Reporting Compensation on Form 990
Posted on Wednesday, March 11, 2015
There are three different places on Form 990 that organizations may be required to report compensation and most likely none of them will result in the same answer. Compensation reporting has been a key area for the IRS in recent years and can be complex. Below is a basic summary of the differences between each place compensation is required to be reported on Form 990.
Form 990, Part VII Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and Independent Contractors
Part VII should include trustees, directors and officers who served at any time during the organization’s fiscal year regardless of the amount of their compensation. There are additional individuals that also must be listed if their compensation is over a specified dollar amount – current key employees ($150,000); current five highest paid compensated employees ($100,000); former officers, key employees and highest compensated employees ($100,000); and former directors or trustees ($10,000). Columns (D) and (E) should include the amount from box 1 or 5 (whichever is greater) from the individual’s W-2 and/or box 7 from the individual’s Form 1099 for the calendar year ending within the organization’s fiscal year. For an organization with a fiscal year ending June 30, 2014, the compensation included would be from the 2013 Form W-2. Column (F) should include other compensation not recorded on Form W-2 or 1099 for the calendar year (i.e. tax deferred contributions by employer and employee to a qualified defined contribution retirement plan, value of employer provided health benefits or life insurance, etc.) paid by either the organization or a related organization. The compensation reported in Part VII may differ from the compensation reported in Part IX due to a different reporting period (calendar year versus fiscal year) and a different accounting method (cash basis versus accrual basis).
Form 990, Part IX Statement of Functional Expenses
Compensation should be reported based on the accounting method and tax year used by the organization. Therefore an organization with a fiscal year end of June 30 using the accrual basis should report compensation from July 1 – June 30 including any accruals.
Line 5 of Part IX should include total compensation paid to current trustees, directors, officers, and key employees for the organization’s tax year. Current means any individual that was a trustee, director, officer or key employee at any time during the current fiscal year. Compensation includes all forms of income and benefits received for services rendered to the organization (i.e. W-2 wages, 1099 payments, pension plan contributions and accruals and other employee benefits). Expense reimbursements are not included.
Line 6 of Part IX should include the same information as line 5 for other disqualified persons. The most common disqualified individuals are those that are in a position to exercise substantial influence over the organization and family members of those individuals or of trustees, directors, officers or key employees.
Form 990, Schedule J Compensation Information
Not all employees listed in Part VII are required to be included on Schedule J. Schedule J should only include the following individuals who received compensation from the organization and/or related organizations for the calendar year ending within the organization’s tax year – former officers, key employees, or five highest compensated employees who received more than $100,000 of compensation; former directors or trustees who received more than $10,000 of compensation; current trustees, directors, officers, key employees or five highest compensated employees who receive more than $150,000 of compensation; and current or former trustees, directors, officers, key employees or five highest compensated employees who received or accrued compensation from an unrelated organization for services to the filing organization. As in Part VII, the amounts reported in column (B) on Schedule J should be from the individual’s Form W-2 or Form 1099 for the calendar year ending within the organization’s fiscal year. Additional compensation and benefits for the calendar year not included on Form W-2 or From 1099 should be included in columns (C) and (D) on Schedule J.
In each instance noted above, the amount reported is different. Part VII includes all directors and officers salaries on the cash basis for the most recent calendar year. Part IX includes all directors and officers salaries for the fiscal year based on the organization’s method of accounting. Schedule J includes only individuals over a specified dollar amount on the cash basis for the most recent calendar year. This is why it is so important for organizations to properly track compensation and benefits.
Posted by: Carrie Minnich, CPA
Posted in Mission Minded Nonprofits
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