H.R. 1586 would impose a new 90% tax on bonuses received by employees of certain companies that received funds from the Troubled Asset Relief Program (TARP). The tax would apply to any bonus given after December 31, 2008.

The legislation would apply the 90% tax to only the portion of a bonus that, in combination with other income, increases an employee's adjusted gross income to a level above $250,000 ($125,000 for married couples filing individually) in the taxable year when the bonus was received. Therefore, employees with adjusted gross incomes of less than $250,000 (including bonuses) would not be impacted.

The tax would apply to any retention payment, incentive payment, or any other payment made to an employee above their regular pay for their regular service. However, any commissions, fringe benefits, or expense reimbursements would be exempt from the taxation.

The bill would provide that employees that return a bonus in the same taxable year as the bonus was received would be exempt from the tax. The bill would also specify that any payment made by a TARP recipient to an employee to offset the cost of the tax would be considered as an additional bonus and would be subject to the 90% tax.

The bill defines a "TARP recipient" as any person or persons who have received more than $5 billion in TARP funds, Fannie Mae and Freddie Mac, and any company that is either connected to a TARP recipient through stock ownership or is more than 50% owned by a TARP recipient. If a company repays its TARP assistance funding to a level below $5 billion, its employees would no longer be subject to the 90% tax.