[ 3.4.1 - Tax-Exempt Nonprofit Organization ]

This section discusses the aspects of the law that specifically apply to 501(c)(3) employers.

[ 3.4.1.1 - Field Responsibility ]

Under Section 201.023:

In this subtitle, "employer" also means an employing unit that:

Comment: Amendments to the Federal Unemployment tax act required extension of coverage by the states to certain nonprofit organizations -- those described in Section 501(c)(3) of the Internal Revenue Code -- to the same extent as other covered employers, with these exceptions:

Almost all phases of administration of the Act with respect to reimbursing employers are functions of the State Office. Field participation usually consists of the following:

[ 3.5.1 - Sec 201.024 ] [ 3.5.2 - Sec 206.001 ] [ 3.5.3 - Sec 206.002 ] [ 3.5.4 - Beginning Date for Election Coverage ] [ 3.5.5 - Advisability of Electing Coverage ] [ 3.5.6 - Withdrawal of Election ] [ 3.5.7 - Election for Non-Employment Services ] [ 3.5.8 - Election by Nonprofit Organizations ]

This section discusses the aspects of the law that specifically apply to an employing unit that has filed an election for coverage.

"Employer" means:

An employing unit that is or becomes an employer in a calendar year is subject to this subtitle during that entire calendar year.

1. An employing unit that is not otherwise subject to this subtitle may elect coverage as an employer for not less than two calendar years.
   
   
2. Subsection (a) does not apply to an employing unit to which Section 205.001 or 205.002 applies.
   
   
3. On written approval by the commission of an election under Subsection (a), the employing unit making the election becomes an employer to the same extent as all other employers beginning on the date stated in the approval.

Comment: An employing unit may not be an employer under any of the provisions of Subchapter C - Definition of Employer and yet may desire, for some reason, to be an employer subject to the Act. The provisions of Section 206.002 are available to any such employing unit. The written election must be for a period of not less than two calendar years. The employing unit becomes an employer with the written approval of such election by the Commission. When the election is approved, the employing unit becomes an employer as of the date of the approval, and thereafter is subject to all of the provisions of the Act to the same extent as other employers. The written election must be made on the Voluntary Election Section of the Status Report, Form C-1. The election is for an indefinite period of not less than two full calendar years and the employing unit will continue to be an employer until such time as an Application for Termination of Coverage is filed and approved.

NOTE: The Tax Department has routinely denied coverage to those organizations with specific exclusions (such as churches) except when the employer might be required to pay higher FUTA taxes.

The Commission will approve an election for years prior to the year in which an election is filed; however, periods in prior years for which the employer pays tax cannot be a part of the four (4) calendar quarters of chargeability with benefits necessary before an employer is eligible for an experience tax rate, because an employer cannot be chargeable before the election is filed and approved.

An employing unit may become chargeable with benefits as of April 1 (and be eligible for an experience tax rate one year later) of a year if they:

1. voluntarily elect coverage in the first quarter of that year,
   
   
2. the election is with respect to service performed subsequent to January 1 of the preceding year, and
   
   
3. the employing unit had employment and paid wages in the preceding year.

An accounts examiner should never recommend or urge voluntary election of coverage. Whether or not an election will be beneficial to an employing unit is a matter of judgment and is a decision which should be made by the employer. If it appears to the examiner that election is advisable, he will mention the matter to the employer, explain the necessary procedure, and let the employer make the decision based on the following factors:

1. The probability of becoming mandatorily subject in the current year.
   
   
2. The loss in taxes if employer elects and discontinues employment prior to a mandatory subject date.
   
   
3. Comparison of taxes to be saved by qualifying earlier for an experience tax rate and the amount of taxes unnecessarily paid in the event the employer would not otherwise become subject.
   
   
4. Desire to provide unemployment insurance to employees.
   
   
5. Probability of shutdowns which would result in numerous claims.
   
   
6. Inability to withdraw elections.
   
   
7. Voluntary coverage is for a period not less than two calendar years.

An examiner should never say or imply that the experience tax rate will be the minimum rate when an electing employing unit becomes eligible and the examiner should use other possible rates, as well as the minimum rate in making hypothetical calculations.

In the past, the Commission has had some collection problems arise with employers who volunteered coverage and then went out of business before filing all quarterly reports or paying all taxes. For this reason, field personnel are to transmit all quarterly reports and taxes due at the time they send a Status Report and Application for Voluntary Election of Coverage to the State Office.

Any exception to this must be fully explained at the time the election is transmitted. If any unusual difficulty in securing all reports and taxes is encountered, a full explanation will be given and a recommendation for disapproval of the election will be made. Avoid excessive delay in transmitting a voluntary election to the State Office and be sure to explain why a delay was necessary or was incurred.

A voluntary election of coverage may be withdrawn at the employer's written request on or before the final due date of the first contribution and wage report due as a result of the election. For example, an employer who voluntarily elects coverage in December of a year may withdraw the election on or before January 31 of the following year.

Under Section 206.003 - Election of Coverage Regarding Services Not Constituting Employment:

1. An employing unit may elect for not less than two calendar years that all services that do not constitute employment and that are performed by individuals in its employ in one or more distinct establishments or places of business are to be considered employment for all purposes of this subtitle.
   
   
2. An election under Subsection (a) must be in writing and filed with the commission.
   
   
3. On written approval by the commission of an election under Subsection (a), the services constitute employment during the period elected, beginning on the date stated in the approval.

Comment: Under this subsection, services which do not constitute "employment" may be deemed to be employment by the approval of a written election filed by an employing unit or an employer. The election cannot be filed to cover a period less than two years. Even though the subsection permits the Commission to approve election covering services performed in one or more establishments or places of business, the Commission will only approve an election covering services which do not constitute employment in all of the employing unit's establishments or places of business.

[ 3.5.8.1 - Pay Reimbursements ][ 3.5.8.2 - Termination of Election ]

This section discusses the aspects of the law that specifically apply to nonprofit organizations.

Section 205.002

1. A nonprofit organization that is described by Section 201.023 or a group of those organizations subject to this subtitle may elect to pay reimbursements for benefits instead of contributions.
   
   
2. An election under this section must be made not later than the 45^th day after the date on which notice that the employer is subject to the subtitle is mailed to the employer.
   
   
3. the election is effective January 1 of the year in which the employer becomes subject to this subtitle.
   
   
4. The election is effective for at least two calendar years and may not be terminated before the expiration of that period, except as provided is Sections 205.003 and 205.031.
   
   
5. An election may be withdrawn by written application by the employer filed with the commission not later than December 1 before the year for which the employer wishes to change the employer's method of payment. The method of payment may be changed again if a timely application is filed after a minimum of two calendar years.
   
   
6. An election to pay reimbursements terminates at any time coverage terminates under this subtitle. An employer whose election terminates because of termination of coverage, on again becoming an employer subject to this subtitle, may reelect to pay reimbursements.

Comment: Coverage is mandatory if Section 201.023 is applicable. The election authorized under Section 205.002 pertains to the right to elect to be a reimbursing employer. If such right is not exercised after due notice of such right is given to the employer, the employer is a taxed employer.

Under Section 205.003:

1. The commission may terminate an employer's election to make reimbursement if the employer is delinquent in making reimbursements under this chapter.
   
   
2. A termination under this section takes effect at the beginning of the next tax year and remains in effect for that tax year and the following tax year.