Sponsors (2)
The bill expands and encourages profit-sharing (including to eligible part-time workers) and shields struggling firms from forced payouts, but it imposes mandatory distribution requirements, a net‑income floor, and added compliance that could raise costs for employers and consumers and complicate enforcement.
Part-time employees with at least one year of service will become eligible for cash profit-sharing distributions, increasing take-home pay for eligible workers.
Small businesses and other firms near insolvency are protected by a going-concern exemption that prevents forced profit distributions that could trigger layoffs or bankruptcies.
Employers that make the required qualified profit-sharing distributions can retain the tax deductibility of executive pay, encouraging more profit-sharing to rank-and-file employees.
A 5% aggregate floor tied to net income could force employers to divert cash to payouts, potentially raising consumer prices or reducing hiring.
Employers that fail to make the required profit distributions will lose deductions for executive pay, increasing their taxable income and potentially reducing funds for wages or investment.
New compliance and nondiscrimination testing (similar to 401(k) rules) will increase administrative burdens and costs for employers, especially smaller firms forced to treat trades as separate entities.
Based on analysis of 2 sections of legislative text.
Conditions the tax deduction for compensation paid to highly paid employees on employers making cash profit‑sharing distributions of at least 5% of net income to employees under a written, nondiscriminatory plan.
Introduced December 3, 2025 by Bonnie Watson Coleman · Last progress December 3, 2025
Denies a federal income tax deduction for certain compensation paid to highly compensated employees unless the employer makes cash profit‑sharing distributions to rank‑and‑file employees under a written plan. The required profit‑sharing must be measured by receipts/profit/revenues/earnings, meet nondiscrimination rules, and reach a minimum aggregate floor equal to 5% of the employer’s net income (per books), with a narrow exception if distributions would jeopardize the firm’s going concern. The rule applies to employers that meet the gross receipts test in current tax law and takes effect for taxable years beginning after enactment. The Secretary of the Treasury is authorized to issue rules to prevent abuse and to apply coordination and controlled‑group rules consistent with existing employee‑compensation provisions.