions for transportation fringe benefit.

Qualified Bicycle Reimbursement

No change to current law

Repeals qualified bicycle exclusion (provision sunsets after 2025)

Dependent Care Assistance Programs

Exclusion repealed beginning in 2023

No change to current law

Adoption Assistance Program

Exclusion repealed beginning in 2018

No change to current law

Educational Assistance

Repeals tax exclusion under Code Section 127 (but not under Code Section 132(d)) for certain employer reimbursements of education-related expenses

No change to current law





Hardship Withdrawals

  • Deletes the six month suspension requirement for elective deferrals following a hardship distribution
  • Increases the plan assets from which a participant can take a hardship distribution to include earnings and employer QNEC and QMAC contributions in addition to employee contributions 
  • Provides that a participant can take a hardship before requesting a loan from the plan
  • No change to current law
  • Same
  • Same

Deferral Limits

No change to current law

  • Senate Proposal combined governmental 457(b) deferrals of the same employer with 401(k) or 403(b) deferrals for purposes of annual limit
  • Senate Bill deleted provision; no change to current law as a result

415 Contribution Limits

No change to current law

  • Senate Proposal reduced the maximum aggregate contributions for individuals that are eligible for more than one plan (401(k), 403(b) and/or governmental 457(b)) of the same employer
  • Senate Bill deleted provision; no change to current law as a result


Following a plan termination or separation from service, allows participants to rollover a qualified plan loan offset amount to an eligible retirement plan by the due date (including extensions) of the participant’s federal income tax return for the year in which the offset occurs, thereby avoiding taxation on the offset amount


Post-termination contributions

No change to current law

  • Senate Proposal eliminated special rule allowing employer contributions to governmental 403(b) plans for up to five years after termination of employment
  • Senate Bill deleted provision; no change to current law as a result

Catch-Ups Contributions

No change to current law

Eliminates special 403(b) and governmental 457(b) catch-up contributions; retains the general catch-up limit

In-Service Distributions

Age for in-service distributions from governmental plans lowered to earlier of normal retirement date or age 59 1/2 

No change to current law

Frozen DB Plans

Frozen pension plans allowed to protect grandfathered benefits as long as grandfathered group not modified in a discriminatory manner after plan is closed to new hires

No change to current law

Seyfarth Shaw will continue to monitor Congressional and regulatory efforts and will alert clients as new developments occur. 


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Seyfarth Shaw LLP | Attorney Advertising

Written by:

Seyfarth Shaw LLP

Seyfarth Shaw LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.