Nonprofits may not pay Federal income tax, but they are often subject to payroll, sales, and other taxes at the state and city levels. For this article, we will be looking at payroll taxes that nonprofits may still be required to pay for having employees.
Nonprofits are subject to all the same employee taxes businesses are taxed on. Employee earnings are still subject to FICA and Medicare taxes while the nonprofit business is still subject to FUTA in addition to the FICA and Medicare taxes. Nonprofits must withhold the right amounts from their employee’s gross pay for the taxes related to payroll.
Generally the same rules and amounts for payroll tax withholdings apply to employees of nonprofits. Of course there are some exceptions. For example:
- Employees of nonprofits paid less than $100 in a year.
- Churches or church-controlled organizations opposed, for religious reasons, to paying into social security taxes AND has filed their Form 8274 for the exemption. Employees of organizations like these must file their taxes as if they were a self-employed individual, which would mean getting “double taxation” for both the employee and employer share of payroll taxes.
Special rules may apply for ministers and members of religious sects. Certain recognized sects and members of religious orders that take up vows of poverty can claim an exemption from self-employment taxes for their earnings, such as allowances they may have or personal donations received. To apply for the exemption, file IRS Form 4361.
Hopefully this was a bit of a useful ‘good to know’ piece about how nonprofits still must handle payroll taxes. If you are interested in learning more details surrounding employee taxes, I recommend viewing our article series on employee payroll taxes: Part 1, Part 2, & Part 3. We post articles like this and other pieces regularly for our readers and clients. Follow us on our social media pages for future updates and new topics!
Employee taxes are just one aspect a business owner handles while running a business. Having a trusted supporting team to help with the nuances of payroll and the taxes that follow it lightens the load and can allow an owner to focus on growing the business. That is where we can come in and help. MiklosCPA is an accounting and tax advisory firm that has helped businesses with their taxation and accounting needs. If you would like to know more about our services, contact us!