Nonprofit organizations with highly compensated employees or executives about to retire and collect a large payout may be subject to tax on what the Internal Revenue Service (IRS) calls “excess executive compensation.” If subject to this tax, the organization will need to comply with additional requirements to report and pay the amount due.

In general, the excess executive compensation tax applies to domestic organizations exempt from income taxes under IRC Section 501(a) (Form 990 filers), farmers’ cooperatives, public utility companies, states, municipalities, and political organizations. These are referred to as Applicable Tax-Exempt Organizations or ATEOs. READ MORE