Nonprofits have some unique situations when addressing payroll and payroll taxes for their employees. Here we cover many of the common payroll situations for nonprofit payrolls.
Nonprofit Payroll: Employee Data
There are many state and federal laws and regulations regarding employee records that can be confusing and sometimes contradictory. What personnel files should you keep to be safe? The following items, if you actually have them, should (and should) be kept in the employee’s personnel files. For audit and IRS purposes, we recommend keeping them for at least seven full years.
- Employee application
- Reference and background checks
- Job offer
- Job description
- IRS Form W4
- State W4 equivalent
- HLS form I9
- Employee benefits application or rejection forms
- Annual Performance Reviews
- Interim evaluations or forms of discipline
- exit call
Additional possible forms to save
Copies of employee statements regarding nonresident alien status, residency in Puerto Rico or the Virgin Islands, or residency or physical presence in a foreign country
Any agreement between you and the employee on Form W-4 for voluntary withholding of additional tax amounts
Requests from employees to have withholding tax calculated based on their individual cumulative wages and any notice that such request has been withdrawn
IRS Form W-5, Prepayment Certificate for Earned Income and the amounts and dates of the advance payments
Nonprofit Payroll: Payroll Pay Records
The name, address and social security number of each employee
The total amount and date of each wage payment and the period of the payment
The withholding amounts per wage payment
The amount of withholding tax collected on each payment and the date of collection
The reason, if the taxable amount is less than the total payment
The fair market value and date of each payment of non-cash fees
Information on the amount of each payment for accident or health plans
The dates in each calendar quarter that an employee has worked for you, but not in the course of your profession or business, and the amount paid for that work, if necessary to calculate the tax liability
Copies of statements that employees give you about reporting tips they have received on the job, unless the information on the statements is in another item on this list
Non-Profit Payroll: Employees
Officers and Directors
The Internal Revenue Code defines a company’s officers — president, vice president, secretary, and treasurer — as employees, and your 501(c)(3) must classify them as such for tax purposes. This applies if your organization pays these officers to perform their duties as officers.
A 501(c)(3) may not classify a company official as an employee if he or she performs no services, or performs only minor services and is not receiving or entitled to compensation.
In contrast, the Code defines a company’s directors—that is, members of the board of directors—as non-employees, and your 501(c)(3) must classify them as such for tax purposes. This applies if your organization pays its directors to attend board meetings or otherwise remunerates them for performing their duties as directors.
volunteers
From time to time, some 501(c)(3)s may give awards or gifts to volunteers. In general, if these are non-monetary items of face value, such as a holiday ham, your organization should not count these items as taxable wages.
If your 501(c)(3) gives volunteers cash items, such as gift cards or other taxable fringe benefits, those items must be included in the volunteer’s taxable pay.
Staff members
If a person is not an officer, director or volunteer and you compensate them for the work done and they are not an independent contractor, then they are an employee. Like other employers, 501(c)(3)s who pay wages to employees must pay federal employment taxes on those wages. These taxes include:
- Federal Income Tax
- FICA Taxes (Social Security and Medicare)
Nonprofit Payroll: Federal Withholding Tax
Your 501(c)(3) must generally (except for statutory employees) withhold and pay federal income tax on its employees’ wages.
To find out how much federal income tax to withhold, employers must ask employees to complete IRS Form W-4, Employee Tax Withholding Certificate. Ask every new employee to complete and sign a W-4 on their first day of work. Keep the form on file and send a copy to the IRS if instructed by the IRS in writing.
If a new employee fails to provide a completed Form W-4, your 501(c)(3) must assume sole status with no withholding fees.
Nonprofit Payroll: FICA Taxes
FICA taxes go to Social Security and Medicare. Your 501(c)(3) must withhold and pay these taxes from the employees’ wages, with one exception: If your organization pays an employee less than $100 in a calendar year, it does not have to file FICA taxes on that employee. to keep. A 501(c)(3) must pay both the amount of FICA tax withheld from the employees’ wages and the organization’s match to that amount.
Nonprofit Payroll: Federal Unemployment Taxes
The following is a direct quote from the IRS 940 instructions available at the following link:
http://www.irs.gov/instructions/i940/ch01.html#d0e251
“Religious, educational, scientific, charitable and other organizations described in Section 501(c)(3) and exempt from tax under Section 501(a) are not subject to FUTA tax and are not required to file Form 940. “
The bottom line is that if you’re a 501(c)(3) and you received your favorable determination letter from the IRS, you don’t have to pay federal unemployment tax.
Nonprofit Payroll: State Unemployment Taxes
States differ when it comes to unemployment taxes on nonprofits, and you should check with your state unemployment insurance department for the rules in the states where you have employees.
Nonprofit Payroll: Paying Federal Income and FICA Taxes
Your 501(c)(3) must pay withheld income tax along with both the employer and employee portion of FICA taxes (minus any advances on earned income [EIC] payments). These payments must be made electronically using the Electronic Federal Tax Payment System (EFTPS) or by mailing or delivering a check, money order or cash to an authorized custodian. Please note that some taxpayers are required to deposit exclusively with EFTPS. Contact a qualified nonprofit payroll tax professional for more information.
Nonprofit Payroll: Reporting Payroll Taxes
Once your 501(c)(3) has filed federal income and FICA taxes, it must file returns stating that they withheld and paid them. Just as the 501(c)(3) pays federal income and FICA taxes together, it must be reported together on IRS Form 941Employers Quarterly Federal Tax Return. They must also be reported annually on IRS Form W2, a copy of which is also distributed to your employees
Non-profit payroll: conclusion
There are many similarities between Non-Profit Payroll and For Profit Payrolls, but there are several differences that are not all discussed here. We always recommend that you engage a qualified payroll outsourcing company with staff CPAs. That way, your questions can be professionally answered and any issues resolved by a CPA who is ideally qualified through education and experience to work with the IRS on payroll tax issues.
