Rules for High-Paid Nonprofit Employees Come With Exceptions (1)

Proposed IRS rules on a new tax aimed at highly compensated nonprofit employees largely follow previous guidance, but do address some concerns raised in public comments.

The 2017 tax law created a 21% excise tax on nonprofits that pay their five highest-paid employees compensation above $1 million, under added tax code Section 4960. The levy also applies to separation payments—or “parachute payments"—of roughly three times the employee’s base salary. The agency had issued initial guidance last year.

Many commenters raised concerns that rules for determining the five highest-compensated employees could subject a nonprofit to tax on what it ...