Repeal of inclusion in gross income of deferred compensation under nonqualified deferred compensation plans

(a) In general Subpart A of part I of subchapter D of chapter 1 is amended by striking section 409A (and by striking the item relating to such section from the table of sections for such subpart). (b) Conforming amendments (1) Section 26(b)(2) is amended by striking subparagraph (V) and by redesignating subparagraphs (W) through (Z) as subparagraphs (V) through (Y), respectively. (2) Section 430(c)(7)(D)(iv)(I) is amended by inserting as in effect before its repeal after section 409A. (3) (A) Section 457A is amended by redesignating subsections (d) and (e) as subsections (e) and (f) and by inserting after subsection (c) the following new subsection: (d) Nonqualified deferred compensation plan For purposes of this section— (1) In general The term nonqualified deferred compensation plan means— (A) any plan that provides for the deferral of compensation, other than— (i) a qualified employer plan, and (ii) any bona fide vacation leave, sick leave, compensatory time, disability pay, or death benefit plan, and (B) any plan that provides a right to compensation based on the appreciation in value of a specified number of equity units of the service recipient. (2) Qualified employer plan The term qualified employer plan means— (A) any plan, contract, pension, account, or trust described in subparagraph (A) or (B) of section 219(g)(5) (without regard to subparagraph (A)(iii)), (B) any eligible deferred compensation plan (within the meaning of section 457(b)), and (C) any plan described in section 415(m). (3) Plan includes arrangements, etc The term plan includes any agreement or arrangement, including an agreement or arrangement that includes one person. (4) Treatment of earnings References to deferred compensation shall be treated as including references to income (whether actual or notional) attributable to such compensation or such income. (5) Aggregation rules Except as provided by the Secretary, rules similar to the rules of subsections (b) and (c) of section 414 shall apply. (6) Treatment of qualified stock An arrangement under which an employee may receive qualified stock (as defined in section 83(i)(2)) shall not be treated as a nonqualified deferred compensation plan with respect to such employee solely because of such employee's election, or ability to make an election, to defer recognition of income under section 83(i).. (B) Section 457A(e)(3), as redesignated by subparagraph (A), is amended to read as follows: (3) 12-month exception Compensation shall not be treated as deferred for purposes of this section if the service provider receives payment of such compensation not later than 12 months after the end of the taxable year of the service recipient during which the right to the payment of such compensation is no longer subject to a substantial risk of forfeiture.. (C) Section 457A(e), as redesignated by subparagraph (A), is amended by striking paragraph (5). (4) Section 877A(g)(6) is amended by striking 409A(a)(1)(B),. (5) Section 3401(a) is amended by striking the last sentence. (6) Section 6041 is amended by striking subsection (g). (7) Section 6051(a) is amended— (A) by striking paragraph (13) and redesginating paragraphs (14) through (17) as paragraphs (13) through (16), respectively, and (B) by striking the last sentence. (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2026.