The IRS issued final regulations on Jan. 12 implementing the excise tax on executive compensation in excess of $1 million for a taxable year that was enacted as part of the Tax Cuts and Jobs Act of 2017. The regulation imposes a 21% tax on the compensation paid to the five highest-compensated employees at private colleges and universities and their affiliated university hospitals. The tax does not impact public institutions.
The final rule exempts remuneration paid during the applicable year for medical services (including related services, such as medical record-keeping). The exemption allows for employers to use a reasonable, good-faith method to allocate remuneration between medical and nonmedical services and provides examples of reasonable methods (e.g., patient records, insurance, Medicare/Medicaid billing records, internal time reporting mechanisms). While the rule exempts research activities and supervision/instruction of resident physicians during patient treatment, it does not exempt classroom instruction or research analysis and formulation of articles.