ARLINGTON, Va. – In a letter to the House Ways & Means Oversight Subcommittee, NASCUS expressed concern that the excise tax on excess executive compensation imposed by the Tax Cut and Jobs Act of 2017 (TCJA) will result in a significant hardship for tax-exempt organizations, such as credit unions, that have not had the notice and opportunity to prepare accordingly.
Under TCJA, a 21% excise tax applies to remuneration paid by the organization to a covered employee in excess of $1 million during the tax year. Under the Act, applicable “remuneration” not only includes wages subject to federal withholding but also certain deferred compensation retirement plans. The TCJA provides an exemption for pre-existing executive compensation agreements in effect on or before November 2, 2017, for the for-profit sector, but no such exemption exists in the tax-exempt sector.
“We believe it is patently unfair to provide exemption relief to the corporate sector while at the same time denying similar relief to the tax-exempt sector,” wrote NASCUS President and CEO Lucy. “It is our belief that fairness and fair dealing require that applicable pre-existing executive compensation agreements for tax-exempt organizations must receive the same treatment as similar corporate sector agreements.”
Ito also noted, “Absorbing such unexpected costs may be exceedingly difficult for smaller and mid-sized institutions. Unfortunately, the unexpected costs will have to be recouped in some manner and will likely be borne by consumers through loss of vital financial products/services or increased pricing.”
In the letter, NASCUS also provided real-life examples that highlight the impact of the excise tax on credit unions.