June 2026 alert; reviewed October 6, 2026.
IRS Notice 2026-36 addresses the expansion of Section 4960’s covered-employee definition for tax years beginning after December 31, 2025. Section 4960 separately reaches remuneration above $1 million and excess parachute payments, subject to its rules.
The notice retains the prior definition for pre-2026 tax years. A former employee who was never covered under that prior definition does not become covered solely because of that earlier employment. A person already covered remains covered.
The IRS anticipates exceptions similar to the limited-hours and nonexempt-funds exceptions. It does not anticipate retaining the limited-services exception, which addressed displacement of another employee under the old top-five test. That concern no longer fits the expanded definition.
The notice permits reliance on its specified interpretation and anticipated exceptions until the forthcoming proposed regulations are issued. This is a conditional reliance provision, not permanent final-regulation treatment.
The practical distinction
An organization reviewing a former executive and a current employee should not treat both as newly covered merely because it has abandoned a top-five list. The employee’s history and the relevant tax year remain important.
The expansion also does not mean every employee generates a tax liability. Covered status and a taxable payment are different questions. Leadership needs compensation and employment records that allow counsel and tax advisers to analyze both, including related-entity arrangements and departure payments.
See the Executive Agreements and Compensation Guide for the wider approval and payment decisions. The June 22, 2026 Internal Revenue Bulletin contains the published notice.
