Form 1125-E, Compensation of Officers, is the schedule a corporation attaches to Form 1120, 1120-C, 1120-F, 1120-REIT, 1120-RIC or 1120-S when its total receipts are $500,000 or more and it deducts officer pay. It lists each officer's name, SSN, share of time, stock ownership and compensation, and the net figure flows to Form 1120, page 1, line 12. Below that receipts level, you skip the form but still report the deduction on the return.
Everything below comes from the IRS Instructions for Form 1125-E (Rev. October 2018) and the form (Rev. October 2016), the current versions as of October 2026.
The $500,000 test is about total receipts, not sales
This is where corporations near the line get caught. Total receipts for Form 1125-E aren't just gross sales. The instructions build the figure from several lines of the main return:
| Return | Total receipts for Form 1125-E |
|---|---|
| Form 1120 | Page 1, line 1a, plus lines 4 through 10 |
| Form 1120-C | Page 1, line 1a, plus lines 4 through 9 |
| Form 1120-F | Section II, line 1a, plus lines 4 through 10 |
| Form 1120-S | Page 1, line 1a, plus lines 4 and 5, plus Schedule K income on lines 3a, 4, 5a and 6, net gains on lines 7, 8a, 9 and 10, and Form 8825 rental lines 2, 19 and 20a |
| Form 1120-RIC and 1120-REIT | Part I, line 8, plus net capital gain and Form 2438, line 9a |
So an S corporation with sales below $500,000 can still cross the threshold once its interest, dividends, royalties, rents and capital gains are added in. Work the figure out before you decide to leave the form off.
Column by column
| Column | What goes in it |
|---|---|
| (a) Name of officer | Every officer, as defined by the law of the state or country where the corporation is incorporated |
| (b) Social security number | The full SSN, or only the last four digits if you choose |
| (c) Percent of time devoted to business | The officer's share of working time |
| (d) and (e) Percent of stock owned | Common and preferred stock held |
| (f) Amount of compensation | Total deductible pay: salaries, commissions, bonuses, taxable fringe benefits and similar |
Lines 2 to 4: avoiding a double deduction
- Line 2 totals column (f) for every officer.
- Line 3 takes out officer pay already deducted elsewhere on the return, such as pay included in cost of goods sold on Form 1125-A, elective 401(k) deferrals, or amounts under a salary reduction SEP or SIMPLE IRA.
- Line 4 is line 2 minus line 3, and it goes on Form 1120, page 1, line 12, or the matching line of the return you file.
If the corporation claims a credit for wages, it may have to reduce the officer pay deduction under section 280C. And where officers get taxable fringe benefits such as personal use of a company car, don't deduct as wages the depreciation and other costs already claimed elsewhere on the return.
The S corporation rule about 2% shareholders
For S corporation officers, column (f) includes fringe benefits and expenditures made on behalf of officers who own more than 2% of the stock. Fringe benefits for officers owning 2% or less aren't included here, because they're reported elsewhere on the return. It's a small line in the instructions with a big effect on which figure lands on Form 1125-E.
Consolidated groups
A consolidated return has to give the officer information for each officer of the affiliated group. The common parent can file a single Form 1125-E on behalf of all members as part of the consolidated return, rather than one per company.
Limits on deducting high pay
- Publicly held corporations can't deduct pay to a covered employee above $1 million a year. Covered employees include the principal executive and financial officers, the three highest paid other officers reported to shareholders, and anyone who was a covered employee for a year beginning after 31 December 2016.
- The $1 million limit is reduced by any excess parachute payments disallowed under section 280G.
- Golden parachute payments to key people on a change of control may not be deductible above their usual pay.
- For companies that received TARP assistance, the limit drops to $500,000 for covered executives while the obligations remain outstanding.
These figures are as of October 2026 and come from the October 2018 instructions, which were written after the 2017 tax law changed the definition of a covered employee. The IRS posts any later legislation at IRS.gov/Form1125E, so check there for anything newer.
Common slips on Form 1125-E
- Leaving the form off because sales alone are below $500,000.
- Counting the same officer pay twice, once in cost of goods sold and again on line 12.
- Missing an officer because the corporation used job titles rather than state law to decide who's an officer.
- Putting 2%-or-less S corporation shareholders' fringe benefits in column (f).
The verdict
Form 1125-E is short, but the threshold is wider than it looks. Add up total receipts the way the instructions define them, list every officer the state law recognizes, take out pay already sitting in cost of goods sold, and use the last four digits of SSNs if you'd rather not print the full number. For S corporations, get the 2% shareholder fringe benefits into column (f), because that's where the IRS expects to see them.
Want AI doing the heavy lifting in your marketing?
I build the systems that handle the boring 80 percent, so you get your week back. Done properly, with the human kept in.
Frequently asked questions
Who must file Form 1125-E?
A corporation filing Form 1120, 1120-C, 1120-F, 1120-REIT, 1120-RIC or 1120-S that has total receipts of $500,000 or more and deducts compensation of officers.
Where does Form 1125-E go on Form 1120?
Line 4 of Form 1125-E is entered on Form 1120, page 1, line 12, or the appropriate line of the return being filed.
Is the full SSN needed on Form 1125-E?
No. Filers may elect to give only the last four digits of each officer's social security number.
What if total receipts are under $500,000?
Form 1125-E isn't required, but the officer compensation deduction is still reported on the main return.
Does an S corporation file Form 1125-E?
Yes, if its total receipts are $500,000 or more, and it includes fringe benefits for officers owning more than 2% of the stock.
Who counts as an officer on Form 1125-E?
The corporation decides who is an officer under the laws of the state or country where it's incorporated.
What goes on line 3 of Form 1125-E?
Officer pay that's deducted elsewhere on the return, such as amounts in cost of goods sold, 401(k) elective deferrals and salary reduction SEP or SIMPLE IRA contributions.