Recommended
- Fraud referral car insurance Auto insurance scams can take many different forms and all of them can cost you a lot of money. All policyholders end up paying a lot of money for overpriced or improper payments related to an insurance claim. This means that you end up spending a lot of money to…
- Group term life insurance policy to get a better family… One of the main things that most people looking for a life insurance policy think is really vital is price lines and future financial obligations. While rates on policies and the type of financial obligations, such as how many dependents someone has and any mortgages, etc., the policyholder may want…
- 7 jobs that offer a company car Having access to a company car is a great 'benefit' of a job and can be used part-time or full-time depending on the position one holds. Some of the jobs that a commercial vehicle offers include:1. Many upper management positions, especially executive management positions, involve the use of a company…
- Use class codes 0042 and 9102 Workers' compensation insurance in Florida and about 40 other states uses a classification code system designed by the National Council on Compensation Insurance (NCCI) to rate insurance premiums differently for groups of workers. There are about 600 class codes and the two main codes used for landscape architecture workers are…
- How to claim compensation for accidents at work? The worst thing that can happen to a worker in the industry is an accident. When an accident happens, the first thing the employee should do is to claim compensation for occupational accidents. To start the process, the employee must inform the employer about the accident and also about the…
- Farm Safety - Worker Compensation Laws Workers' compensation laws are designed to provide some measure of financial protection or relief in the event that an employee of a company is injured on the job, regardless of whose fault the injury or death is. These laws have been introduced over time as part of measures to help…
- Is GPS vehicle tracking equivalent to 'Big Brother?' When people ask about my company, I say, "My company offers GPS vehicle tracking." Their response lets me know if they are an employee or a business owner.The first words out of an employee's mouth are, "Sounds like 'Big Brother' to me." Oh no, not 'Big Brother!' Visions of mind-controlled…
- Health and safety risk assessment - the responsibility of… Whether you're in a managerial position in a multi-million pound business or your own small business with just a handful of staff, health and safety should be high on your agenda, and not just because of legal obligations.That machine guard on the big bandsaw, which has been rattling for three…
- Outsourcing medical billing Medical treatment has changed significantly in recent years. It creates a lot of administrative problems when drawing up insurance policy procedures and dealing with complicated claim forms. To avoid these complexities, doctors seek outside help and hire representatives to advise them, attend insurance company seminars, and provide them with regular…
- Business Liability Insurance: A Summary of Business… No matter what industry a company operates in, there is always the possibility of being held accountable for some kind of incident - especially in this sue-crazy society. You never know what kind of claim your company may face, whether it be alleged negligence or misconduct. Depending on where you…
- Workers Comp: Lyme disease and other insect risks for the… If you work in an office environment, there is a good chance that you will not get a bee bite, snake bite or tick bite in the workplace. On the other hand, the construction workers work outdoors. In addition to the fresh air, the sun, and other benefits, come the…
- Employee purchase plans: empowering employees Employee purchase plans are a great new trend in employee benefits.Just like everyone else, employees need things for their lives outside of work. This includes: typical appliances (washer/dryer, dishwasher, refrigerator, etc...), computers (laptops, desktops, etc...) and other household items. Often employees do not have the necessary cash flow to purchase…
- Why commercial general liability insurance has been so… What is Business Liability Insurance?General liability insurance protects businesses and their owners against "general" claims involving bodily injury, property damage, and lawsuits related to both. It is the first policy usually purchased by small business owners as it is often required when signing customer contracts and commercial leases. The general…
- Difference Between Employers Liability Insurance (ELI) and… Employers Liability Insurance (ELI) and Workers Compensation Insurance (WCI) are two important insurance policies to protect the interests of both employees and employers. However, there are certain differences between the two. Because of these differences, this can lead to unlawful lawsuits and thus to concern for the parties involved. The…
- Dental Cost Trends for Employers - Dental Benefits - Past,… In today's competitive marketplace, most companies want to provide comprehensive dental care to current and potential employees. “Dental plans rank third in top employee benefits, just after health and retirement.”18 According to Cathy Smithwick, head of dental practice at Mercer Consulting, dental coverage is the “visible benefit because an average…
- Healthcare workforce planning The WHO defines HRH (Human resource for health) planning as "the process of estimating the number of individuals and the types of knowledge, skills and attitudes they need to achieve predetermined health goals and ultimately health goals". HR planning is a dynamic process, consists of 3 phases; inventory, forecasting and…
- Favorable Choices Commercial Insurance Clovis gives an… Commercial insurance is important for business entrepreneurs, regardless of the size of their business. In addition to completeness, the Business Insurance that Clovis provides must also have sufficient flexibility. You may have an overwhelming number of options when considering insurance for your business. Before starting a business, the entrepreneur writes…
- Understand the safety conditions - Lost Time Injury Lost Time Injury (LTI) is a work-related injury or illness that results in an individual being unable to work on a next scheduled workday or shift.Example: An employee is injured on the job on Wednesday. He would work regular hours on Thursdays and Fridays and overtime on Saturdays. He was…
- Commercial auto insurance, what it is What does this form of car insurance do? This form of auto insurance is created to protect companies or businesses in the event of an accident, theft, injury or damage to the company vehicles. This also includes coverage for business employees who drive the vehicles or hire vehicles used for…
- Texas Small Business Health Insurance Fundamentals Finding the right group health plan for your business can be downright intimidating: digging through lists of insurance companies and plans; checking and rechecking the dollars and totals for deductibles and co-pays; understand plan limitations and exclusions; deciphering the insurance language from a dictionary. It's enough to make anyone feel…