Does your nonprofit pay unemployment insurance (UI) taxes? Well it should.
Although nonprofits are not required to pay state or federal UI taxes, if a nonprofit that hasn’t paid its UI taxes has an unemployment claim, it is obligated to reimburse the government in full for the former employee’s claim.
So while saving on these UI taxes up front may seem like a great cost savings, it may wind up being a big blow to an organization in the long run, especially for organizations with regular layoffs or low UI taxes. But the reimbursement method may be smart for organizations with stable employment or organizations with high gross payroll.
Since 501(c)(3) organizations have the option, it is important for managers and the board to consider the organization’s choices and make a smart financial decision. Speak with your outside accountant or financial advisor to determine what’s best for your organization.