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Publication 557

Tax Returns(p13)

Every employer, including an organization exempt from federal income tax, who pays wages to employees is responsible for withholding, depositing, paying, and reporting federal income tax, social security and Medicare (FICA) taxes, and federal unemployment tax (FUTA), unless that employer is specifically excepted by law from those requirements, or if the taxes clearly do not apply.
For more information, obtain a copy of Publication 15, which summarizes the responsibilities of an employer, Publication 15-A, Publication 15-B, and Form 941.

Small Business Health Care Tax Credit.(p13)

If your small tax-exempt organization provides health care coverage for your workers you may qualify for the small business health care tax credit. Go to and select Affordable Care Act Tax Provisions for more details. See Small Business Health Care Tax Credit at,,id=223666,00.html.

Expanded Work Opportunity Tax Credit Available for Hiring Qualified Veterans.(p13)

The VOW to Hire Heroes Act of 2011 made changes to the Work Opportunity Tax Credit (WOTC). The Act added two new categories to the existing qualified veteran targeted group and made the WOTC available to certain tax-exempt employers as a credit against the employer's share of social security tax. The Act allows employers to claim the WOTC for veterans certified as qualified veterans and who begin work before January 1, 2013. This tax credit was extended through December 31, 2013, under the American Taxpayer Relief Act, passed on January 1, 2013.
The credit can be as high as $6,240 for qualified tax-exempt organizations. The amount of the credit depends on a number of factors, including the length of the veteran’s unemployment before hire, the number of hours the veteran works, and the veteran’s first-year wages. The amount of the credit for qualified tax-exempt organizations may not exceed the organization's employer social security tax for the period for which the credit is claimed.
All employers must obtain certification that an individual is a member of the targeted group, before the employer may claim the credit. The process for certifying veterans for this credit is the same for all employers. For more information, see Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit and the instructions to Form 8850. Notice 2012-13, 2012-9 I.R.B. 421, also provides additional guidance on submission Form 8850.
Organizations described in section 501(c) and exempt from taxation under section 501(a) may claim the credit for qualified veterans who begin work on or after Nov. 22, 2011, and before January 1, 2013. After the required certification is secured, tax-exempt employers claim the credit against the employer social security tax by separately filing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, Form 5884-C. File Form 5884-C after filing the related employment tax return for the employment tax period for which the credit is claimed. It is recommended that qualified tax-exempt employers do not reduce their required deposits in anticipation of any credit as the forms are processed separately. In addition to Form 5884-C and its instructions, tax-exempt employers should see Notice 2012-13 and the Frequently Asked Questions & Answers for more details for claiming the credit.

Trust fund recovery penalty.(p13)

If any person required to collect, truthfully account for, and pay over any of these taxes willfully fails to satisfy any of these requirements or willfully tries in any way to evade or defeat any of them, that person will be subject to a penalty. The penalty is equal to the tax evaded, not collected, or not accounted for and paid over. The term person includes:
The penalty is not imposed on any unpaid volunteer director or member of a board of trustees of an exempt organization if the unpaid volunteer serves solely in an honorary capacity, does not participate in the day-to-day or financial operations of the organization, and does not have actual knowledge of the failure on which the penalty is imposed.
This exception does not apply if it results in no one being liable for the penalty.

FICA and FUTA tax exceptions.(p13)

Payments for services performed by a minister of a church in the exercise of the ministry, or a member of a religious order performing duties required by the order, are generally not subject to FICA or FUTA taxes.
FUTA tax exception.(p13)
Payments for services performed by an employee of a religious, charitable, educational, or other organization described in section 501(c)(3) that are generally subject to FICA taxes if the payments are $100 or more for the year, are not subject to FUTA taxes.
FICA tax exemption election.(p13)
Churches and qualified church-controlled organizations can elect exemption from employer FICA taxes by filing Form 8274.
To elect the exemption, Form 8274 must be filed before the first date on which a quarterly employment tax return would otherwise be due from the electing organization. The organization can make the election only if it is opposed for religious reasons to the payment of FICA taxes.
The election applies to payments for services of current and future employees other than services performed in an unrelated trade or business.
Revoking the election.(p13)
The election can be revoked by the IRS if the organization fails to file Form W-2, Wage and Tax Statement, for 2 years and fails to furnish certain information upon request by the IRS. Such revocation will apply retroactively to the beginning of the 2-year period.
For purposes of this election, the term church means a church, a convention or association of churches, or an elementary or secondary school that is controlled, operated, or principally supported by a church or by a convention or association of churches.
The term qualified church-controlled organization means any church-controlled section 501(c)(3) tax-exempt organization, other than an organization that both:
  1. Offers goods, services, or facilities for sale, other than on an incidental basis, to the general public at other than a nominal charge that is substantially less than the cost of providing such goods, services, or facilities, and
  2. Normally receives more than 25% of its support from the sum of governmental sources and receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities, in activities that are not unrelated trades or businesses.
Effect on employees.(p13)
If a church or qualified church-controlled organization has made an election, payment for services performed for that church or organization, other than in an unrelated trade or business, will not be subject to FICA taxes. However, the employee, unless otherwise exempt, will be subject to self-employment tax on the income. The tax applies to income of $108.28 or more for the tax year from that church or organization, and no deductions for trade or business expenses are allowed against this self-employment income.
Schedule SE (Form 1040), Self-Employment Tax, should be attached to the employee's income tax return.