Two ACA taxes that may apply to your exec comp

This article organizes the original guidance on two aca taxes that may apply to your exec comp into clear sections for easier reading and reference.

Overview

This opening section presents the main context from the original post.

If you’re an executive or other key employee, you might be rewarded for your contributions to your company’s success with compensation such as restricted stock, stock options, or non-qualified deferred compensation (NQDC). Tax planning for these forms of “exec comp,” however, is generally more complicated than for salaries, bonuses, and traditional employee benefits.

And planning gets even more complicated if you could potentially be subject to two taxes under the Affordable Care Act (ACA): 1) the additional 0.9% Medicare tax, and 2) the net investment income tax (NIIT). These taxes apply when certain income exceeds the applicable threshold: $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for other taxpayers.

Additional Medicare tax

This section keeps the original guidance focused on additional medicare tax.

The following types of exec comp could be subject to the additional 0.9% Medicare tax if your earned income exceeds the applicable threshold:

• Fair market value (FMV) of restricted stock once the stock is no longer subject to risk of forfeiture or it’s sold,
• FMV of restricted stock when it’s awarded if you make a Section 83(b) election,
• Bargain element of nonqualified stock options when exercised, and
• Nonqualified deferred compensation once the services have been performed and there’s no longer a substantial risk of forfeiture.

NIIT

This section keeps the original guidance focused on niit.

The following types of gains from stock acquired through exec comp will be included in net investment income and could be subject to the 3.8% NIIT if your modified adjusted gross income (MAGI) exceeds the applicable threshold:

• Gain on the sale of restricted stock if you’ve made the Sec. 83(b) election, and
• Gain on the sale of stock from an incentive stock option exercise if you meet the holding requirements.

Keep in mind that the additional Medicare tax and the NIIT could possibly be eliminated under tax reform or ACA-related legislation. If you’re concerned about how your exec comp will be taxed, please contact us. We can help you assess the potential tax impact and implement strategies to reduce it.

Related Resources

These resources connect the article topic with related Bowers service pages and approved professional reading.

• Tax Services
• Business Strategy & Growth
• Business Valuation
• Mergers & Acquisitions
• Harvard Business Review
• Accounting Today

FAQ

The questions below summarize the main points already covered in the article.

What is the main focus of Two ACA taxes that may apply to your exec comp?

The article focuses on two aca taxes that may apply to your exec comp and organizes the original guidance into sections for easier review.

What topics does the article cover first?

The article begins with additional medicare tax and then continues through the remaining points in the original post.

Which additional areas are included?

Additional sections include niit.

Does the post include action items or reminders?

Yes. The original post includes listed items that have been kept in list format for easier scanning.

Was the original post wording changed?

The revision keeps the author wording and updates the structure so the post is easier to read online.