FEATURE / OPERATIONS Tax-exempt organizations, especially hospitals and health systems, face a new reality now that the tax reform bill has been signed into law. By Ralph E. DeJong; Robert C. Louthian III; Erika Mayshar; Michael W. Peregrine; and Mary K. Samsa T he tax reform bill (the Act) makes sweeping changes to the tax rules that affect exempt organizations like children's hospitals on a daily basis. It also reflects a troubling reality: complex, diversified tax-exempt organizations will face more pressure to defend their charitable status. This theme has emerged over the last few months from legislative discussions leading up to the Act, as well as increased Internal Revenue Service activity in the tax-exempt sector. This includes the revocation of the tax-exempt status of two Section 501(c)(3) hospitals in recent months. Exempt organizations that only focus on the specifics of the new tax law will be missing the big picture. Here are five takeaways for tax-exempt 14 CHILDREN'S HOSPITAL S TODAY Winter 2018 organizations about the most significant rewrite of the tax code in 30 years. A tax on talent The country's largest tax-exempt organizations will now find it more costly to recruit and retain top talent. Tax-exempt organizations are now required to pay an annual excise tax on compensation exceeding $1 million paid to any of its "covered employees." This tax is 21 percent of the amount exceeding $1 million (21 percent is the corporate tax rate under the new law). For example, to provide $2 million of reasonable compensation to a covered employee in 2018, an exempt organization will owe $210,000 in tax. There are several nuances within this new rule: