How Do I Get My 5 Digit Code Site Irs.Gov Non Profit Payroll

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Non Profit Payroll

Non Profit Organizations have some unique situations in responding to payroll and payroll taxes for their employees. Here we address several common payroll situations for Non Profit Payrolls.

Non-Profit Payroll: Employee Records

There are many state and federal laws and regulations regarding employee records that can be confusing and sometimes conflicting. What employee records do you need to keep safe? The following items if you really have them (and you should) should be kept in the employee’s personnel files. We recommend for audit and IRS purposes that you keep them for at least seven full years.

  • Employee job application
  • Reference and background checks
  • Offer a job
  • Job description
  • IRS Form W4
  • State W4 equivalent
  • HLS Form I9
  • Employee benefit enrollment or deduction forms
  • Annual performance evaluation
  • Interim evaluations or disciplinary forms
  • Exit Interview

More possible forms to save

  • Copies of any statements provided by employees relating to nonresident alien status, residence in Puerto Rico or the Virgin Islands, or residence 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
  • Employees’ requests to withhold tax are estimated based on their individual accumulated wages and any notice that such a request is withdrawn.
  • IRS Form W-5, Earned Income Credit Advance Payment Certificate, and the amounts and dates of advance payments
  • Non Profit Payroll: Payroll Pay Records

  • Each employee’s name, address, and Social Security number
  • The total amount and date of each salary payment and the time period covered by the payment
  • The amounts subject to withholding for each paycheck
  • The amount of withholding tax collected on each payment and the date it was collected
  • The reason, if the tax amount is less than the total payment
  • The fair market value and date of each payment of the non-cash payment
  • Information about the amount of each payment for accident or health plans
  • The dates of each calendar quarter during which any employee worked for you, but not in the course of your trade or business, and the amount paid for that work, if necessary to determine tax liability
  • Copies of employees’ statements provide you with reporting tips received on their job, unless the information shown in the statements is contained in another item on this list.
  • Non Profit Payroll: Employees

    Officers and Directors

    The Internal Revenue Code defines the officers of a corporation–president, vice-president, secretary, and treasurer–as employees, and your 501(c)(3) must classify them as such for purposes of taxes. This applies if your organization pays these officers to perform their duties as officers.

    501(c)(3) should not classify a corporate officer as an employee if he performs no services, or performs only minor services and does not receive or is entitled to compensation.

    In contrast, the Code defines a corporation’s directors — that is, members of the governing board — as non-employees, and your 501(c)(3) must classify them as such for purposes of taxes. This applies if your organization pays its board members to attend board meetings or otherwise pays them to perform their duties as directors.

    Volunteers

    From time to time, some 501(c)(3)s may give volunteers awards, or gifts. In general, if these are non-cash items of nominal value, such as a ham on holidays, your organization should not consider these items as taxable wages.

    If your 501(c)(3) provides volunteers with cash items, such as gift certificates or any other taxable benefit, these items must be included in the volunteer’s taxable wages.

    Employees

    If someone is not an officer, director or volunteer and you pay them for work done and they are not an independent contractor, they are an employee. Like other employers, 501(c)(3)s that pay wages to employees must pay Federal Employment tax on those wages. These taxes include:

    • Federal income tax
    • FICA taxes (Social Security and Medicare)

    Non-Profit Payroll: Federal Income Tax Withholding

    Your 501(c)(3) generally (except for Statutory Employees) must withhold and pay Federal income tax from the wages of its employees.

    To find out how much Federal income tax to withhold, employers should ask employees to complete IRS Form W-4, Employee Withholding Allowance Certificate. Ask each new employee to complete and sign a W-4 on his or her first day of work. Keep the form on file, and send a copy to the IRS if the IRS directs you to do so in a written notice.

    If a new employee fails to provide a completed Form W-4, your 501(c)(3) must assume single status with no withholding allowances.

    Non-Profit Payroll: FICA Taxes

    FICA taxes go to Social Security and Medicare. Your 501(c)(3) must withhold and pay these taxes from employees’ wages, with one exception: If your organization pays an employee less than $100 in any calendar year, it does not necessarily withhold FICA taxes for that employee. A 501(c)(3) must pay the amount of FICA tax withheld from the wages of employees and the organization’s counterpart in that amount.

    Non-Profit 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 defined in section 501(c)(3) and exempt from tax under section 501(a) are not subject to the FUTA tax and are not must file Form 940.

    The reason for this is that if you are a 501(c)(3) and you receive your favorable determination letter from the IRS you do not have to pay Federal Unemployment taxes.

    Non-Profit Payroll: State Unemployment Taxes

    States vary in their unemployment taxes on non-profits and you should check with your State Unemployment Insurance Department for the rules of the State with employees.

    Non Profit Payroll: Paying Federal Income and FICA Taxes

    Your 501(c)(3) must pay withheld income taxes, along with employer and employee shares of FICA taxes (minus any advance earned income credit [EIC] payment). These fees must be paid electronically using the Electronic Federal Tax Payment System (EFTPS) or by sending or delivering a check, money order, or cash to an authorized depository. Note that some taxpayers are required to deposit using EFTPS. Check with a qualified nonprofit payroll tax professional for more information.

    Non Profit Payroll: Reporting Payroll Taxes

    Once your 501(c)(3) deposits Federal income and FICA taxes, it must submit returns reporting that it was withheld and paid. Just as the 501(c)(3) pays Federal income and FICA taxes together, they must be reported together on the IRS Form 941Employers Quarterly Federal Tax Return. They must also be reported annually on IRS Form W2, a copy of which will also be distributed to your employees

    Non-Profit Payroll: Conclusion

    There are many similarities between Non Profit Payroll and For Profit Payrolls but many differences which are not all mentioned here. We always recommend that you use a qualified payroll outsourcing company with a CPA staff. That way your questions can be answered professionally and any problems solved by a CPA who is highly qualified through training and experience working with the IRS on payroll tax problems.

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