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Excise Tax

Last Updated March 20, 2009

Definition

Also referred to by retirement plan practitioners as ‘penalty’.

An excise tax is a penalty tax assessed by the IRS on certain transactions or upon the occurrence of certain events. Examples of excise tax assessed on retirement plans include the following:

  • 6 % excise tax on excess contributions to IRAs that are not removed timely
  • 10% excise tax ( early distribution penalty) on distributions that occur from a retirement account before the owner reaches age 59 ½. Exceptions apply
  • 50% excess accumulation penalty on required minimum distribution (RMD) amounts that are not distributed from the retirement account by the applicable deadline
  • Excise tax of $100 per day to an employer, for failure for providing a 204(h) notice to an employee
  • 50% reversion tax for plan assets reverted to an employer

Referring Cite

IRS § 4973, 408A(d)(6), IRC § 4980(d), IRC §. 4980F

Additional Helpful Information

Some excise taxes can be waived or reduced. For instance, the excess accumulation tax can be waived, if the taxpayer submits an explanation and waiver-request to the IRS and the IRS approves the request.