Nonprofit Expert
Nonprofit Employment Taxes Toolkit
Home » Nonprofit Questions & Answers » Nonprofit Employment Taxes Toolkit

Nonprofit Employment Taxes Toolkit

If you are a new employer, or new to dealing with federal employment taxes, the first place to go for information is Publication 15Employer’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-4Application 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-2Wage and Tax Statement (withinstructions) This form must be issued to recipients of wages, and copies filed with the IRS.
W-3Transmittal of Wage and Tax Statements (withinstructions) This form is used to transmit Forms W-2 to the IRS.
W-4Employee’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-9Request 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.
941Employer’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.
944Employer’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.
945Annual 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-MISCMiscellaneous Income (with instructions) Must be filed by a payer who makes certain payments for services to recipients who are not employees.
1096Annual Summary and Transmittal of U.S. Information Returns Used to transmit Forms 1099-MISC to the IRS.
I-9Employment 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-PCCompliance Guide for 501(c)(3) Public Charities
Publication 4221-PFCompliance Guide for 501(c)(3) Private Foundations
Publication 1828Tax Guide for Churches and Religious Organizations
Publication 15-AEmployer’s Supplemental Tax Gide

Publication 15-B, Employer’s Guide to Fringe Benefits

What Are Employment Taxes?

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.

Federal Tax Deposits

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.

Employment Tax Requirements

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.

Employment Tax Forms

A listing of the common employment tax forms that a tax-exempt organization would need.

Employment Tax Publications

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.

Employment Tax Notices

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:


Additional Resources:

I Need Help to Get Started (with taxes, payroll, etc.)

Free, Online, Self-Paced Program to Completely Build/Strengthen Your Nonprofit

Getting and Using a Lawyer

ABC’s for Tax-Exempt Organizations

Financial Statements

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.