Under the Internal Revenue Code, all organizations with employees must pay payroll taxes. These taxes are designed to cover employees’ income tax obligations as well as their portion of FICA taxes for Social Security and Medicare. The employers themselves are responsible for an additional portion of these taxes. The employers must hold employees’ tax obligations in trust and turn them over to the taxing authorities while at the same time paying their share of the taxes. These obligations apply regardless of whether the organization is for profit or a non-profit.
Three Things Non-Profits Must Demonstrate to Reduce Payroll Tax Penalties
When payroll taxes are paid late, substantial penalties may accrue. Fortunately, however, non-profits can potentially have these penalties decreased if they can prove that there was reasonable cause for these late payments. It is important to note, however, that the standard for reasonable cause is extremely high. The non-profit organization must be able to show the following:
- The lateness in paying the payroll taxes was due to circumstances outside of the control of the board of directors.
- The lateness in paying the payroll taxes was not due to any oversight on the part of the board of directors.
- The non-profit organization has taken corrective measures in order to ensure that payroll taxes will be paid on time in the future.
While demonstrating reasonable cause may be an alternative solution to a payroll tax problem for a non-profit organization, achieving this result is not easy without the assistance of an experienced professional. We are here to help. We encourage you to start by checking out our free guide, The Ultimate Survival Guide for IRS Problems.