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Two Big New House Tax Bill Changes Could Affect You

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The House Ways and Means Committee today changed H.R. 1, the House version of the Tax Cuts and Jobs Act bill, in ways that could have a big impact on life insurance agents and other financial professionals.

Members of the committee voted 24-16, along party lines, to approve a package of amendments that takes up 30 PDF file pages.

One section, which starts on page 23, revises how H.R. 1 would treat the stock options now used in corporate executives’ deferred compensation package.

Another section, which starts on page 22, revises how H.R. 1 would change the tax rules for life insurance companies.

(Related: 5 Republican Tax Bill Sections for Agents to Track)

Rep. Kevin Brady, R-Texas, chairman of the committee, introduced the amendment package.

A copy of the amendment package PDF is available here.

The Senate introduced its own alternative to the House tax bill today. It’s not clear whether either bill has enough votes to get through Congress.

Here’s a look at what the changes approved today could do.

Deferred Comp Changes

The original version of H.R. 1 would require an executive to pay taxes on stock option-related earnings immediately, unless there was a substantial risk the executive could lose the earnings.

The new amendment exempts restricted stock units, or stock that executives cannot sell, from the quick-tax provision.

Another provision would let an employee who was eligible to get “qualified stock (as defined in [Internal Revenue Code] Section 83(i)(2)” take the stock through an arrangement, and defer recognition of income from the stock, without the stock turning the arrangement into a nonqualified deferred compensation plan.

That provision could help financial professionals who have set up existing executive compensation programs that rely on stock options, but it could hurt financial professionals who were hoping that new executive comp rules would boost sales of other types of products and arrangements.

Life Insurance Tax Changes

Life insurance groups have kept quiet about the original version of H.R. 1, but they appear to have strong concerns about sections such as Section 3703.

The original version of the bill could have included 23.5% of changes in life insurance company reserves in taxable income computations.

Analysts at the Joint Committee on Taxation estimated the change could raise $14.9 billion over 10 years, or, in effect, pull about $1.5 billion from life insurers per year over 10 years.

Analysts at KPMG noted that the provision could have changed reserving rules in a way that would have left an annuity issuer with too little cash to pay cash surrenders to contract holders who give up their contracts.

The new amendment replaces the reserve taxation change with an 8% tax on life insurance company taxable income.

Life insurers may have some concerns about a new 8% tax on their income.

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