WASHINGTON—The IRS has published a notice of proposed rulemaking on regulations under section 4960 of the Internal Revenue Code on executive compensation and parachute payments, portions of which could affect credit unions.
"Section 4960 obligated certain tax-exempt organizations to pay taxes on compensation paid to employees when the compensation exceeded certain threshold amounts," explained NAFCU Regulatory Compliance Counsel David Park. "Section 4960 originated from section 13602 of the Tax Cuts and Jobs Act (TCJA), and section 4960(d) required the IRS to issue implementing regulations."
As proposed, the rule helps to explain how a credit union can comply with section 4960 and the provisions are similar to the IRS' previous notice.
NAFCU noted:
- Credit unions, or applicable tax-exempt organizations (ATEOs) may be required to pay an excise tax on the top five highest-compensated employees on excess remuneration greater than $1 million or excess parachute payments in an applicable tax year
- Nonqualified deferred compensation plans that existed before section 4960 are not exempt from section 4960’s requirements, but remuneration paid before section 4960’s effective date—for taxable years beginning after December 31, 2017—are not subject to the excise tax
- The proposal does not adopt a grandfathering provision for nonqualified deferred compensation contracts entered into on or before November 2, 2017