The Impact of the New Excise Tax on Credit Unions

The Tax Cuts and Jobs Act, a large piece of tax code reform enacted in December of 2017, included a wide variety of items. One that impacts credit unions in particular, is a new excise tax. A recent article published by the Cooperative Credit Union Association (CCUA) examines this new tax in light of recently released IRS guidance on the topic.

In their December 31, 2018 release, the IRS clarified a number of items in regards to the new excise task. The main focus of the CCUA article is on how one particular clarification will impact credit union executive pay. The author explains that the IRS “Will not grandfather deferred compensation plans, which may require more credit unions to pay a new 21% federal excise tax for executives earning more than $1 million.” Specifics of this impact include the following:

  • The $1 million tax threshold is on total compensation, which includes lump-sum payments and deferred compensation plans.
  • The excise tax is more likely to impact larger credit unions, whose executives earn higher total compensation.
  • Estimates based on a 2018 review of credit union CEO compensation at the largest state-chartered credit unions show that more than half of them can expect to pay the tax.
  • Based on the above estimate, it’s likely that approximately the same percentage of federal credit unions will be required to pay the excise tax.
  • Federal credit unions will need to file IRS form 4720, schedule N; state-chartered credit unions will maintain their current reporting.

For more details, read the article in full at the Cooperative Credit Union Association.