Who Qualifies as a Key Employee on Form 990?

Tax-exempt organizations file Form 990 annually to provide the Internal Revenue Service (IRS) and the public with a transparent view of their finances and operations. This information return is a public document, allowing for scrutiny of how a nonprofit uses its resources. A part of this transparency involves the detailed reporting of compensation for specific individuals. This article focuses on the criteria the IRS uses to define a “key employee” for this public disclosure.

Defining a Key Employee

The IRS provides a multi-part definition to determine if an individual qualifies as a key employee for a given reporting year. This is not a title an organization can assign arbitrarily; it is based on objective tests. An individual must meet all three tests—compensation, responsibility, and the top 20 limit—to be classified as a key employee. Individuals who are already classified as officers, directors, or trustees are not considered key employees for this reporting purpose.

The first part is the compensation test. To meet this requirement, an employee must have reportable compensation from the organization and any related organizations exceeding $150,000 for the calendar year that falls within the organization’s tax year. If an employee’s total reportable compensation does not surpass this dollar threshold, they are not a key employee, and the analysis for that individual stops.

If the compensation threshold is met, the next step is the responsibility test, which is based on an employee’s actual influence and authority, not their title. An employee only needs to satisfy one of the three following criteria to pass this test. The first criterion is having responsibilities, powers, or influence over the organization as a whole that are similar to those of officers or directors. The second is managing a discrete segment or activity of the organization that represents 10% or more of its total activities, assets, income, or expenses. The third criterion is having or sharing the authority to control or determine 10% or more of the organization’s capital expenditures, operating budget, or compensation for employees.

The final part of the definition is the top 20 limit. An organization may have more than 20 individuals who meet both the compensation and responsibility tests. In such cases, only the 20 individuals with the highest reportable compensation from the organization and its related organizations for the year are considered key employees. This caps the number of key employees that must be reported on Form 990.

Required Information for Reporting

Once an organization identifies its key employees, it must gather specific information for each person to complete Form 990. The required information includes the employee’s full name and title, the average hours they work per week for the organization and any related entities, and a detailed breakdown of their compensation.

For each key employee, the organization must determine the amount of “reportable compensation” received from the filing organization and, separately, from any related organizations. For employees, this amount is found on their Form W-2, using the greater of the amounts in Box 1 or Box 5. For individuals treated as independent contractors, the figure comes from Form 1099-NEC, Box 1.

Organizations must also gather figures for “other compensation.” This category includes payments and benefits that are not part of the standard W-2 or 1099-NEC reportable amounts. Examples include severance payments, certain deferred compensation amounts, and the value of taxable fringe benefits. These amounts are reported separately on the form and contribute to the total compensation picture.

The compensation figures must be reported for the calendar year that ends with or within the organization’s tax year. This means a nonprofit with a fiscal year ending on June 30, 2025, would use the compensation data from the employee’s 2024 Form W-2. This timing rule requires organizations with fiscal year-ends to align with the IRS’s calendar-year reporting requirement.

Completing Form 990 Part VII and Schedule J

After gathering all necessary data, the information is entered onto Form 990. The primary location for this disclosure is Part VII, Section A. This section is a table where the organization must list the individual’s name in Column (A), their average hours per week in Column (B), and their position in Column (C), checking the box for “Key employee.”

The financial data is entered into the subsequent columns. Column (D) is for the reportable compensation from the filing organization, and Column (E) is for reportable compensation from related organizations. Column (F) is used to report the estimated amount of other compensation from the organization and related entities. It is important to enter “-0-” in these columns if no compensation was paid, rather than leaving them blank.

The completion of Part VII can trigger a requirement to file Schedule J, “Compensation Information.” An organization must complete Schedule J if any individual listed in Part VII has a sum of reportable and other compensation greater than $150,000. By definition, all key employees meet this criterion and must be listed on Schedule J.

Schedule J requires a more detailed breakdown of the compensation figures reported in Part VII. In Part II of Schedule J, the organization must separate the reportable compensation into sub-columns for base compensation, bonus and incentive compensation, and other reportable compensation. It also requires separate reporting for retirement and other deferred compensation and the value of nontaxable benefits.