Details of Public Law 119-21, section 70603 , One Big Beautiful Bill Act

This provision extends the $1,000,000 deduction limitation for compensation paid to a “specified covered employee,” of a controlled group that includes a publicly held corporation. A controlled group is defined as a group treated as a single employer under a controlled group of corporations (IRC section 414(b)), partnerships and proprietorships (IRC section 414(c)), an affiliated service group (IRC section 414(m)), or under the Secretary of the Treasury regulations (IRC section 414(o)). A “specified covered employee” is defined as any of the following:

A principal executive officer or the principal financial officer of the publicly held corporation.

The three most highly compensated officers of the publicly held corporation for the taxable year (other than the principal executive officer or principal financial officer) who are required to be reported under the Securities Exchange Act of 1934.

A former employee of the publicly held corporation described above in any preceding taxable year beginning after December 31,2016.

The five highest compensated employees of all members of the controlled group other than the individuals described above.

In determining the amount members of a controlled group are limited from deducting all compensation paid to a specified covered employee by a member of the controlled group would be aggregated. Amounts in excess of $1,000,000 would be proportioned to each controlled group member based on the portion of compensation paid by that member.

California conforms, with modifications, to the federal treatment of certain excessive employee remuneration under IRC section 162 as of the specified date of January 1, 2025. Additionally, under the PITL, California does not conform to the limitation on excessive employee remuneration to the five highest compensated employees. As a result, California does not conform to the changes made under this provision to extend the $1,000,000 deduction limitation to the controlled group.

The estimated revenue impact to conform to the above provisions would result in the following gain:

26/27 27/28 28/29 29/30 $70,000,000 $44,000,000 $45,000,000 $47,000,000