QUESTION:        We heard that part of the tax reform law passed in December has a provision imposing an excise tax on tax-exempt organizations that have employees making more than $1,000,000 a year. A couple of our employed physicians fall in that category. Will they be subject to the tax?

ANSWER:            The 2017 tax reform law created new section 4960 of the Internal Revenue Code which will impose a 21% excise tax on compensation in excess of $1,000,000 paid by exempt organizations to their five highest compensated employees.  The tax is payable by the employer, not the employee.  It goes into effect in tax years beginning after December 31, 2017, so if you are on a calendar tax year, it applies to any compensation paid in 2018.  A last minute amendment to the bill exempted compensation paid to physicians, but it only applies to compensation for medical, not administrative, services.  Therefore, if your doctors earn all or most of their money from providing clinical services, the tax would not apply to their compensation.  However, even though compensation for medical services is not covered, it would be wise to review all existing physician compensation arrangements to make sure that medical and administrative compensation is separately accounted for, to avoid arguments later on as to whether the medical services exception applies.

To learn all about the new excise tax on excess compensation paid by exempt organizations, order the CD or MP3 file from the audio conference presented by Henry Casale and Dan Mulholland last month.  Click here to learn more.