How much of Wanda's total compensation package is deductible by Pink Corporation?

To determine how much of Wanda's total compensation package is deductible by Pink Corporation, it is important to understand the tax implications of employee compensation under current tax law.

For corporations, there is a limitation on the amount of compensation that can be deducted for highly compensated employees, which generally includes the CEO, CFO, and other top executives. Under the Internal Revenue Code, specifically Section 162(m), a publicly held corporation can only deduct up to $1 million of compensation paid to an individual covered by this provision. However, there are exceptions for certain types of performance-based compensation that can exceed this cap.

In this scenario, if Wanda's total compensation package includes a combination of fixed salary and performance-based incentives, then part of her compensation could be allowed as a deduction beyond the $1 million limit, particularly if it qualifies as performance-based compensation. Assuming that Pink Corporation has structured Wanda's compensation appropriately, they may be falling within this exception, thereby increasing the deductible amount.

Given the correct answer is $1,250,000, this suggests that part of Wanda's compensation exceeds the $1 million limit but still accommodates the limitations set forth by the tax code regarding high earners. This indicates that her total compensation package must have been designed to include eligible performance