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


Amy Bibby
Office Managing Partner, Asheville
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