5 Things to Check in Your Executive Compensation Package in 2026

The same law quietly reduced the after-tax value of certain benefits high earners have leaned on for years. So let’s walk through this as a checklist — the moves worth thinking through, and why each one matters for the money you actually keep. 

Item One: Rethink Deferred Comp Now That Rates Are Locked In 

Nonqualified deferred compensation (NQDC) lets you push a chunk of today’s salary or bonus (and the tax on it) into a future year, ideally one where you expect to be in a lower bracket. The whole strategy rests on a bet: that your rate later will be lower than your rate now. Permanent rates change how you make that bet. You’re no longer guessing whether Congress will let rates spike; the brackets are set. That makes NQDC a cleaner, more predictable planning tool: if you’re deferring from peak earning years into retirement years when your income drops, the math is more reliable than it’s been in a long time. What’s really beneficial is that you can now model a deferral schedule — staggered payouts across several retirement years — with real confidence about the rates on the other side. 

The one big thing to weigh: NQDC isn’t protected like a 401(k). Your deferred dollars are an unsecured promise from your employer, exposed to company credit risk, and you can’t roll them into an IRA later. So the discipline here is the same one we stress often at WHZ: don’t over-concentrate. Defer enough to smooth your tax picture, but only after you’ve maxed your protected, qualified accounts first. 

Item Two: Time Your Stock Option Exercises Around the New Deduction Cap 

Here’s a rule that took effect in 2026 that every option-holding executive needs to know: for taxpayers in the top 37% bracket, OBBBA caps the value of itemized deductions at roughly 35 cents on the dollar instead of 37 (the so-called “2/37 rule”). In plain terms: once you’re in that top bracket, your deductions are worth a little less than they used to be. 

Why does that matter for stock options? Because exercising nonqualified stock options (NQSOs) creates ordinary income on the spread, and a big exercise can rocket your income into that top bracket, where your deductions get devalued.  

The critical aspect here is timing. If a large exercise would push you over the 37% threshold, consider straddling it across two tax years, exercising just up to the threshold in each, so more of your income (and your deductions) stays in the friendlier zone. 

This is classic “don’t panic, plan ahead” territory. Small timing choices on a vesting or exercise calendar can meaningfully change your after-tax outcome. Map your exercises against your projected income before you click the button, not after. 

read more below

Item Three: Watch the SALT Phase-Out at $500K — Especially in Connecticut 

This one stings in high-tax New England. OBBBA raised the state and local tax (SALT) deduction cap to $40,000. That’s a real win, but for higher earners it phases back out fast. Once your modified adjusted gross income (MAGI) crosses $505,000, the deduction shrinks by 30% of every dollar above that line, and by the time you hit $600,000 you’re back down to the old $10,000 cap. 

Connecticut’s top income tax rate is 6.99%, kicking in above $500,000 of income, and the state stacks property taxes among the highest in the nation on top. So a Connecticut executive earning well into the $500K–$600K range pays steep state and local taxes and loses most of the federal deduction that used to soften the blow.  

The planning takeaway: if your income lands in that phase-out window, the value of accelerating or bunching deductible expenses is reduced. So coordinate the timing of income events (like that option exercise) with an eye on where your MAGI lands. 

Item Four: A Bonus You’ve Probably Already Earned — the Social Security Cap 

In 2026, Social Security tax only applies to the first $184,500 of wages. If you’re a high-earning executive, you almost certainly blew past that cap earlier in the year, which means your later paychecks, year-end bonus, or option income come in without the 6.2% Social Security bite. 

Why care? Because it’s a small but real tailwind for year-end planning. That late-year compensation is slightly “cheaper” from a payroll-tax standpoint, which can make the fourth quarter a sensible window for things like an extra deferral election or a bonus deferral — you’ve already cleared the cap, so you’re optimizing around income that’s taxed a touch more lightly. It’s a nice example of how knowing the rules lets you make confident, informed decisions. 

Item Five: Revisit Agreements You Set Up Under the Old Rules 

Last item, and an important one. Many executive comp agreements — deferral elections, exercise plans, charitable-giving strategies — were designed when the rules looked different and rates were set to rise. With the brackets now permanent and the deduction landscape reshaped, an arrangement that made perfect sense three years ago may no longer be optimal. 

