280G Parachute Tax Calculator

Section 280G imposes a 20% excise tax under §4999 on "excess parachute payments" — change-of-control payments that clear 3× your five-year average W-2 ("base amount"). This calculator models whether your package triggers the excise tax, quantifies the cost, and compares full-payment vs. cutback to show which leaves you with more money after all taxes.

Enter your change-of-control situation

How the 280G calculation works

The excise tax framework has three moving parts:

1. Base amount

Your "base amount" is your average annualized W-2 compensation (Box 1) for the 5 taxable years immediately before the change-in-control year. If you have been employed fewer than 5 years, use your actual history. Annualize any partial year.

Compensation that counts: salary, bonus, exercised stock option income, NQDC distributions, and most other W-2 wages. Compensation excluded: employer-paid health premiums, certain fringe benefits.

2. Parachute payments

Parachute payments are any amounts contingent on the change-of-control event (or accelerated by it). The most common items:

• Severance. Typically 1–3× base salary + target bonus, paid as a lump sum or installments.
• Accelerated equity vesting. The spread between the CIC price and the exercise price for options; the FMV at CIC for RSUs/PSUs. This is the largest driver for executives at public tech companies.
• NQDC enhancements. If the CIC triggers an enhanced distribution (e.g., payout of unvested matching credits), that value is included.
• Benefits continuation. The present value of COBRA coverage, executive health plans, perqs extended past termination.

3. The threshold trap

If total parachute payments ≥ 3× base amount, the 20% excise tax applies to all amounts exceeding 1× base amount — not just the excess over 3×. This creates a sharp cliff. An executive with a $1M base amount who receives exactly $3M pays no excise tax. At $3,000,001 — $400K in excise tax. At $3.5M — $500K in excise tax. The math changes the incentives around deal structure dramatically.

Mitigation if you're over the threshold

Option 1: Cutback to 2.99×

Modern employment agreements and change-of-control plans almost always include a "better-of" provision: payments are automatically reduced to the level that maximizes your after-tax take-home. Use the calculator above to confirm which scenario leaves you with more. If the full package is better, you receive it; if cutback is better, the provision triggers automatically. If your agreement lacks this clause, negotiate it before the deal closes.

Option 2: Gross-up provision

Some older executive agreements include gross-up provisions: the acquirer agrees to pay an additional amount to cover your §4999 excise tax. These are increasingly rare — Glass Lewis and ISS oppose them as shareholder-unfriendly, and most post-2010 agreements dropped them. Check yours.

Option 3: Pre-deal planning

If a deal is not yet announced (or is early-stage) and you're subject to an LOI, there may be limited room to restructure. Post-announcement, 280G planning options narrow sharply. The time to model this is before the deal is signed.

Option 4: §280G safe harbor (private companies only)

For non-publicly-traded companies, parachute payments can be excluded from §280G treatment if approved by 75%+ of voting shareholders in a separate vote. Public companies cannot use this mechanism.