Summary

Denies a federal income tax deduction for pay to highly compensated employees unless the employer makes cash profit-sharing distributions to workers under a written plan that meets nondiscrimination rules and a minimum 5% aggregate floor of the employer’s net income. The rule applies to employers that pass a gross receipts test and takes effect for taxable years beginning after enactment, with a narrow exception if distributions would threaten the business’s ability to continue. The change forces affected employers to either shift some pay into company-wide profit-sharing that reaches a broad group of workers (including part-time employees with at least one year of service) or lose the tax deduction for compensation to top-paid staff. The Secretary of the Treasury can issue anti‑abuse rules to prevent evasion.

• Employers that meet the gross receipts test must make cash profit‑sharing distributions to employees or lose a tax deduction for pay to highly compensated employees.
• Profit‑sharing must be under a written plan, available broadly (including certain part‑time workers), and measured by firm performance metrics.
• The law requires a minimum aggregate profit‑sharing floor equal to 5% of the employer’s net income (per books).
• Plans must meet nondiscrimination rules similar to 401(k) rules so benefits cannot favor highly compensated employees.
• A narrow exception allows employers to avoid distributions if they prove doing so would endanger the business’s going concern.
• The definition of affected employers relies on the section 448(c) gross receipts test, with special rules for noncorporate businesses.
• Treasury is authorized to issue anti‑abuse rules to stop gaming of the requirement.
• Applies to taxable years beginning after the law is enacted; it changes tax deductions rather than creating federal spending.