Section 162(m) denies a deduction to a publicly held corporation generally for compensation to a "covered employee" in excess of $1 million for a year.

Certain deferred compensation plans and agreements maintained by publicly held corporations and subject to Section 409A of the Internal Revenue Code may need to be amended before December 31, 2020, to reflect changes in the tax laws effective in 2018 relating to the $1 million deduction limit under Section 162(m) of the Internal Revenue Code. If action is not taken by December 31, 2020, an employer may be precluded from paying amounts under the deferred compensation arrangement without triggering a 409A tax issue.

Section 162(m) relief in the Section 409A regulations

Regulations under Section 409A allow a deferred-compensation arrangement to delay a payment otherwise due if the employer would not be allowed a deduction for the payment because of Section 162(m). Such a delay does not need to be stated in the plan but can be implemented as a matter of administrative practice. However, some companies—in our experience, very few—drafted their deferred compensation plans to require such a delay.