Do 501c3 Non-Profit Organizations Pay Payroll Taxes?

Do 501c3 Non-Profit Organizations Pay Payroll Taxes?

As your 501c3 non-profit organization grows, you may need to scale operations by hiring employees – volunteers can only get the organization so far. The process of hiring employees has its own sets of challenges, but at the same time, it may also lead to complexities in nonprofit bookkeeping.

Payroll is one area where for- and nonprofit organizations have similar regulations. Nonprofits must register for employer accounts as well and withhold payroll taxes.

Once you start hiring employees, you will also need to file returns, remit taxes, and keep a clear record of all income and expenses. Nonprofit bookkeeping services usually inform their clients about this requirement before the organization starts expanding.

Understanding Payroll Taxes for Nonprofit Organizations

It is a very common misconception that nonprofits are exempt from all taxes. You can ask any nonprofit bookkeeping service near you and they will tell you the same story; while you may be exempt from several federal taxes, payroll tax still needs to be paid.

How much you owe, however, will differ from state to state. Some requirements you will need to keep in mind to ensure compliance include;

501c3 Non-Profit Payroll Tax Registration

Just like any other company, you will need to register with the IRS and get an Employer Identification Number (EIN) if you haven’t already gotten it.

501c3 Non-Profit Payroll Tax Forms

Your employees will need to complete the federal Form W-4 plus any withholding documentation specific to the state you operate in. These forms tell you, as their employer, how much tax to withhold from their wages when you are running payroll.

501c3 Non-Profit Payroll Tax Deductions

You will need to deduct the following amounts (TY 2021);

  • Medicare Tax: 1.45%
  • Social Security Tax: 6.2%
  • Federal withholding (indicated on W-4)
  • State-specific employment taxes

The amount you deduct will vary with each employee, based on special circumstances. To make sure you remain compliant, you must enlist the help of professionals. Our 501c3 nonprofit organization bookkeeping services can help you get your books in order cost-effectively and navigate your nonprofit payroll obligations. So, give Good Steward a call and get started!