How to calculate base?

5-year average of W-2 income \u2014 preceding the change of control year.

Voluntary departure \u2014 still 280G?

Yes \u2014 if triggered by change of control.

Gross-up clauses \u2014 taxable?

Yes \u2014 gross-up itself is additional parachute payment.

Private company exception?

Yes \u2014 75% shareholder vote can waive 280G.

280G applies during normal severance?

No \u2014 only change-in-control payments.

Golden Parachute IRC 280G

280G: excess parachute = payments > 3x base. Additional 20% excise tax on disqualified executive. Plus deductibility lost for company.

Base Salary (avg last 5 years) ($)

Total Parachute Payment ($)

Ordinary Tax Bracket %

280G Excise

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Total Tax

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Effective Rate

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Net to You

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Avg base salary	—
3x threshold	—
Parachute payment	—
Excess parachute	—
Ordinary income tax	—
280G excise tax	—
Total tax	—
Net after tax	—

IRC Section 280G imposes a 20% excise tax on 'excess parachute payments' — change-in-control payments exceeding 3x average base salary. The company also loses tax deduction. Affects ~ Top 5 executives in M&A scenarios.

280G Mechanics

Threshold: 3x 'base amount' (5-year average W-2 income). Above this, the excess is 'parachute payment' subject to 20% excise on executive. Company loses deduction for full excess + 20% on the company side. Effective tax: 60%+ on excess portion.

280G Mitigation

(1) Reduce payment to threshold (haircut). (2) Spread payment over multiple years. (3) Shareholder vote (private companies — 75% approval can exempt). (4) Gross-up clause: company pays the excise on behalf of executive. (5) Cutback provisions: payments reduced to maximize after-tax.

Who's Subject

'Disqualified individuals': officers, top 1% of employees, 1% shareholders. Top 5 most highly compensated officers in most cases. Department of Labor + IRS guidance applies.

Last updated May 2026. Sources: IRS Section 280G Guide.