In short

Nonprofit payroll covers employees paid from several funding sources, so wages often need to be allocated to grants and programs. The work includes withholding and depositing federal employment taxes, quarterly Form 941 filings, year-end W-2s, correct treatment of stipends and volunteer reimbursements, and payroll entries coded by fund so grant reports show the salary costs charged to each funder.

Allocating wages to grants

Many funders pay for a share of staff time. We set up payroll so each employee's wages and employer taxes can be split across programs or grants using timesheets or an agreed allocation, and post the split to the books every pay period.

Volunteers, stipends and reimbursements

Volunteers are not employees, but payments to them can create obligations if they look like wages. Reimbursing documented expenses under an accountable plan is different from paying a flat stipend. We help you set clear rules and record each type correctly.

Federal employment taxes

Exempt organizations with employees generally withhold income tax and Social Security and Medicare taxes and deposit them under the rules in Publication 15. Organizations exempt under section 501(c)(3) are not subject to federal unemployment tax, as the IRS notes in Publication 15, though state unemployment rules vary.

Clergy and special cases

Some religious organizations have ministers whose wages follow special rules. We flag these cases for your tax adviser rather than guessing.

Year end

W-2s are reconciled to quarterly Form 941 filings, and payroll costs by grant are summarized for your annual return.

Before we start

We confirm exempt-organization payroll treatment and allocate wages to programs and grants.

Volunteers, stipends and fellowship payments are reviewed separately, since their treatment depends on the facts and should be confirmed before the first payment.

Key terms

Definitions for terms used on this page:

  • Exempt and Non-Exempt Employees: Non-exempt employees must receive overtime under federal law; exempt employees meet specific tests that remove that requirement.

Nonprofits problems this addresses

  • Restricted grants and donations must be tracked separately from general funds
  • Board members and funders expect program, management and fundraising cost splits
  • Donors need written acknowledgments for gifts above IRS thresholds
  • Volunteer treasurers change and institutional knowledge is lost
  • Annual Form 990 information depends on clean, categorized books