What Is Reportable Compensation on Form 990?

Form 990 is an annual information return that many tax-exempt organizations must file with the Internal Revenue Service (IRS). This document provides the public with insight into an organization’s operations, governance, and finances. Transparent and accurate reporting of compensation is a significant aspect of Form 990, demonstrating an organization’s commitment to compliance and public accountability.

Understanding What Compensation is Reportable

Reportable compensation on Form 990 generally encompasses all forms of cash and non-cash remuneration provided to individuals. This includes amounts reported on an employee’s Form W-2 (specifically the greater of Box 1 or Box 5) and for independent contractors, amounts reported in Box 1 of Form 1099-NEC. Compensation can be categorized into several components, each requiring careful consideration for accurate reporting.

Base salary and wages represent the standard pay an individual receives for services rendered. Bonus and incentive compensation, which are performance-based payments, also fall under this category. These can include year-end bonuses or payments tied to specific organizational achievements.

Other reportable compensation is a broad classification covering various taxable benefits and payments. Examples include severance payments, which are paid upon an individual’s termination of employment. Longevity awards and certain housing allowances are also considered other reportable compensation. Additionally, the personal use of organizational assets, such as a company car or club memberships, if taxable to the employee, must be included.

Deferred compensation involves amounts earned in one period but paid in a later period. This includes both vested and unvested deferred compensation. Generally, deferred compensation becomes reportable when it is substantially vested, meaning the individual’s right to the funds is no longer subject to a substantial risk of forfeiture. This encompasses contributions to qualified and non-qualified retirement plans.

Non-cash benefits, also known as fringe benefits, are included in reportable compensation only if they are taxable to the recipient. For instance, employer-provided health insurance premiums are typically not taxable to the employee and thus generally not included in reportable compensation. However, benefits like the personal use of a company car or certain educational assistance, if taxable, would be reported.

Identifying Individuals Whose Compensation Must Be Reported

Form 990 mandates the reporting of compensation for specific categories of individuals, not merely all employees. These individuals are identified based on their roles and compensation levels, encompassing both current and, in some cases, former personnel.

Current officers, directors, and trustees must have their compensation reported. This applies to all individuals who served in these capacities at any point during the tax year, regardless of the amount of compensation they received. An officer is typically someone elected or appointed to manage the daily operations, including the top management official (e.g., CEO, executive director) and the top financial official (e.g., CFO, treasurer), regardless of their formal title. Directors and trustees are generally members of the governing body with voting rights.

Current key employees are another category for whom compensation must be reported. An employee qualifies as a “key employee” if they meet three criteria: they receive reportable compensation exceeding $150,000 from the organization and related organizations during the calendar year ending within the organization’s tax year. Additionally, they must have responsibilities, powers, or influence over the organization similar to officers or directors, or manage a discrete segment representing at least 10% of the organization’s activities, assets, income, or expenses. Finally, they must be among the 20 highest-compensated employees who meet the compensation and responsibility tests.

The five highest-compensated employees who are not already listed as officers, directors, trustees, or key employees must also be reported. These individuals must have received more than $100,000 in reportable compensation from the organization and related organizations.

Reporting also extends to certain former individuals. Former officers, key employees, and highest-compensated employees must be reported if they received more than $100,000 in reportable compensation during the tax year. Former directors and trustees are reported if they received more than $10,000 in reportable compensation. These reporting requirements for former personnel generally apply if they were reported in one of those capacities in any of the five prior tax years.

Reporting Compensation on Form 990

Reporting compensation on Form 990 involves specific sections and schedules designed to capture detailed remuneration data. The primary locations for this information are Form 990, Part VII, titled “Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and Independent Contractors,” and Schedule J, “Compensation Information.”

Part VII, Section A, is where the organization lists the individuals whose compensation is being reported. For each individual, the form requires their name, title, and average hours worked per week. The reportable compensation from the filing organization is entered in column (D), which includes amounts reported on Forms W-2 or 1099-NEC. Compensation received from related organizations is reported in column (E), and this compensation must generally be included if it equals or exceeds $10,000 from a single related organization. Estimated other compensation from the organization and related organizations, which includes certain benefits not reported on W-2 or 1099, is entered in column (F). Compensation figures in Part VII and Schedule J are typically based on the calendar year ending within the organization’s tax year.

Schedule J provides a more granular breakdown of the compensation types for individuals listed in Part VII. This schedule requires organizations to categorize reportable compensation into specific components such as base compensation, bonus and incentive compensation, and other reportable compensation. It also includes separate columns for retirement and other deferred compensation, reflecting amounts deferred in the current year under various plans. Furthermore, Schedule J details nontaxable benefits provided, such as health insurance premiums that are excluded from taxable income.

Schedule J also includes questions about the organization’s compensation practices. These questions cover aspects like the process for setting the CEO’s compensation and whether the organization provides certain benefits, such as first-class travel or housing allowances. Organizations must also indicate if they paid or accrued compensation contingent on revenues or net earnings. Information regarding deferred compensation plans, severance payments, and equity-based arrangements is also detailed on Schedule J.

Compensation Not Included in Form 990 Reporting

While a wide array of remuneration is reportable on Form 990, certain types of payments or benefits are generally excluded from compensation reporting. Understanding these exclusions helps organizations accurately delineate what needs to be disclosed. These items are distinct from reportable compensation and are treated differently for tax and reporting purposes.

Legitimate expense reimbursements provided under an accountable plan are typically not considered reportable compensation. An accountable plan requires that expenses have a business connection, that they are adequately accounted for to the employer within a reasonable time, and that any excess reimbursement is returned. For instance, reimbursements for business travel, mileage, or supplies, when properly substantiated, fall into this category.

Certain de minimis fringe benefits are also not included in reportable compensation. These are minor, infrequent benefits whose value is so small that accounting for them would be unreasonable or administratively impractical. Examples include occasional snacks, coffee, or holiday gifts of nominal value. However, cash or cash equivalents, such as gift cards, are generally not considered de minimis benefits and are taxable regardless of the amount. The personal use of a cell phone provided primarily for business purposes can also be a de minimis benefit.

Payments made to independent contractors are not reported as “compensation” in Part VII, Section A, or Schedule J, which are reserved for employees and certain individuals. Instead, payments to independent contractors are typically reported in Part VII, Section B, if they exceed $100,000, or on Form 1099-NEC. The distinction between an employee and an independent contractor is based on specific IRS guidelines regarding control and independence.

Furthermore, certain benefits specifically excluded from gross income by tax law are not treated as reportable compensation. These are non-taxable benefits that do not increase an individual’s taxable income. For example, employer-provided health coverage premiums are often not taxable to the employee and thus are not included in reportable compensation. Similarly, certain educational assistance, dependent care assistance, or adoption assistance, if tax-free to the employee, are generally excluded from reportable compensation.