May is over and that's the end of your nonprofit organization's tax reporting responsibilities for the year...or is it? If you have employees, the answer is no, because you still need to file payroll tax returns. Though your nonprofit is exempt from federal income tax, most employment tax rules do apply. Here's what you need to know about four types of workers.
- Volunteers. How can you have employment tax responsibilities for volunteers? When you reward your volunteers with cash, gift certificates, or certain fringe benefits, you have effectively paid them wages. Those wages are generally taxable to the worker.
- Independent contractors. Say you hire a web designer to update your online presence. The less control your organization has over the designer's work activities, the more likely the designer is an independent contractor rather than an employee. In that case, you'd typically report your payments to the designer on Form 1099 at year-end. Note that you would need to withhold federal income tax in situations where the designer did not provide you with a correct social security number, or the IRS notifies you that the social security number the designer gave you is incorrect.
- Board of directors. As a general rule, members of your board of directors are not employees, even if you pay them to attend board meetings or perform other duties. Instead, they are independent contractors, or, if non-paid, volunteers.
- Officers. When you pay the president, vice-president, secretary, treasurer, or other officer of your nonprofit, they are considered employees. When the officers perform no services, or are not entitled to compensation, they're typically considered volunteers. One caution: If you reimburse officers for out-of-pocket expenses, make sure your organization has an accountable reimbursement plan to keep the payments from being taxable.
Contact us if you have questions about the tax status of your nonprofit's workers. We're here to help.
