Tax Planning and Compliance for Tax-Exempt Organizations, 6th Edition

CHAPTER 25Employment Taxes

• 25.1 Distinctions Between Employees and Independent Contractors
  • (a) Employees
  • (b) Independent Contractors
  • (c) Employee Benefits
  • (d) Volunteer Fringe Benefits
  • (e) Fellowships, Scholarships, and Awards
• 25.2 Ministers
  • (a) Who Is a Minister?
  • (b) How Ministers Are Special
  • (c) Conscientious Objectors
• 25.3 Reporting Requirements
  • (a) Penalties
  • (b) Tax Withholding Requirements
  • (c) Unemployment Tax
  • (d) Backup Withholding
  • (e) Payroll Depository Requirements
  • (f) Withholding for Bingo, Raffles, and Other Contests
  • (g) Form 1099-INT

Employment taxes and associated payroll costs, such as workers’ compensation and health insurance, equal between 10 and 25 percent of an exempt organization’s payroll. These taxes represent a substantial expense to most organizations and there is sometimes a temptation to classify a worker as an independent contractor, in order to avoid such costs. Until 1973, exempt organizations (EOs) were exempt from Social Security taxes, and their employees were eligible to be covered only if the organization elected to participate in the system. Until 1989, Internal Revenue Service (IRS) exempt organization examiners had no authority to look at employment taxes. For these reasons, many EOs ignored the complexities of employment taxes, until the IRS announced its intention to emphasize employment tax issues. This posture was particularly costly to many colleges and universities that were assessed payroll tax liabilities in the millions ...