Nov 17, 2017

Tax Reform Update: Deferred Compensation Likely to Survive, Individual Mandate May Not

Tax Reform: Individual Mandate Penalty

On November 16, 2017, the House passed its version of the Tax Cuts and Jobs Act (the “Act”).  The original version of the bill would have made significant changes to nonqualified deferred compensation, including to Section 409A of the Internal Revenue Code of 1986.  However, an amendment eliminated these changes from the Act as passed.  Our last alert on this amendment can be found here.

The Act contains various other employee benefit related changes, including the elimination of dependent care assistance plans, elimination of tax-free adoption assistance plans and employer provided housing and meals, and changes to the hardship rules for qualified retirement plans.

The tax reform debate will now shift to the Senate.  The original text released from the Senate proposed very similar changes to nonqualified deferred compensation as contained in the original version of the Act.  However, a modified version of this text released November 15, 2017 also eliminates the proposed changes to nonqualified deferred compensation.  The Senate’s tax reform bill has been passed by the Senate Finance Committee and will now be considered by the full Senate after the Thanksgiving break.  The Senate’s version of tax reform eliminates the individual mandate under the Affordable Care Act (ACA).  The Congressional Budget Office (CBO) previously estimated that eliminating the individual mandate will reduce the Federal deficit by about $338 billion over the 2018–2027 period.  While the Act as passed by the House does not currently contain this provision, if the Senate bill is passed “as is,” the House may be forced to accept the elimination of the individual mandate as the House and Senate compromise on the final provisions of the Act.

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