CUNA is continuing its advocacy with lawmakers to secure a fix for an excise tax contained in the Tax Cuts and Jobs Act of 2017 (TCJA). The new law requires tax-exempt entities to pay a 21% excise tax on the five highest-paid employees’ compensation that individually exceed $1 million annually, effective Jan. 1, 2018.
The provision was designed to create parity between not-for-profit entities and for-profit entities, which can only deduct the first $1 million of each individual employee’s compensation.
CUNA believes the law creates a major parity problem between existing for-profit and not-for-profit employee contracts. The new law exempts from deductibility limits existing corporate executive compensation contracts by “grandfathering” in “for- profit” executive contracts in effect on or before November 2, 2017.
No such provision was included for not-for-profit employee contracts, amounting to a retroactive tax on the nonprofit sector as these contracts were agreed upon with certain tax considerations assumed.
CUNA has been urging Congress to create parity by grandfathering the not-for-profit sector’s contracts that were in effect on or before Nov. 2, 2017.
As Congress works on a potential technical corrections and tax extender bill, CUNA is actively advocating for not-for-profit parity with for-profit businesses regarding employee contract parity and the "grandfathering" of existing contracts.
A tax technical corrections bill would be an appropriate vehicle, CUNA believes.
Additional details on the excise tax issue can be found on CUNA’s Removing Barriers Blog.