Executive Comp Advisors

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.

The trap most executives miss: If total payments reach 3× base amount, the 20% excise tax applies to everything above 1× base amount — not just the amount above 3×. A $1M base amount with a $3.5M package: the excise applies to $2.5M, costing $500K — even though you only exceeded the threshold by $500K. The cutback may be smarter.

Enter your change-of-control situation

Average of W-2 Box 1 wages for the 5 calendar years before the change-in-control year. Use fewer years if employed less than 5 years.
RSUs: share price × accelerated shares. Options: intrinsic value (spread × shares in-the-money).
2026: top bracket is 37% above $640,600 (single) / $768,600 (MFJ). Most executives with these package sizes are at 37%.
CA: up to 13.3%. NY: up to 10.9%. TX/FL/WA: 0%.

Facing a change-of-control excise tax?

The formal 280G analysis — classifying each payment component, calculating the base amount, and negotiating gross-up or cutback language with the acquirer — requires a specialist who has done dozens of these. Advisors in our network focus exclusively on executive comp and M&A. One conversation before the deal closes can save six figures.

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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:

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.

Related resources

Get matched with a 280G specialist

280G analysis is fact-intensive — the classification of each payment component, the base amount calculation, and the gross-up vs. cutback decision all require a qualified specialist who has done dozens of these. Tell us your situation and we'll match you with a fee-only advisor who focuses on executive comp and M&A planning.

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280G Frequently Asked Questions

What is the 280G excise tax rate?
The Section 4999 excise tax rate is 20%, imposed on "excess parachute payments" — amounts above 1× your 5-year average W-2 base amount when total change-of-control payments equal or exceed 3× that base amount. The 20% rate is a fixed statutory amount under IRC §4999 and is not indexed for inflation.
What is the 280G base amount and how is it calculated?
Your "base amount" is the average of your annualized W-2 Box 1 compensation for the 5 taxable years before the change-in-control year. If employed fewer than 5 years, use your actual history with any partial year annualized. Salary, bonuses, exercised option income, and NQDC distributions count. Employer-paid health premiums and most fringe benefits are excluded.
When does the 280G excise tax trigger?
The §4999 excise tax triggers when total parachute payments — severance, accelerated equity vesting, enhanced NQDC distributions, and benefits continuation — equal or exceed 3× your base amount. Below 2.99×, no excise tax. At 3.0×, the 20% excise applies to all amounts above 1× base, not just the excess over 3×. This sharp cliff can cost hundreds of thousands of dollars for a package that exceeds the threshold by a small amount.
Should I take the full package or cut back to 2.99× to avoid the 280G excise tax?
It depends on the gap between total payments and the 2.99× cutback level. If the incremental payments above 2.99× exceed the excise tax cost, take the full package. If the excise tax is larger than the incremental amount, the cutback nets more. Use the calculator above to compare. Most modern employment agreements include a "better-of" provision that automatically selects whichever scenario leaves you with more after all taxes.
Is the 280G excise tax deductible?
No. The §4999 excise tax is paid by you on your individual federal return — it is not withheld, not treated as income tax, and is not deductible. Your employer simultaneously loses its income tax deduction under §280G for the excess parachute payments. Budget for the excise tax at filing; it will not appear on your W-2.
Can private companies avoid the 280G excise tax?
Yes. Non-publicly-traded companies can exempt payments from §280G if 75% or more of outstanding voting stock approves the payments in a separate stockholder vote before the deal closes. This private company safe harbor is not available to public companies. The 280G analysis and formal vote must be completed before the change-of-control transaction closes.

Sources

  1. 26 U.S.C. §280G — Golden Parachute Payments (LII / Cornell Law School) — statutory basis for parachute payment disallowance and the 3× base amount threshold.
  2. 26 U.S.C. §4999 — Excise Tax on Excess Parachute Payments (LII / Cornell Law School) — 20% excise tax rate, imposed on recipients of excess parachute payments.
  3. 26 CFR §1.280G-1 — Regulations (eCFR) — detailed rules on base amount calculation, parachute payment classification, and reasonable compensation offsets.
  4. IRS Rev. Proc. 2025-67 — 2026 Tax Inflation Adjustments — 2026 federal income tax brackets (37% top rate above $640,600 single / $768,600 MFJ). §4999 excise tax rate is a fixed statutory 20% with no annual adjustment.

Tax values verified as of April 2026. The §4999 excise tax rate (20%) and §280G threshold multiplier (3×) are statutory and not indexed for inflation.