H.R. 6418 — Employee Profit-Sharing Encouragement Act of 2025

This section denies a deduction under Section 162 of the Internal Revenue Code for applicable employee remuneration (i.e., pay exceeding $1 million, as defined in Section 162(m)(4) without regard to subparagraph (B)) paid to highly compensated individuals (as defined in Section 105(h)) by specified employers unless qualified profit-sharing distributions are made during the taxable year. Specified employers are those meeting the gross receipts test of Section 448(c) (without regard to paragraph (4)), i.e., average annual gross receipts for the three preceding taxable years not exceeding $25 million (inflation-adjusted in current law), applied to individuals and other non-corporate/non-partnership employers as if they were corporations or partnerships; controlled groups under Sections 414(b), (c), (m), or (o) are treated as a single employer. Qualified profit-sharing distributions are cash payments under a written plan that (1) provides rights to distributions for employees (including part-time) employed at least one year, (2) bases amounts on the employer's receipts, profit, revenues, or earnings, (3) aggregates at least 5% of the employer's net income (per its books and records), (4) satisfies nondiscrimination requirements similar to Section 401(k)(3)(A)(ii), and (5) includes an exception if the employer proves by clear and convincing evidence that such distributions would jeopardize its status as a going concern; the Secretary may address abuses, including reductions in other employee compensation tied to these distributions. The provision applies to taxable years beginning after enactment.