Internal Revenue Code Section 162(m): Proposed Regulations

On January 14, 2025, the Internal Revenue Service and the US Treasury Department issued proposed regulations under Section 162(m) of the Internal Revenue Code (Code) to implement changes under the American Rescue Plan Act of 2021.

Background

Code Section 162(m) prohibits publicly traded companies from deducting compensation paid to covered employees if that compensation exceeds $1 million in a taxable year.¹

Historically, a covered employee included the company's principal executive officer (PEO) and principal financial officer (PFO) and the three highest-compensated executive officers other than the PEO or PFO (original covered employees), as well as any employee who had qualified as an original covered employee since January 1, 2017.