On January 11, 2021, Chris Moran was quoted in Bloomberg on exclusions to the 21% excise tax on some nonprofit employees.
According to the article, the IRS issued guidance on January 11 implementing a measure from President Donald Trump’s signature 2017 tax overhaul, which lowered corporate and individual levies but included some revenue-raising elements to help reduce the $1.5 trillion cost. One of those was a 21% excise tax on some nonprofit employees getting $1 million or more in salary. It’s designed to take a portion of the compensation for many well-paid private college coaches, as well as nonprofit hospital executives.
The law doesn’t apply to employees at many public colleges. Those institutions can claim tax-exempt status as a government unit, and not as a tax code Section 501 organization. The rules also include some carve-outs that will help some employees who split time between a for-profit and nonprofit organization. The rules include a “limited-hours exception” for employees who spend fewer than 100 hours or 10% of their time working at the nonprofit arm of a corporation.
The exceptions in the rules help eliminate “what could be traps for the unwary where you could trigger the tax when it doesn’t seem there is any policy related reason to,” Moran said.