Bulletin to Large Not-For-Profits
Considering TCJA in the context of Intermediate Sanctions and Reasonable Compensation
Upper Saddle River, NJ – March 15, 2018 – The following is a reminder from Compensation Resources, Inc. (CRI) about the new Tax Cut and Jobs Act (TCJA) that was signed into law in December.
One aspect of TCJA that affects NFPs is that organizations are now required to pay a 21% excise tax on compensation in excess of $1 million. It is important to note that this refers to the aggregate of the Total Compensation Package (TCP). The TCP is calculated from figures shown in Schedule J of the Form 990; therefore, it contains not only the cash compensation (base salary and bonuses), but also any other taxable compensation (other Taxable Compensation includes Cadillac Heath Insurance, Additional Life Insurance premiums, etc.), along with the value associated with personal use of company cars, non-taxable deferred compensation, retirement benefits, and non-taxable health care benefits.
IRC Section 4958 on Intermediate Sanctions continues to apply to public charities and, therefore, provides a foundation upon which to consider “reasonable” compensation. While the imposition of an excise tax may have been issued under TCJA as a deterrent to compensation above $1 million, the marketplace, and what would be considered reasonable to pay an executive for the key talent that is required to run the organization, must still be considered. Nevertheless, the attention brought about by the excise tax should be considered by Boards as an opportunity to examine executive total rewards to ensure that programs and awards are aligned with the marketplace and best practices, are justified by performance, and support the mission and vision of the organization.
If you have any questions or concerns, please call Paul Dorf at 877-934-0505 x 111.
About Compensation Resources, Inc. (CRI): CRI provides compensation and human resource consulting services to mid- and small-cap public companies, private, family-owned, and closely-held firms, as well as not-for-profit organizations. CRI specializes in executive compensation, sales compensation, pay-for-performance and incentive compensation, performance management programs, and expert witness services.
Paul R. Dorf, APD
Chairman, Managing Director
Compensation Resources, Inc.
877-934-0505 · Fax: 201-934-0737