Nonprofit companies are often provided with a large array of tax benefits. However, even with their tax-exempt status, it is important to understand that nonprofit employees are subject to payroll taxes. Failing to calculate payroll taxes for employees at a nonprofit could land the organization in serious trouble with the IRS and other tax agencies. If you need legal assistance to file payroll taxes for your nonprofit in California, you should consult with an experienced Sacramento tax lawyer for nonprofits. The Newpoint Law Group is here to help you resolve tax issues that may arise for your nonprofit. We understand that it can be difficult to operate a nonprofit and remain compliant with tax laws, and we are here to offer you the legal representation your organization needs. Our firm is here to discuss a nonprofit organization’s tax liabilities for payroll taxes in California.
Calculating Payroll Taxes for Nonprofits in California
Nonprofits are charitable organizations that are provided with a number of tax benefits. Not only do nonprofit organizations enjoy tax exemptions, but they also receive other tax deductions that are unavailable to other organizations. However, nonprofit organizations do not receive the complete tax exemption. These organizations are still subject to payroll taxes.
A nonprofit organization that employs paid workers is required to submit payroll taxes for those workers. To employ paid workers at a nonprofit, the company must apply for an employee identification number (EIN). An EIN is a unique number assigned to a company by the Internal Revenue Service and used for the purpose of tracking payment of payroll taxes and a variety of other tax obligations.
After hiring a paid worker, a nonprofit organization must be sure to withhold the following taxes:
- Federal Income Tax Withholding (FITW)
- Social Security and Medicare Taxes (FICA)
- Federal Unemployment Taxes (FUTA)
Federal Income Tax Withholding
Federal income tax withholding is federal income tax taken directly from the employee’s paycheck. The amount of federal income taxes paid to the IRS are determined by two factors:
- The amount of money the employee earns
- The information the employee provides to the employer on their W-4
Social Security and Medicare Taxes
The Federal Insurance Contributions Act (FICA), also known as Social Security and Medicare taxes, are a large part of payroll taxes. Specifically, when calculating payroll taxes for FICA taxes, they will make up roughly 13% of an employee’s compensation.
Federal Unemployment Taxes
The federal unemployment tax is a form of payroll tax for employee wages. Specifically, there is a 6% tax on the first $7,000 earned by an employee. After the first $7,000, the employee’s earnings are not taxed. If a company employs one employee that works at least 20 weeks out of the year or has paid employees a minimum of $1,500 in a quarter, the employer is responsible for paying FUTA taxes.
To learn more about tax liability for payroll taxes, you should continue reading and speak with an experienced California tax lawyer as soon as possible.
When is a Nonprofit Responsible for Payroll Taxes?
The operators of a nonprofit organization should only be concerned about payroll taxes if they are a responsible person, which typically means that you play some role in how the nonprofit is governed. For example, if you are a director of the company or you sign the checks that are distributed to employees, you would be considered a responsible person for payroll tax purposes.
It is important to note that even employees that are not paid can be considered a responsible party for payroll taxes. For example, if you are a volunteer that manages the payroll for a nonprofit organization, you will be held legally liable for errors in the accounting of payroll taxes.
Payroll Tax Audits
If a nonprofit fails to properly manage their payroll taxes, they could be subject to a payroll tax audit. One of the most common causes of a payroll tax audit is that a nonprofit or other organization failed to implement a department that handles compliance with tax laws. While it can be difficult to keep track of tax obligations, it is a vital part of any business to avoid the possibility of a surprise tax bill or audit.
If your nonprofit does not have a compliance department, our firm would be happy to work with you to ensure that your tax obligations are met. Our team of skilled tax attorneys can help you handle the following payroll tax issues:
- Calculating payroll tax for cash dealings
- Organizing paper transactions to make it easier to file taxes
- Fixing errors in reporting that may have triggered an audit
We understand the stress of remaining compliant with complex tax regulations, and we are here to offer you the legal representation that your nonprofit deserves. You do not have to handle your payroll tax issues alone. Let our firm work for you.
Work with Our Skilled California Payroll Tax Lawyers Today
If your nonprofit organization is having trouble with calculating payroll taxes, you should contact an experienced Roseville tax attorney as soon as possible. The legal team at the NewPoint Law Group, LLP possesses years of experience handling complex tax issues for nonprofits, and we would be pleased to work with you. To schedule a confidential legal consultation to discuss your tax situation, contact the NewPoint Law Group, LLP at 800-358-0305. You may also contact the firm online to schedule your appointment.