The US Treasury and IRS have issued Notice 2026-36, signalling their intent to propose regulations on excise tax on excessive executive compensation at tax-exempt organisations under the One, Big, Beautiful Bill, which expands the tax beyond the previous five highest-paid employees to potentially any staff member earning over USD 1 million in a tax year.

The Department of the Treasury and the Internal Revenue Service (IRS) announced on 5 June 2026 that it issued Notice 2026-36, announcing its intent to issue proposed regulations addressing the tax on excessive compensation and excess parachute payments to employees of tax-exempt organisations under the One, Big, Beautiful Bill.

“The new law strengthens the accountability of tax-exempt organisations by expanding tax compliance requirements for certain organisations paying excessive compensation and excess parachute payments to their executives,” said IRS Chief Executive Officer Frank J. Bisignano. “It broadens the scope of tax from a limited group of executives to potentially any highly compensated employee.”

Expanded application of tax on excess compensation under OBBB

The OBBB expanded the application of excise tax on excess compensation by broadening the definition of covered employee of an applicable tax-exempt organisation (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 USD 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 31 December 2016, and on or before 31 December 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 31 December 2025 (unless a covered employee exception applies).

The notice also sets out important exceptions for individuals who provide volunteer services to tax-exempt organisations that could otherwise be impacted by the OBBB changes. Specifically, it allows ATEOs and their related organisations to rely on the limited hours and nonexempt funds exceptions to the post-OBBB definition of covered employee until further guidance is issued.

Treasury and the IRS anticipate the forthcoming proposed regulations will include covered employee exceptions for limited hours and nonexempt funds. The proposed regulations are not expected to apply to tax years beginning before the issuance of final regulations.

More information

Treasury and the IRS request comments on all aspects of this notice and any other issues that should be addressed in the forthcoming proposed regulations by 4 August 2026.

Comments are particularly requested on the issues raised by today’s notice. Complete instructions on submitting comments are included in the notice.