IRS & Compliance Reporting
Since NAIFA and each of its Chapters are separate legal entities, the IRS requires each Chapter to file its own federal income tax return. The State Chapter must file either a 990, 990EZ, or 990-N (e-Postcard) each year to avoid losing its tax-exempt status; the forms are due by May 15. The Pension Protection Act requires the IRS to revoke the tax-exempt status of any organization that does not meet its annual filing requirement for three consecutive years.
- IRS FORM 990 OR 990EZ is required for Chapters with gross receipts that are normally $50,000 or more. Chapters with unrelated business income may be required to file a 990T.
- Form 990-N, Electronic Notice (e Postcard) for Tax Exempt Organizations Not Required to File Form 990, or 990-EZ. The electronic notice (or e-Postcard) is a provision of the Pension Protection Act of 2006 and applies to small tax-exempt organizations with gross receipts that are normally $50,000 or less.
Most states require nonprofit organizations to file state income tax returns. Chapters are required to comply with state regulations regarding filing state tax returns in their state.
All State Chapters must register with the state election administration agency and comply with state disclosure and reporting requirements.
- Prepare state PAC registration forms.
- Review candidate contributions to ensure they meet state requirements.
- Track campaign contribution limits and black-out dates.
Worker Classification for Chapter Executives
All Chapters should ensure that their Chapter Executives is correctly classified as either employees or independent contractors for tax purposes. Which classification is appropriate for a particular Chapter Executive – employee or independent contractor – depends on several factors noted below. Proper classification is important because if affects how Chapters and Chapter Executives should pay (or withhold) Social Security, Medicare and income taxes.
Generally speaking, factors weighing in favor of treating a Chapter Executive as an employee include whether a Chapter directs and controls how a Chapter Executive does their work and whether a Chapter provides employee benefits to a Chapter Executive.
Conversely, Chapter Executives may be independent contractors if they control how their work is done, have made significant investments in their work, are not reimbursed for expenses, or may realize profit or incur a loss. Another important factor for worker classification may be what a written contract between a Chapter and a Chapter Executive says about the relationship of the parties.
If it is determined that a Chapter Executive is a Chapter employee, then the Chapter must withhold income taxes, and the employee’s portion of Social Security and Medicare taxes, and the Chapter must provide the Chapter Executive with a W-2 showing the amount of taxes withheld. Likewise, the chapter must pay Social Security, Medicare and unemployment taxes on employee wages.
Alternatively, if it is determined that a Chapter Executive is an independent contractor, then the Chapter must provide the Chapter Executive with a 1099, which reports what the Chapter paid to the Executive.
You can learn more about the distinction between employees and independent contractors at the IRS website or read this IRS brochure.
NAIFA does not take a position on whether Chapter Executives should be treated as employees or as independent contractors because different Chapter circumstances may dictate different results. Chapters with questions on this topic should consult with a tax advisor who can address the Chapter’s unique circumstances.
Quick Links
IRS Website
Independent Contractor vs. Employee Brochure
