Tax bill imposes excise tax on excess executive compensation

On December 22, President signed the Tax Cuts and Jobs Act (H.R. 1) into law.

While the legislation preserved the credit union industry’s income tax exemption, the legislation will impose an excise tax on excess executive compensation at credit unions and other tax-exempt entities.

Specifically, the Tax Cuts and Jobs Act imposes a 21 percent excise tax on executive remuneration that exceeds $1 million annually. The tax would apply to the compensation paid to the five highest-paid executives at a tax exempt organization, if their compensation exceeds $1 million.

Executive remuneration includes employee total compensation (including benefits, except those to a tax-qualified retirement plan, such as Roth IRA plans and 457(b) deferred compensation plans, and amounts not included in gross income). Non-qualified deferred compensation will be treated as income for the first taxable year when there is no substantial risk of forfeiture.


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