Proposed regulations from the IRS provide guidance that expands the Sec. 162(m) annual deduction limitation for employees paid over $1 million to additional employees.
Sec. 162(m)(3)(C) expanded the definition of covered employee for tax years beginning after Dec. 31, 2026, to include any employee among the five highest-compensated employees for the tax year other than the principal executive officer (PEO) or the principal financial officer (PFO) or the three highest-compensated executive officers for the tax year.
The proposed regulations would provide that, for purposes of determining whether under new Sec. 162(m)(3)(C) an employee is one of the five highest-compensated employees, the term "employee" means an "employee" as defined in Sec. 3401(c), which includes a common law employee and an officer of a corporation.
The IRS will accept comments on the proposed regulations through Monday, March 17. Learn more.