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Q&A #94 – How is a tax gross up calculated?
Grossing up a payment to offset the taxes the employee will owe on the payment is a relatively rare practice among nonprofit organizations, but can be appropriate under certain circumstances usually involving one-time payments such as reimbursement of relocation expenses. These calculations can be confusing because when you increase a payment to cover taxes, there is also tax on that increased amount. Therefore, a formula must be used to figure out the amount that is sufficient to pay the taxes on the original (pre-gross up) amount as well as the taxes on the increased amount.
Q&A #55 – What Board members are considered independent for purposes of reviewing executive compensation?
The key guidance addressing independent review and approval of executive compensation for Form 990 purposes is set forth in Treas. Reg. § 53-4958-6. The key principle is that the persons reviewing and approving executive compensation should not be in a position to economically benefit from the compensation and should not be family members of the person receiving the compensation or otherwise have a business or employment relationship with this person.
Q&A #54 – What comparability data must a small 501(c)(3) organization review when determining executive compensation?
For small organizations, the rule for reviewing comparability data when determining compensation amounts is relatively easy to satisfy. This Form 990 question is based on Treasury Regulations issued under the “intermediate sanctions” rules. Treas. Reg. § 53-4958-6 provides that organizations with less than $1 million in annual revenue (averaged over the three prior tax years) can satisfy this standard by reviewing “data on compensation paid by three comparable organizations in the same or similar communities for similar services.”