Possible Changes to Executive Compensation During a Biden Presidency

Posted: December 1, 2020

The topic of executive compensation is one that has come under increased scrutiny over the past couple of years. Part of the reason why is that executive salaries and bonus packages have ballooned while employee wages have mostly stayed stagnant. Another reason is that the wealth gap in the United States has become more pronounced than ever in recent years. Now that the US Presidential race has been called and it looks like we will have a Joe Biden presidency in the United States, there are a few changes that executives can expect for their compensation packages. Let’s take a look at what some of those might be. Higher taxes on the wealthy One of Joe Biden’s biggest talking points during his campaign was his plan to increase taxes on the United States’ wealthiest people. Mainly, that meant increasing the tax rate for people making $400,000 or more. Let’s take a look at more specific details of his plan:

• New top federal income tax rate - The top tax rate would return to 39.6% after being cut to 37% by President Trump.
• New social security tax - A new 12.4% Social Security tax would apply on wages (and earnings from self-employment) that exceed $400,000.
• The “doughnut hole” - The existing 12.4% Social Security tax would apply on wages up to the regular Social Security wage base ($142,800 for 2021). There would be no social security tax on wages above this base up to $400,000. After $400,000 the tax would resume. This gap in the middle of tax brackets is commonly referred to as the doughnut hole.

Bear in mind that these changes are not guaranteed to go into effect and even if they do, it might take a few years for them to get turned into law. Governmental pressure Overall, if you rely on an executive salary for income then you can expect a host of changes to be coming your way in addition to the ones listed above. It is mostly just a matter of how quickly they come. Right now, the Republic Party controls the Senate with the Democrats looking to change that in January. However, the Trump tax cuts are also going to sunset at the end of 2025. This means that both parties will have an incentive to reach an agreement before that happens. How can I prepare? If you are concerned about these updates hurting you then there are a few strategies that corporations usually pursue:

• The “Pay Taxes Now” approach - Paying taxes on your income and bonuses now to take advantage of lower tax rates.
• The “Pay Taxes Later” approach - Try to defer paying taxes out into the future when you believe that tax rates will be lower.
• Fitting in the doughnut hole - Try your best to get your income to fit into the “doughnut hole” where you would be exempt from paying social security tax.

If you are concerned with how your executive compensation may be impacted, we would recommend speaking with a tax or executive compensation professional to learn the best ways to prepare based on your current situation. To learn more about maximizing executive salary, visit our Contact Page, or contact us directly by email at fglassner@veritasecc.com or by phone at 415-618-6060.