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Presentation Breakdown: New Excise Tax Imposed by Code Section 4960

Fraser Trebilcock attorney Brian T. Gallagher will be presenting on multiple panels next week at the American Bar Association Tax Section’s May Meeting in Washington, D.C. Brian’s presentations will focus on various aspects of the new excise tax imposed on […]


Fraser Trebilcock attorney Brian T. Gallagher will be presenting on multiple panels next week at the American Bar Association Tax Section’s May Meeting in Washington, D.C. Brian’s presentations will focus on various aspects of the new excise tax imposed on excessive compensation at tax-exempt entities by Code Section 4960.

This new law, approved as part of the Tax Cuts and Jobs Act, levies an excise tax on annual remuneration in excess of $1,000,000 and excess parachute payments paid to covered employees by applicable tax-exempt organizations and related entities. The excise tax rate is equal to the corporate rate (currently 21%) and falls on the shoulders of the employer. However, it is important to note that all tax-exempt employers (even those that don’t anticipate paying compensation anywhere near the $1,000,000 mark) are affected by this new law and should begin taking proactive compliance measures immediately. For example, all tax-exempt employers subject to this new law should already be tracking their covered employees, which include the five highest paid employees for each year plus anyone who has previously been a covered employee. It is important to note that the “remuneration” used for this determination—and other Section 4960 purposes—is not simply W-2 wages.

Section 4960 is a very complex (and often times counterintuitive) tax regime, which may require many organizations to reconsider their compensation practices and organizational structures. Brian has written and lectured extensively on this topic. Any employers who have questions about how they may be impacted by Section 4960 should contact him as soon as possible, as the first excise tax returns for entities with calendar year accounting periods are due May 15, 2019.


Brian T. Gallagher is an attorney at Fraser Trebilcock specializing in ERISA, Employee Benefits, and Deferred and Executive Compensation. He can be reached at (517) 377-0886 or bgallagher@fraserlawfirm.com.