S 2818119th CongressIn Committee

Tax Excessive CEO Pay Act of 2025

Introduced: Sep 16, 2025

Sponsor: Sen. Sanders, Bernard [I-VT] (I-Vermont)

Economy & Taxes

Standard Summary

Comprehensive overview in 1-2 paragraphs

The Tax Excessive CEO Pay Act of 2025 would add a new penalty to the corporate tax rate based on how unequal a company’s pay is between its highest-paid employee (typically the CEO) and its median worker. If the pay ratio is greater than 50-to-1, the base corporate tax rate of 21% would be increased by a “penalty” in percentage points according to a tiered table (ranging from 0.5 to 5 percentage points for higher pay ratios). The pay ratio is calculated using a five-year average of compensation data, following the same framework as the SEC pay-ratio disclosure rule, and if the highest-paid employee is not the CEO, the ratio is based on that person’s compensation. For certain private corporations, there are receipts-based rules that determine whether and how the pay ratio must be calculated; some smaller private firms are exempt. The measure applies to taxable years beginning after December 31, 2025, and includes regulations to prevent manipulation of the pay ratio (e.g., using contractors to reduce reported compensation). The bill also makes a number of conforming changes to other tax Code provisions to align with the new framework.

Key Points

1Pay-ratio-based tax increase: A corporation with a pay ratio greater than 50 to 1 triggers an increase to the 21% corporate tax rate, with the size of the increase determined by a tiered penalty table (from 0.5 to 5 percentage points).
2Pay ratio calculation: The ratio uses the annualized five-year compensation data described in the SEC pay-ratio rule, and if the highest-paid employee is not the CEO, the ratio uses that person’s compensation. The rule uses a five-year look-back ending on the taxable year’s last day.
3Coverage and exemptions: Large private corporations (non-SEC filers) with average annual gross receipts for the three preceding taxable years of at least $100 million must calculate the pay ratio; other private corporations with receipts under $100 million may be exempt. The “exception” in the bill’s formula refers to subparagraphs that carve out certain corporations from the pay-ratio-increase requirement.
4Effective date and anti-avoidance: The amendments apply to taxable years beginning after December 31, 2025. Regulations would be issued to prevent avoidance, including manipulation of the compensation ratio via workforce composition or use of contractors.
5Conforming amendments: The bill would modify several other Internal Revenue Code provisions (e.g., sections related to deductions, credits, and reporting) to ensure consistency with the new pay-ratio increase and to reflect that the corporation is subject to an 11(e) adjustment.

Impact Areas

Primary group/area affected- Large and certain private corporations whose CEO-to-median-pay ratio exceeds 50:1. These firms would face an increased corporate tax rate (21% plus the applicable penalty points) for the tax year.Secondary group/area affected- Private corporations above the $100 million gross receipts threshold that are required to calculate and report their pay ratio, even if not SEC filers.Additional impacts- Tax planning and governance: Companies may redesign compensation structures to avoid or reduce the pay-ratio penalty (e.g., adjustments to executive compensation, changes in workforce composition, or use of contractors if permitted by regulations).- Administrative/compliance burden: Additional reporting and conformity requirements across tax and corporate governance activities; more complex calculation of pay ratio over a five-year period.- Revenue and behavior: Potentially increased federal revenue from the higher corporate tax rate for affected firms; possible indirect effects on employment practices, wage structures, and executive compensation norms.

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