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For publicly traded companies the Tax Cuts and Jobs Act eliminates the exceptions for performance- based compensation and commissions. Prior to the Tax Cuts and Jobs Act, performance- based compensation and commissions that exceeded $1 million were deductible under the exceptions available for these types of compensation to a covered employee. Previously, if a covered employee had a base salary of $500K and received performance- based bonuses of $4.5M the full $5M of compensation was deductible. The Tax Cuts and Jobs Act limits the total deductible compensation to $1M and the remaining $4M of compensation would be treated as a non-deductible expense.

During the transition of the Tax Cuts and Jobs Act the exception for performance- based compensation will remain in effect and allow for compensation over $1M to be deductible for companies who have written and binding contracts that were in effect as of Nov. 2, 2017, and have not been materially modified as of this date. This exception does not apply to new or renewed contracts after Nov. 2, 2017 and this compensation will be subject to the new rules outlined above. For more information contact us in one of our many locations