Exempt organizations do not pay tax on income derived from activities that are related to the purpose for which exempt status was granted.  However, exempt organizations are required to pay employment taxes and certain business taxes.

Employment Tax filing requirements include –

940, Employer’s Annual Federal Unemployment Tax Return

941, Employer’s Quarterly Federal Tax Return

945, Annual Return of Withheld Federal Income Tax

W-2, Wage and Tax Statement

W-4, Employer’s Withholding Certificate

Business Taxes

Exempt organizations can engage in activities that are unrelated to their exempt purpose but must pay tax on the income from such activities.  Form 990 is filed annually to report all sources of revenues received and all expenses paid for all activities of an exempt organization, 501(c)(3) and non-501(c)(3) organizations.  Additional Schedules should be attached to this return depending on the type of activities the exempt organization engages in during the year.   Form 990-T is required to be filed in years when an exempt organization – 501(c)(3) and non-501(c)(3) organizations – receive income and pay expenses for activities that are unrelated to the purpose for which exempt status was granted.  Exempt organizations may also be required to make estimated tax payments for income received from unrelated business activities.

Employment taxes are paid on wages paid to employees, officers, and directors of an exempt organization.  Employment taxes include federal withholding, social security, Medicare, Medicaid, and federal unemployment taxes.  Form 941 is required to be filed quarterly; Forms 940 and 945 are required to be filed annually; and Form W-2 with W-3 Transmittal is required to be annually to report all W-2s issued to employees during the prior year.  Circular E, Employers Tax Guide has more detailed information on employment taxes.