Nonprofits treat employees and contractors the same way for-profit businesses do when it comes to reporting tax information to the IRS. This includes having employees fill out Form W-4 and issuing them a Form W-2 for the previous year's salary or wages.
If you work for a nonprofit, you'll get a W-2 if you're an employee, or possibly a 1099 if you're a contractor, vendor or supplier. Understanding how your tax reporting works from your employer's side will help you make sure you are prepared when it comes time to fill out and submit your annual income tax return.
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Consider Also: W-2 Forms: What It Is, Who Gets One & How It Works
W-4 and W-2 Forms
If any business, including a nonprofit, hires an employee, the business will have the employee fill out a W-4 as part of bringing that staff member on board. The employee provides the employer with information such as her Social Security number and number of dependents. Using this information, the employer withholds FICA and federal income taxes, along with state taxes, if required.
The employee will receive a W-2 after the end of the year showing her total gross income (before deductions) and her different deductions that were sent to the IRS. The employer is required to get the W-2 to employees by January 31.
Consider Also: Form 1040: What You Need to Know
Form 1099 vs. W-2
If you work for a nonprofit on a regular basis, such as helping to run several fundraisers during the year, but you are a contractor and not an employee, you should receive a Form 1099 by January 31 the following year. This is a form submitted to you and the IRS showing your gross earnings.
The nonprofit does not take any deductions from your pay – you are required to pay your taxes on that money on your own. However, the nonprofit is required to issue the 1099 for your records and tax filing.
What’s Deducted From Paychecks?
When you are an employee, your employer deducts FICA tax, which goes toward your Social Security and Medicare benefits. In addition to paying a percentage of your salary or wages (6.2 percent for Social Security and 1.45 percent for Medicare in 2021 and 2022), your employer contributes the same amount toward your Social Security and Medicare.
You only pay this amount on the first $142,800 in 2021 and $147,000 in 2022. If you have other benefits deducted from your paychecks, such as health insurance premiums or a retirement account contribution, those deductions will show on your W-2.