Chapter 3: Managing Your Nonprofit’s Risks
How Your Non-Profit Can Save Money on Unemployment Taxes
Astonishingly, a recent study by the Unemployment Services Trust (UST) found that 22% of nonprofits are unaware that they can opt out of paying state and federal unemployment taxes. This is a potentially significant cost savings.
22% of nonprofits don’t know that they can opt out of state and federal unemployment taxes.
What are unemployment taxes? For each paycheck you write, you have to pay a variety of federal and state taxes. One of those taxes is the unemployment tax, which goes into a pool used to pay unemployment benefits. According to the California Employment Development Department , the tax rate can be as high as 6.2 percent of the first $7,000 of your employee’s income (in other words you can pay $400-500 per employee per year).
The good news is that nonprofits don’t actually have to pay this tax. Instead, they can opt out, choosing to pay “dollar-for-dollar,” which basically means you only pay unemployment taxes when one of your former employees applies for unemployment. This can end up saving your organization a significant amount of money.
If your organization is small and doesn’t have any employees, this is something to keep in mind when you plan to make your first hire.
Next: Chapter 4: Practical Tips for Purchasing Insurance