A punitive 20% excise tax on the executive, plus a lost tax deduction for the company, triggered once total change-in-control payments reach three times the executive’s base amount.
How it works
Three times the base amount sets the safe harbor threshold. If total payments meet or exceed that threshold, the excise tax applies to the excess over just one times the base amount — not only the amount above the threshold itself.
What this does not include
This computes the excise tax on the executive — it doesn’t separately compute the company’s lost tax deduction on the same excess parachute payment, a related but distinct consequence of crossing the same threshold.
How to use this calculator
- Enter the base amount (average prior 5-year compensation) and total change-in-control payments.
Frequently asked questions
Why is the threshold based on 3x but the tax applies above 1x?
This is a deliberate “cliff” design — crossing the 3x trigger point taxes everything above 1x base amount, not just the portion above 3x, making the consequence of crossing the threshold much larger than the threshold itself might suggest.
What is the “base amount”?
Generally the executive’s average annual W-2 compensation over the five taxable years before the change in control — a backward-looking average, not current or future compensation.
Can golden parachute payments be structured to avoid this tax?
Yes — companies often negotiate payment structures deliberately kept below the 3x safe harbor threshold, or obtain shareholder approval exemptions available to certain private companies, to avoid triggering 280G entirely.
