March 01, 2018

New Excise Tax Cuts Into Tax-Exempt Executive Compensation

Scott C. Withrow, Esq., Withrow, McQuade & Olsen, LLP, Atlanta, GA

On December 22, 2017, President Trump signed into law a congressional revenue act originally introduced in Congress as the Tax Cuts and Jobs Act (TCJA).1  A major element of TCJA was reducing the maximum for-profit corporate income tax rate from 35 percent to 21 percent.  The corporate tax cut will benefit some areas of the healthcare industry, particularly pharmaceutical and health insurance companies.2  However, only 21 percent of the nation’s 4,840 community hospitals are owned by for-profit entities that might enjoy the large corporate income tax cut.3  A majority (59 percent) of the nation’s community hospitals are owned by nongovernment not-for-profit hospitals and the remainder (20 percent) are owned by state and local governments.4  TCJA also included a new 21 percent excise tax on excess tax-exempt organization executive compensation that may impact those not-for-profit hospitals that claim exemption from federal income taxes under Internal Revenue Code (IRC) Section 501.5

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