April 11, 2014
According to Nonprofit Quarterly, unpaid payroll taxes are not an uncommon problem in the nonprofit community. The article asserts budget constraints force financial managers to hold off on payroll taxes until grant monies come through. When the check arrives, more pressing obligations take precedence and taxes remain unpaid.
While maintaining cash flow can be difficult for a nonprofit, deferring tax payments is a risky way to address that issue. The IRS may appear more lenient than other creditors and these tax payments may seem less important than paying employees, however, taxes and the penalties associated with not paying them add up quickly, which can put an organization in a perilous financial hole.
"Virtually any alternative – including taking on additional debt, restructuring, downsizing, and filing for bankruptcy – is better than failing to remit withholding taxes to the government," the article stated.
Control what you can't change
Even as a tax-exempt organization, most nonprofits are not free of all financial obligations to either a local, state or the federal government. When operating on a tight budget, even small tax amounts of tax owed by a nonprofit can be a burden. While meeting payroll tax may simply require some tough decisions, other taxes come with more options.
Nonprofits are responsible for paying state unemployment insurance (SUI) tax each year. The tax is usually paid four times a year and the rate varies from year to year. This tax can be avoided by opting out of the SUI pool and becoming a reimbursing employer. Under this method, a nonprofit owes only the amount that is paid out in UI claims. The best example: if there are no UI claims, a nonprofit has no UI obligation for the year.
Opting out of SUI comes with a risk
However, if unemployment at an organization suddenly spikes, a nonprofit can find itself with a large unfunded liability. To mitigate this risk, nonprofits need to take advantage of alternative methods for meeting their obligation. An unemployment savings program or bonded service program are two ways that nonprofits can save on UI tax costs while providing a safety net if claims suddenly jump. Unlike SUI tax pools, nonprofits can make these payments quarterly and know what the amount is upfront.
The ability to properly budget for the cost of UI helps ensure that the costs are not pushed down the road while waiting for grant funding or other revenue. Maintaining more control over the cost of UI will free up funds and budget space to help prepare for other obligations such as payroll tax. To properly take advantage of alternative methods for meeting UI costs, nonprofits should turn to experts in the field. Those who understand the system can help nonprofits avoid overpaying claims and choose the method that is best for the organization.
For information on how your organization can cost-effectively meet its unemployment insurance needs, contact First Nonprofit Group at FNCUI@firstnonprofit.com or visit www.firstnonprofitcompanies.com.
First Nonprofit has saved us so much money over the state’s program. We had one little glitch with the state recently and we contacted FNP immediately. FNP staff called us back immediately and moved to remedy the problem.
First Nonprofit has been a great partner. They have helped us saved hundreds of thousands of dollars! They have awesome resources for our nonprofit organization. Thanks for the partnership.
Life is certainly busy these days but having business partners like First Nonprofit has made some of the process hassle free. We have worked with this team for years. When we changed payroll systems, they outlined every step. I think this team is terrific and I know they get the job done! Thank you, Cruz, to all the team at FNP.
FNP has helped our agency to save thousands of dollars every year on our unemployment coverage. The service is phenomenal, and we are thankful to their team as our partner. My experience working with Marshall on the advocacy around UE for nonprofits was also a highlight as someone who teaches advocacy and lobbying for nonprofits. Really, your whole team is top shelf, so thank YOU!
Chicago Children’s Theatre has greatly benefited from our partnership with First Nonprofit, and I have always enjoyed working with the staff on our filings and any complicated questions. I would not hesitate to recommend First Nonprofit to fellow nonprofits. We’re very happy customers.
FNP is a great resource for Daniel Kids. To have a TPA that we can count on to take point on not only managing our unemployment claims, but to support and guide any protest hearing, is invaluable. All the professional support staff we have worked with have been excellent, very knowledgeable and responsive. We are grateful for the help and support, thank you.
When I first began in my position at my organization, I hadn’t had experience working with a company like FNP. The staff was so patient and helpful in helping to explain the benefits of First Nonprofit. Anytime I reach out with a question I receive a quick, clear, and thorough response. I’m so thankful that we decided to partner with FNP. Their excellence in customer service, coupled with their variety of packages frees us up to truly serve our staff and community with a peace of mind knowing that our organization is protected against unanticipated unemployment insurance expenses.
First Nonprofit gets an A+ in my book. You are so easy to work with & very knowledgeable! Whether it is my quarterly correspondence with Kim or my random interactions with Dawn about a bond … I am so pleased that I get to work with such a helpful company. Thank you!