California Business Portal

I have a nonprofit. Do I have to register and pay payroll taxes?

Most nonprofit organizations are subject to Unemployment Insurance (UI), Employment Training Tax (ETT), State Disability Insurance (SDI), and Personal Income Tax (PIT) withholding.

However, nonprofit entities that have an exemption under Section 501(c)(3) of the Internal Revenue Code (IRC) have a choice in the method of financing their UI costs. A nonprofit entity can elect to either:
  • Pay the same UI taxes as those paid by commercial employers (experience rating method). Refer to the Information Sheet: California System of Experience Rating (DE 231Z) for more information on the experience rating method: http://www.edd.ca.gov/pdf_pub_ctr/de231z.pdf
  • Reimburse EDD for the full cost of all UI benefits paid to their former employees (reimbursable or cost-of benefits-paid method). See Potential Liability for Unemployment Insurance Benefits When Electing the Reimbursable Method of Financing Under the California Unemployment Insurance Code (DE 1378F)

To elect the reimbursable method, a nonprofit employer must file a Selection of Financing Method by a Nonprofit Organization (DE 1SNP), as well as a Registration Form for Nonprofit Employers (DE 1NP) when registering. If the DE 1SNP is filed at a later date, it will be effective the first day of the quarter in which it is filed.

Special Exclusions: Certain types of employees who work for religious, charitable, educational, and other nonprofit organizations described in Section 501(c)(3) IRC are excluded from UI, ETT, and SDI. Except for certain religious workers, wages received by these employees are subject to PIT withholding and PIT wage reporting. These may include:
  • Employees of a church or convention or association of churches or an organization operated primarily for religious purposes which is operated, supervised, controlled, or principally supported by a church or convention or association of churches.
  • Duly ordained, commissioned, or licensed ministers in the exercise of their ministry and members of religious orders.
Also excluded from PIT withholding.
  • Persons receiving work-relief or work-training in a program financed by any government agency.
  • Inmates of a custodial or penal institution.
  • Public entities (State of California, counties, cities, districts, public agencies and authorities, school districts, and community colleges) may elect the experience rating or reimbursable method of financing UI and must withhold PIT. Public entities are not subject to SDI but may elect it under certain circumstances.

Special exclusions: Some employees of public entities are excluded from UI and SDI coverage. These include:
  • Elected officials (not considered employees).
  • Members of legislative bodies or the judiciary.
  • Members of the State National Guard or Air National Guard except those who provide services as regular State employees.

Under certain circumstances, nonprofit and public entities may elect UI and/or SDI coverage for employees whose services are not in subject employment. For more information, refer to the Information Sheet: Specialized Coverage (DE 231SC), call EDD’s toll-free number 1-888-745-3886, or visit your nearest Employment Tax Office.

Attend a Seminar: EDD offers no-fee seminars to assist employers in complying with California’s payroll tax laws. Visit the Payroll Tax Seminars page to find available classroom seminars or online courses. http://www.edd.ca.gov/payroll_tax_seminars/

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