3 — Excess Golden Parachute Payments Updated for tax year 2025

What this line means

The amount of excess golden parachute payments made to you during the year. A golden parachute payment is compensation paid to a key employee or highly compensated individual that is contingent on a change in corporate ownership or control. The “excess” portion is the amount that exceeds the individual’s base amount — the average annual compensation over the five tax years before the change. This amount is subject to a 20% excise tax under IRC Section 4999 on top of regular income tax. ¹

Does this apply to you?

• You received a payment contingent on a change in ownership or control of a corporation and the amount exceeded your base amount
• You are a corporate officer, shareholder, or highly compensated individual who received severance or acceleration of compensation tied to a merger, acquisition, or similar transaction
• You received a 1099-NEC with an amount in Box 3

Easy to overlook

The 20% excise tax is separate from income tax The excess parachute payment is taxed twice: once as ordinary income (reported on your return like any other compensation) and once with a 20% excise tax under IRC Section 4999. The excise tax is reported on Form 4720 and is not deductible. The total effective tax rate on excess parachute payments can exceed 55% when combined with federal income tax and state taxes. ² [SOURCE: IRC Section 4999 — excise tax on excess parachute payments]

This box is new for 2025 on Form 1099-NEC Before 2025, excess golden parachute payments were reported in Box 14 of Form 1099-MISC. Starting with the 2025 tax year, they moved to Box 3 of Form 1099-NEC. If you received a similar payment in a prior year, it appeared on a different form. ³ [SOURCE: IRS Instructions for Forms 1099-MISC and 1099-NEC — Box 3]

Watch out for this

Not filing Form 4720 to pay the 20% excise tax on the excess portion. The payer reports the excess amount in Box 3, but the excise tax is your responsibility to calculate and pay. The IRS matches Box 3 amounts to Form 4720 filings. If you received excess golden parachute payments and did not file Form 4720, the IRS will follow up.

Related lines on your return

• Box 1 — 1099-NEC — Nonemployee compensation (the excess parachute amount is also includible in gross income)
• Form 4720 — Excise tax return where the 20% tax on excess parachute payments is reported and paid
• Box 14 — 1099-MISC — Where excess golden parachute payments were reported before 2025