SHARE Plan Act Offers 3% Tax Reduction for Giving Stock to Lower-Paid Employees

The new Share Holder Allocation for Rewards to Employees Plan Act, or the SHARE Plan Act, has been introduced in the House. The bipartisan bill is sponsored by Representatives Tom Suozzi (D-NY) and Mike Kelly (R-PA). The bill would provide a tax reduction for large companies to share ownership broadly with employees.

The bill provides a 3% tax rate reduction for US-domiciled companies that establish and maintain a SHARE plan, which is defined as a corporate program that grants common stock to employees periodically at no cost. A SHARE plan must include in each stock grant the lowest-compensated 80% of US-based employees who do not receive $250,000 or more in annual cash compensation (this dollar amount would be annually adjusted for inflation). A company qualifies for the 3% reduction in any year in which it has an average of 500 or more full-time US-based employees and either distributes at least 1% of its stock in that year or has cumulatively distributed at least 5%. Performance-based equity compensation is excluded from qualifying. Stock grants must be made in equal amounts (allowing for adjustments for employees not employed through the entire calendar year), except that employees may be grouped by tenure with separate grant amounts going to each group. Grants may be subject to vesting, but all grants must vest within five years and must vest upon retirement, termination without cause, or a change in control. The stock must be able to be freely sold or transferred once vested.

If the company is private, it must conduct a yearly valuation of its shares and provide employees with adequate opportunities to sell their shares at fair market value.

In addition to the tax rate reduction, the company is allowed a tax deduction for the fair market value of stock distributed in the SHARE plan during the taxable year. For employees, stock received under a SHARE plan is excluded from gross income.

This approach differs from the previous version of the SHARE Plan Act (H.R. 4962 from the 117th Congress), which tied capital gains tax treatment for shareholders to employee stock grants. For more details on the earlier bill, see the prior NCEO coverage.

If enacted, the proposed legislation could induce some companies to establish SHARE plans. A key issue would be whether the tax benefit is enough to get companies to do this. The amount of equity required to obtain the tax benefit might often be considerably more than the value of the extra deduction, so companies would need to see employee ownership as valuable in its own right. Another key issue is whether the stock grants would result in lower contributions to 401(k) plans or slower wage increases. Despite these issues, the bill could lead to a significant increase in broad-based employee ownership plans and underscores the bipartisan nature of the idea. Eligible companies (those with 500-plus employees) employ roughly half of the US private sector workforce, and most market value is in public companies, especially larger ones, rather than private companies. Because the bill makes it possible for companies with a large portion of the US workforce as well as of all corporate assets to participate, the budget scoring of the bill (which would likely be based on the assumption that all such companies would) will be very large, making passage in the current form challenging.