Section 280G Golden Parachute Excise Tax Calculator 2026
Calculate Section 280G excess parachute payments, 20% excise tax, employer deduction loss, and gross-up cost for change-in-control executive compensation.
Parachute Payment Analysis
$
All payments contingent on change-in-control (severance, equity acceleration, bonus, benefits) $
Average annual W-2 compensation for the 5 years before the CIC year %
Used for gross-up calculation %
%
For calculating deduction disallowance cost $0
Executive Excise Tax (20%)
$0
Excess Parachute Payment
$0
Employer Lost Deduction
$0
3x Safe Harbor Limit
Section 280G Calculation Breakdown
How Section 280G Works
When an executive receives change-in-control payments exceeding 3x their base amount, the excess becomes an "excess parachute payment." The executive pays a 20% excise tax on top of regular income taxes, and the company loses its deduction for the excess amount. This creates a double penalty that dramatically increases the cost of generous CIC packages.
The Formula
3x Safe Harbor = Base Amount Γ 3
Excess Parachute Payment = Total Payments β Base Amount (only if total > 3x safe harbor)
Executive Excise Tax (IRC 4999) = Excess Parachute Payment Γ 20%
Employer Lost Deduction = Excess Parachute Payment Γ Corporate Rate
Gross-Up Amount = Excise Tax Γ· (1 β Fed Rate β State Rate β 20% Excise Rate)
Excess Parachute Payment = Total Payments β Base Amount (only if total > 3x safe harbor)
Executive Excise Tax (IRC 4999) = Excess Parachute Payment Γ 20%
Employer Lost Deduction = Excess Parachute Payment Γ Corporate Rate
Gross-Up Amount = Excise Tax Γ· (1 β Fed Rate β State Rate β 20% Excise Rate)
Sources and References (click to expand)
- IRC Section 280G β Golden Parachute Payments (Deduction Disallowance)
- IRC Section 4999 β Golden Parachute Payments (20% Excise Tax)
- Treasury Regulation 1.280G-1 β Golden Parachute Payments Q&As
- IRS Publication 525 β Taxable and Nontaxable Income (Excess Parachute Payments)
- IRS Form W-2 Instructions β Box 12 Code K (Excess Golden Parachute Payments)
Extended
Gross-Up Cost Calculator & Multi-Executive Parachute Analysis
Calculate employer gross-up cost, compare with vs without gross-up, analyze multiple executives side-by-side
Analyze the full employer cost with and without a gross-up clause. Enter multiple executives to see total company exposure.
Multi-Executive Parachute Analysis
Employer Cost: With vs Without Gross-Up
| Executive | Total Payments | Excess Parachute | Employee Excise | Gross-Up Cost | Total Employer Cost |
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Frequently Asked Questions
What triggers the Section 280G golden parachute excise tax?
Section 280G is triggered by a "change in ownership or control" of a corporation β typically a merger, acquisition, or similar transaction. If a disqualified individual (executive, officer, or highly compensated employee) receives payments contingent on the change-in-control that exceed 3 times their base amount (5-year average comp), the excess becomes an "excess parachute payment" subject to the rules.
What are the tax consequences of a golden parachute payment?
There are two related but distinct tax penalties: (1) The employee pays a 20% excise tax (Section 4999) on the excess parachute payment amount in addition to regular income tax. (2) The employer loses the tax deduction for the excess parachute payment under Section 280G β it is permanently non-deductible. These dual penalties make change-in-control payments very expensive when they exceed the safe harbor.
What is the 3x base amount safe harbor?
The safe harbor prevents 280G from applying if total parachute payments stay under 3 times the executive's base amount (average annual W-2 compensation for the 5 most recent taxable years before the change-in-control). If total payments equal 2.99x or less, no excise tax applies. Once payments reach or exceed 3x, the entire excess over 1x base is subject to the 20% excise β making it critical to stay below the threshold.
What is a gross-up clause and when does it make sense?
A gross-up clause (or "parachute payment gross-up") is a contractual provision requiring the employer to pay the executive an additional amount to cover their excise tax liability, so the executive nets the same after-tax amount they would have received without the excise tax. Gross-ups are expensive for companies β each $1 of excise tax can require $2-$3 of gross-up because the gross-up itself is also taxable income.
Are there ways to avoid or reduce the golden parachute excise tax?
Yes. Strategies include: (1) structuring payments to stay below 3x base amount; (2) documenting the reasonable compensation value of post-CIC services to reduce the "parachute" portion; (3) requesting shareholder approval of payments, which can avoid 280G in private companies (public company exception); (4) cutting back payments to the safe harbor (executive agrees to reduce to 2.99x); and (5) using non-competition agreements and consulting arrangements to justify additional payments.