IRS Releases Guidance for Non-Profits on Excess Compensation Tax; Comments Due August 4

Published June 08, 2026

The Department of the Treasury and the Internal Revenue Service today issued Notice 2026-36 announcing intent to issue proposed regulations addressing the tax on excessive compensation and excess parachute payments to employees of tax-exempt organizations under the One, Big, Beautiful Bill. The OBBB expanded the application of excise tax on excess compensation by broadening the definition of covered employee of an applicable tax-exempt organization (ATEO).

Previously, this tax applied to the five highest-compensated employees for the tax year. Now the tax may apply to any employee with compensation exceeding $1 million in a tax year or an excess parachute payment.

Notice 2026-36 clarifies that the amended definition of covered employee, which will be addressed in the forthcoming proposed regulations, includes only:

Any individual who was an employee of an ATEO in any tax year beginning after Dec. 31, 2016, and on or before Dec. 31, 2025, if the individual was a covered employee for the tax year under prior law, and

Any individual who is an employee of an ATEO in any tax year beginning after Dec. 31, 2025 (unless a covered employee exception applies).

The notice sets out exceptions for individuals who provide volunteer services to tax-exempt organizations under the limited hours and nonexempt funds exceptions to the definition of covered employee until further guidance is issued.

Comments are due August 4, 2026.