This section of the act outlines the provisions under which non-profit, IRS Section 501(c)(3) organizations can become liable for state unemployment tax.
There are other exemptions granted under IRS Section 501 such as 501(c)(5), 501(c)(6), etc. Note that this procedure applies only to non-profit employers who hold a 501(c)(3) exemption. The field accounts examiner should not establish accounts subject under 201.023 since attachments need to be sent with the C-198 letter.
Liability under this section of the law is normally based on a Status Report and an IRS Section 501(c)(3) exemption letter.
An employer who has an IRS Section 501(c)(3) exemption will become liable once they have four or
more employees in 20 different weeks during a calendar year. A week, under the Act, begins on Sunday
and ends Saturday at midnight. The subject date would be a Saturday date.
An employer who has an IRS Section 501(c)(3) exemption can volunteer to become liable.
Only employees in Texas are to be considered when determining liability under 201.023.
An employer who has an IRS Section 501(c)(3) exemption who employs United States (U.S.) citizens for
services performed outside the U.S. can be liable if the wages would be reportable to TX and they employ
4 or more persons for 20 weeks outside the United States. The company would need to have its principal
place of business in this state or if it does not have a principal place of business, it is incorporated
in this state.
Once they do become liable these employers have the option of electing to pay reimbursements in lieu
of taxes. To be reimbursing, employers must complete form C-6A within 45 days of the date on their liability
notice (Form C-198) on TDO.
When a Status Report is received and it shows that the employer is a non-profit organization, secure a copy of their 501(c)(3) exemption letter if one is not provided.
A telephone contact should be made and a copy requested. A faxed copy is the fastest way of obtaining a copy of the letter so one can proceed in establishing the account. Any faxed documentation should be sent to the Doc Log & Destroy basket.
The account can be made liable under 201.023 once a completed Status Report showing the employer has had four or more employees in 20 different weeks in a calendar year and a copy of their 501(c)(3) letter are secured.
If the employer fails to produce a copy of their exemption letter and obtaining one in the near future is unlikely, liability under 201.021 will be examined. The employer in this case is to be treated as a regular employer. A letter may be sent to the employer requesting the 501(c)(3) exemption letter.
The account will be made liable using the STA screen.
To classify an account liable under Section 201.023 using the STA screen:
| Key | ACCT |
| Press | <Enter> |
| The record for the account will display | |
| Key | TYP => 10 |
| If the federal identification number, phone number or styling need changes: | |
| Line 1 | |
| Line 2 | |
| Line 3 | |
| Line 4 | |
| Line 5 | |
| Line 6 | |
| Key | FEID |
| PHONE | |
| REG CODE => 1 DOM CODE => 2 AGR CODE => 2 |
|
| Key | SECT=> 3 or 4 (volunteer) |
| SUBJ DT (Ending Date 20th week or date C-1 signed for volunteer) | |
| 1ST TX WG | |
| 1ST CHG | |
| Key | FORM LETTER => 045 |
| Key | RPTS YY |
Press <Enter> to verify the first chargeable quarter. |
|
Press <PF5> to add the record. |
|
| Note: Pressing <PF5> before pressing <Enter> will add the record without verifying the first chargeable quarter. | |
| If any of the following situations apply, you will need to key the 45 Day letter on STA after the account is liable. Make a copy of the STA screen, circle the form letter section, and place a copy in the box labeled "documents to be mailed with re-opens or new accounts". | |
| If the situation is when: | |
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| Document FTC as needed. | |
| After the overnight tax run, the letter is produced and the TDO will show the 45 DAY LETTER. The TRN date will be the date on the letter. The letter will be sent to SOU to mail, it will be mailed on the day it is produced. | |
When an employer submits properly completed C-1, 501(c)(3) exemption letter and C-6A electing to be a reimbursing Employer. The Entity Unit has assigned a regular taxed account number.
If an organization liable under 201.023 elects to be a reimbursing employer the examiner will:
Close the taxed account number as established in error.
Prepare Form C-10 to close the erroneous taxed account number as a duplicate account. All status action must be done on a C-10.
| 1. Write | Account Number |
| AE Number | |
| Init (Initials) | |
| Date | |
| Authority | |
| Brief Name (above items 1 - 6) | |
| 2. Write | Regular Liability Code => 8 |
| Domestic Liability Code => 8 | |
| Agricultural Liability Code => 8 | |
| 3. Leave blank the "Erroneously Established. Move all reports & charges to:" section. SOU will assign a new reimbursing account number and stamp this area. Place an * next to the line in the box. | |
| 4. Write "over" at the bottom of C-10. | |
| 5. Delete federal identification number. In the Addition/Correction of Number(s) on the back of the C-10. |
|
| Write | Action Code => 2 |
| Type of Number => 1 | |
| Number => FEID | |
| 6. Place a “02” Status 30 day stop as soon we become aware of the C-6A. This will prevent any default notices or erroneous collection action being taken on the soon to be reclassified as error taxed account. | |
| See Chapter 2 - "Stops" for more information. | |
| Prepare Form C-10 to establish the reimbursing account. | |
| 1. Account Number - leave blank. SOU will assign a new account number and stamp it in this area. | |
| 2. Write | AE Number |
| Init (Initials) | |
| Date | |
| Authority | |
| Brief Name (above items 1 - 6) | |
| 3. Write | FEID |
| Type Bus (22 for non-profit reimbursing) | |
| Area | |
| Phone Number | |
| 4. Write the Employer's name and address on lines 1 through 6. | |
| Line 1 | |
| Line 2 | |
| Line 3 | |
| Line 4 | |
| Line 5 | |
| Line 6 | |
| 5. Write | Regular Liability
Code => 1 Domestic Liability Code => 2 Agricultural Liability Code => 2 |
| 6. Write | Subject Section => 3 or 4 (volunteer) |
| Subject Date (Ending date 20th week or date C-1 signed for volunteer) | |
| 1st Taxable Wages Date | |
| 1st Chargeable Quarter | |
| Code for each quarter of quarterly report liability as appropriate from the date wages were first paid through the last calendar quarter currently being coded. | |
| 7. Write | Year |
| Qtr | |
| 8. Prepare Form C-1C by indicating the type of account being established. In this case, Reimbursing 501(c)(3) Non-Profit. | |
| 9. Attach the C-1C, C-10’s, a copy of the C-1, 501(c)(3), and two approved copies of the C-6A in this order and place all documents in a red out card. Place the red out card in your supervisor's in-basket. The C-10's will be collected by SOU, a new account number will be assigned, and the C-10's forwarded to Data Entry for keying. | |
| 10. A C-198 letter will be produced during the Tax Run and mailed to the employer along with approved copy of C-6A. SOU will send all other documents to Doc Log & Destroy. | |
| Notes: | |
| If a C-1 & 501(c)(3) exemption letter is received and the volunteer section is completed check the SER screen. If the SER screen has reports posted prior to the year employer wants to volunteer and they do not meet liability, the reports should be deleted. | |
| If a 501(c)(3) exemption letter is received on an account where liability is out of statute see Chapter 2 - "Liability Changes - 201.021 to 201.023". | |
