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Congress·In Committee·3 months ago

Congress bill would deny tax deductions for executive pay unless companies share profits with workers

Also known as: Employee Profit-Sharing Encouragement Act of 2025

Legislative Progress

✓ Filed
Review
House
Senate
President

Impacts

Mixed Impacts(2)
Small Business Owner
Neutral
Gig Worker
Neutral

Key Points

  • This bill would stop certain businesses from writing off top executive pay on their taxes unless they share profits with employees.
  • To qualify, the company would need a written plan that gives profit-sharing cash payments to employees (including part-time) who have worked there at least 1 year.
  • The profit-sharing would generally need to total at least 5% of the company’s net income for the year, based on the company’s own books and records.
  • The plan would also have to be set up so it doesn’t unfairly favor higher-paid workers; it must follow rules meant to treat employees more evenly.
  • A company could skip the payouts for a year if it can strongly prove to the IRS that paying them would threaten the business’s survival.
TaxesLabor EmploymentSmall Business

Milestones

2 milestones2 actions
Dec 3, 2025House

Referred to the House Committee on Ways and Means.

Dec 3, 2025

Introduced in House

What Happens Next

Projected impacts based on AI analysis

For the first company tax year that begins after the law is enacted (often the next January 1 for calendar-year companies).

If Congress passes the bill and it is signed into law, the new tax rule starts for taxable years beginning after the enactment date.

Covered employers would need to set up (or update) a written profit-sharing plan and start making cash profit-sharing distributions, or accept losing the tax deduction tied to executive compensation.

In the months leading up to the first covered taxable year after enactment.

Employers decide whether to adopt a compliant cash profit-sharing plan to protect their executive-pay tax deduction.

Workers may see new annual or periodic profit-sharing checks at companies that choose compliance, especially in profitable years.

At the first federal tax filing season after the first covered taxable year ends.

First year of enforcement and tax filing reflecting the new deduction limits.

Companies that did not pay qualifying profit-sharing may owe more in taxes; companies that did may have to document payouts and eligibility. Workers receiving profit-sharing will see it show up on tax forms as taxable income.

Related News

1 article
The Jersey Vindicator·3 months ago

Watson Coleman reintroduces bill to encourage employee profit-sharing

Coverage of the Employee Profit-Sharing Encouragement Act of 2025 requiring large firms to share at least 5% of net income with employees or lose the ability to deduct executive pay.

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Source Information

Document Type

Congressional Bill

Official Title

Employee Profit-Sharing Encouragement Act of 2025

Bill NumberHR 6418
Congress119th Congress
ChamberHouse of Representatives
Latest ActionReferred to the House Committee on Ways and Means.

Sponsor

Cosponsors

(1)
D: 1

Analysis generated by AI. While we strive for accuracy, this should not be considered legal or professional advice. Always verify information with official government sources.