IRS Seeks Input on New Nonprofit Executive Compensation Excise Tax Rules

The Internal Revenue Service (IRS) has issued Notice 2026-36, outlining its plans to develop proposed regulations implementing recent changes to the Section 4960 excise tax on nonprofit executive compensation.

The changes stem from the One Big Beautiful Bill Act, signed into law on July 4, 2025; they could have significant implications for tax-exempt organizations, including associations.

Most notably, the law broadens the definition of a "covered employee" subject to the 21 percent excise tax on annual compensation exceeding $1 million. Under prior law, the tax generally applied only to an organization's five highest-compensated employees. The new provision removes that limitation, potentially expanding the number of employees whose compensation may be subject to the tax.

The IRS is seeking public input as it develops the proposed regulations. Organizations interested in commenting can submit feedback by Aug. 4, 2026 through regulations.gov.

This article was provided to OSAP by ASAE's Power of Associations and Inroads.