Employee Profit-Sharing Encouragement Act of 2025
Sponsored By: Representative Watson Coleman, Bonnie [D-NJ-12]
Introduced
Summary
This bill would tie employers' tax deductions for pay to highly compensated employees to whether the employer shares profits with workers. It conditions deductibility under section 162 on making written, cash profit-sharing distributions that meet the bill's rules and thresholds.
Show full summary
- Employers: Specified employers that meet the gross receipts test in section 448(c) would lose deductions for "applicable employee remuneration" paid to highly compensated individuals unless they make the required profit-sharing distributions.
- Workers: Profit-sharing distributions must be cash, available to employees (including part-time workers) with at least 1 year of service, and the plan must define amounts based on receipts, profit, revenues, or earnings.
- Plan rules and enforcement: Distributions do not qualify if aggregate payouts are under 5% of the employer's net income. Plans must meet nondiscrimination rules like section 401(k)(3)(A)(ii). The bill treats groups of commonly controlled businesses as one employer and gives the Secretary authority to address abuses and a narrow going-concern exception if clear and convincing evidence is shown.
*The bill would change how deductible executive pay is calculated by conditioning those deductions on firm profit-sharing to employees.*
Your PRIA Score
Personalized for You
How does this bill affect your finances?
Sign up for a PRIA Policy Scan to see your personalized alignment score for this bill and every other piece of legislation we track. We analyze your financial profile against policy provisions to show you exactly what matters to your wallet.
Bill Overview
Analyzed Economic Effects
1 provisions identified: 0 benefits, 0 costs, 1 mixed.
Business deduction tied to profit-sharing payments
This bill would deny a business tax deduction for pay to highly compensated employees unless the employer makes cash profit-sharing distributions in that taxable year. Qualified distributions must come from a written plan, be paid in cash, go to employees (including part-time workers with at least one year of service), and be based on a measure of the employer's receipts, profit, revenue, or earnings. The employer's total distributions must be at least 5 percent of the employer's net income for the taxable year to count. The plan must meet nondiscrimination rules similar to section 401(k)(3)(A)(ii). The Secretary could address abuses and employers can avoid the rule to the extent they show, by clear and convincing evidence, that paying distributions would jeopardize their ability to continue as a going concern. The rule would apply to "specified employers" that meet the section 448(c) gross receipts test (applied to non-corporate employers as if each trade or business were a corporation or partnership) for taxable years beginning after the date of enactment.
Sponsors & CoSponsors
Sponsor
Watson Coleman, Bonnie [D-NJ-12]
NJ • D
Cosponsors
Rep. Omar, Ilhan [D-MN-5]
MN • D
Sponsored 12/17/2025
Roll Call Votes
No roll call votes available for this bill.
View on Congress.gov