Tax season 2026 has been marked by significant changes at both the federal and state levels, with millions of taxpayers receiving refunds and new Virginia legislation providing additional tax relief. Whether you have already filed your 2025 tax return or are preparing to file, understanding the refund process, processing times, and new rebate programs can help you maximize your refund and avoid unnecessary delays. Federal Tax Refund Processing: A Successful 2026 Filing Season The 2026 federal tax filing season generally ran smoothly, with the IRS processing nearly 139 million individual tax returns and issuing more than 90 million refunds . The IRS successfully implemented extensive tax law changes despite significant operational challenges, including workforce reductions and leadership turnover . Key Statistics from the 2026 Filing Season According to National Taxpayer Advocate Erin M. Collins’s mid-year report to Congress, the filing season statistics demonstrate the scale of tax processing: Individual Returns Processed: 138.6 million  Refunds Issued: 90.4 million  Average Refund Amount: $3,275  Electronic Filing Rate: Approximately 98%  Direct Deposit Rate: Approximately 98%  By late March 2026, over 80% of refunds were issued in less than 21 days, with the average refund amount reaching $3,571 . Total refunds issued surpassed $202 billion, representing an increase of more than 10% compared to the previous year . New Tax Provisions Affecting Refunds The One Big Beautiful Bill (OBBBA) enacted in 2025 introduced several taxpayer-favorable changes that contributed to higher refund amounts in 2026 : No tax on tips No tax on overtime No tax on car loan interest A special tax deduction for seniors Permanent extension of several tax provisions that had been set to expire These provisions significantly benefited American families, with many taxpayers seeing higher refunds as a result . Refund Challenges: Delays and Service Issues While the filing season was largely successful, the National Taxpayer Advocate’s report identified several areas where taxpayers experienced challenges . Suspended Returns and Processing Delays More than 14 million individual income tax returns were suspended during processing for additional review . Over one million taxpayers did not receive their refunds within the IRS’s normal processing time, experiencing an average wait of about 5.5 weeks . The IRS encourages taxpayers who are expecting a refund to include banking information when they file. Taxpayers who did not provide valid bank information can use online tools on IRS.gov to provide the necessary information to get their refund faster . If a taxpayer receives a CP53E notice informing them that their banking information is missing or invalid, they can use their IRS Individual Online Account to resolve the issue quickly by providing accurate banking information. Once updated, the IRS will issue their refund, usually within seven days . Direct Deposit Requirement and Paper Check Delays In response to Executive Order 14247, the IRS began phasing out paper tax refund checks on September 30, 2025 . Most taxpayers must provide their routing and account numbers to receive refunds directly deposited into their bank accounts . However, limited exceptions exist for specific situations involving hardships, legal requirements, or procedural requirements . Taxpayers who qualify for an exception can provide this information through their IRS Individual Online Account, which will allow the release of a paper check within one to two weeks . Taxpayers should note: For security purposes, IRS employees cannot update bank account information over the phone or in person . Telephone Service Challenges Taxpayers had more difficulty reaching the IRS by phone during the 2026 filing season . Overall, the IRS received 48.1 million calls, telephone assistors answered only 9.9 million calls (21%), and the average wait time was 14 minutes . This compares unfavorably to the 2025 filing season, when 50.2 million calls were received, 12.4 million were answered (25%), and the average wait time was 8 minutes . The hardest-hit telephone lines included: Installment Agreement/Balance Due line: Only 31% of 3.4 million calls answered; average wait time: 45 minutes  Taxpayer Protection Program line: Only 19% of 2.4 million calls answered; average wait time: 20 minutes  Identity Theft Victim Assistance Delays The report notes continuing delays of approximately 20 months to resolve identity theft victim assistance cases . At the end of the filing season, more than half a million cases were pending in inventory . For many low- and middle-income taxpayers, waiting nearly two years for a refund is not merely an inconvenience but a significant financial hardship . Virginia Tax Refund: Deadlines, Processing, and New Rebates Virginia Filing Deadline: May 1, 2026 Virginia’s individual income tax filing and payment deadline is Friday, May 1, 2026 . Tax Commissioner Kristin Collins strongly encourages taxpayers to file electronically, as it is the faster, safer option . Electronically filed returns are typically processed within four weeks, while mailed returns may take up to ten weeks or longer . Virginia Automatic Filing Extension Virginia provides an automatic six-month filing extension to November 1 for most filers . No application is required. However, taxpayers must still pay any taxes