Don’t be caught unprepared for the new excise tax

As you may have heard, there’s a new tax that affects tax-exempt entities, including credit unions. In response to complaints from taxed corporations that tax-exempt organizations are enjoying preferential treatment, the 2017 Tax Act included a 21% excise tax on compensation exceeding $1 million paid to specific employees of tax-exempt organizations.

Upon hearing about the new excise tax, you may assume that your credit union is in the clear because none of your executives’ salaries is more than $1 million. Unfortunately, salary is just part of the calculation. The $1 million limit includes 457(f) deferred compensation plan funds and severance packages, so many credit unions may find themselves with surprise bills of $50,000 to $200,000 or more come tax time!

How the Excise Tax Works

Here are the details of how the new excise tax is applied:

• Starting in tax year 2017, your credit union may be charged a tax on compensation paid to its five highest paid employees.

 

continue reading »