Included in both the Senate and House tax reform bills is a reduction in the corporate tax rate from 35% to 20% (but, it appears the reconciled bill includes a corporate tax rate of 21%). The Senate plan cuts the corporate tax rate effective in 2019 and the House plan in 2018. The rate and effective date are still being negotiated by the tax bill conferees. However, both bills also make major changes to the deductions for executive compensation, effective for tax years starting in 2018, by requiring performance bonuses and stock option compensation to be counted, in determining if compensation exceeds $1 million, and also by expanding the group of executives and former executives whose compensation is subject to potential disallowance.
An accrual basis taxpayer may generally deduct bonuses in the taxable year accrued. A cash bonus, however, is generally deductible only in the year in which it was paid, rather than the year accrued, if paid later than 2½ months after the year in which related services are rendered. Accordingly, many corporate employers are taking steps to ensure that cash bonuses payable within the first 2½ months of 2018, as well as bonuses payable in vested company stock in 2018, are accrued by the end of their 2017 fiscal years.