Payroll taxes for charities: what you owe and when

This guide is for the treasurer of a charity that has, or is about to have, paid employees. Being a tax-exempt charity doesn't exempt you from payroll taxes. After reading, you'll know which federal taxes you owe on wages, which forms you file and when, the one federal tax most 501(c)(3)s don't pay, how state unemployment works for charities, and why late payroll taxes are the one money mistake that can land on a board member personally.

If you're still setting up, start with hiring your first employee, which covers getting registered and choosing how to run payroll. If you aren't sure someone is an employee at all, see employee or contractor.

The federal taxes on wages

For each employee, you withhold some taxes from their pay and you pay some yourself. IRS Publication 15 (2026) gives the rates:

The amounts you withhold from employees' pay are often called trust fund taxes, because you're holding the employee's money for the government. Keep that phrase in mind; it comes back below.

What it costs

Here's a hypothetical case. A charity pays one coordinator $50,000 a year. On top of the salary, the charity pays 6.2% Social Security ($3,100) and 1.45% Medicare ($725), so $3,825 in federal payroll taxes. State unemployment, any state payroll taxes and workers' compensation insurance come on top. Put all of them in your annual budget.

Depositing and filing

Deposits

You send payroll taxes to the IRS by deposit, separately from filing returns. Publication 15 says "You must use EFT to make all federal tax deposits," meaning electronic transfer, for example through the IRS's Electronic Federal Tax Payment System (EFTPS) or your IRS business tax account.

How often depends on your deposit schedule, which Publication 15 sets from a lookback period:

• Monthly: if you reported $50,000 or less in taxes in the lookback period, deposit taxes on payments made during a month "by the 15th day of the following month."
• Semiweekly: if you reported more than $50,000. Taxes on wages paid Wednesday, Thursday or Friday are due the following Wednesday; other days have their own rule.
• Very small amounts: if your total tax for the quarter (or the quarter before) is under $2,500, you may pay with a timely filed Form 941 instead of depositing, as long as you didn't owe a $100,000 next-day deposit.

Form 941 every quarter

Form 941 is the quarterly federal payroll tax return. It reports wages paid, taxes withheld and deposits made. Publication 15 lists the due dates as April 30, July 31, October 31 and January 31. If you deposited all the tax on time and in full, you get until the 10th day of the second month after the quarter ends.

Some very small employers file Form 944 once a year instead. Publication 15 says you can only do this if the IRS has notified you in writing, and it's meant for employers who expect their employment taxes for the year to be $1,000 or less. You ask the IRS during the first quarter.

Forms W-2 and W-3 after year end

Each employee gets a Form W-2 showing their pay and the taxes withheld, and you send copies to the Social Security Administration with a Form W-3, which summarizes them. For 2026 wages, the IRS instructions say both are due by February 1, 2027. If you must file 10 or more information returns in total, you must file them electronically. Send state copies if your state requires them.

Federal unemployment tax (FUTA): most 501(c)(3)s don't pay it

Most employers pay federal unemployment tax (FUTA) and file Form 940 each year. But the Form 940 instructions say "organizations described in section 501(c)(3) and exempt from tax under section 501(a) generally aren't subject to FUTA tax." So most charities with an IRS 501(c)(3) determination letter don't file Form 940.

If your organization is tax-exempt but not a 501(c)(3), read the Form 940 instructions to see whether you owe it. For 2025, they give a FUTA rate of 6.0% on the first $7,000 paid to each employee in the year.

State unemployment: tax or reimburse

State unemployment insurance is different. Federal law, as the US Department of Labor explains in its 1993 letter UIPL 44-93, requires states to cover 501(c)(3) employers, and also requires states to give them a choice:

• Pay the regular state unemployment tax (called "contributions"), at the rate your state sets, like any other employer.
• Become a reimbursing employer. Instead of paying a rate, you repay the state fund for unemployment benefits actually paid to your former employees.

Reimbursing can cost much less if you rarely lay anyone off. But one layoff, or the end of a grant-funded role, can bring a large bill at once. A 1972 Labor Department letter (UIPL 1212) says states may ask reimbursing employers for a bond, deposit or other safeguard, within a limit tied to the state's maximum tax rate. Your state may also hold you to your choice for a period.

Penalties, and why the board should care

Late deposits

Publication 15 sets the failure-to-deposit penalty by how late you are:

• 2% for deposits 1 to 5 days late
• 5% for deposits 6 to 15 days late
• 10% for deposits 16 or more days late (and for amounts paid directly to the IRS or with the return, with some exceptions)
• 15% for amounts still unpaid more than 10 days after the first IRS notice

Interest and late-filing penalties can be added on top.

The trust fund recovery penalty

If withheld taxes aren't paid over, the IRS can charge the trust fund recovery penalty: 100% of the unpaid trust fund taxes. The penalty comes from section 6672 of the Internal Revenue Code. Publication 15 says that if the taxes can't be collected from the employer right away, it can be charged to any responsible person who willfully didn't collect, account for or pay the tax. It lists who that can include: an officer or employee, an accountant, a volunteer director or trustee, or anyone who signs checks or otherwise has authority to spend the organization's money. This is a personal liability, not just the charity's.

Section 6672 has a narrow exception for unpaid, volunteer board members of tax-exempt organizations who serve only in an honorary capacity, don't take part in day-to-day or financial operations, and didn't actually know about the failure. It doesn't apply if it would leave no one liable. A treasurer who signs checks or oversees payroll shouldn't count on it.

A small charity short of cash may be tempted to pay rent or a vendor first and "catch up" on payroll taxes later. Don't. The money withheld from employees' pay was never the charity's to spend.

Your payroll tax checklist

• Every worker we pay is correctly classed as an employee or contractor
• We know our deposit schedule and deposit electronically on time
• Form 941 dates are on our calendar (or we have IRS approval to file Form 944)
• We've confirmed our 501(c)(3) status before deciding not to file Form 940
• We chose between state unemployment tax and reimbursing, as a board decision
• W-2s and the W-3 are on the calendar for February 1, 2027
• A second person checks every deposit and quarterly return
• Payroll taxes are always paid before other bills when cash is tight