Are nonprofit organizations responsible for payroll taxes?

Like other businesses that employ staff, nonprofit organizations are required to pay payroll taxes. This is true regardless of the organization’s tax-exempt status. Failing to make these required payments can land the nonprofit in hot water with the IRS. For this reason, it is crucial to work with a knowledgeable attorney and accountant familiar with the unique aspects of nonprofit law and taxes.

Facts About Nonprofits and Payroll Tax Problems

Interested in learning more about nonprofit payroll tax issues? Consider these facts:

  • The IRS cannot revoke a nonprofit organization’s tax-exempt status for failure to pay payroll taxes.
  • The IRS can potentially require changes in the board of directors or the executors responsible for the nonprofit’s tax problems.
  • Nonprofits who fail to pay payroll taxes are referred to the IRS’s Small Business/Self-Employed Division. This division is responsible for collecting delinquent payroll tax.
  • The IRS can file federal tax liens and levies against the nonprofit and can also seize money or property.
  • The nonprofit may also face substantial payroll tax penalties.
  • Any “responsible person” can be held responsible for the nonprofit’s failure to pay its payroll taxes. A responsible person is anyone who exercises significant control over the organization’s finances. Examples include the nonprofit’s accountant, bookkeeper, treasurer, president, executive director, CEO, or board members.
  • A responsible person can be held liable even if he or she was not directly involved with paying payroll taxes.

Most people and organizations facing tax problems are unfamiliar with what to expect. For more information about the process, we encourage you to check out our free guide, The Ultimate Guide for IRS Problems.