Some nonprofit organizations are small and have only a handful of employees while others maintain a workforce numbering in the hundreds or even thousands. NPOs, including 501(c)(3) charitable organizations, are exempt from income taxes. Special tax rules apply to employees in some cases. However, all NPOs are still responsible for collecting payroll taxes, remitting the money to the Internal Revenue Service and state governments and for providing proper documentation.
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An Employee Is an Employee
According to the IRS, all employers must issue W-2 forms to employees each year, including NPOs. Religious organizations may choose to exempt some employees, such as clergy, from participating in Social Security. These religious employers need not deduct Social Security tax from an employee's pay or pay the matching employer contribution. However, religious NPOs are still obligated to collect state and federal income taxes and to issue each employee a W-2. IRS rules require employers to send out W-2 forms early enough so that they reach employees by January 31.