If you are a new employer, or new to dealing with federal employment taxes, the first place to go for information is Publication 15, Employer’s Tax Guide (Circular E). This publication, revised annually, contains basic information employers need to collect information needed to determine and pay their and employees’ employment tax liability, file correct tax returns, and withhold federal taxes.
| Form | Discussion |
| SS-4, Application for Employer Identification Number (with instructions) | See Employer Identification Numbers, for an explanation of why tax-exempt organizations need EINs, and how to obtain them. |
| W-2, Wage and Tax Statement (withinstructions) | This form must be issued to recipients of wages, and copies filed with the IRS. |
| W-3, Transmittal of Wage and Tax Statements (withinstructions) | This form is used to transmit Forms W-2 to the IRS. |
| W-4, Employee’s Withholding Allowance Certificate | This form must be furnished to each employee upon hiring, to determine correct withholding. An employee may submit a new certificate at any time. |
| W-9, Request for Taxpayer Identification Number and Certification (withinstructions) | This form is furnished to a person who receives a payment from an organization, to verify the recipient’s taxpayer identification number. |
| 941, Employer’s Quarterly Federal Tax Return (withinstructions) | This form must be filed each quarter by an employer, including an exempt organization, who pays wages during the quarter. |
| 944, Employer’s Annual Federal Tax Return (withinstructions) | This form may be filed by certain employers with small payrolls who have been notified by the IRS that they can file on an annual basis, instead of filing Form 941 quarterly. |
| 945, Annual Income Tax Withholding Return (withinstructions) | This form must be filed to report withholding on payments other than wages. Examples of such payments are pensions, annuities, and individual retirement accounts. |
| 1099-MISC, Miscellaneous Income (with instructions) | Must be filed by a payer who makes certain payments for services to recipients who are not employees. |
| 1096, Annual Summary and Transmittal of U.S. Information Returns | Used to transmit Forms 1099-MISC to the IRS. |
| I-9, Employment Eligibility Verification | Required for all newly-hired employees. This form can be obtained from U.S. Citizenship and Immigration Services. |
For more information about employer responsibilities, visit the web page for Employment Taxes for Exempt Organizations. This page includes information about employment tax exemptions and exclusions for exempt organizations.
You may also want to consult the following publications:
| Publication 4221-PC, Compliance Guide for 501(c)(3) Public Charities |
| Publication 4221-PF, Compliance Guide for 501(c)(3) Private Foundations |
| Publication 1828, Tax Guide for Churches and Religious Organizations |
| Publication 15-A, Employer’s Supplemental Tax Gide |
|
Publication 15-B, Employer’s Guide to Fringe Benefits |
If a tax-exempt organization (EO) has employees, the EO is responsible for Federal Income Tax Withholding and Social Security and Medicare taxes. In addition, some EOs are responsible for Federal Unemployment Tax.
Independent Contractors vs. Employees
Are the workers for a tax-exempt organization independent contractors or employees? Before the EO can know how to treat payments it makes for services, the EO must first know the business relationship that exists between the organization and the person performing the services.
Electronic Filing and Payment Options for Employment Tax Returns
Electronic filing and payment options are available to exempt organizations for the employment tax and information returns required if they pay workers.
An EO generally must deposit employment taxes and certain excise taxes before it files its return. If the EO does not make the deposits electronically, it should deliver deposits with completed deposit coupons to an authorized financial institution or a Federal Reserve Bank serving the EO’s area.
The basic requirements for tax and wage reporting compliance, including determining if an EIN is necessary, calculating withholding, making deposits, and keeping tax and reporting records.
Employment Taxes and the Trust Fund Recovery Penalty (TFRP)
The Trust Fund Recovery Penalty (TFRP) may be assessed against any person, including a an officer, director, employee or a member of a board of trustees of a tax-exempt organization, who is responsible for collecting or paying withheld income and employment taxes, or for paying collected excise taxes, and willfully fails to collect or pay them.
A listing of the common employment tax forms that a tax-exempt organization would need.
Two key publications on employment tax issues are Publication 15, Circular E, Employer’s Tax Guide, and Publication 15-A, Employer’s Supplemental Tax Guide. This section provides a listing of, and links to, these and other common employment tax publications that a tax-exempt organization would need.
A listing of IRS notices on employment tax issues that may be of interest to tax-exempt organizations.
Employment Tax Resources for Exempt Organizations
Employment Tax Exceptions and Exclusions for Exempt Organizations
Like other employers, exempt organizations that compensate workers are generally subject to employment taxes when the compensate workers. The following exceptions may apply, however:
- Exemption from FUTA (unemployment) tax for section 501(c)(3) organizations
- An elective exemption from FICA (Social Security and Medicare) for churches and certain church-controlled organizations
- Exemption of payments for certain services performed by ministers or members of religious orders from FICA and FUTA taxes
- Exclusion from FICA of compensation paid to students
Sources:
http://www.irs.gov/charities-non-profits/?id=128716,00.html
http://www.irs.gov/charities-non-profits/?id=172794,00.html
http://www.irs.gov/charities-non-profits/?id=123235,00.html
Additional Resources:
I Need Help to Get Started (with taxes, payroll, etc.)
Free, Online, Self-Paced Program to Completely Build/Strengthen Your Nonprofit
ABC’s for Tax-Exempt Organizations
What You Need to Know if Your Organization Plans to Apply for Tax Exemption
Return to Life Cycle of a Public Charity
Return to Life Cycle of a Private Foundation
Return to Life Cycle of a Social Welfare Organization
Return to Life Cycle of a Labor Organization
Return to Life Cycle of an Agricultural or Horticultural Organization
Return to Life Cycle of a Business League (Trade Association)
DISCLAIMER: This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here.
