Compensation reporting on Form 990: Part VII and Schedule J

Compensation is the part of the Form 990 that readers look at first. Because the return is public, donors, journalists, grantmakers and board members can turn straight to Part VII to see who is paid what. The IRS reads it too, because paying an insider more than the services are worth is one of the main ways an exempt organization can lose its exemption or trigger penalty taxes. Getting it right means knowing who to list, which numbers to use and what process the board should follow before it sets pay.

Who goes in Part VII

Every organization that files the full Form 990 completes Part VII. Section A lists people connected to the organization, ordered from highest to lowest total compensation:

The thresholds are measured using compensation from the organization and its related organizations.

Officers include anyone elected or appointed to manage daily operations, and always include the top management official (such as the executive director or CEO) and the top financial official (such as the treasurer or CFO), whatever their titles.

A key employee is an employee, other than an officer, director or trustee, who passes three tests in order: reportable compensation over $150,000; responsibilities similar to an officer's, or management of or control over 10% or more of the organization's activities, assets, income, expenses, budget or compensation; and being among the top 20 such employees by pay.

Section B lists the five highest compensated independent contractors that received more than $100,000 for services, along with the number of other contractors over $100,000. Contractors can be firms as well as individuals: law and accounting firms, management companies, professional fundraisers, investment managers. Section B doesn't include pay from related organizations.

990-EZ filers list officers, directors, trustees and key employees in Part IV. A 501(c)(3) filing the 990-EZ also lists its five highest compensated employees over $100,000 and its five highest compensated contractors over $100,000 in Part VI.

Reportable compensation vs other compensation

Reportable compensation (column D, and column E for related organizations) generally means:

• Form W-2: the greater of box 1 (wages) or box 5 (Medicare wages)
• Form 1099-NEC: box 1
• Form 1099-MISC: box 6

Use the amounts for the calendar year ending with or within your tax year. A fiscal-year organization with a June 30, 2026 year end reports calendar 2025 compensation. That is why Part VII rarely matches the salary expense in Part IX exactly.

Other compensation (column F) covers what isn't on a W-2 or 1099: employer contributions to retirement plans, the value of health benefits, nonqualified deferred compensation and certain taxable and nontaxable fringe benefits. You may leave out any single item worth less than $10,000 for the year, except retirement plan contributions, health benefits and a few other deferred compensation items, which are reported at any amount.

Related organizations

Pay from related organizations, such as a parent, a subsidiary, a brother-sister organization or a supporting or supported organization, is reported in column E. You may leave out a related organization that paid a person less than $10,000 for the year (except amounts paid to a former director or trustee for service as a director or trustee). Schedule R defines which organizations are related.

When Schedule J is required

Answer "Yes" on Form 990, Part IV, line 23, and complete Schedule J if:

• you listed any former officer, director, trustee, key employee or highest compensated employee in Part VII,
• anyone listed in Part VII received more than $150,000 of reportable and other compensation combined, or
• you know that someone listed was paid by an unrelated organization for services to your organization.

Part II of Schedule J breaks each person's pay into base salary, bonus, other reportable pay, retirement and deferred compensation, and nontaxable benefits. Part I asks about compensation practices: first-class travel, housing, gross-ups for taxes, how the board approved the top executive's pay, and severance or change-of-control payments. Lines 5 through 9 apply only to 501(c)(3), 501(c)(4) and 501(c)(29) organizations. The $10,000 exceptions used in Part VII don't apply in Schedule J, Part II.

Reasonable pay and the rebuttable presumption

Exempt organizations may pay fair compensation. What they can't do is pay an insider more than the value of the services. The rebuttable presumption of reasonableness is the process the IRS rewards. Compensation is presumed reasonable if:

1. it is approved in advance by the board or an authorized committee made up of people without a conflict of interest in the arrangement,
2. the board obtained and relied on comparability data, such as pay at similar organizations for similar positions, and
3. the board documented its decision at the time: the terms and date, who was present and voted, the data relied on, and how any conflicted member was handled, recorded before the later of its next meeting or 60 days after the decision.

Organizations with gross receipts under $1 million have a safe harbor for step 2: data on pay at three comparable organizations in the same or similar communities is enough. If these steps are followed, the IRS can challenge the pay only with evidence that overcomes the comparability data. Form 990, Part VI, line 15 asks whether you used such a process for your top executive and other officers and key employees, and our guide to governance policies covers the related questions.

Excess benefit transactions

When a 501(c)(3) public charity, 501(c)(4) or 501(c)(29) organization provides an economic benefit to a disqualified person (generally someone in a position to exercise substantial influence, their family members and their businesses) that is worth more than what the organization receives, the difference is an excess benefit. Under section 4958, often called intermediate sanctions:

• The disqualified person owes a tax of 25% of the excess benefit, and must repay it with interest.
• If the transaction isn't corrected in time, an additional tax of 200% applies.
• An organization manager who knowingly approved it may owe 10% of the excess benefit, up to $20,000 per transaction.

Excess benefit transactions are reported on Schedule L, Part I, and the taxes on Form 4720. Serious or repeated cases can also cost the organization its exemption.

The 21% tax on pay over $1 million (section 4960)

Section 4960 imposes an excise tax, paid by the employer, equal to the corporate tax rate under section 11, currently 21%, on:

• remuneration over $1,000,000 paid to a covered employee for the year, and
• any excess parachute payment to a covered employee.

Remuneration from related organizations counts toward the $1 million. Pay to licensed medical professionals for medical or veterinary services is excluded. The $1 million threshold is set in the statute and isn't adjusted for inflation.

Who is a covered employee has changed. Until now, covered employees were an organization's five highest compensated employees for the year, plus anyone who had been a covered employee in a year beginning after 2016. Public Law 119-21, enacted July 4, 2025, broadened the definition to any employee or former employee (who was an employee in a tax year beginning after December 31, 2016). The change applies to tax years beginning after December 31, 2025, so for most organizations it starts with the 2026 tax year.

The tax is reported on Form 4720, Schedule N, and Form 990, Part V, line 15 asks whether the organization is subject to it. For example, $1,150,000 of remuneration to one covered employee means a tax of 21% × $150,000 = $31,500.

990IRS.com is a private company, not the IRS. This page is general information, not legal or tax advice for your organization. Example organizations and figures are hypothetical.