Tax Law Changes Bring New Excise Tax

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Tax Law Changes Bring New Excise Tax

August 2018

Chances are you’re still trying to make sense of the recent tax law changes. The changes affect nearly all taxpayers, and touches a wide variety of taxes, including corporate, estate, partnership and “pass through” business entities, and individual. The changes also impact tax-exempt organizations. Known as the Tax Cuts and Jobs Acts (TCJA), the tax law changes amend the Internal Revenue Code (tax code).

The TCJA created Section 4960 which provides for an excise tax on tax-exempt entities like credit unions. The excise tax, paid by the credit union, applies on (1) compensation in excess of $1 million and (2) parachute payments for highly-compensated employees. BFB Gallagher recently explained the ins and outs of the new excise tax during a webinar for the National Association of Federally-Insured Credit Unions. The recording and slides are available online.

Of course, since we’re talking about taxes, there are details upon details, all explained in the webinar. I’ll fast forward to the good news – Using a split dollar plan can help you avoid the excise tax because plan payments do not count as compensation when calculating the excise tax. A split dollar plan also converts the benefit from a liability to a growing asset. You can also restructure an existing 457(f) plan to reduce or eliminate the excise tax.

BFB Gallagher can help you determine if your credit union is subject to the excise tax. Better yet, we can help you develop an executive benefits program that is regulator-friendly and tax-advantaged. Feel free to contact me to schedule a 30-minute discovery call.

And, just in case you’re interested in the full text of the new law, you can find it here.

Photo: Liz Santos
Author

Liz Santos, Chief of Staff, Executive Benefits

For more than 20 years, Liz has consulted with credit unions, trade associations, nonprofits, financial services organizations, and more to develop their “a-ha! moments.” At Gallagher, she supports the teams that design and service executive benefit programs, as well as marketing and business development. Liz earned her Bachelor of Science degree in Civil Engineering from Old Dominion University in Norfolk, Virginia. When she is not serving her clients, Liz is a long-distance runner more than half way in achieving her goal of running a marathon in every state. She is based in Washington, DC.