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1040a 2023 instructions Form: What You Should Know
Excessive parachute payments. Section 162(l)(9) provides that an excess parachute payment under section 280G will be treated as a salary, bonus, or wages. Therefore, if an officer is paid an excess parachute payment which is greater than the amount in the table at page 1, the excess parachute payment will be treated as a salary, bonus, or wages. These excess parachute payments in excess of 1 million will be taken into account for purposes of determining the income limitation. However, see the statement at page 2 for the exception when the amount of excess parachute payments exceeds 1 million and the employee is an officer. The 1 million limitation in this paragraph does not apply to payments received in the ordinary course of business. If an amount is received in a manner which results in the overpayment being taken into account for its intended purpose of determining income or loss (e.g., a payment not made in full after the employee's request for payment; a payment made in the course of professional negotiation), the amount overpaid will be treated as excess parachute payments under section 280G in determining the amount paid in excess of 1 million in excess of section 280G. The amount paid in excess of 1 million will be taken into account for purposes of determining the income limitation. The 1 million limitation in this paragraph does not apply to payments received in the ordinary course of business. 1. Does the 1 million dollar amount taken into account for a year in the table above actually limit compensation for that year? 2. In the words of IRS: The 1 million dollar amount taken into account for a year in this chart does limit compensation for that year. Specifically, it limits, for that year, the amount taken into account for all compensation paid to, or received by, the officer that is more than 1 million. In this sense, the chart provides a limited benefit to employees who are highly compensated. The chart was enacted in 1986 to address a problem that was identified when the Department of Labor's Division of Labor Standards and Statistics (the predecessor to IRS) first prepared the tables in 1988. In 1986, the Department of Labor's Division of Labor Standards and Statistics estimated that overpayments of 50 million per year were being made to a sample of highly compensated employees because of a failure by employers to comply with a rule to make certain required records available to the employee.
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