Schedule J of the Form 990 expands on Part VII, Section A of the main part of the form and gives more detailed compensation information for certain officers, directors, trustees, key employees, and highly compensated employees. There are 3 situations that can trigger Schedule J reporting for one or more of the individuals listed in the table in in Part VII, Section A, line 1a:

  • If he/she is a former officer, director, etc.
  • If he/she had more than $150,000 of reportable compensation from your organization and related organizations
  • If he/she received or accrued compensation from an unrelated organization or individual, for services rendered to your organization

In Part I of Schedule J, answer questions based on all officers, directors, trustees, and employees listed on Form 990 Part VII, line 1a (“listed persons”), even if you didn’t answer yes to Part IV, line 23 for all of those listed. However, you don’t need to fill out Part I unless you would otherwise be required to fill out Schedule J. Fill out Part II for those individuals who were described in the bullet points above. Not all people listed in Form 990, Part VII, Section A will necessarily be reported on in Schedule J, Part II. Use Part III to provide more information as required in Part I and II. Unless a question states otherwise, answer questions based on the calendar year ending with or within the tax year you’re reporting on your Form 990.

Part I, line 1a asks if you provided certain benefits to any listed persons. Check off all that apply, whether or not they were reported on a W-2 or 1099, and explain in Part III the type of benefit, the person or group (e.g. all directors) who received the benefit, the number of listed persons who received it, and whether it was listed as taxable compensation to the listed person(s). If you checked any of the benefits in line 1a, answer on line 1b whether you had a written policy for payment or reimbursement of the related expenses. If you did not have a written policy, explain in Part III who determined your organization would offer these benefits and what the decision-making process was.

Answer yes on Line 2 if you provided any of the benefits on line 1a, and required all expenses to be substantiated in accordance with an accountable reimbursement plan.

If you or a related organization provided the benefits in line 4a-c, detail in Part III the names of listed persons who participated, and the amounts paid to each person. Also describe the terms and conditions of the plans if any listed persons participated during the year, even if no payments were made.

Lines 5 and 6 include compensation based on the revenue or net earnings of your organization and related organizations. The revenue or net earnings involved may be for the entire organization, or one or more parts of it. Answer yes if compensation directly correlates with revenue or net earnings, e.g. a percentage of it, and describe the compensation in Part III.  However, if the compensation was a flat dollar amount if a certain target was hit, e.g. a $5,000 bonus if the department you run has revenue over $1,000,000, that would not be contingent on the revenue or net earnings, so answer no.

Non-fixed payments in line 7 are a fairly limited use, since the definition of fixed payments is broader than you might think. Fixed payments include variable amounts based on formulas, future events, or meeting certain criteria or deliverables. A payment is non-fixed if it’s based on someone’s decision whether to make the payment or how much to pay, e.g. discretionary bonuses award by the Board of Directors that may or may not be paid, or don’t have a set amount in advance.

Lines 8 and 9 refer to payments that are exempt from being excess benefit transactions. Initial contracts with persons who were not previously connected to your organization are typically exempted from the excess benefit rules. This exemption does not apply if the person with whom you contracted was a substantial donor, board member, or part of your senior management prior to entering the contract. If you answer yes on line 8, line 9 asks if you followed the rebuttable presumption procedure, like you would use for compensation policies.

Schedule J can be found here, and more detailed instructions for filling it out are provided here. I will cover Part II in a future post.