owed by the original May 1 deadline to avoid penalties and interest . Virginia Refund Processing Timeline For taxpayers expecting a Virginia tax refund: Electronic filing with direct deposit: Typically processed within four weeks  Paper returns: May take up to ten weeks or longer  Returns flagged for review or manual processing: Additional delays may occur  Taxpayers can track the status of their Virginia tax refund through the “Where’s My Refund?” tool on the Virginia Tax website or by calling 804.367.2486 . Virginia 2026 Income Tax Rebate The 2026 Virginia budget includes a significant tax rebate for individual taxpayers. The budget amendments establish the 2026 Income Tax Rebate Fund with $499,040,000 in general fund appropriations . Rebate Amounts Individual filers: Up to $100  Married couples filing jointly: Up to $200  Eligibility Requirements The rebate applies to taxable years beginning on and after January 1, 2025, but before January 1, 2026 . To receive the rebate, individuals must file their return on or before November 3, 2026 . The rebate is limited to the amount of the taxpayer’s liability after the application of any deductions, subtractions, or credits . The information statement attached to the rebate checks will state: “The enclosed Tax Relief for Working Virginians was authorized by the 2026 General Assembly” . Payment Timing For taxpayers filing a return before July 1, 2026, rebates will be issued on or before October

Virginia and Washington DC nonprofits and CPAs face a rapidly changing landscape in 2026, with significant new rules from the IRS, a major Virginia budget agreement, and critical compliance deadlines. This guide covers the most impactful developments, including the expanded executive compensation excise tax, new group exemption oversight, and the Virginia budget’s tax and regulatory changes. I. Expanded Excise Tax on Nonprofit Executive Compensation (IRC Section 4960) The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, has fundamentally altered the landscape of executive compensation for tax-exempt organizations. On June 5, 2026, the Treasury Department and IRS issued Notice 2026-36, providing crucial guidance on these changes. The New Definition of “Covered Employee” Section 4960 of the Internal Revenue Code imposes a 21% excise tax on applicable tax-exempt organizations (ATEOs) that pay a “covered employee” more than $1 million in remuneration in a taxable year, or an excess parachute payment. Previously, only an ATEO’s five highest-compensated employees were covered. For taxable years beginning after December 31, 2025, any current or former employee of an ATEO (going back to 2017) is now a covered employee — dramatically broadening the scope of the tax. This expansion is particularly significant for universities, academic medical centers, hospital systems, national charities, trade associations and similar organizations with substantial deferred-compensation programs. Critical Interpretation and Exceptions The Treasury Department and IRS interpret the effective date to mean the expanded definition applies only to taxable years beginning after December 31, 2025. The old “top five” definition still governs whether someone was a covered employee in prior years (2017–2025). The new rules drop the old “limited services” exception, since it was only relevant under the prior “top five” framework. The proposed regulations are expected to retain the “limited hours” and “nonexempt funds” exceptions, which allow certain employees of related non-ATEO organizations to be excluded. Until the forthcoming proposed regulations are issued, ATEOs may rely on the IRS’s interpretation described in this notice. A worked example in the notice walks through how these rules apply to three hypothetical employees. Action Steps for Nonprofits Review compensation practices to identify any employees who may be affected by the expanded definition Monitor guidance as the IRS has requested comments by August 4, 2026 Consider qualified retirement plan design, as benefits provided through these plans can reduce the compensation that counts toward the excise tax II. Virginia Nonprofit Group Exemptions Face New Oversight After IRS Rule Change On January 20, 2026, the IRS issued Revenue Procedure 2026-8, modernizing the group exemption program for the first time since 1980. The IRS began accepting new group exemption applications on January 20, 2026, after a moratorium that began in mid-2020. What is a Group Exemption? A group tax exemption allows a “central organization” to obtain tax-exempt status for its affiliated “subordinate” organizations without each subordinate having to apply individually to the IRS. The new guidance tightens who qualifies, what has to be documented, and how often central organizations must report back to the IRS. Key Changes in Revenue Procedure 2026-8 The new rules establish minimum size requirements for the group: at least five subordinate organizations to obtain a group exemption and at least one to maintain it. Key definitions have been clarified: Affiliation is now determined by a “facts and circumstances” standard looking at the relationship between the central and subordinate organization. General Supervision requires the central organization to annually obtain, review, and retain information on the subordinate organization’s finances, activities, and compliance with annual filing