Not-for-profits don’t have to pay income taxes (as long as they filed for tax-exempt status). But that doesn’t mean they’re exempt from all taxes, especially at the state level.
For example, not-for-profits that have employees will likely be liable for paying state — but not federal — unemployment taxes.
Federal Unemployment Tax
Tax-exempt organizations are not liable for federal unemployment tax.
Iowa Unemployment Tax
Tax-exempt organizations generally must pay Iowa unemployment tax. See page 7 of the Iowa Unemployment Insurance Handbook for Employers.
A 501(c)(3) organization can opt out of paying Iowa unemployment tax. The problem with this is, if an ex-employee of that organization becomes eligible for benefits, the organization would have to reimburse the state for any benefits paid to that ex-employee.
For that reason, most organizations will want to go ahead and pay unemployment tax.
For most organizations in Iowa, they’ll be paying 1% of wages on the first $28,300 of wages paid per employee per year (so a maximum of $283 per employee per year). That percentage varies from year-to-year and could be 0% if the organization has existed long enough and had no benefits paid against its account.
“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”