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.
Ready to chat? Get in touch today to request a no-obligation savings evaluation.
We’ve been a member of First Nonprofit’s Unemployment Savings Program since 2011 and highly recommend joining. The program is terrific and allows us to earn interest on our own funds while still meeting the state’s requirements on unemployment payments. In addition, the staff are great and always helpful sorting out any questions we may have. Thank you all!
CCSCT was approached by First NonProfit to discuss its Unemployment Savings Program and ways the program could significantly reduce the amount of unemployment taxes we were paying. At the time, our agency was paying approximately $80,000 per year. First NonProfit conducted an analysis to determine if making the switch would be in our best interest, and it clearly was based on our circumstances. The first year on the program, CCSCT saw a 70% reduction in its unemployment costs and each year, continues to experience further reductions as a result of having minimal claims. Some additional benefits of the program including having a fixed annual cost, an interest-baring reserve account, professional unemployment claims management and representation at all unemployment hearings. This has been one of the best decisions we have made.
We first started using First Nonprofit’s Unemployment Savings Program when we were a small startup nonprofit. We didn’t have an HR department and needed expertise in the event that an unemployment claim was made. We knew we were eligible to be a reimbursing employer, but weren’t sure how to navigate that process. They made it easy to set things up, plan for, and then manage claims when they came at a very reasonable cost. The amount of time and stress they’ve saved us dealing with all this has been worth way more than the cost. We’ve now grown to a large nonprofit and do have an HR department but have no plans to stop using their services. I highly recommend them to every nonprofit I come into contact with!
Throughout our membership in the Unemployment Savings Program, First Nonprofit understood our demands, community dynamics, and the importance of seamless services; that allowed us to serve our constituents better.
Because INCS advocates for the operating conditions that allow charter public schools to provide high quality public education, partnering with First Nonprofit was an easy decision. First Nonprofit’s unemployment programs provide our member schools two operating elements crucial to their ability to provide high quality public education: savings and budget certainty. Capable, committed teachers are the key to student success. By participating in the unemployment insurance savings plan, charter public schools gain peace of mind and are able to invest more money in their teachers.
It has been our sincere pleasure to maintain a strong, vibrant business partnership with First Nonprofit. We greatly admire their strong industry knowledge, technical expertise, constant professionalism, knowledgeable and dedicated staff. They are always extremely responsive, personable and provide us with the necessary guidance and recommendations on a numerous variety of employment scenarios.
NYCON members who use First Nonprofit’s programs enjoy enduring savings and improved efficiency. Our association knows that success, because from the beginning, we achieved the same great benefits. Great savings, seamless technology, and responsive service. NYCON highly recommends First Nonprofit’s remarkable unemployment solutions.
Visually Impaired Preschool Services has been a client of First Non-Profit since it was first offered as a benefit of VisionServe Alliance. We completed a thorough evaluation of cash savings to our agency before taking advantage of this wonderful benefit and it has been a very wise decision. Our experience with the processes from accounting to claims have been professional, expeditious and easy.