IRS Issues Interim Guidance Regarding Excise Tax for Exempt Organizations

On December 31, 2018, the Internal Revenue Service (IRS) released Notice 2019-09, which provides interim guidance for exempt organizations to comply with the new requirement imposed under Section 4960, which requires an excise tax on compensation in excess of $1 million paid to “covered employees.” Below are a few highlights from this Notice:

  • Organizations are to use the calendar year that ends with or within the employer’s taxable year.
  • Covered employees include the top five highest paid employees who are compensated in excess of $1 million. Once considered a covered employee, the individual continues to be a covered employee, and the organization must maintain a cumulative list of such employees. **Compensation that is paid to a licensed medical practitioner for medical services is excluded from the calculation of compensation.
  • Compensation includes wages as defined by Section 3401(a), parachute payments and amounts includable as gross income under Section 457(f).
  • Compensation from related organizations must be taken into consideration in the calculation of excise tax.
  • Section 4960 applies to taxable years beginning after December 31, 2017.

DHG Contacts

Amy Bibby
Partner, DHG Tax

Jeremy Naess
Manager, DHG Tax

Will Smith
Manager, DHG Tax