The Internal Revenue Service (IRS) required form 990 is an incredible tool for understanding the financial picture of a not-for-profit organization of any type. The reporting burden, of course, is dependent on the size and financial worth of the organization.

Small organizations, earning less than $50,000 per year in gross receipts, only need to file a 990 “postcard.” This short-form could be described as a pro-forma exercise to let the government know that the entity still exists and that it has not graduated to a higher level of reporting. The majority of tax-exempt entities that have gross receipts of $200,000 in a given year, or assets worth at least $500,000, must file a standard Form 990 on an annual basis. As with many IRS rules, there are always exceptions and a tax professional is your best source of information.

A standard form 990 contains a wealth of information and could run over 100 pages in length, depending upon the financial standing of the entity. The area of most interest to those examining executive compensation is titled Schedule J, where highly compensated leaders of the organization are reported. Understanding the source and makeup of these numbers is crucial for comparison purposes.

There are five sections of primary interest on Schedule J, Part II, labeled as Column B (I) through Column B (III), Column C, and Column D. Each column contributes to the reported total compensation. The definitions provided are taken directly from the IRS instructions.

(B-I) Base – A person’s base compensation included in box 1 or box 5 (whichever is greater) of Form W-2, box 6 of Form 1099-MISC, or box 1 of Form 1099-NEC issued to the person. Base compensation means non-discretionary payments to a person agreed upon in advance, contingent only on the payee’s performance of agreed-upon services (such as salary or fees).

(B-II) Bonus – A person’s bonus and incentive compensation included in box 1 or box 5 (whichever is greater) of Form W-2, box 6 of Form 1099-MISC, or box 1 of Form 1099-NEC issued to the person. Examples include payments based on satisfaction of a performance target (other than mere longevity of service), and payments at the beginning of a contract before services are rendered (for example, signing bonus).

(B-III) Other – Other payments issued to the listed person and included in box 1 or box 5 (whichever is greater) of Form W-2, box 6 of Form 1099-MISC, or box 1 of Form 1099-NEC but not reflected in column (B)(I) or (B)(II). Examples include, but aren’t limited to, current-year payments of amounts earned in a prior year, payments under a severance plan, payments under an arrangement providing for payments upon the change in ownership or control of the organization or similar transaction, deferred amounts, and earnings or losses in a nonqualified defined contribution plan subject to section 457(f) when they become substantially vested, and awards based on longevity of service.

(C) Deferred – All current-year deferrals of compensation for the listed person under any retirement or other deferred compensation plan, whether qualified or nonqualified, that is established, sponsored, or maintained by or for the organization or a related organization. A reasonable estimate is acceptable if actual numbers aren’t readily available.

(D) Non-Taxable – Nontaxable benefits are benefits specifically excluded from taxation under the Internal Revenue Code. Examples include, but are not limited to:

  • Value of housing provided by the employer, except to the extent such value is a working condition fringe.
  • Educational assistance.
  • Health insurance.
  • Medical reimbursement programs.
  • Life insurance.
  • Disability benefits.
  • Long-term care insurance.
  • Dependent care assistance.
  • Adoption assistance.

By understanding how these numbers are created and reported, we can better analyze the compensation policies and plans used to attract and retain executive talent.