Corporate Tax Bill Closes Loophole on Executive Pay Deductions Starting 2025

The aptly named Stop Subsidizing Multimillion Dollar Corporate Bonuses Act is a straightforward tax bill with a big target: the massive corporate tax deduction companies take for executive pay over $1 million. If you’re a regular taxpayer, this bill is designed to stop the rest of us from footing the bill for C-suite bonuses.

Currently, Section 162(m) of the tax code limits how much publicly held corporations can deduct for the compensation of their top executives—it caps the deduction at $1 million per person. But companies have found ways around this, often by cycling through who counts as a “covered employee” or paying top performers through entities other than the corporation itself. This bill aims to plug those leaks, starting with tax years beginning after December 31, 2024.

The Million-Dollar Question: Who Counts Now?

The biggest change here is how the bill defines a “covered individual.” Before, the rule mainly targeted current, traditional employees. This bill blows that definition wide open. For tax purposes, the $1 million deduction limit will now apply to anyone who “performs services for the company” during the taxable year. That’s a huge shift from just “employee” to essentially anyone on the payroll or working under contract.

Even more interesting, the bill makes the deduction limit stick to certain individuals forever. Once you’ve been identified as the Principal Executive Officer (PEO) or Principal Financial Officer (PFO) in any tax year starting after 2016, or among the top three highest-paid officers reported to shareholders, you are now a “covered individual” for every future year—even if you retire or move to a consulting role. This means companies can’t simply pay a retiring CEO a massive, non-deductible bonus for their last year and then deduct equally large payments to them as a “consultant” the following year.

Closing the Consulting Loophole

For publicly traded companies and their executives, this means a significant change in how compensation packages are structured. If a company used to pay its top people through a partnership or an outside consulting firm to avoid the $1 million deduction cap, the party might be over. The bill gives the Secretary of the Treasury explicit authority to issue rules and guidance to prevent companies from trying to get around these limits by paying people through “partnerships or other pass-thru entities.”

This regulatory authority is the bill’s enforcement mechanism. It signals that the government is ready to chase down complex payment structures designed solely to maximize the tax deduction on executive pay. For the average person, this is good news because it means more corporate income is subject to taxation, potentially increasing federal revenue rather than allowing huge bonuses to be subsidized by the general taxpayer pool. While the specifics of these rules are still to be written, the intent is clear: companies will find it much harder to write off multimillion-dollar bonuses as a necessary business expense.