requirements. Control exists if the central organization appoints a majority of voting directors or officers, there is a majority overlap of directors or officers, or there is a written agreement evidencing control. Subordinate organizations that share the same purpose must adopt a uniform purpose statement in their governing documents. Each subordinate must sign a written authorization to be included in the group. Ineligible Subordinate Organizations Certain entities are now ineligible to be subordinates, including: Foreign organizations Private foundations Type III supporting organizations Qualified nonprofit health insurance issuers Organizations that have had their exempt status revoked and not reinstated Transition Relief and Deadlines The IRS is providing a one-year transition period (January 20, 2026, to January 22, 2027) for existing central organizations to comply with several new requirements. For Virginia’s many large nonprofit networks and associations, this is a critical deadline to act on. III. Virginia Passes Budget with New Data Center Energy Tax and Standard Deduction Increases Virginia finalized a $207 billion biennial budget on June 22, 2026, which Governor Abigail Spanberger signed into law on June 30, 2026. The budget includes significant tax policy changes. New Data Center Electricity Consumption Tax The budget introduces a first-of-its-kind electricity consumption tax on data center operators at a rate of **$0.011 per kilowatt hour (kWh)** for all electricity consumed. This tax applies from July 1, 2026 through July 1, 2028, with a cap of $600 million in annual revenue. Any amount raised above this cap will be refunded to data center operators on a pro rata basis. A notable feature is that the tax applies to self-supplied electricity from wind or solar with no exception. The tax is to be reported and remitted to the State Corporation Commission, not the Virginia Department of Revenue. Standard Deduction Increases For individual taxpayers, the budget raises Virginia’s standard deduction over the next several years. For 2026, single filers can claim $8,750 and joint filers $17,500. In 2027, these amounts will increase to $9,200 and $18,400, respectively. In 2028, they will rise again to $9,300 and $18,600. Other Tax Provisions The budget allows localities to hold referendums on a 1% sales tax increase to fund school construction. It also establishes a regulated adult-use retail cannabis market with sales starting July 1, 2027, with a 6% excise tax for the first two years, increasing to 8% in 2029, and localities able to add an additional 3.5% tax. IV. Virginia CPA License Renewals Open with New Inactive Status Policy The Virginia Board of Accountancy opened 2026 license renewals on March 1, 2026, with a deadline of June

New DC Real Property Tax Exemptions for Nonprofits The District of Columbia has enacted several pieces of legislation affecting real property tax exemptions for nonprofit organizations . D.C. Law 26-126, effective June 11, 2026, provides a real property tax exemption for the property located at 2405 First Street, NW, owned by the Mu Lambda Foundation, Inc. for its charitable and educational purposes . The exemption is effective from October 1, 2025, to September 30, 2055, provided the property continues to be used for those purposes and not commercially . Additionally, the FY2026 Budget Support legislation made several changes to nonprofit property tax exemptions . It removed the requirement that a nonprofit workforce housing project must meet certain tenant income and rent requirements within 12 months of acquisition. Instead, these requirements must now be certified on an annual basis, providing more flexibility for organizations developing affordable housing . The legislation also clarifies that nonprofit property used for solar energy generation, energy storage, or electric vehicle charging does not lose its tax-exempt status . DC Central Kitchen Tax Rebate and Community Land Trusts The FY2026 budget also expanded the tax rebate for D.C. Central Kitchen (DCCK) , a nonprofit organization fighting hunger and poverty through job training . The expanded rebate removes the $208,000 annual cap and includes its new leased space at 2121 1st Street SW, allowing the organization to expand its community services and job training programs. A fiscal analysis estimated the rebate’s total value at approximately $2.3 million through 2052 . Moreover, the budget legislation provides tax benefits to Community Land Trusts (CLTs) , which are nonprofit organizations that acquire and hold land to provide affordable housing in perpetuity . The legislation exempts CLT-owned property from real property tax, exempts property transfers to CLTs from real estate transfer and deed recordation taxes, and allows individuals with a land lease from a CLT to claim a homestead deduction . These provisions create a more favorable environment for nonprofits engaged in affordable housing development. These changes can significantly affect a nonprofit’s financial landscape, making it crucial to work with an advisor who understands the nuances of DC’s tax code. Nova Tax & Accounting Services offers expert tax solutions and consulting to help nonprofit organizations understand and maximize these opportunities. Contact us to schedule a consultation and ensure your organization takes full advantage of available tax benefits.