Advanced Compensation Reporting on Form 990: What You Need to Know About Schedule J

Anyone can look up your nonprofit’s Form 990 in about 30 seconds. Donors do it before writing checks. Journalists do it when researching stories. And the IRS does it when deciding which organizations deserve closer attention. While Part VII of Form 990 gives a snapshot of what your top people earn, Schedule J tells the full story. If your organization meets certain thresholds, this schedule becomes mandatory, and getting it wrong can create problems that extend far beyond a rejected return.

When Schedule J Becomes Required

Schedule J is triggered when your organization answers yes to Part IV, line 23 of Form 990. According to the IRS filing requirements for Schedule J, this happens in one of three situations. 

1. Your nonprofit must complete Schedule J if it lists any former officer, director, trustee, key employee, or highest compensated employees in Part VII.
2. It also becomes required when the combined reportable compensation and other compensation paid to any individual listed in Part VII exceeds $150,000 from both your organization and related entities. 
3. The third trigger involves participation in arrangements where an unrelated organization paid compensation to your leadership for services provided to your nonprofit.

These thresholds catch more organizations than you might expect. Nonprofit executive salaries have been climbing steadily over recent years, and many mid-sized organizations now have at least one person crossing that $150,000 mark when you factor in benefits and retirement contributions.

Who Gets Listed and What Gets Reported

The individuals requiring disclosure on Schedule J fall into specific categories with different reporting thresholds. All current officers, directors and trustees appear on Part VII regardless of whether they receive any payment. Key employees are those earning more than $150,000 who also meet something called the responsibility test. This test looks at whether someone has significant influence over the organization, manages a department representing at least 10% of activities or assets, or controls a meaningful portion of the budget.

Your five highest compensated employees earning over $100,000 also require listing if they do not already appear as officers or key employees. Former officers and key employees from the past five years get reported if they received more than $100,000 during your tax year. Former directors and trustees have a lower threshold of just $10,000.

One detail trips up many organizations: you must include compensation from related entities when calculating these thresholds. Parent organizations, subsidiaries and affiliates all count toward the total.

Understanding Part I and Part II

Schedule J has two main components that serve different purposes. Part I asks yes-or-no questions about your compensation practices. Did you provide first-class travel to anyone listed on Part VII? Housing allowances? Club memberships? If so, did you follow a written policy for these benefits? The IRS also wants to know how you established your CEO’s compensation. Did you use a compensation committee? Independent consultants? Data from similar organizations?

Part II requires a detailed breakdown for each person required to be reported on Schedule J (generally, certain former leaders and certain current top-paid leaders). You will list base compensation, bonuses and incentive payments, other reportable compensation, retirement and deferred compensation and nontaxable benefits. Each individual gets two rows: one for payments from your organization and another for payments from related organizations. The totals in Part II must match what you reported in Part VII, which serves as a built-in accuracy check.

The Rebuttable Presumption Safe Harbor

One of the most valuable protections available to nonprofits is the rebuttable presumption of reasonableness under IRC Section 4958. The IRS rebuttable presumption guidance explains that meeting these three requirements creates a presumption that your compensation is reasonable:

1. An authorized body without conflicts of interest must approve the compensation arrangement in advance. This typically means your board or a board-appointed committee where paid executives and their family members do not vote.
2. That body must obtain and rely upon appropriate comparability data before deciding. Compensation surveys and Form 990s from similar organizations both qualify.
3. The board must document its decision at the time it is made, including the data reviewed and the rationale for the final amount.

When you satisfy all three requirements, the burden shifts to the IRS to prove your compensation was excessive. Without this protection, your executives face potential excise taxes of 25% on any excess benefit, increasing to 200% if uncorrected. Board members who knowingly approve excessive arrangements can also face a personal excise tax of up to $20,000 per transaction.

Avoid Common Mistakes

One common reason Forms 990 get rejected or delayed is missing required schedules or incomplete answers. Before filing, confirm that Schedule J is attached if required and that every section is complete. Blank spaces invite questions.

Classification errors are common, especially when benefits, bonuses, and retirement contributions are mixed together. The goal is to report each type of pay consistently so the totals tie out across the form

Timing matters as well. Your Form 990 is due by the 15th day of the fifth month after your fiscal year ends. Missing three consecutive filings results in automatic revocation of tax-exempt status, and reinstatement requires a new application and potentially back taxes.

Get Expert Help With Your Form 990

Accurate Schedule J reporting protects your organization’s reputation and keeps you in good standing with the IRS. At James Moore, our team has spent decades helping nonprofits handle Form 990 preparation and compensation governance. Contact a James Moore professional to discuss how we can support your compliance needs.

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