Summary

Requires employers (that meet the gross receipts test) to make annual cash profit-sharing distributions to employees or lose a business tax deduction for certain pay to highly compensated workers. Distributions must be under a written plan, available to employees (including part-time workers with at least one year of service), tied to a measure of receipts/profits, and total at least 5% of the employer’s net income for the taxable year; a narrow "going concern" exception applies. The change amends the tax code and starts for taxable years beginning after enactment.

Key Points

• Denies a business tax deduction for certain pay to highly compensated employees unless employers make specified cash profit-sharing distributions.
• Qualified distributions must be cash, under a written plan, available to employees with ≥1 year service (including part-time), and tied to firm receipts/profits.
• Aggregate distributions must equal at least 5% of the employer’s net income for the taxable year (per employer records).
• Controlled group aggregation rules apply; related entities are treated together for compliance tests.
• Employers can avoid the requirement by proving to the Secretary that distributions would jeopardize the business as a going concern.
• Treasury/IRS authority to address abuses, including offsetting pay or benefit reductions tied to profit-sharing distributions.
• The rule amends the Internal Revenue Code and applies to taxable years beginning after enactment.
• Creates new administrative and documentation burdens for employers (plan rules, nondiscrimination testing, calculation of net income).

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