Final section 162(m) rule review: Identifying the differences and similarities from the prior guidance

Section 162(m) of the Internal Revenue Code places a $1 million-dollar limit on the amount of deductible compensation that a “publicly held corporation” can pay to their “covered employees.” Published December 30, 2020, the final regulations under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) incorporate the Tax Cuts and Jobs Act (“TCJA”) statutory amendments and effect certain other changes to the proposed regulations, which were previously published in December 2019. While there are some changes from and clarifications to the previous guidance, the final regulations retain the basic approach and structure of the proposed regulations. This column (1) examines the final regulations in order to identify the differences from and similarities to the prior guidance; (2) reviews the IRS responses to the comments (including Wish Lists for changes and or clarifications to be included in the new guidance) that were received in response to the proposed regulations; and (3) highlights, which concerns were addressed and, which issues still may present compliance challenges for employers.

This article was originally published by the Benefits Law Journal.