Tax Crackdown on Corporate Pay: New Bill Stops Deductions for Multi-Million Dollar Executive Bonuses After 2024

The aptly named “Stop Subsidizing Multimillion Dollar Corporate Bonuses Act” is a direct hit on the tax breaks companies currently get for paying their top brass massive salaries. This bill tightens up Section 162(m) of the tax code, which limits how much a publicly traded company can deduct for executive pay over $1 million. Starting with tax years after December 31, 2024, the government is making it much harder for corporations to treat those huge paychecks as a standard business expense, effectively ending the taxpayer subsidy for excessive executive compensation.

No More Tax Write-Offs for the Corner Office

Existing law already caps the tax deduction a publicly held company can take for executive pay at $1 million per person. But companies are good at finding loopholes, especially when it comes to who counts as a “covered individual” subject to that cap. This bill expands that definition considerably. Previously, the rule often only applied to the CEO, CFO, and the three next highest-paid officers currently working there. The new rule is much broader, sweeping in anyone who was a high-paid officer between 2016 and 2021, even if they’ve since moved on or retired. Think of it like this: if you were one of the top five earners during that period, your pay may now be included in the non-deductible pile, regardless of your current title or status. This change is designed to stop companies from cycling executives out of top roles just to restart the deduction clock.

Catching Companies That Play Hide-and-Seek

The bill also closes a key loophole around which companies are even subject to this rule. Currently, the definition of a “publicly held corporation” can be a bit squishy, allowing some companies that report to the SEC to avoid the cap. This legislation clarifies that if a corporation was required to file reports under the Securities Exchange Act at any point during the three years leading up to the current tax year, they are now subject to the deduction limit. This means fewer companies will be able to structure their reporting requirements to slip beneath the radar and keep deducting multi-million dollar bonuses. The goal here is simple: if you’re big enough to report to shareholders, you’re big enough to play by the new rules.

Closing the Partnership Loophole

In a move that shows policy writers are paying attention to corporate maneuvers, the bill explicitly grants the Secretary of the Treasury the power to issue “necessary guidance or regulations” to prevent companies from avoiding these new limits. This includes rules specifically targeting the use of partnerships or other “pass-through entities” to pay executives. If a company tried to shift executive pay through a separate partnership structure just to keep deducting it, the IRS will now have the clear authority to shut that down. For companies and their tax teams, this means the days of creative accounting to maintain these deductions are likely over, starting in 2025. For the rest of us, it means the government will stop subsidizing the highest end of the pay scale, potentially bringing in more corporate tax revenue.