Sponsors (2)
The bill expands profit-sharing eligibility and preserves deductions to encourage worker-focused distributions, but it shifts costs and compliance burdens onto employers and creates enforcement risks that could reduce hiring, raise prices, or lead to uneven employee outcomes.
Part-time employees with at least one year of service will become eligible for cash profit distributions under qualifying plans, increasing take-home pay for those workers.
Employers that make qualified profit-sharing distributions can continue to deduct executive pay, which encourages employers to use profit-sharing to benefit rank-and-file employees.
Firms near insolvency are protected by a going-concern exemption that prevents forcing distributions that could precipitate layoffs or bankruptcy, helping preserve jobs and business continuity.
Employers that fail to make the required profit distributions will lose deductions for executive pay, raising their taxable income and potentially reducing funds available for wages, investment, or hiring.
The 5% aggregate floor based on net income could force firms to divert cash to payouts, potentially raising consumer prices or reducing hiring if businesses must preserve deductions.
New compliance and nondiscrimination testing (similar to 401(k) rules) will increase administrative burdens and costs for employers, especially smaller firms required to treat trades as separate entities.
Based on analysis of 2 sections of legislative text.
Denies a tax deduction for certain high-paid employee pay unless the employer makes nondiscriminatory cash profit-sharing distributions equal to at least 5% of net income.
Official title: To amend the Internal Revenue Code of 1986 to deny the deduction for executive compensation unless the employer maintains profit-sharing distributions for employees.
Introduced December 3, 2025 by Bonnie Watson Coleman · Last progress December 3, 2025
Denies a federal income tax deduction for certain high-paid employee remuneration paid by employers unless the employer makes cash profit-sharing distributions to its workforce under a written, nondiscriminatory plan. The required distributions must be measured by the company’s receipts/profit/revenues/earnings, meet a minimum aggregate floor equal to 5% of the employer’s net income (per books), and be made available to employees including part-time employees with at least one year of service, with a narrow solvency exception and rules to prevent discrimination or abuse. The change applies to taxable years beginning after enactment.