Introduction
Starting in the 2025 tax year, there are important updates to the reporting of excess golden parachute payments on Forms 1099-NEC and 1099-MISC. These changes are crucial for tax professionals to ensure compliance and accurate reporting.
What Are Excess Golden Parachute Payments?
Excess golden parachute payments are substantial benefits provided to top executives if they lose their jobs due to a merger or takeover of their company. These benefits can include severance pay, stock options, insurance benefits, and pension benefits. The purpose of these payments is to provide a "soft landing" for executives who are terminated because of a change in company control.
Changes to Reporting
1. Form 1099-MISC: Previously, excess golden parachute payments were reported in Box 14 of the 1099-MISC. Starting in 2025, this will no longer be the case. The 1099-MISC will no longer be used to report excess golden parachute payments. This will be the role of the 1099-NEC.
2. Form 1099-NEC: From 2025 onwards, excess golden parachute payments will be reported in Box 3 of the 1099-NEC. This change aims to streamline the reporting process and ensure accurate tax compliance.
3. You will not be able to use older, previous paper forms to file. This IRS change precludes that. You will need updated, current 1099-NEC forms to report any excess golden parachute payments.
Conclusion
These updates are designed to simplify the reporting of golden parachute payments and ensure that they are properly taxed. Our customers should familiarize themselves with these changes to ensure compliance and accurate reporting for their clients.
We’re happy to keep you informed of these and any other important IRS changes. Because taxes shouldn’t be taxing.