🚨 Important Tax Reporting Change – Excess golden parachute payments are no longer reported on Form 1099-MISC. These payments must now be reported on Form 1099-NEC, Box 3, effective immediately. 

The Internal Revenue Service made a significant change in reporting excess golden parachute payments. These payments were previously reported in Box 14 of Form 1099-MISC, but that box no longer exists. Excess golden parachute payments must now be reported in Box 3 of Form 1099-NEC. 

This update stems from the IRS’s ongoing efforts to make reporting of taxes easier and clump up similar payment types together into more appropriate forms. The modification applies to payers that must spread these forms and recipients that will be the recipients. 

Here at TaxZerone, we are always up to date with the latest IRS updates. Our software will allow you to e-file quickly and efficiently and provide you with the reassurance that you need. Speaking of the update, it’s crucial that you understand what excess golden parachute payments are, why the update was made, and how to report correctly using Form 1099-NEC.  
 

Understanding Golden Parachute Payments 

Golden parachute payments are substantial compensation packages provided to executives upon their termination, typically during mergers, acquisitions, or significant corporate restructuring. These payments often include cash bonuses, stock options, pension benefits, and other valuable perquisites designed to cushion the financial impact of executive departure. 

The “excess” portion refers to amounts that exceed three times the executive’s average annual compensation over the previous five years. These excess amounts are subject to special tax treatment and reporting requirements under Section 280G of the Internal Revenue Code. 

Aspect	Previous Reporting (1099-MISC)	New Reporting (1099-NEC)
Form Used	Form 1099-MISC	Form 1099-NEC
Box Number	Box 14 (Now Removed)	Box 3
Reporting Deadline	January 31	January 31
Recipient Copy	Required	Required

Impact on Businesses and Tax Professionals 

This change requires immediate attention from human resources departments, payroll administrators, and tax professionals who handle executive compensation reporting. Companies must update their payroll systems and reporting procedures to ensure compliance with new requirements.  

Tax preparers must review their current processes of compiling and reporting executive compensation information returns. The modification of Form 1099-NEC may require software updates and education of personnel to prevent reporting errors, causing penalties. 

Compliance Considerations 

The reporting deadline remains January 31 for furnishing forms to recipients and filing with the IRS. However, the change in form type means that businesses must ensure they’re using the correct form to avoid potential penalties for incorrect reporting.  

Recipients of golden parachute payments should be aware that they’ll now receive IRS Form 1099-NEC instead of IRS Form 1099-MISC for these payments. This change doesn’t affect the tax treatment of the payments themselves, only how they’re reported.