The Internal Revenue Service (IRS) is seeking public input on forthcoming regulations that will implement significant changes to the executive compensation excise tax applicable to tax-exempt organizations. Through Notice 2026-36, the agency has outlined its plans to develop proposed regulations reflecting amendments made by the One Big Beautiful Bill Act (OBBBA), which was signed into law on July 4, 2025.
As shared by OSAP and the American Society of Association Executives (ASAE) earlier this month, the changes center on Section 4960 of the Internal Revenue Code, which imposes a 21-percent excise tax on compensation exceeding $1 million paid to certain employees of tax-exempt organizations. Under previous law, the tax generally applied only to an organization's five highest-compensated employees. The new law substantially expands the reach of the provision by broadening the definition of a "covered employee," potentially increasing the number of individuals whose compensation could trigger the excise tax.
For associations and other nonprofit organizations, the expanded scope of Section 4960 raises important questions regarding compliance, compensation planning, reporting obligations, and the potential financial impact of the tax. The IRS has indicated that stakeholder feedback will play an important role in shaping the proposed regulations and addressing implementation issues that may arise as organizations interpret the new statutory requirements.
Organizations interested in commenting can submit feedback through regulations.gov by Aug. 4, 2026.
This article was provided to OSAP by ASAE's Power of Associations and Inroads.
Comments on New Association Executive Compensation Excise Tax Rules Due Aug. 4
The Internal Revenue Service (IRS) is seeking public input on forthcoming regulations that will implement significant changes to the executive compensation excise tax applicable to tax-exempt organizations. Through Notice 2026-36, the agency has outlined its plans to develop proposed regulations reflecting amendments made by the One Big Beautiful Bill Act (OBBBA), which was signed into law on July 4, 2025.
As shared by OSAP and the American Society of Association Executives (ASAE) earlier this month, the changes center on Section 4960 of the Internal Revenue Code, which imposes a 21-percent excise tax on compensation exceeding $1 million paid to certain employees of tax-exempt organizations. Under previous law, the tax generally applied only to an organization's five highest-compensated employees. The new law substantially expands the reach of the provision by broadening the definition of a "covered employee," potentially increasing the number of individuals whose compensation could trigger the excise tax.
For associations and other nonprofit organizations, the expanded scope of Section 4960 raises important questions regarding compliance, compensation planning, reporting obligations, and the potential financial impact of the tax. The IRS has indicated that stakeholder feedback will play an important role in shaping the proposed regulations and addressing implementation issues that may arise as organizations interpret the new statutory requirements.
Organizations interested in commenting can submit feedback through regulations.gov by Aug. 4, 2026.
This article was provided to OSAP by ASAE's Power of Associations and Inroads.
Categories
Most Recent Posts