This doesn’t mean tearing everything up. It means a disciplined review: does your deferral schedule still line up with your expected retirement income? Are your charitable gifts timed to clear the new 0.5% AGI floor and the deduction cap? Does your exercise calendar account for the 2/37 rule? These are exactly the questions worth bringing to your advisor. 

Boiling It Down to Best Practices  

If I had to boil it down to a quick recap: First, treat permanent rates as an opportunity to plan deferred comp with real confidence, but don’t over-concentrate in an unprotected plan. Second, time big option exercises around the 37% threshold and the 2/37 deduction cap. Third, know exactly where your MAGI lands relative to the $505,000 SALT phase-out, especially here in Connecticut. Fourth, take advantage of the Social Security wage cap  when timing late-year compensation. And fifth, revisit older agreements to make sure they still fit the new rules. None of this is about chasing a single tactic; it’s about disciplined, intentional planning that helps you keep more of what you’ve worked hard to earn. 

At WHZ Strategic Wealth Advisors, we help executives coordinate compensation, tax, and investment strategy into one clear plan — that’s how we work to deliver “Absolute Confidence. Unwavering Partnership. For Life.” Schedule a complimentary discovery session or call us at (860) 928-2341, and let’s build a plan that helps you Plan Well, Invest Well, and Live Well. 

Authored by WHZ Associate Vice President, Wealth Advisor Logan Lum. AI may have been used in the research and initial drafting of this piece. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084, 860.928.2341. www.whzwealth.com. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor. WHZ Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.

RELATED FAQs 

How did OBBBA change taxes for high-earning executives? 

OBBBA made the lower TCJA tax brackets permanent, keeping the top rate at 37% rather than letting it climb to 39.6%. At the same time, it introduced a new limit (the “2/37 rule”) that caps the value of itemized deductions at about 35 cents per dollar for those in the top bracket, and it added a SALT deduction phase-out for incomes above $505,000. 

What is the 2/37 rule and who does it affect? 

The 2/37 rule reduces the tax benefit of itemized deductions for taxpayers in the 37% bracket, effectively valuing each dollar of deductions at roughly 35 cents instead of 37. It affects high earners — single filers above about $640,600 and joint filers above about $768,700 in 2026 — and makes the timing of large income events more important. 

Is nonqualified deferred compensation still worth it under permanent tax rates? 

It can be. NQDC lets you defer income and the tax on it to a future year, ideally one with a lower rate. Permanent brackets make that bet more predictable. The main caution is that NQDC isn’t protected like a 401(k) — it carries your employer’s credit risk and can’t be rolled into an IRA — so it’s best used after maxing out qualified accounts and without over-concentrating. 

How should I time stock option exercises in 2026? 

Exercising nonqualified stock options creates ordinary income that can push you into the top bracket, where deductions are worth less under the 2/37 rule. If a large exercise would cross the 37% threshold, consider straddling it across two tax years — exercising up to the threshold in each — to keep more income and deductions in a lower-rate zone. Model your projected income before exercising. 

Why does the SALT phase-out matter so much in Connecticut? 

OBBBA raised the SALT deduction cap to $40,000, but it phases out for incomes above $505,000 of MAGI and drops back to $10,000 by $600,000. Connecticut has a top state income tax rate of 6.99% and some of the highest property taxes in the country, so executives in that income range pay steep state and local taxes while losing most of the federal deduction that used to offset them. 

Do high earners stop paying Social Security tax during the year? 

Yes. In 2026, Social Security tax applies only to the first $184,500 of wages. High-earning executives typically exceed that cap partway through the year, meaning later paychecks, bonuses, or option income arrive without the 6.2% Social Security tax — a small tailwind that can make late-year compensation timing more efficient. 

Should I revisit executive compensation agreements I set up years ago? 

It’s worth a review. Many deferral elections, exercise plans, and giving strategies were built when rates were set to rise and the deduction rules were different. With brackets now permanent and deductions reshaped, an older arrangement may no longer be optimal. A coordinated review with your advisor can confirm whether your plan still fits the current rules.