| Update Applicable to: | Revision Date |
| All Covered Employers | May 2024 |
What happened?
The Internal Revenue Service (IRS) updated and released its Golden Parachute Payments Guide with a revision date of May 2024.
Quick Summary:
- The revised Golden Parachute Payments Guide provides updated guidelines for IRS examiners on auditing golden parachute payments to ensure compliance with tax laws.
- It includes a detailed examination process, documentation review, and information on excise tax and reporting requirements.
What are the details?
- Golden Parachute Payments:
- Definition: Compensation provided to key executives when companies change ownership, intended to soften their landing if terminated by the new owner.
- Taxation Rules:
- Considered wages subject to federal income tax withholding, social security, and Medicare taxes.
- Reported on the employee’s W-2.
- The excess portion is subject to a 20% excise tax, which the employer must withhold.
- For non-employees, reported on Form 1099-MISC.
- Definition: Compensation provided to key executives when companies change ownership, intended to soften their landing if terminated by the new owner.
- IRS Revised Golden Parachute Payments Guide (May 2024):
- Overview of Rules: Provides a comprehensive overview of golden parachute payments rules.
- Audit Adjustments: Discuss potential adjustments during audits to ensure compliance with IRC sections 280G and 4999.
- Documentation Review: List documents to review during examinations, such as employment agreements and board minutes.
- Examination Process: Outlines a nine-step process for conducting examinations, including a flowchart to help examiners navigate the process.
- Excise Tax and Reporting: Explains the excise tax imposed on excess parachute payments and the reporting requirements for these payments.
Business Considerations
- Employers should document and report all golden parachute payments on the correct tax forms (Form W-2 for employees, Form 1099-MISC for non-employees), with consultation from tax professionals to ensure golden parachute payments are calculated correctly and comply with federal tax regulations.
- Review IRC sections 280G and 4999 to check if payments are excess parachute payments subject to a 20% excise tax.
- Keep thorough records of employment agreements, board minutes, and other relevant documents for compliance and audits.
Source References
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