ARPA Expands Section 162(m) Covered Employee Group

The American Rescue Plan Act of 2021 ("ARPA")¹ makes a small but significant change for publicly held corporations subject to the compensation deduction limitations under Internal Revenue Code Section 162(m).

In general, Code Section 162(m) limits deductions for compensation in excess of $1 million for "covered employees". Under current law, covered employees consist of (i) the principal executive officer, principal financial officer (or any individual acting in either such capacity) plus the next three highest compensated officers for a taxable year, and (ii) individuals who were covered employees during any tax year beginning on or after January 1, 2017. For tax years beginning after December 31, 2016, ARPA Section 9708 expands the number of covered employees to include the next five highest compensated employees (in addition to the principal executive officer, principal financial officer, the next three highest compensated officers, and any post-December 31,