Nonprofit organizations benefit the communities and people they serve. Many kinds of nonprofits exist to support numerous causes, from building homes for veterans to organizing comic book conventions for fans. Nonprofits also hold the advantage of exemption from federal income tax. However, to reap this benefit, nonprofit organizations must apply with the IRS in order to properly qualify as a 501c nonprofit corporation.
The kind of nonprofit you intend to establish will determine what form you will need to use to submit tot he IRS:
Form 1023 – Charities & service organizations like churches and hospitals
Form 1024 – ‘Professional Groups’ like trusts, business networks, and social organizations like fraternities
Copies of documents, like Employer Identification Number (EIN), organization charter, mission statement, and financial data must be attached with your application. The IRS may reject the initial application if any information is not properly presented or is missing. They may send the application back or may issue a letter requesting additional information.
After their processing and review, the IRS will issue a letter to you determining if your organization qualifies as a tax-exempt non-profit.
Employment tax returns for exempt organizations
Nonprofit organizations may be exempt from federal income tax, but they may still need to pay employment taxes, (e.g. FICA, FUTA) unless the employer may be specifically exempt by law from those taxes. For example, ministers are generally exempt from FICA and FUTA taxes. Qualified church-controlled organizations can file for an exemption from FICA taxes with form 8274. Under this exemption, all employee’s individual taxes will have to be reported in the same manner as a self-employment tax. For example:
A minister establishes a small church that serves the San Gabriel Valley area. In order to help with managing day-to-day operations, he has to hire an office manager and an assistant. One of the tenets of that church’s faith vehemently disagrees with the end results of Social Security. While the minister himself is exempt from FICA and FUTA taxes automatically by law, his staff is still subject to FICA taxes. The office manager submits form 8274 to the IRS to have the staff of this church exempt from FICA taxes. They will now need to report their earnings as if it were self-employment earnings.
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