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Final compensation excise tax regulations modify proposed regulations

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January 2021

Overview

The IRS on January 11 released an advance version of Final Regulations under Section 4960, which  imposes an excise tax on any applicable tax exempt organization (ATEO) that pays to a covered employee (1) remuneration in excess of $1 million for a year or (2) any excess parachute payment. The Final Regulations adopt unchanged much of the Proposed Regulations that were published on June 11, 2020, but contain certain clarifications and additions. The Proposed Regulations are discussed in a prior PwC Insight: Proposed Section 4960 regulations clarify excess compensation excise tax. Differences between the Proposed Regulations and Final Regulations are highlighted below.  

The Final Regulations apply to tax years beginning after December 31, 2021. 

The takeaway 

Although the Final Regulations adopt much of the Proposed Regulations, an organization should be aware of new guidance and clarifications provided by the Final Regulations that may be relevant. The Final Regulations are binding for tax years beginning after December 31, 2021. Until the effective date, organizations — particularly those that could be affected by new guidance in the Final Regulations — will need to decide whether to follow the Final Regulations or prior guidance.

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Rob Friz

Health Services Tax Leader, PwC US

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