Exempt from FUTA

Today TaxMama hears from Jean in New Jersey, who asks “Does a non-profit organization have to pay into unemployment compensation.”

Hi Jean

The answer to this is quite interesting and surprising.

Here’s what I learned. In general, unless the employee is a minister, if the employee earns $100 or more per year, the non-profit is responsible for proper withholding and payment of FICA (Social Security) and Medicare taxes – but not for FUTA – the federal unemployment taxes.

And this doesn’t seem to be optional. Here’s what IRS says:

Federal unemployment tax. An organization that is exempt from federal income tax under section 501©(3) of the Internal Revenue Code is also exempt from the federal unemployment (FUTA) tax. This exemption cannot be waived.

You’ll find more information here:
http://www.irs.gov/publications/p15a/ar02.html#d0e910

This is such a small cost to the employer – it tops out at $56 per employee, per year – that I don’t understand why this law is on the books. It’s very unfair to the employees.

If you’re working for such an entity, you may want to find out if they have any unemployment insurance of their own to protect you if they ever let you go.

And remember, you can find answers to all kinds of questions about employment taxes and all kinds of other tax issues, free. Where? Where else? At TaxMama.com

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