Now You Have Paid Staff

Posted on Wednesday, March 25, 2015

Has your nonprofit organization transitioned from an all volunteer organization to one with paid staff?  If so, there are some things that you’ll need to make sure you are doing now that you have paid employees.  (The following relate to the state of Indiana.)

At Date of Hire:

BT-1, Business Tax Application

If an organization has employees, it must register with the Indiana Department of Revenue to withhold income tax by filing BT-1.  Once registered, the organization will receive an Indiana Taxpayer Identification Number.  The form can easily be filed online and has no fee for the withholding tax application portion.

 Form I-9, Employment Eligibility Verification 

All U.S. employers must complete and retain Form I-9 for each individual hired for employment in the United States.   Form I-9 is available from U.S. Citizenship and Immigration Services.  No filing of the form is required but employers must maintain a form for each employee for three years after the date of hire or for one year after employment is terminated, whichever is later, and it must be available for inspection by authorized U.S. Government officials.

Indiana New Hire Reporting

Employers in the state of Indiana must report new employees, re-hires and temporary employees within 20 days after the employee is hired or returns to work.  Reporting may be done by the employer online or by paper filing.  In addition, payroll services may also be able to report new hires for employers. 

W-4, Employee’s Withholding Allowance Certificate

Upon hiring, each employee should complete a W-4 to determine the correct federal withholding from his/her pay.  An employee may change the amount being withheld by submitting a new form to the employer at any time.

WH-4, Employee’s Withholding Exemption and County Status Certificate

Form WH-4 is similar to Form W-4 except that it is for state withholdings.  In addition, it tells the employer for which county to withhold county tax.

Workers Compensation

Employers are required to provide workers compensation for all employees.  This insurance can be purchased through private carriers.  In addition, employers are required to post a notice in the employer’s place of business to inform employees that their employment is covered by worker’s compensation.

At Each Payday:

Withholdings and Deposits

Just like for profit businesses, nonprofit organizations are responsible for federal, state and local payroll taxes.  As an employer, the organization must withhold from employees’ pay checks for federal income tax, social security and Medicare taxes, state income taxes and local income taxes.  The employer is also responsible for paying its share of social security and Medicare taxes.    Both the employer and employee portion of payroll taxes should be remitted to the proper government agency either monthly or semi-weekly, depending on the organization’s deposit schedule.  All federal tax deposits must be made by electronic funds transfer either through the Electronic Federal Tax Payment System (EFTPS) at www.eftps.gov  or at certain financial institutions. 

 Monthly:

WH-1, Indiana Withholding Tax Return

Depending on the organization, Form WH-1 may be due at different times (early filer, monthly, quarterly or annually).  In any case, Form WH-1 reports the total amount of state and local income taxes withheld for the specified period, which is paid with the return.

 Quarterly:

941, Employer’s Quarterly Federal Tax Return

This form is required to be filed quarterly by any employer who pays wages during the quarter.  Certain employers with small payrolls who have been notified by the IRS can file Form 944, Employer’s Annual Federal Tax Return annually instead of Form 941 quarterly.  Form 941 reconciles the amount of federal taxes withheld plus social security and Medicare taxes with the amounts that have been deposited.

Unemployment Taxes

Some nonprofits are responsible for paying federal unemployment taxes (FUTA); however, 501(c)(3) organizations are exempt. 

Nonprofit employers are responsible for paying quarterly state unemployment (SUTA) premiums to the state of Indiana if they employ four or more individuals for a day for 20 weeks during the calendar year.   However rather than paying SUTA, an Indiana nonprofit organization may choose to become a Reimbursable Employer by providing the organization’s 501(c)(3) IRS determination letter and filing DWD Form 1065, Election to Pay Tax with the Indiana Department of Workforce Development.  A Reimbursable Employer reimburses the state for benefits paid to former employees instead of making regular SUTA payments.

Annually:

WH-3, Annual Withholding Tax Form

All employers that withhold state and/or county income tax from employees must file Form WH-3 annually.  The form shows the accumulated amount of state and county tax withheld for the year.  The employer may have taxes due depending on the withholdings made and paid during the year.

W-2, Wage and Tax Statement

Any employer who pays for services performed by an employee must file Form W-2 for each employee.  The form provides a summary of the employee’s salary and payroll taxes for the year.  Specific copies of Form W-2 must be filed by the employer with the IRS, Social Security Administration, and the state.  A copy must also be provided to each employee.  Form W-3, Transmittal of Wage and Tax Statements is used to transmit the W-2 forms to the IRS.

In addition to the required taxes withheld from employees’ payroll, an employee may also have additional amounts withheld for retirement, insurance, child care, etc.  Make sure you have proper documentation from the employee authorizing these withholdings.

Posted by: Carrie Minnich, CPA

Posted in Mission Minded Nonprofits

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.

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